Tuesday, December 29, 2009

29/12: "Up in the Air" inspires a fresh blast of commentary from this neglectful blogger.

With apologies (to myself, probably the only regular reader, it must be noted) for the near- three fortnight lack of content, an absolute eternity in the blogosphere, I've decided to peck away about my recent experience of viewing the movie Up in the Air. As it's a much-awaited movie about frequent-flying, how could the movie possibly escape my comment?

And with luck, this shall be a new dawn for more frequent content generation on these pages.

**

While certainly not among the most profound productions in the medium, Up in the Air did leave me with some positive insights (into the human condition, as insights from the arts generally go) and, likewise, did inspire a fairly intense feel-good state of mind that stuck for the night’s remainder. The movie begins with stunning eye-candy that presents the most literal interpretation of the film’s title: scenes from up in the heavens, including angles on wispy cloud, from-altitude shots of the serpentine highways and downtown business districts of Midwestern mini-metropolises, mosaics of bucolic countryside as from 20,000 feet, meanders of the camera onto the criss-crossing patterns of runways at undefined airports.

And the visual pleasures for those with romanticized views of travel and aviation would continue, brilliantly so. One of the first scenes shows the protagonist, Ryan Bingham (played by George Clooney) at his home: the airport terminal. “To know me is to fly with me,” he says in a voice-over, as the camera tracks him at an American Airlines First Class check-in counter, then discombobulating himself in uber-efficient, almost lyrical fashion at the security screening checkpoint, and finally boarding across the red carpet lane (how else?) to take his seat at the pointy end of a Maddog American Airlines MD80-series jet.

Is this deliberate, extended view of the indulgent premium travel experience, this protracted, discerning contemplation in the manner of a grand genre scene of Velazquez or Michelangelo’s time, meant to be a labor of love, an exaltation of the seamless fluidity, the Swiss-like simplicity, the unexpected joy, that the travel experience at its apogee can be? Or is the message cryptically sinister?, the first brush strokes into the checkered colour of the protagonist, who viewers shortly learn to engage in a most-despicable profession, the ruthless and uncaring firing of people, many of whom have very bleak prospects of ever again turning their lives onto a positive trajectory, burdened by under-developed skills, advanced age, financial travails, etc.

Whatever the meaning of Jason Reitman, the film’s avant-garde, himself serial-flying director, the film proceeds to rapidly present ever-more insight into the life of the enigmatic Ryan Bingham, part admirable high-flying success story, the rest despicable and soulless automaton of inhumane “workforce rationalization,” and without sufficient love for fellow man to desire so much as a network of substantial friendships and perhaps a stable and intimate romantic relationship. Yes, viewers soon learn that Up in the Air refers not just to Ryan’s Sisyphean flying, nor even to the travels combined with the other-worldly feeling of the recently-unemployed, those who, in the midst of despair, uncertainty and grief, all of the sudden feel curiously groundless and adrift. The film title is actually a triple-entendre (at least!), for Ryan Bingham is also up in the air with regards to his relationships or, put another way, with that most fundamental aspect of humanity, inter-relations with one’s fellow women and men.

“Don’t you feel isolated?”, asks an irked family member of Ryan Bingham, frustrated that he remains reticent towards deeper involvement with the family, despite his sister’s approaching wedding. “Isolated?, I’m surrounded!”, Ryan quips into his Blackberry’s mouthpiece, gesticulating at the bustling, anonymous crowds all around, within the airport terminal. Yes, Ryan Bingham was again travelling. (“To know me…”). And yes, he was missing the point by a mile. While technically in ever-ongoing transit from public airport to populated aircraft cabin to bustling hotel lobby, where were Ryan’s real relationships? Who knew his dreams, for whom did he yearn while falling asleep, with whom did he catch up over beers or dinner?

And so, in a steady meander through seemingly never-ending product placements (American Airlines, Hilton and Hertz, you dogs!), airport / airline / travel porn (loved that suave, ‘wingletted’ Boeing 757-200, gingerly kissing the runway on landing before thundering down in gradual deceleration), and unfolding insight into the life and business of one Ryan Bingham, Jason Reitman serves up the meat of the film, the main-course inquiry: how do people relate to one another, and what might be appropriate?

One the one hand, there’s Ryan, up in the air, haughty and self-centered, untethered and mobile. The man, dismissive of human connections, replaces them with manufactured and corporate ones, for instance by seeing false community in the ubiquitous American Airlines adverts that thank customers for their loyalty. These stilted posters -- imagine, a corporation making friends with a human! -- are at once also genuine, as the airline does understand that frequent fliers tend to contribute inordinately towards the firm’s profitability, which is its ultimate end; yet, Ryan Bingham does nonetheless inappropriately allocate the few warm embers within his heart to such inanimate marketing.

Conversely, the supporting cast, though not as impressively accomplished as Ryan, is notably more receptive to forming and nurturing human relationships. Ryan’s sister and her fiancĂ©, both distinct underachievers, manifest the human longing to find love and settle down. Ryan’s newly-hired work colleague, the clever and confident-to-a-fault Natalie (played by Anna Kendrick), turns down superior job offers to follow a boyfriend to underwhelming Omaha. Even the seductress of Ryan Bingham, Alex (with Vera Farmiga acting), a character initially appearing as Ryan’s female mirror-image, owing to her own exhaustive travels and irreverence of more prudent social norms, is actually a married woman and mother. Granted, her failure to reveal these crucial details to her lover are a serious (but separate, I’d argue) matter.

In summary, Up in the Air abounds in giddiness-inspiring scenes for the travel junkie while also provoking serious thought on the very consequential issue of human relationships. It’s a film to which I’ll certainly wish to return in subsequent writing!

Tuesday, November 17, 2009

16/11: Stocks soar on a bullish retail sales report. Also, words on Wicker Park!

Before this evening's tardy report on Monday's market action -- a happy day, with strong gains in my desk's prop trade -- a few tangential words.

**

The past few days, to which some readers of this living document can attest, have seen the author make a significant discovery of a vibrant, uplifting neighborhood just down the life-blood Milwaukee Avenue from more usual haunts. These new environs are Wicker Park / Ukrainian Village. And what an emphatic improvement on my hitherto-frequented portions of the city: Jefferson Park, Portage Park and Six Corners! This near-northwest side district boasts independent, cutesy coffee shops (if one knows where to peek); young, purposeful people on the sidewalks; sushi spots and legacy Polish bars in unlikely side-by-side existence (this area used to be the primo Polish 'hood). I could go on, and should, yet it's a topic for another day.

In sum, I've energized my routine during the last few days by repeatedly returning to this oasis of existential salvation; and upon this fortunate scapegoat and the associated investments of time, the most precious resource of all, I project the blame of my missing Monday report. Yes, such is my story!

**

Monday's markets, in any event, witnessed soaring equities trade in the United States and its geographic precursors into the new trading week. A bit of keyboard tickling about these foreign locales and their trading: It's interesting to note that the forex markets, some of which I recently started tracking closely -- (even though I can't trade them at present, currencies' pronounced correlation of late with equities merits keeping a close eye on them and, in particular, upon the 500-pound gorilla of the group: EUR/USD trade) -- are only closed for some 48 hours a week: in roughly New York City time, no trade occurs only between late Friday afternoon and Sunday evening, when Monday morning trade in Tokyo commences. I mention this because, by Monday evening, nearly 24 hours of continuous trade has already elapsed on the world's interconnected, virtual marketplace -- a calming consideration to the trader primarily obsessed with the P/L of the local stomping ground, i.e. Wall Street, only. (I raise a guilty hand.)

Sentiment on Monday was buoyed by a bullish retail sales report released in the pre-market and, in the all-important technical analysis sphere, by the S&P500's durable break above 1100 -- prior attempts in the last few sessions were all short-lived -- and the Nasdaq's flirting with 2200. The last hour of trade, however, brought a sharp, though not menacingly deep, correction catalyzed by the caustic comments of noted banking industry analyst Meredith Whitney, which were carried by that quintessential soapbox of market-makers, CNBC. Ms. Whitney, in her infinite wisdom, -- she did, after all, delphically prophesy the banking industry's existential crisis as early as October 2007 -- proclaimed on Monday that she's currently more bearish on banking than at any time in the last year. Why? I haven't seen any reasoning behind her brash, hyperbolic pronouncement but, then again, missed the CNBC special. (I had seen a teaser and incorrectly assumed the forthcoming would be with the less-exciting Meg Whitman, the eBay founder).

The post-Whitney selling pressure, in any event, did not hurt indices by much more than a half percent, although the bite from the (hitherto soaring) value of my QQQQ calls was nonetheless felt. Whitney, 2; your fearless author, 0. Yes, I was already burned by Meredith once this summer, when my ownership of Goldman Sachs (GS) calls coincided with one of her trademark uber-bearish publications.

Charts shall have to wait for the next installment. In the meantime, a few brush strokes of Ms. Whitney (did I mention she's surely one of Wall Street's most attractive analysts?) --


Sunday, November 15, 2009

13/11: Friday the 13th is kind to equity markets

U.S. markets closed-out the week with modest gains. The S&P500 index advanced 6.24 points (+0.57%) to 1093.48 on November 13th while the NASDAQ outperformed with a gain of 18.86 points (+0.88%) to settle at 2167.88.

Intra-day high and low values for the S&P500 were 1098 and 1088, respectively. These levels for NASDAQ index registered as 2172 and 2157. Ten-day, hourly charts for both indexes follow, produced at bigcharts.com:



**



Notice, reader, how the NASDAQ has been outperforming the broader market -- a stark contrast to the pullback of late October and early November, when the tech-heavy index lagged the broader market. The NASDAQ, nearly nudging 2170 at Friday's close, is oh-so near its 10-day highs, while the broader market is about a percent removed. Also, the last session's MACD and RSI values for the NASDAQ are more bullish than those for the S&P500. And the 'naz' did not come as close to its 50-period SMA as did the S-and-P during lows of the last two sessions.

Given these observations, I decided during Friday's session to transition from COF puts -- which I unfortunately sold at a slight loss -- into QQQQ December calls. With this move, I'm betting on an advance in the markets and, in particular, in the NASDAQ index, as QQQQ is a so-called exchange-traded fund (ETF) designed to track that index. To conclude this evening's entry, I include a six-month chart of QQQQ for broader perspective:



And to add a post-script tangent, I'm presently moments away from the commencement of a screening of the Polish-language film 'Ile Wazy Kon Trojanski?' (How Much Does the Trojan Horse Weigh?), a 2008 release directed by Juliusz Machulski, at the Polish Film Festival in Chicago. (To readers of the Polish language, apologies about the lack of true Polish script in some of the title's letters.) Perhaps a few words of commentary will follow in the upcoming week?

Thursday, November 12, 2009

12/11: Market flips off the risk trade, but for how long?

Various asset classes moved in textbook-correlated fashion during today's exciting trade -- with the textbook being market performance of recent memory. The S&P500 declined a percent -- 11 points -- to 1087, after an intra-day high and low, respectively, of 1102 and 1085. In impressively correlated lockstep, the dollar advanced (the EUR/USD trade dipped from above 1.50 to about 1.484) and oil sunk (the front-month WTI contract closed under $77 per barrel). All these moves signal risk aversion: a drop in equities indicates risk aversion for obvious reasons; a rise in the dollar suggests weaning risk appetite as the greenback is a safe-haven currency and, furthermore, its appreciation curtails the carry trade, whereby a low-yielding asset like the USD is sold to fund the purchase of a high-yielding asset (the Australian dollar -- AUD -- is a recent favourite); and a decline in commodities prices, such as oil, points towards a risk-off sentiment among traders as an increasingly bearish appraisal of worldwide growth (and especially Chinese growth) would naturally entail decreased demand and lower prices for commodities. The usual ten-day chart of the S&P500 follows, courtesy of bigcharts.com:



In brief, my own trade today was auspicious, though it could have used more luck still. I exited the Vix Nov 22.5 calls which I had entered on Monday, as I found myself increasingly spooked to be holding a November-expiry option (which I shouldn't have entered at such a late stage). Lucky for me, the market was unexpectedly holding up the expected volatility on these options -- and hence their time value, too. I was able to sell at a decent profit.

Yet my timing was unlucky. I sold early in the 13:00 (CST) hour, as the markets seemed poised to gain ground (which would have caused my Vix calls to undoubtedly depreciate). But it was only a head-fake. Immediately after the sale, I left for an invigorating run at my gym and, upon returning, found the markets down a further three-quarters of a percent. But I'm not bothered by having left money on the table; trading is a profession of managing probabilities, and I acted in accordance with my best analysis. To end the day, finally, I entered a position in COF December-expiry puts, essentially placing a bet that markets will continue their decline into tomorrow's session. I chose COF (Capital One) as it pierced through a significant support level -- $38.75 -- just prior to today's close, which makes further declines more likely. I see support around $36.00. As for the S&P500, a decline to at least 1080 certainly seems plausible, which would in all likelihood afford me a profitable exit opportunity from the COF puts. A 10-day of COF follows:



Happy hunting! Give it 480 percent, your bestest! (Yes, the latter is a tribute to the one and only Martin Lukes of a-b global, suddenly resurrected in the pink pages. What joy!)

Wednesday, November 11, 2009

11/11: Veterans' Day trade is light and positively biased

Markets put in a tepid 390 minutes of trade today, with the S&P500 rising a half percent -- 5.50 points -- to 1098.5. Intra-day, the benchmark noted a 52-week high of 1105, and the day's low was 1094. Most of the session was just water-treading, however. The sprint north of 1100 occurred in the first hour and then swiftly atrophied as the U.S. dollar reversed earlier losses. Here's the customary 10-day chart:



Note that the MACD, Slow Stochastic and Relative Strength Index are all generally inconclusive or ambiguous.

This evening's post shall be abridged, and I will just add that the Vix performed quite unusually today, rising in the midst of overall market strength -- positive news for my calls, which I continue to hold. Generally there is a negative correlation between the markets and the Vix. And I do apologize for not supplying a chart tonight -- or even further information about this elusive entity of the Vix. To my knowledge, specialized software is generally required to obtain charts of asset classes beyond simple equities, and I haven't the stamina to drill around with screenshots from my own trading platform, thinkorswim from T.D. Ameritrade. That said, I shall endeavor to provide further information posthaste.

11/11: In the interests of free expression...

CNBC has today referenced a bombshell of irreverance, yet one that I -- an otherwise God-fearing believer -- must admit is spot-on. The composition in question quite creatively captures the public discomfort towards the almighty Lloyd Blankfein and his coterie of fellow Masters of the Universe over at Goldman Sachs, the bank recently described by Rolling Stones magazine as a 'great vampire squid wrapped around the face of humanity.'

Without further adieu, here is The Lloyd's Prayer:

Our Chairman,
Who Art At Goldman,
Blankfein Be Thy Name.

The Rally's Come.
God's Work Be Done,
We Have No Fear Of Correction.

Give Us This Day Our Daily Gains,
And Bankrupt Our Nearest Competitors,
Just As You Taught Lehman And Bear A Lesson.

And Bring Us Not Under Indictment.
For Thine Is The Treasury,
The House And The Senate
Forever And Ever.
Goldman.

Tuesday, November 10, 2009

10/11: Equities tread water

For the stereotypical, adrenaline-fueled prop-shop day-trader, today's equity market action was surely a letdown. Markets neither continued their thunderous advance of Monday nor suffered from volatile profit-taking. Instead, the S&P500 declined infinitesimally to settle about where it stopped 24 hours earlier: 1093. Today's intra-day high and low were, respectively, 1096 and 1087. Yes, the trading range was indeed shy of one percent.

My strategy of holding Vix calls -- particularly as these are November, only slightly ITM calls, which have a relatively fast decay of time value at this stage of their life -- has therefore proven itself as ill-timed, although it may yet settle as profitable. A pull-back in the markets continues to look feasible; although, on the other hand, the post-March market rally has put together more vertiginous rallies than that of the past seven sessions. Adding to the probability calculus is tomorrow's status as a quasi- market holiday -- bond markets will be closed in honor of Veterans' Day, while the equity markets are to remain open for business; certain European bourses may have curtailed operations, too. Will the reduced volumes potentially amplify any upside or downside moves? Or will the tepid flow of money produce even more indecision than that in today's ennui-filled performance?

6-month and 10-day charts of the S&P500, courtesy of bigcharts.com, round-out this evening's update:



**



Get some sleep, traders of the world!

09/11: Markets shoot higher on dovish G20 comments

Markets maintained their moon-shot trajectory on Monday, with the DJIA vaulting to a 13-month high (10,227 to close; 10,249 intra-day) and the broad-stroke S&P500 appreciating 2.2 percent to close at 1093. That value -- only seven points shy of 1100 -- was likewise the intra-day high, while the day's low stood at 1072. Investors were cheered by a gathering of G20 finance ministers, at which market-soothing, dovish rhetoric proliferated. A 10-day'er of the Standard and Poors Five Hundred follows:



Although I am too pressed for time at present to provide a thorough explanation, notice the two indicators below the MACD: the Relative Strength Index (RSI) and, below, the so-called Slow Stochastic. Both are indicators used for timing entry and exit points and both, like the components of the MACD, are oscillators, meaning that they hug a mean of zero. Applying RSI and Slow Stochastic to the 10-day of the markets, both signal a significantly overbought condition, and the Slow Stochastic further hints that a turnaround might be imminent.

Which leads me, swiftly, to my own trades. I'm pleased to report that the C calls, purchased on Friday 11/6 and off-loaded during Monday's session, have been proven as an exceedingly prescient move. In fact, the trade merits the happy descriptor of most profitable in my career, in percentage return terms: 45.83 percent (earned overnight, no less) before commission and capital gains taxes. Now dear reader: I underscore this outcome because, after many losses along the path of my trading education, I feel I've earned this win. Also, I have clearly not risked thousands upon thousands of dollars on an exceedingly speculative options trade and, as such, 45 percent of a modest investment is not very much money. And, as a final point, for every impressive advance there often lurks an equally-menacing monetary setback.

And so today's trade (11/10; I write this report during my morning coffee injection, or so it sometimes appears to be, given its inviolable regularity and the extortionate margins reaped by its supplier: Buckies, in this case) shall begin in the next hour. I took a position in the last seconds of Monday's trade in Vix calls, which is a bet on market volatility, i.e. a pullback. Given the RSI and Slow Stochastic data I referenced above, the bet seems well-founded. But it's an old (and exceedingly wise) Wall Street adage that the rational investor can expect the market to remain irrational for longer than she can remain solvent. I do hope I haven't jumped into the risk aversion trade prematurely.

So far, so good though. I'm exceedingly pleased with yesterday's trade -- did I mention that I entered and exited the C calls at the respective trough and peak of price action? ;) -- but I'm mindful that a mountain of further work remains. As for today, stock index futures are pointing to a modestly lower open, good news for my Vix calls.

Good luck; ad astra!

Sunday, November 8, 2009

06/11: Markets are resilient in the face of a difficult U.S. jobs report: 190,000 jobs shed

With apologies to the reader for the delay in the production and publication of this post -- finally getting around to Friday afternoon's business on Sunday evening is distinctly reminiscent of long-gone high school days -- I am pleased to report that Friday's trade revealed the U.S. equity markets as resistant to downward pressures from further ill news from the anemic employment front.

The benchmark S&P500 index closed up a quarter percent at 1069, after descending as low as 1059 in opening trade (when investors provided initial reaction to the weak U.S. Department of Labor report) and tip-toeing as high as 1071. The jobs report, released sixty minutes prior to the market open, indicated that 190,000 jobs were lost in October and that the national unemployment rate had increased to 10.2 percent, crossing the psychologically important ten percent level. The number was slightly below economists' average estimate of negative 175,000, and the reading validates the improving trend of job losses over approximately the last ten months, with the hemorrhage abating from a nadir of about 800,000 monthly job losses. A ten-day chart, courtesy of bigcharts.com, follows:



I'd like to briefly call attention to the diagram below the customary price-vs-time chart in the above schematic. That collection of a histogram and two correlated lines (one blue, one red) is known as a Moving Average Convergence / Divergence indicator (known universally by its acronym: MACD), a tool used by technical analysts to test for attractive buying or selling opportunities. In brief, MACD generates 'buy' recommendations when a security's recent price movement (usually defined for this indicator as a 12-period exponential moving average, or EMA) is more bullish than the combination of both its recent price movement and its more dated price movement (usually defined for the MACD as a 26-period EMA). The underlying assumption in the above argument is that recent price strength correlates with future price strength. To explain the diagram then: the blue line is 12-period EMA minus 26-period EMA (subtracting one EMA from another 'normalizes' the plot, i.e. transforms the data into an oscillator with a mean of zero); the red line is a smoothing of the blue line, namely a (usually) 9-period EMA of the blue line; and the histogram is the difference between the blue line (the MACD) and the red line (the MACD Signal Line). A 'buy' signal occurs when the blue line crosses the red line from below, or in simpler terms, when the histogram goes from negative to positive. The signal is strongest when the 'buy' signal occurs while both red and blue lines are deep in negative territory. A 'sell' signal is the opposite, i.e. when the histogram goes from positive to negative. A Wikipedia article provides a more complete explanation of the MACD indicator.

To apply the MACD to the above 10-day chart of the S&P500, then, notice a 'buy' signal occurring late on Monday, 11/2, just prior to the beginning of a rally that lasted the remainder of the week. Yet there were other false warnings, for instance the 'buy' on the morning of Monday, 11/2 and the 'sell' on Friday, 10/30. It must be said that the MACD is not a silver bullet, although it certainly is useful when used in context with other technical analysis techniques.

My trade of Friday wrapped up with the opening of a long position (consisting of December $4 calls) in Citigroup (C), our government-owned bank. :) C is showing, on a 10-day and 3-month chart alike, a bullish consolidation pattern with a possible nascent breakout. I'm hoping for a pop to above $4.20+ in Monday's session; shares ended Friday at $4.06. Here is a pair of charts:



**



As a final note, forthcoming soon will be posts regarding two fantastic Chicago Symphony Orchestra performances I recently attended!

Friday, November 6, 2009

05/11: An ode to Metra. Also, markets jubilant; Dow re-crosses 10k. And, a brilliant evening at the symphony!

I make this evening’s post while comfortably ensconced aboard Chicago’s excellent commuter rail network, Metra. Before I commence the meat of this post, an ode to you, sweet Metra:

A maze of many lines, not modes, my Metra, a robust, reliable rail network you are! Rotund is your reach, and your rolling stock, too, has two levels of seating. But you run smooth, your pace swift as you race, kissing the rails. So superior are you to CTA, the sorry alternative, where shooters may silently lurk, which boasts interminable waits, where patrons are shuttled to sorry, sullied districts. Metra! Oh, an altogether amicable, amazing alternative! Brilliant, beautiful, the antithesis of belligerent bellicose; I beam when we blissfully be. So be!

**

Winding our way to Clybourn, I’m pleased to report that markets rallied strongly in today’s trade, with the S&P500 closing above 1060 and the DJIA settling just over 10,000, under which it hovered for most of today’s session. Today’s trade was an exuberant release of collective enthusiasm over yesterday’s Fed decision, after it sunk in during the overnight. Yes: monetary conditions are blissfully loose, and so they shall remain for a good, long while. There could not be a better cocktail for equities.

Forgive me, reader, for a dearth of supporting evidence (read: charts) to the above claims. You’ll just have to take my word for it. Or wait for tomorrow’s 10-day!

My own trade was positive today, as I have had a position of call options. Perhaps a bit of primer on these instruments is in order. Well then:

Options are a Chicago contract. Financial engineering, of which options contracts are a chief example, have a rich history in this trading capital of the then-developing world. Nineteenth-century Chicago traders began the financial alchemy heritage by refining the futures contract, a method for actual producers and consumers of various commodities to hedge their exposures to the risk of fluctuating prices. The hub for these instruments became the twin pillars of the Chicago financial establishment: the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME). Both still operate to this day!

Now flash forward a century. With the death of the worldwide gold standard in the early 1970s and the concomitant increase in the volatility of currencies, there became a market need for hedges against currency volatility. As with wheat or lean pork bellies, there were naturally short market participants (e.g. manufacturers and exporters in the home country) and naturally long ones (e.g. manufacturers and exporters in foreign countries). Hence, currency futures were born.

Not ones to miss a market opportunity, the whiz Chicago boys next set their sights on a hedge against volatility in equities: the humble options contract. An option is nothing but a contract that, when bought from a seller in exchange for a fee, gives the holder the right -- but not the obligation -- to buy or sell a particular security at a particular price, termed the strike price, on or before a particular date, called the expiration date. (A technical note: so-called “American” options can be exercised on or before the expiry date, as noted above; “European” options, in contrast, can only be exercised on the expiration date.) The term ‘option’ owes its name to the fact that its holder can either exercise the contract or allow it to expire sans exercise -- hence, there exists an inherent option. As with stocks, options have healthy trade on a secondary market, meaning that a trader need not take an options position with the aim of actually exercising it; instead, he can sell it prior to the expiry date, hopefully for a higher price.

But enough about options for the time being. Back to today's trade: my MOT and SLB calls both appreciated, and I sold those based on the shares of the former, mainly to trim risk exposure before tomorrow morning’s much-anticipated jobs report. I dare say that I should even have sold the remaining calls too, yet by holding them I can at least enjoy some upside if the jobs report pleases (but, of course, I’m also exposed to downside disappointment).

Here’s to hoping for a jobs number tomorrow morning better than negative 100k! And thoughts regarding tonight's (brilliant!) Chicago Symphony Orchestra performance shall have to wait until tomorrow; apologies!

Thursday, November 5, 2009

05/11: Travel tidbits!

My erstwhile intention for this blog was to create a forum for more than just trading discussion. With this big-picture in mind, allow me to share in this post some of my most valuable travel resources, ranging from online tools, to communities of travellers, to insightful blogs.

Before I embark, however, allow me to present an overview of my involvement with the realm of travel. A product of Chicago's Northwest side, I grew up with a steady stream of low-flying aircraft on arrival to the then-busiest airport in the world, O'Hare; airplanes were a part of my daily milieu. Moreover, my father was a one-time airline mechanic and glider pilot, both decades ago; hence, stories about the field (aviation) and business (airlines) were omnipresent. Day-trips for us included jaunts aboard Chicago's Blue Line to O'Hare, where we'd clear security and walk the terminals, my dad serving as guide and noting the difference between a Delta DC-10 here and a United 727 there.

My travel interest jumped into an altogether higher gear during the sophomore and junior years of high school, when I became cognizant of and excited about managing my dad's and my own frequent flier accounts. Neither of us was a frequent traveller by any means, yet my father began using an airline-branded credit card and I, too, was seeing more intensive mileage accrual by virtue of VFR (visiting friends and relatives) trips to Europe and some domestic travels for skiing or introductory scoping-out of colleges. At this time, I developed affinity for United Airlines and the Star Alliance. Given my relatively meager quantity of mileage-earning possibilities, it became imperative to focus on one travel program, and United won-out thanks to a heavy Chicago presence, partnership with Lufthansa, LOT Polish Airlines, and SAS (carriers that were most conducive to my VFR travels), and certain emotional goodwill earned by the airline's artistically inspirational Gershwin-based advertising campaign and avant-garde O'Hare terminal, particularly the psychedelic neon-light and surreal audio (I'm mindful of croaking frogs meet a Steinway, for some reason) of the inter-concourse, under-tarmac walkway.

Finally, and as indicated in earlier posts on this blog, my travel interest really took-off (apologies, urbane reader) with commencement of mileage running during my freshman year of university. Whether this pivotal move, which led to flying -- and especially the labor-intensive search for airfare deals -- becoming **at times** a psychological crutch and/or an avoidance mechanism, was utility-generating or -destroying is up for debate. It's undeniable, however, that my move towards flying one hundred thousand miles (and up) per annum was monumental in the development of my interest in travel and airlines. The experience has been profoundly instructive, and I shall now endeavor to share a sliver of the online resources, communities and blogs that I personally find most value-creating:

**

Online resources

Without a doubt, the greatest online travel resource I've come across is ITA Software, a powerful booking engine through which an advanced user can conjure up elusive travel options according to her criteria. (Note: If clicking on the above link, choose to log-in as a guest.) What about Orbitz, Expedia, et al, you might ask, and rightly so. ITA is head-and-shoulders more powerful than any other booking engine, but only if the user takes the time to learn its jargon -- which, incidentally, is too much for this post, but can be accessed via the 'Help' link on the site and, additionally, on Flyertalk.com, the subject of the subsequent paragraph.

Online communities

Forgive me, dear reader, for the audacity of including but a single resource in the above, plural-labeled 'Resources' section. I shall not cheat you in this section; I promise. The most important online community in the travel universe is undoubtedly Flyertalk.com. The website is a hub for travel geeks -- and, after having met dozens of site users, many are indeed 'geeky'! -- yet one should not be put off by that veneer. Flyertalk is awash with travel-related tips and tricks, and the treasure trove of information is conveniently arranged on message boards grouped according to specific travel program, e.g. United Mileage Plus, Starwood Preferred Guest, etc. The community can be a tremendous resource; yet, that rose of information is surrounded by unusually vitriolic thorns of waste. In my experience, Flyertalk can become addictive and ultimately utility-sapping (as can any endeavor-turned-addiction), and the travel aficionado should be on perpetual guard.

Another interesting community is airliners.net, a hub for minutiae relating to airline operations and strategy, and also the online mecca for aircraft photography. I've less experience with airliners.net, but I do sometimes venture there for insightful analysis of airline news.

Travel blogs

It's risky to make recommendations on travel blogs, as this category is most temperamental and volatile. Blogs pop-up constantly, and the majority have Lilliputian half-lives (and lives). That said, I value the contributions of One Mile at a Time and Wing and a Prayer. Neither is everything to everyone, yet One Mile is valuable for its breadth and Wing earns accolades for literary flair (an accomplishment that's certainly rare for the dime-a-dozen format that is the blog).

Thanks for reading!

Wednesday, November 4, 2009

04/11: Markets volatile after Fed statement; end at lows

To follow-up upon my earlier post of approximately 1:10p CST, U.S. equity markets responded to today's FOMC statement by rising to touch session highs of the AM trade, and then promptly turned around to plumb fresh intra-day lows into the close. The S&P500 settled at 1047, near its intra-day low of 1045; the intra-day peak was 1061. Note, reader, that today's tumultuous trade took the index above and, then, below its 50-hour SMA:



Prima facie, it's hard to find fault with the Fed's policy decision and accompanying statement, and I certainly can't provide a coherent explanation to explain the topsy-turvy trade of today's final one hundred and five minutes. The body decided to leave interest rates unchanged, as expected, and furthermore issued an exceedingly benign policy statement, going to great pains to underscore that inflation expectations remain low and that loose monetary policy is yet to continue for an "extended" period of time. What more did the markets want to hear? Or might so much accommodation actually be spooking the markets, giving the impression that recovery may be more nascent than conventional wisdom suggests?

My own positions today delivered moderately negative results, and I continue to hold Tuesday's acquisitions -- SLB and MOT calls -- into tomorrow's session. Shares of both firms declined less than one percent, and Schlumberger even dazzled with an impressive (but ultimately fleeting) intra-day advance, and I remain optimistic about the near-term potential for both securities. MOT calls seem particularly poised, with open interest increasing smartly over the past few sessions. Happily, prospects for tomorrow's market open may be favourable, as Cisco reported street-beating figures after today's close of trade and its shares have advanced three percent after hours.

04/11: FOMC day!

The briefest post in the history of this fair blog: the FOMC decision is coming within the next five minutes. Will stocks shed the remnants of the pullback of the last fortnight? Or will the Fed language be greeted with a renewed bout of selling? Based on technicals, I'm expecting an up move, as markets remain slightly oversold and anxiety permeates the mood, but anything is possible.

Tuesday, November 3, 2009

03/11: Risk aversion & bullish sentiment fight to a draw

World markets noted an exciting November 3rd. Exchanges across Asia and Europe witnessed a sharply negative day, many down two percent, albeit with the notable exception of the Nikkei, as Tokyo celebrated a public holiday. Futures signaled a lower open in the U.S. too, but the morning States-side was saved by news of M&A in railroads. And not just any acquisition; the esteemed Warren Buffet is buying Burlington Northern Santa Fe (BNI) in a cash-and-stock deal that values the railroad at a nearly 33% premium over its close of Monday, November 2nd. And BNI is no guppie; its market cap is 33B (although I'm uncertain whether that is based on Monday's close or today's 27% higher one). The S&P500 would end today's session up nearly 3 points, or about a quarter percent, to 1045.

Obviously, the M&A news gave bulls fresh life. Yet the Buffet announcement was far from the only source of fireworks during today's trade. Critically, gold shot higher to close at a fresh record of over $1080 an ounce, on a strengthening dollar no less. Front-month oil futures also advanced nearly $1 to just over $79 a barrel. It's important to note that the strong correlation of late between rising equities, a falling dollar, and rising gold did not hold today. Of course, trade this week can be expected to be somewhat abnormal, with critical news due tomorrow from the Federal Reserve Open Market Committee (FOMC) on interest rates (less important; no rise is forecast) and outlook (far more important; will the policy statement be dovish or hawkish?) and Friday bringing the all-important U.S. unemployment figure (a number in the neighborhood of negative 100-150k is expected).

What's in store for the rest of the trading week? From a technical perspective, upside moves remain a strong possibility, especially for those leading stocks that declined only moderately in the last fortnight and that have built bullish bases over the last few sessions. I've picked up calls in one such stock, the Houston-based, oil services firm Schlumberger (SLB). A 10-day chart follows, and the reader should note the following bullish features: A) an inverse head-and-shoulders pattern, with the left shoulder (first dip) at the close of trade on Wednesday, 10/28 and on high volume; the head (second dip) at midday on Friday, 10/30, likewise on high volume; and the right shoulder (third dip) at midday on Monday, 11/2, and critically on lesser volume; B) a cross of the 50-period (i.e. 50 hour) simple moving average (SMA) today, from below; and C) a break upward from the downward price channel of the past 10 sessions.



I've also purchased calls in Motorola (MOT). This firm is being buoyed by the forthcoming launch of the Droid smartphone, a supposed 'iPhone killer', and as such, the stock is one of few today (after several sessions of overall market correction) that has a hands-down, strongly bullish chart pattern. Note the explosive volume of the last four sessions, the decisive break above the 50-period SMA, and the bullish trending of the last four sessions:



Finally, I include a 10-day of the S&P500. Several items of interest. First, the S&P500 has been rather markedly outperforming the NASDAQ 500 (not pictured) during the correction of the last two weeks. This is partly expected, as the NAZ has a higher beta and, as such, would tend to decline in a more pronounced manner; yet technology has been a market leader during much of the last months' rally, and as such, its relative performance (vis-a-vis the overall market) might be expected to persist into the correction, not reverse. Does this loss of leadership also portend the end of the overall rally? Aside from this (over-fleshed-out) point, note also that the S&P500 seems to have consolidated over the last few sessions around the 1030-1045 area; could this be a durable support level? Yet all this analysis is ultimately for naught; the FOMC and unemployment data are the 500-pound gorilla in the room, and these will ultimately move the market during the remainder of this trading week -- and perhaps set a course that shall be sustained throughout the rest of this month.



Happy trading!

03/11: Insight into my trading day template

As mentioned in this blog's introductory post of several months ago, behind your laptop display, LCD flat-panel, iPhone screen, or CRT monstrosity, dear reader, sits a Georgetown University student, although that's where the easy characterizations end. This brief post, after a few more words of auto-biography, shall touch upon my current methods -- and these have changed markedly over time -- in my current full-time occupation of trading on the U.S. equity and options markets.

A Georgetown University student by title, I am not taking any university courses this semester, nor do I anticipate taking any at Georgetown during the upcoming semester. I am pursuing a School of Foreign Service undergraduate degree -- not in finance as might be expected, but rather in the syllabic monstrosity of international political economy.

And so I am a maverick, self-employed trader, riding onto the lawless fields of risk and relative value. And that is tongue-in-cheek, it must be clarified. Although I do legitimately enjoy learning about and participating in the markets, and although I am firmly committed to making a profitable living from them, I do not consider my occupation any more glamorous, chivalrous or worthwhile than a whole host of others, not least of which is the happy, frugal and euphorically intimate relationship that ideally exists between a student and her endeavors. And I'm genuinely restless for the day when I will return to that role. But for now, I must make the markets my love. And 'make' is key: my current occupation is entirely a factor of my motivation and drive; it is what I make it to be.

In brief, then, I presently endeavor to begin my days at an early hour, before the sun rises. I have breakfast and am soon out the door, bound for Starbucks where, day-in and day-out, I religiously arrive around 7-7:30a, order a tall-in-a-grande cup bold coffee, and enjoy the drink with a copy of the day's Financial Times. I next sprint back home and load-up my three computers.

Yes, I concur this seems a bit outlandish, to work on three computers (actually, four total displays, as one of the computers has an auxiliary screen hooked up). Yet, following the markets requires a participant to tap information from a variety of sources, and the multiple screens facilitate this greatly. Furthermore, some of my information sources, particularly the thinkorswim trading platform and the software for streaming quotes, requires a fair amount of processing power to run smoothly; and thus, having software spread across three processors and RAM bundles is a significant aid. Finally, the networking requirements are solved with a simple wifi cloud connected to a high-speed (the greatest of four speeds that my phone company offers) DSL line.

To return to the narrative, I am at my desk of three machines well before the market open. And here's where the regularity ceases; every trading day is different. Some are more active, in which case I'm glued to my streaming quotes, news reports, and CNBC chatter with little down-time. During such days, I might print out dozens of physical (i.e. on real paper) charts, so that I can then mark these up with a galore of trendlines and bulleted thoughts. On other days, such as today, I'm away from my desk during times of market action, for instance to make a blog post at Starbucks (and conveniently replenish the caffeine tanks).

As is hopefully clear, my current trading days -- which are, first of all, an ad hoc aberration to my role of student -- contain deliberate structure and considerable activity. As a final point, the above-expounded modus operandi is certainly not without many improvements over my methods of earlier months. Perhaps that's a worthy topic for a future post...

Thursday, October 29, 2009

29/10: Markets rebound smartly, buoyed by strong Q3 US GDP data

Almighty Goldman yesterday forecast a US third quarter GDP reading of +2.5%, below the consensus forecast of +3.0%. Today, at precisely 8:30a Eastern, a serving of humble pie was delivered to 85 Broad Street. At this time, the wires lit up with the true number (granted, the initial estimate only) of +3.5%, and microseconds afterward, buy orders flooded the market. And some surely emanated from Goldman's HQ on Broad, too.

Humility was delivered to my workspace this morning, too. With the bullish GDP reading, my last-minute (literally) investment in AA puts during yesterday's market was proven to be a mistake. Yet, I can fall-back on buttressed logic in that decision, at least. What's worse, I still have the puts now. That's right; I did not sell. And I don't have a good reason -- besides, of course, for that common psychological impairment inherent to all humanity: reluctance to book a loss. Hope does indeed spring eternal.

Tomorrow I will surely examine my continuation of this long-short strategy; as a reminder, I continue to hold QQQQ calls alongside those AA puts. I see today's decisive rally continuing through tomorrow's open, but then it risks fading absent further stimulus. We may yet see a re-test early next week of Wednesday's lows. Thus, I may execute a strategy of selling the QQQQ calls if a short-term top appears to form and then hope for price deterioration to advantage my holding of puts.

Finally, here's a 10-day of QQQQ, which approximates for an overall market snapshot, too:

Wednesday, October 28, 2009

28/10: US Airways tries downsizing to profitability

In a departure from usual protocol, I'd like to offer a few words regarding US Airways' afternoon announcement that it would pare flights in a bid of finding superior profitability as a smaller airline.

First off, I am highly skeptical of the general strategy of shrinking towards profitability, particularly in an industry with the lengthy lead-times towards changes in output that is airlines; and this skepticism extends to the current US Airways strategy.

US has decided to eliminate several international routes from its Philadelphia hub, including Beijing, which was to be the airline's flagship route (it was yet to launch) but is now stillborn. The other international flying on the chopping block has all been in service, unlike PEK, though it mostly features second-tier European cities or airports (e.g. Birmingham, Shannon, Stockholm, London-Gatwick). Also suffering will be Las Vegas, once a proud hub (before the housing bust, to be sure) for pre-merger America West Airlines, that is now headed to only 36 US Airways daily flights from a current 64; several cities will lose nonstop US service to LAS, including my home airport of O'Hare. One cannot but observe (somewhat cynically) how US has incrementally decimated LAS in the manner that, earlier this decade, it cut-off hub services at Pittsburgh.

This move makes US easy to summarize in only a few bullet points.
  • Focus on only four metropolitan areas: two, Charlotte and Washington, DC, are vibrant and recovering; one, Philadelphia, has an uncertain near-term fate and possibly decreasing relevance in the longer term; and the last, Phoenix, is on economic life support.
  • Strength in the Shuttle product between LGA-BOS, LGA-DCA and DCA-BOS.
  • Industry leading cost-cutting and de-bundling of services.
As a whole, US does not look like a particularly warm-and-fuzzy airline right about now. In fact, with its becoming ever-smaller, US does take on the appearance of a take-over target. Perhaps the Tempe, AZ management is just looking for a white knight to line their pockets (LCC stock, as always happens with airline shares in general, is in the pits). In any event, yet further cuts at US -- whether to the network, to the workforce number and/or compensation, or to the product -- make it even less likely that I would step onto a US aircraft by choice.

28/10: Markets lurch downward; NASDAQ suffers worst fate, down 2.67%

Markets today reminded traders of why the month of October has a brutal reputation for returns. The NASDAQ plunged 2.67% on heavy volume (2.65B), while the broad-based S&P500 surrendered 2% to 1042 and the DJIA slid 1.2% to 9763. The wide divergence in performance amongst these three indexes is striking, although not altogether unexpected: downward lurches are inherently accompanied by upticks in volatility, and NASDAQ components do have greater beta values than their DJIA counterparts. Also, the DJIA is a poor index due to inappropriate weighting of its components and its being based on only thirty stocks. One year charts, courtesy of Bigcharts, follow for the tech-heavy NAZ and for the trusty S&P, respectively:



**



My own experience today was one I'd rather forget: sharp losses on the back of a significant long position in November $42 QQQQ calls. For those not in the know (and I qualified as recently as a month ago, I'm almost ashamed to admit), QQQQ is an ETF -- an exchange-traded fund -- that seeks to mirror the performance of the NASDAQ-100 stock market index. Curiously, however, the correlation is not a perfect 1.

Of course, experiences like that of today are what ultimately lead to improvement in trading judgment and skill. Battle-wounds educate about the risks inherent to the market, reveal areas of theoretical weakness, and sharpen resolve (after one recovers from the chagrin and disappointment). Here's a 10-day of QQQQ; due to the strong, positive correlation between QQQQ and the NASDAQ and S&P500 indices, the chart is also an approximation of overall market activity during the time-frame:



After bearing the full brunt of QQQQ decline throughout the session, I did liquidate a part of my investment for the joint purposes of limiting risk and financing a new position in November $11 AA puts. This is a risky strategy to be sure. AA -- Alcoa, the behemoth aluminum firm -- closed today at $11.92 after a very significant decline of over six percent, on very strong volume to boot. Here's a 10-day of AA:



Yet, the move was soundly thought-through. After today's sharp decline, further deterioration at tomorrow's market open is a distinct possibility on 'technicals' alone -- that is to say, based on the dubious insight of only technical analysis. Quite simply, markets often extend the dominant trend of the prior session into the opening minutes of the new day, and this is particularly pronounced during sharp price movements that are accompanied by significant volume. Furthermore, tomorrow morning (pre-market) shall bring the release of U.S. 3rd quarter GDP growth, a critical value for the markets. Any disappointment will certainly exert tremendous downward pressure on stocks and may incite an immediate drop of 1 or 2 percent. Without the AA puts, I'd face a further precipitous decline in my account value (due to those ill-timed QQQQ calls) in the event of a poor GDP value (say, anything under +2.5%). Note, dear reader, that the market consensus is between +3.0% (many) and +2.5% (Goldman Sachs, as revealed today).

That said, the puts can certainly back-fire, and in a particularly acute manner to boot, given they're already fairly deeply OTM (out-of-the-money). After a decline of today's manner and magnitude (i.e. a decline where both the first and second derivatives of price are both negative, and where the decline occurs on sharply increased volume), in both AA and the general market, the risk of a reversal to the upside is considerable. Any upward reversal will bring sharp deterioration in any OTM, near-dated puts. Which are precisely what I now hold.

But, on the plus side, my overnight position is fairly well leveraged, with QQQQ calls providing upside gain and AA puts offering downside profit. My ideal move for tomorrow's session would be disappointing GDP figures leading to a sharply lower open, which would provide a handsomely profitable exit for the AA puts; followed by an appreciation of the market over the next one or two sessions from highly oversold levels, which would nurture recovery in the value of my QQQQ calls.

Good luck on tomorrow's markets!

Monday, October 19, 2009

19/10: S&P500 breaks 1100 in bouyant intra-day trade

Apologies to the devoted regular reader -- all zero of you -- for the absence of posts within the last week, and for a dearth within the last fortnight. I've been abuzz with various tangential activities, not least being business with Georgetown that required a trip for various meetings in Washington and New York. Now firmly back in Chicago, however, I take up the task of trading with greater fervour than before. Here, in the fertile lake-side lands of the CBOE and the Merc, near the hallowed corridors and libraries of the eponymous (vis-a-vis the city) University, within the milieu of former stockyards and current derivatives houses, all greased by the utilitarian surroundings of transport, weather and sports teams (with regards to any of these, nothing over which to get terribly poetic, but yet they all 'work'); here, I cast my net.

On a personal note, I've recently upgraded my technological capabilities relating to work. The proud father of a netbook (really, it's quite revolutionary, v/v value and mobile opportunities), I now work on three screens at once, armed with streaming information everywhere from the invisible glow of a newly established wifi network. I'm also better armed for mobile blog posts from the road (in my case, generally Buckies, er, Starbucks).

And so it is tonight. But now down to an abridged report on today's markets.

Euphoria reins supreme, the markets are heading upward with little hesitation and even less volatility, and 52-week highs are noted as easily as major psychological resistance levels (i.e. round numbers vis-a-vis the benchmarks) are neared and broken. In short, the need for vigilance is higher than ever. A pull-back -- possibly sharp -- is a real possibility; but in the meantime, profits from long positions may yet be plentiful.

The main story today was the S&P500. The index, after an open at 1088 and an intra-day low near 1086, reached an intra-day high around midday of 1100.17 before pulling-back marginally to close at 1098. Very bullish, needless to say. Yet the bear case cannot be ignored, as presented with a broad-stroke in the above paragraph. Worth adding: some analysts were going on record during the summer, when the rally was far more nascent, that the upward thrust may vault the S&P to the vicinity of 1100 or 1150. Caveat emptor. From the usual source:



I shall cut the analysis short and halt here. For one, I am seeing the Coen brothers' newest release, "A Serious Man," in a mere 10 minutes, and the cinema is about a dozen miles from my present location (Highland Park, IL versus Skokie, respectively). Furthermore, I sat out today's market and hence lack personal trading anecdotes which I could relate. Subsequent updates shall touch upon last week's trading -- the good, the bad, and the ugly. You deserve all the meat, dear reader.

Friday, October 9, 2009

09/10: Markets close near YTD highs

U.S. markets positively closed out an impressive week that has brought indexes to just below their intraday highs for 2009. The S&P500 closed at 1071, with an intraday high and low, respectively, of 1072 and 1063. As indicated by these numbers, there was little volatility during today's session, as might be expected with the markets edging up to major resistance. For reference, the Dow closed today at 9865, with I-D H/L values of 9865 (as with the close) and 9765, respectively. A 10-day'er of the more comprehensive benchmark follows:



My own trading today has been extraordinarily unremarkable. I did, in fact, not give a cent of commission to my broker today, and I am holding into the weekend the same GS calls ($190, Nov) that I owned at market open.

Goldman Sachs has consolidated today within a tight range. This action appears cautiously bullish, particularly as the stock price has clearly broken out of yesterday's downtrend. GS is no longer completely over-extended from its advance from $176 (which began a week ago, on Friday, October 2) and instead has a floor from which to attack the $198-205 range. Critically, the upper end of this range represents significant resistance off the 2-year chart. Perhaps next week might see a capitulation rally to the upper end of that range? In any event, Goldman Sachs will release its third quarter earnings report on Thursday, October 15, which may spur buying in the lead-up (and appreciation of options due to an uptick in implied volatility). A 10-D of GS:



This will wrap up tonight's post. On a personal note, I'm rather exhausted after a trying week, although I am heartened to be ending it on an upswing. I'm also still under the melancholy, introspective influence of a terrific film that I saw this evening: "The Boys are Back."

Best of luck this weekend! I have a stack of books on derivatives & technical analysis and am hoping to make progress on at least one or two; this is in addition to obligatory savouring of the Weekend FT and weekend NYT editions.

Tuesday, October 6, 2009

06/10: Bulls continue the charge; 52-week high for bellweather Goldman Sachs

Markets today extended their impassioned reversal from the pullback of last week, with the S&P500 crossing back above 1050. The intra-day low, high and close for the index were, respectively: 1042, 1061 and 1055. Here's a ten-day chart from bigcharts.com:



Stepping back for a moment, the story of the markets for the past few sessions has been one of uncertainty. Is the economy really in a V-shaped recovery? Are we headed instead for a double-dip recession? Or where in between those opposing diagnoses do we really lie?

Last week, of course, witnessed the publication of several disappointing economic indicators, including poor numbers on Midwest manufacturing activity, in the general ISM manufacturing sentiment index and, finally on Friday, with the September unemployment figure.

This week, in contrast, the mood has been more buoyant, and chiefly due to Monday's release of an upbeat services sector ISM reading, at 50.9 (where values over 50.0 indicate expansion). From a technical perspective, bulls may be headed for a capitulation rally, which would take the Dow to 10,000 or just a hair shy thereof -- at the very least. While I prefer the S&P500 for my daily market snapshots, there is no denying the immense symbolic value of the Dow's approach to and touching of 10k.

Much hinges on the upcoming earnings period, which will kick into high gear later this month. Here, focus will be particularly sharp on companies' reported revenue figures.

My own trading of the past few days has been spotty, although my most recent transaction, entered on Monday and unwound today, has been positive. This particular position was a long in Oct $185 GS puts. And I was the definite beneficiary of a long-odds GS collapse in midday (earlier in the day, GS was busy setting fresh intra-day 52-week highs). I exited the puts near the intra-day low for GS on a gain of about 6 percent on the derivatives -- far better than the unrealized double-digit percentage losses that I faced immediately after the open. As the session wore on, GS rallied anew and I re-entered the puts position, paying $4.10 per contract. Going into the overnight, I'm sitting on a slight gain, although everything obviously depends on the sentiment of tomorrow's early trade. I'm looking to exit the puts expeditiously, as they are out-of-the-money (OTM) -- i.e. all time value -- with but two weeks until expiry of the contract. Aren't I a reckless one! :)

Here's a 10D of GS:



Good luck tomorrow!

Thursday, October 1, 2009

01/10: Distribution day; apprehension ahead of tomorrow's unemployment number

Markets took a dive today, with the S&P500 down just over 2.5%.

Since I last wrote, about 72 hours ago, the markets have experienced a tightly range-bound session on Tuesday and a steep decline on Wednesday (caused by a significant miss on the Chicago-area ISM index, which came both below expectations and also well below 50%, indicating contraction), though followed by near-complete recovery later in the session. And, of course, today's sharply negative session is the most recent data-point.

For today, then, the S&P500 opened at 1055 -- itself a point below yesterday's close -- and continued to drop, closing at its low of 1030. Here's a 10-day snapshot:



Since Monday's posting, I have had some unfortunate experiences with regards to my market positions. My GS straddle went nowhere, and I unceremoniously unwound the position. I also had overnight positions in Oct HOT and X calls, both of which proved ill-timed; I entered the former late on Tuesday and the latter into Wednesday's decline, but by the time I waited for the obligatory overnight period (distinct with regards to each respective position), each was underwater and I decided to unwind rather than risk further loss. At present, I am holding Oct $37.5 CTSH puts, which I acquired today, though well into the market sell-off; at present, these are showing a slight gain. Much rides, of course, on the sentiment unleashed by the Bureau of Labor Statistics employment report, due at 7:30a CDT tomorrow.

Here's a 6-month and a 10-day of CTSH, courtesy of bigcharts.com, of course:



**



Interesting to note is that I identified CTSH and entered my derivative position in rapid succession. Identification occurred on a screen of stocks with RSI values that dipped below 70 in the last prior session, with input of 2 sessions; beta values greater than 1.2; market capitalization in excess of $500M; daily volume over 400k; and price at or above $10. As such, the trade was rather impulsive; bear in mind, reader, that I was desperately looking for a suitable put candidate in the midst of intensifying market decline, while all the while holding a deteriorating position in X calls.

From a technical analysis perspective, CTSH looks prime for further pullback. On the 6-month and 10-day charts, it's clear that critical support in the vicinity $37.6-37.7 has been violated. The next support levels appear around $36.95 and $36.00. And, if markets should pull-back more aggressively -- which everyone is forecasting for quite some time already -- then support at $35, $33.9 and $32.75 might even be in play. But waiting for any of those outcomes would be very risky, indeed, and I'd probably be well-served to sell at the first or second support level approached, even if just to re-purchase the puts after the unavoidable pullbacks towards the upside. The only scenario in which it'd be advisable to hold would be a complete market meltdown following the BLS number, which is unlikely.

And a final critical point worth mentioning: if the BLS number surprises towards the upside, the markets remain well-positioned to make a run at their highs of two weeks ago. As such, I should sell the puts at a loss and enter calls in one or two leading stocks that are likely to lead the market higher, such as GS, metals/materials or technology.

Good luck tomorrow!

Monday, September 28, 2009

28/09: A one-way day: broad advance

Markets rallied in today's opening hour and then moved little for the rest of the session. The S&P500 opened one point ahead, which would be the day's low, at 1045; the high was 1065 and the close, 1063. Here's the customary 10-day chart, courtesy of bigcharts.com:



I am still in my trade of GS-based derivatives, which is admittedly becoming a rather stale position. The culprit for this stance, however, is my past weekend's overly ambitious travel schedule. I was exhausted yesterday for virtually the entire day, and my body required an above-average length of sleep during the last night to recover. Not that I didn't try to wake at a normal hour; to the contrary, however, I was not able to actually extricate myself from bed until the late morning, well into the market session. Dear reader, before you become too critical, take note that I'd slept less than five hours on each of the past three nights, and only one of those was in an actual bed.

In any event, I did miss out on the morning action in GS. And too bad, because I'd probably have had enough sense to sell my puts during a morning pull-back to below $179 around 10a CDT, given the background of a sharply higher overall market amid a flow of M&A announcements. As it stands, I made no transactions today and remain long in 185 Oct calls and 180 Oct puts. Unfortunately, GS closed today at $182.50, which is the theoretical nadir of value for my particular concoction of contracts.

Here's a 10-day of GS, and notice that today's intra-day high and low are, respectively, $182.78 and $178.66:



To re-emphasize, it's interesting that GS began the day weaker vis-a-vis the broader market. As the day wore on, however, the S&P stalled, while GS only strengthened. My near-term outlook is thus bullish, particularly in the presence of market strength.

My forward strategy, therefore, might be to wait for a capitulation rally and take a short position at that time. Yet, given that I foresee much stronger probability of near-term price appreciation than depreciation, it's rather clear that my present holding of both puts and calls is a mistake. (Be kind, reader; I wasn't in top form during today's session, as outlined above.) I should have taken a chance in having an all-calls position overnight. Yet there remains hope if I still believe, tomorrow morning, that the rally has room to run; I could sell my puts for 180 or 190 Oct calls (avoiding 185 calls to retain the option of selling my current holding of them during tomorrow's session, if the market should show signs of turning).

Friday, September 25, 2009

25/09: Volatile end to the market week; working and writing from the East Coast

Spring St, New York City -- Writing towards the tired end of an ambitious day, I find myself in New York. Markets continued their slide today, although with less certainty than in the prior session, though my zeitgeist, errr... chief stock of interest, -- GS -- fell with force.

First, the S&P500 closed at 1044 after climbing as high as 1053 and plumbing down as far as 1041. The usual 10-day'er appears next, excited chartist-cum-reader:



To tie my micro-level experience into the above macro-picture, I appeared at a Rosslyn (Virginia) Starbucks (known hereafter as Buckies) about a dozen minutes before the market open and was actively monitoring movements through about 11:30a (EDT today!), when I decided to sell my GS puts as the stock was touching (for the fourth time; should have known better) its 2-day sloping support level. It was the wrong move, which became apparent mere minutes after my sale, when GS proceeded to break through the support instead of bouncing convincingly upward. GS's bearish move was mirrored by selling pressure in the broader S&P500. To my credit, I spotted the danger right away, and despite the pressure of needing to make an exit for a lunch event at the K-Street-domiciled Center for Strategic and International Studies, I had enough level-headedness to purchase the puts anew, suffering a loss of $.15 per contract, or about 2.5%. I can live with that kind of punishment.

Now, dear reader, a visualization of GS's vicissitudes:



I did not return to market-tracking activity during the afternoon, as after my CSIS engagement, I had a meeting and some run-ins on the Georgetown University campus; and after all this, had no choice but to hustle back to DCA for a 5pm departure for LGA aboard the US Shuttle, US 2180 in my case.

**

Dear reader, Yes I did proceed to have a wonderful flight, with an overwing exit row window seat (10a, with no 9a and, hence, "unlimited" legroom) and making deliberate use of the Shuttles' complimentary alcohol priviledges. I even managed to peruse the day's NYT (always a treat), complete the KenKen puzzles therein (the 6x6 iteration, as it is the week's end, was rather challenging; but I was pleased to be done before wheels-up), and mentally rock-out to some European dance hits, reproduced in high fidelity by Bose' wonderful QC2 headset model (and thanks are due here to Poland's hippest DJs at Radiozet and their banker compilations).

**

Some final thoughts. A day like today, in which I'm exhausted from frenetic activity and taunted by missed opportunity on the markets, releases a cold shower on the flames of my ambition. Yet, so long as I remain diligent and thoughtful, these days are surely no more than light chop on a productive and enjoyable jetting experience. To paraphrase my captain of UA 600 earlier today, who brilliantly remarked on our flight time as "1h20m of pure aviation bliss", there surely awaits market bliss of my own -- and not just from realizing profitability, but also from acting intelligently, working tirelessly and learning, learning, learning.

Enjoy the weekend flights (JFK-SFO-PDX-SEA-ORD are on the docket for tomorrow) and city visits (Portland and Seattle on the morrow), and good luck with the markets come Monday!

Thursday, September 24, 2009

24/09: Markets continue march downward

Markets, after spending the first few minutes of the session in positive territory, continued the downward trajectory that began in the final hour of Wednesday's session. After yesterday's close of approximately 1061, today's vital numbers for the S&P500 were: 1063 (high), 1046 (low) and 1051 (close). A 10-day chart follows: (and note that I'll be using 10-day charts from here on out, as the bigger picture significantly aids interpretation)



My own trading centered on GS. I held Oct $185 puts that I purchased late into yesterday's session (and reader, recall how frustrated I was at my poor timing), and I was looking to unload them this morning, as I feared a reversal.

In poor form at the market open, I was acting rather impulsively and did not cultivate a necessary big-picture approach to the decision. Thankfully, I did not -- at least -- sell in the few minutes during which I'd have lost money on the trade, but I did little better, selling for a paltry 5% gain on each contract. In doing so, I went against my own analysis, which was predicting a re-test of Wednesday's low, at the very least. Instead, I acted with the impulse to book a gain, however slight, rather than waiting to watch it slip into the red, perhaps deeply.

I cannot fault myself entirely for having such an impulse, to take money off the table while in the green; nor can I even fault myself for acting upon it. Yet I must make a more concerted effort to cultivate methodological, big-picture, level-headed thinking, and with practice and time, my decision-making will naturally be driven more by these elements.

Here's a 10-day of GS, before I go any further:



Upset with my decision-making, I proceeded to spend the midday on the bike trails through Chicago's near-northern suburbs, putting in an invigorating 34 miles on the bike. Back at my desk for the final hour of trading, I entered a strangle of sorts on GS, buying Oct $185 calls and Oct $180 puts while GS was at about the same price. Of course, I was trying to enter the calls position while GS was low and, conversely, the puts position while GS was high. Yet with only a quarter hour to play with before market close, I did not manage to fulfill these criteria.

I will be looking to sell both types of options contract tomorrow, preferably early in the trading day when volatility is greatest, and naturally I will want to stagger the sales so as to make some money. If GS spikes up, I'll sell the calls and then, in the pullback down, I'll sell the puts. If GS spikes down, then vice-versa (I don't mean to be tedious here!, but I anticipate that, perhaps, someday some reader might not be fully informed about how financial products are traded).

**

Tomorrow morning, UA 600 awaits, my favourite flight in the universe of airline flights. ORD-DCA, at the crisp time of 6am, in a 757 no less. I'm looking forward to it, and to the rest of my ambitious travel weekend. Of course, I'll be trading tomorrow from Washington. Good luck!

Wednesday, September 23, 2009

23/09: FOMC communication sends shares down

U.S. markets spent today in a tight range of slight gains, until the 1:15p CDT release of the FOMC communique, at least. Post-release saw a push higher, but the last hour of the trading day witnessed an intensifying -- and very significant, I believe -- sell-off. Here's a one-day'er of the S&P500:



The day's open, high, low and close were, respectively: 1073, 1080, 1060 and 1061.

I am inclined to believe that the late-afternoon sell-off will continue into the open of trading tomorrow. Such is often the case with intense late-day action. Furthermore, many leading stocks witnessed their own dramatic, high-volume sell-offs in the 2p (CDT) hour, further supporting the hypothesis of a weakened market at tomorrow's open. The biggest question right now is whether the sell-off intensifies into a downtrend of several days, one that would take the S&P500 to 1050 or below, say to the region of 1020-30.

I held positions in Oct $6 LCC puts and was also long LCC shares throughout the day (both were overnight positions from at least yesterday) and sold both at approximately 2p, just before the downturn in the markets. Fortunately, I sold the puts at a respectable gain ($1.40, versus a $1.20 purchase price last week), while the position in long shares was a wash (sold for $4.68 versus an average purchase price of about $4.73). It's essential to explain that I entered the long equities position during yesterday's AH market, after which LCC dropped suddenly from a close of $5.23 to the region of $4.75, spawned by a news release of forchcoming fresh share issuance by the company. I took the long position, of course, because I wanted to secure the handsome AH profit (as I could not sell the puts in the AH market).

I do have a regret with the LCC trade -- that I did not exit the puts when LCC spiked downward to $4.40, a definite resistance level, during the beginning of today's market day. I, foolishly, was waiting for $4.20 (greedy, greedy!). Here's a 10-day of LCC:



Finally, I entered a position of Oct $185 GS puts during the market's sharpening sell-off of the afternoon. In minutes of extreme frustration, I tried to first execute a trade in $190 puts, but the price kept racing away and I was unwilling to chase it. Unfortunately, the price just would not come back, and I lost about give percent of the price over the course of a few minutes, all without managing to make the trade. Extremely frustrating, to miss out on such profitability in such a short instance. I switched sights onto the $185 puts -- but I made the same mistake again, though to an even greater magnitude. I tried a $6.15 bid when the bid-ask spread was about a nickel or dime greater, and I kept chasing unsuccessfully as the price of the underlying GS shares accelerated towards the downside. $6.30. $6.50. $7.00! And finally I got the bastards, but only for that rich price, a full 15 percent over what I could have obtained but minutes earlier. I was nearly trembling at this point.

Fortunately for me, the puts closed the session at a spread of 7.25/7.40. But I'm under no illusions that I might want to sell early in tomorrow's session, perhaps even into the anticipated decline at open to 183.00, where I might be able to fetch 7.50-7.70. The risk of a rebound to the upside is significant, particularly because I entered so late today. I don't know whether I can stomach much loss, particularly as it's going to accrue awfully quickly. A 10-day of GS follows:



Good luck tomorrow!

**

As the reader can see, it's been another extended period since the last post (though, at least, now measured in days, not weeks). I hope to pull together a string of consecutive days, going forward; perhaps -- if the stars should align -- I might even not miss a day for a good, long while. Ah, that'd be grand!

Thursday, September 10, 2009

10/09: A return to blogging

I take up the task of blogging again, after a long absence. No one has missed me, as my readership is myself, and my chief task in these pages shall be to catalog my work and thoughts regarding the markets. I believe that such systematic writing, on these public pages, will be of significant help.

To re-commence, then, today has been a notable day on the markets. The S&P500 and NASDAQ have both hit intra-day and closing highs for the year. The DJIA narrowly missed an intra-day high for the year, coming only a quarter point short.

Leading sectors have put even in a more dizzying rally than the overall markets. Financials and materials stocks, in particular, have witnessed "parabolic rallies," a personal term that I use to denote price change that has a positive first and second derivative. Another way of characterizing this movement would be to say that the stock's RSI value is very high -- probably over 70. Such is the case with TIE, in which I took a short position in the last hour of the market's trading today (to be precise, I am long in short-dated, deeply out-of-the-money put options).

I also have an ongoing long position in BAC puts, a bet that has been a thorn in my side for the past few days. I have a nasty habit of extreme reluctance towards closing losing positions, preferring to instead let them run. This foolish stance must be revised. I must continually re-evaluate any position regardless of my P&L, and exit when I no longer feel strongly about direction or probability. So it must be with BAC. If I am no longer bearish on BAC and feel that a pullback is imminent, I should sell the puts, even if it is at a loss.

I must forgive future readers -- id est, mostly myself -- for the unedited nature of today's and subsequent blog entries. I intend for these entries to be more-or-less of "stream of consciousness" in nature, and as such, there will be requisite imperfections in flow, argumentation, and choice of words. A perfectionist by nature, I cringe, but I must try going ahead with it nonetheless.

Tomorrow brings more than a big day on the markets. I will also spend the day travelling, with an early morning rail journey to Milwaukee's Mitchell Field, a late morning Maddog flight to Atlanta, a day in this capital of the Southeast, and a late-night 767 voyage to the City on the Bay. I haven't much sightseeing for Atlanta planned at present, as I've been preoccupied with the markets today; but I am looking forward to the visit all the same. More dramatic is my lack of plans / accommodations in San Francisco -- this, meanwhile, caused by a dearth of liquidity. Thankfully, the opening of business tomorrow will bring in a trickle, but barely enough to book a hotel and have a tad of spending money. And I'll still probably have to spring for a rental car. Tough times...

Sunday, April 5, 2009

04/04: The concept of Mileage Running

It's a Saturday night, I'm enjoying a glass of an earthy and nutty Bordeaux, and though an early morning alarm awaits, I'm quite in the mood to describe an endeavor that is simultaneously an important component of how I've spent my free time over the past few years, yet also seemingly illogical, boring and just-plain misguided (in the eyes of some illogical, boring and just-plain misguided critics, at least). I'm talking of the humble Mileage Run (MR).

What is the MR? A general definition might assert that it's a trip whose sole raison d'etre is the accumulation of frequent flier program benefits (chiefly redeemable miles and elite qualifying miles; more on the difference between these later). Yet oftentimes a MR may also be influenced by the actor's enjoyment of the flying experience or -- and this is anathema to some MR purists -- by a desire to enjoy the traveled-to destination for some days (or hours, or sometimes even minutes).

Illustration of my first-ever MR serves as an insightful example. The time was December 2004 -- n.b. December is the prime month for MRing, as airline elite-status-qualification periods typically end at the end of the year. A relatively heavy travel schedule over the preceding eleven months (keep in mind that I was a student at this point, not a consultant or Fortune 500 executive) had my United Mileage Plus account quite close to the first elite status level, Premier. To my youthful eyes, of course, Premier represented a hallowed flying achievement, which set my mind scheming: how could I earn this status in the few weeks remaining in the year?

And then it dawned on me. Just fly, stupid; somewhere, anywhere. So, I booked a trip from Washington to Fort Lauderdale, via Chicago to increase the mileage. Being a complete novice, I arrived at FLL in the late evening without plans for how to spend the night (I was to leave on a 6am flight the next morning). Naively, I hopped a bus into the city centre, but the area unto which I stumbled started closing down at the too-early hour of midnight. Desperate times call for desperate measures, so I dashed to another bus, this time bound for Miami, an area that surely never sleeps. But fate intervened; this being the night's last run for this particular route, the bus journeyed no further than the intermediate point of Hollywood, FL. Everyone off!

Terrified of how I'd spend the remaining hours of the night, I wandered to an area of town with some nightlife, but soon felt too awkward sitting on the public benches around the bars, settling instead for sitting on the curb before a 24-hour convenience store. I was periodically joined there by an assorted coterie of the homeless. Could I have actually revealed that I was foolishly spending the night in vagabond style because of ridiculous motivations for frequent flier status? No, I must have fabricated some lie when confronted with the obvious question: what's a guy like you doing here?

The experience thankfully ended without instances of violence, theft or other examples of gross discomfort. I made it home, and I was now Premier.

**

The concept of the MR does not, however, revolve around the imagined consequence of a label. It is a value-maximization scheme at its core. In essence, the value a frequent flier program provides is tangible, and once someone figures out what that value is in her unique case, she can determine whether she can create value by taking extra trips that, while costly, also increase her frequent flier program benefits.

For example, I have a need for periodic transatlantic travel. Suppose such a ticket might cost $600. I can instead get a ticket for 50,000 United Mileage Plus miles, but this ticket contains concrete benefits vis-a-vis the $600 revenue ticket:
  1. The mileage ticket is fully refundable and can oftentimes be acquired with little or no advance purchase. (I once booked a ticket for Warsaw in the morning and flew the same evening.)
  2. The mileage ticket allows for complicated itineraries that include a stopover or open jaw, and that can include multiple destinations so long as one stays for less than 24 hours at stops other than the final destination or stopover point. (I personally enjoy short visits to a succession of cities.)
  3. The mileage ticket allows for the inclusion of exciting, more service-oriented airlines that are part of the same airline alliance.
  4. The mileage ticket opens up the possibility of travel in international business or international first classes of service, options that are prohibitively expensive if acquired by cash.
As such, $600 does not equal a 50,000 mile ticket. Some simple trips might, indeed, be better served by the plain-vanilla cheap revenue ticket, but other, more ambitious trips pair very well with award travel. Suppose I value the 50,000 mile ticket at $1300.

If I was to pay $1300 for a revenue ticket, I'd accrue about 10,000 miles. If I was to pay 50,000 miles for an award ticket, I'd have to pay about $100 in taxes (and accrue no miles during the trip). Thus, in this stylized example, 50,000 miles is equal to $1000, or 1 mile is equal to 2 cents.

Now, suppose that I love to fly and can think of few more enjoyable ways to spend a free Saturday than flying to San Francisco, Los Angeles or Seattle and, straight away (to minimize incidental costs), back. With a creative routing (i.e. multiple connections in out-of-the-way places), I can earn 12,000 miles on the roundtrip (assume I'm earning a 100% bonus over actual flown miles, typical for most airlines' higher frequent flier status levels) and pay $200 for the ticket. Thus, I'm earning miles at the rate of 1.67 cents a pop, a true arbitrage opportunity when I'm redeeming the miles at 2 cents each.

The above example is, of course, grossly simplified. In reality, the appeal of MRing can be much greater. For one, frequent flier programs offer more than redeemable miles (RDM). One extra is the elite-qualifying mile (EQM). With EQMs, one qualifies for the upcoming year's status level, and as such, accruing enough of these in a calendar year is to some people an obsession. Furthermore, some airlines dole-out upgrade certificates in proportion to one's amount of flying, opening up the possibility for roomy seats, decent meals, and the chance for real sleep on MRs. Finally, most MRers will enthusiastically agree that they love flying -- the experience of scrutinizing an airline's product and operation in minute detail; the thrill of the take-off roll and of flying through turbulence; (on United) the option of following live a flight's play-by-play communications with Air Traffic Control (via the proprietary Channel Nine of the in-flight audio); the chance to stumble upon exciting places and people in far-flung cities -- or even just in the airports of these cities; the chance to wine and dine like a rockstar in international premium cabins; even the simple occasion to get away -- legs stretched out, drinks and hot nuts served by an attentive flight attendant, brilliant sunrise occurring on cue over a majestic cloud layer just outside the window, Bose noise-canceling headset engaged, the crisp Weekend Financial Times just begging for perusal -- for some "me" time; the list goes on-and-on.

This post has sought to scratch the surface of the MR. An excellent resource for further information is the online message-board Flyertalk. In my personal experience, MRing has brought me into intimate closeness with both travel and with the airlines, an industry about which I've been fascinated from long before I ever pondered the concept of MRing. I've flown well over 100,000 miles each year for the last four years running, and this year I'm on track for 200,000. I've this year also expanded my airline relationships beyond United and its Star Alliance: I requested a status match with Northwest, and have since taken several journeys with Skyteam airlines.