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

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).

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