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A picture is worth a thousand words.

8 large rallies and 8 large drops. 

This is what a panicking market can look like.

Prepare accordingly.

November 2008 – March 2009 DROP: -54%

March 2009 – May 2009 RALLY: 31%

Takeaway:  We can expect a lot more of this bumpy ride.

The option trades I put on a few weeks ago have been doing ok.  One has worked out real well, the other has not.  Since it has been a few weeks, I am posting an update to share what I have observed and learned so far.

Darden:  Things are looking good for this trade.  The stock is currently trading right at the strike price, and if the indices continue to decline over the next two months, this trade should do very well.  This option has, at one point, almost doubled, however, I am reluctant to sell since this option does not expire until the third Friday in July and the price can still go much lower.  In my earlier post, I mentioned that the stock should fill in the gaps around $30 – $32, so if the price gets down that low, I will consider placing a trailing stop.

QQQQ:  Argh!  This trade was a mistake to put on.  I didn’t follow the chart and, as a result, the Nasdaq has moved higher and more or less maintained its ground.  I was banking on a quick pullback, however, I am getting hit on both sides:

  1. This option expires the third week of June.  As that date approaches, the stock needs to move quickly downward, or it will expire worthless.
  2. This option is still far out of the money.  Since this option has no intrinsic value, every day the stock remains above the strike price, the more worthless my option becomes.

If the option hits breakeven, I will set a trailing stop.  If not, I will lose the money invested ($86 * 2) and learn from my error.

Takeaway:  It is easy to fall into the buy and hold mentality, however, there are numerous reasons why we could be facing a Japan style deflation or plunging stock market.  Intelligent options trading (both buying and selling) can allow investors to make money in up, down and sideways markets.  While I am a novice at trading, I believe it is helpful to learn these skills now, while I am young and make my mistakes early.

I am also thinking about how I can learn lifelong skills (like trading) now… skills like public speaking, patience through volunteering, and meditation are worth learning and now is the time to learn.

For the trade log, click here.

Everything flows from attitude.  It is the singular trait that determines what a man will make of his life. It is the one thing we can control, regardless of our circumstances.

Our attitudes are the result of years and years of our behavioral inertia.  A workout regimen for a couch potato rarely lasts when it demands they work out 30 minutes per day, 5 days a week.  It’s better for the couch potato to park farther away from the door, walk more during their lunch break, or substitute seltzer for soda.  These incremental changes have more stickiness than a January 1st declaration.

If we want to change ourselves for the better, and if we have the maturity to accept the fact that there is no quick fix, no easy answer and no easy solution, it is imperative to take small steps daily and weekly to set in place a positive inertia upon which we can build.

Like Ben Franklin said:

Little strokes fell great oaks.

Takeaway:  Personal inertia is nearly impossible to change.  The only way to actively manage your personal inertia is via habitual introspection and constant, steady action.

Marking to market involves assigning an accurate, reliable value to a certain security on a daily basis.  As evidenced below, this is being avoided at all costs by our leaders.

It is disconcerting that this incredibly important and relevant information is disseminated from a blogger, rather than a major “news” outlet, or even a financial news outlet.

Tragic.  There are no free lunches and accounting tricks cannot fix a country that is reliant on cheap energy, endless credit, deficit spending and perpetually rising asset prices.

Takeaway:  Mark to market your own life and confront your weaknesses head-on.  This introspection can yield insights on behavioral changes you need to make to avoid a painful crash.

Hat Tip:  Karl Denninger has done an outstanding job diligently reporting on the financial markets and sharing his knowledge on his blog.  If you want honest reporting, please check out his site.

James Frick is noted for saying:

Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.

I believe that is a great thing to think about when reading this article from Counterpunch on national defense spending.  It is highly unlikely Obama can or will make any type of dent in the military-industrial complex.

National defense spending is one thing, but does the money get spent wisely?  Obviously not.  Sophisticated weapons gets priority over those that, you know, serve.

National defense is the biggest responsibility for a country’s government.  Spending $1 Trillion per year should get us farther than shoddy VA hospitals, over 150,000 homeless veterans and mentally traumatized soldiers.

Takeaway:  It’s important to remember that no matter which party is in charge, money you give the government gets redistributed according to the whims of your elected “leaders”. Ignore the rhetoric, follow the money.