Trading Off the Bottom

I made a couple of trades this morning (Tuesday, March 18) before or at the open, based on the turn around in sentiment over night. Goldman Sachs and Lehman both reported better than expected earnings and revenue for the last quarter (ended on Feb 29). GS was up almost 100% on earnings estimates. A couple of days ago, these "beats" would not have mattered to the market. The market was selling on good and bad news. But today, with the moves by the Fed yesterday (Sunday-Monday) to back up even the investment banks with the discount window, lower discount window rates (3.25%) and acceptance of collateral as low as BBB rating (basically "junk"), the market psychology towards financials has done a 180. I was just shorting financials last Thursday and Friday. But, you know the old proverb "don't fight the Fed"!

Yesterday I doubled up on some options for January 09 expiration (sold another 5 put contracts on BAC $45 for $12.10). I also pushed out my WM $17.50 put options to April expiration, from March (this week) to give the market a little more time to get its footing on financials. Both these moves are already paying off today.

This morning, I sold short 100 shares of SKF, which is the 200% inverse ETF on the XLF financials index. The SKF goes up when the financial stocks go down, and vice versa. By doing this, I am able to take advantage of the move up in financials today (and probably the rest of this week) double the market return, and do so with borrowed money on my margin account. I will take this one off within 4 days because it is so volatile. I also bought another 5 Call contracts on the BAC Jan09 $50 for only $0.95. That is a cheap bet that BAC, which has acquired the assets of CFC, will get back close to where it was in late October. All the options and short moves are in my "speculation" accounts with less than 10% of my total portfolio, or my "Mad Money" to use the overused phrase of Jim Cramer.