BTE and DAYYF

Good to see the market doing better. I lightened up a little this morning since it seems the market is stuck in a trading range. Had a chance to move some sold puts at a profit, so I did (WAG and PHM). I also sold the TSO that I had put to me a week ago. I was ahead about $1 a share for a $500 gain. I could have waited, but there is a decent chance oil will spike and refiners will get hit. Everyone is talking about the technical setup for a breakout in oil to the high side. Didn't want to get caught.

The financials are still hurting. I may sell some more puts there.

After I lighten up, I would like to see the market tank again so I can get into more of the commodity and material stocks. Looks like inflation for hard goods will be with us for a while.

Short Hedge of the Week and TSO Short Puts

Today's trading note: I have exposure to high beta Tesoro (TSO) on the Feb 45 for a $7.10 premium.  It is very volatile. I am expecting the price of oil to pull back on economic uncertainty and as predicted by T Boone Pickens.  As oil pulls back, the refiners will see their margins increase which will quickly drive the refiner stocks higher.  I think TSO at 45 by the end of February is a strong possibility.  But I will make money at any price over 38 by Feb expiration.

 

The May 30 TSO sold Put is very low risk, I agree.  If I didn't already have the Feb 45, I would consider writing the May 30 Put for $1.50 a contract.

 

I did another one of my Short Sale, Long Hedge specials this morning. This is an excellent way to hedge the downside expecting a market correction.  Because the financials have run a long way off the Jan 22 bottom and are due to pull back, I sold big bank, Washington Mutual (WM), short at 21.75 (it was already down to 20.80 this morning) and then did the collar at a 0.50 debit (1.33 on the bought Call for Mar and 0.83 on the sold Put for Mar).  The collar was for 17.50 on the put and 22.50 on the Call, so that I have almost $4 of downside oppty on the short for a cost of only 0.50.  My risk is only about 0.75, which is the difference between the call price of 22.50 and the owned price of the short at 21.75 minus the cost of the net debit (0.50).   

 

So, a 4.00 upside to a 0.75 downside is a very good upside/down ratio (anything more than a ratio of 3 is good for me).

 

Brian