Options Trader: Weekend Ideas

by: Philip Davis

Here's a great chart from MyMoneyBlog -- he was using it to point out, correctly, how homeowners are more or less in denial and we may be a long way from the bottom of that market (think about where you are with your own home's price) but I think it applies to almost every stock we buy!

Max Risk 15 1 07

This is a great example of how the 20% rule can save you a fortune as you are generally not mentally prepared to sell when you give up 20% of your trade's profits but that 40-60% pullback range runs smack-dab into denial and by the time you pass there, fear and desperation have you in their clutches, followed closely by panic, selling for a loss and depression. ONLY BY TAKING IT OFF THE TABLE "EARLY" ARE YOU LIKELY TO EXPERIENCE "THRILL" AND "EUPHORIA," those are fleeting experiences with a stock (especially an option) and are quickly replaced on the downside.

Cash out early, cash out often -- cash is good!


Just the thought of the Democrats taking office has caused a budget surplus!

Ok, before Cap bites my head off, it sure may be a statistical aberration but, according to the treasury, the country actually MADE A PROFIT of $44B in December! How did we do it? Well spending (outlays) was down and income (receipts) was up! Wow, imagine that! Who would have thought that would be a way to balance the budget?

I won't go too heavily into detail as I'm sure, like me, most of you already have a copy of the full report by your bed... Corporate tax receipts are up 20%, personal tax receipts are up 8% and payroll receipts are up close to 10%. Estate taxes, by the way, were $6B for the month.

Defense spending dropped for the period by $13B, but that will change with 20,000 more troops en route. What will kill you here is the budget items for the year: Defense -- $537B, Education -- $66B. Given the choice of guns or butter, this country has voted for guns 8 to 1!

It cost us $440B last year to pay the interest on our debt -- that's not good! Now that my boys are back in power, maybe we can get started to work on my Inflation Nation Agenda. Check out the comments at the end of that post as it was one of the most hotly debated articles I ever wrote!


Thanks to ZachandJeff1 for pointing this out: Our man Chavez is at it again! "Venezuela to nationalize 'absolutely all' energy sector."

Chavez 16 1 07One might wonder: What kind of soulless scoundrels would do business with a man who calls our President the Devil and who swears in at reelection to "Fatherland, socialism or death?" Is it Iran? Russia? China? No.

The cartel that enables Chavez to take his place on the International stage as a figure of authority, that same evil cartel that has held America hostage for the past two years by cutting back on production and keeping barrels off the market in order to decrease supplies: ExxonMobil Corp. (NYSE:XOM) (of course), Chevron Corp. (NYSE:CVX), Warren Buffett's pals at ConocoPhillips (NYSE:COP), BP PLC (NYSE:BP) (of course), Statoil ASA (NYSE:STO) and Total S.A. (NYSE:TOT) have been in bed with Uncle Hugo for years and will continue to hold the fort while he hammers out some new, more favorable (to him) contracts.

We'll have to keep an eye on those companies to see if this, the second socialization move of the month (Russia) will affect their stocks (we know it certainly will not impact management's bonuses). Note to oil companies: That's what socialists do boys -- they socialize things! It's kind of the definition of that political philosophy...

Will this raise the price of oil? While CNBC and the rest of the pump team will play it for all it's worth, trying to tell you how "nationalized" oil companies can't produce like our own beloved oil pumpers -- that's total BS! Lukoil and PetroChina Company (NYSE:PTR) are two of the world's fastest growing producers with Lukoil raising oil production 5% this year and doubling natural gas production. The real danger Chavez poses to our way of life (or Bush and Cheney's pals anyway) is that he, like Putin, will pump at any price and screw it up for the cartel members (and I don't mean OPEC!).


Remember the VIX? It's been so sleepy we forget to look but it went fully comatose this week as the markets surged forward! So the markets are heading higher in an involatile fashion... sounds like a good thing to me!

VIX 16 01 2007


Charles Dow 16 1 07"A person watching the tide coming in and who wishes to know the spot which marks the high tide sets a stick in the sand at the points reached by the incoming waves until the stick reaches a position to where the waves do not come up to it, and finally recede enough to show that the tide has turned. This method holds good in watching and determining the flood tide of the stock market. The average of (stock prices) is the peg, which marks the height of the waves. The price-waves, like those of the sea, do not recede all at once from the top. The force which moves them checks the inflow gradually, and time elapses before it can be told with certainty whether high tide has been seen or not."

Charles Dow, creator of the Dow Jones Industrial Average, In the January 31, 1901, edition of The Wall Street Journal, which he founded.

Another great quote from Chuck (as his friends liked to call him): "The man who begins to speculate in stocks with the intention of making a fortune usually goes broke, whereas the man who trades with a view of getting good interest on his money sometimes gets rich."

Read all of Phil Davis's articles on Seeking Alpha