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Saturday, January 9, 2010

Market Thought... soon

I will be taking on protection soon. The triggers for me have not yet taken place, but it should by next week, assuming the action is what I expect.

Curious to see what happens next week, but if we get favorable action I am looking to close the option positions in AAPL and GOOG at +215 and 618, respectively.

How I will trade GS: if it opens down on Monday, I will do nothing and let the sold call continue to get worthless. If it opens up, and trends up in the week I will look to close the call near 180, and potentially sell the stock near there. (I will re-enter the name once it consolidates, I repeat, I will re-enter the name, to continue the 'sell-calls-income' strategy on GS.)

How I will trade COST: I was hoping for a rally w/its same store sales figures last week, to which I would have unloaded the position. However, that did not happen. Instead, I will sell in the money Feb 57.5 calls against my position next week. I have no desire to keep holding cost during a correction, but if the market corrects, I can pocket the premium from the calls. I do not expect a big decline from the mid 57 level.

How I will trade IBM: Nothing. Will buy March SPY 115 puts, when the timing is right. (These puts will also cover the GS and COST position, if I still have them.)

The one caveat, I do not yet know how sizable this correction will be. At the moment I maybe correcting for some market noise, and the Vix could stay bouncing around current levels. Given the reason for the protection, I take into account the individual stocks I am protecting. For IBM, GS and COST I am not expecting massive declines. All are reasonably priced, and I do not see IBM declining below 127-128, GS declining below 170 and COST declining below 57. So I can not expect the market to see a sizable decline. But I will have a better gauge as to the size of the decline as it is happening.

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