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Saturday, February 7, 2009

Is it Even About the Economy Anymore?

With the stimulus bill close to passing, I honestly wonder if it is even about the economy anymore. They were able to shave off over $80 Billion just by trimming some of the "pork". I don't understand why people think this bill can be good for the economy when the average tax payer knows he/she will just have to pay for it tomorrow. Lets face it, some of the stuff in the bill is totally unrelated to the economy that it makes me sick! I think they need a serious revision (not that we'll get it) and spend the money where we need to.

It is proven stimulus packages do work, but they are short term! In the long run this will not help employment. Roads and bridges can only be built so many times etc... Why not tax cuts for small businesses?; the additional profit can go toward keeping an employee or two. Why not a sales tax holiday?; say 1% on all goods(excluding food/medicine etc...), in NY we pay 8% on all goods (4% on clothing, 0% on food/medicine etc...), an additional 7% in consumers pockets can go toward a lot more purchasing! Why not a capital gains tax holiday?; less tax=more risk=more investing=higher market, that would restore confidence if even non-investors heard good news about the "market". There are so many other ways to get a longer term stimulus! Personally I think we would get out of this recession a lot faster just by restoring confidence!

If you study the chart from the great depression you will see that the economy tried pulling itself out 3 times, with 3 major stimuli. However it took World War 2 to get us completely out of the GD. No I am not for another world war, BUT when people say tax-cuts don't work... I just ask them to look at the Bush administrations employment growth. It was not the fastest growing job creation period, but it was the longest job creation period ever...

In a simple syllogism:

If cutting taxes allows a business to become more profitable
And becoming more profitable allows a business to keep/create jobs
Then cutting taxes allows a business to keep/create jobs


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Friday, February 6, 2009

Anther Bullish Sign in the Options Market

Two days in a row financials have been a major focus in the options market. The top ten contracts traded today were:

1: TGT JAN 35 CALL (LEAP 11)
2: TGT JAN 60 CALL (LEAP 11)
3: SPY FEB 85 PUT
4: BAC FEB 6 CALL
5: XLF FEB 11 CALL
6: SPY FEB 90 CALL
7: C FEB 3 PUT
8: BAC FEB 7.5 CALL
9: XLF MAR 9 CALL
10: XLF FEB 10 CALL

Target options are definitely a surprise over the last couple days. Especially the JAN'11 60 CALL. Other than those you have 6 of the 8 remaining betting the names go higher, and 6 of the 8 are financials with the other two (SPY) being the S&P 500 index tracker. Some news came out today that I thought would crush the market, but in an irrational market you can expect this. The good news is that the activity for calls has been rising steadily over the past week. The VIX is dropping like a rock, and the with the market holding above its November lows is a very good sign.

Wednesday we should know whether this rally is here to stay. I assume many are buying on the rumor(s) and waiting to sell on the news, which is why Wednesday is a critical day. I think if we finish next week higher from today's close, we should be poised for a short term rally.

Lets face it some terrible news came out this morning, and the market was able to shrug of the bad news and rally again. The street is certainly looking forward to this stimulus. Personally I think the Mark-to-Market rule change is more exciting. If that is done away with for even a short period, we could see a monster rally across the board.


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Financial Calls Heating up in Today's Options Market

Could the bottom for financials be in? The top contracts traded today certainly were bullish on financials. The top ten contracts traded today were:
1: XLF FEB 10 CALL
2: XLF FEB 12 CALL
3: BAC FEB 6 CALL
4: BAC FEB 7.5 CALL
5: XLF FEB 11 CALL
6: XLF JUN 11 CALL
7: WFC FEB 20 CALL
8: XLF FEB 9 CALL
9: BAC FEB 2.5 PUT
10: EFA MAR 36 PUT

This certainly shows bullish signs in financials! This is the second of three days there has been focus on financial calls. It may be due to speculation of the bad bank however it could be looking ahead even further such as the XLF June 11 Call predicts. The last price for the June XLF 11 was $1.00 which assumes the ETF will be above $12 in June or about 25% higher than today's close. Many came out today and said BAC still has very good assets on the books, and that a nationalization is unlikely, however if this mess does not get better nationalization will be the only option for BAC and some other banks. Truly I hope the bottom is in, but it the market has a short term 10% pop or greater, I will certainly be adding to my SDS position.

Tomorrow some very important numbers come out, the unemployment rate. The expected is 7.5% anything worse could cause markets to tumble, and anything better could cause markets to rally. This will definitely have a major impact on the market.


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Thursday, February 5, 2009

Top 10 Option Contracts Traded 2/4/2009

Today the top ten option contracts traded (puts and calls) were as follows:
1: QQQQ FEB 30 PUT
2: QQQQ FEB 29 PUT
3: TGT JAN 45 PUT (LEAP 10)
4: XLF MAR 7 PUT
5: SPY FEB 84 PUT
6: QQQQ MAR 28 PUT
7: SPY FEB 85 CALL
8: XRT FEB 19 PUT
9: QQQQ FEB 31 PUT
10: SPY FEB 80 PUT
As you can see most people (today) were betting on the market to go lower in the months to come. But after yesterday being so bullish on financials it does not make a great deal of sense. I think we will have to study the options activity for the next few days to get a better sense of which direction the market is heading. It looks as if most people think the Nasdaq is way over bought.

One great strategy is to check all the activity on options daily and see where people are placing there bets for that stock. For example: say someone thought SPY would be at 85 by Feb expiration (7th most traded contract), well it is at 83.33 so if one would pay the premium and get the rights to the stock at 85 it may be worth the investment if you want to follow the options market (which has been quite accurate lately).


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Wednesday, February 4, 2009

Short Term Rally Might be on the Way for Financials

As posted previously their was a massive amount of SPY PUTS being traded, and after that the market slid significantly. Today however there was an unusual amount of Call activity for Financials. 3 of the top 4 contracts traded today were for XLF Calls: 1: XLF June 9 Call, 2: XLF June 6 Put, 3: XLF June 11 Call, 4: XLF February 10 Call, also the 6th and 7th most contracts traded were: 6: WFC February 5 Call, and 7: C February 5 Call, and the 9th and 10th most traded contracts today were: 9: XLF June 10 Call, and 10: XLF June 10 Put.

This shows that many are betting on financials to go higher before they go any lower. This could be a sign that the financials could be due for a short term rally, but it could also be pure speculation about the "bad" bank plan that may come out in the next week or so. Either way I have decided to follow the options market, as it seems to predict the market quite well, and I will be buying some Call contracts to see if I can cash in.


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