Session of 03/07/2007

[David Randolph]

Good morning

Although I believe I have sound fundamental reasons to be short GOOG (I partially work for them, as a content provider, and my pay was cut by 2/3, even though 3 Stocks has more clicks on its Google Ads - because companies are paying less and less per click), my put option selection was extremely poor and those GOOG puts are more or less worthless at this stage. I'm glad I invested less than 10% of capital in that position. What can I do now? I'll continue holding, probably pay the price of the lesson and move on.

I wish I'm wrong on my bear market call, seriously. I wish I close all short positions at a loss and start looking for long plays. I dream I'm buying stocks on fire again. I wish.

But for as long as the SPY closes below the midpoint of that big red candle ($141.69) I say the market is bearish, and the correct attitude on a bear market is to sell stocks short (options is a more tricky game, didn't buy long maturity puts because they had no volume, but who cares about volume when buying options?).

I believe that in sharing trading experiences we're all able to learn this game faster. Better learn from someone else's mistakes than from our own (although that is good too).

I had a terrible headache, but I feel better now after having a coffee. I'm willing to study stocks and talk about the general market with you.

Have a nice day

[bourbonstreet_crawdaddy]

No Problemo David!

Let's just wait out the GOOG trade - I believe that we may still see the stock hit the wall and have a sharp reversal. If not, lesson learned.

No need to worry about what we cannot change, but rather pour our energy into the future decisions that we make that we can change!

I believe in you David, and believe that we will make many profitable trades that will more than offset the loss on a poor GOOG trade (if it turns out that way). As you have said many times, do not risk capital in risky options unless you are willing to forgo that money, and understand and assume the risks that you are taking. We will always make some bad trades, but it is best to cut losses when we can, and just move ahead!

Good Luck this week, and let's have a terrific day!

Bourbon   

[KCScott]

Dave,

Just a quick heads up that it looks like there will be buying today until noon (squeeze the weak bears) - We think sell begins late afternoon with a test of the lows tomorrow or Friday at the latest.


Best of Luck

[David Randolph]

Thanks Bourbon, you're a nice guy

This option experience and even bear stance reminded me of when I traded futures in a highly leveraged way. That is a game no one wants to enter.

I was quite pleased with the power of fundamental analysis and long term investing. But my fundamentally attractive stocks got clobbered in this 6 days sell off. I could have held them for longer term purposes, but these macroeconomic issues worry me a lot, especially the weakness of the US consumer.

For example, when nullzero came to me and said "David, I'm very bearish on housing, because of what I see on the ground" I told him: "but nullzero, housing stocks are already very cheap in terms of valuation multiples, everything bad that can happen is already discounted".

Not everything. People thought the risk was that house prices would go down. But after all the risk is people defaulting on their mortgage loans. Today I heard on CNBC an analyst saying financial stocks are cheap, because they're trading at an average of 10 times earnings.

Yes, they're cheap, but isn't that a sign of things to come? Why are they cheap? As with housing, I'd say financial stocks, like banks, brokerages and insurance companies are exposed to more risks than we can imagine at this stage.

At some point the $440 T derivative's economy will pose a problem.

Just letting some thoughts out.

[eggman11]

Do you plan to hold the puts until expiratuion or are you looking for exit point. We have now gapped up two days in a row. and have moved up 25 points without a pull back. A pull back will be coming, It probably won't go back down below 440, but I beleve a pullback to 450 is probable, which would be the options should be worth at least 11. in the next couple of days. Right now the put is around the 6 area, is their any price on target price you are looking for, or should we just bail now, while we can get something for it. If we wait until option expiration they could be worthless, but if we sell in the near future we will get something.

Thanks.

Good morning

Although I believe I have sound fundamental reasons to be short GOOG (I partially work for them, as a content provider, and my pay was cut by 2/3, even though 3 Stocks has more clicks on its Google Ads - because companies are paying less and less per click), my put option selection was extremely poor and those GOOG puts are more or less worthless at this stage. I'm glad I invested less than 10% of capital in that position. What can I do now? I'll continue holding, probably pay the price of the lesson and move on.

I wish I'm wrong on my bear market call, seriously. I wish I close all short positions at a loss and start looking for long plays. I dream I'm buying stocks on fire again. I wish.

But for as long as the SPY closes below the midpoint of that big red candle ($141.69) I say the market is bearish, and the correct attitude on a bear market is to sell stocks short (options is a more tricky game, didn't buy long maturity puts because they had no volume, but who cares about volume when buying options?).

I believe that in sharing trading trading experiences we're all able to learn this game faster. Better learn from someone else's mistakes than from our own (although that is good too).

I had a terrible headache, but I feel better now after having a coffee. I'm willing to study stocks and talk about the general market with you.

Have a nice day

[kslifka]

ACY...is just crazy.  I unfortunately sold a few days ago after the market meltdown.

[rickjust]

hi,
so far goog looks like a "gap to crap" as melf would say.
max

[buddjas1]

David, may want to look at NMKT.  That is if 3SOF still buys stocks that are going up.   

[David Randolph]

Do you plan to hold the puts until expiratuion or are you looking for exit point. We have now gapped up two days in a row. and have moved up 25 points without a pull back. A pull back will be coming, It probably won't go back down below 440, but I beleve a pullback to 450 is probable, which would be the options should be worth at least 11. in the next couple of days. Right now the put is around the 6 area, is their any price on target price you are looking for, or should we just bail now, while we can get something for it. If we wait until option expiration they could be worthless, but if we sell in the near future we will get something.

Thanks.

Hi eggman11, you're asking about the very short term, and I dislike to predict that. But you're right, if I dislike that, I shouldn't have bought such short maturity puts.

Thinking of the short term, the stock opened with a gap up today due to a nonsense upgrade and is pulling back now. I'll analyze the situation everyday, because if I can lose just 50%, I don't want to lose 100% in one trade.

As for today I'm not planning to sell those puts. Let's see how the short term plays out, volatility is high now and the chart and the fundamentals say GOOG goes down !

[nullzero]

Thanks Bourbon, you're a nice guy

This option experience and even bear stance reminded me of when I traded futures in a highly leveraged way. That is a game no one wants to enter.

I was quite pleased with the power of fundamental analysis and long term investing. But my fundamentally attractive stocks got clobbered in this 6 days sell off. I could have held them for longer term purposes, but these macroeconomic issues worry me a lot, especially the weakness of the US consumer.

For example, when nullzero came to me and said "David, I'm very bearish on housing, because of what I see on the ground" I told him: "but nullzero, housing stocks are already very cheap in terms of valuation multiples, everything bad that can happen is already discounted".

Not everything. People thought the risk was that house prices would go down. But after all the risk is people defaulting on their mortgage loans. Today I heard on CNBC an analyst saying financial stocks are cheap, because they're trading at an average of 10 times earnings.

Yes, they're cheap, but isn't that a sign of things to come? Why are they cheap? As with housing, I'd say financial stocks, like banks, brokerages and insurance companies are exposed to more risks than we can imagine at this stage.

At some point the $440 T derivative's economy will pose a problem.

Just letting some thoughts out.

I have another sense of things to come here from my prospective in California. The economy here in Orange County, CA is suffering from the layoffs in construction and all real estate related industries. Retail stores are getting hit hard as well espcially the ones that are tied into furnishing a new home. People down here are in debt over their head. Mid to High end restaurants are empty.

For those that say its ok because its fine in my part of the country and its isolated think again! California is the 6th largest economy in the world just by its self, it is also the most diverse economy in the nation. If you want to know where things are going with the economy in the U.S. look to the California economy. The number #1 economic leader in the California economy the last 5-6 years was real estate and all real estate related economic activity. Check this video out on the California economy and looming real estate bubble (it was done last year and predicted just about everything that happened so far!). http://video.google.com/videoplay?docid=-2640239019877885520&q=housing+bubble&hl=en

[bourbonstreet_crawdaddy]

Thanks David,

I am still holding CPNE.ob long, and I believe that the numbers that they released were very good. Knowing what you do now, and having the benefit of having seen the financials, and the price action - what are your thoughts about the wedge that the stock is forming?

Do you believe that the stock will break out of the wedge up or down?

Thank You for sharing your insight

Bourbon   

[WallStreetnBio]

Dave do you think FMCN could close the gap at $62 on 11/20? Is there a statistic out there on how many gaps that get filled?

[TraderStar]

I bought the April GOOG puts as it was so drummed into me never to buy same month expiration .. those who think it will go back down (as I do) but not right away, you could get April puts that may well offset the March losses.  Just a thought.

David, what you do really really really well is to analyze those small cap stocks and spot the winners.  Now you seem to think that in a bear market, this skill will be fairly useless as small caps do not perform well in bear markets.

Two things:  first (as previously stated in other posts) I do not see the bear market starting now .. it will start a few months from now.  In the near term, we will go up slightly, back down, then up again and soon it will look like everything is rosy again.
Then ... in May, August, maybe Sept or October .. the real bear will begin in earnest.

But second, and more important, (as opinions are worth next to nothing - especially if mine  ) ... even in a prolonged bear market there are always some stocks that perform well.  Many of these will likely be small caps.  I can easily see more little TASRs and HANS rising out of even the deepest bear market.  And our best hope (maybe our only hope) to spot them early on is .. you!

So I hope you will keep doing what you do best, which is continue to analize the small cap stocks.  It may get harder to find the gems but when we find them, they could be real winners if bucking the trend.  

"If it ain't broke, don't fix it"  - and the strategy behind 3SoF is far from broke.  

I vote to continue with the original plan, even tho we can take occasional option trades or counter trades if a really good setup comes along.  I still think you are the one who will find us the next TASR or HANS .. and we only need one or two of those to make us all gazillionaires :D

[1laya1]

hi Dvid,
what do you think about shorting JADE?
THX
Achim

[kpunarc]

David, you say we're in a bear...but how do tell the difference between what you call us being in a bear as opposed to us just being in a correction?