Option Investor


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The EBAY leap play did not have an insurance put because I did not expect any scenario where EBAY would lose -$20 on an earnings miss of a penny. That is a painful lesson that I will refer back to many times in the future.

The markets have completed their roll over and the outlook is very cloudy from my perspective. The Dow has broken below critical support at 10425 and the S&P broke support at 1175. There is no specific news impacting the markets but it appears the bulls have picked up a new form of chronic wasting disease called Mad Bull.

Analysts are at a loss to explain the complete lack of fund flows and a $40 billion shortfall in retirement contributions. Many reasons have been suggested for the shortfall but the only one that has not already been proved wrong are the Iraq elections. I seriously doubt Ma and Pa investor are putting their investment dollars under a mattress because the elections might go badly.

That leaves the obvious reasons that markets go down. Earnings are slowing, the economy is slowing and the Fed is making noises that they could escalate their rate hikes. This uncertainty casts a cloud on the market outlook and suggests we lighten the load once again to protect against a potential market event.

Fortunately the majority of our plays are protected by insurance so we don't have a high risk on anything left in the portfolio. I am going to tighten the stops on some and if stopped we will exit only the LONG LEAP Calls. We will keep the insurance puts.

Considering this has been the worst January for the markets since 1977 the portfolio is in pretty decent shape.

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