At this point in time, I don't have a lot of confidence in any company.  Seeing many of the stocks that I've watched for years trade in ranges (even during the last bear market) crack those ranges and plummet, no one seems exempt from punishment.  My XLF and GE puts were assigned on Friday.  I still like GE, but I'm not confident enough to add to the position at this point.  I considered the same for C earlier last week, but when stocks fall that far that fast, it's a sign of bigger problems and not just short term disagreements in valuation.

Even with this morning's news, it would take some massive movement in C for me to ever hope to see black.  My cost basis is around $21 per share after all premium is factored in.  It closed on Friday under ~4.  It looks to gap up this morning ~2 per share.  This is a 55% jump and it still hurts plenty.  Selling now would be silly because I'd lock in a loss of about 70%.  The money left on the table is insignificant and there was nowhere in the plan to sell.

I have, however, learned an important lesson.  I think I fell into the "too big to fail" camp, although not in the same way it's been used in the media.  There are some companies I thought were too big, too diversified, too capitalized to succumb to hiccup during a normal economic cycle.  Shame on me.  Mind you, I didn't think it was impossible for businesses to fail, but for companies like C and GE and maybe to a lesser extent MSFT, I felt it was highly improbable.  But this is why I typically stick to indexes and ETFs on those indexes for long term holdings.

So really, my Citigroup holding is more or less a lottery ticket.  I don't have any faith in the company at this point, and I'm certainly not adding to the position. However, the amount left to lose is tiny, the potential upside is high.  If I made recommendations, and you know I don't, this would not be on my list in any shape or capacity.

Welp, all the short puts are in the money, so ouch on that front.  Not entirely disappointing because I still feel I'm owning assets that I think will appreciate.  The real ouch for me has been holding on to C.  My plan was to hold C for the comeback.  That is looking more and more unlikely and a total loss is looking more and more likely.  The good news for me is that this represents a small fraction of my portfolio and most of the holdings are in ETFs.  This was a long term holding gone very bad. What would I have done differently?  I can honestly say nothing.  I still feel that things could've gone either way, I made a small bet that C would recover ... I was wrong ... medicine taken.

My much larger bet is that the world's economies are going to be better off later than they are today.  I'm still a firm believer in that.  If that turns out to be wrong, we have far bigger problems.  I'm also not putting all of my disposable income into the market.  We have an emergency fund, money in "risk free" accounts and no debt. I don't recommend being in the market at all if you're not in a similar situation (especially having no debt!).  The market will twist and turn for awhile longer, I'll stick to my plan.  I'll certainly have to hold my nose through some of it.

P.S. No dip below 7500, so I'm still sitting tight for now. 

As stated, my plan is to step in with a bit more cash when the Dow hits ~7500.  So far, I haven't seen it there long enough to open / add to positions.  In the meantime, like most longs, I'm bleeding.  My short GE puts are in the money as is my short XLFs.  These are two vehicles that I'm going to be all right with owning. GE's continued drop is a bit eye popping.  But what's even worse is my C.  I was assigned at 22.50 and had been writing calls for a few months.  I believe my total cost basis is somewhere around 21.00.  The fact that it's trading around 7 bucks today is something that seemed highly unlikely, but it's happened.  It is the worst holding in my portfolio.  C @ 22.50 felt like a steal much like GE feels like a steal at $17.  Goes to show you that a low price can still go lower.

So I'm really in a holding pattern at this point.  The market is still volatile, and with my puts in the red, I can't close them and write more.  Nothing gets triggered until we go below 7500.

I waited years to deploy cash into the market.  Since 2006 I've been sitting tight.  It took years for me to get in ... I also suspect it's going to take years for me to really see this pay off.  Makes one consider CDs, eh? :) 

When a man on the street was asked about the stock market he replied:

"This is worse than a divorce.  I lost half of my money but still have my wife".

Ba-dum-ch! 

There's no doubt that if you've been trading options any length of time and you continue to bone up on the ins and outs of options that you've come across the analogy of the insurance company.  The idea or argument proposed by those who favor selling options is that the people who make money are those selling premium, not buying it.  Just look at insurance companies ... they're massive institutions that make money hand over fist in the form of premiums.  They spread that risk so that they have virtually no way of getting called all at once.  Now apply that to your option trading skills.  Diversify your option selling across multiple products, multiple strikes, etc and you'll turn out a winner.  Makes perfect sense, right?

Enter reality.  Let's look at the world's biggest insurer in AIG.  They apparently need more money and it has not been determined what their concreet exposure is. (see Bailout Fund Needs Money).  The bottom line is that you're trading risk for premium, just like an insurance company.  AIG and others have apparently overlooked that.  There really isn't a way to perfectly hedge exposure and the more positions you have on, the more impossible it becomes.  The best way to keep your risk manageable is to consider assignment for every option.  Never mind the fancy margin calculators.  Can you cover it?  Can you accept the loss?  Can your spouse accept the loss?

As you know, I sell options.  I also enter spreads to build in a hedge (at the expense of profit).  These tools are extremely useful and flexible.  However, they also give you enough rope to shoot yourself in the foot.  It can happen to the big boys and it can happen to you. 

Came across a great quote from marketwatch where they reported about hedge funds' letters to their clients.

In reference to Warren Buffett's statement that now is a time to buy:

"Mr. Buffett has enough money to be able to have his holdings drop 50% and still fly in his jets and live the way in which he has become accustomed," Bass wrote. "Do you have enough capital to take what you have left, cut it in half, and continue to live the way you have for the past few years? I don't."

Not a lot of us have the ability to absorb a 50% drop.  So the next time you're thinking of putting money in the market, you should ask yourself the question above. The money I have in the market could go away 100% and it wouldn't have a substantial impact on my day-to-day life.  It would have a substantial impact on my ability to retire when I want.  But there is a difference.  The money to make the house payment next month is in a checking account.  I suspect that the people in hedge funds aren't putting the mortgage money into the hedge fund, but there could be a lot of us out there that are putting substantial paycheck money into the market.  This is such a shining example of why you should never even consider putting serious paycheck money into the markets (assuming you need most or all of your paycheck).  It's hard to imagine something like this happening when the VIX is below 10 as it was just a several months ago.  But it happens.  Stocks outperform bonds because you incur substantially more risk.  Here's the risk part, I hope you were prepared.

I sold some NOV 17.50's in October for ~0.60.  I bought them back for 0.23 after GE's big move up today.  Truth be told, I'm playing for a pull back.  I'm looking to sell either DEC 17.50's or 15's on the pullback, if I'm so lucky to get one.  I have my eye on 0.80 for the 17.50's.  it's a big credit because GE is still very volatile.  Plus it's closer to the money than I typically like to play, but I don't mind owning some GE.

In other news, the short XLF puts and calls that I have were both sitting around 0.09.  If they hit a nickel, I'll buy them back.  I may also consider selling the XLF stock I own for a profit and starting over with short puts again. 

direxion Funds is schedule to release 3x leveraged funds to the market.

BE CAREFUL!  As with most of these leveraged ETFs, the literature is a bit misleading:

"Direxion Shares powerful 3x leverage (the highest in the ETF and mutual fund industry) seeks to amplify the performance (positively or negatively) of your investment capital by 300%".  So when the market is up 20% by the end of the year as the world embraces Barack Obama and Santa Claus is throwing money from the sleigh during the Santa Claus rally, you're going to be up a cool 60%, right?  Not likely.  Depending on the volatility, you could underperform unleveraged assets and I'm not talking about if it just goes straight down.  The goal is to mimic the day-to-day movement.  If the Russell 2000 is up 1% for the day, the ETF should be up around 3% for the day.  That's the extent of the following.

Is this a bad vehicle?  As most things, it depends on the situation.  I don't recommend any of these products when they have no track record.  I've yet to have someone come to me and tell me that they were pleasantly surprised that their investment product returned above and beyond what they expected.   This isn't Monopoly, so there's never a bank error in your favor.

The economy is now officially in a recession.  It finally happened.  It feels like a self fullfilling prophecy to me, but we'll truly never know how that tail wags.  The news on the personal front has shifted a bit from retirement and stock holdings to layoffs.  I've had two friends lose jobs on Friday and a few more that are uneasy.  The thing to remember is that your personal economy can crash very quickly and without warning.  Reflecting back to my windfall allocation discussion regarding buying stock vs. paying down the mortgage, this is a great example of where folks could do right by themselves to pay off the house.  If you live within your means as it is, you could probably come close to making ends meet bagging groceries if you had no debt to pay (house, car, all paid off, no stupid credit card debt).  If you can't, that should be your goal.

While it is important to keep an eye on the macro, you can't do much about economic cycles.  The president and congress cannot do much about it either (even though they like to tell you they can, or at least how the other guy messed it all up).  However, you can do a ton for your personal economy.

All of the items I blog about ... trading systems, option plays, ETF and even individual stock buys should be considered after your financial house is clean.  I take it for granted that my readers are probably well aware of this, but I think it bears the occassional repeat just in case you missed it.