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? :) 

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.

Futures are trading limit down this morning.  This hasn't happened in a long, long .... oh wait, just a couple of weeks ago.  And on that day the market cra ... oh wait, no, it finished positive for the day.  The market is a bit of a roulette wheel at this point.  Anyone pretending to know where the market will end up in the short term is fooling you.  The only bullish chart I could find was the U.S. dollar.  Is everyone selling stocks, bonds, and commodities and hoarding dollars?  Who woulda thunk?

OPEC cuts production by 1.5 million barrels.  And oil prices surge ... no wait, tumbles nearly 7%.  Seems like bizarro world.

The only thing you can do is cut through the fog.  I've pegged values in the Dow to open up and buy some more.  This is my plan and I'm sticking to it.  My next stop is Dow 7500.  My last point was 8500 and I performed that buy a couple of weeks ago. 

Even with a dramatic sell off at the open, we're still not hitting the previous lows from two weeks ago.  And even if we cross those lows, we're still in a relatively "normal" bear market.  Does that mean it's going up from here?  Don't know.  Does that mean that it's going to remain a "normal" bear market?  No clue.  Keep in mind that the last bear market ripped the S&P 500 to the tune of 50% and the poor, poor Nasdaq still hasn't recovered its previous high.  In fact, not even close. Arguably, this is the bear that's still gripping the Nasdaq that started in 2001.  Now THAT'S an abnormal bear market. 

1. Oil prices and stocks are not as correlated as we think
2. Oil prices are not controlled by oil companies and it's simply grandstanding when we try to hold oil executives accountable for the price of the commodity.
3. When the bear hits, all assets are correlated ... they all go down.
4. SHORT SELLERS ARE NOT RESPONSIBLE FOR DOWNWARD MOVEMENT!
5. When bubbles pop they hurt.  They also cross into seemingly unrelated industries.

I don't think I've revealed anything new or earth shattering.  I'm mostly documenting for the next bear when it's "different" that time.  

I was certain that the VIX went over 50 during the drops in 2002 when the long term bottom (then) was forming.  If I go back through historical data, it isn't so.  So I'm putting this up for my own purposes.

The second thing on my mind today is market moves.  Sure, that's something I think about every day, but it can have a profound impact on my holdings.  The short puts that are in play are XLF (16 strike) and GE (20 strike).  Both, given the current volatility, are really a market day away from being back out of the money or deeply in the money.  As I mentioned, I'm actually torn on the GE assignment.  I like the idea of premium in my pocket but I also really like the idea of owning GE at 20 (or 19.40 after premium is factored in).  I think that's a long term slam dunk.  Can GE go to 0?  Sure, but I like the prospects.  The other item is XLF which I'm also torn over.  The financials have admittedly been worse than I anticipated.  I still think I can continue to write premium against C for awhile and continue to lower my cost basis, but truth be told, the market for financials seems like an abyss.  Obviously, that makes one nervous, but it also feels like a great time to buy (when fear is high).

Today is pivotal.

I've posed this question before when it was merely theoretical, but now it's happening in real time.  Many people over the last few sessions have sold and sold big. Maybe some are gone for good, but I suspect most were selling out of panic that they might lose their nest egg.  Most likely this was done as a reaction and not in accordance with a plan.

I say regardless of the reason, I'd like to hear when you're getting back in.  If you sold at Dow 8500-9000 which was pretty darn close to the bottom, you have the real risk of the Dow gapping over your selling price as early as today!  And let's say it didn't do that, when do you get back in?  A bottom isn't known usually until well after the fact and things typically stabilize AFTER the big technical snap back ... so when do you get back in?

I always hear the big announcement from friends and on forums.  They sold and good luck to the rest of you turkeys.  But I never hear when they get back in.  I can only suspect that they realize after the fact that getting out was probably a bad idea and they lost even more than those that stayed in.  But I can only speculate.

So at the risk of sounding like a broken record, sellers, when you do get back in? 

We all try to imagine what it was like in 1929 or 1930 but we at best, we may get stories that may be half truths from those that are still around to tell them.  I'm not saying 1929 was easy and the Great Depression was nothing, for crying out loud, it gets capital letters when referenced so it must be serious.  But my point this evening is to use the power of technology to capture the moment.  The Dow was swinging around hundreds of points in a matter of minutes.  People that are casual observers of the market are extremely scared and those who are more than that are getting a nervous twitch.  The market is acting strangely and the world is on edge.  To me, this is not really different than the last bear market that I've personally experienced, although some may beg to differ.  Bear markets are hard. During a bull market you may read a book or two about how capitalizing on a crash is the way to outperform the market.  When the crash hits, buy until you can buy no more and you'll surely outdo the market.  Afterall, the old adage is buy low, sell high and the first part of that equation is buying low.  So if the market crashes, what a great way to buy low, right?  Well, what they fail to mention in these books is that buying low is hard.  This is why the low buyers are rewarded.

As the market plummets hundreds of points, you start to doubt yourself.  I mean if it can fall a few hundred points an hour, surely it can fall a few hundred more, I'll just wait, right?  Well, I did that in the last bear market and lost.  Face it, you're not going to pick a bottom, so if the market it off 20%, 30%, 50%, keep buying your indexes and whatever else according to your plan.  If you don't have a plan, stay the hell out! 

When is it considered a crash?  It always seems obvious after the fact.  While this one wasn't a big and spectacular presentation like 1929 or 1987, we've lost almost 20% on the Dow in just a week.  This is certainly low.  What happens if we go lower?  Buy some more.  Just because you want to buy that doesn't mean to go all in.  And if you're going to buy, diversify ... grab indexes, not individual companies.  Like my hero Roger says, "how many companies go to 0? ... how many indexes go to 0?"

Of course, my standard disclaimer applies.  This is not a recommendation.  Do not put money in the market that is money you'll need in the next 10 years.  It's one of those things that if the market goes down 1000 points tomorrow, you'll say "ah well, let me put in some more and average out".  If you can't say that, then put that money in the bank.  Period.  As most are realizing (too late), this is not for the weak or faint of heart.  You're being introduced to risk first hand, which has been awfully quiet for the last few years.  If this is your first bear market, get used to it.

I'm in line to have a nickel thrown my way every time I hear "this time it's different".  The was the case during the last bear and this one has been no exception. Before you get in the "this time it's different" camp (and end up owing me a nickel), please consider this article at Seeking Alpha.

There's Light At the End of the Tunnel

Not another gambling vs. the market thread.  <sigh>.  Actually I have a point to make and I'm actually in favor of the market over gambling (most people think they're one in the same).  There have been a few people in my life who enjoy gambling and some even think they have an edge.  Most of the time this involves roulette where the person doesn't understand that each spin of the wheel is independent and has no memory of the previous spin.  Here's where the market is different.  The market has a memory of yesterday which is why it doesn't go between 0 and infinity each day.  The second item is that the market has a bias towards the upside, long term, otherwise there would be no market. Folks, this is your edge.

So why is it that people will double down on red after 5 black spins, but when the market has 5 down days they're picking up their chips and walking away?  This is your opportunity to get in at a better price to actually beat the market over the long term.  This is also why most investors underperform as a little volatility shakes their confidence, they sell low and buy at a higher price later.

And for the record, I have to be near the most boring person to take to Vegas.  I hate losing money (which is why I feel this pain just as much as anyone), but in Vegas there is a greater probability that I won't get it back than in the market.  So you'll find me over by the penny slots killing time while you have fun at the blackjack table.

I believe that the market will reward us for our risk taken when its ready and I think that reward will beat a room comp at a Vegas hotel.

Here's where I do agree with the casinos and the market, only put in what you can afford to lose.  Never should food, clothes or shelter money be in the market. And if your timeframe is short (less than 5 or even 10 years), you should not be in the market or you should've had a significant hedge in place to prevent serious losses.

Is this the time for you to get in?  I don't have a clue, it depends on you.  I have less cash now than I've had in quite some time.  I have more arriving from risk free accounts as my plan has been all along has been to go "all in" in the event of a crash.  It may have taken 5 days instead of 1, but we're down over 20% which constitutes a crash in my book.  But that's just me following the plan I put in place years ago.  Is it a good plan?  If the Dow goes to 0, clearly not.  Is it a plan for everyone, clearly not.  My first bear market, I had no plan and lost my ass.  If this is your first bear, I think you should sideline yourself and watch the events unfold in real time.  Think of it as running a backtest and seeing a bear market from a numbers perspective (looks harmless, like seeing the '87 crash on a 50 year chart of the Dow).  Then you take your backtested system and start to run it for the first time with real data during market hours.  Seeing the system perform in real time is quite different (psychologically) than looking at backtested results.  So watch your "system" in simulated mode this go around.  If you're less than 60 years old, I can pretty much assure you that this isn't the last bear market you'll be participating in.  If you're older than 60, I hope you're not exposed to market risk that could sink you and you're sitting back sipping an adult beverage watching this go by.

Be careful out there. 

Tokyo down another 10% and in a free fall at this point.  Every news station (except for O'Reilly) had the market as the top story.  People I haven't heard from in years are popping out of the woodwork to ask me about 401Ks and the losses.  Comparisons to 1929 and 1987 are fast and furious.  The whole world is spooked.

This is NOW beginning to feel like the beginning of a bottom.  Sure, I think we can have more moves to the downside.  We may even have another dramatic move to the downside within the next couple of months.  I might change my mind should the Dow break below the lows in 2002 (which are around 7100 for those keeping score), but until then, I'm convinced that this is a bear market playing out as a normal bear.  2001-2003 was scary, this one is no different.

I've been buying aggressively and will buy some more if we make another dramatic move down.  Admittedly, the dry powder stash is running the lowest it's ever been, but there's still enough for another round of shopping.

Keep in mind, this isn't money for a mortgage payment or to put food on the table, this is money that would hurt a bit (mostly psychologically) to lose, but no one's betting the farm here.  I recommend the same for anyone else.  Money in the market should be money you can afford to lose or at least be without for awhile without incurring a lifestyle change. 

Silly title because hey, one silly thing deserves another.  Like I mentioned before, blaming shorts for a downward market is just plain ignorant.  Shorts are with us through an up market ... if they have so much power, why isn't the market 0?  If anything, we witnessed some of the most turbulent times in the market during the shorting ban.  It was almost a slow crash over this last week.  So now that the shorts are back, we're having one of the calmer periods we've had in some time.  So when I hear people like Dick Fuld blaming the LEH collapse on short sellers, I just have to laugh.  And to think this guy got paid millions per year to run a well established company into the ground.

I'm not a fan of short selling, but I do like the fact that it's allowed.  Next time you hear someone blame short sellers for market down turns, volatility or companies going under, please remember in 2008 when they banned it and the stock market plunged.

Oh ya, and CNBC, please stop asking your guests for stupid predictions, especially you Mark Haines and Larry Kudlow.  It's a disservice to your audience when people who come on as authorities or experts make predictions on things that they can't have any idea of.  Unfortunately, I hear people around the office taking these "predictions" and giving some worth when they clearly have none.

The sob stories are coming fast and furious now.  Since my friends and family think I know a little about the market, the calls are coming in.  I'm down 30%, what do I do?  My 85 year old mother is holding individual stocks and is down big, what should she do now?  My question back to them is pretty much the same, why do you come to me now?  I never have anyone come to me and ask "got this huge gain, what should I do now?".  And I certainly never have anyone come to me and ask:

"OK, got this big dump truck full of money that I want to put in the markets, could you help me put together a plan that makes sense should the market continue to tank or skyrocket from here?".

I always mention the option rookies who seem to post to the forums asking for adjustment advice after the position has gone against them.  Apparently this isn't a phenomenon limited to rookie option traders.  People go off and buy things without a plan.  It hums along and maybe they show a profit.  They keep it to themselves. Then this happens and the stories come in.

As I mentioned yesterday, I added significantly to my long term holdings, which are pretty much all in the red.  None of them have showed much of a profit since I really only started buying in earnest in August of last year.  I've been waiting for more attractive prices.  I would say more likely than not, these positions will show a nice profit and my strategy will change from accumulate to protect.  I believe this is months or even years off, but you'd better believe I'll have a plan in place so that I'm not scratching my head at 30% down.

One thing to consider is that having no plan is also a plan.  However, you must make the decision to have no plan and understand the drawbacks (namely drawdown) that this presents.  Afterall, a hedge costs money and may cause you to underperform fairly dramatically if applied liberally.  In my relatively younger years, this may end up being my plan by choice.  This will almost certainly not be my choice as I get closer to retirement as I will gladly trade security for underperforming.

What is your plan? 

It was almost three years ago when I decided that I needed to quit playing in the stock market.  That's not to say that I had to stop having fun, but instead of running trading systems and playing options, I also needed a "big boy" plan for long term holdings.  The problem with three years ago is that the bull market was looking tired and putting in fresh money was looking risky to me.  Hence the dry powder.  Well, the last couple of weeks has seen a lot of my dry powder with the climax being today.  Should we have another big dip, I still have more dry powder, but it is the lowest it has been in a number of years.  I'm actually contemplating moving money from a "risk free" account into the market for more exposure, should we head down more.  Beyond that, perhaps a second or third job to support my dip buying habit. I did most of my buying when the Dow was down around 700 on the day so some of my positions are actually showing a profit on the day.  Laugh!

But in all seriousness, my long term holdings that I've been adding to slowly over the years are getting bulked up, but are still losing significantly on the year.  The nice position that I'm in is that I've always been in and out of the markets.  While I still do this, the long term holdings will likely at some point show a gain (otherwise, that would be sad).  So I need to start considering defensive options over the coming months and years.  The double shorts seem interesting, but take away dry powder.  Options are tops on the list, but I really want to understand the delta of my portfolio to hedge it cost effectively.  Again, I think this is months if not years off, but this sure beats the position a lot of people are in who were showing gains and now showing heavy losses ... especially those who bought at the top.

Definition: the practice of extorting money or other property, especially by a public official, by the use of threats

Sound a little bit like what's happening to us through this bail out plan?  The threat is financial armageddon.  The threat is that without it, your retirement goes bye-bye.  Such a shame.

Back to the market, I'm investigating some additional "free butterfly" items.  I've been looking for items that are in a relative range with high volatility.  My best candidate right now is gold.  GLD is in a bit of a range, and at the present, seems to be in the middle of a range.  I'm going to add this to my watch list as when extremes are hit on the range, I'll open a vertical spread.  Why a vertical?  Because I don't really want to own gold.  My long stomach is feeling a bit full at the moment.

Any other ideas for issues to try flys with, please add a comment.