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Best Personal Financial Planning and Personal Investment Articles this Week from Personal Finance Blogs

Carnival of Financial Planning – Edition #204 – September 30, 2011

Welcome to the September 30, 2011 Edition #204 of the Carnival of Financial Planning.

The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. We focus on efficient and sustainable personal financial planning practices that can lead to lifetime financial security.

This edition is arranged by subject heading, so that you can browse efficiently.

Enjoy!

The Skilled Investor, Editor

Budgeting and Economics

Jon Elder presents Pay Cash or Finance a Car? That is the Question! posted at Free Money Wisdom, saying, “Whether you pay cash or finance a car, it’s likely to lose value almost as soon as you drive it off the lot. That’s why it takes careful consideration to make sure that you’re making the right decision for your personal financial situation.”

Jonathan presents Is Buying in Bulk for You? posted at Money Mum, saying, “Buying products in bulk can be extremely beneficial for your wallet as you often get more for your money with bulk buys. It can also be a great time-saver as you won’t be running to the store every day to pick up the ingredient or household product you forgot to buy during your last shopping trip. Before you start buying all of your products in bulk, however, there are a few important items to consider:”

misst presents My ‘Free’ Kitten Cost Us Over $9000 | Prairie Eco-Thrifter posted at Prairie Eco-Thrifter, saying, “I hope I don’t sound too mercenary, I do love pets and know that many people consider them family members – and you don’t put a price on a family member. Still, it pays to know the costs related to a family member so you can plan for them in your budget. Put your pet’s needs in your budget.”

Jason@LiveRealNow presents Hiding Money: The Invisible Cushion posted at Live Real, Now, saying, “I’m bad at keeping secrets from my wife, especially about things that affect both of us, but if i let it slip, the invisible cushion will go away.”

Mr. Money Smarts presents Are Your Emotions Getting In The Way Of Your Financial Success? posted at Smart On Money, saying, “Making a plan is a good idea no matter your situation. Whether you are creating an investment plan for retirement, or making a debt reduction plan, having a road map to follow can help you avoid the pitfalls of letting your emotions rule you.”

Rogan Seager presents Retirement Savings Calculator posted at Retirement Savings Calculator, saying, “Valuable future investment portfolio assets and future investment returns slip through many people’s fingers at the checkout stand every day, because they spend beyond their long-term means.”

Jacob presents 10 Effective Things You Can Do When America is in a Double-Dip Recession posted at My Personal Finance Journey, saying, “During recessionary periods, effective financial planning is of absolute importance. This post takes a look at 10 things normal individuals can do to in their finances and career to enable them to not only survive the recession, but perhaps prosper…”

Bob presents How to Stick To A Budget posted at Christian Personal Finance, saying, “Budgets have always been a tough sell. However, in workshops I teach around the country, I’ve noticed a hopeful sign – Instead of flat out resisting the idea, more and more people are asking questions about how to stick with a budget.”

Estate Planning

My Journey presents Why I am Not A Big Proponent of Revocable Living Trusts posted at My Journey to Millions, saying, “In both my law practice and day job Revocable Living Trusts come up often, however, I am not a particularly big proponent of using them for one specific reason discussed below.”

Crystal presents Preparing for the Inevitable posted at Budgeting in the Fun Stuff, saying, “Nothing lasts forever and in fact, you can estimate the life of most things you buy so start saving to replace them before you need to!”

Financial Planning

Craig Ford presents Please Don’t Let Your Bank Make Your Financial Decisions posted at Money Help For Christians, saying, “Plan your finances with purpose, not by default.”

Jose D. Roncal presents Can You Spot Fudged Financials? posted at Jos? Roncal, saying, “It’s been more than a decade since the financial scandals perpetrated by Enron, World Com, and a host of others hit the evening news. Yet the images of top executives being forced to do the perp walk are still fresh in the collective mind. So are the memories of millions lost in retirement savings.”

DGB presents 6 Reasons Why You Should Panic and 1 Reason Why You Should Keep Investing posted at The Dividend Guy Blog, saying, “Are you going to panic?”

Ciana Locke presents Market Index Funds posted at Best Index Mutual Funds, saying, “The dominant issue in choosing among passively managed index mutual funds and ETF funds benchmarked against the S & P 500 is that securities industry management and trading fees are all over the map from reasonably low to shockingly high.”

Suba presents Big dreams, small income : Financial planning for the middle class posted at Wealth Informatics, saying, “How to find a financial planner for the middle class? ”

Echo presents 11 Steps To Financial Freedom – Determine Your Net Worth posted at Boomer & Echo, saying, “Fewer partnerships would end in divorce if couples thought more objectively about their finances. That means treating your marriage like a business.”

Frank Knight presents Investment Asset Allocation posted at Retirement Planning Software, saying, “When you are already there and invested in an asset class, you are following a passive asset allocation strategy. Tactical asset allocation strategy advocates suggest that you can anticipate the crowd, but flow-of-funds studies show that almost all tactical asset allocation fund flows are late money flows that chase performance after valuations have already moved.”

Financing a Home

Nathan Richardson presents What Is A Good Credit Score To Buy A House posted at Deals & Tips, saying, “Credit Scores and Interest rates are correlated, learn what it takes to achieve a optimal credit score.”

Mckay presents Buying versus Renting: The Last Article You’ll Ever Need to Read posted at Vacancy.com, saying, “A comprehensive look at buying a home versus renting.”

DJ presents Walking Away from Your Home – What Are The Alternatives? posted at The Family Wallet, saying, “Losing your home brings forth a deluge of emotions. It’s a sad event, and it may also make one feel angry or ashamed. It’s certainly not ideal, yet desperate homeowners often feel that they have no other alternative. But in most cases, there is help available.”

Financing Education

Jeri Ford presents 7 Situations Where Cash Back Credit Cards Are Better Than Air Miles Credit Cards posted at Help Me Travel Cheap, saying, “Help determine situations where cash back credit cards are better than mileage credit cards”

Annette presents Higher Education: Economic Boon or Bubble? posted at CreditDonkey.com Tips, saying, “Is college worth it? A look at demographics, degrees and debt”

Andy Boyd presents Bear Markets Explained posted at Wise Bread, saying, “So what exactly is a bear market? It’s the opposite of a bull market (which is why the bear market is sometimes known as a “heifer market”). A bull market is when traders are making a killing on the stock exchange, prices and indexes are rising, people are making money, and optimism fills the offices of the NASDAQ and NYSE. Unfortunately, this means that a bear market is when share prices are falling, traders are panicking, and the economy looks perilously close to tail-spinning out of control.”

Financing Healthcare

Consumer Boomer presents Cheap Medications For Seniors On Line posted at Consumer Boomer, saying, “Here is a look at how you can save money by ordering your prescriptions on line and some great tips to help you find an on life pharmacy that will work for you.”

Income

David Leeman presents Extra Ways to Make Money posted at Financial Freedom Advantage, saying, “Here are some of the best extra ways to make money to help supplement income. Most of these easy ways to make money require no investment and no special training.”

Kyle Taylor presents Is This a Good Time to Start Selling Real Estate Part-Time? posted at The Penny Hoarder, saying, “A friend of mine recently told me that he is thinking about becoming a real estate agent on the side to help generate extra income. I couldn’t help but blurt out an inappropriate, “Are you crazy?!” Weigh in on our debate…”

Mike @ Green Panda presents Are You Going To Graduate and Go Back To School? posted at Green Panda Treehouse, saying, “Will you boost your income with graduate school?”

Dr. Dean presents Couple Financial Role Reversal! posted at The Millionaire Nurse Blog, saying, “Most couples do things with finances separately in some way..one partner makes the money while the other spends it, right? Jokes aside, preparing for the possibility that you may have to take over the opposite role is a good idea.”

FMF presents Merit Alone May Not Get You that Promotion posted at Free Money Finance, saying, “Performance alone likely won’t get you promoted. You must also be liked.”

Investing

Kevin presents The Biggest Unknown Risk of Stock Investing posted at Invest It Wisely, saying, “We say that stocks are risky because we know that prices can suddenly drop hard — stock prices are volatile. But we also believe that stocks are not really all that risky for those committed to holding them for the long term. In the long term, stocks always provide good returns. By following a Buy-and-Hold strategy, we can overcome the riskiness of stocks. I don’t think it is so. I view this as dangerous thinking”

Alex Foster presents What is the Market Multiple posted at AF Capital Management’s Blog, saying, “ if the economy is less than 30% likely to fall into a recession again in the near term, why has the market sold off so much so quickly?”

Ken Faulkenberry presents Top Global Investment Trends to Invest In – 2011 posted at Arbor Asset Allocation Model Portfolio (AAAMP) Blog, saying, “These are some of the top global investment trends that should be included in every portfolio asset allocation in 2011 and beyond.”

Mirelle Rowden presents Fixed Income Funds posted at Best Bond Mutual Funds, saying, “Vanguard dominates this low cost United States bond mutual funds marketplace for direct purchase accounts with both low and high minimum deposits.”

Corey presents Is it Hard to Time the Market in a Recession? posted at 20′s Finances, saying, “With the stock market in a major slump, many people are cutting their losses. If you are investing for the future, now is the time to buy.”

Dividends4Life presents 7 High-Yield Dividend Achievers With 25 Years of Increases posted at Dividend Growth Stocks, saying, “While the S&P 500 Dividend Aristocrats may be the most recognized list of dividend stocks, it is certainty not the largest. Since the Dividend Aristocrats list is limited to only stocks included in the S&P 500 Index, many smaller stocks are excluded. To expand the population of potential investments, many investors look at the dividend growth stocks included in Broad Dividend Achievers™ list.”

The Financial Blogger presents September Net Worth Update (-5.01%!) posted at The Financial Blogger, saying, “In another fully transparent report, I share my updated finances.”

DGB presents Dividend Growth Index posted at The Dividend Guy Blog, saying, “Are you a dividend growth investor? You need to check this out.”

Intelligent Speculator presents Amazon (AMZN) A Must Buy Stock? posted at Intelligent Speculator, saying, “Have you purchased this stock?”

Glen Craig presents What is a Mutual Fund Prospectus? posted at Free From Broke, saying, “So you want to invest in mutual funds but you are clueless about them? A good place to start is to answer the question: What is a mutual fund prospectus?”

Janet Russell presents The illusion of superior professional mutual fund manager performance posted at Personal Investment Management, saying, “If investment mutual fund managers were truly skilled at beating the market, then you would expect mutual fund manager performance prowess to persist over time. The effort to find those few supposedly superior money managers willing to sell their services sufficiently cheaply is a costly, time consuming, and futile, “Where’s Waldo?,” searching exercise for the individual investor.”

Darwin presents Seriously, a 9% Risk-Free Return in 1 Month. Here’s How posted at Darwin’s Money, saying, “Here’s how I earned a 9% return in 1 month – risk-free! This is a once per year opportunity that few people take advantage of!”

Frank Bertin presents Index Funds posted at Top Index Funds, saying, “Top ten no load index funds that track the Standard and Poors 500 composite index in terms of lowest costs.”

Dan presents 5 Reasons to Avoid the Most Popular Gold ETF GLD posted at ETF Base, saying, “Everyone’s talking about gold – and buying the gold ETF GLD. Here are 5 reasons why you should RUN!”

Managing Credit and Debt

Melissa Batai presents How We Plan to Tackle Our Debt posted at Mom’s Plans, saying, “We would like to have a significant chunk to put down on a house in a few years, and I don’t want to purchase a house if we have other debt. Here is our plan for paying down our current debt quickly:”

Jen presents The Life of The Evil Credit Card- part 5 posted at Master the Art of Saving, saying, “Documenting the life of a recently acquired credit card and my journey to paying it off. Tracking the interest, payments and balances as well as what it would cost to only pay the minimum payments.”

Matt presents 079 Financial Excellence: Why Dave Ramsey?s Advice Doesn?t Make Sense posted at Living In Financial Excellence, saying, “Dave Ramsey has a lot of critics in the financial world. Many of them criticise his methods because they don’t make mathematical or theoretical sense. But Dave isn’t trying to make mathematical sense.”

J.R. Weber presents Current Credit Card Rewards Offer Rankings posted at Smart Balance Transfers, saying, “Consumers who are debt free can benefit from credit card rewards offers, but there are a number of factors that influence whether a rewards card is the right option.”

MainstreamMom presents Get Out of Debt With the Help of Debteye posted at Mainstream Mom, saying, “I had a chance to check out a new program called Debteye. I wanted to find out more about how their program worked, and how it’s different from other debt relief companies out there. I had a chance to speak with Kevin Yu, who is one of the co-founders of Debteye.”

Janet presents Building Good Credit: It Doesn’t Have to Mean Debt posted at Credit, Eh, saying, “One of the misconceptions that many people have is that building good credit means that you have to get into debt. However, this just isn’t true. ”

Miscellaneous

Marie presents Compare DIY Material Costs and Save posted at Money Spending Mommy, saying, “When you hire a contractor, you usually have little say in the materials used for your home improvement project. But when you’re in charge, you can shop around for the best deals. Here are some tips that will help you save money on materials.”

DJ presents Budget Tips For School Trips and Activities posted at The Family Wallet, saying, “Handling requests to go on field trips and participate in activities can be difficult. Here are some ways you can work these things into your budget.”

Tim @ Faith and Finance presents 12 Seasonal Jobs for This Holiday posted at Faith and Finance, saying, “With the holidays around the corner, you might find a few extra job opportunities if you look hard enough. Be prepared and get some good ideas with these suggestions.”

Kevin presents Apple Picking posted at Invest It Wisely, saying, “Apple picking can illustrate three important life and financial lessons.”

MoneyCone presents Using PayPal To Send Money? The Deal Just Got Sweeter! posted at Money Cone, saying, “What if I told you you can send money via Paypal, fund it with a credit card yet not get charged any fees by either the credit card company or PayPal and actually earn cash back on your PayPal payment?”

Tripp Danner presents No Load Funds posted at No Load Fund, saying, “There are over 60,000 different mutual fund investment share classes sold worldwide. Some mutual funds and ETFs must be better than others, but which ones are they? How can you tell before the fact?”

Consumer Boomer presents Beware Of These Baby Boomer Scams posted at Consumer Boomer, saying, “Baby boomers need to know what to look out for in order to protect their assets. Here is a peek at just a few of the top scams to watch out for.”

Suba presents How sleep affects finances posted at Broke Professionals, saying, “Lack of sleep is often attributed as a sign of hard work and competitive strength. But do you know all the negative effects lack of sleep can have on your finances?”

Jaimie presents Seven Holiday Movies That Put Money and Materials in Perspective posted at Paid Twice, saying, “It’s a little early but here are some movies that put life back into perspective.”

The Skilled Investor presents Market Timing Does Not Work posted at Personal Financial Management, saying, “Always stay invested to earn risk premiums. You must have your money invested and at risk to get risk premium returns. Jumping out and in or “timing the markets” doesn’t work.”

Retirement Planning

James Bush presents Withdrawing from Your 401k Early (If You Absolutely Have To) posted at 401k Calculator, saying, “It’s often not a good idea to tap into your 401K but if you have made the decision to do so here are some things to consider.”

Brockton Eaton presents Long Term Investment Strategies posted at Retirement Investment Strategy, saying, “The investment research literature repeatedly demonstrates that a fully diversified, low cost investment strategy is superior.”

Risk Management and Insurance

FMF presents How to Buy Long-term Care Insurance: What Every Policy Should Include posted at Free Money Finance, saying, “Some of the basics you should look for when you’re thinking of purchasing a long-term care insurance plan (LTCI). There are standards that every policy should uphold as well as additional, more personal considerations to take into account.”

Savings

Matt presents Back-to-School Shopping… Saving Money After the Dust Has Settled posted at Living In Financial Excellence, saying, “To me – both as a parent,and as a thrifty adult – the best part of the back top school sales starts now… just in time for several upcoming occasions.”

Walter Binkle presents Large Cap Mutual Funds posted at Mutual Funds, saying, “You can save a lot by paying attention to mutual fund expenses. Each of these S & P 500 index funds is among the least costly on the market.”

SB presents When and How to Buy Holiday Airline Tickets to Save posted at One Cent at a Time, saying, “Summer is now gone, when you are waiting for the leaves to change color, this is the best time to buy airline tickets for holiday travel. How to get the cheapest airline fare this holiday.”

Bradson Oakley presents Bond Mutual Funds posted at Best Bond Funds, saying, “Higher bond fund expenses tend to mean lower net returns to individual investors. It is not worth paying higher bond fund fees.”

Mike Holman presents How to avoid cell phone data roaming charges when traveling to the United States posted at Money Smarts Blog, saying, “How to save on cell phone data roaming charges when traveling to the US or other countries.”

Jonathan presents Millionaire Master Class: 6 Tips from the Top posted at Wallet Watcher, saying, “When it comes to money management, millionaires aren’t so different from the rest of us after all. In order to maintain their position at the top and avoid the dreaded status of bankruptcy they tend to watch their every dollar and cent, budget, live frugally and avoid financial risk just as we do.”

Taxes

Investor Junkie presents What Does Netflix and Taxes Have In Common? posted at Investor Junkie, saying, “Now you might be wondering what does taxes have to do with Netflix? Everything! This is a classic example of elastic demand”

Gemma Flannery presents Tax Codes and your Personal Allowance posted at Tax Codes, saying, “Each year you can earn a certain amount tax free. This post shows how your tax code is affected by your tax code.”

Finley Merriwether presents Retirement Planning Calculator posted at Retirement Plan Calculator, saying, “Tax-advantaged retirement savings plans give you the opportunity to make investments with deferred taxes in 401k, 403b, 457, Keogh, Simple, or other employer sponsored retirement plans.”

Mark Roberts presents How To Choose The Right Filing Status posted at Tax Brackets, saying, “This article provides a guide to choosing the right filing status for your tax return.”

That concludes this edition. Submit your blog article to the next edition of Carnival of Financial Planning using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Technorati tags: carnival of financial planning, blog carnival.

Where do we go from here now that we know how the past has played out?  I’m not turning into a bull yet.  We had a small up day on Friday, but the high stopped right where two short trend lines of lower highs pass through and fell back in the middle of its trading range for the day.  The volume for the past full week was almost dead-on average each day, thereby not adding any weight to the bull or bear case as much as the blah feeling that is trickling around the market.  We’re far below the 10, 20 and 50 day moving averages, so we could get a bump up to any of them, but then there’s Williams %R.

Williams %R which is an indicator for oversold/overbought conditions is still in oversold as it has been for weeks.  That doesn’t mean we should be jumping in now.  It means we need to remain patient.  The SPX has been in oversold for three weeks already.  That’s longer than most spells down there, but doesn’t mean it’s going to end tomorrow.  It might, but like I said two weeks ago %R still isn’t showing the direction is ready to head north.  We need to see a break out from the oversold area.  That might make us miss a day or two of potential profit, but if you heeded my warning from the February 20th chart I’ll bet you’re happy you didn’t rush in before the fall that hit the SPX since then.  All that said, be ready for a rally soon – just don’t get in before the indicators say you should.

The (ugly) list below shows the slowly lowering cost per share due to options for me on MON.  My average cost per share for MON is now $69.96.  It’s trading at $71.71 as I finish writing this near closing today.  That means I’m sitting on an overall profit for the series of trades and have no options on it.  So, I could still lose on it or could end up making a lot more.  I’ve done a lot of trading to get nowhere basically, but I’m not down and that’s big these days.

Date/Time                                         Description                                        Amount

08/19/2008  09:30:51                         Sold 1 MONVC @ 4.3                          $      419.25

10/02/2008  09:48:04                         Sold 1 MONJU @ 2.75                          $      264.25

10/02/2008  09:49:27                         Sold 1 MONVO @ 4.9                          $      479.25

10/20/2008  00:00:01                         Bought 100 MON @ 100                       $(10,019.99)

10/21/2008  09:34:23                         Sold 1 MONKU @ 5.5                           $      539.25

10/23/2008  09:36:45                        Bought 1 MONKU @ 3.2                       $     (330.74)

10/23/2008  09:43:36                         Sold 1 MONWL @ 2.6                          $      249.25

10/29/2008  09:59:38                         Sold 1 MONKU @ 5                             $      489.25

12/29/2008  14:29:19                         Sold 1 MONBP @ 2.1                           $      199.25

01/12/2009  09:40:31                         Sold 1 MONNN @ 2.5                           $      239.25

02/20/2009  15:51:00                         Sold 1 MONCP @ 4.5                           $      439.25

02/20/2009  15:51:00                         Bought 1 MONBP @ 0.1                       $       (10.75)

02/24/2009  09:38:12                         Bought 1 MONCP @ 2.4                       $     (250.74)

02/26/2009  10:34:08                         Sold 1 MONCP @ 4.5                           $      439.25

03/02/2009  10:41:12                         Bought 1 MONCP @ 1.3                       $     (140.74)

This trade summary does not include earlier naked puts I sold that were not assigned.  I started with the naked put which ended up being the option that assigned me the shares that got me into this.  MON is right near the bottom end of its trading channel that started a month ago.  I’m expecting a bounce, so I didn’t sell another lower strike covered call yet and didn’t buy a put for protection yet.  I might regret waiting, but will take my chances.  If/when MON rallies again I might buy a put the next time instead of selling another covered call.  As always, that’ll be a game time decision.

This morning I decided to get out while I had a few dollars profit and redo the order with a different approach.  I put in a limit order to close the position, but the S&P 500 fell before it hit.  I let the order stand and while SSO resumed its climb and was trading at $18.78 I sold to close three SSO March 19 calls (SOJCS) for $1.50 each and received $437.72 with commission.  I could’ve done better a few minutes later, but would’ve done worse if I had waited until the end of the day.

Once I got the trade alert text message on my phone I went back in and started checking what I could do to try my new strategy of selling a credit put spread instead.  By then, SSO was up above $19 and was climbing still.  I tried a limit order for a net credit spread for March 19 and March 18 strikes for a $0.50 net credit and it didn’t hit so I lowered my limit order to $0.45 and waited.  50 minutes later, just before the market closed for the day while SSO was trading at $18.83 on its way down even lower five minutes later I sold seven March 19 SSO puts (SOJOS) for $1.65 and bought seven March 18 SSO puts (SOJOR) for $1.20 each.  The short puts brought in $1,139.75 and the long puts cost me $845.25.  That gives me a maximum profit of $294.50 if it goes my way and a maximum loss of around $405 with commissions.  By creating the credit put spread my break even point is under $18.60.  That’s a more comfortable position to be in with close to the same profit/loss amounts on the table.  I don’t expect SSO to stay between $18.00-19.00 for long and think it’ll move to the upside again before moving much more to the downside.

I’m considering a similar credit put spread on XLB too after my February naked puts closed out of the money.  I’m not as confident this month to write naked options again, yet.  As volatile as this market is each day, I have to recommend only using limit orders and letting them sit as long as you can stomach it before changing them.  It’s bound to bounce around enough to hit within a couple of days.  Check out the price action on MON.  It’s been all over the place.  A limit order for some far out of the money options on it could hit any hour at a much higher than expected price.  I’m considering a new naked put on it and a new covered call too.

I started the day by selling covered calls on my 300 newly acquired USO shares I had to buy at $31.00 (I paid $9,319.99 with commissions) from the February 31 naked puts that expired in the money (ITM).  USO started up and then headed south with the rest of the markets.  While USO was trading at $24.30 I sold three USO March 25 covered calls (UBOCY) for $1.65 each and received $482.75 after commissions. 

I considered the March 26 and March 27 calls which weren’t too much less in price considering the extra $1.00 potential in gain from the underlying ETF.  I decided to cut my losses up front and take more off the table immediately by going with the higher premium carrying March 25 calls even though I stand a great chance of ending the position at a loss.  I sold the original puts for an after tax gain of $1.41 per share.  Today’s trade knocked down my costs by another $1.61 per share.  That makes my cost for my 300 shares approximately $28.05.  If I sell them at $25.00 I’ll lose over $900.  If the price of USO stays below $25, but close to it, I’ll stand a chance of breaking even as I rewrite the calls.  I don’t see demand for oil taking off in the near term, so any spike in oil soon will likely only be a bear market rally and I don’t expect it to last.  If it does last I’ll have cash back and will have a higher account value than I already have now.  If I see oil rising and believe it’s legit, I might consider selling new naked puts at the March 25 strike with the idea that one of the option legs is guaranteed to close out of the money (OTM).  If that happens and USO closes close to $25 at March expiry, I could “win” on both legs.  I have a long wait before I know what will happen, but I like my position for now.

SSO

By the end of the day all of my attention was focused on the S&P 500 ($SPX.X) and two ETFs that track it, SPY and SSO (double the S&P 500 index).  I’ve been saying for weeks that SPY was due to retest the November lows and wished I had bought puts back then when I was blabbing about it.  This weekend I noted in my $SPX.X chart that it just had a little farther to go to reach the November low.  As I predicted, the SPX stayed in the channel I drew, hit the top line of lower highs and dove down to find support at a low of the day of 742.37.  That’s only one point above the November low I’ve been calling for over the past few weeks.  I decided to put my money wear my mouth (or keyboard in this case) is.  While SSO was trading at $17.95 and the SPX was trading off its low at $748 I bought to open three SSO March 19 calls (SOJCS) for $1.40 each and paid $432.24 with commissions. 

I debated if I should buy the March 17, 18 or 19 strike calls and picked the 19 strike because it allowed my to buy three calls for less than I could have bought two March 17 calls for and the March 18 calls didn’t really fit either side.  I didn’t want to spend more than $500 on what could be a mistake if my prediction doesn’t work out.  The March 17 would give me a better likelihood of profiting because they contain a little intrinsic value (part of the option price is made up of value found from the option being ITM).  But I don’t see SSO staying flat, so it’s either dropping more and I’d lose on either or it’s going to rally and owning three options gives me a chance to make a greater percentage gain.

My original plan was to wait until the S&P 500 bounced off of support before I got in, but I’m 55% in cash right now and opted for more exposure to an upside rally.  Buying the calls seemed a good move versus selling naked puts because the risk is greatly reduced of how much money I can lose.  My loss on this trade is capped at $432.24 which would a 100% loss.  My potential gain is unlimited, although I’ll pick an exit point and put in a limit order as soon as I see what kind of reaction this closing at support does for the markets tomorrow.  If the option premiums go up $1.40 I’ve made a 100% gain.  If I don’t put a sell order in tomorrow, greed could easily take over and I could blow any profit I get in the short term if the rally doesn’t have legs.  Depending on how it plays out, I might sell calls at a higher strike since I have the long calls in place to keep the short calls from being naked and risky.

MY OTHER STOCK MOVEMENT

I didn’t cover my JOYG or TDW long positions yet with covered calls because both appear to be near their lows from a few months ago and I want to see if they’ll rally.  I considered buying puts on them and wish I had because they both dropped from where they were when I debated it.  My 200 FCX shares were called away and I received $4,979.98 after commissions. My 200 AAPL shares were called away and I received $16,979.91 after commissions. Also, my 200 CELG shares were called away and I received $9,979.95 after commissions. Those three were all down today, so I was happy not to have them bringing me down. 

All these trades/option assignments together brought cash balance up to $30,032.57. I’m ready to see confirmation that today’s support holds and I’ll put a lot of that $30k to work quickly, even if I miss the first few days of a bounce. I’d rather get in late than be fooled by a rally that dies off too quickly. Then again, I’m pretending a rally is guaranteed just because my chart lines thought it should mean more than a sick economy does.  I might be getting ahead of myself considering the DJIA lost 250 points or 3.41% today.

This is what he was referring to - If you take the high of October 2007 (14,198.10) and subtract low of October 2002 (7,197.49), divide that number in two and add it to the low you get 10,697.79.  The DJI broke that level eight days ago on September 17th, with a closing price of 10,609.66.  The next day it dropped a little low to 10,459.44 intraday before coming off the floor.  It hasn’t broken that mystical number since then and with the bailout plan likely to be finalized soon, it might not.  Could that line be all we needed to find a turning point?  I’m not betting on that yet.  I want to see a housing and jobs recovery first, but will take either as an excuse to buy.

Had I not been looking for the 50% retracement line, I’d have probably pointed out the areas I circled in 2005 and 2006 where today’s DJI price was last seen and seen often.  I like that extra layer of support that it could offer if I dare think bullish or at least not bearish.  I won’t actually turn truly bullish until we break the downward trading channel we’re working through right now.  I’ve mentioned it a couple of times this month, I think the downside risk of losing money might be less than the upside risk of not making money if you don’t have your money on the table.  It’s likely to remain a volatile market, so I still suggest being cautious with any trades.

To see more of my index charts from previous weeks, click here.

At just a glance I can see where I cannot allow myself to get in any deeper, such as Technology and Basic Materials.  I doubled up on Shipping stocks within the Services sector, but I’m not too deep in on it from a dollar perspective.  At least I know that I can’t open a new Shipping position until one or both of those are out.  I also see that I have some room to find another Healthcare play to thicken up my exposure there.

DIVERSIFICATION Sector/Stock – Industry
Services
  BNI – Railroads
  DRYS – Shipping
  TDW – Shipping

Technology
  VIP – Wireless Communications
  QCOM – Communication Equipment
  AAPL – Personal Computers
  NVDA – Semiconductor – Specialized (short naked calls)

Industrial Goods
  CMI – Diversified Machinery
  JOYG – Farm & Construction Machinery
  BA – Aerospace/Defense – Major Diversified (short naked calls)

Healthcare
  CELG – Biotechnology

Basic Materials
  MON – Agricultural Chemicals
  AA – Aluminum
  FCX – Copper
  CHK – Independent Oil & Gas

The only position I’m sitting on a paper loss in right now is KFT.  I checked the July 30 call premiums and they are very low due to low volatility and, I presume, low expectations for a snap back higher.  I have more than five weeks before it expires, so I’m not worried about it yet.  I highlighted my four call positions just to keep them from blending in with the puts.  DIS and VIP are both covered calls and are both above the strikes which is what I want.  AA and SFLY are both naked calls and are below the strikes, which is what I want.

My account balance is $95,557 as of market close June 11, 2008.  I have enough cash to support only 57% of my short positions if all are assigned, but yet I’m not worried because I strongly believe I’ll profit on most of these positions still.  Had I not taken the emotion out of the equation, I might have guessed I was already down on half of these while clearly I’m not.

The prices are as of the close on 6/11/08.  The formulas are very simple and used in column G and I.  In G, for the naked puts I used “=(F#-E#)+D#” and for the I used “=(E#-F#)+D#”, where “#” equals the row.  I don’t include commissions for simplicity for this quick analysis.  In I, for the current value of the options based solely on time value I used “=-C#*100*H#”.  Adding all this together in row 21 shows that if all of the underlying stocks do not fall much more until both June and July option expirations I’ll be up another $3,873.00 in just over five weeks.

Covered calls are a lot more popular because the risk is perceived to be lower, but that’s not 100% true.  The upside risk is much lower, but the downside risk is much better by not taking ownership.  I think that SFLY could fall lower than its current price, so I am not taking ownership of the underlying stock and therefore am not taking on the downside risk.  I am accepting risk to the upside in that SFLY could climb to 25, 50, 100 or any higher price, but I just don’t think that’ll happen.  If SFLY climbs above 17.50 by options expiration, I’ll be forced to sell 400 shares which I don’t own, essecially I’m shorting the stock now, but with a cushion and a limited profit.