Buying SPY Puts for Some Insurance

The stock Market dropped sharply today as Bonds sold off and the existing Home Sales Numbers came out weaker than expected.At the close the Dow Jones Industrial Average (DJIA – 12,502.6) had lost 119 points, or 0.94 percent, and is now resting on its 20-day moving average. The S&P 500 Index (SPX – 1,423.9) is also on its 20-day trendline after losing more than 1.1 percent. The Nasdaq Composite (COMP – 2,434.2) dropped 1.3 percent, falling back below its 10-day and 20-day trendlines.

The Market is making me nervous at the moment, I have learned over the years that when I feel like this I should be proactive in protecting my capital and gains and taking out some insurance to protect the downside.

Now let me be clear I am not calling a top or saying that the market is going to decline from here-I think it is extremely brave (or stupid) to try to call market tops and bottoms,but I do feel that the market is behaving as if it is running a bit out of steam and it would not take much for it to roll over from here.

I cashed in a few postions today that have done well for me over the last little while, I closed out positions in the following :

Telecom Holders (NYSE TTH) 33% Gain

Madison Claymore(NYSE: MCN) 3% Gain

Vietnam Opportunities Fund ( LSE: VOF) 86% Gain

Drax Group (LSE : DRAX) 16.5% Gain

So I have lightened up on a few positions and realised some cash so I can take advantage of any opportunities that may present themselves in the next little while.

The Feb 43 QQQQ Puts that I bought a week or so ago came rocketing back today up around 80% to be back at break even. Depending on what happens tomorrrow I may roll these puts to the March contract as time decay will start to be a factor here.

I am also going to look at some "at the money" or "in the money" SPY Puts as I feel that the S&P 500 may be vulnerable to a further breakdown here as well.

It is important where we are trading for the mid to long term that we look at smoothing out the ups and downs and volatility as much as possible, if only for sanities sake.

If you cannot trade Options in your account or are not comfortable doing so, have a look at your portfolio and look for any opportunites to prune back your exposure.

You can do this by taking profits in stocks that may have run up but have been trading sideways for a while or ridding yourself of positions that have not really performed as per expectations.

There is always a danger that you may miss some further upside but my experience has taught me that missing out occasionally on some of the upside does not make up for the angst and "If only I had" regrets that taking big and swift losses brings.

As ever best wishes and Good trading

Alan

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How to Make Money in Agricultural Commodities

The above are weekly graphs of Corn, Wheat and Soybeans,as you can see since the last quarter of 2006 these have been making new highs and in fact corn has hit over $4 a bushel, this is the first time since 1996 that this has happened.

Jim Rogers one of the most succesful commodity bulls of the last 30 years has been quoted on many occasions stating that the so called "Soft" Commodites are where he sees the big growth in the next 5-10 years.Everyone is familiar with the energy and precious metal stories , but agricultural commodities are not really something that many people outside of the CBOT(Chicago Board of Trade) have much to do with.This plays in to our hands, the big money is to be made buying in to these areas before we start hearing about it on CNBC and the Wall Street Journal.Jim was telling anyone who would listen about Oil and Gold around two or three years before they really took off and became big news.We want to be in these for the next few yeasr then be selling to the masses when everyone is talking about them.

One of the major challenges surrounding these assets was unless you were willing or able to trade Commodity Futures there was little or no opportunity to play these markets directly.I personally do trade Commodity Futures ..and they are not for the faint hearted,but they were the only direct way to play these markets up till now.

On Friday the 12th of January for the first time ever investors could buy Agricultural Products through the stock market...Powershares launched an agricultural ETF (NYSE: DBA).

This new fund tracks an index which is divided equally among wheat , corn, sugar and soybeans it is run by Deutsche Bank. There are many reasons why these commodities will I believe go much higher the main ones are :

1. Agriculture has been in a bear market for many years....it is now showing signs of breaking out.


2. A lot of the rationale for this can be placed at the door of higher energy costs, these commodities are used in the manufacture of alternative sources of fuel such as Ethanol-(it is rumoured that Ethanol will be given a big push by President Bush in the State of The Union address tomorrow night.)


3. China is importing more and more of these products and they are soaking up the supplies faster than ever before.


4. Lastly the USDA revised downwards its estimates on these commodities so there is likely to be less around than previously envisaged.

I like the agricultural commodity story and will be taking a position in the Powershares Agriculture Fund (NYSE:DBA) .I would be looking to hold this for a good few years and will look for opportunities to add to it on pullbacks.

My recommendation would be to scale in to it so if you are looking to own say 500 shares then buy 300 now and look for opportunites to add another 100 and then another 100 when we get some price weakness.

I will place a 25% trailing stop loss against my position.

The website for the DBA is http://www.dbfunds.db.com/dba/index.aspx

Best Wishes and Good Trading

RT

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Portfolio Performance Curves

 Well at last I have sorted out some problems I was having with some of my software and can now post my equity curves for my US and GBP Pension Fund Holding showing performance since May 2005 when I started.
The GBP portfolio(Lower Graph) is showing the best returns compared to the US holdings.The GBP portfolio is solely made up of stocks which I have been holding for 6-18 mths  as long as they do not hit my StopLoss.I think if you click on the charts they will open larger in your browser(well they do in mine)

The US portfolio is a bit more aggresive and uses Options as well as having a trading apporach.It will be interesting to see how they perform and whether one method consistently beats the other.For now I am happy that they are both showing returns that would outstrip what you would get from having them managed by the "Professionals" which was the whole reason for me doing this.

The performance is down from where it was last May-when the bottom fell out of the Commodities market, since I am a Commodities Bull my portfolio was (and still is) more weighted to the commodity and resource stocks so has suffered a bit for that.
I will post these graphs on an approximately Monthly basis to show how I am doing.

Best Wishes

RT