Bear Stearns- Bailed out by JP Morgan and NY Fed-Is there more to come ??

 

After looking like opening to the upside the markets took a nosedive this morning on the news that Bear Stearns is being given 28 days financing from JP Morgan and the NY Fed, there has been rumours for a while in the market about Bear Stearns having liquidity problems and this confirms them to be true.They are looking to put in place some permanent financing to help them with liquidity. If companies the size of Bear Stearns can get in to trouble then we should really start to be concerned about the impact of the Credit Crunch. I have said before that I am steering clear of Financial's and this further keeps me away from them for the time being.The only way to play theses is the same as Jim Rogers, short them or buy puts on any rallies.

 

This news and the drop in the Dow has pushed April Gold Futures up over $1000 currently they are trading at $1003, having hit a high of $1007.There are also rumours(unsubstantiated ) of a possible emergency Rate cut by the Fed-when will they learn !!

 

 

Today 09:13am

Bear Stearns Companies Inc JPMorgan Chase and NY Federal Reserve Bank providing financing for 28 days, working on permanent financing

- JP Morgan in conjunction with the Federal Reserve Bank of New York, has agreed to provide secured funding to the Company for an initial period of up to 28 days. Through its Discount Window, the Fed will provide non-recourse, back-to-back financing to JPMorgan Chase. JPMorgan Chase is working closely with the Company on securing permanent financing or other alternatives for the company.

Trade The News - Live Audio Breaking News Analysis and Futures Calls

 

 

Best Wishes

 

 

Alan

 

Technorati Tags: Fed,Gold,Gold Futures,Bear Stearns,JP Morgan,Credit Crunch

More Downside to come and longer term ETF for the Energy Sector

Well the market broke below support today around lunchtime on the back of more bad news coming out of the US sub prime mortgage sector.This prompted a big move down in the Yen crosses as people scrambled to reduce risk.As I have been saying for a while(-http://retirementtrader.blogspot.com/2007/01/stock-market-dropped-sharply-today-as.html)

I have been nervous about this market and have been taking profits where I can and buying PUTS or ETF's that protect my portfolio from downside movements. Tomorrow will be important to see whether we have any follow through on today's sell off.If we do then it could be a case of "Look out below".

I urge you to consider some protection for your portfolio either by hedging or by taking money off the table until we get a better handle on the direction of the market over the next month or so.

I am still bullish on energy in the medium to long term and came across a very interesting ETF recently released by Wisdom Tree-www.wisdomtree.com

It is the Wisdom Tree International Energy Sector ETF (DKA-NYSE) this ETF holds a broad spectrum of the worlds leading Oil companies such as Total, BP Amoco,Royal Dutch Shell, and Statoil, it looks like a great way to play the energy sector with a good amount of diversification. I am looking to add this to my portfolio, but am going to wait a few days until we see which way the market goes.

I would be a buyer up to $30 and would use a stop loss of 15-20% and expect to keep it for a few years.

Lets see what tomorrow brings, I still feel we are starting a downward leg -whether it continues tomorrow or not I don't know , if we get a bounce it may be a good opportunity to consider taking some profits and sitting on the sidelines a bit until things become clearer.

Best Wishes and Good trading

Alan

Tags: ETF, Wisdom Tree, DKA, BP, Shell, ENI, Total, Statoil, Energy, PUTSPowered by Qumana

Lightening up on Some positions-Think there is increased possibility of Downside

Firstly apologies that I have not been able to post for a week or so I had some computer problems and I was travelling so was not able to get any posts out.Well yesterday was a real shake out.Today there seems to be some buying on weakness, I am glad I bought some SPY Puts a little while back as they softened some of the downside-I still was down around 3.5 % yesterday though.

I am not convinced we have seen the last of the selling and yesterday was a timely reminder of what can happen when everyone rushes for the exits at once.I am waiting to see where the Market closes and also what the voulume is like today, if we are up but volume is weak then I think we are in for some more selling sooner rather than later.

Some selling was long overdue, it would have been nice if it had not all happened at once though !! I took the opportunity to lighten up on some positions today so that I have some cash to take advantage of any opportunties but also to take profits or to reduce my exposure to some of the more High Beta stocks which will move a lot if the market sells off again.

I sold the following from my Pension Portfolio and My ISA

Linear Technology- LLTC sold for an annualised 6.38% Loss

Realty Ome Exchange -O sold for an annualised 24% Gain

Level 3 Comms LVLT-Sold for an annualised 26.5% Gain.

I would be extremely cautious about adding any positions at the moment I think we need to take some time to see what transpires in the next couple of weeks before we decide our next moves.

Sometimes the smart trade is to do nothing !!

For those of you old enough to remember the TV series Hill Street Blues -

" Lets be careful out there "

Best Wishes

Alan

Tags: LLTC, LVLT, O, Level Three, Realty, Stock Market Decline, SPY, PUTS

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Options Trading-Mind Your Delta Part 1

I wanted to look a bit at Options trading-increasingly I am trading more and more options.They are extremely versatile and the more you use them and learn about them the more you will start to appreciate what they can do for your portfolio.

I like most options traders when they first started out made the classic mistake of focusing on price.I perceived that cheap meant they only cost 5 cents !!! and that an option costing $6 must be expensive. So like most people I watched as I bought a call or a put and .............YES fantastic the stock moved in the right direction AND my option-stayed the same or worse-went backwards.

I had made the classic mistake of buying "cheap" out of the money options.

Options can be one of three things :

1. Out of the Money (OTM)


2. At the Money (ATM)


3. In the Money (ITM)

For example Stock XYZ is trading at $25

If you want to buy an option then

• a $25 option is at the money(same price as the stock),


• a $20 option is in the Money(less than the price of the stock)


• a $30 option is out of the money(More than the price of the stock)

Options that are out of the money do not move in line with the movement of the underlying stock, options that are at the money will move at approximately half the pace of the stock(i.e. for every $1 movement of the stock up or down then the option will move approx 50 cents).

For options that are in the money then the more they are in the money the closer they will move dollar for dollar with the stock.

There are other factors that affect the price like time to expiry etc-but we will cover that in another post.

Therefore the reason I was not getting any movement in my option even when the stock move din the direction I wanted it to was because I was buying "cheap" out of the money options-ahhhhh I eventually realised...there is a reason they are "Cheap"

In fact they were not cheap at all and in some instances they were a lot more expensive than options at 10 or 20 times the price.

In the next part of this article I will look in a bit more depth at why this is the case and what you can do and what you should look at to give yourself more of a chance .

Best Wishes

Alan

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Tags: Options, Delta, Calls, Puts, Options Trading