I knew this
quarter would not be good for me because I transferred my previous
employer 401k plan into a rollover account and the plan termination
involved fees. Plus, another account that now comprises a good chunk of my
fund also had to pay fees. The loss of 10% is actually overstated. This is
due to the way Captools accounts for option purchases. The market value of
the position is equal only to the intrinsic value. Any time value is
disregarded. Therefore, the purchase on March 1 of a Dec07 120 SPY Call
for $1510, when the SPY was at 121 gives a market value of only 100 (
(121-120)*100). This is reflected as a 1410 instant loss (see Quarterly
chart below) that actually is not true at this time.
The market
action seem to be repeating that of 2004, only this time volatility is
more subdued. Many pundits says that the market has gotten too far too
fast. It may be true, but coming from a long bear, it is still possible to
have more upside before it turn around. Undoubtedly resistance will be met
at the latest high. Also, a retest of last year's bottom may be possible.
That will give clues whether this is the start of another downward move or
just a pause in a long advance.
Last year I
used options in an attempt to catch up with the market. The method I used
didn't work very well. This year I am trying another experiment with at least
40% my funds: A combination of fixed income with options on the SPY (an
ETF that tracks the S&P 500). The general idea is to have a 100%
upside participation while the fixed income provides a degree of capital
guarantee. In my case I structured the combination in a way that by
December 2007 the funds involved in the combination option/bonds will either have a minimum total return of 3% or whatever
the S&P 500 returns ABOVE that 3%. Whit the rest of the funds I will
try other strategies more aggressive and lastly, I will use 5% of my funds
to continue experimenting with high leveraged options. |
