Non-Option Model

new: double 50% to 100% SSO 2X SP500 etf - at 66.70
Plan: I will double the position if SSO goes below 65.20

Option Model

10% SPY Nov 130 Calls and 10% SPY Nov 130 Puts
Plan: I will sell the Puts if SP500 (SPX) gets down to 1264 or lower

new: double the 3% position to 6% Dec SPY Calls (entry SP500 1274)
Plan: I will double the position to 6% if SP500 below 1265

5% Dec SPY Puts (entry SP500 1301)
Plan: I sold these yesterday below 1275

new: double the 5% position to 10% GLD December Calls (GDX 34.80 / 35.05) now at 34.00
Plan: Holding for now, buying more this 9/4 AM at 34.00

Spread: 4% into USO Jan 09 120 Put (9.30) USO is Oil eft, last 110.90, simultaneously 4% into GLD Jan 09 Calls (8.30) GLD is Gold etf. This is a spread... Long Gold while Short Oil
Plan: I plan to hold this spread for a couple months, it is at a slight loss now.
The rest is in cash.

Option Model

3% Dec SPY Calls (entry SP500 1274)
Plan: I am buying a few SPY calls

Non-Option Model

100% SDS (inverse 2x SP etf), bought at 63.52
Plan: Sold this position 66.20

now: 50% of account.. Buy SSO (2X SP500 etf) about 66.70

Non-Option Model

100% SDS (inverse 2x SP etf), bought at 63.52
Plan: Sell this position above 66.20

Option Model

Spread: 10% SPY Nov 130 Calls and 10% SPY Nov 130 Puts
Plan: Sell the Puts if SP500 (SPX) gets down to 1264 or lower

5% Dec SPY Puts (entry SP500 1301)
Plan: I will sell these on any dip below 1275 this AM

5% GLD December Calls (GDX now 34.80 / 35.05)
Plan: Holding for now

Spread: 4% into USO Jan 09 120 Put (9.30) USO is Oil eft, last 110.90, simultaneously 4% into GLD Jan 09 Calls (8.30) GLD is Gold etf. This is a spread... Long Gold while Short Oil
Plan: I plan to hold this spread for a couple months, it is at a slight loss now.

note on spread...

In the Option Model, this morning I wrote
"new spread: 10% SPY Nov 130 Calls and 10% SPY Nov 130 Puts"
Instead of using options, one could have put 10% of one's account value into the ETF SSO (2x SP500 ETF) and simultaneously put 10% of one's account value into the ETF SDS (2x inverse SP500 ETF).

Option Model

new spread: 10% SPY Nov 130 Calls and 10% SPY Nov 130 Puts
Plan: I put on this spread this AM, 9/2

new: 5% Dec SPY Puts (SP500 now 1301)
Plan: I bought some this AM 9/2, expecting SP500 to get below 1260 sometime in next 2 weeks

new: was 2.5%, now 5% GLD December Calls (GDX now 34.80 / 35.05)
Plan: Gold is taking a big hit this AM, and I am doubling up on this position

Spread: 4% into USO Jan 09 120 Put (9.30) USO is Oil eft, last 110.90, simultaneously 4% into GLD Jan 09 Calls (8.30) GLD is Gold etf. This is a spread... Long Gold while Short Oil
Plan: I plan to hold this spread for a couple months, it is at a slight loss now.

Non-Option Model

100% SDS (inverse 2x SP etf), bought at 63.52
Plan: Buy now, this AM 9/2, as market is up, SP500 about 1300

Long-Only Model

Currently 75% in SP500 index-type fund (SP500 1335), 25% in international fund
Plan: It looks more like I will hold on until October/November, IF at any point in Sept, we get to 1350, I will probably exit.
Previous trades: Entered SP500 fund at 1320, exited at 1390. Entered SP500 fund at 1335 .... and now holding on.

3 Models

I will report on three models: Option Model, Non-option Model, the Long-Only Model. You can mix these to fit your needs, but I designed these initially to help me organize my investing. A chief concern of mine is risk management and all are designed to minimize risk. I would suggest you read (or briefly review) the other blog entitled “Investment Choices” before you read this one.

I have concentrated on pattern recognition with respect to the NDX100 (Nasdaq100 index) and previous blogs at this site refer to that. Those concepts are incorporated into these models.

Long-Only Model

This is the simplest model. Some investment accounts have limited investment options (maybe some 401K’s, variable life insurance policies, IRAs or Health Savings Accounts-HAS’s), and you can not invest in anything but funds that “go long the market”. These are accounts where you are only allowed to invest in various stock or bond funds (maybe a fund that invests in government bonds, or one that invests in small cap stocks, or one that invests is stocks that mirror the SP500, or one that invests in international stocks).

With this type of account there is no way to make money when the stocks are going down… except that you can switch your money into a money market fund, to preserve your capital. I have been trading my life insurance policies cash value in this manner. The investment is moved from the “SP500 Index-type” fund that they offer to the Money Market fund, and back and forth. The trading is infrequent, averaging one trade every 5-6 weeks, or so.

Recent 2008 trades:

Entered the SP500 index fund when SP500 at 1320

Moved to Money Market when SP500 at 1390

Entered SP500 index fund when SP500 at 1335 and still in this fund.

Option Model

This is labeled “option” but one could trade this model without using options at all. This model focuses on trading the SP500 (SPX), the Nasdaq100 (NDX) and gold stock indices. Virtually in all instances, when a recommendation is made, one could use options or a 2X index exchange traded fund or a 2X index mutual fund, instead.

For example, instead of buying call options on the SPY (SP500 index), one could buy shares in SSO (Proshare’s 2X SP500 exchange traded fund) or one could buy shares of the RYTNX mutual fund (Rydex’s 2X SP500 mutual fund). If the recommendation is to buy put options on the QQQQ (NDX100 index), one could buy shares of the QID (Proshare’s inverse 2X NDX100 exchange traded fund) or one could buy shares of RYVNX (Rydex’s inverse 2X NDX100 mutual fund).

There may rarely be a few individual stock recommendations.

Non-Option Model

This model will focus on recommendations that are more directed toward end-of-day trading. This requires less active involvement or monitoring. For example, a recommendation may say “With 50% of the account, buy a 2X inverse SP500 fund, on the close of trading tomorrow”. One could place an order to buy the URPIX mutual fund, the Profund’s inverse 2X SP500 fund – it will be executed on the next close. One could plan to be available for the close and buy QQQQ put options, or buy shares in QID, the inverse 2X NDX100 exchange traded fund.

I may also recommend limit orders, so you can place them and go about the day, without needing to monitor the market. The goal is to generate an above average return without needing to trade options.

Investment Choices

I primarily invest in indices, like the SP500 (SPX), the Nasdaq100 (NDX), the Russell 2000 (RUT), or the Dow Jones Index. I sometimes invest in a few individual stocks.

Mutual Funds

Some will have investments in mutual funds. There are many funds that invest in the above named indices, for example, rydexfunds.com and profunds.com.

Even more interesting is the fact that these mutual fund organizations have funds that are leveraged so that they perform 2 times (2X) the underlying index. Rydex’s DOW 2X Fund (symbol RYCVX) performs at a rate twice the Dow Jones Average. So if the Dow goes up 1.5% today, then the RYCVX fund would go up 3.0%. But if the Dow goes down -1.5% today, then the RYCVX fund would go down -3.0% today.

Rydex and Profunds have “inverse funds”. They perform inversely to the underlying index. So, the Inverse Dow 2X Fund (RYCWX) performs 2X the inverse of the Dow Jones average. If you buy shares in RYCWX fund and the next day the Dow goes down -1.2%, then your investment in RYCWX goes up 2.4%! Again, the fund performs opposite (inverse) to the Dow, and does so with 2X leverage. If the Dow Jones would go up 1.2%, then your shares in the RYCWX would go down -2.4%.

The importance of the inverse funds is obvious. If you are expecting the market to go down… then buy an inverse fund (and that investment will go up). There is one other interesting fact about Rydex Funds (and not the Profunds). For these 2X funds (regular or inverse), Rydex offers a morning pricing, that is “AM pricing”. Most mutual funds just have end of day pricing, the NAV you see listed each day. But Rydex prices these 2X funds at 10:45am (Eastern Time) and also at the end of the day. So if you want to make a switch and if you place your order by 10:30am, you will get the 10:45am price. If you place your order after 10:30 am you will get the usual, end of day price. Note that: although many discount brokers (E-Trade, Ameritrade, Scotts, etc) will let you trade the Rydex Funds, I believe that you can only get the end of day price. I think that in order to get the AM price you need a Rydex account.

ETF’s

Exchange Traded Funds (ETF’s), which trade like a stock, trade continuously during the day. Proshares.com is one example that has a 2X SP500 ETF, with symbol SSO. It trades like a stock and it moves just like the SP500, but it is leveraged 2X. The Proshare’s inverse 2X SP500 ETF has symbol SDS. It’s price moves 2X the SP500 index, but in the “inverse” or opposite direction.

Proshare’s also have similar Dow Jones ETF’s (the DDM is the Dow Jones 2X ETF and the DXD is the Dow Jones inverse 2X ETF). They also have NDX100 ETF’s (the QID is the NDX100 2X ETF and the QLD is the NDX100 inverse 2X ETF).

Options

I do trade options, but generally do so in ways that decrease the risk significantly. For one, I only trade a small amount of my account with options. Secondly, I trade options that have a longer time to expiration, thereby decreasing volatility. You should not trade options unless you understand them well.

I usually trade options that correspond to the same indices mentioned above. The SPY corresponds to the SP500 index (SPX), the QQQQ corresponds to the NDX100 index (NDX) and the DIA corresponds to the Dow Jones Industrial Index, and all three of these are very liquid.