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InvisibleautomanM
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Re: Stock Update for December 3, 2008 - CELG [Re: geokills]
    #9360583 - 12/03/08 06:24 PM (15 years, 1 month ago)

how do you sell after hours?


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No, no, you're not thinking, you're just being logical. ~ Niels Bohr


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OfflinegeokillsA
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Re: Stock Update for December 3, 2008 - CELG [Re: automan]
    #9362142 - 12/03/08 09:56 PM (15 years, 1 month ago)

After hours trading runs from 4pm EST to 6:30pm EST.  Your broker should offer you the option if requested or specified. 
My TDAmeritrade.com discount online broker allows me the following expiration options for each and every stock order:
  • Day
  • Day + extended
  • GTC (Good Til Cancelled)
  • GTC + extended
  • Extended A.M.
  • Extended P.M.
One thing to keep in mind during the pre or post-market trading sessions is that volume is very thin because not as many people are actively trading.  This often leads to wide spreads between the bid and asking price, which is why the swings during these sessions are often exaggerated.

One more quick note on Celgene (CELG):  Their largest blood cancer drug Revlimid has a one year survival rate of 96%, which is huge.  This drug costs about $50,000 for each patient that receives it.  It is a pill instead of an injection or IV, which makes it much more pleasant and desireable.  They are also awaiting approval for this drug and others to be used in other major illnesses.  Celgene should continue to see very strong growth thanks to its proprietary cancer drugs such as Revlimid.  If they reaffirm their growth rates at the American Society of Hematology this weekend, I will look to increase my stake on future weakness.


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··∙   long live the shroomery  ∙··
...π╥ ╥π...


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OfflineMadtowntripper
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Re: Stock Update for December 3, 2008 - CELG [Re: geokills]
    #9362172 - 12/03/08 10:01 PM (15 years, 1 month ago)

50K per patient.

Good Christ.


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After one comes, through contact with it's administrators, no longer to cherish greatly the law as a remedy in abuses, then the bottle becomes a sovereign means of direct action.  If you cannot throw it at least you can always drink out of it.  - Ernest Hemingway

If it is life that you feel you are missing I can tell you where to find it.  In the law courts, in business, in government.  There is nothing occurring in the streets. Nothing but a dumbshow composed of the helpless and the impotent.    -Cormac MacCarthy

He who learns must suffer. And even in our sleep pain that cannot forget falls drop by drop upon the heart, and in our own despair, against our will, comes wisdom to us by the awful grace of God.  - Aeschylus


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OfflinegeokillsA
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Stock Update for December 4, 2008 - MCD, PWR, TBT [Re: geokills]
    #9365648 - 12/04/08 12:53 PM (15 years, 1 month ago)

A few quick notes before I head out for the day...

Sold half of my remaining position in McDonalds (MCD) at $62.  I made a quick purchase on the
Oct lows below $50 and the shares have since risen 25%.  Though I still like McDonalds as a trade
down thesis in a tough economy, in addition to their strong management, healthy dividend and high
margin beverage products; a 25% move in little over a month is worth booking some profits into.  If
MCD works its way back down into the mid to low $50's, I will be repurchasing these shares.

We are in the midst of a bear market rally here, but if unemployment numbers come in very poorly
tomorrow, the market could begin to resume its primary downtrend.  I want to play it safe by booking
some profits and building up a bit of cash, in addition to my S&P500, GOOG, and HSIC shorts.

With that in mind, I also sold 75 of my remaining 200 share stake in Quanta Services (PWR) at $17.
Shares have risen sharply during the past couple of weeks... up 56% from its low, up 31% from my
last purchase, and up 14% from my average cost basis.  I will look to repurchase these shares on weakness.

US Treasury prices continue to rise as people want to insure that their money will be returned to
them.  The strong spike upwards will be unsustainable and I am doubling down on my ProShares
UltraShort 10-20 Year Treasury (TBT)
position at $43.  It may still take some time for this trade to
work however, as if the Fed keeps printing money for banks and those banks throw that money into
new US bonds rather than lending it out, the rates on these bonds can stay depressed for some time...
but just look at the incredible spike in the TLT.  What goes up so sharply, will almost certainly
violently correct in time.


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··∙   long live the shroomery  ∙··
...π╥ ╥π...


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InvisibleLuddite
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Re: Stock Update for December 4, 2008 - MCD, PWR, TBT [Re: geokills]
    #9379722 - 12/06/08 03:25 PM (15 years, 1 month ago)

Food tends to hold up during a recession.  BGF is a hybrid security, part bond, part stock and pays a dividend.  I have some shares of this.  I noticed FOF has a high yield now and no leverage according to http://www.etfconnect.com
(Total Net Assets = Total Common Assets)


Edited by Luddite (12/08/08 04:12 PM)


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OfflinegeokillsA
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Stock Update for December 8, 2008 - DV, SDS [Re: geokills]
    #9393727 - 12/08/08 05:10 PM (15 years, 1 month ago)

Market's been running rather fast here, and with some good reason - but any sharp moves are often
met with correction sooner rather than later.  I bought another 25 shares of the UltraShort S&P500
ProShares (SDS)
today at $84.  We've been seeing some serious strength in the market here, but I
cannot believe that it will continue in a straight line, hence why I have added to this downside hedge.

I also initiated a margined SHORT position in DeVry (DV) last Friday at $59.04.  DeVry operates a
bunch of schools which provide associate, bachelor's and master's degree programs in various fields. 
As educational costs have been rising much faster than the average income, it seems that now that
people are feeling tighter on finances, these institutions will face slower enrollment or have to reduce
their tuition fees. 


Discretionary Portfolio as of 12/8/2008:
  • 18.0% Cash
  • 15.1% Altria (MO)
  • 13.5% UltraShort 20yr US Treasury (TBT)
  • 12.7% UltraShort S&P500 ProShares (SDS)
  • 10.4% WalMart (WMT)
  • 9.1% Proctor & Gamble (PG)
  • 8.8% Kinder Morgan (KMP)
  • 6.5% Celgene (CELG)
  • 5.6% JPMorgan (JPM)
  • 4.9% Quanta Services (PWR)
  • 4.9% Marathon Oil (MRO)
  • 4.8% Gilead Sciences (GILD)
  • 4.3% Goldman Sachs (GS)
  • 2.5% McDonalds (MCD)

  • 6.7% equivalent margined SHORT DeVry (DV)
  • 7.0% equivalent margined SHORT Henry Schein (HSIC)
  • 7.4% equivalent margined SHORT Google (GOOG)


--------------------

--------------------
··∙   long live the shroomery  ∙··
...π╥ ╥π...


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InvisibleautomanM
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Re: Stock Update for December 8, 2008 - DV, SDS [Re: geokills]
    #9394214 - 12/08/08 06:21 PM (15 years, 1 month ago)

I also loaded up on SDS. What did you get into google for? I have been shorting them, but only if i could pick it up over $310. I'm also going to keep an eye on Ford. It should level off in the next few days and see a "post bail-out honeymoon's over" drop off. I want to try to catch it in that window and short it. We'll see if I'm able to do it.


--------------------
No, no, you're not thinking, you're just being logical. ~ Niels Bohr


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OfflinegeokillsA
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Re: Stock Update for December 8, 2008 - DV, SDS [Re: automan]
    #9399534 - 12/09/08 01:28 PM (15 years, 1 month ago)

> What did you get into google for?

Quote:

Google (GOOG) - Margined SHORT on 12 shares @ $280

Google - while it is undoubtedly not going out of business - derives the vast majority of its revenue through advertising.  In a slowing economic environment, advertising will be cut back in great proportion and therefore Google's revenue and growth rate should stagnate until the economy improves.  Though shares have fallen quite a bit, its recent break below $300 would signal the potential to test the $200 level, as the stock flew from $200 to $300 in early 2005 after its initial public offering (IPO).  This indicates that $200 is the next significant support level, and that is why I am shorting this stock, betting that it can retest that level in the near future.  However, it is worth noting that the market is in the midst of a bear market rally, and if we break above resistance levels on the major market averages (900 on the S&P - we closed today at 896), then GOOG could be carried back up above $300 a share.  I will stop out this short position (i.e. buy back the shares) if share price breaks above $305.




Though we did break above $305 yesterday and today, my stop had expired and so wasn't triggered.  Since the stock continues to hover around the $300 level, I will continue to press this short for now, as it looks like the market may be rolling over a bit since its recent rally.


--------------------

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··∙   long live the shroomery  ∙··
...π╥ ╥π...


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InvisibleautomanM
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Re: Stock Update for December 8, 2008 - DV, SDS [Re: geokills]
    #9404854 - 12/10/08 09:24 AM (15 years, 1 month ago)

GOOG is trading at $314.89 right now. I would sell it short right now andbuy to cover when it hits $285 again, if I had the available cash.


--------------------
No, no, you're not thinking, you're just being logical. ~ Niels Bohr


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InvisibleLunarEclipse
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Re: Stock Update for December 8, 2008 - DV, SDS [Re: automan]
    #9405260 - 12/10/08 10:43 AM (15 years, 1 month ago)

Quote:

automan said:
I also loaded up on SDS. What did you get into google for? I have been shorting them, but only if i could pick it up over $310. I'm also going to keep an eye on Ford. It should level off in the next few days and see a "post bail-out honeymoon's over" drop off. I want to try to catch it in that window and short it. We'll see if I'm able to do it.




buy buy buy


--------------------
Anxiety is what you make it.


Edited by LunarEclipse (02/13/09 06:46 PM)


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OfflinegeokillsA
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Re: Stock Update for December 8, 2008 - DV, SDS [Re: LunarEclipse]
    #9405331 - 12/10/08 10:53 AM (15 years, 1 month ago)

I feel much more comfortable shorting Google than Apple at this point, as the holidays are a seasonally strong time for Apple products... even if the consumer is more constrained than in previous years.  I did close my long position in Apple a couple of months ago, and am not planning to buy it back just yet... but I still don't think it's a good short.  I also do not want to short Qualcomm, as they are intimately involved with the new Blackberry product cycle, in addition to new cell phones from other carriers.  Google on the other hand, only sells advertising, and shouldn't experience the same type of holiday season tailwind.  In an environment where retailers are cutting prices in order to raise cash and reduce inventory, it is increasingly unlikely that they will be layin' out the bucks to spend on advertising with Google.


--------------------

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··∙   long live the shroomery  ∙··
...π╥ ╥π...


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InvisibleLunarEclipse
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Re: Stock Update for December 8, 2008 - DV, SDS [Re: geokills]
    #9405487 - 12/10/08 11:12 AM (15 years, 1 month ago)

Quote:

geokills said:
I feel much more comfortable shorting Google than Apple at this point, as the holidays are a seasonally strong time for Apple products... even if the consumer is more constrained than in previous years.  I did close my long position in Apple a couple of months ago, and am not planning to buy it back just yet... but I still don't think it's a good short.  I also do not want to short Qualcomm, as they are intimately involved with the new Blackberry product cycle, in addition to new cell phones from other carriers.  Google on the other hand, only sells advertising, and shouldn't experience the same type of holiday season tailwind.  In an environment where retailers are cutting prices in order to raise cash and reduce inventory, it is increasingly unlikely that they will be layin' out the bucks to spend on advertising with Google.





CRAAPle


--------------------
Anxiety is what you make it.


Edited by LunarEclipse (02/13/09 06:44 PM)


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InvisibleAroundtheSon
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Re: Stock Update for December 8, 2008 - DV, SDS [Re: LunarEclipse]
    #9407751 - 12/10/08 04:54 PM (15 years, 1 month ago)

Lunar Eclipse = LiquidKick no?


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InvisibleLunarEclipse
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Re: Stock Update for December 8, 2008 - DV, SDS [Re: AroundtheSon]
    #9408095 - 12/10/08 05:56 PM (15 years, 1 month ago)

Quote:

AroundtheSon said:
Lunar Eclipse = LiquidKick no?




No.


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OfflinegeokillsA
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Stock Update for December 22, 2008 - [Re: geokills]
    #9478216 - 12/22/08 01:02 PM (15 years, 1 month ago)

It's been two weeks since I've posted a comprehensive update, so I figure I'll do just that.  I think I'll probably be a little less proactive on posting updates on each and every individual trade I make over the coming months, at least until the market stabilizes and it is easier to focus on longer term positions.  Even so, I will make an effort to provide fairly regular updates that may comprise daily, weekly, or even perhaps monthly summaries (depending on how much time and motivation I have).

  • UltraShort S&P500 ProShares (SDS) - Sold 25 shares @ $90

    My UltraShort on the S&P500 had been growing rather large, and in conjunction with recent government actions such as the lowering of the target interest rate to 0 - 0.25%, as well as 30-year mortgage rates falling to their lowest level since the inception of the weekly survey in 1971, at 5.17% (down from 6.14% a year ago); the charts of the major indicies appear to be telegraphing some near term strength by making a series of higher highs and lower lows over the past month since the November 21st low.  By no means do I think we are on the cusp of any sort of huge recovery, but this could be indicative of a short lived bear market rally before we are likely to fall back and retest those November 21st lows again.


  • Apollo Group Inc (APOL) - Sold SHORT 50 shares @ $74.05

    Apollo Group is a private education provider, similar to DeVry.  This stock is up on the year and trading quite close to its 52-week high (especially compared to most stocks!).  As you know from my last update on December 8th, I initiated a short position in DeVry (DV) with the thesis that given tuition costs have been eclipsing personal income growth in conjunction with the current rise in unemployment, it is likely that these private education providers will either have to cut their tuition fees or face lower enrollment.  The most well known education center operated by Apollo would be the University of Phoenix.  With the stock having spiked up in mid to late November, I believe this one is ripe for severe downside on any analyst cut or profit shortfall.


  • UltraShort 20-year US Treasury (TBT) - Bought 50 shares @ $40 + 50 shares @ $36.50

    I continue to add to this position, which is now the largest in my portfolio.  Long term treasuries are at historically low yield / high price.  The violent spike upwards over the past month has been driven by nervous investors who want to be sure that their money will be returned to them - even if the return they receive on their capital is next to nothing.  This move may persist for some time, but with the eventual stabilization in the equity markets, it will be unsustainable and begin to fall in price and rise in yield.  While I generally do not like carrying such large positions in my portfolio, I am confident that with a patient time horizon of one to five years this position will be extremely likely to pay off.


  • Google (GOOG) - Closed Short Position

    Google was hovering above the $300 for too long for my comfort, as my original thesis was that there was minimal prior support between the $200 - $300 level, and that if the shares were to break $300, they would quickly fall to $200 before finding significant buying support.  This may still happen, especially as businesses which specialize in advertising will be taking a revenue hit as other companies tighten their own budgets and cut spending on things such as advertising.  Since Google makes the vast majority of its money through advertising, I believe that its earnings are still likely to disappoint.  However, given the aforementioned reasons which could support a bear market rally, I'd hate to be caught in an upswing on this one and decided to cover for a $300 loss.  If we do see a strong upswing in the near future, I may revisit this name on the short side.


  • Goldman Sachs (GS) - Closed position @ $80.01

    Goldman rose significantly off of its November lows, even on news of a terrible quarter in which the firm lost $5 a share (its first loss since going public!).  This seems to indicate that investors believe the worst is behind this long revered investment bank.  However, given its relatively small dividend and the fact that there has been quite a bit of selling pressure (resistance) at the $80 level, I decided to close out this position for now.  I will maintain exposure to the financial sector through my position in JPMorgan (JPM), which carries a larger dividend and should stand to benefit handsomely over the coming years on account of Jamie Diamond's (the CEO's) opportune purchases of Bear Sterns and Washington Mutual, which has given the bank $1 trillion in deposits and a very large footprint.  Goldman is still likely to be a good investment for the long term, but as I feel we will revisit our November 21st lows, I'd bet I can pick this one back up on the cheap later.


  • Quanta Services (PWR) - Sold 70 shares @ $19

    Good ol' Quanta, electrical infrastructure with a big business in the transmission systems necessary for the proliferation of wind energy.  While I still believe in wind energy and the speculation that Obama's economic recovery plan will include a strong focus on renewable clean energy, the stock was up some 75% from its lows, and some 28% from my average cost basis.  With such a strong upside move in a matter of weeks, I decided it would be best to reduce my exposure, book the profits, and then buy the shares back on near term weakness.  We are getting some of that weakness today, with the shares off nearly 8%... but I am going to hold out a little longer before rebuilding this position.


  • Celgene (CELG) - Sold 20 shares @ $54

    This is a biotech firm with a great cancer drug franchise.  I maintain that this company is likely to maintain its superior growth rate on account of its Revlimid drug, however given that I also hold a position in Gilead (GILD) - another biotech company - I wanted to right size this position in order to maintain my diversification and raise some cash.  Below $50, I will definitely consider buying these shares back.


  • McDonalds (MCD) - Closed position at $61

    What can I say?  This one has been a huge win for me, two times over!  Being fortunate enough to catch a recent bottom in these shares at $49.67, I collected some dividends, sold some shares earlier this month at $62, and ultimately decided to close the position today at $61, for a handsome 24.3% total gain in a span of a few months.  I still like MCD for its brand recognition, focus on consumer trends and especially its newer high margin beverage products such as their McCafe coffees.  The dividend is pretty sweet to boot!  But, as not to let my profits disappear, I believe the smart thing to do here is book 'em and wait for the stock to fall back before getting back in.  I will be watching this one intently, and would love to get back in at or below $50 a share.


Discretionary Portfolio as of 12/22/2008:
  • 27.4% Cash
  • 19.5% UltraShort 20-year US Treasury (TBT)
  • 15.4% Altria (MO)
  • 10.6% WalMart (WMT)
  • 9.6% UltraShort S&P500 ProShares (SDS)
  • 9.2% Proctor & Gamble (PG)
  • 8.8% Kinder Morgan Energy Partners (KMP)
  • 5.4% Gilead Sciences (GILD)
  • 5.3% Marathon Oil (MRO)
  • 4.8% JPMorgan (JPM)
  • 4.5% Celgene (CELG)
  • 2.1% Quanta Services (PWR)

  • 7.3% equivalent margined SHORT DeVry (DV)
  • 7.5% equivalent margined SHORT Henry Schein (HSIC)
  • 8.0% equivalent margined SHORT Apollo Group (APOL)


--------------------

--------------------
··∙   long live the shroomery  ∙··
...π╥ ╥π...


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InvisibleLunarEclipse
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Re: Stock Update for December 22, 2008 - [Re: geokills]
    #9507266 - 12/28/08 01:21 PM (15 years, 1 month ago)

Quote:

geokills said:
It's been two weeks since I've posted a comprehensive update, so I figure I'll do just that.  I think I'll probably be a little less proactive on posting updates on each and every individual trade I make over the coming months, at least until the market stabilizes and it is easier to focus on longer term positions.  Even so, I will make an effort to provide fairly regular updates that may comprise daily, weekly, or even perhaps monthly summaries (depending on how much time and motivation I have).

  • UltraShort S&P500 ProShares (SDS) - Sold 25 shares @ $90

    My UltraShort on the S&P500 had been growing rather large, and in conjunction with recent government actions such as the lowering of the target interest rate to 0 - 0.25%, as well as 30-year mortgage rates falling to their lowest level since the inception of the weekly survey in 1971, at 5.17% (down from 6.14% a year ago); the charts of the major indicies appear to be telegraphing some near term strength by making a series of higher highs and lower lows over the past month since the November 21st low.  By no means do I think we are on the cusp of any sort of huge recovery, but this could be indicative of a short lived bear market rally before we are likely to fall back and retest those November 21st lows again.



  • UltraShort 20-year US Treasury (TBT) - Bought 50 shares @ $40 + 50 shares @ $36.50

    I continue to add to this position, which is now the largest in my portfolio.  Long term treasuries are at historically low yield / high price.  The violent spike upwards over the past month has been driven by nervous investors who want to be sure that their money will be returned to them - even if the return they receive on their capital is next to nothing.  This move may persist for some time, but with the eventual stabilization in the equity markets, it will be unsustainable and begin to fall in price and rise in yield.  While I generally do not like carrying such large positions in my portfolio, I am confident that with a patient time horizon of one to five years this position will be extremely likely to pay off.

    Discretionary Portfolio as of 12/22/2008:[LIST]
  • 27.4% Cash
  • 19.5% UltraShort 20-year US Treasury (TBT)
  • 15.4% Altria (MO)
  • 10.6% WalMart (WMT)
  • 9.6% UltraShort S&P500 ProShares (SDS)
  • 9.2% Proctor & Gamble (PG)
  • 8.8% Kinder Morgan Energy Partners (KMP)
  • 5.4% Gilead Sciences (GILD)
  • 5.3% Marathon Oil (MRO)
  • 4.8% JPMorgan (JPM)
  • 4.5% Celgene (CELG)
  • 2.1% Quanta Services (PWR)

  • 7.3% equivalent margined SHORT DeVry (DV)
  • 7.5% equivalent margined SHORT Henry Schein (HSIC)
  • 8.0% equivalent margined SHORT Apollo Group (APOL)





Were you aware of the big dividend coming the next day after this post on your SDS?  I still own 300 shares of QID and they declared a $9.50 dividend 12/23 payable 12/30.  I had not a clue it was coming but fortunately since these shares are in my IRA no taxable event.  Otherwise, yikes!  The other result of the dividend was to stop trading on the options for two days then changing the symbols and having to adjust for the dividend. 

What concerns me more than the dividend situation or the options fiasco with this ProShares outfit that is I am getting uncomfortable with their vague and legalese ridden website and the fact that you aren't even supposed to call them with questions.  Ask your broker?  Yea right WTF!  Starting to think if the proverbial crap hits the fan you won't
be getting money back from these guys.  In general, these ETFs are starting to make me wonder just how solvent or above board they really are...

As to the specifics, still long QID sold the Jan 100! calls at 2.70 way out of the money and of course will likely expire way out of the money as well as I won't be buying them back.

I did end up buying 200 shares of "your" TBT (at least I can blame someone else lol) not at 42 that day you thought I did but waited till the Fed dropped short term rates to their zero to 0.25% range and figured the coast is clear now so paid $39.63 and promptly got whacked as it hit $37 the next morning.  Sold a Jan 37 call at $3.30 right away and a Mar 37 call at $4.90.  So, my basis is a little under $36 for the 200 shares and while I still think the rates can move LOWER it's a limbo game now and can't believe they will be able to limbo much lower.

Bought 200 shares of USO thinking oil surely has to bounce off of $40 a barrel but of course it just keeps dropping but I sold Dec and now Jan calls to hedge the long and even though down slightly I would rather hold some USO at $40 a barrel oil than be long GS or AAPL.  I don't think I will buy any more for a while though because it looks like oil could keep getting whacked.  Too much around and the futures contango is fat.  If it gets to $25 a barrel or below I will have to buy more however.

Peace Out

P.S. IMO be very careful with JPM even though they are joined at the hip to the Fed they have HUGE exposure to the derivatives market.  They will still be around but don't be surprised when they become part of the TARP/Bailout disaster and the common shareholders get left holding the bag (what else is new?).


--------------------
Anxiety is what you make it.


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OfflinegeokillsA
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Re: Stock Update for December 22, 2008 - [Re: LunarEclipse]
    #9511874 - 12/29/08 11:38 AM (15 years, 1 month ago)

> Were you aware of the big dividend coming the next day after this post on your SDS?

No, unfortunately I wasn't.  That was a bummer, but I have plenty of losses to offset those short-term cap gains.  ...Not that I'm really happy about that either! :wink:

Though not specifically related to the index ETF's, here's an interesting article by Eric Oberg, "Why Short Sector ETFs Aren't So Smart":

Quote:

This article is by Eric Oberg, who worked in fixed income, currencies and commodities
for Goldman Sachs for 17 years before retiring as a managing director.

What would you say if you bought an index fund, only to find out that it
lagged the benchmark by 30%? 80%? Over 100%? I am sure you'd be
dismayed, disappointed and disgruntled.

What if you had perfect foresight and decided at the beginning of this year to
go short U.S. real estate and short financials? What if I told you about an
easy way to implement these trades, and to implement them with two or
three times leverage? You'd expect to clean up, right?

What if I told you that if you were spot-on with your market call, positioned
half of your portfolio in each short, you would still be down 23.4% year to
date?

That's better than the overall market, sure, but still a little perplexing, I
mean, how could you be down for the year with one of the most prescient
market calls of all time?

Yet this is exactly what would have happened if you were long the double-
levered short-biased ETFs on the U.S. real estate and financial sectors year to
date. In fact, one would have been better off being short the double levered
long funds vs. long the double levered short funds to implement this strategy.

Given that the double-levered long-side ProShares Ultra Real Estate ETF
(URE) was down nearly 80%, one would expect its complement (the
ProShares UltraShort Real Estate ETF (SRS) ) to be up 80% instead of losing
nearly half of its value, given they are based on the exact same index, right?

The same goes with the financial sector ETFs. Given that the double-levered,
long-sided ProShares Ultra Financial ETF (UYG) was down nearly 85%, you'd
expect its complement (the ProShares UltraShort Financial (SKF) ) to be up
85% rather than flat. As the car rental commercial says, "Not exactly..."



What makes this even more bewildering is that ETFs, with their
create/redeem process, should eliminate or curtail arbitrage, so there should
not be any significant net asset value distortions, and that indeed does not
appear to be the case.

To be fair, these funds do exactly what they set out to do -- track the daily
changes in these indices. But that is also their fatal flaw as any sort of long-
term investment or portfolio hedge. It is the daily rebalancing of the portfolios
in combination with the market volatility and the leverage that has eaten into
the returns of what appeared to be a savvy bet. And the irony of it all is that
these funds, due to their structure, actually contribute to the volatility, thus
directly contribute to their own failure as instruments for anything other than
a day trade.

The following is a little bit of an over-simplification, because there are
elements of path dependency, the element of compounding slight NAV
deviations that affect returns and a few other technicalities, but let me try to
explain how on earth it is possible to be double short an index that is down
40%, yet still be worse off than if you were long that index.

I am sure most people are familiar with the concept that if you go down 20%
one day, then up 20% the next, you are still worse off than when you started
(100 times 0.80 equals 80, and 80 times 1.20 equals 96). This is similar to
what happens with these double-levered short side ETFs (the two-times long-
side ETFs look like they do what they should), you get shorter on the way
down, making bounces hurt more, because you lose more of your capital
account.

So when you're frequently rebalancing, volatility nibbles away at your
returns. When volatility goes to extreme levels, it eats away at your
returns ... and with leverage, it devours your returns. This is essentially a
short volatility position, and the short volatility position can outweigh the short
index position, as evidenced by the returns in the chart. So these ETFs are
not quite as effective as one would think as a mainstay in the portfolio, as a
hedge or otherwise; in fact, they may be completely ineffective, or even
counterproductive, at achieving objectives.

What's worse, though, is that by their very construct, these ETFs exacerbate
the volatility. By bifurcating an index into long side and short side ETFs, they
eliminate an "out" for the market maker, causing the market maker to
actively hedge in the underliers. With a normal security, all buyers and all
sellers come to a central meeting place, and buyers can be matched easily
with sellers, and we reach price discovery. But when you set up a specifically
one-sided instrument, rather than one common product that people can be
either long or short, you contribute to dislocations.

Very few people would decide to go long an index by shorting the short-sided
index ETF -- they'd just go buy the long-sided ETF. These products
purposefully segment the longs and the shorts, and that, by definition,
creates illiquidity. (Although I have to admit, this is an ingenious idea for the
fund manager -- if they just had one product where longs and shorts could
meet, some of those would cancel each other out, and they'd have less
assets under management than they get by herding the bulls and bears into
different products.)

So if someone buys that short-sided ETF from a market maker, the market
maker does not really have "the other side" to mitigate his risk, thus he
either waits for someone to unwind a pre-existing position or he goes out and
shorts the underlier. This puts pressure on the underlier, which creates more
interest in being short. This, magnified by the leverage, magnifies the
volatility, which magnifies the negative convexity, which eats into returns.
Thus the "savvy trader" who thinks he or she is doing a "smart trade" is
contributing to his or her own underperformance while still having the right
idea -- the wrong execution of the right concept.

Now here is a key point: This short-volatility position is kind of a
compounding issue. If you compound at low yields, it is only slightly
noticeable. If you compound at high yields, it becomes meaningful. Only in
this case, instead of yield, think volatility. The more volatility, the more these
levered short ETFs get clipped.

So if I look at a broad index, such as the S&P 500, and then look at the
returns of the two-times levered long and two-times levered short ETFs, the
returns are more or less mirror images, with the two-times short fund only
slightly underperforming. This is because the volatility of the S&P 500 on a
daily basis is not extreme.

Another way of saying it is that these two-times long and short funds are
small fish in a much bigger pond -- the water is so deep, these barely cause a
ripple in the much larger market (not to mention that the intraday hedging
can be done in a liquid futures market). The activity in these funds does not
influence the broader market; the tail does not wag the dog.

But these smaller sub-index funds are much bigger fish in a much smaller
pond. The tail does wag the dog, and there is not a deep futures market with
which to hedge. And here is where you begin to see significant
underperformance in these levered short-sector ETFs, likely because these
funds are having an inordinate effect on their sectors -- and the volatility they
help create leads to their own demise.

I took two recent trading days looking at the SKF (the ProShares Ultrashort
Financial, SKF, the two-times levered short financial sector ETF), and just at a
high level looked at the dollar volume in the ETF traded that day, and
compared it with the dollar volumes traded in some of the underliers. Note,
that isn't to say that every dollar traded in the ETF translated directly into
dollars traded in the underliers, but the results were pretty staggering.

The SKF closed Wednesday, Nov 19, at $222 and change. Daily volume has
averaged 31.5 million shares (volume was actually slightly lower than that on
the 19th). Now, this is not scientific (or indeed even accurate), but it just
gives you a sense. At $222 and average volume of 31.5 million, that means
(if every share sold at the close, which it didn't, but again this is just to
illustrate a point) that the day's dollar volume in this short ETF was close to
$7 billion. Since this is double levered, that is really close to $14 billion in
volume in the sector. I understand that each trade represents a buyer and a
seller of the risk, but bear with me here.

The same day, Goldman Sachs (GS) closed at $55, with roughly 30 million
shares changing hands, representing 1.65 billion of dollar volume. Citigroup
(C) closed at $6.40 with a (then) whopping 340 million shares changing
hands, representing 2.2 billion in dollar volume traded. JPMorgan Chase (JPM)
traded 90 million shares and closed at $28 and change, so roughly $2.5 billion
to $2.6 billion in dollar volume. Merrill Lynch (MER) had about $1 billion in
dollar volume. The volume created by the SKF swamps all of these.

On Dec 4, assuming average price of $135, the SKF traded 29,248,827
shares, representing just shy of $3.95 billion in dollar volume traded. Since
this is a double-levered product, that represents just under $7.9 billion of
volume in the underliers. Goldman Sachs traded 23,838,644 shares at an
average price of around $68, giving us roughly $1.6 billion in volume.
Goldman accounts for 2.59% of the index associated with SKF. That means
that basically, $204,610,000 of the $7.9 billion in SKF was associated with
Goldman Sachs, or roughly one-eighth of the day's volume in Goldman.

Again, these are rough calculations and just two random days, but I think you
get a sense of the size of the fish relative to the size of the pond. There are
by far more scientific ways to establish whether or not these influence the
daily price discovery process -- but as a hint to those that may look into this,
just start by looking at the sectors that do not have symmetric returns
between the two-times long and two-times short ETFs, as those are the
sectors where volatility has reigned. I must admit, there is a delicious irony in
the fact that if indeed these ETFs have contributed to the extremes we have
seen in these sectors, that those that caused the volatility have also paid their
price.

So why do these products exist? Well, if you read the marketing literature, it
says that these products "make it simple to execute sophisticated strategies,
like shorting or magnifying your exposure to major indexes. No margin
account. No margin calls. It's as simple as buying a stock." Basically, that is
just another way of saying these ETFs are an easy way to get around the
margin rules.

These products, contrary to popular belief, are not made for professionals; in
fact if you talk to most institutional ETF desks on the Street, they will tell you
they see very little activity from institutional investors in these products. That,
in fact, makes sense, because an institution can find more efficient ways to
be short or to be leveraged. Actually, anyone with a margin account can find
more efficient ways to be short or leveraged (unless they are really ramping
up their leverage by buying these on margin). The only reasons I could think
of that someone would "invest" in these products would be because they a.)
expressly lacked sophistication, b.) were trying to skirt the margin rules, or
c.) were attempting to manipulate the markets.

To be sure, some institutional investors appear on the shareholder rolls of
these products. (Would you be surprised if I told you Bernie Madoff shows up
as a holder? He held 7,638 shares of SKF as of Sept. 30, 2008). But if I were
an investor in a hedge fund that was short the market in such an inefficient
manner, I'd either question their due diligence if they thought this was the
best way to effect a trade, or I'd question their scruples if they were
attempting to manipulate the market. Either way, I'd really question paying
them "2 and 20" on top of the 95 basis points in fees that the ETF is taking
out. If you have hedge fund investments that hold these securities, ask them
for a return attribution.

According to a December 1995 piece in The Journal of Finance, an article by
Mayhew, Sarin and Shastri, "Federal Regulation of Securities margins was
mandated by Congress in October 1934 to promote market integrity and curb
excessive volatility" [emphasis added] . So again, why do these products
exist when they seemingly do neither?

If you wish to add leverage to your portfolio, you typically need to do so in a
margin account, which means you need to meet suitability requirements and
sign a hypothecation agreement. If you wishes to short a security, you need
to establish a margin account, meet the suitability requirements, sign a
hypothecation agreement, plus obtain a borrow. Yet these ETFs can be traded
in a cash account, effectively sidestepping the margin requirements -
remember, "It's as simple as buying a stock"!

Hmmm ... providing leverage and easy access to shorting the market ... that
doesn't exactly sound like promoting market integrity and curbing excess
volatility now, does it? The fact that so much expected return on these
instruments gets eaten away by the volatility should tell you something about
their efficacy.

The magnified volatility has also rendered moot many long standing market
practices -- for instance, with these things it would be very difficult to
reinstate the uptick rule, and they make it difficult to regulate naked short-
selling, because "It's as simple as buying a stock." Furthermore, for those
who follow technical analysis, cycles become much more compressed, and
Fibonacci levels are no longer sacred because there is no speed governor
when indiscriminate two-times and three-times levered index products are
involved (and this counts in up markets just as much as in down markets) --
thus, "signals" really aren't signaling anything.

These levered and short sided ETFs are an endless series of paradoxes. They
are set up to benefit from market moves, but the more volatility, the less
accurate they are in achieving that objective. They market themselves as an
easy way to provide sophisticated trading strategies, yet the true
sophisticated investor can implement more effective trading strategies
themselves. They do their job following daily moves, yet they make for a
lousy long term hedge or trade. They offer the layman investor a chance to
protect against volatility, yet they help contribute to and exacerbate that
volatility because of their construct.

The double-levered short financials ETF is backed by -- you guessed it -- a
swap with a financial. Despite having margin requirements to "promote
market integrity and curb excessive volatility," these somehow have been
allowed to proliferate in the market. And the biggest paradox of all is that you
could have been spot-on accurate with your bearish call, yet still ended up in
the red.

I realize some may say, "I hear you on that, but these just make it so easy
for me to implement my strategy." OK, maybe so. But if you would have just
been short the two-times long Ultra Real Estate instead of long the two-times-
short UltraShort Real Estate since the beginning of the year, you'd have three
times as much capital in your account right now. That's some price to pay for
ease of use! At least the offering documentss state, "There is no guarantee
[these products] will achieve their investment objective." You can say that
again.




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··∙   long live the shroomery  ∙··
...π╥ ╥π...


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InvisibleLunarEclipse
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Re: Stock Update for December 22, 2008 - [Re: geokills]
    #9512089 - 12/29/08 12:31 PM (15 years, 1 month ago)

Hey Geokills looks like that distribution money you and I will be receiving today from ProShares will be treated as ordinary taxable income and NOT short term capital gains.  Ridiculous and unfair.  What it means is that ProShare can treat what should have been a short term capital loss as an ordinary loss which means they can write off these losses against their own income.  In other words, it's to their benefit and at the expense of their bagholders.  They probably negotiated with the IRS to get this done. What a bunch of scammers. 

http://seekingalpha.com/article/112499-proshares-rydex-cap-gains-payouts-completely-unfair

ProShares, Rydex Cap Gains Payouts Completely Unfair
by: Index Universe December 29, 2008     
Index Universe

By Matthew Hougan

The huge distributions at ProShares and Rydex are a reminder that the old rules on cap-gains distributions must change.

(If you haven't read my articles on the distributions at ProShares and Rydex, they are available here and here.)

Capital gains distributions from mutual funds are inherently unfair. Fund companies pay out a full year's gains on a single day, and the impact on shareholders is almost arbitrary:

If you happen to sell a fund one day before it pays a distribution, you avoid that distribution altogether;
If you happen to buy a fund one day before it pays a distribution, you get hit with the distribution in full.
With traditional mutual funds, this situation is unfortunate but tolerable. The majority of investors hold their mutual funds for many years. Therefore, the majority of shareholders receiving a distribution will have held the fund in question during the period in which the gains accrued.

With the ProShares and Rydex inverse ETFs, however, the situation is completely different. Industry discussions suggest that the average holding period for these ETFs is somewhere around two weeks. Therefore, we can assume that the vast majority of shareholders who got hit with distributions did not hold those ETFs when the gains accrued. That's inherently unfair. The trading-oriented nature of these ETFs means the once-per-year distribution system doesn't work.

The situation is made worse by the fact that short-term capital gains distributions are treated as regular income—and not as short-term capital gains—on tax returns. It sounds like a technical distinction, yet it's anything but. If distributions were treated instead as short-term gains, there wouldn't be a problem: after all, when ETFs make distributions, their share price drops by the amount of the distribution. An investor could therefore sell their ETF, realize the capital loss and offset any distribution that way.

But under current tax law, they cannot offset the distribution in full this way. Investors are allowed to offset $3,000 of regular income with short-term capital losses, but that's the limit. If an investor receives a distribution worth more than $3,000, they will be (unfairly) stuck paying the tax man.

This should be changed. I'm not sure why the Internal Revenue Service decided that short-term capital gains distributions should count as income, and not as what they are: short-term capital gains. Either the rule should be abandoned altogether or some sort of exemption should be made for trading-oriented ETFs.

Immediately.




Edited by LunarEclipse (12/30/08 08:32 AM)


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InvisibleLuddite
I watch Fox News
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Registered: 03/23/06
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Re: Stock Update for December 22, 2008 - [Re: LunarEclipse]
    #9551982 - 01/05/09 04:13 PM (15 years, 26 days ago)

I found this article today.  They talk about the Ultrashorts.

ETF Math Lesson: Leverage Can Produce Unexpected Returns

By TOM LAURICELLA
Exchange-traded funds that use leverage are proof positive why investors need to read the fine print.

Many of these funds promise to deliver twice the return of an underlying stock or bond index -- or move twice as much in the opposite direction. So with the Standard & Poor's 500-stock index down 38.5% in 2008, a double-leveraged fund designed to profit when the S&P 500 falls would be up 77%, right?

Wrong. The UltraShort S&P500 ProShares rose 61%. Even more confusing, the ProShares fund designed to return twice the opposite of the Dow Jones U.S. Real Estate Index was down 50% for 2008, while the index was also down, by 43%.

The issue is that these funds are designed to double the index's return -- or double the inverse of that return -- on a daily basis. The compounding of those daily moves can result in longer-term returns that have a very different relationship to the longer-term returns of the underlying index.

For example, take a double-leveraged fund with a net asset value of $100. It tracks an index that starts at 100 and that goes up 5% one day and then falls 10% the next day. Over that two-day period, the index falls 5.5% (climbing to 105, and then falling to 94.5). While an investor might expect the fund to fall by twice as much, or 11%, over that two-day period, it actually falls further -- 12%.

Here's why: On the first day, doubling the index's 5% gain pushes the fund's NAV to $110. Then, the next day, when the index falls 10%, the fund NAV drops 20%, to $88.

The effect of compounding results in greater distortions when there are big up and down swings in the market. That's the reason the real-estate index and its double-inverse ETF were both down over the course of last year.

For the most part, these funds are used by short-term traders. But they're gaining traction among individual investors who use them as a hedge in a portfolio. That's where these distortions cause real trouble.

Take an investor who on Oct. 10 wanted to offset a $100,000 investment in an S&P 500 index fund by putting $50,000 in the UltraShort S&P500 ProShares. Two months later, despite big back and forth swings, the S&P 500 was pretty much unchanged. But that ETF was actually down 24% in that time frame, leaving the investor with a $12,000 loss.

To ProShares' credit, warnings about the disparity between daily and long-term returns are spelled out in the materials for the funds and on the firm's Web site.

"We try to get the concept out to people," says Michael Sapir, chief executive of ProShares. "It's just a feature of this kind of investing."

—Please send comments and questions to Mr. Lauricella at tom.lauricella@wsj.com.

http://online.wsj.com/article/SB123111094917552317.html


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OfflinegeokillsA
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Stock Update for January 6, 2009 - TBT, PWR, MRO [Re: LunarEclipse]
    #9557407 - 01/06/09 12:14 PM (15 years, 25 days ago)

Yea that's a bummer about ProShares.  Fortunately I received a distribution of less than $600 so it won't be a big deal.  I will continue to hold the SDS for the time being, but I will be more mindful of their distributions.  Since I didn't sell the SDS in 2008 (because I already had $3500 in realized short-term losses for that year), I'll just cross my fingers that I do well enough during 2009 that the loss will help offset my ridiculous gains for the current year. :wink:

On a side note, I sold 50 of my 250 shares in the UltraShort 20-year Treasury (TBT) at $42.  My last purchase in the TBT was for 50 shares at $36.50, making for a 15% relative gain.  My next most recent purchase was for another 50 shares at $40.  I will sit on my remaining 200 share block to see where things go from here, happy to pick more up on weakness or selling more on strength.

I also sold my remaining 55 shares in Quanta Services (PWR) to close the position for a smokin' 44% gain.  I would like to get back into this name on any weakness, but given its incredible run over the last four weeks, it seems prudent to book these profits and wait for a pullback, particularly as this stock carries no dividend support.  I would like to start buying again at $18.

I am tempted to sell some of my Marathon Oil (MRO), as I am up some 44% on this one as well.  But since I have aleady trimmed twice and am receiving a 4.6% yield given my basis of $21... I think I'll hold out for a while longer on this one and will add to the position on any significant weakness.


Discretionary Portfolio as of 1/6/2008:
  • 32.5% Cash
  • 17.4% UltraShort 20-year Treasury (TBT)
  • 15.5% Altria (MO)
  • 10.4% WalMart (WMT)
  • 9.2% Proctor & Gamble (PG)
  • 9.2% Kinder Morgan Energy Partners (KMP)
  • 8.0% UltraShort S&P500 ProShares (SDS)
  • 6.2% Marathon Oil (MRO)
  • 5.2% Gilead (GILD)
  • 4.7% JPMorgan (JPM)
  • 4.3% Celgene (CELG)

  • 6.7% margined short equivalent DeVry (DV)
  • 7.8% margined short equivalent Henry Schien (HSIC)
  • 8.1% margined short equilvalent Apollo Group (APOL)


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