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Charles Gasparino,  on air editor of CNBC, is releasing a new book.  The book can be pre-ordered today and will be shipped from Amazon on November 3rd.  Just when you thought the world had enough reminders of the financial collapse and widespread corruption, the subject of the book is also wall street greed and government mismanagement.

Click below to pre-order your copy of The Sellout – How Three Decades of Wall Street Greed And Government Mismanagement Destroyed the Global Financial System. Take special note that the title says “destroyed” and not “nearly destroyed”. Goldman Sachs may be proud of their facade message about paying back TARP, but TARP is a tiny drop in the enormous bailout bucket. Goldman and every financial institution in the country is still operating today only because of taxpayer guarantees of their high risk transactions.

The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System by Charles Gasparino

Max Keiser broadcasts his opinion of United States financial firms in the video below, calling it out for what it is – a giant fraud.  After trillions of dollars in financial bailouts, the firms are hoarding cash, paying record salaries and bonuses, and hiding trillions in unrealized losses.  Don’t be surprised in 2010 when they finally come clean a second time by reporting record losses and beg for more handouts from the American taxpayers.

Part 2 of the video is below:

The stock repair strategy can be used to lower the breakeven point on a previously purchased stock that has dropped in price.  Consider an example where you purchase 100 shares of a stock for $110 per share and it drops to $100 per share, for a loss of $10 per share or $1,000.  Under normal circumstances, you would need the stock to rally 10% back to the original $110 purchase price just to break even.  Using the stock repair strategy allows the trader to lower the break even point by utilizing a ratio option spread.

To explain the strategy, lets find a stock close to $100 per share.  Precision Cast Parts (symbol PCP) is an optionable stock that closed today’s session at $99.11.  Let’s assume that we purchased 100 shares of PCP for $110, and are now down nearly $1,100.  Note the current 52 week high is only $105 so don’t over analyze the example.  Let’s just assume we bought it 2 weeks ago for $110.

To utilize the stock repair strategy, the trader would initiate a ratio spread by purchasing (1) at the money option and selling (2) out of the money options.  Let’s take a look at the December option chain for PCP.

By doing nothing, the breakeven point of PCP is $110.  The stock would need to recover back to the original $110 purchase price for the trader to break even.  But consider the changes to the December expiration day breakeven point after adding a December 1:2 ratio spread at the 100/105 strikes.

• Original stock purchase price $110
• Current stock price $99.11
• Purchase (1) December 100 call for $4.20 (midpoint of bid/ask)
• Sell (2) December 105 calls for $2.30
• Adding the ratio spread results in a credit of $40 (2.30+2.30-4.20)

Note that implementing the ratio spread without owning the stock would result in a naked option leg and unlimited risk.  But both of the (2) 105 calls are covered in this scenario due to the fact that we still have the 100 underlying shares.  Essentially what you have is a covered call plus a vertical call spread.  Consider the following expiration day prices as an example of how the above stock repair strategy example lowers the break even point of the previously purchased stock.

• $80 – All options (100 and 105 strikes) expire worthless.  The unrealized loss is now $3,000 (110 – 80).  This is no different than owning the stock without adding the stock repair strategy options.
• $105 – The loss on the stock is only $500 (110 – 105).  The gain on the 100 strike option is $80 (500-420).  The (2) 110 options expire worthless and the gain on them is the $460 total premium collected.  With a $105 strike price on expiration, the trader is already beyond breakeven and slightly profitable with $40 in profit. (-500 + 80 + 460).

Things to consider when utilizing the stock repair strategy:

• The choice of strike prices for each leg of the ratio spread will change the breakeven point for your particular situation.
• The choice of expiration month will change the breakeven point
• Depending on the expiration day price, tt may be is possible to repeat the stock repair strategy multiple times to collect additional profit.  Consider the example above where the stock closed at $105 on expiration day.  A new stock repair strategy ratio spread could be opened for January or other expiration month.
• Options can be closed, opened, rolled, or morphed at any time.  It is not necessary to hold them until expiration.

For more information on trading and adjusting options positions, check out the following highly recommended book:

The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading) by George Jabbour

Hedge fund manager John Paulson began to make enormous derivative bets in 2006 against the largest bubble in history – grossly overpriced real estate.  Certainly he was not the only one to see the disaster coming, but he profited the most from it, raking in over $15 billion for his firm, and dwarfing George Soros’s $1 billion currency trade win from 1992.  To read more about the greatest trade ever, and John Paulson’s new fortune, place your pre-order for the book below.

The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History by Gregory Zuckerman

There are several posts on covered calls at Geldpress, including:

• Time for cover – the covered call
• Covered Calls – Scottrade, Tradeking, Fidelity
• The VIX index and covered calls
• Covered Call Writers Love High Volatility
• Picking A Strike Price For Covered Call On McDonalds
• Covered calls – removing the covers and going naked

I successfully use covered calls, married puts and collars within my own accounts on a regular basis. My recent trading activity in Mosaic (symbol MOS) will show some examples of covered calls and their adjustments.  It is not necessary to keep a covered call on though the expiration date.  When the underlying stock within a covered call drops significantly, there will often be an opportunity to buy back the covered call (BUY TO CLOSE) for a modest profit.  Buying back the covered call early leaves the shares naked, and fully able to capitalize on a rebound in share price, without the limits of the profit restricting covered call.  It is purely a judgement call on exactly when to buy back the calls, but as a general rule consider buying back covered calls early for the following reasons:

1. You are still bullish on the underlying shares, and happy to own them naked (without the protection of the covered call)
2. You can realize a significant profit on the covered calls by closing them early, and there is a potential for a rebound in the share price.
3. The potential for realized profit occurs with at least 1-2 weeks prior to expiration.

A summary of the points regarding the activity above:

• Purchased 400 total shares at an average price of $51.39
• Sold (2) MOS Sep calls for $2.86 and (2) MOS Dec calls for $6.91 – SELL TO OPEN
• On Sep 10th, I rolled the Sep calls to October for more protection and to collect more premium.  This resulted in a $210 realized profit from the (2) sep 50 calls when they were closed (BUY TO CLOSE).
• On Oct 5th, with Mosaic stock down, I bought back the Oct 50 calls for a $566 realized profit.
• Mosaic reported earnings on Oct 5th at the close.  To prepare for a potential disaster, I protected the Mosaic position by buying (4) Sep 45 puts. (married put)
• With earnings over, I sold off the puts on October 6th.  I took a realized loss on the puts of $376.
• On Oct 6th, I re-covered some of my naked Mosaic position by adding (1) Nov 50 covered call.  The final 100 shares were left naked to gauge the reaction of the market on Mosaic over the next few days.
• On Oct 16th after a small rally in Mosaic (I was hoping for a major rally, but settled for a small one), I covered the remainder of my shares with another November covered call.  Note that by waiting, the second covered call sold for $120 more than the first.
• My current position is long 400 shares of Mosaic, short (2) November covered calls, and short (2) December covered calls.

The point of the above is only meant to display one such example of trading, rolling and adjusting covered calls, and not to dissect all the other possible trading ideas possible – better or worse.  Trading is a judgement call, and the above is a recent history of my own trades and adjustments based on how I felt at the time the trades were made.  You are free to have your own opinions.

Disclosure: Still long Mosaic covered calls.

Disclaimer: Trade at your own risk!  The above is an example only of recent activity in my own account, and not to be considered an opinion or trading advice of any kind.

For more information on covered calls, please consider purchasing one of the following books:

Covered Calls and LEAPS–A Wealth Option + DVD: A Guide for Generating Extraordinary Monthly Income (Wiley Trading) by Joseph R. Hooper

Covered Call Writing Demystified: Double-Digit Returns on Stocks in a Slower Growth Market for the Conservative Investor by Paul D. Kadavy

The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading) by George Jabbour

Ron Paul just released a new book – End The Fed – and it’s already ranked #42 on the Amazon best seller list.  Ron Paul is also a major supporter of HR 1207, a bill making its way through congress to perform a full audit of the federal reserve.  My copy of the book has just been ordered so I don’t have much to say on it yet.  But I continue to support Ron Paul’s push for a leaner and more transparent government.  If you feel the same, then click below and buy the book.

End the Fed by Ron Paul

Talk to a mortage lender or bank, or pick up the real estate section of any newspaper, and the opinions are always the same.  The best time to buy is NOW, they say.  No matter what your persoanl situation is, no matter where you live, no matter what the current interest rates or prices are, it’s always, NOW, NOW, NOW.  In reality, there are plenty of great reasons NOT to buy a home, and to continue renting.  Beth Kobliner lists several great reasons in her New York Times bestselling book Get a Financial Life – Personal Finance in your Twenties and Thirties.


Among the reasons,

1. “If you can’t envision yourself in the same place for the next several years, you should rent.” – There are thousands of dollars in closing fees for both buying and selling a home that can seriously impact your ability to make a profit or even break even.
2. “If you have an amazing deal on a rental, it might make more sense to rent and stash your savings elsewhere.”  Rental markets are softening around the country and there are numerous mainstream and local blogs raving about negotiating lower rents.  Consider MAS’s take on the Seattle market in Updating the Moving Scorecard – and his successful attempt to negotiate a rental rate increase into a rental decrease.
3. “If you don’t have steady income, keep renting.”
4. “Don’t assume you always get a tax break for buying.”  The federal government does allow homeowners to subtract their interest payments and property taxes from their taxable income, but doing so also takes away the FREE STANDARD DEDUCTION.  If your yearly interest payments are below your standard deduction, there is no tax benefit to owning a home.  Even if you have an advantage in the early years, that advantage will go away as the balance of principal vs interest payments changes over the course of the loan.

If you are going to rent, there are also tips listed in her book on what every renter needs to know:

1. “Try to negotiate the rent.”
2. “Negotiate the terms of your lease”
3. “Negotiate with the real estate broker if you’re dealing with one.”
4. “List all your roommates on the lease, and have them all sign it.”
5. “Get everything in writing.”
6. “Understand how a security deposit works.”
7. “If you plan to renew your lease, contact your landlord two months before the lease is up and try to negotiate.”
8. “Know your rights.”

Other interesting topics in the same book are:

• Dealing with debt
• 401k’s and investing
• Insurance – what you need and what you don’t
• Paying less taxes
• Military benefits

To find out more, click to buy the book below.

Get a Financial Life: Personal Finance In Your Twenties and Thirties by Beth Kobliner

Despite all the newly released investing and trading books available. some of the older ones still remain on the top of the “must have” list.  Price Headley’s Big Trends in Trading is one of those. 


The book is divided into three major sections.

1. Getting the Market Right First – info on put/call ratios, Bix, mutual fund flows, volume and other indicators, and survey systems.
2. Stock selection techniques – ket technical indicators such as classic trend indicators, acceleration bands, momentum divergences, relative strength and more.
3. Options – a mixture of stock options strategies, trading psychology and money management.

The Price Headley trading rules are one small section of part 3.  Price’s well defined trading system is detailed out and is a model for anyone to use as a guide to developing their own system.  It’s a well known fact that all successful traders have one thing in commmon – a written plan to guide them in their quest to master the markets.

Excerpts from Price’s plan follow.

PRICE’s PRUPOSE:  To continuously learn and grow to become the best trader I can be, by simplifying and focusing my energy to achieve a balanced, centered state that controls the emotions of fear and greed, allowing me to take action when my analysis says the time is now.

PRICE’S PHILOSOPHY:  Big Trends – via Accelerations, Divergences and Relative Strength – to define the best opportunities.

Price also provides more specific trading suggestions that can be used in your own plan, such as:

• focusing on a small number of trades
• take big profits and small losses (sounds simple, but I have read or hear many top notch traders quote the same concept).
• Adjusting stops with the market
• Pre-planned entry and exit points – BEFORE placing the trades

The appendices cover a stock picking checklist, types of orders (contingency order, market and limit orders, not held order, once cancels the other, all or none, fill or kill), favorite web sites, and last but not least the favorite quotes.

“There is only one side of the market and it is not the bull side or the bear side, but the right side.” – Edwin Lefevre, Reminiscences of a Stock Operator

Big Trends in Trading: Strategies to Master Major Market Moves (A Marketplace Book) by Price Headley