Riding The Gravy Train: February 2012

Riding The Gravy Train

Beating the market is fun and profitable. This is how we do it.

Wednesday, February 15, 2012

Selling 1/2 VIX calls, Lowering AAPL short stop level, Buying SRG

Our VIX calls are up 33% since purchased in January. See posting dated January 26th for details. We're going to try to sell half of them for $4.50 for a gain of 50% thus effectively reducing the cost on the remaining calls to $1.50

That will hopefully happen within the next day or two by virtue of a further market drop. Do markets still drop for more than a day at a time?

Today the S&P 500 closed below an uptrend stretching back to mid-December. The potential downside is enormous, thus so too the upside in the VIX calls, but we're short in several positions right now so we seek to protect that winning position from becoming a loser in case markets somehow rally futher before at least a material correction.


We'll be similarly prudent in protecting our AAPL short. Major damage was done to its rally today, with so many technically bearish indicators evident that we can't be bothered to list them all. Instead we'll simply lower our stop to any close above $530 making for effective risk of roughly 5% If it drops to below $480 this week, we'll cover. If not, we'll stick with it awhile longer.

Covering below $480 would make for a 5% gain or more, which isn't much in percentage profit terms but it's about 9% better than where we were at just this afternoon and if you've shorted a few hundred shares that'll still give you enough dollar profits to do something worthwhile so we'd call it good luck and withdraw it and put it to good use.

That said, a drop to somewhere between $450-$470 wouldn't surprise us. Frankly neither would a drop below $200. Yes, two-hundred dollars, but hypervaluations end when they end not necessarily when you're short. We've been very lucky shorting this stock in the past, and don't wish to reverse that trend by being greedy, plus as we said above we're already short several things at the moment.


Random thought about shorting : When you short something, be prepared to see it double against you overnight, at which point rather than suffer margin calls you should be ready to perhaps short more. Those who lived, and shorted, through the tech bubble, or who've ever shorted naked, or penny stocks, or commodity contracts, FOREX, etc. should know this to be true, and those who rely on "logic" or "valuation" and lack the prudence and reserve capital to do what we're suggesting will find very unsympathetic margin clerks on the other end of the line before long, and it can get much worse from there.

If you are not nodding your head "yes" after reading that, you've not shorted much and you probably have some very hard lessons to learn so be very careful and remember these words. It's fine to plan to stop out for a given amount of loss, but you don't always get that chance or you don't always take the chance when you have it. Simply, you can't win if you're knocked out of the game.


Enough of prudence, let's get back to speculating.

Trading in Canada is a company called Sunridge Energy Corp. The ticker is SRG on the Canadian Venture Exchange and it's been trading for about a year, relatively flat on little volume circa $0.20

Why a resource penny stock? While it's obvious that market is dead, and will stay that way a long time unless gold pops over $2000-$2500 which we every much doubt will happen, this company actually has resource production and enough cash flow from it to stay afloat. Yes, that is extremely unusual for a $0.20 stock.

The chart looks OK, management has past experience and success, and best of all they've enough cash flow that it shouldn't go bust or require much dilution to stay afloat. Also options to insiders have recently been granted and if they want to make big money on those they'll need the price to go up significantly at some point. For their own sakes, and ours, hopefully they can make it happen.

Note that these items are from August 2011 :

Overview (click to read .pdf)

"Heavy Oil" extraction technoology agreement (click to read .pdf)

In our view, picking some up at $0.25 or less is a reasonable speculation. There's very compelling potential here and a chance to get in early. At worst you lose around $0.20 per share. Do the math and allocate accordingly if taking a position.

Disclosure - we already own shares at an avg. of $0.18









We receive no remuneration or incentive directly or indirectly in any way, shape, or form for buying or selling the positions we do, or for mentioning any positions or companies in this blog. If we hold existing positions we divulge the fact. This blog is merely a diary of some of our thoughts and trades and is in no way whatsoever to be considered investment advice of any kind. Always without fail consult a competent, experienced, and honest broker or investment advisor before making any investment or speculative decisions.

Please presume that we, she, he, I, it, them, they, us and you are purely fictional characters and that everything written in this blog is satire intended for comedic amusement only and not to be taken seriously in any way. Just like "real" analyst proclamations. Thank you.

To be notified when this blog is updated : Please e-mail christianguinness@hotmail.com with "Subscribe to blog" in the subject line or click here to do so automatically if your computer is configured accordingly. We have never shared our mailing list with anyone, nor will we. Please note that we only send update notifications when a trade idea is diarized or updated, not if a blog entry only contains general commentary.

QE3? Addendum

In the wee hours of this morning (see post immediately below) we wrote : "there is more division than it may seem within the Federal Reserve".

A few people asked us today what made us say so. We'll not answer that, rather simply point out the important thing which is that it's true. This afternoon we have this news upsetting the markets and Fed front-runners :

Only few on Fed supported QE3 in January (click to read the article).

We suggest this worth considering, which history arguably corroborates; the Fed does not actually set rates, it chases or simply matches rates. Of course Fed policy and actions have some bearing on rates, but the bottom line is that when bond and treasury investors want rates to go up then rates will go up and the Fed can only follow along.

Put a different way, our TBT position will be already rising when the Fed finally starts raising rates. Another thing to keep in mind is that rate movements almost always continue for at least months and often years in a given direction. That said, we could be months, years, even decades (like Japan) before rates rise materially, but once they do we should be prepared and able to speculate very profitably.

It could happen much sooner than later. Completely contrary to Fed pronouncements recently, before 2014 wouldn't surprise us at all. We're not the only ones who think so (click to read).



We receive no remuneration or incentive directly or indirectly in any way, shape, or form for buying or selling the positions we do, or for mentioning any positions or companies in this blog. If we hold existing positions we divulge the fact. This blog is merely a diary of some of our thoughts and trades and is in no way whatsoever to be considered investment advice of any kind. Always without fail consult a competent, experienced, and honest broker or investment advisor before making any investment or speculative decisions.

Please presume that we, she, he, I, it, them, they, us and you are purely fictional characters and that everything written in this blog is satire intended for comedic amusement only and not to be taken seriously in any way. Just like "real" analyst proclamations. Thank you.

To be notified when this blog is updated : Please e-mail christianguinness@hotmail.com with "Subscribe to blog" in the subject line or click here to do so automatically if your computer is configured accordingly. We have never shared our mailing list with anyone, nor will we. Please note that we only send update notifications when a trade idea is diarized or updated, not if a blog entry only contains general commentary.

QE3? , AAPL short triggered

We received two similar questions last evening :

"What do you think about the inevitability of QE3, it may be a new and bigger kickstart for metals as well."

Agreed, however the key is "may be".

Recent past QE (click this text to read about it) experiments seem to have boosted both markets and metals considerably, however it's arguable that much of that boost was coincidental since the QE was done when the markets were due to rally for a long while regardless.

Even if the QE programs were entirely to credit for the run-ups in equities and precious metals in the past there's no guarantee there'd be similar results in the future, especially with markets at such lofty levels currently.

Will there be a QE3 at all? Given it didn't happen when markets tanked badly last summer, while unemployment was higher than it is now and price inflation was lower, and given that there is more division than it may seem within the Federal Reserve, plus a possible change of Fed president after the U.S. presidential election later this year ... we'll worry about QE3 if or when it happens.

If, due to further QE or not, the trends and technicals in equities or metals turn bullish, we'll go long. So too if valuations ever return to sanity. We concern ourselves far more with these tangibles than with the intangibles of government fiscal and monetary smoke-signals and fiscal or monetary voodoo, and we keep in mind that markets tend to eventually severely punish those who try to front-run a "sure thing".


Speaking of front-running, our short in AAPL was triggered today circa $505. See the posting dated February 09 for details. We'll cover on any close above $540 to try to limit risk to approximately 7% At the rate the stock is moving, that could be later this week. Certainly the uptrend remains intact, so either our timing will prove lucky or we'll (re)learn the hard lesson to wait for an actual trend change before betting on one. In any case, it'll be fun to watch.





We receive no remuneration or incentive directly or indirectly in any way, shape, or form for buying or selling the positions we do, or for mentioning any positions or companies in this blog. If we hold existing positions we divulge the fact. This blog is merely a diary of some of our thoughts and trades and is in no way whatsoever to be considered investment advice of any kind. Always without fail consult a competent, experienced, and honest broker or investment advisor before making any investment or speculative decisions.

Please presume that we, she, he, I, it, them, they, us and you are purely fictional characters and that everything written in this blog is satire intended for comedic amusement only and not to be taken seriously in any way. Just like "real" analyst proclamations. Thank you.

To be notified when this blog is updated : Please e-mail christianguinness@hotmail.com with "Subscribe to blog" in the subject line or click here to do so automatically if your computer is configured accordingly. We have never shared our mailing list with anyone, nor will we. Please note that we only send update notifications when a trade idea is diarized or updated, not if a blog entry only contains general commentary.

Monday, February 13, 2012

CME Cuts Commodity Margins

Effective tonight, margin requirements for gold, silver, and virtually all other commodities will drop significantly. Click this text to read the announcement in .pdf form.

Many think it's bullish, but we're unconcerned with respect to our silver short. We already have a large profit that can't be taken away, and a tight stop on the current position.

It's comical to us that the internet is not buzzing with the usual ill-informed outrage and ridiculous conspiracy theories that normally accompany margin changes for gold and silver. Of course, as is typical of these types of people, they've got no problem as long as they think a given action benefits them. It'll also be typical when the top comes and they're too busy squawking and finger-pointing to take responsibility for making the proper trade.

The truth is they've nothing legitimate to complain about when margins are cut, and nothing to cheer about now. If gold, silver, and other commodities do rise in the wake of this change, it's likely more coincidental than causal, and it just makes for a bigger fall when the time comes for everyone on margin to liquidate. If we don't make more profits shorting silver now, we almost certainly will at that time.


We receive no remuneration or incentive directly or indirectly in any way, shape, or form for buying or selling the positions we do, or for mentioning any positions or companies in this blog. If we hold existing positions we divulge the fact. This blog is merely a diary of some of our thoughts and trades and is in no way whatsoever to be considered investment advice of any kind. Always without fail consult a competent, experienced, and honest broker or investment advisor before making any investment or speculative decisions.

Please presume that we, she, he, I, it, them, they, us and you are purely fictional characters and that everything written in this blog is satire intended for comedic amusement only and not to be taken seriously in any way. Just like "real" analyst proclamations. Thank you.

To be notified when this blog is updated : Please e-mail christianguinness@hotmail.com with "Subscribe to blog" in the subject line or click here to do so automatically if your computer is configured accordingly. We have never shared our mailing list with anyone, nor will we. Please note that we only send update notifications when a trade idea is diarized or updated, not if a blog entry only contains general commentary.

Thursday, February 09, 2012

Adding ZSL, lowering BBY stop, shorting AAPL

In August, per this blog, we effectively shorted silver via purchase of ZSL circa $13.44 Six weeks later we announced selling half that position for a gain of 62% on the half sold. Friday morning we'll repurchase that half.

ZSL last traded at $10.11 On any close below $9.70 we'll once again sell half this position for the loss should it occur, roughly 4% risk on the half-position.

We've received e-mails asking about our gold positioning. At the start of the year we'd written we were short gold (not a diarized position in this blog). Not long after we were forced to go long by our trading discipline, netting approximately 7% on that short (entered in early December, also not diarized here). We're currently up circa 10% on the long and will close it out, so as far as precious metals goes we'll just be short silver.

We're lowering our stop on the Best Buy short (see posting of January 27 below) to any closing price over $16.30 thereby reducing our risk.

We'll put out a short on Apple Inc. (AAPL) at $505.00 should it get that high. See the chart in the posting immediately below. If so, we'll cover on any close above $540 to try to limit risk to approximately 7%


Insider selling is currently at a level worth noting. Click here to read the article.



We receive no remuneration or incentive directly or indirectly in any way, shape, or form for buying or selling the positions we do, or for mentioning any positions or companies in this blog. If we hold existing positions we divulge the fact. This blog is merely a diary of some of our thoughts and trades and is in no way whatsoever to be considered investment advice of any kind. Always without fail consult a competent, experienced, and honest broker or investment advisor before making any investment or speculative decisions.

Please presume that we, she, he, I, it, them, they, us and you are purely fictional characters and that everything written in this blog is satire intended for comedic amusement only and not to be taken seriously in any way. Just like "real" analyst proclamations. Thank you.

To be notified when this blog is updated : Please e-mail christianguinness@hotmail.com with "Subscribe to blog" in the subject line or click here to do so automatically if your computer is configured accordingly. We have never shared our mailing list with anyone, nor will we. Please note that we only send update notifications when a trade idea is diarized or updated, not if a blog entry only contains general commentary.

Monday, February 06, 2012

AAPL Nearly A Good Short

Shares of Apple Inc. are approaching a very compelling shorting point. Risk would be limited by covering above $500 - $525 depending on your risk tolerance and overall portfolio balance.

Given the nearly religious fervor of fans of the stock, and the company and its products, we'll forgo commentary and simply let the 3-year chart speak for itself :





We receive no remuneration or incentive directly or indirectly in any way, shape, or form for buying or selling the positions we do, or for mentioning any positions or companies in this blog. If we hold existing positions we divulge the fact. This blog is merely a diary of some of our thoughts and trades and is in no way whatsoever to be considered investment advice of any kind. Always without fail consult a competent, experienced, and honest broker or investment advisor before making any investment or speculative decisions.

Please presume that we, she, he, I, it, them, they, us and you are purely fictional characters and that everything written in this blog is satire intended for comedic amusement only and not to be taken seriously in any way. Just like "real" analyst proclamations. Thank you.

To be notified when this blog is updated : Please e-mail christianguinness@hotmail.com with "Subscribe to blog" in the subject line or click here to do so automatically if your computer is configured accordingly. We have never shared our mailing list with anyone, nor will we. Please note that we only send update notifications when a trade idea is diarized or updated, not if a blog entry only contains general commentary.