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









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