Bailout

Fears of a bailout failure cut the rally yesterday at the hip. And it appears as though the actual failure of the bailout might go down to the knees. However, there is a lot of bad news already thrown into the price. I don't see a lot of good signs for GM stock, but there are others out there that won't take it on the chin like that. All said and done, it looks like there will be an early morning slide, it's already gaping lower by a dollar. The rest of the day will be very choppy. An afternoon rally? Probably not, if there is one in the works, Monday might be a better candidate.

Puts

This week I was stopped out of my puts on the Q's. Got frustrated as all get up, so I decided to take a short side of a put instead. I went ahead and sold Jan puts on Citi. My bet is that Citi will trend above 5.

Things are getting choppy and I am having trouble picking pivot points, so I will probably just sell some out of the money puts over the next few months. Much lower return, but theoretically less risk than the swing trades I have been making.

Market Shakeup

The Economic news has been weighing on the markets. People want the markets to go higher, the buyers try and push, but in the end, the sellers are in control as the constant drum beat of negativity resounds. The jobless report that comes out today was on everyone's mind. I couldn't bring myself to take a long position in that kind of situation. However, if there is a significant shake up today, and some of those weak kneed stock holders sell out, maybe we can get some momentum next week. If that flush can come, I might set myself up with a small long position to hold over the weekend, and play a gap up over the weekend--very risky, I know. We'll just see how it goes.

Futures are down, and the Q's appear to head for a gap lower. They broke through some recent support yesterday, looking to see where the next strong support might be hiding.

CPSL

Sold new calls against my CPSL stock. CPSL, like the rest of the market has taken a beating. My long term outlook is still good, financial statements still look intact. My plan is to slowly buy up more shares and lower my cost basis, and continue to sell what calls I can, though their yield has dropped off. To be expected though.

Looking to see what the markets going to do today after yesterdays slump.

Slight Pull Back

A .5% loss on the Q's today after some big movement of Friday and Monday. I'm not surprised, you are not going to see lots of sustained momentum in a primary downtrend. It is always possible that we are forming a bottom, but I can't for the life of me call one. I have friends who have called the bottom of the markets, oil, etc sold naked puts only to get caught in the proceeding plunge, fail to stop it out and end up excercised. That's not the position I want to be in.

I have put on some paper trades on the QLD, and XLF to see how those go this week, but otherwise I am taking a holiday, after which, I am going to step up my trading another notch.

Last week, E*Trade, for my efforts, offered me lower commisions. I take them gladly. Also, E*Trade is now offering access to options on the VIX and VXN, which should make for some great spreads. I am going to paper trade those this week to test the waters. Look for some of my plays to come, and happy tradding.

Frustrated

I am frustrated with myself, I let my emotions trade. I felt weary about a possible bounce on JPM, so next market morning, I decided to take my 60% profit. Only to watch JPM continue to plummet, and watch what could have been a 300% profit walk away from me.

My frustrations continued to mount, as I was stopped out of a play on the Q's. I took losses on that, but ended the day with a 30% gain. I have never had such a frustrating day of gains before. Next week is a holiday week, so I am going to try and ignore the world and relax.

Set to Open Lower

Things appear bearish. The SPY is seeing some pre-market volume to the downside.

The Q's are gaping lowers.

JPM is gaping lower.

I expect this trend to continue, but I am ready to snap up profits on my JPM puts if buyers decide to show up. (I am long OTM Dec Puts).

There seems to be nothing out there to stimulate the economy, certainly not the government, and economic news continues to slowly become more pessimistic, pirates certainly don't help matters. Hang on, because it's going to be another choppy day.

JPMorgan

JPM came out with some bad news today, and it's down trending stock made new lower lows, so I took a risk and went long a put. So far it's still trending lower, and even broke through some early support.

Pre-Market Activity

The pre-market activity has been interesting: dropping below 28.00 almost down 1% and then back up to positive territory up 0.5%.

Futures are still lower. It looks like things will open higher though.

Both HPQ and YHOO are opening higher after adjusting earning and CEO stepping down, respectively. HPQ is up quite a generous amount--15% and climbing.

In other words, this could make for an interesting day.

Mixed Messages

Too many mixed messages to make to make any trades on the Q's. The key is to be patient and wait for the setup. Right now, my signals say no--long/short.

However, this is options week, so there is likely hood that we will see some increased volatility and selling as the week comes to a close. Keep an eye out.

Downward Momentum? Just Down

The NASDAQ is gaping down this morning (is anyone surprised after Friday's sell off?). It looks as if it is going to test the lows again. I don't know if it will find support or find anyone to rally it this time.

I am going to wait to jump into the market--wait and see approach. Watch price action and see what it tells me for the week. I'll start posting some of the setups I find, and more details of which options I am trading and why.

Taking Profits

After the gaping down, the NASDAQ made a slow pattern of lower highs and lower lows, bottomed and began to make a nice rally, once that rally started to fail in the last hour of trading, I closed out my long position for a 30% gain and called it a week.

My original plan was to buy out of the money, with just enough delta to see some movement on large swings, like we've been seeing. It was not as effective as I had hopped. I am going to modify, by moving in towards the money, and closer to expiration.

Hopefully the increased delta, and decreased time value will even out, and make larger returns on short term movements.

The Boomerang

Drudge had it best: boomerang!

I had liquidated my long puts yesterday for a modest gain, but I was less that pleased. I decided to move my next trade to an out of the money trade and increase contracts and time to expiration to capture a larger move.

I put that on this afternoon, not to long after the failed beak out to the downside. 30 minute time frames looked good enough to go long, so I bought out of the money calls.

Then the market really took on a rally that was absolutely incredible to watch. I am going to stay long and as long as the market looks like it can maintain this bounce, let my profits run.

Also, E*Trade upgraded my trading status, I know have access to cheaper commissions, and other tools. Hats off to them. If you are looking for a broker, they have my business and recommendation.

Pre-Market

Pre-market points to a lower open, despite the fact futures are up a hair. The Q's found support yesterday at 29.80 area and rallied to end down a modest amount. The trend is still down, and I don't have reason to believe otherwise; it still looks like it wants to test the prior low support near 28.

I opened a global trading account with E*Trade last week, but I haven't funded it. It's there just in case, though.

Broken Support

The Q's continue to break all prior support and are looking to test some lower lows at the 28.90 stage. No good news out there to contradict otherwise. Charts look bad on all time frames.

I opened a small long put on the Q's at the money.

Gapping Down

The Q's are gapping down today, after yesterday's gap up (and subsequent sell off). There is generally no good news out there. Earnings are looking bleak for several companies, bailouts around the world don't seem to inspire confidence, except in Germany. The primary trend is still down.

I had mixed signals over multiple time frames yesterday, so I remained out of the market. I am going to wait it out, and see if the Q's will test support from their prior 52 week lows. An important level to watch--if it holds, we will eventually be in for another tradeable rally to the upside. If it fails, another wave of sellers will emerge and things will slide, making for a good short position. I am going to stay disciplined and watch for the signals from the market, and trade them as they hold up.

CPSL also has earning today. They seem to remain in a good financial position. I'd like to see more movement to the upside with them. My covered calls are set to expire this month, and will continue to write them until I get assigned.

Friday: Headed Down

Looks like more bad news for Friday, but futures are up slightly. I'm looking at trends continuing downward, but I am not making any trades headed into the weekend. I'll still have my eye on price and volume though.

We will see what Monday brings and with it a new trading week.

Have a good weekend.

Taking Profits

My position made a 50% return, so I closed out my position.

Total time in market: 4 hours and 15 minutes.

It was possible to see this one run more, but support looked like it was forming at 31.10. Since I was trading the front month, I wanted to keep the trade short. Had I traded Dec or Jan's I probably would have let them test and try and break below on another trend.

Dead Cat Bounce?

A ball is dropped, gravity takes over; it hits the ground and bounces, and momentum takes it upward, but the balls over all trend is downward.

That is what the markets are doing.

Yesterday, the markets started the short term trend back down, and broke prior support. The second it did, I went opened long puts on the front month of the Q's. It's continued down, and the sellers are back in control as economic news pulls on the markets.

The Q's appear to be gapping down, and the futures are down over 2%. I'm looking at downward movement today and tomorrow, and then will close my position.

Better Than Expected

The markets did better than expected: indicies are making mild gains. The Q's broke yesterday's resistance of 33 and has maintained some solid ground.

I decided to exit my long spread on the Q's and take my profit. I entered at 29, and sold at 33.20 on my 29/34 call spread. I could have squeezed out a little more profit by selling off most of my position and leave a small position open, but I resisted and took my gains, not trusting the last hour of the markets, especially today.

Good luck.

Halloween Pullback

Asian markets held steady for most of the trading day, but sold off in droves at the end of the day despite a rate cut by the BoJ. European markets are down slightly, but not off kilter--still watching for last hour sellers.

US futures are down. The NASDAQ futures are down just over 2%. Subsequently, the Q's are going to gap down this morning. We'll probably see some channeling, and some downward pressure.

I am optimistic though, the markets will retrace down, test prior support, and head back up to try and break the resistance that has seemed to form right around 33. If we can break that I'd be happy. I am going to stay long for now, no major news to think otherwise, and market sentiment is slowly shifting.

LIBOR and Futures

The London Intra Bank Overnight Rate has dropped below 1%. The credit markets are indeed starting to thaw. The Fed cut rates and European and Asian indicies are up. Futures are up.

High Options volume for yesterday was the QQQQ Nov 34 Call.

It appears as sentiment is changing. There are still sellers in the market, don't doubt it; but, there are signs of mild improvement.

I am still long a spread on the Q's with my original target rate of 34. I'd like to see that target hit by weeks end, but am prepared to wait it out.

Q's

The markets rallied the last two days, and with the announcement of the Fed rate cut, they jumped sharply only to be met with vicious selling.

Perhaps we'll see more selling, but I am looking for a continued move downward, and eventually a track back up.

We're still working on purging the last of the sellers from the market.

Bounce

There is a chance for a bounce, but I wouldn't expect anything dramatic. Possibly a mild retracement from the waves selling. To try and catch this, I opened a Call spread on the Q's. We'll see if anything will materialize from this in the next 60 days.

Just remember, falling down the stairs happens faster than the actual climb.

Gapping Down

The markets are gaping down as futures tumble and Asian and European markets fall in shear panic. I am looking to close out my Put positions in NOV, NE and BP this morning as they are all gaping lower in pre-market trading by about 15%.

Today is going to be another wild and crazy ride.

Long Puts

Puts on NE, BP, and NOV.

Oil continues to breakdown, a cold credit market has drilling down to a crawl. Look for poor performance among drilling contractors in Q4, as well as other service companies.

The market continues to breakdown, and I can't seem to buy Puts fast enough.

Puts on the Q's

This last week, I tried to play some shorter term Puts on the Q's, but right now the market is very volatile, and I was stopped out each time. If you are going to go long or short, make sure you have tight stops.

Hopefully these next few weeks, the markets start to calm down and behave a little more sensibly, that way I can make trades that last longer than a day.

It's not quite time to go long, yet; though I've been surprised at the drop in oil. I think that has potential for a very nice bounce in the coming months.

And the Bloodbath Continues

In N' Out

Long puts last week on the Q's, I sold them. Pure profit.
Bear Put Spread on the SMH, sold them. Pure profit.

Trying not to call a bottom. Technical Analysis has not provided enough follow through, much like the governments.

We'll see; but I still am overall very bearish. Markets remain volatile. Looking for some Vertical Call spreads for a net credit.

Bloodbath

I have puts on the Q's and a vertical put spread on the SMH index; set those up last week, because, like a shark, I smell blood in the water.

CPSL Wedge

CPSL over the last month has been forming a bearish wedge--lower highs and lower lows--trending down to a prior support at 4.05, and closed yesterday at 4.07. Today it gapped down to 4.00 and made a breakout to the downside.

I am looking for support at about 3.50. It's still falling on low volume, so I'm looking for it in the next few weeks. If it makes support at 3.5 or there abouts I might decide to pick up a few hundred more shares.

Or, I might buy an ITM call at 2.5 and wait for a bounce in the stock. I've got my eye on it. (Sorry no charts)

New Calls

With last Friday, I had 7 short calls expire out of the money, which I was happy about because it meant that I could write at least 7 new calls come Monday. And like Jimmy Buffett say, 'come Monday, it'll be alright.'

November options became available on the options calender. And CPSL was hovering right around 4.5 with some dips below. Compared to the October and December calls, November 5.00 calls seemed like the best deal of the bunch with a bid of .45.

I put in a limit order for Nov 5.0 Calls sell to open 7 contracts. It was filled immediately, and I came out with a net credit. That takes my return to ~10% or 5% over the next two months. That is what covered calls are all about.

CPSL Price Test

CPSL made a test of its support at 4.05 today, but only briefly. It then rallied to close at 4.30. I am going to wait to see if it will test again before I go long on the underlying again.

Today's Expiration

CPSL's geometric mean of historical closing prices is 5.04. And covered calls at 5.00 should yield anywhere between 40% and 50%, depending on volatility and its closing price just after expiration. Expiration dates anywhere from 1 to 3 months out seem to be providing the highest returns right now.

This covered call is not overly bullish and remains a fairly neutral market strategy. Anyone looking for a relatively safe trade in the current market, this is not a bad pick. It's expiration Friday and I am watching and hoping my short calls will expire worthless at the close of the bell today, and there is a good chance that will happen.

Let's see how the rest of the market does.

VIX is High

VIX is high, but I am not buying. I don't believe the VIX has topped out, and VIX has been higher in the past, during the .Com bust, and the '02-'03 recession with the collapse of Enron and Worldcom.

I don't want to go long until well after October, because October 15th is when hedge fund managers close out their books for the year for tax reasons. This is generally when we see those managers jettison their loosers, and the markets sees another major fall.

This year with the collapse of Lehman Brothers and another round of beatings for the rest of the financials, it doesn't look good. October has a chance to be the worst month, and then things will have a chance to get better, but until then, I am not bullish.

Price Watch

I've got a watch on CPSL. With earnings postponed until October, there was a mild sell off, and prices returned to last week's average. This looks like normal behavior for CPSL. People who normally don't trade the stock, see the news--jump in only to find the water not to their liking, and jump right back out.

My price target is 4.05, which looks like a prior low support. If it breaks below, I am going to wait to buy, but if it tests that low support once, maybe twice I am looking to buy a few hundred more shares. My strategy continues to write covered calls on the stock, and I haven't seen any reason to alter that. Implied volatility remains high, and premiums are still large enough.

VIX Spike

The VIX yesterday made a 6 point plus jump shot to close at 31.70. This is near 1 year highs of 32.24, but is this the ceiling? Possibly. In situations like this where volatility is peaking (if it is indeed peaking), it is best to buy a long call on the index.

Two things though, I am not sure if it has peaked yet, the gods are out for sacrificial blood, and Lehman may not be enough. There is still some young goat blood out there. And second, I am very weary of opening any long positions heading into October, the season when the gods become naturally angry and demand homage.

So, if I were to go long, and I not saying I will just yet, is buy index calls with plenty (maybe 6 months or more) time. The DJX's implied volatility is hovering at 31.92% (right on par with the VIX). However, calls far enough out (March 09) are asking about 7.55 at the money--little bit expensive. Take your time and do your homework before you decide to go long.

CPSL Earnings Watch

With earnings announcements on the horizon, the price of the underlying has shot up from 4.20 and change to over 5.50 and back down to close at 4.96 on Friday. As most of you all know I am long 800 shares at 4.87, and short 7 September 5.00 calls, and 1 March 09 5.00 call.

However, with earnings news, volume has spiked, and so has the implied volatility--from 60% to over 116%. Calls that were were a bid ask spread of .1/.15 cents at the beginning of last week are back up to .40/.45.

I was looking to go long a few hundred more shares this last week. It looked like CPSL might be headed for prior support at 4.00 and change (and probably was) until pre-earnings news came out. And for some reason volume spiked from it's normal 4-6 hundred thousand shares traded to 1.2 million. It seems that every time CPSL is in the news it causes some kind of volume price spike. And then it dies off, and so does the price; everyone who got on, gets right back out.

With expiration at the end of this week, I am curious to see what happens. Watch the earnings, and if you aren't long already, don't try and jump abord this stampeed. You will get trampled.

CPSL

CPSL's implied volatility has shot from 60% to 116%. As some of you know, I am long 800 shares, for 4.87, and short 7 September 5.00 calls, and 1 Mar 09 5.00 call.
This last week, CPSL was seeing some drop off in price on low volume, and I was waiting to see if it would find some support at prior its prior support, right around 4.00. But on earnings announcements, the stock shot back up from 4.20 to 5.50 and back down to close the day out at 4.96.

I've got my eye on September 15th earnings report. Earnings are never a great cause for the stocks movement. The last few days volume has picked up to over two million shares (usually it trades 400k give or take, with an average of 1.2 million).

I am not going to going to pick up any more long shares unless the price goes less than 4.20. However, the high implied volatility would make for some good short options plays. I just hope the stock stays below 5.00, so I can write some new calls with this IV.

Ike's Back

Ike's here and he's trying to disrupt the oil supply chain. Look for a mild spike in gas prices, but will come back down quickly. That is until we use up the excess supply we've built up, in about five months from now.

Volatility Cones

These volatility cones are useful in determining the implied volatility of an option relative to the historical volatility. They are also useful for determining the future outlook for volatility, but that's like predicting where hurricane Ike is going to go. However, past performance is the best indicator we have to future events.

(CPSL Volatility Cone)

Looking at the Volatility Cone we can see that high low, and standard deviations from the mean of implied volatility. The October 5.00 calls are sitting above the mean just below the 1st deviation line. This tells me that IV is relatively high, and that this would be a slightly overpriced--expensive--option.

Now I am looking to sell the highest price option I can (or buy the lowest). I want to get as much bang for my buck. The Octobers' look like they have just enough time premium, and I have to get close to the money (yes, the IV of the 17.50 calls are off the charts, but they would not be worth my time--they are too far out of the money).

My September calls are close to expiration, and it looks like it's time again to write some new ones. Right now, October looks like the best choice, but we'll see what the November bunch looks like when they get here.

Double Q's

I have of late been watching the Q's, an ETF for the NASDAQ 100. They are trading near some low support and did not get a boost from the Fannie/Freddie buyout. However, their Implied Volatility is still relatively low at about 25%. And, there is always a lot of volume.

I have been watching VXN to see if it gives me buy and sell signals for the NASDAQ 100 and QQQQ, before I jump in with long calls or puts.

The other thing to watch is the double Q's QLD. They mimic the price movement of the Q's roughly 200%. Every price swing up or down it's done two fold. Because of those larger price swings, they also have twice the implied volatility at 56%. However, there isn't nearly as much Put/Call volume on the QLD's as the Q's.

This is just on my watch list. I'm watching the volatility smile to see where the money goes, and I am testing this system to see if it is going to work.

(QLD Volatility Smirk, Volatility Spiking at near term ITM Calls)

Covered Call No-nos

There are several no-no's when trading covered calls. You can go back and read how I've made some of these mistakes. They are actually easy to avoid, if you just take the time to learn.

No-no #1) Not doing your homework. The only way to make money in the market (I should add consistently) is doing your homework, and doing it better than 80% of the rest of the schlubs out there. And this is key. Forgetting say, fundamental analysis, might lead to something catastrophic. If you ever go long and buy a stock, you want it to be a profitable company--not a looser sitting in their mother's basement.

No-no #2) Failing to manage the trade. Covered calls are a simple to manage--not like herding a flock of pre-schoolers down El Camino Real. But, you do need to watch it. A covered call will give you some down side protection, but does not eliminate risk. Stocks can still go to zero! Make sure you have a mental stop set up for the trade. The short call can give you downside protection of up to 11% or thereabouts, but it is no long Put.

No-no #3) Trading the wrong strategy. Don't do what I did, and trade covered calls on LEH right before they announce their first losses ever. Catastrophic. If I wasn't sure which direction that was going, but knew that whichever way it was going was going to be the bootleggers car of them all.... I would have Straddled or Strangled long. (As a beginning options trader that was not available to me, and instead of staying out, I did the No-no). A stradle would have captured this and made me a lot of money, but I digress.

No-no #4) Writing calls with too much time. As a buyer you want time on your side, so buy way out, buy LEAPs if you want. But as a seller, too much time can hurt you. Don't sell a call 6 months out, the premium may seem bigger, but in actuality you are going to make more money selling calls 1 to 2 months out from expiration than any other. Watch time drop like a led balloon.

(Time Decay of Options)

Trade right and returns will come.

Volatility Smiles

Volatility smiles take options models (such as Black-Scholes) and solves for implied volatility. Be aware that implied volatility and historical volatility are different. Historical Volatility lags current price by several weeks, but usually is near Implied Volatility, otherwise it creates a skew (but that's another post).

Looking at the graph, it forms a smile. That's because the demand on either side of the price is increasing. People are taking gambles, and driving the prices up. Options will generally have a lower volatility At the Money, whereas calls and puts on either side will be considerably higher, forming the smile shape.

The more extreme the price volatility, the more likely we are to see a large move in the underlying, not always though. Good smiles might be a good case for a long straddle, or other strategies.

(Volatility Smile for CPSL Sept '08, note the near term Smiles and the long term Smirks)

What happens when there is no smile, or rahter just a volatility smirk? The money isn't there yet, but as you watch over time, a skew becomes a smile; you know where the money is heading.

Dogs of the Dow

Here is another trading system that has a good track record--The Dogs of the Dow. This system takes the biggest losers of the Dow on 12/31/XX and says go long for the next year.

The Dow is a composite index that encompasses several industries, from oil and gas to pharmaceuticals, and so on. It's made up of 30 stocks, mostly well known companies like AT&T and Exxon Mobil. Mostly fortune 50 companies.

Every year there are some losers in the bunch, and more often than not, after they have a bad year, they like to bounce back. More often than not, these are the stocks that have a high dividend yield. So, if you went long with all of the Dogs of the Dow, you might net 5% dividends at the end of the year--not bad. Add those together with capital gains, and you might have a winning strategy.

But buying into the Dogs is capital intensive. What I would do is buy a long term call on the Dogs. I may forgo any dividends that way, but it's less capital up front. So, rather than tying up everything I own, I can still benefit from the system. And, even if the system falls apart (which all systems will do) my exposure is significantly less than if I had gone long on the stock. Remember a long call has a limited downside risk; you can't loose any more than you initially put in (unlike stock).

DOW-VIX Trading System

There are as many trading systems as there are grandmothers in this world. Everyone who has ever traded a single stock has used a system, more than likely it was news, or loudmouth blowhard driven. Nothing really concrete.

There are several systems I have been testing out, to see whether or not they should be used or put in Shady Oaks Retirement Village. This trading system that I am testing out goes off of VIX--the options volatility index. There is just about an index for everything, from Oil to the Dow and back again. When vix is low, volatility is low; prices in the market are making their slow march up.

It comes to a point when the VIX bottoms out, usually at some prior established support. In 2006 it was establishing itself around 10. 2007 tested 16 as a low support, as well as in the last 6 months. When VIX hits that low, VIX begins to rise and the DOW starts to fall, and in this case, it has fallen over 13%. Now we could short the Dow but as much as I've done shorts, I don't like the risk involved. Or rather we could short the DJX (1:100 ratio on the Dow), instead we could use its derivative--buy a put. Buying an ATM Put 60 - 90 days from expiration on the DJX would allow us to capture the fall from our sell signal without exposing ourselves to unneeded risk.

That is what systems are all about.

Fundamental Analysis, The Buffett Way

The Warren Buffett Way is a great book. Buffett is one of the greatest investors of the 20th century along with Soros. Buffett was able to take a relatively small investment of 100k and turn it into an empire of over 35billion, and there are so many people who try to emulate everything he does.

The book outlines his investment strategies and Buffett is big on solid Fundamental Analysis. Buy only companies that you can understand, that have an edge in their market, and are valued to buy and hold.

Some of his assets include Sees Candy, Coke, Geico, Wells Fargo, The Pampered Chef and several other companies from shoe manufacturers to brick factories. While Buffett did quite well for himself and Berkshire Hathaway, however his is not a strategy that I want to emulate 100%.

Buffett had some right place, right time moments, example being, had he not bought Sees, and done so well, he would have not been able to buy Coke at that time. And for Buffett, Coke was huge.

However, there are a lot of good ideas about Fundamental Analysis to take away from Buffett. How to read financial statements, how to value a company based on their books. These are the ideas that I have take away from Buffett and started to apply to my trading.

Always start with...

1) Fundamental Analysis

before...

2) Technical Analysis

3) Market Analysis

You need the right tools for the job, so add to your toolbox.

Wikinvest

There are several chart tools, Yahoo!, Google, MSN, your discount broker (E*Trade) and on down to your great grandpa's old ticker. Wikinvest does one different, and that is user generated content.

Yes, users can write articles; they can also create sentiment (bullish, or bearish), as well as make comments on charts. Articles are nothing new to the internet foray, but sentiment gives you an idea of what direction that particular stock, or sector might be heading, with the ability to agree or disagree and create a BS meter.

The charts help identify price movements in the stock, whether be it by company event or outside news. Those interested in finding out the whys behind their favorite stock should investigate Wikinvest, or those wishing to contribute to a community, this is an excellent place.

This is a sample chart, from Lehman Brothers.

View the LEH WikiChart on Wikinvest

It's not just about mystics of Technical Analysis. Nor is it Fundamental Analysis, somewhere inbetween is Market Analysis.

Covered Call Checklist

The whole idea of the Covered Call, is to find a stock that you like, willing to own, and accept the risk if something should happen. You have to do a few things first.

1) Do your fundamental analysis. In other words, look at the company, their financial statements, make sure that they are a company that can make money for the forseeable future, that their price to earnings ratio is good, and they aren't up to their eyeballs in debt. The point is, any time you go long in a stock, you should know all of these things.

2) Get to know your Greeks. Options variables are Greeks (Delta, Gamma, Theta, Vega and Rho). You don't need to know how to write a screenplay in Greek to get anywhere with options, but be aware, and even more important. Find out what the Implied Volatility of the stock is! http://www.intrepid.com/robertl/stock-vols1.html?q=~robertl/stock-vols1.html has a nice tool to tell you what the historical volatility of your stock is. Important. (Remember we want to sell high volatility, but on the flip side, it means a larger risk owning the stock).

3) Do a little Technical Analysis. Look at the charts. Have Yahoo! charts show you a 10, 40, and 200 Day Simple Moving Address. Is the price above any of these, or below? Look at the Oscillator, is the position over bought? Is it trending upwards, neutral or down (the covered calls work well with neutral and upward trending stocks)? And be sure to look at this on multiple time frames--1 year, 3 months, 5 days, 1 day. It makes a difference.

When you've done all of this, and you've found a stock you like the look of, and is selling for a good price, go long, and sell your options short. A good covered call should yield about 3-4% a month, which adds up over the course of a year. Be sure to keep your eye on them. The short call can offer some downside protection if things should go to far south for you.

CPSL and the Covered Call

After dumping Exxon on its slide down, I had cash to go around. It needed a place to call home. I had decided on CPSL for several reasons.



1) It was trading at a good price $4.40

2) Its current position had not been overbought

3) It had a high Implied Volatility of 59%

4) It's 200 day moving average ranged between 4 and 6 dollars

All of these things made buying Chinese Precision Steel a solid bet for the covered call strategy. At the market open I placed a limit order at $4.45, and executed taking 700 shares at $4.42. I am now long 800 shares (100 from my previous trade), average value at $4.79. Wiping out any pain from my original long position (see previous posts).

September calls @ 5.00 were trading at .45--just shy of two months out. At 7 contracts, that would net me a 10% return for 2 months, or 5% a month. Excellent deal. If they expired worthless, I would still have 800 shares, and could write more calls, and hopefully make more money (I am selling high--volatility--so the call premium is higher). If CPSL should close above 5.00 and my stock get called away, that's more money in my pocket. And, if previous patterns maintain, buy it back after it dips below 5.00 and write some more calls.

Oil's Pullback

Exxon Mobile road the wave of rising oil from 2006 to 2008, with a few minor pullbacks along the way. It rose from around $60 to $95. It was a pretty spectacular ride. I bought in at $75 back at the end of 2006, with no real strategy in mind, other than long (which really isn't much of a strategy when you think about it).

It topped $95 back in 2007, pulled back, and topped $95 again, and right around that time, the market started to turn south. Financials started to get shaky knees from that Parkinsons disease they had, and wouldn't admit to. During that period, oil was on the rise, profits were on the rise, but missing the mark.

XOM played around in the $80's, dancing with itself. And again, XOM began to spike, up to $94, and back down to $88. Making $88 a good place for support, because it looks like it was a prior resistance level (April couldn't break out above 88). XOM spiked back to $94, and back down, making two little mountain shapes--a Double Top.

After a double top is formed, if it breaks below prior support $88 in this case, it is going to drop like a fat kid on a slide.

Unfortunetely I decided to try a new strategy entirely, which required me to liquidate my position in Exxon Mobile. Which I ended up selling for $83.71. I have no long positions in Oil and Gas at this time. So long Exxon, it's been a nice ride.

Options Fundamentals

Fundamentals of the Options Market, by Michale Williams is one of my favorite entry level books. It covers the basics quickly: what is a Call and what is a Put--Long, Short, ITM, ATM, and OTM. So, if you are reading this and have no clue what any of those things are, buy this book, it's a very good resource to have around, especially if you are wanting to get serious about options.

This book also delves into Synthetics in detail, and goes over the building blocks for them. Synthetics let you construct Profit and Loss profiles that are similar to each other, but may reduce risk, or less capital intensive. I'll deal with those more later.

The book outlines a huge number of options strategies for each particular market situation. Including some rather advanced strategies, such as back spreads and front spreads. It also covers market basics, and how exactly that little gnome changes those ticker numbers so fast.

Options Markets also introduces us to Position Trading, another important concept that I will address later. But, very quickly, position trading allows you to identify where your risk is coming from, and how to hedge against it. Beginners and intermediates, this is a good book, and a resource to hang on to.

Options Expired

In July I was long 100 shares of CPSL, that was purchased at an overvalued price, and I had rolled through several calls, until June, when I wrote a July 7.5 call. The third Friday in July came rolling around, and CPSL was trading well below my call's strike price (it was OTM), thus making the call worthless.

Rather than buying back the call to close my position(for .05 and commissions), I let it expire, with no fear that the buyer would choose to exercise the call he purchased (a loosing transaction: strike price - current price = big loss). Monday's opening bell came around, and the -1 (indicating: short) in my portfolio in E*Trade showed that my short call was gone, but 100% of my premium received still remained.

I had a decision to make, wait for this big price swing again moving back up to 7 and 8 dollars (only to capture my original purchase value), continue to sell short term calls and hope it doesn't spike in price on me while I am in a call (I would have to buy back my call in order to sell my stock, but as the price goes up so does the call price), or sell a long term call and forget it?

With the short term calls for 5.0, one month out were trading at .25; and, with 1 contract that doesn't net a whole lot of premium. A long term call, in this case 5.0 Mar'09 calls were selling for 1.30. A bit better for one contract.

Selling short terms didn't make a whole lot of sense to me. So, I eventually decided that if I am going to be long with this stock I might as well stick with it, and make my some winning options plays. I wrote a Mar'09 call, and pocketed the premium and in this case the ticking clock was my friend slowly eroding value. Everything else, I'll take in stride.

Shorting Financials

Several days later, after a mildly successful swing trade from shorting a financial stock, I had kept my eye on everyone else in that sector to see if similar patterns would emerge, and sure enough, they did. Bank of America after bottoming out, started to rise and rise some more when they posted better than expected earnings.

In a matter of a week, the position was over bought on a 5 day basis; the stock had gone from 18 to peak at 34. That's when the stock started to falter. Rather than do something silly, like buy the stock, hoping to capitalize on its magical upward movement, I waited to get on the next mystery tour bus.

At around 30.25, BAC started testing support, the position was still overbought on several time frames from minutes to days, and upward momentum had slowed. I had my sell short order ready for 200 shares of BAC.

My previous swing trade only involved 100 shares for a .25 cent move. Nothing stellar. One way to increase profit is to increase volume. I made use of my margin available to me.

BAC broke resistance, and I sold short 200 shares at 30.03. And like clockwork, the stock began its predicted descent. I closed out my position buying back at 29.75; a few up ticks had me nervous so I sold. However, I was too early on my sell. Several hours later, the stock was down to 27. I had to shrug, but that was my risk tolerance.

Another sucessful trade. Another .25 cent move, but this time, twice the profit. Now we're getting somewhere.

Swing Trades

It was time to take my new technical knowledge and see the wedges and supports. One other item I was looking at was the Oscillator, or how overbought and oversold a position is at a given time. Generally the market is wrong 80% of the time. Given that knowledge I've decided to adopt the strategy of betting against the market, given the right circumstances.

Wells Fargo posted 2Q gains higher than expected, which caused a buying frenzy, and their stock shot up. Prior to the earnings announcement, WFC had dropped off from 23 and change to around 20, only to be over bought on earnings news to close at 27.

I was on high alert. The following day, I started watching WFC on five minute time frames watching for patterns. The upward momentum from the day before carried the stock to above 27.5, but showed sings of slowing and created a support level at 27.12. It tested support twice, and I had a sell short order for 100 shares ready to go, if WFC should fall below resistance.

Since it was an overbought position, it didn't have the upward sustaining motion. And when the irrational market saw the stock dropping, they would all sell in-mass to try and cut their previous losses.

WFC dropped below 27.12; I was slow with my trigger finger (and I am not using all of the sophisticated software I could be using to trade), and my order went through at 26.99. I started watching the ticker; WFC started falling, down to 26.60. And then started heading back up. I decided to enter my buy back order and close out my position, at 29.7482. Giving me a profit of about .25. At a hundred shares: 25$.

Okay, so nothing earth shattering, but I had made a succesful trade and built some confidence. I sold my first stock short, and had used technical analysis to create a strategy with an entrance and an exit. I could have held on for more profit (eventually the stock bottomed at 27.55), but hindsight doesn't need those ugly bifocals.

Technical Analysis

Whether you are a fan and are a rich technician laughing in the face of those who doubt you, a fundamentalist who scoffs at it, or just plain clueless, you need to be, at bare minimum, aware of it. What it is and how it works.

I would recommend Getting Started in Technical Analysis by Schwager. It's a fairly simple approach to the subject, and makes it very approachable for beginners.

Basically, it says that certain historical chart patterns form, and from that reasonable future predictions can be made, barring no fundamental changes. There really is no right or wrong; it's an art form. For some people it's a little to esoteric, they need a mechanical system that can be rigorously tested, and technical analysis is not that.

I am not a die hard technician, but I do find it useful, and every trade I have established using these ideas has made me a profit. I can't complain. There are also a lot of great blogs out there about the subject, Alpha Trends being my favorite.

Options as a Strategic Investment

I finished Options as a Strategic Investment, by McMillan, back in June of this year. I have to recommend this book very highly. However, this book is geared more towards the Intermediate/Advanced options trader. So, unless you have your fundamentals down, hold off on reading this book, but if you are there, or are just curious, it is an excellent book.

I'm not an advanced option trader yet (hoping to get there someday), but I was able to glean a lot of good ideas from this. For example, yesterday I mentioned buying "low and selling--volatility that is." This is an idea direct from McMillan's book.

Volatility will increase the price of an option. There are a myriad of strategies that would allow me to do this, and the book goes into detail about advanced strategies such as back spreads and front spreads. And when I get to that trading level, I will be implementing these ideas.

But again, the idea of volatility can apply to selling covered calls. We buy the underlying security 100 shares of the stock, and the sell 1 OTM contract. The trick is, find a stock that is volatile but currently undervalued, and then sell the option which is overvalued due to the high volatility. This takes some homework, but that's the name of the game.

Lehman Brother's

Buy low sell high--volatility that is. One real secret to success in options is to master the idea of volatility. Buy the low volatility, and sell the high. You'll have to do a bit of research to find the right one though. In my situation, however, I am writing covered calls. I am selling volatility, but I am also long the underlying security, so there is another risk to contend with.

In the covered call situation, the call can provide some downside protection (whereas a simple naked put does not). I found that Lehman Brother's after the end of the first quarter, were getting some unfavorable news coverage, with some nasty news about first time losses, negative earnings, and so on. I felt that the news was unwarranted. Volatility was rising.

The thing I wish I could have done was trade a collar or a strangle. This would have been the ideal strategy for this situation, and would have been very, very lucrative. However, my only option was a covered call.

I bought 100 shares of LEH at 32.49, and wrote an ATM call (I learned from my deep ITM calls) for that month for 3.55. This was a nice fat premium.

A week later, seriously downer news came out about LEH Monday morning before the bell. I decided it was time to unwind the trade, as LEH was gapping down. I sold the stock for a loss, but I ought back my call for .9, giving me a profit on my option of 2.65. This was more than enough to offset my losses on the underlying.

I'll go ahead and say that this was a successful failure. The trade did not turn the 10% profit I was hoping for, but it was managed to prevent serious losses.

Again, this trade needed a differant strategy, collar/strangle, where direction did not matter, but again as a first time trader, I was limited by the tools I had available. I just chalked this one up to as a good learning experience.

CPSL

Once I realized that selling deep in the money calls was not going to get me rich, but really just make me a few pennies to pay the broker, I unrolled all of my current calls for CPSL and MEA. For MEA, it wasn't too bad, although the call had gone up in price, so did the stock. It was a painless. I then sold the 100 shares I was long.

CPSL on the other hand, had been deflating like a bad fart. My call, however, was cheap as dirt to buy back. It had dropped in value from 4.2 to 3.3. I bought it back to close my short position. And took a nice profit.

With CPSL though, I did not liquidate. I stayed long. Perhaps I was waiting for another rebound in the future. The big bounce back up and recapture lost stock value; combined with all of the options I had sold and subsequently bought back at a cheaper price, this wouldn't be too bad a show for someone first starting out--profit.

I then wrote a call OTM at 7.5, and decided that if it got called away I would have a profit, and if the call expired worthless, I would have a few extra bucks. In my first month of trading options, I was able to walk away with a profit. My options had resulted in a %22 return on my initial investment, but this was still offset by my long stock position.

Metallico

A weekend went by, and I was still feeling that I was a rather smart oatmeal cookie about writing my deep ITM call. Really, it takes a lot to say an oatmeal cookie is smart though. The following week, I found another company that had strong growth, good fundamentals, and a stock that just looked like it wanted to go up just for me.

I bought 100 shares of MEA, and wrote another deep ITM call for 5.10. Again, the delta on the call was 1.000, and the call was a month out so there were only pennies of time premium left.

I can say that there is a strategy for trading deep ITM calls, but I wasn't doing it right. You have to be trading more volume than 1 contract to make any meaningful profit. Also, selecting the correct stock is difficult, and probably the best bet is some nifty-fifty software that costs 10 fold what its worth.

Conclusion: first time options traders, your broker may limit your ability to trade those spreads, naked puts and what have you, but there are still places to screw up. Level 1 doesn't mean risk free; in fact, your covered call P&L graph will look something like that of a naked short put.

ITM/OTM at the ATM

I rolled back into a CPSL Call for the same month as before, June, this time for a strike price of 2.50. Capturing, what I thought was a premium, and taking the full value at 4.20. However, I failed to realize, that I had merely captured the intrinsic value of the stock. At that time, the 2.50 call was so deep in the money that it's delta was 1. It behaved just like the stock, and had little to no time and volatility premium.

What a deal I thought, what a deal. I thought I had found the secret to covered call writing. Just keep that up, and I'd be rich faster than anyone else on the planet. I was highly mistaken, but it took me a few more days to realize this.

I guess, words of advice to take away, make sure your strategy is at least plausible. Also virgin option traders--you really need to understand the basics backwards and forwards: Call/Put/Long/Short/ITM/ATM/OTM--please be smart, it's about protection.

Rolling Up/Down

With CPSL on the rise, I wrote an In the Money call for 1.20 with a strike price above my original purchase price. Not a bad move; I was able to capture some intrinsic value in the call, and some volatility.

I was still managing a basket of kittens by the freeway. Not really sure what to do with them. CPSL's momentum dropped, and there was no sustainability to the run up in price. So it went seeking alpha.

I bought to close my short call for .80, capturing a .40 profit. And immediately wrote another call, this time deep in the money. I'm not sure why I did this, but I did. Call it brain flatulence, I suppose.

You can make all the P&L graphs you want, but the real art of options trading is risk management, and managing open positions. You really can only get that through experience.

Options Come and Gone

After a few days, I realized that the only strategy anyone would let me trade was a covered call. I shrugged my shoulders and said, I might as well figure out what the sweet n low is on this guy. I researched the internet, re-read my book and formulated a strategy.

Come the opening of the market I started hunting for that miracle stock that would net me a nice premium for the covered call and be sure not to go down. I ended up selecting CPSL (100 shares) off of the Nasdaq. I bought it on a gap up, hoping for enough forward sustainability.

Once I figured out the proper way to actually enter a covered call order (my god that was maddening; there was not a thing in any book I read on how to enter an order--I guess this is why they don't let beginners sell naked puts); begin with an open and end with a close, and buy or sell as needed.

By the time I figured out the proper procedure CPSL had risen above the strike price I was trying to sell at, no matter. I went ahead and sold one call slightly In the Money. Seconds later, the net credit appeared in my bank account.

I was pretty damn proud of myself, but we all have to start somewhere.

Vacation

Thus far, I have done a simple review of my conception--mis and otherwise--of wealth and wealth creation. Now, that I am into the options portion--this is the real duck and pom fris of the blog. I've outlined my first two years of rather ignorant investing. From here on, things should get interesting, or at least I hope.

Again, the whole purpose of this blog is to show, that anyone can take control of their own finances, and with effort and learning, they can climb their way out of the rat race and into comfort and wealth.

And with that, I leave for vacation for the week. So, not to fear, this blog has not been abandoned.

Options 101

Options are extremely leveraged, and require very little upfront capital; but, there is a lot to learn. With Guy's book for beginners, I was able to get a full grasp of what options really do. Literally the right to buy and sell stock, which you can also buy and sell, and any combination thereof. Example: you can buy the right to buy a stock, sell the right to buy a stock, or sell the right to sell a stock. Once I got my mind around that, I was excited to finally figure out what the hell was going on.

All of those calls and puts, dates, and small change numbers made sense. No longer was it just $0.55 for December, but an opportunity to buy the stock at XX price for $0.55 x (Number of Contracts) X (100). $0.55 went from pocket change to $55.00. I guess the light bulb was on. (Reader note: this is a dimmer switch bulb).

Guy's book was easy to read, and he laid out basic strategies. I perused the book, and decided that a Vertical Spread, or a Bull Spread strategy was the one for me. The next day, I applied for options permission with E*Trade, for level 3. A day later they came back to me, with authorization for level 1.

I shook my head. Apparently I didn't have enough experience as a trader to qualify for anything higher. My next big question was, what was a level 1 mages abilities? Covered Calls, Buy-Writes, and Roll ups/downs.

To be honest, after having just read the book with about 40 different options strategies laid out, I couldn't tell you what any of those three things were. I made up my mind, and decided, rather than give up on options, I would learn what the hell these things were, and how to profit with them.

Investment Vehicles

Sure real estate is a great investment vehicle that provides great returns, except in the now crashing, over inflated markets. Generally, they require too much time and up-front capital for someone such as myself. Rent prices in Texas don't support 100% financing options, or even 90%.

Still, Allen's book got me thinking. I need a vehicle that I can drive to wealth. And, if it's not real estate, what is it? Real estate might be great, if I had the capital. An apartment complex would be better.

Penny stocks are just the spammers dream, not the realities of millionaires. For me, that seemed to be the only way to get enough leverage in the market to actually make any money, but those stocks are really a crap shoot. I need a safer vehicle, and something that isn't so capital intensive.

Since I had made my first trade, I was vaguely aware of Options, but click on the options page, and I was lost and it was literally (pardon my pun) but all Greek to me. I never bothered to learn what they were and how they worked. That is until I stumbled across a book in the librarys' finance section: Options Made Easy, by Guy Cohen.

This book opened my eyes to the world of Options.

Slump

From the time I sold my mutual fund until May of '08, I did not make a single trade. I had my money tied up, and I continually told myself there are no trades to be made out there. The market is making a dramatic down turn, and it's not the time to jump in.

I was hoping that when the market was done making its down turn, I would have enough cash on hand, to get back into the market. Buy Low, Sell High. Or just wait.

And wait, and wait. I searched occasionally, but often times, I would just throw my hands in the air, and say, "I haven't the sorriest clue as to what to trade."

At one point, I went to my local library, and stood in the financial section just looking. I had some time on my hands, and I wanted to read a book on wealth creation, but which one? There were metric tons. How to get rich quick, millionaires the slow way, turtle your way to wealth, grave robbing for riches.

I went with Robert Allen's Creating Wealth, a book more or less on real estate investment guide--a bare bones layout for creating wealth.

Letting Go

ADVDX had not been fairing well with the coming tide of the banking crisis. They restructured several times, and reduced dividends. My portfolio basically flat lined.

I waited as long as I could, before I sold it, but the fact still remained. I needed to liquidate. I didn't have 10 years to see this fund mature. I had to let go, and cut my losses, especially with WMT.

ADVDX was a lackluster fund and was able to net 1% when all said and done. WMT after commissions proved disastrous.

But, these were some rather cheap lessons to learn. To have a strategy and psychology is huge, and never hold onto a loosing position.

Opportunities Missed

After spring 2007, Exxon began to make a bullish run, from $70 a share in March to $93 a share in August. By that time, my still very lopsided portfolio, sported 1 share of WMT, 175 shares of ADVDX, and 38 shares of XOM, all of which were looking very good.

I still had no trading strategy, and was still feeling around in the dark like a mole in a trash heap. I wasn't thrilled with my mutual fund; and with a gain of 1% against Exxon's glorious ride to the top, who wouldn't be disenchanted?

I wanted to hang on to XOM, because I had read an article, that this stock was a likely candidate for a split. Share price had increased dramatically, and a split hadn't happened in some time. I decided that holding onto XOM, rather than buying low and selling high, was the best way to go.

Conoco Phillips was catching my eye. It had also made a similarly dramatic move. And, late August it was coming back down. I told myself, that if it dropped below $80 a share, I would buy it. I would sell my ADVDX fund, and buy COP. COP dipped below $80, but I didn't buy. I sat on it, and missed the opportunity.

COP eventually went back up to over $90. Right around the time I needed to sell ADVDX for a major purchase. Had I sold ADVDX and bought COP at that time, and then sold it in October, I would have increased that positions nearly 11% in the space of 3 months.

I had actually set up a trade with an entrance point, and a time frame of how long I wanted to hold it for, but for some reason, I didn't execute.

Dividends

Come March, my mutual fund was starting to pay dividends. When I purchased these, I had a choice of having these dividends as cash or reinvested and gain more shares. I went with reinvestment.

Dividends eased the pain of an average performing mutual fund. And, I also received my first quarterly dividend from Exxon. Which was also great, because XOM was struggling. I had, at that time, bought high and it was sinking low.

If I had to do it all over again, I would have selected cash dividends for my mutual fund. Keep my cash, cash and stocks, stocks. I came to realize that dividends can play an important part in long term investment.

Round Table

January 2007, I was eating dinner, with the head's of the company I worked for--president, CFO, and foreman, at some roadside kuntry cafe, hole-hole-in-the-wall in south central Texas. I used this opportunity to pick their brains.

Since I had made my first stock trade a month ago, I was ready to make another one, but what? I had been reading everything I could that came across MSN Money, or Yahoo Finance. I read articles predicting the split of stocks such as XOM, and LMT.

Sipping some sweet tea, I asked the question, "Should I buy Lockheed Martin?"

Our CFO, a former VP from Lehman Brothers, advised me against it. At that time I had one major holding. One wrong move and my portfolio would become lopsided and a bad stock would drag whatever earnings I had, down the tubes. He advised me to find a Mutual Fund to balance things out.

I followed his advice of modern portfolio management: diversify so the losers don't bring you down. On a recommendation from my former writing professor and author of Investing Naked, I bought ADVDX. I decided on this one because of its, at that time, dividend yield.

And for a while, the fund did just fine.

Strategy?

Okay, so I was long 38 shares of XOM and 1 share of WMT. I assumed that owning the Fortune #2's in some way would be good, and that their stock would go up, up, (occasionally down) but mostly up. This was sadly the extent of my strategy.

Eventually I got over my anxiety, and let the market do its thing, up/down or flat-linning. This part was a huge pyschological barrier. I decided to accpet the fact that I was going to hang onto these shares (at least XOM) for a long time, perhaps several years.

Still, I entered the trade unprepared mentally, and most critically without any kind of stragtegy--Entrance, Exits, Stops, Limits. I have learned and to my best, have tried to adhere to this policy to never execute an order without a damn good idea of what you want to do, what you expect to see, and a backup plan for when you fail to see your first plan materialize.

Market Introduction

When I placed my first trade, I was sitting in the Portland airport, waiting; linked to the world with my wireless card, and a cup of McDonald's coffee. My new brokerage account was fully funded with my extra cash; the market bell had rung, and I was ready to make a trade; make some of the big bucks.

I punched in the windows calculator, the current selling price of Exxon Mobile (XOM) which was in the neighborhood of $75.75. I divided that out over some 3,000 dollars. And decided I could purchase 38 shares of XOM. I entered a firm Market order. And three seconds later I was the proud owner of 38 shares.

I then decided I had a little money left over. I decided to buy 1 share of Wal-Mart stock (WMT), for some $54.13. I placed another order.

For the time I waited for my plane, I watched the stock ticker. My XOM mobile stock was going up. I felt like a winner--this is how the monies made.

However, by the time I got off the airplane in Houston again, and within a day or two XOM dropped to 70.00 a share. My Wal-Mart stock was down as well. My exuberance over my market gains and flitted away with the market fairy. I thought, "what the hell am I doing?"

A Fistfull of Cash

In the last third of 2006 I made a career change, a move and an intellectual paradigm shift. I packed what I could into two suitcases, and took a standby flight to Houston with $237 in my bank account.

My income was high, my expenses were low, I kept my debt to a minimum; and worked my rear into the ground. By the end of December I had an extra $3,000 in savings.

"Not Bad," I thought to myself. "I could go to Mexico and burn it all; sit on a beach for a week and drink rum runners until my tab dried up and they packed my poor lucid body back on a plane home."

No, I decided to invest it. I turned to my cousin and asked him, "What do I do?"

"Buy Exxon," he said. "You can't loose with fortune 1."

"And how do I go about doing that?" I asked.

"Personally, I like E*Trade," he said. "They give you a debit card, and a box full of checks, and will reimburse your ATM fees."

30 minutes later, I was filling out the form on-line, I was really on my way to being a big time investor.

Debt Service

One thing that I noticed and I'm sure you've noticed this too. Everyone who's ever written a book on how to get wealthy, from the Rich Dad, to Suze Orrman, has all touted the debt horn--get out of it!

Growing up, I saw that debt is a bad thing, and fortunately I never buried myself in credit card or other frivolous things. I am grateful for that; what little interest bearing debt I had in the form of a truck note, I was able to pay off by cutting my rent in half. I paid off early and saved over 200 dollars in interest payments.

However, debt is not necessarily bad. I've come to find that without credit (the ability to borrow money, debt/leverage, call the dragon what you will) wealth is not accessible.

Debt to avoid like a rhino in heat: Interest Bearing Consumer Debt. (Paying interest on that new 82" plasma TV for the bedroom?)

Good Debt: Deferred interest loans that can be paid off before interest kicks in.

Better Debt: Purchase something that will make money of it's own accord and at a higher rate.

Investing Naked

There have been several people in my life that have provided me with some understanding of the world of finance. On such gentleman was Barry Lawler, a writing professor at Oregon State University. He wrote a sensical, and quite whimsical how to guide on Investing.

This was my first real finance book that I read. I can't say that I understood everything, or much of anything at that point, except for the basic fundamentals. However, this short how to guide got me excited. It gave me the idea, that yes, with little to no effort, I could invest my money and do well enough for myself, but with enough time, determination, and the right effort vitamins I could invest my way to wealth.

I'll credit this work as the work that got me to care about money--my money, and future.

Getting Started

It was 2006 when I made my first investment, prior to that I was a poor college student with a checking account and a savings account that yielded 0.22%; after that I dropped out of school, in an attempt to make money. It took me several jobs and more hours than I really wanted to, but I did it. My first thousand dollars I could put away.

I called a financial planner at Smith Barney and gave him my thousand dollars, and he invested that money (October 2006) through my IRA in a mutual fund--Franklin Templeton C shares. I had my doubts though.

Since that time, I have not made another contribution to that IRA. Why?

Even through the end of 2007 while the major Indexes were still solid and the Dow flirted with 14,000. My initial portfolio never exceeded much more than a 1,000 dollars, my initial investment.

But, problem number one, they seem to think that charging custodial fees of 4% seems reasonable. That and the Bear Market of 2008.

My portfolio as of 7/18/2008, I owned

FFACX 74.637 for a grand total market value of 837.42!

After almost two years, this is a -13.58% Return on my Investment. Less than Stellar. This doesn't seem to be the way to build wealth. Had I left it in my .22% Savings account, I would have had an account balance close to 1044.

But as my cousin said, "when you go this route you pay people to loose money or just make marginal gains."

The Point of it All

My goal is to build wealth. I am in the process of learning, and this is my journey--triumphs, losses and all.

I grew up learning the tenant, buy low and sell high. I generally equated this with the stock market, and this was the only way to make money. As I learn about investments, and the various vehicles, I find that the premise that I learned young was flawed at best.

Yes buy low, and sell high, this will make you money, but to take just a few thousand dollars and turn it into seven figure wealth I will need to buy a stock and see it increase over a %1000. This isn't realistic.

No, I need real investment vehicles, with realistic returns, and reasonable risk.

Here I will document my attempts at taking a small amount of money and making myself wealthy. You can see the different investment vehicles I use, and what I do wrong, and what I do right. And, hopefully you can learn something through my attempts.