CPSL - Covered (some) Calls

After an amazing daily gain, CPSL wobbled. However, there was a buyer interested in purchasing some September 2.5 calls from me, so I sold him 10 very overpriced calls at .20 cents, when theoretical value was under .10. Fine with me, now, I am going to continue waiting for another run up, hopefully to 1.80.

Right now, CPSL is below resistance again, in the 1.15 - 1.20 area. Watch for another break out in the next few weeks.

CPSL - Bullish?

Long time readers will know I am long CPSL--Chinese Precision Steel. Balance sheets look stable enough, but it is an extremely volatile stock. Which, translates in to premium for short positions, ie the covered call.

CPSL established a minor uptrend in the last week. Yesterday we saw a Doji candle, followed today, by a 22.3% increase in price today. Previous candlestick patterns resulted in a significant rally. However, it appears that the 1.45 area is solid resistance and might take some effort to break through.

Today showed great volume. I am looking for CPSL to break resistance and move higher as it has previously. Possibly up to 1.75-1.80 area. At this level theoretical values of Sept 2.5 Calls should be about .25. In other words, a few thousand shares would be worth a decent premium.

CPSL - Call Expiration

CPSL is a beaten down stock, along with everything else. I have been long this stock for some time now, playing the high volatility by selling calls against my stock, which worked great until November, when the stock tanked below 2.50 and left me holding the stock and no value in the higher strikes.

I took a chance and sold a few March 2.50 calls at great risk, but they are now expiring worthless today and I am keeping the premium.

I have since added to my position, and averaged down below 2.50.

I am estimating the historical volatility at 97%. As a result, the back month 2.50 strikes are showing some decent premium. I am hoping to see a move in the next few weeks to the prior resistance level of about 1.45. If it fails to rally above that, I will sell my calls there. However, if it breaks resistance, CPSL has a great chance of heading back to higher resistance at 1.80, where I can squeeze more premium out of those calls.

AXL - Auto Action

I had some very speculative calls on AXL, an auto parts manufacturer. Company viability was in question and they were at the governments door asking for a bailout, and very unsure of one. WSJ article this morning announced $5B in aid.

I had been holding some worthless calls, and was about to write them down as a total loss, and then today happened. I sold for a 51% gain. Hey, it's a great day to be an option trader.

USD Weakness

In my previous post, I mentioned McDonalds was not rallying with the market, until CPI news came out. It looks like inflation from loose Fed policies are starting the trickle of inflation dam.

This will make for a weak dollar again, as it still appears our central bank has one of the looser money policies. However, those nations with strong commodity exports such as oil, iron, and gold will fair quite well. Good candidate: Canada.

The Dollar failed to break resistance again, and broke a recent uptrend line. Fib re-tracement is at 118(38%) 114(50%) and 110(62%), which correspond to some good support resistance levels as well.

I'm going to take a small put position in the $CDD to take advantage of the move down.

Strong Dollar - Weak MCD

Last week I posted a possible swing trade on MCD and MACD divergence, however, the rally that the rest of the market saw did not crossover to McDonalds.

The dollar has been strengthening against the YEN, EUR, and GBP, and as a result global sales are off. Side note on the long run macro: as the US increases their money supply faster than the other central banks around the world, this will cause a shift in the long run equilibrium exchange rate. So I will be looking to sell the dollars strength in the next few months and buy foriegn securities. More on this later.

Rally Congress and Avert Disaster

For those traders out there who do not find this stuff amusing, please sign the petition and contact your congressman.

http://www.rallycongress.com/no2tradertax/1536/tell-congres-to-block-trader-tax/

The Political Circle Jerk

Representative Peter DeFazzio from Oregon introduced HR 1068. This bill basically states that all securities traded will be taxed at a rate of .25%, on a typical trading day for me, that's 90% of my profit, but that's just me.

Here is a link to the text of the bill:
http://www.opencongress.org/bill/111-h1068/text

Here is a rebuttal by the STA:
http://www.finalternatives.com/node/7043

Here is how you contact DeFazio
http://www.defazio.house.gov/index.php?option=com_content&task=view&id=127&Itemid=74

Peter DeFazio earned his masters degree in gerontology, not Economics. It's time to take these decisions regarding markets and capitalism out of the hands of those who are incappable and ungrateful.

MCD - MACD

McDonalds posted a low at previous significant support around 51.50 on the daily close. MACD histogram is showing divergence. Prices recently made a lower low, while the MACD posted a higher low.

MCD often holds up considerably better than the rest of the market. A good counter cyclical stock during the economic downturns.

Previous support is right at 57.50, I would expect MCD to head that direction in the next 20 days. I'm going to play a vertical call spread on it with April Calls.