cbwang888 (29.74)

Do NOT short here, use 5% ~ 10% of what you intend to short to buy July PUTS

May 10, 2009 – Comments (1) | RELATED TICKERS: ERX , SRS , SMN

Many inexperienced shorts were wiped out by this bear rally. I got my 6K CAPS scores all gone after 2nd month of this rally.

Even though I missed the first month of this bear market rally, I quickly covered all shorts in real portfolio and commited 20% of my portfolio to buy some out-of-money commodity/energy May/June calls. I'm able to get 300%~1000% return. In short, I did 5X my option investment. Now I sold those in-the-money calls and pocketed 80% gains just in option alone (I also have commodity long positions), and commits the same 20% into June/July out-of-money calls, again.

If the party go on, I can still 3x~5x my new option investment (or speculation) of my current total portfolio again just in call options (30 ~ 50% gain of current balance).

When DOW reach 9K, I will turn around and sell all CALLs, keep some of my commodity longs, and buy PUTS. I will this time commit 10% (instead of 20%) to buy puts in REITs and financials.

If DOW keep going higher, I will lose 10% but gain some back on my commodity long positions. If the market start heading lower from 9K, then my PUTs should reward me 2~5X returns.

By going shorts on the wrong stocks can cost you a lots. I'm glad I covered my COF $12.5 shorts @ $14.  I will buy July $30 ~ $35 puts of COF when DOW @ 9K. 

Bottom line, if you are luck on shorting stocks, you can only get 100% of what you commited for shorting. Unless you do aggressively margin to short on the way down. However, one violent rally like this one will kill. Just look at what happened to FAZ from $100 to $4.5 ....

Anyway, for volatile ones like financials and commodity stock, fundamentals are not important now. Solvent or not, who care? Bankers are all lying and now they are all smiling. After all, Obama admin is NOT against Wall Street. Keep on trading on the way up or down can reward you handsomely.

Just make a good plan to protect yourself in the worst scenario and also not shy way from potential big gains.