Me vs SP500

Okay, so I have been trying to analyze myself versus the SP500 for some time now, and due to the fact that I've had a number of accounts, I'm constantly adding and removing funds, and some laziness, I've finally come up with some preliminary numbers. But these numbers do not give a complete picture. When I first started, I was playing with a much smaller portfolio than I am now. And there are some years where I needed to reduce my leverage. Actually, I consider myself very lucky in that during my worst year, I reduced my leverage the most. So even though the % loss that year was very high, it was a smaller (but still substantial) loss of my net balance.

Year  SP500%  Me%
1994 -1.56    -
1995  34.11  0
1996  20.3   7.2
1997  31     19.3
1998  26.7   0.4
1999  19.5   73.9
2000 -10.1   31.7
2001 -13.1   8
2002 -23.4  -19.6
2003  26.4  -42.5
2004  9      35.5
2005  3     -22.9
2006  13.9   41.6
2007  3.6    29.9

My First Call Option

My AMD trade was against my rules and I am losing because of it, but I have decided to try out the ability to sell calls with this position.

Basically I bought in at 9.34. I then sold the Jan 18th calls at $10 for $.47. What this means is I give someone the option of buying my shares on Jan 18th for $10, and they pay me $.47 per share for that privilege. What this does is bring my share purchase price down $.47 to $8.87. If the stock trades above $10 on exp day then I make $1.13 per share, but I lose any money above $10. Actually I dont really lose that money, but I lost the potential to have made that money. If the price is below $10 on exp day, then I keep the $.47 and my shares.

The drawbacks here are 2 things. I've essentially locked my shares until they expire (or until I buy the calls back) and I do not protect myself from any downside drops in the stock price.

But the way I look at it is like this: I was only looking for a small gain in the stock, so if the stock trades above $10 on exp day, then chances are that I would have sold it anyway and not made that potential gain. Also, I do not plan to sell this at a loss, as I believe this stock will not go too much lower.

So basically I am giving out a loan to somebody on these shares. At 9.34 a share, a .47 option results in %5 for 40 days. That is actually very good. This seems very simple, but at least I have made the trade, thus forcing me to start understanding this technique. I need to understand what portion of the amount is the time value, and what portion is the implicit value (I think this is all time value since the option is currently out of the money). Also I need to undestand the time decay to get an idea of how much the time value will decrease.

Lets see how this works out.

Ohhhh noooo FFOX, I mean AMD!

Those who cannot remember the past are condemned to repeat it.

I made the same mistake on FFOX that I did with AMD. Not researching and waiting. This is because I had cash available on my OSG exit. Now I am stuck as I dont want to sell at a loss.

Perhaps I need these types of trades to keep me in check and remind me of how I need to follow my rules.

Another trade that is setting up is RIG. This is another driller in the oil services group. It is one of the biggest drillers and recently acquired another driller making it the largest by far. The PE of this newly combined company is around 10. Before the acquisition, it was trading at a PE of 16 and the other at a PE of 12. Analysts prediction indicate that it should be trading now around a PE of 12. Also, they are estimating earnings next year of $14. That puts a price target (at PE 12) of 158. Currently it is trading at 126 (dropped 3 dollars today). It has just dropped a lot due to 1.5billion in notes it has offered to banks (that is another great scam the banks have going). If this thing retraces back to 130 I will get in, but I will put in a +3 dollar leading limit to buy (once I am able to get out of AMD). Lets see if it works out as se

AMD Anyone?

One of my very first trades was FFOX. This was before the internet explosion and I was calling in my trades, but I bought this stock simply because it had dropped over 50%. I knew nothing about it and bought assuming that it would have to back up after dropping so much. The company eventually went bankrupt and I lost my entire account as I used all funds to buy it (luckily I didnt start trading with too much money, but it was a lot for me at that time of my life).

Well I feel the same way about AMD. Down 30% this month alone. There is a lot of bad news associated with this stock, but I dont think that justifies that large of a drop. This isnt Enron. This company actually produces a real product, but they've had losses for the last few quarters as they are trying to combine a company they bought (ATI) and roll out a new processor.

But I dont know the reason for the drop, but I cant help want to get in on it. At $9.34 with a volume of 21m shares, Im gonna break my rules and get in on this without much research.

Unfortunately this is often when I lose money, but I will put in a tight stop ($8.20?) to protect myself somewhat.