Monday, September 21, 2009

Refreshing The Alpha-D For Sep.-Oct. '09

I'm not doing uncovered shorts anymore. That was too risky as my short calls on some widely traded ETFs went against me in a big way this month. Furthermore, the risk of not being able to access my account in a timely manner to cover those shorts is a real risk management threat that I realize I must now mitigate. I would like to take positions in the major indexes at some point, which is why I've written a couple of OTM puts (covered by cash) on SPY that expire before the end of the year. The worst that could happen is that I'll have to go long a small amount of SPY at a discount of more than 20% from last Friday's closing price. I am still quite bearish on the major indexes, but I am willing to risk owning a little SPY for many years as long as I get it at a big haircut.

I have renewed my covered calls on all of my holdings of IAU and FXI. I also sold a few calls on GDX because I am willing to risk some but not all of those holdings getting called away. If there is one gold security I wish to retain through this long economic crisis, it the one that represents established gold miners (GDX) rather than gold contracts (IAU) which may turn out to be merely paper.

I am not selling any puts under VWO, EFA, or IWM. I'll be patient and wait for large declines in each of those.