Monday, February 4, 2013

With little anxiety, we hold four March 840-850-860 butterflies for a 0.20 debit each.  This bull spread will work nicely with our short position in Goldman, since, although the March 145 GS puts we bought on Friday will subject us to no more than about $200 of theoretical risk if the stock continues to rise, we stand to make as much as $4000 if GOOG goes higher too.  Moreover, the most we can lose on the GOOG position is about $80 plus commissions.  Since GOOG and Goldman are both being driven by the same bunch of institutional lunatics and imbeciles, it seems well-nigh impossible that the two will go in opposite directions.  I've reproduced a chart that shows how GOOG, driven nuts by Other People's Money, is easily the equal of GS in terms of feistiness, exuberance and obliviousness to the real world.

At least a dozen subscribers reported getting short in Goldman on Friday as instructed, but it wasn't pretty.  Because I had been unable to specify a limit on the bid for March 145 puts, your fills ranged from atrocious (i.e., 2.75) to fabulous (2.47).  As is customary at Rick's, I will use the worst price reported as our cost basis.  I will also tack on 25 cents, since some of you stopped yourselves out when the puts traded down to 2.50 or so before I could update with advice to widen the stop to 2.25.  You should stick with that stop-loss for now -- and determine not to give a rat's ass if Goldman forges still higher on Monday, as it well might.  My gut feeling is that I would be absolutely dumbstruck if the stock were able to make much headway above the daunting Hidden Resistance I'd flagged at 149.42.  No, as far as I'm concerned, Goldman shares absolutely MUST top somewhere near here if the market knows what's good for it.  Nevertheless, even though we "know" the stock can't go "much" higher, at least not right away, we'll use a stop-loss for the puts, since that's the way we do things around here: always discipline, discipline, discipline. Speaking of which, it's clear that the lazy-guy trades are the ones that most appeal to you all: buy puts/calls at predicted highs/lows in the underlying.  That's okay -- I'm a lazy guy myself -- but you should keep in mind that the forecast correctly called a powerful rally that you also could have traded while we were waiting, as it were, for the shorting opportunity to materialize.  It's never a bad thing to accumulate a little of the house's money in that way when your goal is to jump in