Thrift Savings Plan

Last week I made a decision to lower my sell price on my Apple calls to $24.30 per contract. That order executed on Friday afternoon netting me a return, not including Uncle Sam’s cut, of 12.4% in just under eleven trading days.

Today I could kick myself in the ass for changing the sell price. If you recall from my previous post on this trade, I was setting my sights for a limit of $30.20 or around a return of 39.8%. However, I have a near-term opportunity in which I needed the cash. So instead of waiting, I lowered the price to something more likely to execute sooner rather than later.

I usually never look back after a trade has executed. But in light of today’s stock upgrades on Apple, I just had to see what I left on the table. The call traded as high as $28.00 per contract. That means I left roughly $1,480 on the table by selling on Friday. On the other hand, no one knew with certainty on Friday that the options would get that high on Monday. Therefore, I took the sure thing given what information I had available at the time.

Knowing that still doesn’t make me feel any better, damn it.

In my last post, I brought up the concern that the rate cut this week may not be the panacea investors expect.

CNN posted a special report on this exact same issue. However, the article does a better job than I at suggesting why the cut might be too much.

I can breathe once again! Yesterday the Fed made its move by cutting the federal funds rate by 500 basis points, or 0.5%, to 4.75%. Needless to say, our markets rallied on the order of 2.5% for the Dow and as high as 3.97% for the Russell 2000. Markets worldwide also rejoiced in the news by surging in some cases as high as 4%, as in India.

While this is very good news for our TSP portfolios, I’m not sure it’s good news for the currency markets and thus the economy in general. The dollar seems to have taken another beating on the news. When a country lowers its interest rates, foreigners view that as a sign of weakness and thus avoid purchasing that country’s currency. This leads to less demand for that currency. In our case, why would I buy dollars when I can buy some other country’s currency which may be yielding more than the U.S. markets?

This action also leads to more expensive international trips for U.S. travelers as goods and services overseas are now much more expensive. On the other hand, exports that U.S. companies create for overseas consumption are now much more affordable in the people to in those countries. That bodes well for large multinational companies like the Procter & Gambles of the world as they get to sell more goods internationally.

And finally, the U.S. government runs on debt. The Treasury issues short-term investments, like Treasury Bills, and more intermediate debt, like Treasury Notes, to raise enough money to keep running. With interest rates now lower, will it be more difficult to fund the government’s insatiable appetite for expenditures?

I’m just not convinced a rate cut was the way to handle the subprime slime situation. These guys have much more information than I ever will, so maybe, based on the facts they had, it was justified. Now, only time will tell. In the meantime, let’s figure out how to make some money from all this!

I couldn’t stand to see Apple get slammed along with the rest of the market on Friday. Since Apple was getting hit, so were my Apr 135 calls that I bought at $25.10. I was reminded by my co-workers to look at the opportunity as though Apple’s stock was on sale, the proverbial “Blue Light Special.”

Therefore, I did what every good contrarian investor would do. I doubled down by buying more thus reducing my overall cost basis. I picked up two more contracts at $18.00 a piece. This lowered my cost basis to $21.60 per contract. However, instead of shooting for the $1.00 profit per contract, I’ve set my sell limit order at $30.20 per contract. If executed, that would give me a return of approximately 39.8%. Crazy? Maybe. But Apple, and the market in general, has been so volatile lately that it’s quite possible it could trade that high.

I’ll monitor the situation closely. We have the Federal Open Market Committee meeting on September 18 with the Street damn near certain the Fed will cut interest rates. If they do, the market will be up. If not, I think the market could sell off in a big way! Any negative news of this magnitude will require an adjustment in my sell order.

Today my standing limit order to sell the FLEX Jan 7 1/2 call contracts triggered at the set price of $4.75 per contract. That assured me a $1.00 per contract profit.

The contracts were initially purchased on August 29th. My holding time was only six trading days. After all commissions, but not counting Uncle Sam’s take, I made a return of 25.7%.

I also had a standing order to by additional shares of Countrywide Financial, the troubled mortgage lender. In an earlier post, I suggested looking into this stock. That order, too, triggered today. The order was to pick up additional shares if the price dropped to or below $18.50. I’m now officially knee-deep in the subprime slime.