Guy, the fact is, even after this move, this is a grossly overpriced market. If you have no puts, you have to buy at least a thirds worth. The put opportunity of our lifetime for this year has already passed,<g> but you can still make tons of money. The key to my strategy is valuation, and I care much more about individual issue or industry valuations than I do about the broad markets. Most of the stocks I look at are anywhere from 300% (MU) to 50% (AMAT) pricier than their eps potential, the risk free rate and the betas should allow in a rational market.
I like to buy my puts on up days, because I like to feel that the great unwashed are still out there buying and holding garbage like MU. I like to take off positions on down days. Right now, the 10% of my 90/10 is 45% invested, though that is somewhat misleading as the entire portfolio has nearly tripled with this decline, so the net money committed is greater than it was last time I hate the entire 10% in options.
So, part of the reason I have so few puts % wise is that I want to buy more on up days. The second reason is that I am not as hot to trot on some areas as I have been. When Merrill, for example, was in the 100s, I said it was a $40 stock. It has now completed more than half that move to fair value and does not excite me nearly as much as the drug stocks. Same with MU. After $95 to $24, the final trip to $6 is not such a thill. But Walmart and HOme Depot and the drug stocks have lots more downside. As do the non-commodity chip companies and some of the bloated boxmakers. Dell and Microsoft will eventually be the best put stocks of all, so I want to have some powder dry for dogs like that.
Also, we have to be careful not to allow emotions to cloud our vision. As a contrarian, I like to pick off the emotions of the herd. Right now, they are scared, but not scared enough for the bull market to return. And they aren't bullish enough to give us the next 1000 points down right away. So, I am kind of hoping for a rally based upon some news that CNBS or somebody will manufacture to break the deadlock. Then I will be more comfortable expanding the put position to closer to the max.
In other words, I not only like there to be silly valuations and idiotic eps estimates (Whittington's $17 on MU eps being the best ever <G>), I want the truly dumb to be hot to trot again. And, since they are easily manipulated, I expect at least one more hurrah before they realize how long it has been since they have made any money in the market. If you want to see how scared people are not, just tune into the Dell thread.
MB |
