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Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: kodiak_bull who wrote (22777)	1/22/2005 12:11:12 PM
From: bull_derrick	Read Replies (1) \| Respond to of 23153

Kodiak, I was too lazy to pull up the exact figures but I did just now. The puts were 15.70 when I bought them and they closed at 12.40 bid and 12.90 ask yesterday (symbol YKWMP). That would be a 3.3 loss if sold at the bid and 2.80 loss if sold at the ask. My position is only 10 contracts so I'm 2800-3300 in the hole on that position. If I had been short on 1000 TOL common, it would have been a 10K loss. Picking the time and strike price is essential on these things and that's why I went with something that was fairly deep in the money without excessive time premium. That way, if it backed up on me, which it did, there is less in the money premium but more time premium as it came closer to the strike price. Sorry I was off a few hundred bucks on my earlier post when I said 2.5 points but that's where it was the other day when I had last checked. As for puts on TOL vs. FNM, I had considered the latter as well. My logic with TOL over FNM was that TOL was further overbought from its various moving averages and more likely to correct and FNM has some fairly unique possibilities for relief on an interest rate correction being a quasi-government agency. Lastly, FNM remarkets many of the mortgages and so it may not be as exposed to interest rate risk in a downturn as TOL since it's the buyers of the securitized mortgages from FNM that will bear that risk rather than FNM. On the other hand, I don't believe all the skeletons are out of the closet at FNM and now that they have a new CEO there will be less motivation to hide any if they exist, so it's a tempting short/put opportunity. For my purposes, I only wanted a 10 option put position of that size as an interest rate hedge and had to choose one over the other. As I said in my earlier post, the yield curve flatting on the long end has helped my fixed income side more than it hurt me on the put option side so I'm ahead for the month of January, which is certainly not that case with a lot of investors and mutual funds at this point. I went to cash in my 401K right before Christmas as they have such limited choices that this is about the only practical choice that I have when I sense the market is overbought. I have not been tempted to put that money back in the market yet.