30 April 2007 – First of all, a quick correction to a typo in a previous blog entry. I mentioned in a previous blog that I was in GM June 25 Puts. That was a typo. I’m in GM June 30 puts. However from the price points I gave in the previous blog of 1.20 and 1.30 a contract, it should have been quite obvious that I was in the June 30 puts and not the June 25 puts, as the June 25 puts never would have sold anywhere near the price points I mentioned during this past week. Furthermore, for those of you that play options from time to time, almost all of you know that it’s often much better to play an option just very slightly out of the money as was the case with the May 30 puts when I first blogged about GM puts versus playing options way out of the money as would have been the case with the 25 puts.
So now that that issue is cleared up, let’s take a look at GM’s behavior. As you can see from the chart above, GM’s 50-day SMA is right on the verge of crossing its 200 day SMA in a downward trend. If this happens, this is a very bearish signal and on top of our 50%, 85% and 400% gains on BIDU May 100 calls that we told you about right here, we may end up with very positive gains on our GM June 30 Puts as they never hit our 40% stop loss position even with the strong upsurge in share price that you can see on the chart above two days ago when it clearly broke about the 50-day SMA. All in all, I think we’ll get that break to the downside today and hopefully it will give us the sustained momentum to the downside that I’ve been looking for. Of course, should the pattern somehow reverse to the upside, I’ll keep my same stop loss in place.
By the way, I’ve reverted back to using the charts above in my blog posts as they give a static view of the chart on the day I post. Though the date stamp of April 25th is on the original post about BIDU calls and GM puts, with the charts I employed on that blog entry, they continue to update every day and it’s a little confusing as to what the charts looked like on April 25th at the time I posted the blog.
J.S. Kim is the founder and Managing Director of maalamalama, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.