Prepared for Pullback

So after I got done saying not to trade in the first hour I did it again today, however it worked out perfectly this time. We gapped up to 930 on the S&P which was where I planned to take a short and apparently so did others. I Sold calls on the XLF then bought puts on the SPY. This ended up being a good play as stocks and financials staged a major reversal today ahead of the stress test results. I now have a good cushion on my short call position for expiration next week I can collect some theta over the weekend.

Natural gas ripped higher today on apparently bullish inventory numbers right back to its bearish trend line. If it gets above this level we could see it really accelerate to the upside which should benefit my CHK position even more than it did today.

The frustrating thing was that my DECK and IYR positions would all have recovered their losses and AAPL calls would have been woth much less giving me more money. Oh well, I had the plan and ability to execute these new positions and they are working so far. Gaps can work in your favor or go against you but either way can pay off big if they work. After hours when the official stress tests results were released we saw the futures trade back up and financials rip higher again. The concern is that we essentially came down and tested 900, although not exactly but close and that could end up being the opportunity people were looking for to buy back in. So the tough decision comes of when to decide to exit my puts. Obviously I am sitting on a nice profit so it is easier to manage but I don't want to give it all back if we are going to keep rallying. I still feel there is more downside but maybe the market doesn't and those on the sidelines will get in and push stocks higher. I will feel better after options expiration where I will then be perfectly balanced with my 10 long calls and 10 long puts.

For my bearish thesis to remain in tact I would like to see us finish below 930 and ideally 920 tomorrow. Options expiration week is always interesting as there is posturing ahead of time that can cause some interesting volatility. Once we have a larger pullback I still feel materials and energy will be where the best risk adjusted gains will come from as long as the economic outlook remains solid.

Total Return for 2009: 152%