Placing Bets Ahead of GS

So apparently, after I had posted my entry this morning, I found out that Meredith Whitney had made call to buy Goldman Sachs ahead of earnings and put a fairly lofty price target on the stock. This is likely partially to blame for the move in futures pre-market as she made the call on CNBC's "squawk box". I obviously missed this as I generally try to avoid watching CNBC anymore unless it is on mute. ;-)

We have now re-tested the 900 level on the S&P a little quicker than I had previously thought. I thought we could have some run up today then a test tomorrow if GS had a good report. Now we seemed to be poised to break back to the upside if things seem positive. I assume the market is smart enough to realize this but GS and the rest of the financial landscape are not the same. Hence my call of possibly choosing relative strength and weakness candidates in the financial sector for a pairs trade.

I am definitely not a conspiracy theorist, however both times I have exited my short option positions that were ITM, they have reversed and subsequently would have become OTM and likely will finish worthless. This is fine with me as I have to properly manage risk and cutting the loss was the right thing to do but either way it is curious and frustrating.

I made a couple moves today, however it may have been a little premature. I exited my calls on UYM because they had a decent move and I did not want to be overly long over the remainder of the week through earnings season so I took my small profit. Also I am already long USO calls which should have at least some positive correlation to materials, although oddly did not today. Oil has held up twice now at the $60 dollar level which was my original reason for going long to try and capture a move back to $65. Ideally we will get some bullish inventory numbers this week as gas prices came back down and created a draw. My remaining calls are on MFE which has recently hit a new all-time high. If it can get above 42.50 it should run for a bit. Hitting an all-time high in this market is the perfect example of a relative strength candidate.

To offset my call positions I got into some IYR puts as I had been waiting on a rally to get a better entry point. My entry was likely still a bit premature, I would have preferred 32.50 but did not want to be completely exposed to the downside and I still feel like it could see some decent movement down.

It will be very interesting to see how the market acts tomorrow after Goldman's earnings. It has yet to be seen if GS is simply the exception to the rule or a precursor to the next move up that is assisted by the financials. I am contemplating getting into some more defensive positions for the short term such as WMT or a health care play to see how earnings play out. From a technical standpoint if we have a decent close above 900 we are headed higher. However I really don't see how the fundamentals support that. I guess the point is not necessarily to agree with what is happening but just to accept what the market psychology is at the moment, no matter how irrational it is, it can still be profitable as long as risk is managed.

Total Return for 2009: 150%