FX movement of USD

Foreign exchange slide of the USD dollar is the area of focus in this current blog. Above i have put historic price chart of USD to Australian Dollar, USD to Icelandic Kroner and USD to Indian Rupee. The time period we are looking at is from Nov 2002 to now (Dec start 2007). Of the three currencies the Indian rupee has appreciated the least... here are the percentage changes.

Over the 5 years:

Australian Dollar: 37% appreciation
Icelandic Kroner: 29% appreciation
Indian Rupee: 18% appreciation

over the last 18 months: appreciation

Aus	ice	Ind
14%	18%	12%

Digressing:
On Everbank.com you could buy Icelandic 3 month CD's that give you as much as 12%+ interest rate. (you bear the exchange rate risk.... if dollar continues to weaken you gain more than the interest rate stated, else you get less than that). As a stautory warning, i should say you should take only the amount of risk you are comfortable taking.

Let us check if this risk is worth taking.
If i get a 12% CD at current exchange rate of 1 USD for 61.3105 Kronas, the risk that i would get a return equivalent to the 5.5% US CD rate (i think its really 5.5%), is only if the Krona depriciates to 65.0895.

That means an upmove of 3.7790 in 3 months.
Checking the historic movement in USD - Icelandic Krona

Average 3 month change:	-1.00794
Max Upmove Change in 3 months with 6 yr. history :	17.981
Max Downmove Change in 3 mo. with 6 yr history :	-11.316
Last 1 yr Max Upmove in 3 mo. :	6.5027
Last 1 yr Max Downmove in 3 mo. :	-8.4302

So my recommendation is, Icelandic krona is too volatile for this play. But we could still analyse on what factors affect Icelandic krona, but thats an whole different analysis... but until that is done i wouldnt do this above mentioned play.
Maybe a similar analysis on New Zeland Dollar and South African Rand might give us better trading oppurtunities.

BETWEEN SIPS..

I really want to say a lot of things,

So few words come out of my lips,

Her talk, so beautiful makes me want her forever,

I am so lost, and left lingering between the sips.

I am a bird, who has experienced just one flight,

I am a thief who is in a jail, after just one night of crime,

I am all, who have experienced high,

I am left longing, and want to relive that time.

You are with me, every second ever since,

I am holding on to you, like I am a child,

We walk past that horizon, past the viewable range,

I want this picture to be as it is, I don’t want it to change.

I was a lion in my jungle,

You came across as a wind of change,

I am no more the king of my jungle,

I don’t want to be, I just want to be with you.

By Arun...........for the Love of my life......the reason for my smile

Diversified Portfolio Picks

These would be my picks for a diversified portfolio:

1. AAPL (exposure to IPOD, Mac related growth)
2. GOOG (Tech upside)
3. RHI (Robert Half.......HR area, when hiring is up, these guys shud do well)
4. Goldman sachs (IB.....wat more wud i say)
5. Valero (a energy company that hedges agressively)
6. ICICI bank (indian bank...to capture some of the growth happenin in India)
7. STZ (constellation brand..they r in wine and beer, i am bullish on growth in wine)
8. Pfizer (PFE).........pharma
9. Lockheed Martin (LMT).........defense, safe bet in these uncertain times
10. Bellsouth (BLS)............Telecom

Entered 30 Call at 2.05 FTO

Tech Analysis and Options

Before i go back into Options, I will do one more RANT on studying stocks. Considering you have picked a stock based on Fundamental Analysis (..or it might just be a long term pick in a Stock Magazine...usually this works...in good times, like now), then the hard part is find out if this stock is going up or down in the short term.
If you are just a equity (stock) investor, this is the most important thing....... hope you understand why. But now considering you are planning to buy or sell a option, one might think the short term movement of the underlying stock is of no importance (tomorrows value of the underlying, does not impact our......options value very much.....considering there is lot of time to maturity on the option). The best example of this is the second TXU option trade posted on this blog, the day after i executed a butterfly strategy, the stock moved like 8% into an area where if it stays till maturity, one month away, i could maximize profits, but since it happened the very next day, after i placed my orders, i was hardly up any money.

Coming back to the point: why short term movement in the underlying is important? because the market makes the buying call options pricey, if the trend of the underlying is upward.

So what can you do about it: analyse the underlyings technicals, find if it is near a support level, if yes, even if the short term trend of the underlying is downward, if the long term trend is up, you can buy the option, and it will be cheap, since the trend is down, the market will give it to you at a cheaper premium (than otherwise).

Stocks before Options

Actually I got a query to understand equity (stock) investing, i guess this is an even better starting point.
Before investing one needs to know, the following:
1. Time horizon, one is investing for
2. trading style, depending on lifestyle and money to invest
3. purpose, is this your long term savings, is this risk capital (meaning u cud lose it, without much effect in your life style).

The answer to your third question, will impact the kind of investment vehicles you will get into, and cannot be answered in a general basis....lots of variables need to be considered, and a custom solution has to be got for each induvidual.
The answer for the second (and first) is much easier, on one extreme is a daytrader who buys and sells using Technical analysis, holding the equity for no longer than 15 minutes, while on the other extreme are people like Warren Buffet who do just loads of Fundamental Analysis and plan to hold the stock forever...untill the fundamentals change.

Since i cant possibly teach Technical Analysis here...check out www.stockcharts.com and then go to chart schools tab. Technical Analysis works because most players in the market use them, the trendlines, support and resistance levels are basics every trader must know.

Fundamental Analysis, this is what is used to really pick stocks to invest in, then technical analysis must be used to time the entry and exit into these stocks.

Fundamental Analysis: simply put, its finding the true value of the share, if the true value is less the market value, then this stock must be in your buy list (but buy it only when your technical indicators indicate "time to buy").

Best Tip ever heard in the market: "Buy Low Sell High"

So what are these options

As I have been trying to educate, a lot of otherwise very wise and knowledgable people about the world of option trading, I have decided to write about this into my blog. so now i will be spared the teaching bit (actually it was fun, the first few times.....i liked the attention i was getting...but not anymore).
Options are a very deep topic (atleast compared to everything else in Business), and most people dont understand them, or why they are used.

Firstly let me list out like an index, what all do i have to cover for someone to know about options, my idea is for a reader to get A-Z knowledge to trade or atleast understand options, by the time i am done writing about this...... maybe readers can take the hint and buy a book from amazon (thru my search bar of course).

1. What are options, common types, history
2. who uses them, why
3. risks of speculating using options
4. option strategies
5. Option pricing
6. Black Scholes,
7. Greeks
8. Implied Volatility
9. Binomial
10. Option Premium skewness

Let me see, how far i go with this......... anywayz while you are here, check out the advertisements, maybe there is something of relevance to you..

Price chart for TXU butterfly

Some new things that might be of concern to a option trader, Implied Volatility. Here we see the may options I.Vol, the put vol, is higer than the Call vol, so if we want a Long position in Volatility (like in my earlier post, where i will benefit, if the volatility of the underlying increases), use the Calls...... this is because, i am assuming that a Call or Put of same strike price should have equivalent implied volatility (we dont see that here, at those higher strikes, indicating at these higer strikes, buying puts is costly, while selling calls gives u less returns.....so covered call positions not so profitable) : the above paragraph is just an analysis of the above charts implications.

TXU FinalPos. P/L
42.75 0 0.4
43.75 0 0.4
44.75 0 0.4
45 0 0.4
45.25 -0.25 0.15
45.5 -0.5 -0.1
45.75 -0.75 -0.35
46 -1 -0.6
46.25 -1.25 -0.85
46.5 -1.5 -1.1
46.75 -1.75 -1.35
47 -2 -1.6
47.25 -2.25 -1.85
47.5 -2.5 -2.1
47.75 -2.25 -1.85
48 -2 -1.6
48.25 -1.75 -1.35
48.5 -1.5 -1.1
48.75 -1.25 -0.85
49 -1 -0.6
49.25 -0.75 -0.35
49.5 -0.5 -0.1
49.75 -0.25 0.15
50 0 0.4
50.25 0 0.4
50.5 0 0.4
50.75 0 0.4
51 0 0.4
51.25 0 0.4
51.5 0 0.4

While the above would be the different Profit or loss situations, if the price of TXU ends up in one of the prices indicated under heading TXU. Below table gives profit/Loss position as of today
here 1., 2. 3. indicate the 3 trades in the previous post

S 1. 2*2. 3 Position P/L
42.75 $0.7692 $0.4844 $0.0526 $0.0625
43.75 $1.1336 $0.8124 $0.1037 -$0.0249
44.75 $1.5946 $1.2845 $0.1900 -$0.1000
45 $1.7250 $1.4281 $0.2187 -$0.1156
45.25 $1.8615 $1.5828 $0.2508 -$0.1295
45.5 $2.0039 $1.7486 $0.2864 -$0.1417
45.75 $2.1522 $1.9259 $0.3258 -$0.1521
46 $2.3062 $2.1149 $0.3693 -$0.1606
46.25 $2.4658 $2.3157 $0.4171 -$0.1672
46.5 $2.6309 $2.5286 $0.4693 -$0.1717
46.75 $2.8013 $2.7534 $0.5263 -$0.1742
47 $2.9768 $2.9903 $0.5882 -$0.1746
47.25 $3.1573 $3.2393 $0.6551 -$0.1731
47.5 $3.3425 $3.5003 $0.7274 -$0.1696
47.75 $3.5322 $3.7731 $0.8051 -$0.1642
48 $3.7264 $4.0577 $0.8883 -$0.1570
48.25 $3.9246 $4.3539 $0.9773 -$0.1480
48.5 $4.1269 $4.6614 $1.0721 -$0.1375
48.75 $4.3328 $4.9800 $1.1727 -$0.1255
49 $4.5423 $5.3095 $1.2793 -$0.1121
49.25 $4.7551 $5.6494 $1.3919 -$0.0975
49.5 $4.9710 $5.9995 $1.5104 -$0.0819
49.75 $5.1898 $6.3595 $1.6350 -$0.0653
50 $5.4114 $6.7289 $1.7655 -$0.0480
50.25 $5.6355 $7.1073 $1.9019 -$0.0300
50.5 $5.8619 $7.4945 $2.0441 -$0.0116
50.75 $6.0906 $7.8899 $2.1921 $0.0072

butterfly on TXU

Short Butterfly:
4 Trades, Limited upside, limited downside, betting on volatility
Trades Cash Flow
1. Sell Call strike = 45 + 4.40
2. Buy 2 Calls strike =47.50 - 5.30 (2*2.65)
3. Sell Call strike = 50 + 1.30

Initial cash flow = 0.40 cents inflow

If the position is kept open till expiry on May 19th, the max profit to expect = 0.40 cents
max loss is when TXU closes on may 19th, at $47.50. we lose $2.1

This trade is based on Technical analysis on TXU, and Implied Vol analysis (i gotta a chart on Implied volatility... maybe i will post it...let me see if anyone is interested..lol)

Dubya coming 4 my graduation

Bush to speak at commencement

John Estus
Staff Writer

Dubya’s a comin’ to town.

The White House announced President George W. Bush’s plans to deliver the commencement speech at OSU’s spring graduation ceremony Thursday, confirming weeks of rumors and thrusting the university to the national spotlight.

The May 6 ceremony has been moved to Boone Pickens Stadium to accommodate an expected crowd of about 40,000 students and their families and friends. The two ceremonies previously scheduled at Gallagher-Iba Arena have been combined into one all-college ceremony open to the public.

Covertible Bond Mutual funds

http://www.thestreet.com/funds/funds/872317.html

Check the above site for info. regarding Convertible Bond Mutual funds. if you don't like the risk in equity, and still want to have the upside convertible bonds are good.
But disadvantages are: these are usually sub-ordinate debentures, so in case of bankruptcy, u get a worse deal than Bonds.
- lower interest rates
- sometimes they come with Call features, so if equity goes up too much, the bonds might be recalled by the company (not always a very bad feature)
- more pricy than ordinary bonds, so if the company equity does not rise at all, u get a bad deal compared to ordinary (plain vanilla) bonds.
- The big established safe companies usually dont give out convertible bonds.

So if u dont want to deal with bond picking problems, then mutual funds that focus on them are the best. look at the above article, and if u need more inputs ....please do ask.