Market Beating Options: Ouch, Volatility Creates Havoc!

Ouch, the volatility last week created havoc with our Aggressive portfolio which lost nearly 8%. Frankly we opened a short position on the Volatility index a few days early, just prior to the extreme bursts experienced this past week. We are at a loss on our short VIX position, but expect the market fears to subside next week, which may put us back in the black. However, if volatility remains high through the end of next week we will likely close this position to cut losses. The market meltdown also took a significant bite out of profits on our long positions. Call options can be very sensitive to market selling pressure, and we saw a lot of that last week. For the most part, we plan to sit tight on our long positions for now. In fact, we plan to stay aggressive and trade the volatility over the next week or so. If the VIX approaches 30 again this week, we plan to sell short the index to take advantage of higher premiums. We will use those proceeds to take long call positions in the market index. We do expect volatility to decline over time, but frankly are uncertain how long the higher levels will persist. However, an encouraging sign was the sharp decline in the VIX over the last hour of trading on Friday. We also purchased a long call option on the S&P Index on Thursday as the selling pressure intensified. Our exercise price is at $1065, essentially flat with the most recent S&P close. This call is a short term option that expires in February, so we do not plan to hold for long. We expect to get a bounce upward early next week and will close our position when that happens. All in all, we expect this portfolio performance to vary greatly week to week due to the aggressive and leveraged nature of options investing. However, over time, we do expect to be richly compensated for carrying this addition risk, as our performance since January 2007 bears out (+360% return)!

Portfolio Details Available Online At: http://www.marketbeatingstocks.com