The news out of UK is truly scary though. The balance sheet of RBS is bigger than the GDP of Britain!

One other thing is that the 30 year bond is setting up to be a buy. If it falls a bit further and the stock rally looks played out, I may look to go long again, probably via TLT.

Currency-wise, it is interesting to see the dollar rally while stocks rise, but I’m still holding dollars so I don’t mind. I’m waiting for my chance to buy Francs at under 80 cents (along with cheap gold).

I’ll then sit in cash and wait for the ensuing bounce to play out, which could take several months or even a year if we go under 6k. I figure the deeper the crash, the longer the correction.

Yesterday was only the 2nd close under 8k on the Dow in this bear market, and this morning I saw a few of my shorts make new lows, so I still think bounces are to be sold.

I’m hanging onto a few March SPY puts along with the rest of my long-dated stuff.

It’s interesting, this insider buying going on in the big banks. Makes me wonder what kind of evil new skimming of the public treasury they’ve got lined up next.

Anyway, bailout- and Obama-driven bounces are long-term selling opportunities.

Thanks for the suggestions. Looks like the market is very choppy right now, can’t get a clear read on it. The .VIX is heading down today, so panic is receding. We might get an Obama bounce after all.

Graphite makes a good point: you should always keep an eye on the risk/reward balance, no matter how far you are from expiration. An old saw says that if you wouldn’t buy a position you own at its current price, sell it. I usually sell well in advance of expiry, and am too conservative about this if anything (I even closed a small number of positions today).

Also, the time decay gets faster as expiry approaches. Another way of thinking about it is that time is cheaper when you buy in bulk, and you also get credit for the leftover time when you sell.

I sold a lot of my 2010 puts last October and November, fully believing that we had not seen even the intermediate-term lows yet, because I was expecting a bounce. Trading in and out of distant expiry options is a levered way to play the market that doesn’t require debt.

One thing I might add to what Mike says is that, for PUTs, as you approach expiration, if you’ve had a big move in your favor, you should reevaluate your position and see what your maximum potential upside is. For instance, when LEH went bankrupt I held some 5-strike puts that were worth 4.75, and I concluded there wasn’t much point in hanging around for that extra little bit of profit, given the risk that some intervention or something could cause a brief relief rally in the share price. So, always be considering whether exiting the position early makes sense, given where you think the share price is going and when.

Vic, I wish I could point you towards such an option book, but I´m really no pro there. I don´t even know what any of the Greeks mean. I just try to buy puts when the VIX is low and sell when it´s high. I almost never hit the bid, either, but use limit orders, though that sometimes costs me in a straight line move, as on monday when I missed some march SPY puts because I tried to save a few nickels. Those are 50% higher now.

When evaluating options, I typically just look at how much I think they could be in the money upon expiration. Any volitility premium that I get upon sale is just a bonus. When I am more confident, I buy further out of the money options, when more consevative, maybe in the money ones.

Ok, back to German class…