9 September 2011 B & O Did Not Disappoint

B & O made us money today.

obama train

B & O was the first common carrier railroad in the US. In 1827, Baltimore realized the newly built Erie Canal was going to make Baltimore and irrelevant ghost town. The a coupld of wealthy businessmen came up sith an idea to build a rail spur from Baltimopre to Ohio and viola, B & O was born. B&O was eventually bought by CSX and that is where our story ends.

It ends because the headline B & O Did Not Disappoint has nothing to do with railroads. It has to do with Bernanke and Obama. We explained here Sunday and Tuesday that Bernanke's speech was going to be important and Obama's was not. Well not everyone reads the Salve Lucrum Blog (although we have a new reader and a reader who was on hiatus for a while-Hello Eric and welcome back Don) and by the time the market realized that Bernenke would confirm that things were bad but maybe not as bad as consumer confidence indicated, the market was headed down. Then The President gave a good solid speech. He did a decent job of courting both sides of the aisle. (He needs to stop bashin billionaires and big business) As we suggested here, there was not enough meat to bite into and no explanation as to how this 500 billion would be paid for so Mr. Market opened today with a queasy feeling in their stomach and the correction continued.

We quickly took our profit on our SPY puts bagging a nice 42% profit for our co-managed accounts. By 9:00 the rumors of an honest to God default on the sovereign debt in Greece pressed the market lower so we took the profit from the SPY puts and jumped on some January VXX call options for all the co-managed accounts. They were up 22.7% by days end. Right before the close some of the talking heads were saying Greece will not default. The VIX (remember a measurement of volatility) loves it when people contradict themselves a couple of time today. We are thinking our goal of 30-40% up on these VXX calls could be realized at the opening on Monday.

We took the drop today and added to some core holdings like XOM, WY, HON, and we took a loss on those LGF Lionsgate Films puts we got into last week. We thought we were in the edge of some breaking news regarding Ican selling those share but we got a little cocky. Sorry if you followed me there, but we did say speculative. The primary account and all the co-managed took a 31% loss on the put. It expired on the 17th and we did not see much hope for improve despite the dismal market. Remember options are like cheese as the get older they get better then they get rotten.

When we framed up our puzzle for the week last Monday night we were expecting a 1-1.5% drop this week. Although we got most of data points correct (our biggest miss was the ISM survey positive surprise) the market built way too much hope in the Obama speech and they were disappointed.

Tomorrow, my lovely lady heads off to Utah at o dark thirty in the morning. That means if the planets align I can my wife good by just as my Barron's hits the driveway. Life is good!

Salve Lucrum