The Greatest Risk is Not Taking One - AIG Commercial

Ever since the AIG bailout, I've been looking for one of the 'The Greatest Risk is Not Taking One' series of commercials AIG ran in early 2000/2001 by Ogilvy and Mather.

Without any further delay, I present for your viewing pleasure:

Apparently, the greatest risk wasn't not taking one but rather taking lots of little risks with leverage.  We should have known better; it can't be good news when an insurance company flaunts its risk taking.

The Reserve Primary Fund (RFIXX) breaks the buck, hits TD Ameritrade Apex customers?

The Reserve Primary Fund (RFIXX) took a $785 million hit due to Lehman bankruptcy and is at 97 cents and redemptions are frozen.  I remember seeing this as an offering on TD Ameritrade's Apex as a cash management option.  Not sure, need to check.

I am glad that my money market funds are in firms large enough to subsidize it.  Wachovia (WB) is backing their Evergreen money market funds and so are other firms.

Penny Wide Options and TD Ameritrade Izone

Penny wide options are a good thing. The tighter bid/ask spread means fewer dollars lost on transaction cost.

But the problem, at least the one I have is that, there is no list (at least I can't find one) of which options trade in penny wide markets. That's just annoying.

The bigger problem is Izone (it probably affects TD Ameritrade too) doesn't seem to have the list either. So I am constantly finding trouble entering orders on options that I see quoted in penny wide due to the system not knowing it is penny wide. The system seems to think that it's nickel wide.

How hard can it be to write a program to look at the bid/ask of every single listed option to see if it is penny wide and then compare said list to the database of penny wide options? Can't be very.

Another example of large companies lacking innovation (not trying to pick on TD Ameritrade).

Beware of bad quotes on TD Ameritrade and Prophet

Hope everyone had a good trading day.

I don't know if it was because of the volume but after the fed today, Prophet charts were very spotty. I also noticed that options bid/ask on Ameritrade was broken. Trade execution worked flawlessly and I got a couple trades done (mostly rolling out calls). Keep an eye on it and be careful. Yet another reason why you should always use limit orders.

For example, AEO May 17.5 Puts were being quoted on Ameritrade as 0.75/0.75 or 0.75/0.85 but the actual quote was 0.65/0.75.

I am going to try to avoid the market the next two days due to the quadruple expiration.

Opportunity in Wachovia (WB) in market whipsaw?

On Friday, the markets was just plain ugly. A look at the advancers vs. decliners for all the major averages will tell you that almost everything was down.

In particular, I am options with intrinsic leverage on underlying securities with a high beta in sectors leading the market decline (consumer discretionary). So, my leverage vs. the market on a down day like this is somewhere between 3x and 4x. That's a 10% drop in one day.

I went through a did a through check of all my portfolio positions and I think I will be ok if I can make it through possible margin calls. I have a couple of positions (ADSK, NVDA, EMC) that were written at the money for the front month and are now in the money and at risk for assignment. I have enough cash and margin to take the assignment. I am more concerned about the overall margin. Since TD Ameritrade does not use portfolio margin, margin is often a concern for my style (which has high drawdowns). We'll see what happens next week. I might have to close some of my longer term puts (which are currently making money) for some buying power.

I spent most of Friday listening to conference calls (there's no reason to listen to CNBC on a day like that; it just makes you more emotional) but I did manage a few trades. With a review of the last Wachovia (WB) quarter, I am still convinced that they will be fine in the long run. I am not saying this is a bottom. I fully expect more writedowns. In the conference call, WB management gave the impression that they are properly reserved for a 60 basis point loss (triple their normal rate) on their Pick-a-Pay (what WB calls Option ARM) loan portfolio. However, looking at recent data and the 'vintage' charts, there is a good chance that losses will soon be estimated at 80 bps or higher. In addition, the auto portfolio looks pretty bad too but that's reasonably small. There is also the risk of canceling the dividend. They don't need to right now but it is an easy source of additional capital. Either of those things might pressure the shares. However, I think the risks are priced in for long term buyers. So I sold a bunch of WB naked puts for multiple months out and at various strikes. This should more than double my WB delta.

I also closed out my XHB naked calls. I am not going to be greedy so I took the 60% gain in two days.

We'll see what happens Monday. If we get additional downside, I am going get more defensive and close out everything that I don't need for additional buying power and then start adding more delta to all my conviction buys (to steal a Goldman Sachs term).

TD Ameritrade Izone finally has GainsKeeper

In case you didn't know, Izone is TD Ameritrade's super secret, uber discount brokerage. If you are willing to give up phone/office support (and live with email only support), use electronic statements, and give up the streamer suite (free with Apex), you get lower commissions. Stocks are $5 per trade and options are $5 a trade and $0.75 per contract.

One of the things Apex had but Izone did not was GainsKeeper (GainsKeeper is a tax lot tracking package). This made Izone incredibly painful to use. You tend to do more trade when they are cheaper and it is a pain to sort out option trades at the end of the year since they don't come on the 1099 like stock trades do.

After my complaining about the lack of good options functionality, they listen and gave all Izone users GainsKeeper (just kidding, I wish I had that sort of clout...). So now there is pretty much no reason to use Apex over Izone. That doesn't mean I am recommendation Ameritrade but if you are going to use Ameritrade anyways, Izone is a better deal than Apex.

Ameritrade's real-time streaming tools do not yet support streaming options data. The options trading features are incredibly limited (it is difficult to do complex spreads and whatnot). And most importantly, their margin calculation is horrible. The margin calculations are not real-time and update at the end of the day. They also miscalculate margin requirements for certain transactions. See Last minute juggling of SIRF and BBBY for an example.

Ameritrade is a decent brokerage for most people starting out, but you'll soon outgrow it if you get fancy with your derivatives.