A Perfect Storm

Similar to what happened in the movie, The Perfect Storm, a series of events conspired to make owning TIE puts on Friday the perfect trade. TIE was the "Andrea Gail" caught up in a weather pattern that was deadly. Warner Brothers produced a blockbuster movie that was a must-see classic with George Clooney and Marc Wahlberg while ole' Sneak conspired with some very savvy TIE Message Board posters to lay out a put position that netted a major 4-bagger in a day.

It really could not have gone any better. TIE reported earnings late Thursday that were much worse than analysts (and even me) were expecting. Once $0.08 of special charges and credits were removed, TIE earned an EPS of $0.25, while the Street was expecting $0.36 (even the lowest estimate was $0.28). The bad tape on Friday added to the pressure and the stock never recovered, closing near its low at $20.62. This almost 17% loss in the stock price on Friday translated into a huge windfall for my Mar25 and Mar22.5 puts.

Not meaning to be too greedy, I sold all my Mar25 puts and 70% of my Mar22.5 puts, leaving 30% to hedge my long positions in the event the tape continues to deteriorate on Monday.

I know a lot of folks are wringing their hands about the economy and this market. I too am disheartened by the market's performance on Friday, but I still see the market holding and not taking out the January S&P lows.

Only a fool would charge in with buy orders after Friday's showing, however. Caution is the word and I also feel that being short the market is more risky. So I am re-looking at my list and may pick at a stock or two if we have a big sell off at open tomorrow.

There will be bargain hunters. There always are. I will cautiously pick away at some stock that I am willing to keep as an investment and maybe a call or two on snap back rallies. The TIE puts that I have remaining will hopefully hedge my existing long positions and I also hope to take advantage in any additional seller motivation after dismal earnings on the part of TIE.