Dow 10,000

Earnings so far this quarter have been very good, with Intel and J. P. Morgan giving the market an earnings related boost today. The Dow Jones futures were up more than 100 at 6 a. m. this morning and a late rally carried the Dow north of 10,000.

We took advantage of the rally to sell some stocks that are not contributing to our portfolio in a meaningful way. We sold Ruth Chris (RUTH) at a small profit (great steaks, but the stock is a slow mover) and also reduced our position in Dryships (DRYS).

The calls we wrote against the CME expire on Friday, and were so deep in the money today that they were trading at parity. This left us with three choices:

1) Let the options be exercised, lose the stock we wrote the options against, but realize the maximum profit possible on the covered write position.

2) Buy back the call and hold the stock. This is a bit risky as it leaves us owning a stock that has just had a straight up 30 point move with no hedge in place.

3) Roll our options to a higher strike price and a further out month.

We opted to do #3, but because the stock was so strong we bought back the options and waited for CME to move higher so that we could get more premium when we wrote the new options. In other words, we got greedy. The stock dropped slightly after we bought back the October calls and we now have position #2. We need to write new options against this stock tomorrow. Ideally, we would like to write the 330 calls (the stock closed around $308 today).