I don’t know.

I like to think as far forward as options expiration, next one is 20th June.   What is my best guess of what might happen until then and how can I make a few profitable trades.

I deeply respect people who can buy GE now and wait patiently for the economy to improve and GE to clean up its balance sheet and grow all its businesses.  I can’t do it.

My last boss at Millennium used to talk to floor brokers all the time and ask them, Why is the market up?  Why is it down?  The stories they told him satisfied him.  “Soros has split a large order among five brokers and it is getting executed …”  Something like that.

Trading shows how well aligned I am with reality.  I like models and finding and testing a trading strategy.  But all trading strategies bother me.  What is left out?  What are the hidden factors that are really driving the profit in the strategy?

In an up or sideways  market, you can do really well selling puts.   It is simple, and with a little technical analysis and no news to move the stock, like earnings, you can get some comfort that the put will expire worthless.  Also, you can use an options calculator to calculate the probability of success  based on the historical volatility.   That is comforting too.

In a down market selling puts will kill you.  So you have to know the difference short term, until the next expiration.

So Barron’s hired Audit Integrity to evaluate which companies might have to take a charge  this year. They have a methodology for calculating the probability of negative earnings surprises. It is a forensic accounting exercise, they look to see if there are signs of trouble on the company’s balance sheet.  In this case, they are looking at companies that use aggressive accounting.

In the article they mentioned several companies that recently took a goodwill impairment charge.  Let’s look to see if that was already discounted by the market or lead to a surprise and thus a large move in the stock.  That is what we need to use this information in our trading.

NYSE Euronext, NYX, would have had a profit if not for the charge that it took last week.  They announced earnings on February 9th.  If you look at the daily chart, there is no sign of a large price bar on the 9th or 10th. The price is fluctuating within the trading range of the week before.

The stocks which Leslie Norton discusses in the article which moved on earnings announcements where all financial stocks, Fifth Third Bancorp, Regions Financials,  and Hartford Financial.  It seems to me, without investigating any further, I did look at Regions Financial’s stock chart, that the movement has to do with the volatility of financial stocks not the goodwill impairment.

Transocean (RIG) is on the list too and I bought a straddle last week looking for an increase in volatility and a possible spike when earnings are announced tomorrow.  Right now, the call is in the money, we will see if there is a move due to earnings this week.