12 September 2008

Missed Opportunities

I didn't sell any of my SKF position at the open on the news of Lehman Brothers' fragility. Early in the day, SKF traded in the low-to-mid $120's.


Bought a few shares near the close at $112.98, upping the cost basis of my position to $109.46.

(Woo hoo!)

Needless to say, I missed an opportunity to pocket a ~15% profit, and still buy back into my position at the end of the day.

I've posted a couple of charts down below that show how volatile SKF trades intra-day, and over time.

Over the past six weeks, SKF has traded in a $50 range.

In the past five days, SKF has traded in a nearly $30 range.

Granted, these are ultra-short financials, so the shares are leveraging a sector in turmoil. The price swings should be pretty fierce.

Douglas A. McIntyre
is despairing the financial sector:

In the next day or two, the financial markets could hit their tipping point. It is certainly not beyond the realm of the possible that Lehman (LEH) and Washington Mutual (WM) could fail. Merrill Lynch (MER) is also trading off sharply.

Looking into what is now a nearly bottomless well, a failure of several firms could cut the implied value of mortgage-back securities and other consumer debt instruments by 20% or 30% more than their nominal value a few weeks ago.This is not a measured failure of inherent value. It is an annihilation. Value of existing derivatives, which have not been valued by trading in the open market could face a catastrophic failure.

However, our government is apparently playing matchmaker, and is hoping to find a suitor to buy Lehman by the opening of Asian markets on Monday. This concerns me and my short financials position in the very short term. Could a Lehman deal trigger a relief rally in the financials, albeit for a brief period of time, a la the fleeting Monday Fannie/Freddie rally?

Let's see what Friday brings. I doubt it will be dull over on Broad and Wall Streets.

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