Countrywide

Here is the quick and dirty system parameters for Countrywide. First I will calculate the position leverage. 3 PUT contracts control a total of 300 shares or $11,007. My position only has a market value of 300*$3.40= $1020. That gives a total leverage ratio of 10.79.

Now the system rules:

1. Stop loss rule. 10% * amount of leverage (10.79). This gives an amount greater than 10% - which means this position is expected to be highly volatile. I will compensate to add a new rule for cases where leverage ratio is over 10.79 the stop loss will be adjusted to 5% * leverage amount. My stop loss will be at 53.95% decline from the entry point of $3.10. This means that I must liquidate the position if it reaches $1.43 in value per contract.

2. Gain rule. Need to take at least 1/3 of gain if contract reaches $6.20 in price.

3. Portfolio sizing. I went 1% over guideline as by adding the new position the total portfolio exposure is at 21% when I had previously limited myself to 20%. I am going to let this one slide due to rounding error I used to get that third contract.

Those are the super boring rules out of the way - but they are necessary. Now it is time to watch the positions in action. I am feeling better about the Countrywide trade than the Gold trade so far but am sticking with both for time being.

Regards,

BG