Brilliant Day - MS, DRYS, YHOO, introducing AXP

Hey readers, this is my first post on this site. I'm so excited to have this blog up and have a chance to have out voices heard. This blog is for the everyday guy, just like my partner and I.

Down to business:

Markets opened considerably down this morning to my surprise. The DOW by 7am was down more than 200 points and at that time it became apparent that unless some huge news came today, the markets would sell off. Here we are 28 minutes after the closing bell with the DOW down 411 points to 8,282, the S&P down 46 points to 852, and the Nizzy down 81 points to 1,499.

Going in to today I was holding on to November 15 puts on Morgan Stanley (MS), November 10 puts on DryShips Inc. (DRYS), and November 10 puts on YHOO. I had approximately 90% of my cash in the MS and DRYS puts, so I was anticipating a huge movement when I bought them. MS has immense pressure on them to buy a retail bank since they've converted their status to a bank holding company from an investment bank. The play was simply that they did not have enough cash to make something like this happen while covering their continuing losses.

The trade on DRYS was less speculative than MS but still based on solid logic. DRYS had at the end of September approximately $2.9 billion in total debt with $533 million of that being short term. The company only had $335 in cash on their balance sheet, they had no way of paying back this debt unless they did one or both of two things:

1) Raise capital through sale of equity
2) Sell assets (their ships - their bread and butter)

DRYS came out with a shelf registration for 25 million shares, with another 19 million promised to a company owned in majority by the CEO of DRYS (see something fishy here?). The sale of equity plus the shares promised would dilute DRYS common stock outstanding by approximately 106%. Who knows what price they will get also as the market has shown they are not to confident in the company. DRYS will have to start selling ships soon to pay their creditors. Add to that their 43% of their business is still in the spot market, where rates are below the break even point for the company, and you have a complete turkey.

I sold my MS puts at 12:30PM today for a gain of 127% and sold my DRYS puts this morning for a gain of 281%. Since I had the majority of my cash in these two positions my account value gained by 116% - that is I doubled my account in little more than a week of buying these positions. I choose to sell because the gains were so high but I might re-enter any of these positions if the market continues to react negatively to the stocks.

On to American Express (AXP) who asked the government today for $3.5 billion dollars. The difference between AXP and Visa (V) and MasterCard (MA) is that AXP actually loans their clients money whereas V and MA only process transactions (a much safer business). This indicators major problems because AXP customers are generally considered high quality than MA or V. If the upper middle class start to default on credit card bills, it could be the beginning of the second round of this financial crisis. If that happens the government (already stretched thin) will have to step in and put more money in to failing companies. I'll be watching and doing my homework on AXP all this week. It's looking right now as if it's the next big position.

Hope you all had a great day. See you guys tomorrow at market open.