RealMoney's Best of Blogs

As always, RealMoney's bloggers were all over the market action this week, and we'd like to share the best of their recent commentary with readers of TheStreet.com. These posts best capture the intent of these blogs, which is to provide intelligent discussion on the issues each writer sees as most pressing that day.

Let's take a look at Rev Shark on hope and the markets, Steve Smith on playing Apple's earnings and Tony Crescenzi on this week's GDP report.

Click here for information on RealMoney.com, where you can see all the blogs -- and readers' comments -- in real time.

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Rev Shark's Blog: Don't Rely on Hope
Originally published on 7/27/2007 at 7:13 a.m. EDT

Hope deceives more men than cunning does.
-- Vauvenargues, Reflections and Maxims, 1746

After the very poor action yesterday, it is particularly important that you take it seriously and don't blithely ignore the damage that was done. Too often after a painful experience, the inclination is to blindly hope that that the worst is over and that things will simply go back to the way they were. Maybe they will, but the tendency of most people is to rely too heavily on hope.

Hope too often leads to inertia at precisely the wrong time. It is human nature to hope for better when we are in the teeth of market action as poor as we saw yesterday. However, the tendency to freeze and then sit there and hope that things will go back to the way they were generally does not serve us well when market conditions changing.

One key thing about the recent market action to keep firmly in mind is that it is very likely an indication that things are changing. The approach that made us money in recent months is unlikely to be the best way to make money in the months ahead.

The pundits are very happy to give you their spin on subprime woes, soft real estate and the international economy and the impact it will have on the stock market. Some of them may even get it right, but what we need to focus on is that technical conditions have changed in the past week as the major indices have broken down. The market mood has changed. Earnings are being sold, and the dip-buyers are not rushing in to immediately prop up the market.

That doesn't mean we won't see a good bounce. In fact, it is very likely that we will, but the aftermath is likely to be different than it has been recently. The market will now likely have greater difficulty moving straight back up. That means we may want to be more aggressive in taking profits when we have them, and that we may want to work harder at finding opportunities on the short side.

Hoping that things will go back to the way they were is an extremely dangerous investing approach. That doesn't mean that you should be a pessimist. It simply means that you shouldn't just sit there. You need to be willing to take action in order to capitalize on the new crop of opportunities that are going to pop up as market conditions change.

In the early going, we are seeing some stabilization. Asian stocks were pounded overnight in sympathy with our poor action, but some of the European markets are trading up. , Oil and gold are trading up, and it looks like we have a positive start on the way.

No positions.

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Steven Smith's Blog: The Option Strategy for Apple Lovers
Originally published on 7/24/2007 at 1:43 p.m. EDT

Shares of Apple(AAPL Quote) are trading down some $4, or 3%, to $140 in the wake of disappointing numbers from AT&T(T Quote) regarding subscription sign-ups for the iPhone.

Make no mistake, shares of Apple are still up 55% in the past four months, and the Apple heads, or whatever they are called, will certainly not be shaken out of the stock on this little blip.

Me? I'm staying away because when I dared to call the launch of the iPod simply the next generation of the Sony Walkman, I needed to put on some asbestos underwear to keep the flames of criticism away regarding my ignorance about this whole new way to enjoy music via a headphone delivery system. I was wrong about the success of the products, and subsequent run in the stock.

But now I am here to try to cobble together an option strategy that will both provide some downside protection and, more importantly, keep unlimited upside potential. And it won't cost you anything to establish what I like to call a slingshot position, which is really a modified collar.

The strategy consists of selling a call spread to finance the purchase of a put spread. Also, let me say that this strategy is meant for someone that already owns the stock, probably has huge gains, but wants to stay long and not incur any tax implications associated with selling the shares.

So, let's assume one owns 1,000 shares of Apple, which is currently trading around $140 a share. A slingshot can be constructed thusly:

Buy 10 January 140 puts

Sell 10 January 130 put

This results in a net debit of $5 for the spread

Then:

Sell 20 January 140 calls

Buy 20 January 150 calls

This results in net credit of $4 for the spread, or $8 for the 20 contract spread

This provides a total net credit of $3, giving an effective sale price of $143, think covered call, if the stock remains between $140 and $150 between now and the January expiration, a 2% premium over the current price. The downside breakeven is $127, or a 9.2% decline from current prices.

But the real attraction of this position is that selling a call spread -- one is long an equal number of calls that are short -- is that if shares of Apple rise above $150, the position becomes outright long stock with unlimited upside potential.

So for those who think Apple can rise another 7% in the next five months, this a great position, in that it provides for the downside, will profit from a flat stock price and allows those that want to take the shares to the grave an unlimited upside.

To view today's video discussion of this strategy try to "Munch on Apple... "

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Tony Crescenzi's Blog: A Mixed Bag of GDP
Originally published on 7/27/2007 at 9:48 a.m. EDT

Today's gross domestic product report contains a mix of strong growth and low inflation considered favorable for the stock market, but it also has elements that can be considered bearish.

The report is probably best characterized as bullish because of its solid 3.4% growth rate, the fastest pace in five quarters, and because of the 1.4% deflator for core personal consumption expenditures, the lowest reading in four years. Moreover, the drag from housing was cut in half compared to the three prior quarters, and final sales were more than a half-point stronger than expected, meaning that inventories were a smaller portion of the 3.4% figure.

Bears will cite weakness in personal and business spending as reasons for caution, although these could turn higher in response to the economy's stronger growth rate.

Personal spending rose a slow 1.3% in the second quarter, not far from the consensus forecast for a gain of 1.5%. The pace was the slowest since the fourth quarter of 2005, which was affected by Hurricane Katrina. Excluding that quarter, personal spending rose at the slowest pace since the second quarter of 2001.

Personal spending on nondurable goods fell 0.8% during the quarter. Part of the reason was a decline in spending on gasoline, electric and gas. Personal spending on services held up better than overall spending, advancing at a 2.2% pace. This is important because more than 80% of U.S. jobs are in the service sector. That's why it's better for the job market to see more of the consumer's spending dollars allocated toward the service sector than other sectors, such as durable goods.

Business spending on equipment and software increased at a very sluggish 2.3% during the quarter, less than half of what was expected. It was the fifth straight quarter of sluggishness, and the figure for spending on equipment and software has not risen any faster than 2.9% during the period. This reflects the weakness in the economy seen during the five quarters. Businesses have had very little motivation to expand their productive capacity in light of weak demand. This might change now that final sales have picked up, running at 3.2% during the quarter, but it will take more than one quarter of strength to motivate businesses to spend.

Some will consider the contribution from government spending to be a negative. The combined figures for federal, state and local government spending added eight-tenths of a percentage point to the 3.4% GDP figure. Tax receipts have been strong at every level, and this is boosting spending. The National Governors Association estimated that for 2007, states would increase spending by 6.9%, faster than the 6.4% average of the past 30 years. Don't expect politicians to suddenly close the spigot.

Much of government spending has been on commercial construction projects, a fact evident in the 22.1% rate of increase in spending on structures during the quarter, which was the best since the second quarter of 1994. Spending on commercial construction is helping to offset weakness in spending on residential construction, stemming job losses in the sector.

The residential construction drag actually fared better in the second quarter than in recent quarters, although "better" is probably an overstatement. The sector fell at a pace of "only" 9.3%, which was the smallest rate of decline in five quarters and much better than the 17.9% rate of decline seen in the three prior quarters. Smaller drags from residential construction are likely to be the norm from here on.

In the context of what ails the financial markets, the GDP report seems a pittance. Nevertheless, by containing positive elements of strong growth/low inflation, it should be seen as a positive, especially if the investors get weary from their intense focus on the credit markets.