Preparing for tomorrow

I think today was a taste of what will happen tomorrow & Thursday after the Fed says no rate hike.

Our stocks could ease 5% or more and then move again in 6 weeks.
I think HOG, MAR, UA and CCL or RCL are ripe for PUTs.

HOG I've discussed previously - they will drop hard next earnings with a miss.

Anecdotal reports are confirming my suspicions that vacations will be cut back.

1. Marriott said business was slow. They are in a double bind because their timeshare business will be tanking with the rest of the real estate market. And they are slowing timeshare development anyway.

http://biz.yahoo.com/ap/070427/marriott_outlook.html?.v=3

2. Airplanes are finding seats aren't filling up.

http://www.reuters.com/article/reutersEdge/idUSN3042081420070430

3. And RCL reported that cruises to the Caribbean are soft. I would like to point out that the Caribbean is the destination of choice for working class cruiseship junkets. http://yahoo.reuters.com/news/articlehybrid.aspx?type=comktNews&storyID=urn:newsml:reuters.com:20070501:MTFH13345_2007-05-01_16-34-51_N01444512&pageNumber=1&imageid=&cap=&sz=13&WTModLoc=HybArt-C1-ArticlePage1

All of these companies suffer from a potential lack of customers. Cruise lines and airplanes are more exposed to a second bullet: higher fuel costs.

MAR - Down 12% already, but a bit further out and things will worsen.
AMR or UAUA - both look broken. I think AMR's fight with the pilot union could get nasty and hurt margins, so I'd choose them.
CCL or RCL - CCL has worse margins and higher P/E. I'd go with CCL

So the strategy is to buy puts to take advantage of any short term market pullback and also to simply acknowledge that 1 year out things will be bad. I would choose a strike price of 15% below current stock price to reflect a real pullback. Remember that you don't have to be in the money for the value to increase.

Looking at Jan 08 PUTs
MAR $40 - $1.40 (15% price drop before being in the money)
AMR $25 - $2.75 (20% price drop before being in the money)
CCL $40 - $1.10 (20% price drop before being in the money)
HOG $55 - $1.90 (18% price drop before being in the money)

Or you could buy the July puts for some real gambling
MAR $40 - $0.45 (12% price drop before being in the money)
CCL $40 - $0.20 (15% price drop before being in the money)
AMR Aug $25 - $1.65 (15% price drop before being in the money)
HOG Aug $55 - $0.75 (15% price drop before being in the money)

My preference is for the MAR puts and the HOG January puts.