Saturday, October 25, 2014

Weekly: Up is Down, Mercury Retrograde

Stock market up big, best up week of 2014. My trading account is up only a little. Highlights of the week include a new long position in ILMN, covering short calls for a big loss in MMM. One of the worst feelings is seeing the stock market up big time and my account down. Friends that know about my stock market activity tend to assume that an up market means good times for everyone and down markets the opposite. Option traders know that isn't always the case.

Thursday was a big up day in the market, and a down day for my account, not much fun in that. Being short calls on a stock that gaps up on an earnings report is a bad feeling. HON, MMM, YHOO recently had good reports and I was short strangles on all. I covered MMM calls for a huge loss, and may eventually cover the others.

Someome mentioned that Mercury is coming out of retrograde today 10/25/14. I know that many readers are tuning out with the mention of astrology. It doesn't matter what a person uses, I am a fan of anything that works. Some very successful traders use astrological indicators. Mercury went retrograde on 10/4. My really bad streak of trading started 10/6 Monday, the first trading day after that. Coincidence? Probably, but I would have done much better sitting out most of the dance during this retrograde time period. The next retrograde period is January 21, 2015 to February 15, 2015.

I have already made a record number of trades for one month in calendar October. For the most part, the more I trades I made, the deeper the hole got. Thankfully, I tend to be a timid trader as opposed to a a super aggressive, all in, all out, double and double again, kind of options trader. A bold trader with a month full of bad trades can lose their entire account.

I personally know two traders that went completely belly up and no longer trade at all. Both thought they could trade for a living. Both were very smart guys, but the stock market is full of smart people. I know a third person that borrowed money from mom to meet a margin call, lost that, and had to eat bag lunches for years to pay mom back. In the options market, it is often one smart person betting against another smart person. The dumb ones tend to lose their lunch money in a short time period, then stop playing.

I attended the local monthly CANSLIM meetup. Attendance and energy level are steady. ILMN was mentioned at the meeting. This continues to be one of the most hated bull markets, with little excitement, little enthusiasm. One minor anecdote is that a couple of young relatives have opened up stock market accounts. Used to be that V-shaped chart formations were rare, but during the recent years, V-shaped charts are relatively common.

Enough of the stories and astrology for now, here are this week's retrograde trades in a booming up week for stocks:

Fri Sell VRX Nov 110 puts @128.3. Rebalance short strangles by selling another layer of puts on Valeant Pharma.

Sell TLT Nov 115 puts @120.2. Hedge my long Dec 110 puts in the Treasury ETF by selling these Novembers. Another poor intra-day move, as I sell the puts near the worst time of the day.

Thu The market is up big and my account down, so it is a crappy day for me. The culprit is 3M Corp which gaps higher on news. I cover short calls near the highs of the day, only to see it close near the strike price of the short calls. I continue to scramble to add longs as the market rallies, but my timing leaves much to be desired.

Cover short MMM Nov 145 calls @147.2 for a huge loss, about 600% basis the premium collected.

Sell UNP Nov 100 puts @111.2 Union Pacific Rail
Sell HON Nov 87.5 puts @93.4 Honeywell
Sell YHOO Nov 39 puts @42.8 Yahoo!
Sell AMGN Nov 133 puts @147.5 Amgen

Sell GLD Nov 134 calls @118.2. I also rebalance my net long position in gold as it declines.

Tue A rip your face off rally today in stocks. I scramble to add long delta as I caught flat footed after expiration. So much for taking a break from trading after the losing streak with seven fills today and three more that didn't fill. I take a new long position in ILMN Illumina on earnings. The rest are rebalancing on short strangles. I wrote down the prices at the time of the fills, but lost that scrap of paper before I could type them here.

Sell MMM Nov 128 puts 3M Corp
Sell FDX Nov 145 puts Federal Express
Sell DIS Nov 77.5 puts Disney

Sell IWM Nov 98 puts Russell 2000 ETF
Sell ASH Nov 95 puts Ashland
Sell NKE Nov 82.5 puts Nike
 
Sell ILMN Nov 155 puts. New long position Illumina, mentioned at the local CANSLIM meetup group.

Mon Sell HON Nov 80 puts @89.7. Rebalance short strangles on Honeywell.
Position Summary:
long ILMN UNH UNP
net long APC BRKB GLD IWM TLT
net short AMGN ASH DIS HON JWN NKE YHOO
net neutral FDX SPY UNH

Saturday, October 18, 2014

27-13 for October Grade D

Strictly on profit/loss, the October option cycle would grade out at F. This was my worst month in some time with 27 winners and 13 losers. Most of my trades are 80% to 90% probability going in, so that ratio is poor. Some of my losers were whoppers, 1000% basis the premium collected. Put buyers made ten times their money, if they bought when I sold and covered when I covered. 

Overall, I give back about 60% of my modest profits for 2014. The reason for the D grade, is the curve of a difficult market. More than a few strangle sellers and put sellers suffered huge losses this month. Some may experienced margin calls.

As for me, I got a bit too enamored of the bullish calendar cycle, ignoring so many of the the other warning signs. I did take out some insurance against an October smash. Back on July 31, I bought an October put spread on SPY, buying SPY Oct 180 puts and selling the Oct 171 puts. Unfortunately, my timing and my strikes prices on this insurance purchase were a bit off and it expired worthless.

The good news is that I live to trade another day. Hopefully a bit wiser from the experience. I didn't panic. I kept moving. Unfortunately, a lot of my moves were wrong. Many traders trade less, trade smaller, or take a break after a losing streak. Sounds good to me, so I may be more selective the next couple of weeks. The emotional reponse might be revenge trading to try and make up for recent losses. Most traders end up digging a deeper hole with revenge trading. 

Weekly: Wild Whipsaw Washout

Wednesday's huge gap opening lower took out many of my mental stops. I closed many short puts for huge percentage losses, near the lows. For the week, I am down signficantly, though still up for the year. What's done is done. 

One reason I have this blog is to help me learn by writing about my trading. The main thing I might have done differently is wait a bit long on Wednesday before covering. I covered most of the puts in the first 15 minutes of trading (which turned out to be near the lows for many of those stocks). Waiting another 15 minutes to 30 minutes would have been so much better. Had I held on until expiration, I believe all of those losers came back above the strike price by expiration Friday. Big gaps like that rarely keep moving in the direction of the gap. I acted like a trading robot, closing so many positions in a short time period, as they touched on my mental stops.

The fantasy hindsight replay has me closing out all my long puts and doubling down on short puts at the bottom on Wednesday, but readers know that I am not such a bold trader. I tend to be a relatively slow moving options trader with a dislike for fast markets. I am not nimble, don't have good instincts. don't have a good gut. On the plus side, I am good with numbers, with odds, and am patient. My style of trading works towards my strengths. Many are bored by what I do. I always tell novices to find a style a method that works for you. There are a thousand ways to make money in the markets. Find one or two that work for you, that fit your personality.

The lowlights of the trading week include closing out short puts on AMGN BRKB HON FDX IBB MRK MSFT WFC, all for losses. I also sold some calls on Thursday, which wasn't the best move either. One bright spot was my GLD bull calendar, up about 60%. My TLT bear calendar is down about 75%. I initiate new longs in UNH UNP. It is a jelly side down kind of week (a piece of bread with jelly spread on one side seems to land jelly side down more often than not). Since the Alibaba IPO day market peak, about 60% of my modest profits for the year have been given back. I brush myself off and move ahead. Hopefully, I am a bit wiser from this recent turbulence. I'll post a monthly summary with more thoughts within a day. Here are this week's trades:

Thu Another big gap down this morning on the stock market, but near unchanged by the close. I don't do that much better with intra-day timing as I sell some calls to hedge some of my short puts.

Sell GLD Nov 128 calls @119.0. I was long a call calendar, and am selling the Novembers before the Oct 123 calls expire (hopefully worthless). I may get a bit more premium by selling now instead of on Monday after expiration.

Sell YHOO Nov 44 puts @37.6. Rebalance short strangles on Yahoo!, I am short the Nov 36 puts, Nov 48 calls, and some October options which hopefully expire safe.

Hedge short puts on Nordstroms, Nike and Disney by selling calls.
Sell JWM Nov 77.5 calls @67.4
Sell NKE Nov 95 calls @84.8
Sell DIS Nov 92.5 calls @81.3.

New long positions in United Healthcare and Union Pacific Railroad.

Sell UNH Nov 75 puts @85.4.
Sell UNP Nov puts @104.0.

Wed Disaster morning with SPY gapping down 3 full points. I cover any short puts that move into the money, closing six positions in the first 15 minutes for huge losses. It is not a time to be cute, not for someone like me, who isn't in front of the computer all day, and tends to be a slow moving position trader. I see it as time to survive. As the fills come in, SPY is bouncing off the lows, so I could have gotten out at better prices on most. 
 
C'est la vie. Obviously, I would have been better off holding on for 20 minutes or so. Some might criticize and say that I panicked. No, I followed my rules. Fast markets are not my friend. My account is still up a tiny bit for the year, with about 85% of the year's peak profits now gone (it was at 50% on Sunday!).
 
Cover MSFT Oct 43 puts @42.5. Microsoft gaps lower after Intel earnings. Loss is 800% basis the premium collected.
Cover MRK Oct 55 puts @54.8 220% loss
Cover AMGN Oct 130 puts @129.7 350% loss
Cover FDX Oct 150 puts @149.7 500% loss
Cover IBB Oct 250 puts @249.9 600% loss
Cover BRKB Oct 135 puts @134.9 240% loss

By the end of trading, it looks like Wednesday morning was a wash out low. Most of the positions I covered were up sharply off their low by the end of trading. Some were actually positive for the day (shakes head).

Sell VRX Nov 140 calls @114.8 .50. One final trade for wash out Wednesday, I hedge my short puts on Valeant Pharma by selling calls.

Tue Cover WFC Oct 50 puts @49.3. Another day, another loser. Wells Fargo bank earnings disappoint and the stock breaks support at 50, which is also my strike price. Loss is about 700% basis the premium collected. Despite this morning's stock market relief rally, I am following the mechanical rule of closing positions if they break the strike price. As I type this, WFC drifts higher, so I could have gotten out at a better price by waiting five minutes. It is an illusion that I can call highs and lows, and when stocks will turn on a dime.

Sell AMGN Nov 155 calls @133.7. I rebalance a net long position in Amgen by selling calls.

Sell HON Nov 95 calls @86.2. I hedge short puts by selling calls on Honeywell.

Sell MMM Nov 145 calls @135.2. Hedge short puts on 3M Corp by selling calls.

Mon Sell AMGN Nov 115 puts @136.6. I open a November position in Amgen. SPY has broken support at 190.5 so we will see what happens next.

Sell JWN Nov 60 puts @69.2. I open a November position in Nordstroms, as the stock market continues lower. AMGN another 2 points lower so I continue to do poorly on the short term timing.

Cover short HON Oct 87.5 puts @87.4. I take the loss on Honeywell at it crosses the strike price of my short puts. The loss is about 700% basis the premium collected. HON chart is a waterfall decline. Wow.

Sell BRKB Nov 150 calls @137.8. I rebalance my net long position in Berkshire Hathaway by selling calls.
Sell ASH Nov 110 calls @98.8. I hedge my short puts in Ashland by selling calls. Chart resistance at the 110 level.

Position summary:
long UNH UNP
net long APC ASH BRKB GLD IWM MMM SPY
net neutral AMGN DIS FDX JWN NKE VRX
short TLT / net short HON
closed or expired: IBB MRK MSFT SLB TTM WFC

Friday, October 10, 2014

Weekly: clock cleaned

I got my clock cleaned during the recent market decline. I lost about half my profits for calendar 2014 during the past few weeks. Keep in mind that I tend to be what some call a chicken trader, making small bets for small wins and losses. 

Risk and reward often go hand in hand with options. I didn't do much right, but I didn't panic, didn't trade emotionally, didn't try to get even. I still lost a lot. It seems like ages since Monday's up opening with SPY over 197 (close 190.52). One tiny pin point of light is my position in GLD is near break even. My foray into TLT has been a big loser.

Low lights of the week include a terrible one-day whipsaw in FDX, big losses in most positions, covering some short puts for 1000% percentage losses. Here are this week's trades:

Fri Cover short SLB 95 puts @93.4. Big ouch as Schlumberger continues lower. I cover these puts at about a 1000% loss (not a typo, a thousand percent basis the premium sold). Fast market means wide spreads on the exit. Rule #1 is to live to trade another day. Being short naked puts means the losses can spiral out of control in dollar terms once the strike price is crossed.

Cover short APC 90 puts @89.0. Ouch number two is Anadarko Petroleum, covered for another loss in the 1000% range.

Both SLB and APC are coming back a bit as I type so I may have covered on the low. What can a trader do? Either a trader takes losses or doesn't. For traders that take losses, there is always the chance that they get out near the worst possible time. It is the nature of stops, support/resistance trade that I favor.

At the open this morning, the decline has cost me about 40% of my modest profits for the year. It has been a painful time. While the losses are eye popping in terms of percentage of the premium collected, they are relatively small in dollar terms and in terms of the account.

Cover short IWM Oct 105 puts @104.9. Third loss makes an ugly trifecta for this morning. The loss on these Russell 2000 etfs is about 500% basis the premium collected. Similar deal, the underlying moves below the strike price of the short puts, so I am getting out. IWM ticks a bit higher after I get out. Grrr. The stock market is lower again, after some early short covering, but could change direction at any time. Some technicians are looking for support for SPY at the recent lows, which is about 1 point lower as I type.
Sell YHOO Nov 48 calls @40.1. I hedge my net long position in Yahoo! by selling some calls. I am short Nov 36 puts.

Thu Sell SLB Oct 103 calls @96.0. Rebalance short strangles in Schlumberger. I cover SLB Oct 115 calls and sell the 103s, rolling some of my short SLB calls down to reduce the delta. SLB threatening my short Oct 95 puts. To add to the mix there are earnings before expiration.
 

Wed Sell APC Nov 115 calls @92.2. Rebalance a net long position in Anadarko Petroleum. APC getting slammed today on news about a credit downgrade. I am short Oct 90 puts, Oct 120 calls, Nov 82.5 puts and deep in the red on the short puts.

Sell SPY Nov 204 calls @192.5. Minor rebalance to my net long position in the S&P 500 etf. 

Tue Crunch day as SPY falls 3 full points.
Cover FDX Oct 160 puts @157.7. I take a big loss on Federal Express. It's been a while since I slipped on a banana peel that badly. FDX seemingly broke out to the upside, but reversed within an hour and today's market weakness has it weaker still. One day loss is about 700% basis the premium collected. Ouch!

Sell SPY Backratio @194.7: Buy SPY Dec 180 puts
Sell 2x SPY Dec 175 puts
Not the best timing as SPY is down about 1.5 when I get filled on the way to a -3.0 close. Again, I like to do these put back ratios for a net credit making them a net long position, but with an explosive profit on a decline to the lower strike at expiration.

Mon Sell YHOO Nov 36 puts @41.3. Rebalance short Oct strangles in Yahoo! by selling November puts.
Sell BRKB Nov 130 puts @140.2. Add to net long position in Berkshire Hathaway by selling November puts.

Sell FDX Oct 160 puts @165. Rebalance short strangles on Federal Express by selling another layer of Oct puts.
WTF? Federal Express fades to negative for the day. My just sold puts are down over 100% in less than an hour. I sell Nov calls to hedge

Sell FDX Nov 175 calls @162.5 to hedge a net long position.

Position Summary:
long ASH HON JWN MMM MRK MSFT NKE WFC
net long AMGN APC BRKB DIS GLD IWM FDX SPY VRX YHOO
net short SLB TLT

Friday, October 03, 2014

Weekly: down again

Despite a strong Friday, stock market was down for the week. Gold was down hard and bonds had an up week. I rolled some puts on DIS down and out for a big percentage loss. I also sold some calls when the market was down, so not a very good week for me. My recent calendar spreads for gold (net long) and bonds (net short) have been going against me. Here are the trades:

Fri Sell ASH Nov 80 puts @102 .45. I open a November position in Ashland.

Thu Again, my intra day and short term timing is off as the market rallies off the lows.

Cover DIS Oct 87.5 puts @86.5. The loss on these short Disney puts is about 230% basis the premium collected. I roll down and out a few minutes later by selling the Nov 75 puts @86.2, but that premium is tiny compared to the loss. With the overall stock market acting so squirrelly, I am taking my loss DIS crosses the strike price of 87.5. This seems like a time to be safe, not extending chances. Just a month earlier, I felt a stronger bullish bias.

Sell IBB Oct 290 calls @268. I hedge my short puts on this biotech etf by selling calls.

Sell APC Oct 120 calls @97.5. Hedge my short puts in Anadarko by selling calls.

Wed Lots of red ink for me today. I add to longs as the market declines mid-day, prices are approximate. By the end of the day, the broad market is much lower, so not the best timing.
Sell APC Nov 82.5 puts @101, Anadarko Petroleum

Sell FDX Oct 170 calls @159, Federal Express
Sell FDX Nov 140 puts @159, Federal Express

Sell VRX Nov 95 puts @129, Valeant Pharma

Position Summary:
long ASH BRKB HON JWN MMM MRK MSFT NKE WFC
net long AMGN APC BRKB GLD IWM FDX SLB
net short SPY TLT VRX YHOO
net neutral DIS

Friday, September 26, 2014

Weekly: Not a fan of Rollercoasters

I was never a big fan of riding rollercoasters, and now tend to opt out riding the real life ones. As such, I didn't enjoy this week's market action. Expiration on 9/19 frees up a lot of capital and I put a lot of it right back to work. Highlights include a new net long position in gold GLD and YHOO, new net short positions in bonds TLT, new long positions in IBB and MMM, great earnings from NKE where I add to longs. Here are the trades:

Fri Sell NKE Nov 80 puts @88.0. I add to longs in Nike after a great earnings report. Chart support at 80.

Thu Sell IWM Oct 116 calls @110.3. I rebalance my net long position by selling some calls on the Russell 2000 etf. Looks like I stepped into a pile of crap with some of the trades earlier this week, with lots of big losers. Some like IBB can't even be hedged because the bids have mostly vanished because of the fast market. I just checked the S&P 100 quote list and 99 are down, SO is the only winner at +0.02. Yikes! I never liked fast markets so it is an uncomfortable day for me.

Wed Sell YHOO Oct 35.5 puts @35.5. I rebalance my short strangles on Yahoo! as it finds support.

Sell MMM Nov 130 puts @144.7. New long position in 3M, mostly based on the chart.

Sell VRX Oct 100 puts 124.1. Rebalance short strangles on Valeant Pharma by selling a second layer of puts. I was short Oct 95 puts, Oct 155 calls. Many biotechs are up big today.

Sell IBB Oct 250 puts @278.7. New long position in the Biotech etf. I do this after looking at some more individual biotechs and their wide option spreads. Why the 250 strike? It is near the 10% probability line and also at chart support.

Tue Another active trading day as I continue to put capital back to work after expiration.

New net short position in TLT (20 year treasuries):
Sell TLT Oct 112 puts / Buy TLT Dec 110 puts @115.3 debit
It can be called a diagonal, but I see it is a put calendar with the out month at a lower strike than the front month. Why? Because there is so little premium at Oct 110 puts they aren't worth selling. As I wrote in my monthly update, bonds are still seasonally strong until November 1.

Sell IWM strangles: Sell IWM Nov 95 puts
Sell IWM Nov 122 calls @111.5.
I sell some November strangles on the Russell 2000 etf. This new layer skews net long, adding to a net long position. Again, a short strangle is a bet on a trading range.

Sell WFC Oct 50 puts @52.5. New long position in Wells Fargo.

Sell DIS Oct 92.5 calls @88.3. I hedge my short puts in Disney by selling calls.

Mon Lots of trades for me on the Monday after expiration, and the stock market dips.

Buy GLD call calendar: buy GLD Dec 123 calls
Sell GLD Oct 123 calls @117.1 for debit
New net long position in gold in the form of a calendar spread. Selling the fron month call lowers the cost and decay, risk is a sharp rally before October expiration.

Sell YHOO strangles: sell YHOO Oct 34.5 puts
sell YHOO Oct 44 calls @38.7
Yahoo pulling back on analyst downgrades. 44 is near the high, 35 is support.

Sell IWM strangles: sell IWM Oct 103 puts
Sell IWM Oct 118 calls @112.5
Minor chart support and resistance at 103 and 118 for the Russell 2000 etf.

Sell SLB Oct 110 calls @101.7
Rebalance short strangles in Schlumberger by selling another layer of calls. I was short the Oct 95 puts and Oct 115 calls.

Sell SPY backratio: Sell 2x SPY Nov 180 puts
Buy 1x SPY Nov 183 puts @199.0 credit
I sell a put backratio on the S&P 500 etf. This is a net long position with an explosive upside if there is a decline to the lower strike of 180. If the decline goes past 177, it starts losing big time money.

Sell BRKB strangle: Sell BRKB Oct 135 puts
Sell BRKB Oct 135 calls @139.5
I sell Berkshire Hathaway strangles, which is a bet on a trading range. I was already short the Oct 130 puts.

Position Summary:
long APC ASH BRKB DIS FDX
long HON JWN MMM MRK MSFT NKE
net long AMGN BRKB GLD IWM SLB
net short SPY TLT VRX

Saturday, September 20, 2014

50-6 for September, grade C+

The September cycle was my second most profitable month of the year, so why the low grade? I left a lot of money on the table during a strong up month for the stock market. Many of the calls I sold during the early August dip, became big losers. SPY is up over 5% from the August lows and my account lagged badly during the rally. Winners for this option cycle include APC ASH DIS FB FDX. Losers include GLD MSFT. For the year, AMGN IWM VRX have been among the best trading stocks for me. I skipped VRX this month and missed out on more gains.

My short term timing was not very good. The intermediate term was better, but like that the old Maxwell Smart might say, "I missed it by that much" (holding up his fingers an inch apart).

I again remind readers that seasonal patterns such as the 4-year Presidential cycle and the 10-year decennial pattern point to an upside acceleration starting September 30, 2014 and lasting about 18 months. Year 5 of the decade averages up 28%. Can 2015 live up to that? Stay tuned.

Gold is a recent Exhibit A, that seasonal patterns don't always work. I took a loss as gold kept dropping, even though September tends to be a bullish month for gold. However, it has been nearly a straight slow drop for GLD. Bonds may have topped on Ukraine news, but bull seasonality for bonds remain in effect until late October. Junk bonds and REITs have also been volatile, mostly lower.

I remain mostly bullish on stocks. Many of my biggest losers in 2014 and 2013 were selling calls as part of short strangles. There are bearish arguments that include: the Fed taper ends next month, bonds are topping, BABA the biggest IPO ever. On the bullish side are seasonal factors, the market trend. The Fed is shifting to neutral, but it usually takes several Fed rate hikes to summon the bear. We haven't even seen one Fed rate hike yet.

I'll keep watching out for signs of the bear. These include: inverted yield curve, divergence by transports, frothy sentiment stories, breaking the 50 day and then the 200 day moving averages to the downside. So far none of those signs of the bear are present. Transports continue to make new highs along with the broad indexes. Bond yields have ticked higher, but the yield curve still has short term rates well below long term rates. Virtually no one is publicly talking about the stock market, even with the market at record highs. I have yet to see a stock market bull on a magazine cover or Barrons cover. 

A correction of 5% to 10% can happen at any time, but a bear market usually requires several of the indicators listed to flash to sell. This remains the most hated bull market in recent history with stock ownership below 15% of households (about 48% own mutual funds and/or etfs).

Calendar seasonality turns bearish for bonds in November and lasts until April of the next year. If there is a modest bond market rally into October, it may be a good time to get short. TLT (20 year Treasuries) and TBT (inverse of TLT) are what I like to trade. The bad part is that both require substantial margin to sell options, and right now option premiums are small to tiny. For the most part, I've avoided trading bonds all year because of the tiny option premiums, large margin requirements and unclear trend, but the time for action may be soon.

Gold continues to decline, having given up most of 2014's gains. I may take another shot at the long side. The 52-week low around GLD 114 (2 or 3 points lower than today for GLD) might be a time to try it. Silver is now down for calendar 2014 after being up 15% in February, after a brutal -36% bear year for silver in 2013. REITs and high yield bonds have also been declining. Until about 2 or 3 weeks ago, bonds and REITs were the best performing major asset classes for calendar 2014. High yield bonds broke down first, then regular long term bonds, then REITs.

Readers know that my favorite trade lately is selling naked puts. Some readers might like the idea, but might be in an retirement account, or lack the account authorization level. HVPW (high volatility put writing?) is an etf that sells puts. HVPW sells puts 15% out of the money on 20 high volatility stocks, 60 days out. HVPW has a 0.95% expense ratio and is up about 1.2% for calendar 2014 (vs. about 9% for SPY). The attraction is the 9.3% in dividends paid out over the past 12 months. 

As always, this is a not a recommendation to buy or sell. The big caveat is that HVPW hasn't seen a trial by fire having a launch date of February 2013. That 9.3% yield could be lost in one bad month, or perhaps even in one day if there is another flash crash. As long time readers have seen, the percentage losses on naked options can be eye popping when a strong trending move occurs. Read more about HVPW, the put selling etf with a 9% yield, at Marketwatch (link).

Friday, September 19, 2014

Weekly: BABA IPO, hedge fund divestment


In the news this week is the IPO of Alibaba at $68. BABA rocketed to over $90 on the first day of trading. Yahoo, which owns 22%, dipped slightly. Also in the news California pension funds decide to stop investing in hedge funds. North Carolina is considering a similar move. There are over 10,000 hedge funds today, over 1,000 just for emerging market securities.

Funds charging their clients 2 and 20 (2% of assets and 20% of profits) find it difficult to perform net of fees. The nearly straight up bull market (over 1000 days without a 10% correction) means low cost stock index funds have been the big winners for this cycle.

My trading week was so-so. I'll post a monthly update in a day or two. I cover more short calls for losses. I get pinched on MSFT on expiration day. I open a new net long position in VRX, new long in TTM. I take a loss in GLD. Here are the trades:

Fri Sell AMGN Oct 130 puts @142.7. Rebalance Oct short strangles on Amgen. AMGN continues to rally. I am short the Oct 125 puts and Oct 155 calls. I rebalance as the stock moves up by selling another layer of puts.

Cover short SWK Sep 95 calls @93.5. Stanley Toolworks gapped up in the morning on analyst comments. I put in an order to close my short puts and got filled as SWK whipped back down. The spreads are wide on expiration day, so better to close the position, than having to sit on pins and needles into the close. I have a similar situation in Microsoft.

Sell VRX strangles, I leg in: Sell Oct 95 puts @117.0,
Sell VRX Oct 145 calls @117.4. New net long position in Valeant Pharma. VRX has been a good trading stock for me all year. I skipped the September option cycle.

Cover short MSFT Sep 47 calls @47.4. Crunch, another loser. Looks like shenanigans as open in interest is over 70,000 contracts at this strike. I placed several limit orders, but Microsoft kept rallying. I end doing a buy to close market order about five minutes before the close of trading. Fortunately, the dollar loss is small, even if the percentage loss is about 300% basis the premium collected. It has been a while since I had to "dance with the devil" just before expiration. I am not a nimble trader so I don't enjoy playing it so close.

Thu Cover short IWM Sep 102 puts @115.0. I free up some margin by covering these Russell 2000 puts that were about to expire. Normally, I would let them expire worthless, but am redlining on buying power.

Cover short GLD Sep 118 puts @117.4. I cover for about a 180% loss, as gold declined late on Wednesday after Fed news. The dollar rally related to Scotland's independence referendum is the main reason given. Scotland vote is later today, so there is a chance that this is the short term low. There is also a chance that GLD accelerates to the downside. With the option in the money, I move to the sidelines. When in doubt get out.

Wed Sell FDX Oct 150 puts @161.0. I open an October position in Federal Express. FDX breaking out from a chart base on earnings news. I am short September strangles.

Cover short BRKB Sep 140 calls @140.0. I cover short calls on Berkshire Hathaway for a big percentage loss (about 400% basis the tiny premium collected). This is the second loss this option cycle selling BRKB calls.

Cover short AMGN Sep 140 calls @140.9. Double ouch. I cover short calls on Amgen for about a 300% loss basis the option premium collected. AMGN has a squirrelly day. It was up strong in the morning, then dipped into the red, and then ralied strong after the Fed news. Another big loss. I believe this is the fifth big loser from maybe ten layers of calls that I sold on the dip in early August. It has been a strong five week rally. I have sold more puts to offset, but closing out these calls two days before expiration is painful.

Sell DIS Oct 87.5 puts @90.6. I open an October position in Disney.

Tue Sell TTM Oct 39 puts @45.8. Tiny new long position in Tata Motors, the India car company.
Sell HON Oct 87.5 puts @94.9. I open a small October position in Honeywell, was short September strangles (both puts and calls).

Position Summary:
long APC ASH BRKB DIS FDX HON IWM JWN MRK MSFT NKE TTM
net long AMGN SLB VRX 
net short SPY 
closed/expired: FB GLD SWK VRSN XLU