Friday, July 03, 2015

Weekly: Happy July 4th


Enjoy the holiday. Personally, I like the fireworks. Not so much in the markets, where I prefer calm conditions. This week was anything but calm. 
 
Schwab sent out a report that included a table with 14 news events and how the market reacted. The events ranged form the Kennedy assassination, Nixon resigning, to Lehman going under. Out of the 14 the median decline was about 5% in about a week. However, there where three events that led to bear markets (more than 20% decline) and three others that led to a correction (10% or so). So about 42% of the time the market reaction is significant.

Some highights: buying the SPY highs on Monday. I bought some insurance in the form of a long SPY September vertical put spread. New long position in NKE. I got washed out on a spike down in SKX and rebought at a higher price. The new thing was a fancy put backratio position in IBB (biotech etf), hoping for about a 20% decline in that sector by September expiration.

Here are the trades: (p = puts, c = calls, all are third week expiration unless noted, sell means sell-to-open):

Thu Sell SKX Aug 90 p @115.3 Rebalance with another layer of puts in Sketchers as the rally continues.

Wed Sell SPY JulW2 198 p @207.8 Rebalance in S&P 500 by selling a layer of weekly puts seven days out.
Sell IWM JulW2 119.5 p @126.0 Ditto for the Russell 2000 etf, sell a layer of weekly puts.

Sell NKE Aug 97.5 p @109.0 New long position in Nike. Recent NKE earnings were good.

Sell SKX Aug 95 p @112.7 Rebalance in Sketchers. I got shaken out of one leg earlier in the week as the stock knifed lower. I am adding back to the long side by selling some August puts.

Sell DIS Aug 105 p @115.0 Rebalance in Disney on the rally.

Sell IBB put backratio @368.6:
Buy 1x Sep 330 p / Sell 2x Sep 300 p debit
Okay, now I'm getting fancy. This put backratio on the Biotech etf is near delta neutral, and is for a debit. Best case is a decline to 300 at September expiration. If IBB is flat or up, I lose the modest debit. If IBB crashes, losses escalate below 270. I am taking a shot at a 10% stock market correction with more 10% down in the biotech sector.

Tue Sell HON Jul 97.5 p @102.6 Rebalance again in Honeywell.

Cover (buy to close) SKX Jul 105 p @108.2 Close this leg on Sketchers for about a 40% loss. SKX not acting well after a big run up, so lots of air on the chart. Minor support at the 50 day moving average around 102.

Sell IWM Jul 129 c @124.6 Rebalance in the Russell 2000 etf.

Mon Sell JPM Aug 72.5 c @68.1 Rebalance in JP Morgan Chase.
Sell SPY JulW1 202 p @208.6 I sell some weeklies expiring in three days on SPY. Support is at 204. I am selling near the 10% probability line. The bears hit the market with a flurry, but the market popped back up. Not much premium considering the margin requirement, but it is only three days. By mid-day SPY makes new lows, so this was a bad move. Later in the day with SPY @206.2 I buy a vertical put spread:

Buy SPY Sep 190 p / Sell SPY 182 p @206.2 for a debit of close to $1 per unit after commissions. This is a bit of insurance against a melt down. Typically, I might do a backratio, but the tape action is so bearish, paying $1 per unit for a bit of insurance seems like a good idea.

Sell IWM Aug 133 c @125.7 Rebalance in Russell 2000 etf into the decline.

Sell DIS Aug 125 c @113.8 Rebalance in Disney by selling another layer of calls.

Sell HON Jul 105 c @101.9 Rebalance in Honeywell.

Position Summary:
long BRKB DATA DE EL FB NKE
net long DIS HON IWM JPM MRK SKX UNH YUM
net neutral AMBA IBB SPY
net short SKX
short MCK

Saturday, June 27, 2015

Weekly: AMBA FB UNH -MCK


Modest losses for the week. Highlights include new positions in AMBA FB UNH. Sold layered strangles in Ambarella, sold puts in Facebook, Sold strangles and rebalanced in United Healthcare. Took a 130% loss in MCK Mckesson. Elsewhere, the stock market waited on news from Greece. As of this writing on Saturday, it looks like no deal and Greece may be kicked out of the Euro, but things can and will change. China's stock market had a 7% down day, though FXI didn't fully reflect that damage.

Bonds TLT continues its down trend. For the year the losses in bonds are modest, however, from the late January top, the losses feel a lot worse. TLT high was about 138 and now about 115 for about a 20% haircut. That's ouch for those that rode the train up and now down. For the moment, it seems like investors are selling bonds and putting that money into stocks. How long can that game continue? Hard to say. I often let the chart action tell me what to do instead of trying to predict.

Here are the trades (p = puts, c = calls, sell means sell-to-open, all are third week expiration unless noted):

Fri Sell AMBA Jul 80 p @107.1 Rebalance sold strangles in Ambarella. AMBA up again, so I sell another layer of puts to balance back near neutral. Later in the day, I sell a second layer of calls as AMBA retreats. Sell AMBA Jul 131 c @102.4. I know, I know I got it wrong, it is supposed to be buy low, sell high not the other way around, but some days are like that. Delta neutral traders often find themselves doing the opposite to balance out a position.

Thu Sell UNH Jul 130 c @119.9 Hedge sold puts by selling calls in United Healthcare. Position is now a sold strangle, which is a bet on a trading range (110 to 130). Later in the day I sell another layer of puts: Sell UNH Jul 113 p @122.6 46 as UNH rallies. Oops.

Cover (buy to close) MCK Jul 230 p @229.7. McKesson reaffirmed guidance yesterday and the stock dropped. Good enough was not good enough. I am getting out for a 125% loss on this leg as MCK crosses the strike price to the downside. Half an hour MCK is bouncing, so it looks like I got whipsawed. Again, this can and will happen if a trader uses stops. Just seems to be happening a lot lately (JBLU MRK two other recent losses).

Wed Sell AMBA strangles @99.4 Jul 130 c / Jul 75 p New position in Ambarella. The recent high was 128, and I see that as resistance. AMBA in the news with a parabolic chart formation, a short seller making comments crashing the stock, then Cramer and two analysts coming in to defend the stock. Bias is down, with support at 75. Selling a strangle is a bet on a trading range.

Tue Sell JPM Aug 65 p @69.5 Rebalance JPM Chase again as it continues to climb.

Sell DIS Jul 108 p @114.1 Rebalance to net long in Disney.

Sell UNH Jul 110 p @122.2 New long position in United Healthcare.

Sell FB Jul 80 p @87.5 New long position in Facebook. FB at all time highs on news. I am selling puts way out of the money for a tiny premium, so am only dipping my big toe back into FB on the long side.

Mon Sell JPM Jul 65 p @68.8 Rebalance in JPM Morgan Chase bank.

Sell SKX Jul 125 c @113.9 Something a bit different, I sell into strength on Sketchers and am now net short. SKX has had a two-month run up after stellar earnings.

Position Summary:
long BRKB DATA DE EL FB
net long DIS HON JPM SKX YUM
net neutral AMBA IWM MRK SPY UNH
short MCK

Saturday, June 20, 2015

Monthly 47-11-1 bull market is intact, grade C


I count forty seven winners, eleven losers, one break even trade for the June option cycle. While I made money, I had my first whopper loss for 2015 plus a stupid trade so grade is a C. Both the big loser and whopper loss were in AMBA. I also got whipsawed in JBLU and MRK. I made money in SKX, but could have made more had I managed it better. It was not the best month for me, even though the profits were okay. 
 
I am up about 9% for the year. Considering how cautiously I tend to trade, I see that is a good number. Of course, I would like it to be better.

As for markets, bonds got hit (TLT), China popped then flopped (FXI), airlines dipped then recovered, biotech (IBB) made a new all time high, gold showed some feeble signs of life (GLD). While the Russell 2000 (IWM) made new highs, the transports remain weak (IYT), and the dip in bonds has been painful. Foreign stock markets have been among the biggest winners in calendar 2015, but there was some give back.

The U.S. bull market is still intact. The final phase can be speculative with huge gains in very few stocks. Some of the recent IPOs and other high flyers like AMBA PANW are indicating some signs of froth. I tend to be a timid options trader. Rule #1 remains, live to trade another day. For me, that often means following near mechanical trading rules to take losses and reduce risk. Thanks for reading.

Friday, June 19, 2015

Weekly: whipsaw in MRK


I got whipsawed out of MRK as it declined then rallied. I bought enough shares to cover an assignment on sold calls on SKX. FXI declined, but the sold strangles came in safe. Overall, a profitable week. I'll post the monthly round up with a letter grade before Sunday.

Here are the trades: (p = puts, c = calls, sell means sell-to-open, all third week expiration unless noted).

Fri Sell SKX Jul 105 p @112.0 Rebalance in Sketchers as I prepare for assignment on two units of sold Jun 110 calls.

Sell IWM JulW1 121.5 p @128.0 Rebalance in the Russell 2000 etf by selling a layer of weekly puts.

Thu Cover (buy to close) IWM Jun 117.5 @127.5 Free up buying power to give more flexibility going into expiration. Later in the day I buy to close another batch, the IWM Jun 116 p @128.2 and also rebalance by selling another layer of July puts:
Sell IWM Jul 119 p @128.2

Buy half position SKX shares @112.36 I prepare for assignment on two units of sold Jun 110 calls sold on Sketchers. So far my SKX trades are at a nice overall profit, though I could have managed it better.

Cover (buy to close) EL Jul 92.5 @88.8 I cover the call side of a sold strangle on Estee Lauder for a 25% profit. I am bullish on EL so closed this leg of the trade while it is still at a profit.

Wed Cover (buy to close) MRK Jul 60 c @57.8 I got whipsawed by the decline in Merck. As it bounces back, I decide to close this leg for break even after commissions to avoid losing on both ends of the sold strangle.

Sell IWM Aug 112 p @126.7 Rebalance my position in the Russell 2000 etf back to net neutral. As the market rallies, I add another layer of sold puts.

Sell DIS Aug 100 p @111.5 I open an August position in Disney.

Tue Cover (buy to close) MRK Jul 57.5 p @57.1 The bloodletting in Merck continues and I cover another leg. These July's go out for about a 300% loss basis the premium collected. MRK moved below 57.0 and that was the next stop level. Totaling all my MRK trades for 2015, I am now at a small loss for the year. I am following my stop loss levels and getting out. The alternatives are to play hunches or hold and pray or perhaps even double down on the loser. 

Rule #1 is to live to trade another day, and I do that by following near mechanical stop levels.

Mon Cover (buy to close) MRK Jun 57.5 p @57.4 Merck moves lower through my mental stop level. I get out of this leg for about a 33% loss basis the premium collected.

Saturday, June 13, 2015

Weekly: Blue on JetBlue


A quiet week for me. Took a loss on JBLU did some damage control on JPM MRK SKX. Made money this week. Here are the trades:
(p = puts, c = calls, sell means sell-to-open, third week of expiration unless noted)

Fri Cover (buy to close) MRK Jun 58 p @58.4 I cover this leg for about a 25% loss on Merck. As MRK declines my delta is getting uncomfortably large. I have multiple layers of sold puts. Selling another layers of calls was another possibility, but premium is low. So I cover one layer of sold puts to reduce my delta and take the loss on this leg. Later in the day I sell another layer of MRK calls @58.0 Jul 60 calls.

Sell SKX Jul 100 p @111.2 Rebalance my complicated position in Sketchers as it continues to rally. A few minutes later I add another half position in shares @111.50. What a wild ride it has been. I now have 1.5 units in shares but am also short two units of SKX Jun 110 calls. It is a complicated near delta neutral position.

Cover (buy to close) IWM Jun 111 p @125.9 Free up some buying power by covering this layer on the Russell 2000 for a 93% profit.

Cover (buy to close) DIS Jun 100 p @109.8. Ditto on Disney. Cover to free up buying power.

Wed Sell IWM Jul 115 p @126.2 Rebalance my position in the Russell 2000 etf.

Sell JPM JulW1 64.5 p @68.3 Rebalance in JP Morgan Chase, using some weekly options.

Tue Cover (buy to close) JBLU Jun 19 p @18.5 JetBlue continues lower. I cover this leg for a 600% loss. I was hoping 19 would hold, but today's early action took me out.

Cover (buy to close) JBLU Jul 19 p @18.6 110 This leg is about a 500% loss. These kind of losses will happen if there is a trending move. The gap through my mental stop level of 19 and the thin liquidity contribute to the difficulty in getting out. As always, even though the percentages are horrendous, the dollar amounts tend to be small. I still have the sold Jun 21 calls but that tiny premium helps only a little when the losses on the sold puts are so big. JBLU bouncing a bit after I get my fills. That can and will sometimes happen when a trader uses stops. The stop gets taken out and the stock reverses. It is painful, but a trader either uses stops or doesn't, there is no magic way to know.

Position Summary:
long CRM DE GME PVH TIF
net long EL HON SKX YUM
net neutral ACT AMBA ASH DATA DIS FXI IWM SPY 
short JBLU LOCO
 
* long typically means I sold puts
net long sold puts and calls skewing bullish
net neutral same thing, but near delta neutral
short means I sold calls

Saturday, June 06, 2015

Weekly: Stupid is as Stupid Does


The line is from the movie Forrest Gump. It felt like that kind of week for me. I lost money in AMBA, SKX and a few others. The dollar losses were relatively small, but the frustration level, nay, the stupidity level, felt high. 

Perhaps some days with minimal stock market involvement might be a good prescription for what ails me. I've been burned before selling very short term calls but did it again this week, for the first whopper loss of 2015 at 1500% on some AMBA weekly calls. Ouch. The second mistake was buying some puts because of someone else'e opinion instead of my own analysis. Double ouch.

Losing money is inevitable for retail traders. However, in tennis there are unforced errors, same in the markets. A trader that does stupid things, lowers their odds of profit. 

The critical inner voice tells me that I got too cute, too confident, too greedy for small premiums, too enamoured of rebalancing to near delta neutral.

The past is outer environment. I have no control over the outer environment. I spent the mandatory eight minutes scolding myself (the losses weren't that big), time to move on, perhaps with a bit of a lighter stock market activity schedule for a few days.

Fri Sell JPM Jul 62.5 p @67.2 Rebalance my JP Morgan Chase
Buy AMBA Jun 90 p @98.5 Reverse and go net short AMBA. I attended a IBD Canslim meetup last night. When the AMBA was reviewed, one of the older, wiser traders remarked that it looked like a blow off top. So I am paying 90 cents per unit on that chance. I sold two layers of June puts below 90 so have a complicated position. A few minutes later AMBA edges higher and the price of the Jun 90s falls, so more bad intra-day timing as I am down 25% on this latest leg in a matter of minutes, and down about 60% by end of day. Crunch!

Cover (buy to close) AMBA JunW1 101 c @102.4 Kaboom! I got too cute on Ambarella and am covering this leg for a 1500% loss, basis the premium collected. All in two days too. This is on top of the wreckage of buying puts just above this. Wow, just wow. Forrest Gump comes to mind: Stupid is as Stupid does. Just stupid all the way around. Thankfully the dollar amounts are small, even if the percentages are eye popping.

Buy SKX shares @109.4 I add another half unit of Sketchers, brings my total to one unit. I am short two units of Jun 110 calls so it is another sticky wicket.

Thu Sell AMBA Jun 86.5 p @99.8 Rebalance my position in Ambarella as it moves up. AMBA broke 100 earlier today, so my sold 101 calls are being threatened.

Sell BRKB Jul 150 c @141.6 Hedge sold puts by selling calls in Berkshire Hathaway. BRKB has been underperforming the broad stock market this year.

Sell SKX Jul 120 c @107.2 Rebalance a complicated position in Sketchers closer to neutral. SKX has become a mess. I have sold multiple layers of puts and calls and now also am long half a position in shares. Yesterdays breakout to new highs is looking like a fake out.

Roll MCK puts down @234.8: Cover (buy-to-close) MCK Jul 260 c / Sell (to-open) MCK Jul 250 c for credit. McKesson moving lower so I adjust my position.

Cover (buy to close) 2x SPY Jun 180 p @209.8. I close these legs of the sold put backratio to free up buying power, as the needle moves to the yellow zone.

Sell HON Jul 110 c @103.5. Rebalance a complicated position in Honeywell. I am short unbalanced strangles, long half a position in shares.

Wed Sell AMBA JunW1 90 p @95.9 New long position in Ambarella. AMBA higher after earnings. These are weeklies with only two days. If they get threatened, I will roll down and out. A couple of hours later, I sell a layer of JunW1 101 calls with AMBA @95.0 to hedge the sold puts. AMBA has had a wild ride today with a high above 99. Dropping below the opening price weakens the bullish case. A bit later, I add a third layer selling Jun 82.5 puts with AMBA @95.9. So far I sold JunW1 90/101 strangles and the week three 82.5 puts.

Buy SKX shares half a position @108.4. I am short two units of SKX Jun 110 calls so am adjusting my delta in Sketchers as it makes new highs.

Sell JBLU Jul 19 p @20.7 30 Rebalance my position in Jet Blue. I sold the Jun 19/21 strangles and it is getting uncomfortable. 
 
Tue Sell MRK Jul 62.5 c @59.9 Rebalance my position in Merck as it drops after the pop. It is hard to get any traction in this market. MRK is becoming another messy one.

Sell PVH Jun 105 p @112.7 New long position in Philip Van Heusen. PVH gapping up on earnings, breakout base is 105.

Mon Sell SKX Jul 95 p @106.4 Rebalance my position in Sketchers. I now have six layers of sold options. Yes, it has been a bit of a mess.

Sell MRK Jul 57.5 p @61.5 Ditto for Merck. Rebalance.

Sell DIS Jul 120 c @110.8 Hedge sold puts by selling calls. Disney up modestly after a positive article in Barrons. A few minutes later I sell another layer of puts, DIS Jun 105 p @111.0.

Sell EL Jul 92.5 c @86.8 Hedge sold puts by selling calls, turning the Estee Lauder

Sell IWM Jun 117.5 p @124.6 Rebalance my position in the Russell 2000 etf.

Sell TIF Jun 87.5 p @94.1 New long position in Tiffany. TIF gapped higher on earnings a few days back. 87.5 is near the break out level.

Sell DATA Jul 95 p @113.0 I open a July position in Tableau Software.

Saturday, May 30, 2015

Weekly: More Red than Blue


William O'Neill, founder of Investors Business Daily marks up paper charts using a blue pen and a red pen. Anything he likes he marks blue, anything that he thinks is not so good he marks red. Blue a reason to buy, red a negative, but not necessarily bearish. My week was more red than blue, down a bit for the week. Mostly the misadventures were rebalancing moves in SKX. Mostly I did rebalancing moves, which means I sold another layer of options to adjust my net delta. I often skew bullish, but occasionally start out neutral, rarely bearish. It's been a bull market and the bull market is still intact.

 
For example, if start with a sold strangle (both puts and calls) as the stock moves down, the delta will go positive. I might rebalance by selling another layer of calls to reduce the delta. Same the other way if the stock is moving up, my original position goes delta negative (net short) so I might sell another layer of puts to rebalance back to neutral or net long.

Here are the trades for the modestly negative week:
(p = puts, c = calls, sell means sell-to-open, all are third week of expiration)

Fri Sell GME Jun 40 p @43.7 New long position in Game Stop. GME up after earnings. Chart gap is around 40.5.

Sell YUM Jun 98 c @90.7 Rebalance my position in Yum Brands as it declines.

Sell MRK Jun 58 p @60.9 Rebalance Merck. MRK higher on drug news. I sold 57.5/61.5 strangles so it is getting close.

Thu Sell SKX Jun 110 c @102.9 Rebalance my position in Sketchers as it declines. At this point, I have been making a mess, selling low, buying high. OMG! SKX up to 106.7 a few hours after I sell these calls. The calls are at over a 100% losss. I sell some SKX Jun 95 puts and 100 puts to rebalance. Some days it isn't worth turning on the computer. The initial sold strangle 95 puts, 115 calls is in the green. However, for now, the multiple rebalancing moves have gotten me into the red. Sheesh.

Sell EL Jul 82.5 p @88.2 Add to longs in Estee Lauder.

Wed Sell MRK Jul 55 p @59.6 Rebalance my position in Merck.
Sell JPM Jul 60 p @66.3 Rebalance my position in JP Morgan Chase.

Sell IWM Jun 116 p @124.6 Rebalance for Russell 2000

Sell DIS Jul 100 p @110.4 Add to longs in Disney

Tue Sell HON Jul 110 c @105.0 Rebalance my complicated position in Honeywell. HON has been a difficult stock for me most of 2015, but I am still up for the year on the ticker.

Sell IWM Jul 130 c @123.1 Rebalance short strangles on the Russell 2000 etf.

Sell JBLU Jun 21 c @19.6 Hedge my sold puts by selling calls on JetBlue.

Sell JPM Jul 70 c @65.5 Ditto on JP Morgan Chase bank, hedge sold puts by selling calls.

Sell MCK Jun 250 c @237.9 Rebalance the July strangles I sold on McKesson by selling June calls.

Sell MRK Jun 61.5 c @59.0 Hedge sold puts by selling calls on Merck.

Position Summary:
long BRKB CRM DE DIS EL GME HON IWM MCK
net long DATA FXI YUM
net neutral ACT ASH MRK SPY
net short JBLU SKX / short LOCO