Saturday, December 20, 2014

Weekly: Playing with fire, getting burned

Selling options with only a short time until expiration is playing with fire. This week, I get burned by selling some calls for this cycle. Calls on WHR, UNP, AMGN all became big time losers. Whirlpool was the worst, and I took a 2500% percentage loss basis the option premium collected. 

As almost always, my positions are small dollar amounts. I also had enough offsetting options expire worthless so the week was profitable. It is still painful to have a firecracker blown up in your hand, so to speak, though.

Here are the trades:
*
p = puts / c = calls, all are the monthly third week of expiration options.

Sat Assignments on calls in ASH at 115 and WHR at 185. Ashland was a nice, though small profit. Whirlpool a mind-numbing, shell-shocking loss.

Fri New long position in KMX, up on earnings. 
Sell KMX Jan 60 p

Thu Ouch! I get burned by the monster two-day rally. Selling short term calls is playing with fire, and an entire finale rack went off in my face (a finale rack is the big ending of a major fireworks show). The percentage loss on the short WHR calls is about 2500%, on the UNP and AMGN about 300%, in two or three days!!! Now don't get the wrong impression, my trading account is up big during the past two days, but would have been up even more had I not played with fire.

Buy WHR shares @190.98 to cover short calls. I bite the bullet instead of trying to finesse for a better price. As it turns out I am on the bad side of the price curve, but with such a shell-shocking percentage loss (2500%), rational logic is difficult to discern.

Cover short AMGN Dec 167.5 calls
Cover short UNP Dec 118 calls
Sell IWM Jan 108 puts
 
Wed Sell FDX Jan 180 c

Tue Sell WHR Dec 185 c

Mon Sell IWM strangles:
Sell IWM Feb 126 c
Sell IWM Feb 92 p

Sell AMGN Dec 167.5 c
Sell JWN Jan 82.5 c

Sell NKE Jan 105 c
Sell UNP Dec 118 c 

Position Summary
long ASH BRKB DIS HON ILMN KMX MMM MSFT UNH UNP VRX
net long NKE SPY
net neutral AMGN APC WHR YHOO
net short BBY FDX IWM JWN
expired GLD TLT
assignments on ASH 115 calls, WHR 185 calls, both covered by stock purchases

Saturday, December 13, 2014

Weekly: Baby swans and pipers


I see the recent market action as a "baby swan event." There are so-called black swans which are rare. Swans live for 10 to 20 years and mate after age four. So the baby swan is something that might happen every four or five years. The sharp decline in oil is that kind of event--not an every day event, but not a black swan which I see more as a once every 20 or 30 year event. Hence, my tag "baby swan," the kind of thing that might happen every five years or so.

During volatile markets I sometimes wish I were a more nimble trader, with better instincts as to directional movements. As is, I am slow moving. My directional predictions tend to be no better than coin flips. As is, this week was painful, with a lot of red ink. I close two layers of short puts on APC for huge percentage losses. I layered some SPY put backratios to hedge. I added to longs on Monday. Trades are below:

Fri Cover short APC Dec 75 p @74.3. for about a 600% loss basis the premium collected. I pay the piper his/her second installment on Anadarko, the first is below. Wow!

Wed I layer a second SPY put Backratio
Buy SPY Feb 183 p
Sell 2x SPY Feb 178 p

Tue I hedge by selling a SPY put backratio:
Buy SPY Jan 188 p
Sell 2x SPY Jan 184 p
Again, these are bullish positions but have an explosive profit with a decline to the lower strike. If there is a crash, they start to lose big time below SPY M180.

Mon I pay the piper today in APC taking a big loss coverin some short puts. I roll down to a much lower strike, and that new position is deep in the red before the day is over. Other than taking my lumps in oil, I add to longs in ILMN, DIS, rebalance WHR.

Sell ILMN Jan 155 p @190.0
Sell DIS Jan 85 p @94.0
Sell WHR Jan 165 p @188.0
Cover short APC Jan 77.5 p @77.2
roll down by selling APC Jan 60 p

Position summary:
long BRKB DIS HON ILMN JWN MMM MSFT NKE UNH UNP VRX
net long AMGN ASH BBY FDX IWM SPY WHR YHOO
net neutral APC GLD TLT

Saturday, December 06, 2014

Weekly: calm after the storms

Relative calm returns to the markets, as the zombie bull continues to lurch slowly forward. Highlights include a new long position in MSFT, adding to longs in many existing positions, and hedging my position in BBY.

Fri I hedge my long position in Best Buy by selling calls. I add to longs in Union Pacific Railroad and United Healthcare.

Sell BBY Jan 42 c @35.5
Sell UNP Jan 105 p @119.3
Sell UNH Jan 92.5 p @99.8

Wed Add to longs in Nike, Sell strangles in Amgen:
Sell AMGN 190 c @167.5
Sell AMGN 145 p @167.5
Sell NKE Jan 87.5 p @98.0

Tue New long position in Microsoft and add to longs Federal Express and Nordstroms.
Sell FDX Jan 160 p @180.5
Sell JWN Jan 67.5 p @75.3
Sell MSFT Jan 44 p @48.4

Mon I open January positions on some of my existing longs
Sell HON Jan 87.5 p @97.5
Sell NKE Jan 87.5 p @97.8
Sell YHOO Jan 44 p @50.2
Sell ASH Jan 105 p @116.2
Sell ILMN Dec 172.5 p @189

Position Summary:
long BRKB DIS HON ILMN JWN MMM
long MSFT NKE UNH UNP VRX WHR YHOO
net long APC ASH BBY IWM TLT WHR
net neutral AMGN FDX GLD IWM SPY

Saturday, November 29, 2014

Weekly: Oil crush

I hope all had a good Thanksgiving. Those long oil felt like turkeys. The sharp move down in oil hurt me. My position in Anadarko Petroleum moves deep into the red.


Fri Oil spikes lower on OPEC news. My short puts in APC get crushed. I sell calls in an effort to do damage control, but the horse is long gone from the barn.
Sell APC Dec 90 p @80.3
Sell APC Jan 97.5 p
I am short APC Dec 75 puts and APC Jan 77.5 puts. Yikes!


Tue I continue to put capital to work
Sell BBY Jan 32 p @38.5
Sell MMM Jan 145 p @158.1

Sell TLT Dec 118 p @120.9
Sell GLD Dec 122 c @115.2

Sell FDX strangles: FDX Jan 155 p @175.2
Sell FDX Jan 195 c

Sell WHR strangles: WHR Jan 160 p @184.7
Sell WHR Jan 210 c


Mon Option expiration frees up a lot of capital, and I use some of it. Most of these are adding to long positions.

Sell AMGN Dec 150 p @164.2
Sell VRX Dec 110 p @142.4

Sell APC Jan 77.5 p @92.4
Sell BRKB Jan 135 p @147.1

Sell IWM strangles @117.8: Jan 101 p / Jan 127 c

Position Summary:
long AMGN BBY BRKB DIS HON
long JWN MMM NKE UNH UNP VRX WHR YHOO
net long APC ASH IWM TLT WHR
net neutral FDX GLD SPY

Saturday, November 22, 2014

39-8 for November Grade C


Modest profits for me, as I count 38 wins, 8 losses for the November cycle. Again, before anyone gets excited by the high win percentage, those tend to be the odds going in. I enter most trades with a 80% to 90% chance of a profit. The other side of high probability is that profits are small, and losses can be substantial. 

Traders buy options with a 10% chance of profit, hoping for a 10-to-1 payout or more. With the market moving straight up, many call buyers got rewarded. Call sellers like me got skewered. Fortunately, I am one to take my losses (vs. wait and hope or doubling down), so my losses were contained, though painful.

I covered the call side of many short strangles for losses: AMGN ASH HON SPY VRX YHOO. For some positions I resorted to buying stock because of wide spreads on the options. Buying stock means adding capital and risk, but helps with the bid/ask spread. Another cost is an extra level of commissions for assignment, when the stock gets called away.

Some strangles came in safe, but the percentage was not what I wanted. During these straight up moves, I tend to lag an all-in long strategy. There is no getting around this for hedgers. The alternative is to be directional, and my history with directional trades is poor. Two recent examples are in gold and bonds (GLD, TLT). I recently bought calendar spreads, taking a long position in gold, short bonds, both directions were wrong. Gold went down, bonds went up. For gold, I reverse the position so I am at a profit. The bond position is near worthless now.

What next? There remain many red flags for the stock market. QE in the U.S. is ending. Bullish sentiment is high. Valuations are near red line, though not nose-bleed bubble territory. Again, my directional predictions tend to be no better than coin flips. This is one reason that I hedge the way I do, because it is a way to make money in the market while being just okay on direction. The risk management side came into play this past month and saved my bacon. While some losses were huge percentage losers, overall I made money.

Weekly: Same crap, different week

There is saying in Spanish, same crap, different day. This week was more of the same for those with hedged positions. The bull marches forward, bears get crushed. My trades include: a new long position in BBY, roll some covered calls on ASH, buy VRX stock to cover short calls. 

Lest, I sound whiny, it was a profitable week and month for me, so overall there are positives. However, during these straight up moves, I lag an all-in long strategy.
 
Fri Cover short FDX Nov 175 calls @174.5. I cover mid-day, rather than waiting until the last minute and a potential dance with the devil. FDX closed below 175, so I would have been better off holding. However, Federal Express traded all over the place, with a high over 176.

Roll ASH short calls: Cover short ASH Nov 110 calls, sell ASH Dec 115 calls @113.25. I bought shares of Ashland to cover short calls because of the wide spreads on the options. I was happy to let the stock get called, but I could buy back the call for a decent price and sold December calls at a higher strike. This adds risk and capital.
VRX and AMGN are going to get called away tomorrow. I bought shares of both to cover short call positions. Again, I bought shares because the spreads on the options were so wide. In the case of Amgen, I tried limit orders several times only to watch it climb ever higher. Ouch.




Thu Sell BBY Dec 34 puts @37.8. New long position in retailer Best Buy, which is up on earnings news today.

Sell IWM Dec 105 puts @116.1. Add a bit to longs in the Russell 2000 etf.

Tue Buy VRX shares to cover short Nov 140 calls @141.58. I add a lot capital and take on a lot more risk by buying shares of Valeant Pharma.

Position Summary:
long AMGN APC BBY BRKB DIS FDX GLD HON
long JWN MMM NKE UNH UNP VRX WHR YHOO
net long ASH IWM
net neutral SPY
short TLT
expired ILMN

Saturday, November 15, 2014

Weekly: return of the Zombie Bull

The Zombie Bull market continues to lurch forward. I am still paying for selling calls short about a month ago. This week is particularly frustrating because AMGN and ASH pull back from their highs after I bought shares to cover short calls. GLD bounces a bit. 

Some side notes are that the AAII sentiment (link) is near nose bleed levels. This week it is 58% bulls, 23% neutral, 19% bears, a danger sign for bulls, though they have been right for a while. The local CANSLIM meetup is disbanding because the most dedicated leader is moving on. Stock market meetups closing down, tend not to be the kind of thing that happens during bubble bull markets.

Fri I open December long positions in Nordstroms and Nike.
Sell JWN Dec 67.5 puts @75.1
Sell NKE Dec 87.5 puts @95.5

I cover a couple of options for a buck or two to free up that margin.
Cover short YHOO Nov 39 puts @51.2
Cover short NKE Nov 82.5 puts @95.1

Wed Cover short SPY Nov 204 calls @204.1. Another day, another short call covered for a huge percentage loss about 600% basis the premium collected. Phooey.

I open December long positions in Union Pacific railroad and Amgen
Sell UNP Dec 110 puts @120.2 .51
Sell AMGN Dec 145 puts @162.3 .45

Mon Buy ASH shares to hedge the short Nov 110 calls @110.77. Another busted short strangle, another scramble for damage control.

Cover FDX Nove 145 puts @171. I free up some buying power by covering these way out of the money puts. They are almost sure to expire worthless, but I am near the yellow line on buying power. I don't want to red line and face an unexpected and unwelcome margin call, especially with my current schedule with limited computer access.

Position Summary
long HON ILMN NKE UNH UNP WHR YHOO
net long AMGN APC ASH JWN
net short DIS FDX VRX
net neutral BRKB GLD IWM SPY TLT

Saturday, November 08, 2014

Weekly: plowing ahead

After recent losses, I plow forward. This week, I rebalance several positions by selling December puts. I hit another bump in the road (or rock in the field) with another big loss on some short calls, this time on YHOO. ASH is also near the strike price of those short calls. GLD and some oil related stocks finally have a relief rally after some relentless selling. DIS earnings disappoint. Here are this week's trades:

Fri Cover short YHOO Nov 48 calls @48.2. Another big loss on short calls, about 600% basis the premium collected. The rally in Yahoo has been substantial since the BABA IPO. The call side of my short strangles got crushed.

Wed I open December positions in 3M Corp, Anadarko Petroleum, United Healthcare and Whirlpool.

Sell MMM Dec 145 puts @155.0
Sell APC Dec 75 puts @91.5
Sell UNH Dec 82.5 puts @95.5
Sell WHR Dec 150 puts @173.0

Tue I open December positions in Honeywell and Nordstroms.
Sell HON Dec 85 puts @95.1
Sell JWN Dec 62.5 puts @71.9

Mon A busy day, nine trades, mostly rebalancing trades on existing positions. I sell some December puts to offset some of the short November calls that may be threatened. I make too many trades to notate the prices of the underlyings. Most are done between 45 minutes and 1:15 after the open. These days I have limited computer access, and that time is one of my trading windows.

Sell ASH Dec 95 puts
Sell DIS Dec 82.5 puts
Sell FDX Dec 145 puts

Sell IWM strangles: Dec 127 calls / Dec 103 puts
Sell YHOO Dec 41 puts
Sell VRX Dec 110 puts
Sell BRKB Dec 130 puts

Position Summary:
long HON ILMN MMM NKE UNH UNP WHR YHOO
net long AMGN APC BRKB GLD IWM TLT VRX
net short ASH FDX HON JWN SPY
net neutral DIS GLD UNH