Friday, September 12, 2014

Weekly: Cat market at all time high (meow)

On a humorous note, this CNN money article compares the percentage of cat ownership to stock ownership (link).

Less than 15% of U.S. households now own any individual stocks, more than 30% own at least one cat. No wonder virtually no one seems to talk about the stock market any more.

What are the reasons? Some explanations include: the big market down turn in 2008/2009, overall meager stock market returns since 2000 with some big down drafts, the events surrounding the IPO of Facebook and how so many small investors felt cheated, the Flash Boys book author telling everyone that the stock market is rigged.

With only about half the population saving any significant amount of money, the other 45% or so have no money to invest any where. I'll spare you the soapbox speech on the 45% non-savers.

Back to the stock market, there is some selling with a small down week. I see these like the little thunderstorms that come and go in some parts of the country. They dump a lot of rain real quick and then are gone. Sometimes a person can have bad luck and get soaked. We will see if it turns into something more serious. 

I feel more discomfort during the week as AMGN, MSFT, XLU flirt with the strike prices of my short call options and ASH, GLD threaten on the short put side. I continue to feel out of synch with the markets. I have been clanking the timing on my entries and exits, often selling near the lows, buying near the highs. Fortunately the market moves have been small.

There were significant declines in bonds (TLT), gold (GLD), and REITs (IYR). Silver is now down for the year, after being up over 15% in February. I am under water on my recent GLD position. It has been a water torture decline, dripping lower a bit each day. With a small decline in stocks for the week, bigger drops in bonds and gold, cash was king for the week (that or being short gold or bonds).

Here are this week's trades:
Fri Sell BRKB Sep 140 calls @136.9. I hedge my short puts in Berkshire Hathaway by selling calls for a tiny premium.

Wed
Sell SLB Oct 115 calls @103.3. I hedge my net long position in Schlumberger by selling calls for a tiny premium.

Sell SPY Sep 202.5 calls @199.0. Ditto on the S&P 500 etf, selling calls for a tiny premium.

Sell NKE Oct 72.5 puts @82.4. New long position in Nike. NKE recently broke out of a chart base.
Mon Sell MSFT Oct 43 puts and Sep 45 puts @46.6. Rebalance short September strangles on Microsoft by selling September and October puts. This is another runner where the short calls are in the red.

Sell APC Oct 90 puts @106.4. I open an October position in Anadarko Petroleum on today's dip.

Position summary:
long GLD MRK NKE
net long APC ASH BRKB DIS IWM JWN SLB SPY
net short MSFT XLU
net neutral AMGN FB FDX HON SWK VRSN

Friday, September 05, 2014

Weekly: Frustration and losses

It was a below average week for me. In early August, I sold layers of calls on the market weakness. This past Wednesday I closed three of these short call positions (BRKB MRK SPY) for big percentage losses. As it turns out, I could have gotten out at better prices before or after. I also opened a few October positions and many of those turned against me. Despite some poorly timed moves, the tail wind of option decay and very small moves in the stock market meant an up week for me. 

The AAII sentiment reading fell back below 50% bulls, which I see as a positive for the market. Another positive is that the transports (IYT) made a new high, confirming that new highs in the S&P 500 (SPY). This is a bull market that many still hate. Public mood remains tepid. Virtually no one is asking me for stock tips or investing advice. The local CANSLIM meet up has low attendance and the few that come are not excited about investing in the stock market. Yes, there are some signs of froth, such as Alibaba about to be the highest valued IPO in U.S. history, but overall the mood is disbelief. 

I will remind readers that the ten year cycle and four presidential cycle point to an upside acceleration starting September 30 and lasting about 18 months. Seasonal indicators are not that reliable, but have some value.

Here are this week's trades:
Fri Sell BRKB Oct 130 puts @138.2. I open an October position in Berkshire.
Sell AMGN Oct 155 calls @137.2. Rebalance my position in Amgen, selling these way out calls for a tiny premium.

Thu Sell AMGN Oct 125 puts @138.8. Rebalance short Sep strangles on Amgen by going out to October. My streak of not-so-good intra-day timing continues as AMGN fades from its morning pop.

Sell IWM Oct 105 puts @116.8. I open an October position in the Russell 2000 etf. I closed the short IWM Sep 95 puts to free up some buying power. I also close out some SPY Sep 173 puts to free up buying power. I often let these way out of the money options expire worthless. However, right now, I am into the red zone as far as buying power. One good thing about my broker ThinkorSwim is that closing out short options at 0.05 or less, is commission free.

Sell SLB Oct 95 puts .32 @106.2. I open an October position in Schlumberger.
Wed I cover some of the calls I sold in early August for huge losses. Captain hindsight tells me that I should have covered much earlier. Why today? One reason is that if the puts come in safe, I'll come out above the line for BRKB and MRK. SPY had more cushion.

Cover short BRKB Sep 135 calls @138.2. Ouch. I cover these short calls for a huge loss. I sold these for not much premium when Berkshire was much lower, and cover for about a 900% loss, basis the premium collected.

Cover short SPY Sep 200 calls @201.6. Double ouch. I cover these for about a 350% loss (basis premium collected).

Cover short MRK Sep 60 calls @60.5. Trifecta. Merck calls covered for about a 500% loss (basis premium collected).

To add to the frustration of big losers, by later in the day BRKB and SPY are well off their highs.

Sell JWN Oct 65 puts @69.8. Rebalance short September strangles in Nordstroms by selling October puts.
 
Position summary:
long BRKB GLD MRK
net long AMGN ASH DIS IWM JWN SLB SPY
net short MSFT XLU
net neutral APC FB FDX HON SWK VRSN

Friday, August 29, 2014

Weekly: Bulls cross the Rubicon, 51% bulls at AAII

The bulls have crossed over the 50% Rubicon at the Association of Individual Investors (link) 51.9% bulls as of 8/27/2014. Going forward, the high percentage of bulls is a red flag for the stock market. That said, the continued rally has me scrambling. Readers might remember I sold tons of calls during the recent dip, and many of these short calls are deep in the red. The loser list include calls that I sold on AMGN MRK MSFT SPY. During this recent rally from the SPY 190 lows on August 7th, I have made money, but have significantly underperformed a buy-and-hold approach on the 5% up move.

A couple of weeks ago, I wrote about everyone expecting a correction and that a sharp rally might be what frustrates the most people. I did not expect so sharp, so immediate a rally and have paid for it. C'est la vie. Bonds also continue to rally even though the most recent QE program is scheduled to end in October. Thank goodness, I didn't go long TBT (short bonds).

I made a record number of trades during the calendar month of August. Some might say, over trading. We will see how it all comes out in the wash at expiration time. I am posting about a hour before the market close. Have a good three-day weekend. Cheers, to the end of summer. Here are this week's trades:

Fri Sell AMGN Sep 134 puts @138.7. Rebalance short strangles on Amgen by selling puts. As AMGN moves up my short Sep 140 calls are threatened. Even after this move I am net short, but less so.

Sell BRKB Sep 135 puts @137.1. I sell another layer of puts on Berkshire to rebalance, I also cover short BRKB Sep 115 puts .01 to free up a smidgen of buying power.

Tue Sell MRK Sep 58.5 puts @60.2. Rebalance short strangles on Merck by selling puts. Those calls I sold on that -317 Dow day a while back are coming back to bite me. As the rally rolls forward, the pain increases. I keep thinking there has to be a retracement of the move, but so far, it has almost been straight up for the major stock indices.

Mon Sell AMGN Sep 128 puts @134.6. Rebalance short strangles on Amgen as it makes new highs.

Sell SPY Sep 195 puts @200.1. Another day, another layer of index puts sold. The stock market rally rolls on. How much gas does it have left in the tank? How many bears still have money to go short? How many are covering? For those that are still short, what is their cry uncle point?

Sell ASH Sep 105 puts @108.1. Rebalance short strangles on Ashland. A curious case here, where a little while back, ASH gapped lower on earnings, but has climbed steadily since then.

Position Summary:
long GLD
net long ASH DIS IWM SPY
net short AMGN JWN MRK MSFT SWK XLU
net neutral APC BRKB FB FDX HON SLB VRSN

Friday, August 22, 2014

Weekly: Market looks tired

The stock market had a decent up week, but seemed to be running out of gas by Friday. There are more signs of a top, that include the lagging transports (IYT is a good proxy), sentiment at AAII (link) finally at a high bullish reading (46.1% for this week). Confounding most is the continued strength in bonds (TLT). Transports had a deeper correction and have not quite recovered the highs. High yield bonds saw a V-shaped chart (JNK, HYG) with a short sharp decline followed by a sharp rally. However, these are not back to the highs either.

I was not well positioned for the continuing stock rally. So while I made money, it could have been so much better. I added long exposure with each rally day. I am thinking the market needs time to digest the gains before any uptrend continues. Here are the trades:

Thu Sell SPY 194 puts @199.6. New highs for the S&P 500 etf. The chart sets up for a short sale, however, the sentiment and macro picture are not confirming that. I am thinking cover my short calls on a close above 201. Every day this week I have added long delta in the index etfs, but the rally has been so strong, I have barely kept up.

Sell BRKB 135 puts @136.2. The rally in Berkshire Hathaway is causing me some consternation. I had a limit order to close the short BRKB 135 Sep calls, but I cancelled that order as the stock kept climbing. I am going near delta neutral by selling these puts.

Wed Sell IWM Sep 109 puts @115.2. I add longs for the Russell 2000 etf. We are at the highs of 199 for SPY, on lower volume. I am short calls on many stocks so this is a bit of a hedging move.

Tue Sell SPY Sep 190 puts @198.3. I sell another layer of the 190 puts on the S&P 500 as the stock market rally rolls on. The 190 level is below the recent spike low. I expect some resistance at the highs of 199 and at the round number of 200. One negative is that I am burning buying power at a rapid rate selling these layers of SPY puts.

Mon Option expiration frees up a lot of buying power. The gap up open has me scrambling to rebalance my positions. I am short strangles (puts and calls) on many products and the sharp rally means many positions are now net short.

Sell SPY Sep 188 puts @196.8. Rebalance short strangles in the S&P 500 etf to net neutral. Later in the day, I sell a layer of SPY Sep 190 puts @197.3 now net long. My thinking is that SPY seems likely to retest the old highs around 199.

Sell DIS Sep 87.5 puts @90.1. Rebalance short strangles to net long on Disney.

Sell ASH Oct 95 puts @105.8. Rebalance my position on Ashland by selling October puts.

Sell MRK Oct 55 puts @58.6. Ditto for Merck, rebalance by selling October puts.Position Summary:

Position Summary:
long GLD
net long BRKB DIS IWM SPY
net short AMGN ASH JWN MRK MSFT SWK
net neutral APC FB FDX HON SLB VRSN XLU

Saturday, August 16, 2014

30-5-2 for August, grade C

Let me start by repeating my public service annoucement on depression and the links in the previous post. It is that important. Free support groups for depression and anxiey

If a friend or family member is chronically depressed NAMI may be a good group to contact

Now back to the regular programming. The August option cycle was so-so. My self-grade is C. Profits were modest, and could have been a lot better. The count for closed trades is 30 winners, 5 losers, 2 break even. As always, new readers, should not get excited by the high win percentage. Those are the approximate odds going in. The catch is that the profits tend to be tiny, and the losses can be substantial.

Losers include EWG, T, TWX, and WFC. The last three would have been winners if I had held on. Winners include seven layers of puts and calls sold on IWM. AMGN and VRX continue to be my most profitable trading stocks for 2014, even though there was a down move in VRX.

Bonds continue to rally. Gold was flat. The waterfall decline that started in high yield bonds, saw a V-shaped recovery rally. In the news is an etf GURU, which uses the 13F reports to try and follow the smart big money. Looking at the top holdings for that etf can give a person some ideas. The caveat is that smart money doesn't necessarily stay smart, and big money can mean big mistakes.

Seasonal factors point to an upside acceleration in the stock market, starting September 30. Some of the calls I sold during the big dip are deep into the red. Sentiment at the Association of Individual Investors remains right near at its historic average at 39.8% bulls (link).

Going forward, I want to be prepared for an upside acceleration, while still being flexible enough if something else happens.

Friday, August 15, 2014

PSA on Depression plus Weekly

I rarely go off topic on this blog. The apparent suicide of Robin Williams is the event. I volunteer with the mental health group Reovery International
For those that have friends or relatives NAMI might be a more appropriate group:


If you suffer from chronic depression, please know that you are not alone. There is help out there. Get to a meeting, or find help on line. The depression demons that eventually got Robin Williams stalk many people.

Now back to the week in the stock market. Highlights include selling some puts on SPY. Low lights of the week include adding to a position in JWN before earnings and having it flop. I played BRKB poorly, each move seemed ot result in a bigger ditch. I'll post a monthly summary during the weekend. Here are this week's trades:


Fri Sell JWN Sep 72.5 calls @66.0. Nordstroms earnings report disappoints. Stock gaps lower. I sell some calls to for a tiny premium to hedge my short puts.

Thu Sell IWM Sep 102 puts @113.6. I add more long stock market exposure by selling another layer of puts on the Russell 2000 etf.

Sell BRKB Sep 130 puts @134.2. Ground hog day, another day Berkshire moves up, another layer of puts sold to rebalance. I will close out the short calls on a close above 135.5.

Sell AMGN Sep 120 puts @132.4. Similar deal for Amgen. AMGN having a wild day, first down a couple of points, now up a few. I am short strangles.

Wed Sell BRKB Sep 130 puts @133.2. Rebalance my short strangle on Berkshire Hathaway as the stock continues to rally. 
 
Sell ASH Sep 95 puts @104.2. Similar deal, I rebalance short strangles on Ashland after the stock moves up.
Sell SPY Sep 180 puts @194.1. Ditto. Rebalance short strangles on the S&P 500 etf by selling puts.

Sell JWN Sep 60 puts @67.9. I open a September position in Nordstroms. JWN down today because Macys reported poor earnings. My thinking is that Macys' poor results are in part due to bad weather (snow) during the first quarter. Nordstroms are mostly on the west coast, so the weather issue is much smaller. Earnings are due tomorrow. I am not so bold as to buy calls though.


Mon Sell SPY Aug 189 puts @193.9. I rebalance my net short position in the S&P 500 etf by adding some positive delta. My thinking is that Friday's low is now significant support. 189 is a bit below the low to give a margin of safety. Premium is tiny for this one week option. A bit later I sell SPY Aug 190.5 puts @194.1 as the rally inches higher. Later still, I close a position in SPY Sep 178 puts @194.4, these long puts were part of a backratio. I close this leg at a loss. It seems unlikely that SPY will decline below 178 before September expiration. These three trades bring me to about net neutral on SPY, though that will change as the index moves.

Sell BRKB Sep 125 puts @132.4. Rebalance my short strangle by selling more puts as Berkshire Hathaway rallies.
Sell DIS Sep 80 puts @87.1. Rebalance short strangle in Disney by selling more puts as the stock rallies.

Position summary:
long GLD
net long BRKB IWM JWN SLB XLU
net neutral AMGN APC DIS FB FDX HON SWK
net short ASH MSFT MRK SPY VRSN
expired AIG KORS MON OXY UNH VRX

Friday, August 08, 2014

Weekly: Everyone Says Correction


Long time readers know that I sometimes like to read the public mood through conversations. In the past, these anecdotes have been decent timing tools. Recently, I had three separate conversations with folks talking of a 10% stock market correction. I'm not sure what to do with that, especially because that what I was thinking before hearing these anecdotes. Hmmm. What happens when everyone is looking for a correction? The polar opposite to a 10% correction might be a 10% up move to new highs.

I use two brokers, ThinkorSwim and Schwab. Schwab sends out emails with links to reports with a lot of information. One recent Schwab report was about Fed rate hikes and market reactions. Going on that report, corrections before a Fed rate hike tend to be limited to 6%. Measuring from the highs at 199 that takes SPY to 187 (currently 193). After the rate hike, there tends to be a relatively long time, often a couple of years, before a bear market begins. In a separate article, someone tracking the 4-year presidential cycle calls for a bottom on September 10, 2014. As always, past history doesn't guarantee anything. That said, looking at what happend before often produces better results for me, than seat-of-the-pants or emotion based trading.

In other markets, the German stock market is down over 10% from its recent highs. Bonds continue to be confusing. Eventually, most U.S. traders believe that interest rates are going much higher. However, rates in most of the EU and in Japan are much lower than U.S. rates, even though no one thinks that Spain or Italy is more credit worthy than the U.S. With global markets connected, these rates do matter, even though most small investors don't do anything with foreign bonds. Gold finally shows some strength, though the modest rally it is a far cry from the glory days of the gold bull market.

As for my trading week, I was up a bit for the week with a few more gains than losses. I closed out several trades for losses: T, WFC, TWX, and several other positions went against me. Here are my trades for the week:

Fri Sell MRK Sep 60 calls @56.1. I hedge my short Merck puts by selling calls.

Thu Cover TWX Aug 72.5 puts @72.6. I close out my Time Warner short puts for a 500% loss (basis the premium collected). I am still short TWX Aug 80 calls. TWX keeps falling a day after Fox pulls their takeover bid. My mental stop was 72.0 and TWX went below that before rebounding a bit. Ouch. A bit later I close out the short calls for the slimmest of profits: cover TWX Aug 80 calls @72.3

Sell BRKB Sep 120 puts @128.8. I rebalance my complicated position on Berkshire Hathaway adding to the long side.

Wed Cover T puts and calls @34.6: Buy to cover Sep 35 puts / Sep 37 calls
Big loss on the short strangle in the 400% range vs. initial premium. The rally on news gives way to the reality that a tax-inversion seems unlikely and ATT falters back below the base. Ouch. The calls I close at a breakeven profit but the put side is a big loser after the sharp decline in T.

Cover WFC Aug 50 puts @50.1. I close out my short puts on Wells Fargo for a 20% loss. I do not like the tape action. The open was below the strike price of 50.

Sell TWX Aug 80 calls @74.4. I hedge my short 72.5 puts in Time Warner by selling some calls. TWX down hard as Fox pulls its takeover offer off the table.

Tue Sell MSFT Sep 47 calls @43.2. Hedge short puts in Microsoft by selling calls.

Sell SPY Sep 200 calls @192.9. Add to short position in S&P 500 etf by selling calls. I see SPX 2000 as a likely to be a short term ceiling to any rallies and a good place to get short, if and when the market makes a new high.

Sell SLB Sep 95 puts @107.8. Add to longs in Schlumberger by opening a September position. A few minutes later SLB and the stock market extends to new lows. Sell SLB Sep 120 calls to hedge the just sold puts .18 @107.1. It is a turbulent market.

Sell VRSN Sep 60 calls @54.3. Hedge short puts in VeriSign by selling calls.

Sell BRKB Sep 135 calls @127.4. Hedge short puts in Berkshire Hathaway by selling calls.

Mon Sell VRX Aug 100 puts @116.5. New long position in Valeant Pharma. VRX earnings on 7/31 were a bit disappointing, but the stock is holding in its range for that day.

Sell BRKB Aug 125 puts @129.4. Add to longs in Berkshire Hathaway. Earnings were good. These puts are below the gap up on the news.

Most of the calls I sold short last Friday, could be sold for higher prices today.

Position summary:
long AIG GLD JWN MON SWK UNH VRX VRSN
net long AMGN APC DIS FB FDX HON
net long IWM MRK SLB SWK XLU

net neutral ASH BRKB
net short SPY

closed T TWX WFC