Saturday, January 24, 2015

Weekly: new long LUV, new neutral GLD

Spreads were wide on many of the less active stock options. Mostly I go for the mid or a penny or two below the mid. Sometimes I get filled, sometimes not. New positions: sell puts on LUV for a new long position, sell strangles on GLD for net neutral.

In the news was the ECB news, more earnings, and Mercury going retrograde. I remember hedge fund manager David Tepper talking about his reaction to the Fed's most recent QE news. Tepper thought it would be good for just about all U.S. stocks and went all in on the long side. It remains to be seen whether the European version will be good for stocks, more particularly for us, U.S. stocks. I am out of my depth there, but it is worth looking at. So far, the European QE has been very good for U.S. bonds, and pretty good for U.S. stocks.

Fri Sell HON Mar 87.5 p @101.3. Add to longs in Honeywell as it moves up on earnings.

Sell UNH Mar 95 p @113.0. Rebalance short strangles on United Healthcare. UNH had a big follow through day to the upside and is nearing the strike of the short Feb 116 calls. If it does go up through 116, I plan to buy stock to cover.

Sell ILMN Mar 150 p @197.0. Rebalance short strangles in Illumina. It can be hard to get a fill on ILMN options. I tried for a couple of days. This one got filled a dime below the mid with a wide bid/ask spread.

Sell IWM Feb 107 p @118.2. Rebalance short strangles on the Russell 2000 etf.

Thu Sell UNP Mar 100 p @118.5. Add to longs on Union Pacific Railroad as it moves up after earnings.

Sell UNH Feb 102 p @109.7. Rebalance short strangles on United Healthcare. UNH closed strong yesterday and opened strong this morning. I get filled as it corrects back.

Sell LUV Mar 35 p @43.8. New long position in Southwest Airlines. LUV makes new highs on earnings news. Support at 37.

Sell FDX Mar 155 p @179.4. Add to longs in Federal Express by opening a March position. As the market rallies, I add long delta.

Wed After options expiration, I often plow the capital right back into the market. I wanted to note that the Mercury retrograde alignment starts today 1/21/15 and ends 2/15/15. Last retrograde cycle was a difficult market time for me. Some may say this is superstition, but I am making note of it. Perhaps with the shaky start to 2015, the retrograde changes the energy and we start trending.

Sell BRKB Mar 130 p @147.5. I add to longs by opening a March position in Berkshire Hathaway.

Sell GLD strangles @123.9. 
Sell Mar 110 p / Sell Mar 145 c
GLD premiums up a bit due to pending European Central Bank (ECB) news. 109 is the recent low, and the 145 strike balances it out nicely.

Sell XOM Mar 75 p @91.5. I rebalance short strangles by selling some March puts on Exxon Mobil.

Sell UNH strangles @108.6: United Healthcare up on earnings
Sell Feb 100 p / Sell Feb 116 c

Position Summary:
net long XOM / net short UNH
new long LUV 
new net neutral GLD 

Saturday, January 17, 2015

38-2-1 for January, grade A-

Thirty eight winners, two losers, one break even for the January cycle, grade A-. I experience modest gains and a high win percentage during this turbulent start to 2015. The two losers were BBY and SPY. Both had offsetting profits, so I didn't lose money on any ticker symbol for the month. A bit of skill, a bit of luck, and some stock picking are factors. Best winners include FDX (Federal Express) and IWM (Russell 2000 etf). 
My SPY backratio insurance did not come into play despite the down start to the year. I have more put ratios for February and March. Basically, these help with a 10% decline into an expiration Friday.

I initiated new longs in GDX the gold mining etf and so far that has worked well. These are tiny positions. Biotech was mostly a big winner for me in 2014, but this year the road looks to be more difficult. I don't have any position in bonds, even though it looks near parabolic to the upside. Oil continues to attract a lot of attention, so I think there is more time needed to form a bottom. It may be years before the price of oil recovers in a meaningful and lasting way.

A few months ago, I blogged about my trading difficulties when Mercury went retrograde. That three-time a year configuration for Mercury starts again on January 18th. I am a fan of anything that works, so I will watch myself. I won't be fearful, I will be observant. 

Many eyes will be on the European Central Bank (ECB), as to what it might do next. It is widely anticipated that a massive quantitative easing program will be announced next week. What is announced and what is expected may not be in alignment and the markets may react. Earnings reports continue, and there are often trading opportunities around those earnings events.

Friday, January 16, 2015

Weekly: Cow patch crap

It is a trip through the cow patch for me, one misstep after another. During this stressful market week. I was short strangles in BBY when it tumbled, I sold puts on ILMN and watched it drop 16 points an hour after going long. Friday's relief rally means that I come out okay at the end, but may have a few more grey hairs for the experience. I'll post the monthly recap in a little bit. Here are this week's trades: (p = puts, c = calls, all are traditional 3rd Friday of the month expiration)

Fri Sell ILMN Mar 230 c @182.0. Hedge short puts by sellings calls on Illumina to reduce my delta. ILMN is 14 points lower from when I sold the March puts. The ILMN Jan 200 calls I sold are about to expire in my favor.

Sell AMGN Feb 175 c @153.5. Hedge short puts by selling calls on Amgen. Later in the day, I get the ping-pong effect as AMGN rallies after I get my fill. I rebalance again, by selling AMGN Feb 130 p @157.5.

Sell XOM Feb 77.5 p @90.9. Rebalance short strangles on Exxon/Mobil as some short January puts expire.

Thu Buy to close (cover short) BBY Jan 34.5 puts @34.0. Best Buy gaps lower after holiday results. This wasn't the earnings report, it was the Christmas holiday quarter sales. It is tough to trade the fast moving market. There seem to be some terrible fills on market orders. 

I get out for a -105% loss on this BBY leg, basis the premium collected. I am still short BBY Jan 32 puts and Jan 42 calls. I thought about shorting the stock to cover the short puts, but the market is moving too fast for me. What if there is a giant rally and I am caught short? Seems unlikely, but there have been some big mood swings. Holding is too risky for my timid tastes, given the wild market swings. If there is another big down day and that 105% loss might go to ten times that.

Wed Sell WHR Feb 230 c @195.0. I hedge my recent put sales in Whirlpool. With the wide spreads, my order is at the mid and I get a quick fill.

Sell JWN Feb 85 c @76.9. I hedge short Feb puts in Nordstroms by selling calls.

Sell IWM Feb 125 c @115.8. I rebalance my short strangles on the Russell 2000.

Tue Different day, more crap, morning upside and then more downside. I feel like I stepped into a pile of crap with some of my recent trades. All a trader can do is scrap the crap off their shoes/boots, and move on, and hopefully not step into too many more cow piles.

Sell IWM Mar 100 p @119.3. I rebalance short strangles on the Russell 2000 etf. The move up had me net short and I move back to near neutral.

Sell WHR Feb 155 p @202. I rebalance short strangles on Whirlpool.

Sell ILMN Jan 200 c @184.7. I hedge my short puts by selling some calls. Illumina down over 10 points from when I sold Mar 160 puts 23 hours earlier.

Sell IWM Mar 128 c @116.2. I rebalance again on IWM as I got whacked on the morning move.

Mon Stock market head fakes to the upside in the morning before it reverses and drops quickly. I add to longs in United Healthcare and Illumina, and rebalance short strangles on Exxon Mobil.

Sell UNH Feb 85 p @102.5.
Sell XOM Feb 97.5 c @90.0.

Sell ILMN Mar 160 p @196.1. ILMN options can be tough to trade because there are wide spreads and not much volume. I like the chart, and the way the stock has been strong during the shaky market start for 2015. Wowsers! A few minutes after I get my fill ILMN bumps up a couple of points than drops to 180 in a few minutes. Yikes! At the moment, there is nothing showing as far as news. ILMN is not the most liquid stock. It is coming back to 192 as I type so my thinking is that the most likely event is a fat finger mistake.

A bit later, there is a news report about ILMN presenting at a conference and giving luke warm earnings projections. Another factor is that it is a Investors Business Daily CANSLIM stock. The low of the day is about 8% below the buy point. The CANSLIM method preaches a 7% stop loss, so strict followers would have been taken out by the sharp drop. For those that want to sing the manipulation song, yes, it does happen. As small fish traders, not much we can do about it. Sometimes there are lawsuits and years later, it is the lawyers getting a slice, and the investors a slice.

Position Summary:
net long ILMN JWN XOM
net neutral AMGN IWM SPY WHR

Friday, January 09, 2015

Weekly: New Year starts with a bang

2015 starts off with a rollercoaster ride, ending with the week on a down note. My trading account is up a tad, so I managed the ups and downs better than I have in the recent past. Some highlights include many rebalancing trades, new position in XOM (near neutral), new longs GDX, WFC, many rebalancing trades, and opening some February positions on existing longs. Here are the trades (p =puts, c = calls, all are third week of the month expiration):

Thu Sell WHR Feb 155 p @194.5. Rebalance back to net long on Whirlpool and Amgen.

Sell AMGN Feb 135 p @161.2.
With the wide option spreads, I am entering the orders at the mid or a penny or two below the mid as day limit orders. Sometimes I get filled right away, sometimes it takes a while and the stock to come back. Sometimes the order sits and expires. It isn't easy to trade these wide spreads, though on actively traded stocks fills are more likely.

Sell SPY Jan 196 p @204.9. Rebalance SPY back to net neutral. Those Mar 218 calls I sold are deep in the red. I selling puts to hedge. The strike is below both sets of recent lows.

Sell FDX Feb 150 p @174.1. Add to longs in Federal Express
Sell XOM Jan 86 p @91.7. Rebalance short strangles in Exxon Mobil by selling calls. The strike is below the recent low of 86.1.

Wed Sell XOM Feb 77.5 p @90.7. Rebalance short strangles on Exxon Mobil.

Sell VRX Feb 105 p @144.1. Add to longs in Valeant Pharma, one of my best bull stocks from 2014.

Sell MMM Feb 135 p @159.9. Add to longs in 3M Corp. MMM is at the 50 day moving average line on the chart.

Sell JWN Feb 70 p @79.3. Rebalance my position in Nordstroms back to net long. 70 is a support level.

Tue Cover AMGN Jan 148 p @155.2. I close these short puts near breakeven to take some risk off the table.

Sell UNP Feb 95 p @113.9. Add to longs in Union Pacific railroad.

Sell GDX Mar 16 p @20.3. Add to longs in gold miners.

Sell SPY Mar 218 c @199.5. Rebalance in a minor way my net long position in SPY by selling calls.

Sell XOM Feb 97.5 c @89.4. Hedge short puts by sellings calls. The thought in my mind "well, that didn't work, buying the dip in oil," so I move closer to a neutral position in Exxon Mobil.

Sell ASH Feb 95 p @117.2. Add to longs in Ashland Corp. ASH was one of my best bull stocks during 2014.

Mon New long position in the gold mining etf. 16.45 is the 52-week-low, so I pick the strike below that.

Sell GDX Feb 16 p @19.1

Sell SPY Backratio @203.3: Buy SPY Mar 184 p
Sell 2x SPY Mar 179 p for a credit
Again, I like to sell SPY backratios after a tick up in volatility. These are delta positive, theta positive, for a net credit. There is the possibility of an explosive profit on a decline to the lower strike. A decline below 174 and losses start to spiral. In an up or unchanged market, I get to keep the small credit.

Sell DIS Feb 80 p @92.5. I add to longs in Disney. 80 is several support levels away.

Sell WFC Feb 45 p @52.3. New long position in Wells Fargo

Sell IWM Feb 122 c @117.0. Rebalance short strangles on the Russell 2000 etf. I reduce my net long position by selling calls. The minor high is 121.41.

Some trades from the prior week:
Fri 1/2/15 Sell BRKB Feb 135 p @151.1
Turns out that the early morning rally is a head fake. The double pump fake has the market moving lower, then closing near unchanged.

Wed 12/31/14 I rebalance short strangles back to neutral on the Russell 2000 etf.
Sell IWM Jan 113 p @120.6

Tue 12/30/14 Sell BBY Jan 34.5 p
Mon 12/29/14 Sell JWN Jan 75 p

Position Summary:
net neutral APC NKE WHR XOM YHOO

new positions: GDX, WFC long, XOM net neutral

Wednesday, December 31, 2014

Year in Review: Nothing to brag about grade C+

I made money in 2014, but it is nothing to brag about. In round numbers, my trading account is up about 7%. For blog reported closed trades, I count 390 winners and 69 losers, which is about an 85% win percentage. Before anyone gets excited by the 85% win percentage, those are about the odds going in. 

Understand that the payouts scale to the odds. The person buying the 15% chance of profit option is hoping for a 7-to-1 payout when they win. Why else would someone buy an option with only a 15% chance of profit? I give myself a C+ grade for the year which to most people is a meh grade. With SPY up about 11% and VTI about the same. I trailed those big indexes. However, IWM (the Russell 2000) was up less than 4%, and gold, silver and emerging markets all went down for the year. On the other side, bonds, utilities, and REITs all had big up years.

Some of my most profitable trading tickers include:

Some of my worst include:

Biotech shows on both lists. APC was on the winners list until the spike down in oil prices flipped it over. SPY is up about 12% from the October lows, which is about the same as the gain for entire year. A few nimble traders rode the waves and made money on the down move and the rally. Some slower moving traders got caught in the turbulence, I lost money during the sharp moves. Only a few of those losses would I describe as stupid, but for an experienced trader, that is a few too many.

I loosely track a few ETFs, in round numbers, here are the best to worst for 2014:

TLT +24% (20 year treasury bonds)
SPY +11% (S&P 500)
IWM + 4% (Russell 2000)
GLD - 2% (Gold)
EEM - 6% (Emerging Markets)
SLV -20% (Silver)

Long term treasury bonds surprise as the best performing major asset class in 2014 with TLT up 24% for the year. Who predicted that? Especially as Fed bond buying ended right on schedule. Utilities and Real Estate Investment Trusts (REITs) were other big beneficiaries of the rally in bonds, with XLU and IYR up near the same amount.Silver craters down again, after a big down year in 2013 as well. Averaging down into a major bear market can be the road to the poor house.

I often write that predictions are mostly for entertainment. So just for fun, lets glance at that crystal ball. There are cross currents for the stock market. Seasonal factors such as the 10-year cycle, the 4-year presidential cycle point to a strong year, up 28% in year 5 of a decade is average. On the other side, valuation measures such as CAPE (aka as PE 10, the ten year price-earnings of the market), and market dividend yield, point to over valuation. I posted about the warning signs of a top before (link). I'll continue to remind myself of those, because a top is inevitable. However, ten tops tend to be predicted for every top that occurs. 
On the anecdotal side, there is a tiny bit more exuberance, as two young relatives opened accounts and bought a few shares. Neither is going "all in" or thinking about trading full time, but still it is a minor negative. I mentioned that one of the local CANSLIM meetup groups closed down. I see this as a minor positive. Stock market meetups would be booming, not closing down, if this was a popular market bubble ala 1999/2000. Instead, it remains a tough task to find intelligent casual conversation about the stock market. I still often hear people saying "the stock market is fixed. I don't trust the stock market." So this remains one of the most hated bull markets ever, up about 200% of the SPY 666 lows.

My plan is to listen to the market, instead of having a set in stone prediction. In May 2014, I wrote a post "Tea Leaves for a Market Top" (link) and continue to watch for those signs (transports lagging, inverted yield curve, magazine cover sentiment). Over my many years in the market, I observe that my predictions tend to be no better than coin flips. In other words, I don't make money on my predictions. I am bit better at risk management and that's where I see the profits coming form. Each trader has biases. Old timers have history. Hopefully, I can translate my vast experience into wisdom instead of bias.

Let me close with a toast: Here's to 2015 being the best year ever! Cheers!

Saturday, December 27, 2014

Weekly: Merry Christmas and Happy New Year

I trust all had a good holiday. A quick update for a quiet holiday up week.
Wed I ping-pong on AMGN, in a wrong-way fashion, and rebalance again.
Sell AMGN Jan 148 p
Sell IWM Feb 106 p

Tue I rebalance short strangles in Amgen and Honeywell. I hedge my neutral position in SPY.
Sell SPY Feb 220 c
Sell HON Feb 92.5 p
Sell AMGN 175 c

Mon I rebalance my position in Federal Express by selling puts
Sell FDX Jan 165 p .58

I didn't check my deltas so won't post a new position summary. Next week may be even quieter for me, so HAPPY NEW YEAR to all the readers. May you have the best year ever!

I'll post a year in review at some point. There was some good, some bad, some ugly. 

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
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