Wednesday, December 31, 2008

Old Year's day - down 1.5% for 2008

Some call December 31st, "old year's day." For traders and investors it is a good time to look back and hopefully learn some lessons from the year gone by.

For the trades reported on this blog I am down approximately 1.5% for the year. Many years -1.5 would be rather poor, however, when the overall U. S. stock market is down 35% to 40%, and many foreign markets are down even more, down 1.5% doesn't look bad at all. To put it in perspective, after a 40% loss, a trader must go get a 66% gain to break even. (Start with $100, lose 40% and you are at $60. A 60% gain from $60 only gets you back to $96).

In my profile, I write about survival. For traders this is vital. Money management is at least as important as making good market calls. So even though my main tactic is to sell naked puts, and a bear market is where that can lead to huge monster losses, my loss for the year was modest.

Ruthless cutting of losers and small position size might be considered the secret sauces for 2008. While, it is true that almost all of the losers I reported would have closed at a profit if held until expiration, there was no way to know that at the time the loss was taken. Just one terrible loss would need a dozen or more of the small winners I tend to shoot for to make up for it. Best to take the medicine and feel some discomfort than hope and possibly wake up with a game changing loss, or worse be out of the game all together.

All the best. Cheers.

Sunday, December 28, 2008

All "dogs" go to heck

A few years back there was a movie, "All dogs go to heaven." As the year winds down, I was thinking about the popular "dogs of the Dow" strategy. The basics are to buy the highest yielding Dow 30 stocks.

Over the years this has proven to be a good strategy. However, like almost all strategies, there are losing years. 2008 was one of them. Barrons reports that buying the 10 "dogs" of the Dow would have resulted in a 42% loss. The article says beginning of 2007, but traditionally the strategy is done year-to-year, so there is a chance that it may be a typo and they mean beginning of 2008.

(link)

>>
At the beginning of 2007, the elite kennel included Citigroup , Pfizer , Altria , General Motors , Verizon Communications , DuPont , AT&T , Home Depot , JPMorgan Chase and General Electric , with yields ranging from 3.10% to 7.34%. Collectively, those dogs were sure barking up the tree and, as of last week, were off nearly 42%.

>>

Saturday, December 20, 2008

0 for December and the Cash "bubble"

I've been away from my desk, so to speak, and didn't do any trading for the December option expiration cycle.

Barrons reports on the "cash bubble" link

>>
"Cash is the elephant in the room," says a strategist at a top investment bank who spends his days dealing with portfolio managers. "Everyone has lots of it, and I don't know when they are going to start taking risk, but I want to be in right before it happens."

The recent clamor to buy four-week Treasury bills with a zero-percent yield perfectly expresses the market's mania for absolute safety
>>

With phrases such as: cash bubble, mania for safety, and bills at zero yield, zip nada nothing, it makes for an interesting time.

Sunday, December 14, 2008

Barrons on selling options

There is an article in Barrons about the pros and cons of buying vs. selling calls (link).

Readers know that my preferred strategy is to sell out of the money puts. Readers also know that when something gets discussed in the papers, it is often a good idea to look at taking the opposite side of the recommended trade.

Blogging and trading remain on the back burner for me.

No current positions.

Thursday, December 04, 2008

Light blogging

I haven't had much time for the stock market lately. I am still here, and blogging will continue, but will be very light for a while.

The market seems tricky as ever. Even if I had time, I would not be willing to take on big positions. I don't have a strong leaning as to which way the wind will blow tomorrow, or next week.

Friday, November 28, 2008

Gobble, gobble

I have spent more time eating turkey than I have on the the stock market lately. A belated Happy Thanksgiving to all. After all the eating, back on the diet.

I'm not believing this current stock rally. Even though, I believe that the Christmas shopping season will be better than many are predicting.

Sunday, November 23, 2008

Volatility up, up and away

There was a time, not too long ago, when a VIX (option volatility index) reading of 30 was a decent buy signal. Barrons is reporting (article) that VIX is recording new highs and that 5% daily moves are now priced in. The Barrons headline is "Rockier than 1929," so yet another Great Depression era analogy for the stock market.

From the article:
>>
"During 1929, realized volatility peaked at 68%. We will likely pass that number in short order. That will make the current market the highest sustained volatility environment in S&P 500 history," says Goldman's Krag "Buzz" Gregory, an options strategist.
...
VIX at 80 implies a Standard & Poor's 500 average daily move of about 5%
.
>>

Elsewhere, gold pops back up above $800. I am skeptical of the move because I think much of last week's trade was related to options expiration. Sometimes it all unwinds the other way, the week after. The last quarter of the year, and January tend to be good times for gold bulls. However, this info seems widely known now, so I don't know how useful it is anymore. Anything that is widely known, tends to already be in the price.

That is why markets are tough, everyone is looking for an edge, and when a good edge is found, the info spreads quickly. If the info is easy to find such as yearly calendar, or time of day, or day of week tendencies, it gets jumped. Because of this, I rate seasonal indicators or other time related indicators among the least reliable technical tools.

It will be interesting to see how much tax selling occurs in stocks this December. A good many folks have likely already gone over the maximum deduction of $3000 per year for capital losses, so it may be less than usual.

Friday, November 21, 2008

The apple and the chicken

What a wild ride that was for my one trade for the month. I bit into the apple of temptation, yesterday, and saw a paper loss of 250% on my puts as SPY tumbled down. By the time the market opened on Friday, most of the premium was gone and I was at a profit.

Still, I was skittish, thinking that there might be a head fake and a total collapse into the close, instead of a big rally like it was in October. I closed the position, making for a tiny profit for the trade and the month. With profits so hard to come by, I'll take whatever crumbs I can find. Count this one as a crumb for sure.

Thursday, November 20, 2008

Wednesday, November 19, 2008

Shades of 1931

The stock market may be in for it's worst yearly loss since 1931. For those that don't know any history dates that was the Great Depression. Yikes!

I would like to say the worst is over, but experience has taught me that no one knows when the worst is over. Sentiment indicators such as VIX have reached high after high, and many thought that each high would be bottom. I am not convinced. Newsletter sentiment might be the straw in the wind, so watch that, if it makes a new low reading, so far it hasn't.

Value investors are hard pressed to read balance sheets and find assets that have sure value. There are a lot of items such as real estate that are difficult to put a ready liquidation value on in a fast moving market. Momentum traders are likely either short, or out, or broke--having already been washed out with mongo margin calls.

It isn't the worst time to be thinking of buying bit-by-bit for the long term, but it may be a lot longer than a person thinks it will be. If I were to do that, I would not use stop losses. Stops don't work too well for value investing. Cheap gets cheaper, and then cheaper still.

I'm still sitting this one out. I have zero trades for the November option expiration cycle. Given my trading style and the wild swings, it seems the wise decision. Like I sometimes quote Clint Eastwood, "a man has to know his limitations."

Saturday, November 15, 2008

Deja vu the yo-yo keeps going

A week ago Friday, the title was about a yo-yo stock market. Here I am again, a week later, with the same feeling. On Thursday it was a dizzying 10% from low to high in one day. That is the typical stock market average annual return a few hours! Those trading the newish 3x leverage funds saw 25% to 35% moves intraday.

Readers know that fast moving markets are not my friend. I don't sit in front of the trading screen all day. I use mental stop losses. That combination can be deadly given the volatility.

Barrons reports that margin calls have become much more common, at all brokers. Small fish, big fish alike are being churned and being put into the fishing nets in record numbers. Quite a few are losing all the money in their accounts and will never be back to the stock market.

Many moons ago, when I started in the stock market, I knew a guy who put all his money into a single high flying stock and was so confident that he bought more on margin. As the stock declined, he got a margin call. The man borrowed money from a relative to meet the margin call. The stock continued down and not only did this person lose everything in his brokerage account, he still owed the relative the money borrowed to meet the margin call. Margin calls are not pleasant events.

Again for the average person, diversification, dollar cost averaging into age appropriate asset classes, is the way to go. Those that want to do a little passive management can follow such long term indicators as the 200 day moving average or the Value Line Mean Appreciation Potential. Those that are active, don't need advice, certainly not from me.

No trading positions

Wednesday, November 12, 2008

Some get it right and still lose money

Mark Hulbert writes about three big name newsletter writers at Marketwatch (link): Howard Ruff, Jim Dines, Harry Schulz.

Even though the economic picture has unfolded in ways they have been predicting, they rank near the bottom for year-to-date performance.
>>
Of the 181 newsletters on the Hulbert Financial Digest's monitored list, these three advisers' newsletters are in 173rd, 175th, and 176th places for year-to-date performances through October 31, with losses ranging from minus 64.9% to minus 70.0%.

How can this be?

The easy answer is that these advisers didn't put into their model portfolios the securities that would benefit from the financial collapse that they envisioned.
>>


So while some may get macro economic predictions correct, it is not always so easy to translate that into trading profits. I learned a long time ago that in trading it is better to lucky than good. The caveat is that few folks remain as lucky the next cycle.

The stock market took another beating. As I have been writing, I am looking to go long at SPY 80 (another five points lower or so). As always this is not advice, and depending on how it gets there, my opinion may change.

No trading positions

Monday, November 10, 2008

The economy and high yield

I wandered into reading about some high yield ETFs. HYG high yield corporate bonds, and PFF high yield preferred stocks. With the long shadow being cast by a possible GM default, these funds have dropped in price and yields are 9%+.

For those that think the recession is going to be relatively shallow, these might be an interesting play.

If and when I buy these, I probably won't report that event on this blog, as I am trying to focus this on the short term trades.

Friday, November 07, 2008

A yo-yo stock market and Christmas retail

IT feels like the yo-yo is going up and down the string. Today's rally to close near the highs may give courage to the bulls, but I continue to have my doubts. The range for SPY is bound by the low at 84 and the gap at 100. Right now it is almost dead center of that range. I would be a buyer at SPY 80, and a shorter at SPY 104 or so. Of course, depending on how it gets there.

Personally, I think the fears about this Christmas are overblown. When folks get laid off, they often get severance and/or unemployment and that keeps them going for a while. If the economic conditions continue through next year, that is when the Grinch will impose his will on the holiday. Yes, sales are going to be slow, but I don't think it will be the end of the world.

No trading positions

Wednesday, November 05, 2008

KISS and Bogle

From Marketwatch interview with John Bogle (link):

>>
Keep it simple

Bogle's message has always been simple and straightforward, based on the belief that it's the market -- not the manager -- that rewards an investor for taking a long-term outlook. Get broad stock and bond exposure, keep costs and taxes to a minimum, and let time in the market, rather than timing the market, be your basic strategy.

He's not about to change now, no matter the beating that the stock market has taken this year, or that he sees it suffering as it works through recession -- a downturn he believes could last up to two more years.
>>



Bogle repeats the oft cited cliche of using a person's age as the percentage to have in bonds.

For those that want market timing without doing market timing (huh?), there are long term indicators such as following the 200 day or 195 day moving average, Dow Theory, and my recent mention of the Value Line Mean Appreciation Potential. The Random Roger Blog that is linked on the right hand margin, focuses on the long term.

I have to the same general opinion as Bogle, that for the average person keeping it simple, and dollar cost averaging into age appropriate investments is by far the best way to go. This is what I tell young people interested in investments. A very small percentage will want to get into stock picking, or technical analysis. Most of those few find the knowledge on their own terms, tend not to need advice, and are self-taught.

As for the stock market, the election came in right on the average of the popular polls with Obama at about 52%, McCain at 46%, so no one should be surprised. I had hoped the rally would get a bit higher to SPY 104, so I could get in some short positions. That may yet unfold, though I still think that new lows or a retest of the stock market lows remain the most likely scenario. The fear vanished from the stock market remarkably quickly, and that is not a good thing for would be bulls.

No trading positions.

Monday, November 03, 2008

"Stock market always looks ahead"

I mostly agree with Schannep, the news will get worse, and I believe, the stock market will make a lower low before the end of the year.

From Marketwatch (link):

>>
Schannep concludes: "Yes, the news will get worse for another eight-nine months or so, unemployment may well rise by another million and the unemployment rate approach 8%, and folks will wonder why the stock market has been going up, but that's the way it works. The stock market always looks ahead. By the time nonfarm payrolls hit bottom and the unemployment rate tops out, the recession will have already ended ... Next year, about the time the recession is over, the market should be 40 or 50% higher than now. You'll remember that the first year of bull markets average a 45.7% gain."

Still, Schannep is slightly more subdued than he was at the beginning of Objectionable October, He says he is looking for "a successful retest of the lows" before he goes back to 50% invested.
>>

Friday, October 31, 2008

Some treats at the end of ghastly October

The stock market drops a few small treats in the bags of the bulls after one of the worst months in stock market history. For October, SPY is down about 24%.
//edit: actual decline was more like 17%, 24% was the decline down to the low for the month.

It is easy to second guess my non-action since October expiration on the 17th. What is more useful is to think about what comes next. My best guess is that the rally has a bit more to go in the short term, but the that new lows are on the menu later in the year.

A couple of days ago, Bill Luby at Vix and More (link) wrote about "The Fear Bubble Bursting." An interesting concept, a bubble of fear, that manifested itself in huge option premiums and high VIX readings.

No current trading positions.

Wednesday, October 29, 2008

SPY to 104

The near-record rally on Tuesday was about ten points on SPY. One scenario is another ten points of upside, taking SPY to about 104 as a low risk place to go short. The breakdown gap from October 7th, at 110 is resistance. What if something else happens? Again, I will wait for another low risk opportunity to present itself.

I missed the big rally. I looked at a lot of stocks, but couldn't move fast enough, or get the price I wanted. The stock market is still moving too fast for my trading style (positions traders are quite slow compared to day traders).

Tuesday, October 28, 2008

Post election decline?

A lot of folks are thinking that there will be a relief rally once the uncertainty of the U. S. election is resolved. However, at Barrons Online (link) there is this bit:

>>
presidential elections in bear markets, while rare, invariably foreshadow further declines once the shouting is over and the ballots are counted.

Since 1928, Mr. Harris reports, there have been four times when a bear market's reign encompassed Election Day and year's end: 1932, 1948, 1956, 2000. (The 1940 bear market started after the election.) The average decline in the Standard & Poor's 500 was 5.89%, but during that relatively brief span, the index at its low was off, on average, by more than 10%.

So no matter who wins, if history's any guide, for investors the rest of the year stacks up as something less than exhilarating. (We know, what else is new?)

>>

Friday, October 24, 2008

10,000 Maniacs

This song seems appropriate for a limit down open, Youtube link to song video.

I don't have any great wisdom to offer, other than the same stuff that I've been writing. Oversold can become oversold-er, cheap can become cheaper. Fast markets are not a place for position traders (or novices). For my trading style and position size, I cut losses ruthlessly, even if I think they will come back. It sometimes only takes one or two runaway losses to change the game, or take out an entire account. When I am trading poorly, I trade smaller, and take longer breaks from trading.

Wednesday, October 22, 2008

New low for GLD

GLD breaks below the old low at 72.51. I wrote that I might go long GLD on this retest. However, I didn't like the way it got there, so stayed away. Stocks also look like they are going to break their recent lows, though I may look at the long side at SPY 84.

Earnings are pouring out. I am looking at a lot of stocks, trying to see if there is any pattern to the movements. So far, all I have been doing is looking, not trading. Given my recent spate of losing trades, I remind myself that looking doesn't cost money, making mistakes does.

Flat - no positions.

Tuesday, October 21, 2008

Blast from the past: Value Line MAP

Old timers might remember going to the library or the brokerage office to look at the binders for the Value Line Investment Survey.

With the Internet, much of the same information can be accessed with a few mouse clicks. In the old days, Value Line was one of the few easily accessible information sources for would-be stock investors.

Value Line publishes a number for the Median-Appreciation-Potential (MAP). This represents a long term valuation view for the overall stock market.

Mark Hulbert writes about Value Line Median Appreciation Potential at MarketWatch (link)
>>
Value Line's Median Appreciation Potential currently stands at 135, which means that the median Value Line analyst is projecting that the stocks he follows will be 135% higher in four years.
...
The last time it was as bullish as it is now was in late 1990

>>

Saturday, October 18, 2008

Dow 30 ranked by cash percentage

The table is at the end of this post. The five highest are financial type companies, plus GM. GM has obligations in terms of retirement and union contracts. That leaves the most interest group as:

KO, IBM, AA, MSFT, XOM, INTC, HPQ, MRK, BA, PFE

None of these ten have huge, huge cash positions, but enough to do acquisitions without additional financing. The cash per share figure is taken from Yahoo. As always there may be errors in the data, so do your own homework.

Another big cap stock that has lots of cash is IP. Of course, with the housing slow down demand for lumber is down. However, IP has cash on hand to weather the storm.

Table: Dow 30 stocks ranked by cash per share percentage

Sym price cash/sh per
T . . . 25 . . 0.27 . . 1%
KFT . . 29 . . 0.46 . . 2%
PG .. . 62 . . 1.2 .. . 2%
CAT . . 39 . . 0.78 . . 2%
GE .. . 19 . . 0.38 . . 2%

VZ .. . 27 . . 0.72 . . 3%
HD .. . 20 . . 0.62 . . 3%
WMT . . 54 . . 1.70 . . 3%
MCD . . 54 . . 2.10 . . 4%
DD .. . 34 . . 1.6 .. . 5%

MMM . . 56 . . 2.8 .. . 5%
DIS . . 25 . . 1.4 .. . 6%
CVX . . 62 . . 4.1 .. . 7%
UTX . . 51 . . 3.6 .. . 7%
JNJ . . 63 . . 4.6 .. . 7%

KO .. . 44 . . 3.5 .. . 8%
IBM . . 91 . . 7.3 .. . 8%
AA .. . 12 . . 1.0 .. . 8%
MSFT .. 24 . . 2.3 . . 10%
XOM . . 68 . . 7.6 . . 11%

INTC .. 16 . . 2.2 . . 14%
HPQ . . 40 . . 6.0 . . 15%
MRK . . 29 . . 4.6 . . 16%
BA .. . 45 . . 9.9 . . 22%
PFE . . 17 . . 3.8 . . 22%

AXP . . 23 .. 17.9 . . 78%
BAC . . 23 .. 68.6 .. 298%
JPM . . 39 .. 226 . . 579%
GM .. . 6.4 .. 38 . . 594%
C . . . 15 .. 154 .. 1026%

Friday, October 17, 2008

1-3 for October expiration

For the trading month ending with October expiration I have one small winner, three big losers. A bad month any way you slice it. That said, my primary tactic is selling naked puts (equivalent to covered calls deep in the money). When stocks fall quickly, what is usually a low risk, low reward trade can quickly turn into disaster.

SPY was down about 25% for this trading period. My trading account down about 2% on the short term trades that I post on this blog. I am sure there are a few traders that made big money this month. I am just as sure there are likely ten times as many traders that took huge hits, with some having lost everything due to margin calls, leverage and disregard for stops.

When I am in a bad streak, I tend to trade smaller, and take longer breaks from trading. This served me well this month. All four of my trades would have been profitable if I had held until expiration. However, the drawdowns would have been hellacious, and there is never a guarantee that holding on will provide a better result. There is always a chance of a game changing loss when selling naked puts and that is what a risk averse trader must avoid.

Gold is looking interesting in here. If GLD retests the lows at 72.5 that might be a place where I look to go long again.

It may also be an interesting time for stock pickers. When there are no earnings, I like to look at sales. Others have commented that they will look for a high cash position. In a land without credit, the company with cash can be king. I may be spending some time looking for stocks with strong sales numbers and strong balance sheets. If I buy any for the long term, I won't post the buys and sells in this blog, but may mention them in list format as stocks that I find to be interesting.

Enjoy the weekend.

Thursday, October 16, 2008

Buy SPY (sell puts)

Buy SPY via selling the Oct 83 puts (11 points out)

I am not brave enough to buy when the gap on SPY is filled at 89. Instead, I decide to wait until it is near closing time. I choose the strike price below the old low. I place a limit order and it slips away as the rally continues. I adjust the limit lower, and get filled.

It is another wild, wild day in the markets with more huge swings. I was tempted to go long on the early morning rally, but the fast moving market discourages me. I wrote about going long at SPY 89, but again the fast moving market discourages me.

There is always a chance that I get pummeled again. However, each daily decline has been less than 10% for one day in the U.S. It would take more 10% that for these puts to come into the money.

Long SPY expiring tomorrow

Tuesday, October 14, 2008

SPY 84 and 105

There is a good chance that SPY will fill the gap from Monday's gap up, when SPY moved from 89 to 94. Friday's low around 84 and Monday's high around 105 define the range. This doesn't mean that those numbers will define the range, but they are the action numbers to watch.

Other bloggers have written that a gap up usually means more upside, however, most of the time the gap is filled. My thinking is that buying that retracement to the gap is the high percentage play. What if the gap isn't filled? Then I will look for some other high percentage plays.

Saturday, October 11, 2008

What next? Dow 5000?

As always, what comes next is the focus. I can glance back and see that I got out of my IBM near the lows for the day on Friday. Still, it was the plan when I bought and I followed that plan. This wasn't the first time I covered near the low, and it won't be the last. It is what happens if a trader uses stops. Traders that don't use stops will usually hedge in other ways. Those that don't use stops or hedge, tend to trade very small. If they do none of the above, they will usually go broke sooner rather than later.

I like baseball analogies, so for traders the relief pitcher mentality is a good one. After a bad outing, shake it off, forget about last night's game, and look at what is up next. After a good outing, don't get too high, because odds are you will be humbled soon enough. Position traders incur losses, just as most relief pitchers will sometimes blow saves and give up hits and runs. It happens to the best. This is not to say to forget everything, and repeating the same mistakes over and over. Keeping a blog, or a trading journal, gives it a memory boost, and the lessons sink in better.

I often will take a break from trading after a bad streak, and this month has certainly been a bad time.

As for the topic heading, the market is at extreme oversold readings, but oversold has become oversold-er time and time again. I expect a rally, but I expected that Thursday morning too and took two of my worst losses for the year. Just a few blog entries ago, I wrote about 110 and then 95 as support for SPY. SPY went to 85! Slicing through in just a few trading sessions.

About a year ago, I wrote to a friend that the stock market might be in for a "big one" like the 1973/74 bear market when the indexes fell 70%. The parallel was the withdrawal from Vietnam, and what looks like will be a similar withdrawal from Iraq. Those kind of events have a big effect on national confidence and psychology. At the end of the day, confidence and perception play a large role in pricing of stocks.

This isn't a time to be aggressive. As my profile states, "live to trade another day." If we are down 40% and headed for 70% that means it will get a lot nastier. 70% off the Dow high translates into ~5000. I'm not predicting 5000, but I wouldn't rule it out. Of course, it will be easy to call the bottom in hindsight. A million paper-traders will claim they bought the bottom, in hindsight months after it occurs. However, as my foray to the long side on Thursday morning demonstrates, it is not so easy in real time. In hindsight those trades were on the foolish side, even though in real time the stock market was at support, and the news and sentiment back drop seemed ripe for a big rally.

Flat (no trading positions)

Friday, October 10, 2008

Warner: on various option strategies

Adam Warner writes about the pros and cons of some popular option strategies at his blog (link).

>>
I don't think walking in right now and slapping on buy-writes, or their Evil Twin, naked short puts, is a bad idea. I don't think it's the best idea right now either, but I mean it all depends on what you are trying to accomplish. You're locking in fat volatility sales, but the flip side is there have been a whole lot of sales that looked very fat not all that long ago. You're also at worst, buying stock at prices even lower than these, of course that too sometimes seems dubious when the stock actually gets there.
....

.... quoting Nick Perry ...
The issue with premium selling is the you have limited upside and can be subject to some big risks. That is a fine strategy if you understand that risk and have the capital to ride through a potential blow-up. However, for most of us, I think it best to keep this quote, attributed to John Maynard Keynes, in mind...

"Markets can remain irrational longer than you can remain solvent "

>>

Sell IBM (buy back puts)

Ouch. I place a limit order to cover my puts, then make it a market order as the market slides more. I get filled at a bad number and take a 250% loss on the premium amount.

Better to follow my rules, such as they are, than to hope and pray for a rebound and risk taking a game changing hit that takes years to recover from. Yes, the market may rally here, but in the first ten minutes of trading, my IBM position slipped about 80% on the premium amount. By the time I finish typing my entry here, it looks like it has rebounded all that slippage and my original limit order might have been filled. Fast markets can be death for position traders like me.

These last two trades were horrible in terms of percentage losses at 200% and 250% on the premium amount, but still relatively small in dollar amounts. For example IBM was down 8 points from my entry yesterday, the option moved 1 point. In percentage terms the one is greater than the eight, but it books as a one point loss.

Be careful out there.

No positions

Thursday, October 09, 2008

Sell SPY (buy back short puts)

Yikes! It is like stepping on a hornet's nest. I get out taking a 200% loss on the premium amount in a few hours. Oversold becomes oversold-er.

I believe this is the first time this year that I bought and got stopped out on the same day. I put my big toe in and the water was scalding hot, hot enough for a nasty burn. Ouch.

Be careful out there.

Still long IBM

Buy SPY (sell puts)

Buy SPY via selling Oct 85 puts

Like I wrote yesterday, I might try and play the next rally attempt. This is sooner than I thought, but here it is. As almost always, these are what I consider low risk, low reward trades. If the bottom continues to fall out, I will cut and run.

Positions: long IBM, SPY

Buy IBM (sell puts)

Buy IBM via selling Oct 75 puts

Good earnings and forecast from IBM. Puts are 18 points out with eight days until expiration.

Wednesday, October 08, 2008

This is the end?

This morning the Doors song, "This is the End," played in my head (YouTube link).

If you blinked you might have missed the "rally" or "rallies" that happened before the open and intra-day.

The way I think about trading these steep declines is to stay away. I would like to let a bottom to form, and then on the retest, go long. Short sharp rallies are bear market action. I have written in the past about two failed rallies and the third one taking hold. Today's action would count as #2 in my mind. The first was on the 800 point Monday plunge last week that got cut in half by the close. It generally doesn't pay to be the hero, though I might stick my big toe back into the trading pool on the next wave of selling.

No trading positions

Monday, October 06, 2008

The sky is falling (Dow below 10000)

Well, at least the Dow is, now below 10000, down 364.

I wish I could write something profound or at least witty...

Cramer was on national TV telling folks to take their hit and sell, if they will need the money during the next five years. There will be some bears, and some very nimble bulls that are making hay. However, as always, this isn't a time to be the hero or to try and call bottom. This is a high risk time to take new positions, long or short. My impulse is to step up and buy, which usually means more downside.

VIX hitting a new bear market high, above 53. Some that try and use VIX as a timing tool, got in when it was VIX hit 38.

Wednesday, October 01, 2008

SPY targets 110 and 95

It doesn't feel like a bottom to me. SPY 110 is one target, if that doesn't hold 95 looks like the next stop. These targets are from looking at the chart. As always, how the market looks when it gets to these targets is a significant piece of the puzzle.

Monday, September 29, 2008

Sell GS (buy back short puts)

Sell GS via buying back short Oct 70 puts

Panic! Blood in the streets after House vote thumbs down on the bailout bill. The bill has failed. Some serious arm twisting went on trying to garner more votes, but as of this writing the bill has failed.

I am following my trading rules and covering for a big loss, as much as I think something will be worked out, if not today then tomorrow. I typically set a mental stop at a 100% move against me on the option premium. With the fast moving market, the GS puts are a bigger loser than 100% (on the premium amount). Still, it is a relatively small loss in dollar terms. This loss puts me at about break even on my short term trades for the year. I think a lot of folks would be happy to be break even for 2008, though of course, a tiny percentage has timed the swings well and made hay. A larger group is likely wiped out entirely, especially those that tend to double down when the market moves against them.

I do not see this as a time to be the hero and stand against the tide. Little fish tend to all get swept away when they go against the tide. It certainly isn't a low risk time to be short, or to be buying puts either. Position traders like myself are too slow moving to react when the market is swinging widely.

No trading positions

Thursday, September 25, 2008

Buy GS (sell puts)

Buy GS via selling Oct 70 puts, 65 points out

Betting with Buffett that GS will muddle through and not crash and burn.

Positions: long GS

Wednesday, September 24, 2008

Buffett and Goldman Sachs GS

The headline story is about Buffett taking a $5 billion stake in Goldman Sachs. As is often the case, Buffett is getting a special deal that other investors would not get. Still, with the halo effect, it makes it much less likely that Goldman will go the way of Bear Stearns or Lehman Brothers. While $5 billion sounds like a big bet, but Berkshire was looking to invest $20 to $30 billion and is worth about 400 billion.

No trading positions at this time

Friday, September 19, 2008

3-3-1 for September cycle

Three winners, three losers, one break even trade for the September option cycle that just ended. Unfortunately, the three losers were far, far larger than the winners, making for a small loss. Everyone of the trades that I bought back would have been winners had I held on through expiration. The catch is that the draw down would have been terrible, both in terms of dollars and emotional drain.

FDX, GLD, USO all come home safely, after the fox got into the hen house and killed off MCD, BUD, SPY, with AMZN a break even. USO was the only short play, all others were on the long side. Given that, and the beating the market took, it shows some discipline to come out of this month with only small trading losses. Yes, some folks made profits, some made big profits, however, a lot of players suffered catastrophic losses by taking on more and more risk as the market moved against them. A few are wiped out, never to return.

As always it is easy to trade in hindsight. If someone knew the Dow would rally a full 1000 points off Thursday's low, it would have been shooting fish in a barrel, both on the long and short side.

Monday is a new day. Starting flat with no positions has a calming and clearing effect, and one reason I like options. There is often a new start after options expiration Friday.

Thursday, September 18, 2008

Ban on short sales in England

From Marketwatch (link)
>>
Britain's financial regulator, the Financial Services Authority, on Thursday banned short selling in financial stocks after a week in which its top mortgage lender, HBOS, was pushed into a merger after its share price tumbled.
>>

Those in charge have decided to change the rules. This won't be the first time, and will not be the last time.

Wednesday, September 17, 2008

More Bananas

Another round of bananas for the stock market. Gold had a huge up move. My tiny position in GLD is a modest consolation prize.

As I always write, it is rarely ever a good time to be making "all in" or "all out" decisions. Fast moving markets are almost always a high risk time for decision making. There is almost always a lower risk time to get in, after the dust has settled. For traders, it is a good idea to trade smaller or take a break after a losing streak. For long term investors, dollar cost averaging and age appropiate diversification, will almost always produce better results over the long term than market timing and jumping in and out. Trading is real easy in hindsight, not so easy in real time (like I post here).

I am limping into Friday option expiration, battered and bruised, hoping my remaining short options expire without incident. I am reluctant to do any new trades until calmer waters flow into the maelstrom.

Positions: long FDX, GLD. Short USO
All are short options, expiring Friday 9/19

Tuesday, September 16, 2008

Sell BUD (buy back short puts)

Sell BUD via buying back short Sep 60 puts

FUD (Fear Uncertainty Doubt) on BUD. Yikes! BUD stock tumbling down on unsubstantiated rumors that the deal may fall through. I HATE to do it based on pure rumor and no news, but I cover my short puts for yet another huge percentage loss. I don't want to take the chance on real news resulting in the stock gapping down another $5 or $10.

What a lousy trading week it is has been so far. My trading losses are for small dollar amounts thanks to my chicken-ness, but I feel like I have been put through the ringer. I am sure many other traders feel the same way. I am sure that a small group are still finding ways to make money, however, a larger group is likely getting margin calls as the wide market swings continue.

Positions: long FDX, GLD. Short USO

Monday, September 15, 2008

Sell SPY (buy back short puts)

Buy back short SPY Sep 116 puts

I am taking my lumps and my loss. Again, there is some hesitation as to wait until a close below 121, or to cut and run now. Another huge percentage loss, but again, a smallish dollar amount.

Positions: long BUD, FDX, GLD. Short USO

As always, fast markets are a hazardous place for position traders

Sunday, September 14, 2008

Nusbaum: people like making big bets...

Most old timers have seen this over and over, folks making big bets, getting in way over their heads, and often resulting in big losses. These bets might be on sectors, or individual stocks, or using leverage in the form of margin and/or options. Some folks seek esoteric and complicated explanations for market movements, when they would be better off trying to grasp the basics.

Roger Nusbaum writes the following

>>
For some reason people seem to want to make big bets, do things that are very complicated (relative to their experience or the time they are able to commit to their portfolio) and allow emotion to do them in.

Investing does not have to be complicated. If you are a lazy portfolio person then you already understand simple.

If you make sector decisions then realize you are starting to take on risk when you let any sector get bigger than 20% of the portfolio.
>>
(blog link, search for September 14, 2008 entry if you are reading this later)

Again, for the average person, the average investor, getting an average price by dollar cost averaging, and diversifying in various asset classes, are likely to produce far better long term results than making big bets.

Thursday, September 11, 2008

Buy SPY (sell puts)

Buy SPY via selling Sep 116 puts (7 points out)

Another low risk, low reward trade. I am encouraged that SPY has gone positive. Support at the old lows near 121.

Long BUD, FDX, GLD, SPY. Short USO

Buy GLD (sell puts)

Buy GLD via selling the Sep 66 puts

GLD near my buy range target of 72.5. Selling these puts are a low risk, low reward shot on the long side. No need to cover my USO position because it has moved so far out of the money, it almost surely will expire worthless.

Positions: long BUD, FDX, GDX. short USO

Wednesday, September 10, 2008

Buy FDX (sell puts)

Buy FDX via selling the Sep 75 puts

Fed Ex out with good earnings. I am still mostly in "chicken" mode, so am selling the puts 12 points out for a small premium, trading off the lower risk for the lower return.

Positions: long BUD, FDX. Short USO

Elsewhere, oil continues to lead most commodities lower. Given the price action, I keep looking for signs of a panic bottom, but it doesn't seem close in time. As long as newbies continue to step up and buy precious metals, odds favor lower prices.

Tuesday, September 09, 2008

A look back to June 23

At this time, lots of trades look attractive. However, I remind myself, that I am out of synch with the markets right now, and that many times the best thing to do is nothing. There will be better days, better opportunities, than just doing something out of boredom. To put it in plain terms, I am still a chicken.

Back in June, I wrote about big premiums skewed to one side for GLD and SPY. The small time punters were leaning heavily towards bets on the SPY crashing and GLD going through the roof. I admit that to my surprise, for a short time after that blog entry, SPY did tumble down and GLD did spiral up. However, like so many gamblers that get ahead by a small amount then lose that gain, plus everything they have, those option buyers paying the big premiums that are still holding are now in a total loss situation.

Going back to June, those buying the options highlighted as poor value, the SPY Sep 110 puts and GLD Sep 103 calls, have lost virtually everything. There was a brief time when both those options were up big, but as expiration draws near, all the money is gone.

>>my entry from Monday, June 23, 2008
Sentiment and option pricing

On Friday I mentioned that puts are priced higher than equivalent calls on SPY. For example, today the SPY closed at 131.45.
Sep 120 put is bid 2.18, the Sep 110 bid 0.85
Sep 143 call is bid 1.21, the Sep 153 call 0.12

So the put 11 points out of the money costs almost twice as much as the call. The put twenty-one points out is six times as much as the call that far out. Six times! What does that mean? It means that option buyers and sellers are pricing in the probability of a big drop in stock by September, with minimal chance of a big rise.

Options on GLD show the opposite expectation. With GLD closing at 86.86
Sep 76 put is bid 0.65, the Sep 70 put is bid 0.20
Sep 97 call is bid 1.60, the Sep 103 call is bid 0.90
>>

Saturday, September 06, 2008

Sector glance ETFs year to date

These numbers may be off a bit, as I took them from eyeballing charts, looking at Jan 1, 2008 to present. These are only a few sectors and a few ETFs.

+2% TLT* Treasuries
+2% RTH Retail
unch XHB Housing
- 3% XPH Pharmaceutical
- 7% IWM Russell 2000
-11% XME Mining stocks
-14% VTI Total US stock market
-15% EWJ Japan fund
-15% XLE Energy stocks
-17% SPY S&P 500
-28% EWG German fund
-32% GDX Gold mining stocks

* Treasury fund paid another 2 to 3% in dividends.

At the start of the year, how many would have imagined that Retail and Housing stocks would be two of the better sectors, and that German and Gold mining stocks would be among the worst.

It has been a frustrating market for me the past couple of months. However, I am basically treading water on my short term trading. I can claim that as a moral victory even if some are making big money on the big swings. It sure beats betting the farm and losing, like those over leveraged in European stocks, and in gold stocks.

Positions: long BUD, short USO

Friday, September 05, 2008

Sell MCD (buy back short puts)

Sell MCD via buying back short Sep 57.5 puts

I am taking my lumps, a big percentage loss on these puts, though a small dollar amount. Support at 60 is now broken. I consider waiting for a close below 60, but decide to cut and run here.

Positions: long BUD, short USO

Thursday, September 04, 2008

Bolling on the urge to get even

With today's down day for the stock market, it may be useful to read Eric Bolling story (link) about the urge to get even, posted on TheStreet.com.

>>
I foolishly decided to defend my position. (That's a very bad idea, as no one is bigger than the market -- a golden rule to successful traders). As prices tumbled, I added to my long positions, assuming that I would need only a small bump up in price to "get back to even."

...

The main point: Trading bigger positions in a bad trading market is ill advised. In markets that move in percentage points and turn on a dime, we should be trading smaller.

I am not saying to close shop, just trade small positions so that you can get out quickly and live to trade another day.

>>

Every one of us is human. The urge to trade bigger, trying to get back to even is strong. There is something about the break even point. I am taking some lumps in this market decline, and it is useful to remind myself to trade smaller, not bigger when the market is going against me. The alternative is to be defiant and as in Bolling's story, continue to double up, until a relatively small move can wipe you out. Those traders foolish enough to do that, usually exit the game sooner rather than later.

Positions: short USO, long BUD, MCD

Tuesday, September 02, 2008

XLE and USO divergence day

Wow, another roller coaster day, with a huge stock rally at the open reversing for a lower close. Hurricane Gustav did not live up to advance billing and oil tumbled, taking most metals with it.

An interesting divergence for the day, with XLE an oil stock ETF closing near its lows, while USO the oil ETF rallying well off its lows. I don't trade oil often enough to reach any conclusions, but thought it worth a mention.

Positions: short USO, long BUD, MCD

Friday, August 29, 2008

Sell AMZN and September morn

Sell AMZN by buying back short Sep 67.5 puts
I am cutting back my long exposure as the stock market declines, and am getting out at break even on AMZN. "Never let a profit, turn into a loss."

For the stock market, it looks like traders are getting in early on September's track record as the worst month. Mark Hulbert reports the stats at Marketwatch (link).

The average change for September is -1.13%. As of this writing SPY is down -1.28% for the day. So while the calender tendency is measurable, it may not be worth trading, because some folks may be jumping before the month starts.

For a dog days of summer week before Labor Day, this one has been eventful with relatively big moves. Hurricane Gustav has been one catalyst.

Positions: short USO, long BUD, MCD

Thursday, August 28, 2008

Short USO (sell calls)

Short USO via selling Sep 122 calls

USO is the oil ETF and is bumping higher on storm warnings in the Gulf of Mexico. The calls are well out of the money, and oil has already run some on the rumor.

Positions: short USO, long AMZN, BUD, MCD

Wednesday, August 27, 2008

Weak dollar = bargains, gold bottom?

Jesse Felder blogs about the weak dollar translating into bargains for foreigners (link).

At Kitco commentary, Clive Maund updates his technical look on gold and reports that the bottom may be in (link2). To me, the recent lows now look like a good entry point.

Monday was a rough day for the stock market, but it was on the lowest volume of the year. More than a few traders are taking this week before Labor Day off. Enjoy the last few days of summer.

Positions: long AMZN, BUD, MCD

Friday, August 22, 2008

Missing post: 3-1-1 August, GLD 72.5?

Hmm, a post that I remember writing isn't on the blog.

It was a recap of the August expiration cycle, 3 winners, 1 break even, 1 loser. Unfortunately, the one loser (buying AAPL calls before earnings) was bigger than all three winners put together, so I have a net loss for the August cycle.

I also posted a downside chart target for GLD of 72.5 (translates to spot gold at about $735). With this weeks action, the recent low becomes a focal point.

Buy BUD (sell puts)

Buy BUD Budweiser via selling Sep 60 puts

Even if the takeover deal falls through, it is unlikely that the stock will fall below 60.

Positions: long AMZN, BUD, MCD

Trend following or trend fading

Adam Warner reports that in 2007 selling rallies and buying dips in the stock market was better than buying on strength and selling weakness.

>> Warner quoting Dr. Brett (link):
When the S&P 500 Index (SPY) has been up for the past one and three days, the next three days average a loss of -.30% (80 occasions up, 83 down). When SPY has been down for the past one and three days, the next three days average a gain of .22% (82 up, 51 down). If traders wait several days for a trend to assert itself and then jump on board, they are likely to start in the hole.
>>

This is in contrast to what worked for 40 years:
>> Warner quoting Rob from Quantifiable Edges
... "buying after strong days and selling after weak ones worked well for 40 years. In 2000 that changed, and the last year and a half is the worst it has ever been with regards to follow through."
>>

Markets do change. When a pattern becomes widely known, it often stops working.

Buy MCD (sell puts)

Buy MCD McDonalds via selling Sep 57.5 puts

MCD moved higher after strong same store sales, pulled back after an analyst downgrade. Chart has a shelf of support at 60.

Positions: long AMZN, MCD

Thursday, August 21, 2008

Buy AMZN (sell puts)

Buy AMZN via selling the Sep 67.5 puts

AMZN recently bumped higher on news of strong Kindle sales (Kindle is a book-like electronic tablet). Stock has faded back to that point. Chart shows support at 67 level.

Positions: long AMZN

Monday, August 18, 2008

Ugly day for stocks (FRE, FNM)

So far it has been another ugly day for the stock market. Freddie and Fannie (FRE and FNM) featured in Barron's and it wasn't good news. These familiar names drive the stock market lower. A retest of the recent lows at SPY 120 may be in the cards (currently 127.7). Option volatility as measured by VIX has picked up a little, but still isn't registering much fear.

Flat - No current trading positions.

Thursday, August 14, 2008

GLD crumbles

GLD now below 80. Spot gold still above $800. What would make me think "bottom" is for some of those newbie gold buyers to throw in the towel and dump their holdings. Instead, anecdotally from the coin board, many of the newbie crowd seems to be doubling up, or even making first purchases. This is not a good sign for gold bulls.

The stock market and me are out of sync. I have looked at quite a few trades and every time the warning buzzer goes off in my brain and I do nothing. That's okay. Option premiums are going down because late August tends to be a quiet time in the American stock market. I don't want to make that assumption, because much of the world seems to be on their own timetable.

The Israel/Iran situation remains on the burner and while there is a chance that it will be a non-event like when Israel took out a Syrian nuclear reactor, it might be a major market mover. In my mind, the most likely time is early October, after the high holy days in Israel, and before the U. S. election. Everyone else also knows this, so it isn't a tradeable edge.

Positions: long BUD, IBM both looking good for tomorrows expiration

Monday, August 11, 2008

Futia sees dollar bull market

Carl Futia writes about a dollar bull market (blog link, search for the August 11, 2008 entry if you are reading this later). His target is 110 on the dollar index (currently mid 70s).

If it unfolds like Futia is calling it, oil and gold will be much lower, possibly $500 USD on gold, if gold stays at it current level in Euros. Gold is cratering lower today (Kitco price link), even on the news of the Russian invasion of Georgia. As I have been writing, oil is the dog, gold the tail. Support and resistance on the gold chart are dangerous to trade when gold is trading in this fashion.

Normally, I would look at $800 as a hard line in the sand for gold. However, the lyric from the song the Gambler comes to mind, "know when to hold 'em, know when to fold 'em." The ever defiant permabull gold camp has seen a 22% haircut off the peak $1040 on Bear Stearns weekend. That is acceptable for long termers, but to my mind, unacceptable for traders. Taking those kind of hits means those players may have to leave the game as they go down with the ship. I remain long term bullish on gold for macro economic reasons, but for trading, the legendary Ed Seykota called these factors "funny-mentals," and felt they were basically useless for short termers.

I was caught flat footed by Friday's mega stock market rally, having taken my SPY profit on Thursday's decline. These things happen. I still feel out of synch with the market, and remain in a defensive mode. Grasping for trades often leads me into trouble.

Positions: long BUD, IBM both expiring this Friday and looking good

Thursday, August 07, 2008

Sell SPY (buy back short puts)

Sell SPY covering short Aug 119 puts

Even though the probability of these options coming into the money is tiny, I don't like the way the market opens and slides. I am getting out with a tiny profit, decent in percentage terms, but tiny in real dollar terms. "Never let a profit turn into a loss."

Positions: long BUD, IBM

Tuesday, August 05, 2008

Buy SPY (sell puts)

Buy SPY via selling Aug 119 puts

Buying ahead of a Fed meeting can be risky. However, today's meeting is widely seen to be a non-event. The minutes, or comments might move the market, but no interest rate move is predicted. The strike price of puts are 7 points out, and below the recent lows.

Positions: long BUD, IBM, SPY

Friday, August 01, 2008

Sell FSLR (buy back short puts)

Sell FSLR via buying back short Aug 230 puts

FSLR is now down after the earnings report, despite blowout numbers, and a supportive chart formation. Stock is down 15 points since I sold the puts (was 295 now 280), but because the expected volatility dropped, the put declined in value and I can get out with a break even profit. "When in doubt, get out."

Positions: long BUD, IBM

Thursday, July 31, 2008

Buy FSLR (sell puts)

Buy FSLR via selling Aug 230 puts

FSLR higher on earnings, chart is also supportive. Recent lows are 240.

Positions: long BUD, IBM, FSLR

Tuesday, July 29, 2008

Buy IBM (sell puts)

Buy IBM via selling the Aug 115 puts

IBM had good earnings two weeks ago, and has been consolidating. The puts are 12 points out of the money, with a modest premium that reflects the low chance of IBM going below the strike before expiration.

I am not loading the boat by any means, with this low premium, high probability trade.

Positions: long BUD, IBM

Monday, July 28, 2008

Pring: Four reasons to be optimistic

Over at Peter Brimelow's Marketwatch column, Martin Pring is quoted with (link)
"Four Key Reasons to be Optimistic Today"
1. Low Consumer Confidence = Profits Ahead
2. Bull Markets Always Follow Bear Markets
3. Lower Oil Prices Ahead
4. Record Cash Levels on Sidelines

>>

For the intermediate term trader/investor, I agree that there are many reasons to be bullish. For the short term, the knives keeps falling and would be heroes continue to be sliced up. I am not so brave at the moment. A retest of the recent lows may be an interesting time. There is a chance it could be an acceleration to the downside if a lot traders have a stop loss at the low.

Position: long BUD

Thursday, July 24, 2008

The other shoe

Today is what some might call the other shoe dropping. There isn't that much news, but the bottom drops out of the stock market. At the moment, I am unsure of what is coming next, and for now will stand aside. I'll keep looking for trades, but I have to say, it is a confusing market.

Positions: long BUD

Tuesday, July 22, 2008

Sell AAPL calls

Sell AAPL Jul 185 calls for virtually a total loss (-95%)

Earnings are good, but guidance is disappointing, and the company says that Steve Jobs' health is a private matter. AAPL opens about 10% lower. I dump my calls for almost a total loss. This is the biggest dollar loser of they year for me. There are no guarantees buying ahead of earnings. I took my shot, going for the home run and struck out. Still, I am "glad" I bought calls rather than my usual of selling puts. When a stock gaps down, being short puts is scary and can wipe out a good portion of one's account.

Positions: long BUD

Monday, July 21, 2008

Buy AAPL calls

Buy AAPL Jul 185 calls

That's not a typo folks, I bought calls. Readers know this is unusual for me, that 80% to 90% of my trades have been selling options, usually after earnings, not in front of them. Using a baseball analogy, this a home-run swing for a person who is more typically a singles hitter. Positive factors include big misses by some other tech stocks, and AAPL has been beat down to a chart support level. Rumors about the health of Steve Jobs helped sink the stock this morning. I am buying in the middle range here, not at the lows.

Apple options are pricing in about a 10% move on earnings tonight. This means straddle sellers break even on 10% up or down, straddle buyers need more than a 10% move to make money. (A straddle is buying both a put and and a call.)

Positions: long BUD, AAPL

Friday, July 18, 2008

3-1-2 for July expiration

As a trader who mostly sells options, it makes sense to track progress from expiration to expiration (always the 3rd Friday of each month). For the trading month up to July expiration, I have five winners, one loser. The headline is 3-1-2 because two of the winners are what I term "break even winners" where the broker makes more than I do. Losers of the same ilk are "break even losers."

The one loser was X (U. S. Steel) and it would have been a winner had I held until expiration, instead of cutting my loss. The five winners are short RIMM, long SPY, EEM, IWM, SPY again. The trades this week with the tailwind of the big rally helped move me above break even for the period.

Overall, this month can be described as treading water with a tiny gain. Still, considering that most of my trades were longs (short puts), and the market had another down month, it is something. Better to be cautious and eek out a tiny gain, than that guy that I wrote about in "Another Sad Story." He "graduated" from an option seminar that taught the strategy of buying straddles (both puts and calls hoping for a big, big move either way) ahead of earning reports. That guy lost 100% of his account in a few months worth of trading. Options are not for everyone and like I said, my trading style would not work for some others.

long BUD is my only remaining position

Cheers.

Sell IWM, Sell EEM (buy back puts)

Sell IWM via covering my short Aug 63 puts

Stocks have had a nice 2+ day run, and a pullback, perhaps even a pullback all the way back to the lows wouldn't shock me. V-shaped bottoms are not common, and even when they occur they can be very tough to trade. There aren't many "safe" entry or exit points on most V-bottoms. "When in doubt, get out."

Sell EEM via covering my short Jul 125 puts
As I type up the IWM entry, EEM continues to slide. Even though the odds of it coming into the money are about those of a lightning strike, I am closing out my position for a break even profit. Even since I entered the trade, it has been nagging me. The remaining premium seems worth a bit of peace of mind for the rest of the day, because I am not in front of the computer all day.

RIMM, SPY expiring today
that may leave me with long BUD as my only position

Thursday, July 17, 2008

The "beat" goes on, well, until GOOG

VixandMore (link) has this

>>
with 11% of the S&P 500 companies reporting, Bespoke has calculated the current quarter's EPS beat rate to be 72%. There are a lot of earnings reports still to come, but if it holds, the 72% beat rate will be the second highest in the past decade.
>>

Then GOOG drops a bombshell and is down 11% after hours. The other caveat is that a good many companies are beating estimates for this quarter and then guiding lower for the rest of the year. One explanation might be that the stimulus checks are about done, and a lot of them got spent for the quarter just ended.

I believe that earnings are the primary mover of stocks over the long term. It will interesting to see how the overall stock market responds to the GOOG news. A modest dip would be the normal reaction. Calendar trends point to 7/24 as a decent buy in for stocks, and about a one week holding period. Again, seasonal factors are one of the least reliable indicators. Still, I like to bet with as many indicators in my favor as possible.

Buy EEM (sell puts)

Buy EEM via selling Jul 125 puts

Just a sliver of premium to be had, but it is one way to slightly increase my bullish exposure for tomorrow.

Positions: long BUD, EEM, IWM, SPY
Short: RIMM
July expiration EEM, RIMM, SPY
August BUD, IWM

Wednesday, July 16, 2008

Buy IWM (sell puts)

Buy IWM via selling Aug 63 puts

I double up on bullish index bets. These puts are closer to the money than I usually buy. I am betting this rally has some oomph. As always, time will tell, and if it goes against me, I will cut my losses.

Positions: long IWM, SPY, BUD
Short: RIMM

Buy SPY (sell puts)

Buy SPY via selling Jul 118 puts

Like I wrote yesterday, I think this rally attempt may hold, and making a small bet on the long side. Expiration is Friday, so even two more of these 1% down days won't take it to my strike price. [Yoda voice] Cautious I am.

Positions: long BUD, SPY, short RIMM

Tuesday, July 15, 2008

Another banana

Another failed rally, though the market closed well off it lows. Yet another day when a relatively big decline (-1.4% on SPY) seems like a good day because it closes well above the lows.

As I wrote a couple of days ago, sometimes it takes two failed rallies for bulls to throw in the towel and the third rally is the one that finds some footing. I don't like to trade fast markets, and today was another fast moving market. We'll see how the next rally attempt unfolds and I may try to play it, though as always it will likely be a small hedged bet.

Gold has seen a good run, though I remain reluctant to try and trade it.

Positions: long BUD (short August puts)
short RIMM (short July calls)

Monday, July 14, 2008

Buy BUD (sell puts)

Buy BUD via selling the Aug 65 puts
Bud agrees to a takeover bid from InBev. There is always a chance that the takeover falls through, and some traders may be locking in some gains by buying some puts against long stock. The odds favor a stable share price, moving steadily up to 70. Deal expected to close by the end of 2008.

Positions: short RIMM, long BUD

Wednesday, July 09, 2008

Sell SPY (buy back short puts)

Buy back short SPY Jul 116 puts

I don't like the way the market is trading, or the way I am trading. So I am taking my breakeven profit (when profit is less than the commissions) and taking this trade off the table. Many traders trade smaller and smaller when they are in a bad streak.

Position: short RIMM hedged

Cover short X (buy back calls) ouch!

Cover short X position by buying back my short Jul 200 calls

X sky rockets 20 points off its recent low this morning. I am caught with my proverbial pants down. I vascillate on taking the loss and it only gets worse as the day does on.

I need to write on a white board "I will not chase high premiums... I will not chase premiums..." So many times I get burned badly when I do. Taking the loss, is a major ouch in percentage terms, but a tiny hit in dollar terms. Even with this morning's big move, there is still a high probability that X will not go over 200. However, continuing to hold the position means an outside chance for a game changing loss. As my profile states, living to trade another day is priority one for traders, no matter how convinced he/she might be about the trade eventually turning around. Stubborn traders are often short lived traders, or they are hindsight traders that trade on paper instead of with real money. It is an easy game to buy at the low and sell at the high trading on paper, and reporting trades in hindsight. Not so easy in real life, real time.

Someone remind me (maybe it will be me) of this lesson, the next time I am tempted by a high premium, or what seems like a "mispriced" option.

Positions: long SPY, short RIMM

Tuesday, July 08, 2008

Short X (sell calls)

Short X (US Steel) via selling the July 200 calls.

Calls are mispriced for a moment, perhaps a retail customer putting on a spread, wanting to buy the call. I pick off the modest premium before someone else does. First time I can remember reporting a trade like this on the blog, so it isn't my style to look for mispricing.

X is in a waterfall decline, which can be a high risk formation. However, my calls are 50 points out of the money and above the old high of 195, with nine days until expiration.

Positions: long SPY, short RIMM, X

Monday, July 07, 2008

Another picnic basket

The bear gets another picnic basket, with a 100 DJIA rally turning into a rout, then some modest buying into the close. It is almost a relief to be down 1% on the SPY.

Carl Futia has a bear sighting, this one at the Chicago Tribune newspaper (link to blog, July 7th entry if you are reading this later).

Sunday, July 06, 2008

Da Bear

A growling bear is featured online at Barrons (pic link, main link).

We (the collective stock market we) have been waiting for you. As I wrote a couple of weeks ago, the appearance of the bear on the cover of Barrons can be taken as a buy signal. I remember Barrons featuring a high tech bull decked out in 3-D glasses near the top of the go-go boom in Internet stocks.

Like all sentiment indicators, this isn't one to bet the ranch on. The last time I wrote about sentiment, it was in terms of option premiums, and the market went straight down. It is a time to keep my eyes open. There are likely some good opportunities out there.

Positions: long SPY, short RIMM, both hedged

Thursday, July 03, 2008

Buy SPY (sell puts)

Buy SPY via selling the Jul 116 puts (ten points out)

The opening rally fails, and I get in at about break even for the index. We are at chart support. I think there is a 50/50 chance that support holds. However, for these puts to come into the money, the first half of July will have to be another record setting down month like June 2008 was. Odds of that are not so high. A minor decline, with some rallies along the way is what I see as the most likely outcome. The short puts will do fine in that scenario.

Elsewhere, steel and coal stocks saw a sharp decline yesterday. The percentage play might be to short them on the first rally. A couple of stocks did see an opening pop, but I wasn't nimble enough to get in. Spreads on options can be wide on most of these stocks, so that discourages me.

Positions: long SPY, short RIMM

Wednesday, July 02, 2008

Oversold and oversold-er

The stock market is oversold. Yet, it keeps going down. I am reminded of the Stochastics trading systems. The percentage of winners can be decent, depending on the parameters and risk management. However, the losers can often be whoppers, and the buy signal keeps going stronger as the trend continues in one direction.

For novices, stochastics are a popular technical indicator used to identify over bought and over sold conditions. Traders using stochastics often use it to trade counter-trend and try to call the turns. When I was a stock market novice, stochastics seemed like a great way to trade, now I rarely look at it. Why? It doesn't fit my personality, or my trading style. As always, your mileage may vary (YMMV), and there are many traders that do very well that use stochastics as one of their top indicators.

At the moment, I don't see anything that looks like bottoming behavior in the stock market. Sometimes the best thing to do is nothing. It seems high risk to go short or long at the moment. When the market is oversold, a big rally happens sooner or later. However, timing that move is difficult. Anecdotally, often times two rally attempts will fail before a rally takes hold. My opinion is that we haven't had even one decent rally in this latest decline. Put premiums on SPY remain very high as compared to their equivalent calls, so it is difficult for me to want to buy put options.

Positions: short RIMM hedged

Monday, June 30, 2008

Another sad story

On Sunday, a friend told me the story of another friend who lost all their money trading stock options. The loser was someone that hooked up with one of the ubiquitous option seminars. This particular seminar taught the strategy of buying option straddles (both a put and a call) ahead of earnings reports. Anyone that knows much about options, knows this can be a high risk strategy.

It is sad, however, I wasn't surprised at the outcome. I don't know if anyone tracks the graduates of these seminars, but I expect the percentage of winners to be lower than the percentage of winning traders that consistently buy options ahead of earnings reports. A few will win, and some that win will do spectacularly well. The odds are another matter.

Options can be used in a conservative, measured approach to reduce risk. Options can also be used to engage in high risk, all-or-nothing type of trades, hoping for a home run. Position size is a big deal when trading options, and many a novice gets way in over their head. Some like the person I heard about lose everything, their entire nest egg in a few months of trading. Be careful out there.

Saturday, June 28, 2008

Charts: USO, DIA and more

Oil is driving the markets. In the past, I have written about oil being the dog and gold being the tail. Now it seems all world markets are keying off what oil does. It is an amazing circumstance.

Here are links to some charts:
USO, DIA, SPY, IWM, EEM, GLD


USO (oil exchange traded fund) is in a strong trending market. Predicting a top is risky business and there are no signs of that. USO hasn't really gone parabolic, just slowly, steadily churning higher.

Speaking of parabolic, the GLD chart has that kind of potential. Gold has underperformed oil, if gold had kept up it would be more like $1400 now instead of $900.

DIA (Dow Jones Industrial Average) has broken the March lows. This is psychologically bad because many novice investors track the DJIA not the broader indexes. SPY (SP500) is close to a retest, just two or three points above the March lows. Like I said, I think there is a 50/50 chance the March lows will be broken. IWM (Russell 2000). IWM is showing relative strength vs. the bigger cap indices. EEM (emerging markets ETF) chart is similar to the IWM chart, holding above support.

Charts are charts, and aren't a guarantee of anything. The most troubling chart for the stock market is USO because the price of oil seems to be driving the stock market lower and there are no technical signs of a top in USO. Obviously when something has seen a decent run, there are often sharp corrections along the way. It is lower risk to wait for support and resistance to be established and trade off them, than to be the hero and call "top" or "bottom."

Thursday, June 26, 2008

Major market meltdown, GLD up big

What a surprise this is to me, what with the option premiums so high for the move that occurred today, SPY down big, GLD up big. Good thing I didn't bet big on that snippet of analysis that I posted a couple of days ago.

Some margin calls can be expected with a move like this, so further selling may occur in the weakest stocks. Traders short gold or oil may also face margin calls and be forced to cover. This is one reason not to try and call the bottom in stocks or top in oil. The other reason is what I have always written, that calling top or bottom can be entertaining, but usually isn't profitable. Very few traders have that magic touch of calling market turns, and I am not one of those few. I prefer to trade after the dust has settled or the news is out, and support and resistance has been established.

With the downside momentum, support for SPY at the March lows (~125 support vs. 128.3 close today) looks weak. The way things look now, I would not be a long term buyer at that price.

Positions: short RIMM hedged

Short RIMM (sell calls)

Short RIMM via selling the Jul 155 calls

RIMM gaps down on earnings and outlook. The gap and prior high is resistance.

Monday, June 23, 2008

Sentiment and option pricing

On Friday I mentioned that puts are priced higher than equivalent calls on SPY. For example, today the SPY closed at 131.45.
Sep 120 put is bid 2.18, the Sep 110 bid 0.85
Sep 143 call is bid 1.21, the Sep 153 call 0.12

So the put 11 points out of the money costs almost twice as much as the call. The put twenty-one points out is six times as much as the call that far out. Six times! What does that mean? It means that option buyers and sellers are pricing in the probability of a big drop in stock by September, with minimal chance of a big rise.

Options on GLD show the opposite expectation. With GLD closing at 86.86
Sep 76 put is bid 0.65, the Sep 70 put is bid 0.20
Sep 97 call is bid 1.60, the Sep 103 call is bid 0.90

So option players on gold are much more willing to bet on a big rise than a big drop, the opposite of the pricing on SPY options.

The option premiums are a sentiment indicator, and odds favor the option buyers being wrong. Sometimes they beat the odds as no indicator is perfect. Given a choice, I would prefer to bet against a big decline in stocks, and/or a big jump in gold. When options premiums are so out of balance it favors those making bets on extreme moves being wrong again.

In normal times, premiums are about equal, with calls slightly more expensive than equivalent puts. Let's look at a third underlying: Research in Motion. RIMM has earnings out on Wednesday and the stock closed at 143.06

Jul 125 put bid is 2.74, Jul 115 put is 1.21
Jul 160 call bid is 3.30, Jul 170 call is 1.71

This shows slightly more people betting on a RIMM stock price rise than a drop. However, the premiums are not multiples of each other like the premiums on SPY and GLD, so there is no clear read on which way the option players are leaning.

Option pricing can indicate underlying sentiment. Sentiment tends to be more useful at market turns than in a trending market. My preference would be to bet against the option speculators, so that would translate into me being bullish on SPY and bearish on GLD. As always, what I write is not a recommendation to buy or sell, or investment advice. As always there are what I perceive to be low risk entry points, and high risk times to enter into a trade.

Friday, June 20, 2008

5 out of 6 for June expiration

My option chickens all come in--all my short options expire worthless, so I get to keep my premiums. The one loser this month was Deere, and that would have been okay too, had I held until expiration.

The stock market has an ugly, ugly day. I am looking for more downside action before the end of the month. SPY seems drawn like a magnet to retest the March lows around 125 (current close 131.6), with what I see as a 50/50 chance that support will not hold this time. So the play is to buy puts, no? Maybe not, because the market is oversold, and out of the money put premiums are about triple the equivalent call premiums. This doesn't look like an easy play. I would prefer to bet against the put buyers that are bidding the options up so high, because they are usually wrong.

My options that just expired included index puts on SPY and IWM. The market didn't decline fast enough for those put buyers to make money. It wasn't even close. Despite a very bad stock market, I wasn't ever close to closing out those short puts. Time decay is the friend of the option seller.

Wednesday, June 18, 2008

Two (now three) doom and gloom articles

Two articles from Marketwatch, the first is Todd Harrison with "Recipe for a market meltdown" (link) and the second about stock fund managers moving to cash "Managers are the most negative in a decade" (link2).

I found a third forecast from the Royal Bank of Scotland (link3). This one makes the other two sound like the song "Happy Days."
>>
The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.
>>

Yikes!

For long term contrarian investors these are positive sign posts. For traders, caution remains the order of the day, as long as the primary trend is down.

Positions all options expiring Friday 6/20
hedged longs EWZ, IWM, SPY
hedged shorts SHLD, TSL

Tuesday, June 17, 2008

130/30 trading fund JFT

The 130/30 strategy involves looking for the weakest 30% of stocks, shorting them, and taking that money to invest in the other 70%. A fund that does this is 130% long, 30% short. This strategy is used by some hedge funds (Marketwatch article). For the little guy that want this kind of play, JFT is a new exchange traded fund. The caveat is that it is low volume, so spreads may be high and the expense ratio is 0.95% per year.

Elsewhere, the stock market fizzles again today. The stock market almanac indicates weakness for the rest of June, and July tends to be a poor month for bulls as well.

Friday, June 13, 2008

Nusbaum: China close to a buy

Roger The Shanghai Composite has gone on another run down and closed today at 2868 down 53% from the peak last fall and down 45% YTD.

I've disclosed being out for a while now with the intention of going back in and I think the time for me to go back in is quite soon.

Thursday, June 12, 2008

Sell DE (buy back short puts)

Sell DE via buying back short Jun 72.5 puts

Floods in the Midwest may mean bad news for Deere tractor sales. Even though my puts are still well out of the money, I am taking my loss while it is are still small. Another down day like today and the loss starts to loom larger.

It's been a yucky market to be sure. It is disappointing to see the entire 150 point rally given back.

Positions:
Long EWZ, IWM, SPY
Short TSL, SHLD

Tuesday, June 10, 2008

Buy DE (sell puts)

Buy DE via selling the Jun 72.5 puts

Deere has a $7 billion stock buy back fund, so the odds of a steep drop are extremely low, even lower than the theoretical 2.6% odds given by the ThinkorSwim analyzer. (ThinkorSwim is my broker and has their own trading software that includes a probability analyzer.)

Positions, all hedged, all June expiration
Long DE, EWZ, IWM, SPY
Short SHLD, TSL

Buy SPY (sell puts)

Buy SPY via selling the Jun 127 puts
Stock market weak after Bernanke talks about inflation. Foreign stocks, especially China tumble on fiscal tightening.

Positions all hedged, all out of the money, expiration Friday is nine days out
long EWZ, IWM, SPY
short SHLD, TSL

Monday, June 09, 2008

Futia on Magazine covers

Carl Futia mentions magazine covers in his blog (link) June 9th entry if you are reading this later.

Magazine covers can be a good sentiment indicator. The two covers are about oil, so it may be more bearish on oil, than bullish on stocks. When the stock market bear shows up on the cover, that is a stronger stock market indicator.

Saturday, June 07, 2008

A dozen stocks: 50/200 dma

I review some charts looking for stocks above the 200 day moving average, and dipping to or one day below the 50 dma. Here are a dozen tickers that I found worth a closer look:
NKE CMI CHRW PCLN ITU SCHW
AZO APA CNI XLB FXM RIO

Keep in mind, that this is relative small list of stocks that I am looking at, so there would be many more symbols if running a similar screen on all listed stocks.

For my favored strategy of selling puts out of the money, the best: APA CMI PCLN

For long termers looking to buy XLB is the materials sector ETF (top ten stock holdings for XLB).

As always, this is not advice, or a recommendation to buy or sell. Cheers.

Friday, June 06, 2008

Easy come, easy go

Yikes! I didn't see today's drop coming. The employment report and tension between Israel and Iran make for a perfect storm for the bears. Oil leaps $11 to $139 per barrel. GLD follows.

As always, what next is the most important question to ask. If the stock market gaps down on Monday's open, that may be a time to add to longs. The Fed has its hands ties as far as more interest rate cuts. The Fed is partly responsible for the weak dollar and the surge in oil and commodities.

I tell myself to stay calm, that there will be opportunities in the carnage, cut losses and live to trade another day.

Long EWZ, IWM
Short SHLD, TSL

Short TSL (sell calls)

Sell TSL Jun 55 calls
TSL down on earnings and outlook.

Positions all hedged
Long EWZ, IWM
Short SHLD, TSL

Thursday, June 05, 2008

Buy EWZ (sell puts)

Buy EWZ via selling the Jun 80 puts

Positions: long IWM, EWZ, short SHLD all hedged

Tuesday, June 03, 2008

one, two, three strikes?

Two down days this week so far. I am looking for a third to add long positions. If that third day doesn't
materialize, Friday may be the day.

GLD options started trading today. Happens to coincide with a bad day for oil and gold. I'm sure that some gold newsletters are going to write about their interpretation of events.

Positions: long IWM, short SHLD

Thursday, May 29, 2008

Short SHLD (sell calls)

Short SHLD via selling the Jun 100 calls
SHLD Sears/Kmart lower on poor earnings and sales.

Positions: long IWM, short SHLD

Jaffe: Fully Invested Life

Chuck Jaffe at Marketwatch writes about his father-in-law's financial path in life (article).

>>
... people worry about getting the absolute most from their money, about getting optimal results from each and every purchase and transaction.
...
The moral of his financial story is a simple one: Financial goals are about more than just money. Factor in the time, worry, personal values, hopes, dreams, and anything else tied to money, then take a path that allows you to reach your goals, not just by the number but in keeping with your personal attitude.
>>

When young people ask me about investments, I ask how much time, effort do they want to spend? How much do they enjoy the process of picking stocks or funds? For many the answer is that they don't have much interest, and don't want to spend much time. For them, the best path may be what some call "lazy portfolios," using ETFs and/or index mutual funds.

Wednesday, May 28, 2008

Kohler: "Trade small, don't be a hero"

Option Addict Jeff Kohler is re-running what he calls his greatest hits (exit-ideas article).

>>
Trade small, don't be a hero. Plan on doing whatever is necessary to be here to trade again tomorrow. If you are on a bad streak, step away! If it seems that you are always on a bad streak, maybe it's not the market.... maybe it's not the stock... maybe it's your system!
>>

I have written many times about the risk/reward of being the hero and calling top or bottom. There are a lot more dead heroes often losing everything, than those who are successful calling major market turns.

Positions: long IWM hedged

Tuesday, May 27, 2008

Dividend ETFs and Bond ETFs

Here is a raw list of dividend ETFs (link)

Here is a list of all ETFs sorted by annual expense ratio (link)

Sorting through the data on the two lists and the following seem the most interesting to me:
DVY, PIP, SDY, VIG, VWY

For another opinion with more of a focus on current yield, I found this Gary Gordon article.Gordon's top three are: DEM, DWX, DVY

For Bond ETFs my short list includes:
TLT because it has options
BND Vanguard bond index with low expenses
SHY low volatility.

As always for the average person (vs. the gunslinging trader), dollar cost averaging into age appropriate investments is often the best road.

Position: long IWM hedged

Friday, May 23, 2008

Buy IWM (sell puts)

Buy IWM Russell 2000 ETF via selling the Jun 65 puts. Some fear finally showing up after a week of mostly down days, with the VIX perking up. These options are seven points out of the money, so it will take a smash down of 10% for them to be exercised against me. I am dipping my big toe back in the water after having all my positions expire last week.

Long IWM hedged

Thursday, May 22, 2008

Oil: one bull, one bear

Two views on oil from MarketWatch, the bearish article (link), the bullish article (link).

The bullish short term target is $140, only $6 away, so it isn't that bullish. The bear says that he is typically early. Of course, it is dicey trying to play oil at this point (or any stock or commodity that has seen a huge bull move).

One scenario I can see is a spike top on big news. That might tempt me to try and go short, though my history trading energy stocks is poor, so I tend to shy away from this sector. Usually the XLE makes a secondary top after spot crude has topped, but counting on that history to repeat isn't something I would like to tempt, considering the move up.

Tuesday, May 20, 2008

Mild sell off, AMZN, GLD

The stock market had a nice run up, so today's sell off seems mild and contained. Of the 30 Dow stocks, the only two that were up were the oils, XOM and CVX.

AMZN was upgraded on Monday. There are about three days worth of shorts in the stock, so on the third day from Monday (Thursday), I might look to buy puts, or sell calls.

Gold has had a very good week, though oil continues to show more relative strength. Historically, oil and gold have a strong correlation.

No current trading positions

Friday, May 16, 2008

GLD options coming soon

Barrons (link) reports that options on GLD might start trading as soon as May 30, 2008.

>>
After about four years of waiting, wanting, and whining, options on GLD could be listed as early as May 30, according to the Chicago Board Options Exchange.

Chickens and chicken feed

I am counting my chickens today, as my short options expire. Small profits to be sure, but any profits are good in the current market environment.

AXP, EWZ, HON, PCLN puts all expire, and I get to keep all the premiums

I've been cautious, a stock market "chicken" so to speak, so it seems appropriate to label these profits "chicken feed." Enjoy the weekend. Cheers.

Positions: none

Famous quotes and trading styles

Motley Fool has an article (link) on eight famous quotes that can be applied to investing. This is my favorite of the bunch:

>>
"If you hold a cat by the tail, you learn things you cannot learn any other way."

-- Mark Twain

And if you own a stock that tanks beyond recovery, you'll learn something that no collection of financial horror stories will teach you...
>>

I tell people that the emotional part of trading is the hardest part. For this reason, I rarely make sweeping predictions, and don't spend time on paper trading contests. Few people have ice in their veins and remain calm and logical when they are losing money. Few remain logical and thorough after a series of big winners. Again, a baseball analogy of not getting too high or too low is appropriate.

I also tell people that there are a thousand different ways to make money in the stock market. The trick is finding one that works for your personality. My trading style with its small gains, and potentially big losses would drive some mad. However, over my many years, I have found that these are the kind of trades that have historically worked out best for me. When I swing for the home runs, and when I want to hold for the long term instead of cutting losses, those are the times I usually lose, often losing big.

Tuesday, May 13, 2008

Complacent VIX, Motley Fool Buffett picks

At Adam Warner (blog link) writes about Jason Goepfert's findings:
>>
I checked for any other time since 1990 that the VIX hit a six-month low, while the S&P 500, on which the VIX is based, was still at least 1% below its own three-month high. That would show us times when traders were assuming a low-volatility environment despite prices that might not justify that assumption.

Returns in in the S&P 500 going forward were substandard (and negative) going out as far as two month's. From one to ten days out, the S&P was positive less than 45% of the time, and showed an average return that that varied between -0.1% and -0.8%. Not a huge negative edge, but certainly less than random.
>>

Over at Motley Fool, they have an interesting stock screen trying to find so-called Buffett stocks (article). I like PBR Petro Brasil best from that list.

Positions: AXP, EWZ, HON, PCLN, all hedged longs
out-the-money short puts expiring 5/16/08

Friday, May 09, 2008

Buffett and derivatives

Berkshire Hathaway disclosed paper losses on some of their long term SP index puts.

Here is a blog entry at Financial Crookery about that position (link) see May 8 entry. It is a bit deep in jargon, so option newbies might find it difficult reading.

Positions: long AXP, EWZ, HON, PCLN
all are out of the money short puts expiring next Friday 5/16

Buy PCLN (sell puts)

Buy PCLN Priceline via selling the May 125 puts
stock breaks out on earnings report. Strike price of puts is at chart base.
Sell May 125 PCLN puts

Wednesday, May 07, 2008

Cycle top May 8?

From Marketwatch (link)
>>
Bennet Sedacca of Minyanville notes that a combination of annual, decennial and presidential cycles yields a potential "top date" for the S&P on May 8. Those were, so you know, the same cycles that suggested a low on March 15th.
>>

As I have opined before, calendar cycles are one of the weakest influences on the stock market. That said, if the yearly calendar pattern has its way, the market will hold its own into May option expiration (5/16/08).

Crunch time in the stock market today, lots of stock got hit including my three (AXP, EWZ, HON).

Tuesday, May 06, 2008

Buy EWZ (sell puts)

Buy EWZ (Brazil ETF) by selling the May 85 puts

These are currently about nine points out of the money, so it is like putting in a bid at a sharp pullback. I am surprised at the overall stock market strength, considering the price of oil continuing up.

Monday, May 05, 2008

Sell BRKB Berkshire Hathaway

Sell BRKB for small profit, earnings below estimates. Over the long term, I believe that earnings more than anything else (eg: technicals, balance sheet, sales) drive the stock price.

Positions: hedged longs AXP, HON

Friday, May 02, 2008

Bear Market Rally?

Random Roger is convinced (blog, look at May 2, 2008 entry):
>>
Feel good rallies are a normal part of the bear market landscape. This is either a run of the mill feel good rally or I am wrong and this whole financial crisis/housing price deflation/bond market distortion will turn out to be nowhere near as important as many people thought.

What do you think is more likely?

I am convinced this is a bear market rally, there is no convincing me otherwise. That does not guarantee I will be right of course
>>

Positions: long BRKB, hedged longs: HON, AXP

Thursday, May 01, 2008

Brazil Brasil

Breakout on EWZ. Unfortunately, the two day move up is 9%, so it is chasing if buying at the market. Still, the longer term looks compelling, based on the chart.

Wednesday, April 30, 2008

Yield curve deja vu (bullish signal)

Over at Vix and More (link) Bill Luby says the current yield curve looks like 2003. Back then, the set up brought a big bull market for stocks. As always, history rarely repeats exactly the same way, but it can be useful to find historical time frame comparisons. Yield curve has so many factors in it.

Tuesday, April 29, 2008

Gold vs. copper, GDX vs FCX

Gold continues down. GDX near important long term support at 40 (2-year chart). FCX which mines a variety of metals including copper has outperformed (chart). Another advantage of FCX is tighter spreads on the options. They are different, with FCX looking like the stronger play at the moment, but neither looks compelling at the moment.

Lately, support levels sometimes have meant little to nothing in terms of slowing or stopping downside momentum. Yous pays your money, yous takes your chances.

Positions: Long BRK.B, hedged long HON, AXP

Friday, April 25, 2008

Buy AXP (sell puts)

Buy AXP by selling the 42.5 puts
Stock is moving up through resistance on earnings, support at 45 and below

Positions: hedged long AXP, HON. Long BRK.B

Wednesday, April 23, 2008

Morons? (Cramer)

Adam Warner blogs about Cramer saying that call sellers on GOOG were morons (link)
>>
You should recognize that pretty much every outsized gain, ones where the stocks go up on small, niggling positives is about short-selling. The Google (GOOG) 480, 490, 500, 510 strikes? Tons of call-sellers, taking advantage of premiums too juicy to resist. Morons: limited upside, unlimited downside.


Breaking news: Naked call selling has unlimited upside risk. Never sell anything.

There is some validity to the notion that call shorts on expiration get trapped and are forced to chase a stock higher into the next call short. And so on.

But to call them morons is utterly.......moronic. GOOG did not just report earnings out of the blue. The date was known, the volatility was pumped, and selling options ahead of an earnings report is net-net not a bad strategy. There is an expected gain element to it, something beyond his black and white nonsense.
>>

My take: if someone bets the ranch by selling options, puts or calls, before earnings or even after, the insult might be appropriate. However, keep in mind that the volatility is in the price of the options before the report. Sometimes the option buyers win, but certainly not always. It is easy to see in hindsight what the correct play was. Ahead of the report, not so easy. If the call sellers are morons, then the call buyers must be the opposite, since they are taking the other side of the bet. We'll see if the option buyers or sellers win with tonight's AAPL report, and who the moron's will be tomorrow.

The logical conclusion that one might come to is that buying calls before a big earnings announcement is a smart move? Hardly, the road to riches over the long term, though as in the case of GOOG, there are occasional home runs. A 35 point move was in the price, and the stock got an 80 point move. How often does it happen that way? If it happens often enough the price of the options keeps going up, until again selling the options becomes the better play. Options have a way of balancing things out that way. Those that continue to make big bets and wrong bets go down with the ship, and leave the game.

Stock market is frustrating me at the moment. Gold is even more frustrating for the gold bulls, what with oil continuing to make new highs and gold lagging worse and worse.