Friday, January 29, 2010

Buy TM, short SPY

Buy TM via selling Feb 65 puts TM at 77.5
TM recall is all over the news. The stock is down about 10% over two days. It may go lower, but the worst of the news may be out. Support at 75 and then at 70.

Short SPY via buying a March 102/94 vertical put spread, buy the March 102 put, sell the 94, SPY at 109.0.

Long TM, GLD, TLT
Net short SPY

Thursday, January 28, 2010

"Don't do anything stupid"

Lots of trades are tempting, then I remind myself that fast markets are not my friend, that I already have some exposure. The other voice tells me "don't do anything stupid." Yes, there are opportunities as markets are moving. The other side is that risk is escalating too.

The romantic view is buying the lows, selling the highs. The reality check is that scenario rarely happens for those trading real money in real time.

TM, NFLX are potential longs. I am tempted to do a SPY March bear spread to get net short SPY. For today the bearish SPY trade seems more of an emotional response than a well-thought out trade. On Tuesday, I placed an order for a SPY bear spread, but did not get filled, as the market moved lower.

Long SPY, GLD, TLT

Monday, January 25, 2010

Rally failure in stocks?

A few entries back I wrote about a possible rally failure in gold. Now it may be the time for the stock market. I'll repeat that calling top tends to be entertaining, not profitable. The higher percentage play tends to be to wait for a top to establish and short the rally failure, and that time may be here and now.

A 10% correction is normal and healthy. However, 10% down for SPY in a single month tends to be an exceptionally bad down month. So while a decline may be in the cards, I doubt it will be steep and sudden like the 2008/2009 bear market action. If there is to be an air pocket, it would be more likely later in the year (September/October).

I was tempted to double on my stock market position today, but an up day didn't provide a compelling entry point. I do see lower lows to be likely, but not a big immediate drop.

Long GLD, SPY, TLT

Friday, January 22, 2010

Buy GLD (sell puts)

Buy GLD via selling Feb 92 puts
I put my fishing line in the water on GLD as it nears minor support at 106. Stock market action is tempting as the sell off enters day three and VIX is racheting up.

I am taking on water on my existing SPY position and will hold. TLT is looking pretty good right now.

Long SPY, TLT, GLD

Wednesday, January 20, 2010

Ugly day for stocks and gold

The "sell the news" effect continues. Stocks such as IBM go down even on decent earnings, as are stocks with not so good reports such as CSX.

Right now I am telling myself "don't be the hero," wait for the dust to settle. The selling squall will likely pass, but that is never a certainty. I'm looking for an entry point in EEM and/or IWM on the long side, but again, will wait for the dust to settle. Fast markets with wide swings tend to be a dangerous place for relatively slow moving position traders like me.

Gold is looking weak in here. I tend to be long term bullish on gold, so didn't take the trade when I posted about a possible rally failure a few days back. GLD 99 would be a downside target if I were short.

Long SPY, TLT

Saturday, January 16, 2010

1-0 for January

One winner, no losers for the January expiration cycle. The lone closed trade was selling SPY Jan 104 puts, a small minnow to be sure.

The headline for Friday is "worst day of 2010 so far." With headlines like that, it is likely that any decline will be modest because so many folks are cautious. It takes time to dissipate all the upside momentum in the chart.

Speaking of upside momentum, gold seems to have stalled for now. One scenario is another leg down taking GLD to 99. That would be the low range, the recent highs in gold are likely to provide resistance.

Long SPY, TLT

Thursday, January 14, 2010

Good earnings from INTC

Good earnings news from tech bellwether INTC tonight. The stock isn't getting much of a boost in after-hours though, so it looks like most of the good news is already in the price.

My most recently entry was ill-timed. I could have gotten as much as 40% more premium on the SPY Feb 98 puts had I waited a day. As always, hindsight trading is easy, real time trading not so much. Once in a while a trader can get in a zone and seemingly have the Midas touch. The opposite seems more common, when every entry is greeted by a strong counter move, but that is likely my selective memory at work.

Long SPY, TLT

Monday, January 11, 2010

Buy SPY (sell puts)

Buy SPY via selling Feb 98 puts, SPY at 114.4

I kind of expect a mild sell off. However, these puts are at the 5% chance of expiring in the money, and I don't expect a steep sell off. Support for SPY at 103 and then 101.

I already have short SPY Jan 104 puts, but unless something like a major meteor strike happens those Januaries won't come into play.

I listened to the ThinkorSwim Friday market recap (if a person goes to their site and registers they can find the archives or listen to the next Friday recap). One nugget is that the VIX futures and options are already pricing in an expansion in volatility that often comes with a sell off. Another nugget was that some big tech stocks such as AMZN and GOOG are correcting, without their option volatility expanding. Another interesting bit is that many day traders and short term traders are trading from the short side, and haven't been making any money because the dips have been so shallow.

I can't draw any tradeable conclusions from all the above. Though, it seems to me to me that that odds of a big stock market sell off are tiny. That may happen much later in the year, but extremely unlikely in the near term.

Gold is up big today. Again, for those looking to short gold this is the kind of entry point to look for, after a dip then a rally still below resistance. That said, the long term trend remains up for gold.

Long SPY (2 positions), TLT

Sunday, January 10, 2010

Risk management

I often write that predictions are mostly for entertainment value, and that risk management and money management are much more important.

For traders, risk management involves right sizing of positions, entry points and exits. Let's take an extreme example to make a clear point. Say there is a hypothetical trade that will win 90% of the time and generate a 20% gain on each win, and 10% of the time it will lose 100%. If a hypothetical trader bets his/her entire account on each trade, eventually they are sure to lose everything when that 10% chance comes up. Instead of betting everything, if the trader bets 10% of their account value each time, they will have nine winners of 20% each, and one loser at 100%. Overall this is a 80% gain on the size of one position or 8% of the entire account value (9 x 20 - 100 = 80).

Also important for traders is the concept of draw down--what is the lowest point the trade is at? This is doubly important for those like me, selling options, because margin calls can come into play. What good is a hypothetical winner at expiration if a forced margin call takes out the position before that winner comes in?

For long term investors, Random Roger occasionally writes about active management vs. indexing, and performance at his blog (link). In a similar hypothetical, say the overall market is up 10% for five years and then down 30% one year. The active manager may be said to under perform if he/she only gains 8% in the up years, and is down 8% during the down year. After all he has underperformed the index for five years, and only outperformed one year. However, the bottom line result can be a different story, depending on how much the under performance is, and how much the losses are mitigated.

Virtually all of you reading this are active money managers. The opposite is passive management with all money in various index funds.

Long SPY, TLT

Friday, January 08, 2010

The non-event event

Some months the employment number sends markets reeling and/or soaring. This wasn't one of those months. So much for "fireworks." Maybe one firecracker was all there was. Gold had a wide range today.

A few stocks are looking interesting from the long side: CMI, UPS, CSX, SHLD. With the overall stock market extended to the upside, buying breakouts on individual stocks is risky. The "M" in CANSLIM (William O'Neil's system) is for market, and can be the most important component.

I tried to roll my short SPY Jan 104 puts to February 102 puts, but didn't get a fill, then the market firmed up, moving it away from the limit order price.

Long SPY, TLT

Wednesday, January 06, 2010

Rally failure in gold?

If I were looking for a time and place to short gold, this would be a reasonable entry. So many gold bears tried to time the top and so many got broken by the steamroller rally. Like I have always written on this blog the percentage play tends to be shorting the rally failure after a top is in place. That way a trader might have resistance working for them.

With all that, the gold bull is still intact (chart), still above the 200 day-moving-average. Any shorting would be for the nimble trader, not for the long term gold investor.

Friday's employment report may produce some fireworks. Expectations are running high as evidenced by the stock market moving to new recovery highs into the report.

VIX (chart2) has been moving steadily down, down, down to a point of complacency. However, actual volatility is still coming in below the implied numbers. This means that selling premium still has been working. At some point this will reverse, but like calling the top of a rally, trading counter trend is not an easy game to make money at.

Long SPY, TLT

Monday, January 04, 2010

Buy SPY (sell puts)

Buy SPY via selling Jan 104 puts on the first trading day of the year. SPY around 112.50. Lots of short covering going on at the open. This likely means a good bit of buying support at slightly levels for those that aren't covering now.

Long TLT, SPY

Friday, January 01, 2010

2009 rewarded risk taking

From junk bonds to speculative stocks to emerging markets, all were big winners in 2009. Sure the ride was a wild one with many declining steeply into the March lows, but the ride up was more than spectacular. 2009 was also one of the worst in recent memory for Treasury bonds, so risk was rewarded, caution punished.

Readers know that I tend towards the cautious side, so I didn't have a banner year. Sure I have some profits, more so in my long term positions, than in the trades reported in the blog. The blog trades show modest gains. The accounting to separate the short term trades and the longer term investments is a bit muddled this year, so I don't have a readily available bottom line number for the blog trades. Some bloggers might be tempted to skew the results by solely reporting the huge percentage winners on small dollar option trades.

Happy New Year to all the readers. My schedule is opening up so I will return to more frequent blogging and trading. Perhaps three or four updates a week is what might be expected. Cheers.

Long TLT