Wednesday, March 31, 2010

Stocks move ahead during Q1

Stocks move ahead during March 2010 and the first quarter. Bonds slip to last in the 2010 derby, as measured from the 12/31/09 close (111.44, 107.31, 89.89):
SPY up about 5.2%
GLD up about 1.7%
TLT down about 0.4%

At the end of February, TLT was outperforming both gold and stocks, so things change.

For those readers that celebrate Passover and/or Easter, have a meaningful and joyous holiday.

Long GLD, TLT
neutral SPY

Sunday, March 28, 2010

"Everyone" is selling puts

During the weekly ThinkorSwim market wrap up, they said that several times, that ThinkorSwim customers are selling puts in quantity. As most market veterans know when "everyone" is doing something, that can sometimes be a big red flag. As my readers know, selling puts has been my favored strategy for quite some time now. I don't like having so much company. I'd like to believe that ThinkorSwim customers are smarter than most other market participants, but there is danger in that kind of thinking.

Anyone can listen to the ThinkorSwim market recaps, whether they are a customer or not. Non-customers have to register. I would recommend it highly for those seeking an options oriented recap of weekly market action. ThinkorSwim is going to add another weekly session about trading psychology.

Long GLD, TLT
neutral SPY

Thursday, March 25, 2010

Buy GLD (sell puts)

Buy GLD via selling May 92 puts. Way out of the money, as has been my recent pattern with GLD, so it is a low conviction buy. I am already short GLD Apr 95 puts.

The stock market is roaring back from its minor down day on the Portugal news. The rally is stunning. Bonds are acting terribly. My TLT position is now underwater. I may roll the short Apr puts to May, I doubt I'll double up on short puts like I am doing with gold. I am thinking to close out my long SPY May 104 puts when the delta gets to -5 or so, right now it is -7.9 with SPY at 118.

Long GLD, TLT
neutral SPY

Tuesday, March 23, 2010

Another day another rally

I am tempted to use the term ridiculous rally, because that is what it may seem like to stock market bears.

Momentum has a mind of its own. There has been so much of an upward bias, that even while it is weakening, it still prevails.

I am looking to sell some GLD and TLT puts for May expiration to add to the short April puts, but would like a decent dip to open the positions.

Long GLD, TLT
neutral SPY (four positions net neutral)

Monday, March 22, 2010

Buy SPY (sell puts)--now neutral

Buy SPY via selling May 96 puts. This gets me to about delta neutral after being slightly short. The position is four-headed, but the bottom line is close to neutral, benefiting from time decay.

The stock market was set up for a decline, but doesn't go down. Yes, it is extended to the upside, but the odds of a significant short term decline of 10% or more, seem slim.

For the 96 strike to come into play, would be about a 19% decline. It is difficult to see that. 10% stock market declines are common. However, 10% in a single month is an exceptionally bad month. Two -10% months in a row is the sign of a major bear market.

Long GLD, TLT
delta neutral SPY

Saturday, March 20, 2010

3-0 for March option cycle

Three winners, zero losers for the March cycle. GLD, SPY, TLT puts all expire worthless. The SPY put was originally part of a vertical put spread. I made money on both legs of the spread for a total return of 60% on the initial investment. The small print is that because I legged out of the position, the margin requirement of holding just the short put was ten times the cost of the initial position.

Finally on Friday the stock market has some modest downside action. For stock market bears, the relentless and slow rally has been like water torture. Option premiums contracted and contracted. While a 3% or 5% down move might happen at any time, more than that will take a bigger foundation or a bigger event. Upward momentum still dominates the stock market and will take some time to dissipate.

There is a chance that the entire Friday event was related to options expiration.

Long GLD, TLT
slightly short SPY

Tuesday, March 16, 2010

Cash is trash day

Cash is trash for the day, as stocks, bonds, gold all move higher. I am surprised by the strength. Thankfully, I am not a stubborn trader. There are a fair number of stock investors that remain on the sidelines, now having missed the entire 70% up move from last year's lows. Worse, there are some stubborn folks that have been short, or keep shorting the stock market, and for the most part have kept losing money. Today's action doesn't look good for would be stock market bears, as the potential double top in SPY can now be said to have failed.

Today, I was tempted to add to gold longs, but told myself that a better entry point is coming soon. My recent SPY vertical put spread is down over 50% in value from the entry. Thankfully, I hedged with offsetting options. So the good news is that I haven't lost much on SPY positions during the last couple of weeks, the bad news is that I lost while all the bullish participants made money.

I wish I had some brilliant insight into what comes next, but I have been mostly ice cold as far as predictions. That said, all three of the March options that I am short look to expire worthless without any stress. This means another half-decent month as far as trading profits and losses on the monthly option ledger that closes this Friday.

Long GLD, TLT
ever slightly short SPY

Thursday, March 11, 2010

Buy SPY (sell puts)

Buy SPY via selling the Apr 101 puts (SPY @115.3). The upside bias continues. This gets me to five open option positions on SPY and now is very slightly short.

Long TLT, GLD
slightly short SPY

Monday, March 08, 2010

A couple of anniversaries

It is a year ago that the stock market bottomed. SPY is up about 70% from the lows. It is also about ten years ago that the Nasdaq topped out (chart). In 1999 QQQ had just started and was all the rage as it doubled from 50 to 100. Today QQQQ is 46, who knows if and when it will ever get to 100 again. Glancing at the long term QQQQ chart, it looks extremely bearish for the intermediate term.

Another anniversary that I let slip is this blog's fourth anniversary. I started posting in February 2006. Posting publicly as I make my trades, has helped clarify my thinking. It helps me see what is working for me, and what isn't. I always tell people that there are a hundred ways to make in the stock market. The key is to find one that suits your particular personality.

With that in mind, some readers might find the blog to be boring. I don't post every day. I average maybe a trade a week, with occasional long periods of no trading. Lately most of the trades tend to be low risk, low reward trades. My "gunslinger" days are long since gone.

Happy anniversary, one and all. Cheers.

Long GLD, TLT
net short SPY

Friday, March 05, 2010

Wrong!

It never feels good to be on the wrong side of the market when news comes out. Being short SPY on this rally Friday is not a good feeling. Yes, the long puts are for May, so there is a lot of time, but a 35% haircut on the value of the position in a few days is not a lot of fun. Being long TLT was no picnic today either, as better than expected employment news often means bonds going down, yields going up.

As I have written before, be wary of any short term traders that claim 100% track records. Most likely they aren't trading real money in real time. More likely they are posting only winners in hindsight, or worse--have horrendous drawdowns that no live trader could withstand.

With infinite paper money, a paper trader can double down and keep doubling until the tide turns. In real life that kind of doubling is a recipe for losing everything. As I stated from the beginning of the blog (now more than three years), survival, living to see another day is priority one.

Long GLD, TLT
net short SPY

Wednesday, March 03, 2010

Buy TLT (sell puts)

Buy TLT via selling Apr 86 puts, TLT @ 91 even. The March puts that I am short are nearing delta zero, so I am opening up an April position. ThinkorSwim indicates a 12% chance of exercise on the TLT Apr 86 puts. As has been mostly the case, this is another low risk, low reward, high probability trade (88% chance if held until expiration).

Long GLD, TLT
net short SPY

Tuesday, March 02, 2010

Short SPY (vertical put spread)

Short SPY (@ 112.2) via a vertical put spread May 104/96. SPY near resistance. While SPY may well float higher, premiums are low on this calm morning. I figure the odds are good for a mood change back to bearish before May expiration.

bot SPY May 104 put
sld SPY May 96 put

Why those strikes? The 104 strike has a 50% chance of being touched before May expiration. Eight points wide is a good balance of risk/reward. Selling the 96 put reduces the cost and the time decay of just buying the put by a good 30%, yet still gives the overall position explosion potential if the market melts down.

Long GLD, TLT
net short SPY