Tuesday, April 27, 2010


"Yikes" was uttered several times during a repeat of the CBS TV show "Big Bang Theory," on Monday night. It seems a good word for a day, when the stock market melts down -2.7% on SPY, while TLT and GLD are up big. All my short options, even TLT and GLD, went up in price because implied volatility shot up. VIX closes at 23.0.

There are some things that come to mind. First, is my now famous "don't do anything stupid." Second: "fast markets are not my friend."

From the bullish side, if looking at price, SPY 105 is support. If looking at time, two more hard down days might be a time to add some short term longs. If looking at sentiment VIX 29 might be a long entry for stocks.

From the short side, I already mentioned that May/June tends to be a seasonally weak time for the stock market. That the best time to go short is often on a rally failure (vs. trying to pick a top while the market is still moving up).

I've been trading and predicting poorly lately, so that makes this an especially bad time to take on more risk during a fast moving market. Those traders that are more nimble, with a hot hand, have lots of opportunities to look at.


Monday, April 26, 2010

"Everything seems risky"

I was talking about investments with a buddy at the local coffee shop and the subject phrase came up, "everything seems so risky." Stocks are up like a rocket, up 75% from last year's lows, 100% on RUT. Small investors are piling into bond funds like there is no tomorrow, while every other pundit is telling clients to avoid long term bonds, or even short them. Gold has had ten straight up years, has already quadrupled in price, and every major talk radio show has a big time gold sponsor.

It isn't always like this. There are times when folks are afraid of certain asset classes at the coffee shop and that asset class is beaten to heck and shunned.

I have used the phrase before "don't do anything stupid." I think that applies now. There is no need to be overly aggressive. As always, for the average investor, diversifying into age appropriate assets is almost always the best course. Do so gradually, buying and/or selling in small increments to reach the desired allocation. Those interested in low maintenance approaches can search on "lazy portfolio."

For traders, as always, this isn't an advice blog, it is an online trading journal, with occasional observation and commentary. Right now, virtually all the money is being made by bullish stock market traders. Only the most nimble bears can make money by "running between the rain drops" so they don't get wet.

Some day the bull party will end, the trend will change, but for today, the bull is still in charge. We are approaching a seasonally weaker period in the stock market for May/June and then for the entire summer.


Thursday, April 22, 2010

When traders go cold, then what?

Traders can run hot and cold. When a trader is hot, everything seems easy, every trade seems to work moments after it is put on, every exit seems to be at a good time. When a trader runs cold, it is the opposite, trades considered but not taken do well, trades entered seem to go bad the minute the fill comes through.

Right now, I feel like I am running cold. The gold puts I sold the other week, went to -50% on the value within a day or two. This morning the SPY puts I just sold are at -50% from entry. Even though odds are that both are still highly likely to be winners if held to expiration, there was 50% more in premium to be made had I timed the entry points better.

Some things that traders do when cold are reduce position size, choose from less risky positions, and work through it. Some traders will take a break from the markets to clear their heads. Traders sometimes get "punch drunk" from taking too many shots to the head. Some get emotional and try to make up for losers by taking on more risk and like the punch drunk boxer in the ring this behavior can lead to getting knocked out.

Changing the subject to bonds, last night on Nightly Business Report there was another guest saying "stay away from long term bonds." This is the second one this month on the show, loudly and publicly saying that. When so many voices are doing so on business TV, odds of a bond rally are pretty good.


Tuesday, April 20, 2010

Buy SPY (sell puts)

Buy SPY via selling Jun 100 puts, SPY @120.8. Today's action looks like short covering. There is support at Friday's lows because short sellers piled in on the hard down day. I already am short SPY May 96 puts, but they are getting close to delta zero, as what I have called a "ridiculous rally" rolls on.

There will come a time that selling puts becomes the absolute worst thing to do. For the stock market, that time is more likely to be September/October than today.


Saturday, April 17, 2010

4-1 for April, loss for the month

Four winners, one loser for the April option cycle. Winners were:
short SPY Apr 90 puts
short SPY Apr 101 puts
short GLD Apr 95 puts
short TLT Apr 86 puts
The loser was:
long SPY May 104 puts that was part of a vertical spread

Unfortunately, the loser was bigger than all the winners combined, giving me a modest loss for the month. It happens.

Remember what I said about active short term traders with 100% track records. Some are paper traders that don't even trade real money, some only report their winners, some are liars and charlatans.

The weekly ThinkorSwim market wrap (anyone can listen, just visit their site and register if you don't have an account) mentions some market leaders such as GS, EEM, ISRG and GOOG turning south. Some leaders such as AAPL are still holding relatively strong, and AAPL reports earnings next week.

This might be the start of a measurable stock market correction, but there is so much upside momentum, that the bulls are likely to fight. I'd add to SPY longs at SPY 105, and add to GLD longs at GLD 104. Of course, plans can change, depending on how and when they get there, and the news and sentiment background.


Friday, April 16, 2010

Buy TLT (sell puts)

Buy TLT via selling Jun 84 puts, TLT @89.84
Stock market lower, gold lower, bonds higher. My lone TLT position expires today. I sell the June puts to stay in. The GLD puts I sold the other day are down 50% on the notional value. I may double up, if GLD falls to 104. I am long SPY via being short May 96 puts, so they are way, way out of the money at the moment. If the stock market selling squall continues, as I think it will, another 3% to 5% down may be a decent entry for more short puts.

Some might think that the Goldman news came out on option expiration day for maximum impact on short term traders.


Wednesday, April 14, 2010

Buy GLD (sell puts)

Buy GLD via selling Jun 97 puts. My other options are near delta zero, so this keeps me in. It is another low risk, low reward trade. If GLD slides, I may double up or sell puts at a lower strike.

TLT expiring Friday 4/16

Saturday, April 10, 2010

Same old, same gold?

Mostly the same old, same old for the stock market. This is the fifth straight up week. Implied volatility on options slides some more. Stock indices trade in a narrow range all week and end higher. Wash, rinse repeat, that is the same basic outline for this entire rally off the February lows.

Gold, on the other hand shows some spark. Some are seeing a breakout from a pennant. There is some overhead resistance at the old high. However, breakouts into resistance sometimes work out real well. I wasn't on this train when it left, so am reluctant to chase that train. Well, I did have what for me have become the usual low risk, low reward position of being short way out of the money puts. The delta is nearing zero so my GLD exposure is nearing zero.

TLT has provided some excitement. Again, so many in the popular media are saying bonds are going down, that the contrary play is to buy bonds, or sell the puts as I have. The implied volatility is relative low on the May TLT puts, so I am reluctant to sell a new batch. Those betting on a big decline in bonds are in a way betting on a strong rebound in the overall economy. I have a difficult time seeing that scenario, but lately my predictions have been bad and worse.


Tuesday, April 06, 2010

Cover short SPY (sell puts)

I sell my SPY May 104 puts for a 85% loss. It was part of a vertical put spread that I entered when SPY was at 112. SPY rallied, volatility declined, and that means a big loss on owned options.

I still have the other leg of the position, so am now long SPY.