Thursday, July 29, 2010

Cover short SPY puts

I cover my short on SPY Aug 95 puts for a decent profit, SPY@109.6. This reduces my exposure, leaving me short SPY Aug 100 puts, and Aug 87 puts, also short IWM 58 puts. I also have a SPY backratio for September.

Because of the two day stock market decline I am now net delta long SPY. I am a nervous long, because historically, August can be a volatile month, more so than July or September even. In hindsight, my IWM put sale yesterday was ill-timed as the bottom has dropped out of stocks.

Long BRKB, GLD, IWM, SPY*, TLT*
SPY offset by SDS, net long SPY
TLT offset by TBT, net long TLT

Wednesday, July 28, 2010

Buy IWM (sell puts)

Buy IWM via selling Aug 58 puts, IWM@66.1. This is more rebalancing of the SPY strangle. I am using IWM as a SPY proxy because of the lower value per contract. I am still net short SPY deltas on the combo of SPY, SDS, IWM options but get closer to neutral.

Gold and bonds had a scary down day on Tuesday. For now I am holding on to those positions. One interpretation of recent price action is money flowing into SPY with the funds coming from TLT and GLD, as asset allocation funds, and hedge funds rebalance their portfolios.

Long BRKB, GLD, IWM, SPY*, TLT*
SPY offset by SDS, net short SPY
TLT offset by TBT, net long TLT

Monday, July 26, 2010

Nusbaum: Essentials for investing

Random Roger writes about Ten Essentials for investing (link). Nusbaum is experienced in managing other people's money for the long term. I find Nusbaum to be smart and wise, even when I may disagree with him. Wisdom is something that novice traders often lack, especially if the newcomer has early success.

Off the top of my head, here are concepts that can be helpful if not essential for traders:

* live to trade another day, with proper position sizing, and other risk management techniques such as stop-losses or hedging. Many novices jump in with both feet, and get carried out on their shields before they have a chance to find their sea legs.

* know yourself--there are a thousand successful ways to trade. Many traders will fail if they try to emulate a style that doesn't suit their personality, their time commitment, their lifestyle. If a person doesn't know themselves, the markets can be an expensive place to find out.

* hazard warning on headline news, pundits on TV, popular newsletters or blogs. While popular sources such as talking heads on TV do occasionally make good calls, there have been some horrible ones as well. The contrarian way is one successful way to trade (as is trend following), though a person needs to be careful because as the cliche goes: "everyone is now a contrarian," so sometimes the real contrary way to go is to follow the trend.

* A John Wooden-ism comes to mind: "don't confuse activity with achievement." Many novices fall into the indicator trap, looking at too many indicators and mostly get confused, rather than getting better and smarter. Many novices tend to overtrade, instead of waiting for a good pitch to hit, they swing at everything.

* markets are often a moving target. Once an indicator is published and popular, the indicator tends to lose effectiveness. If reading a particular book or using a particular indicator was the way to success, everyone would read the book, or use that indicator. If everyone has the same edge, no one has an edge over the other person.

That's it for now.

Crawford: "Will Capitalism survive?"

Peter Brimelow cites an Arch Crawford newsletter, highlighting dire predictions for the financial markets (link). For those unfamiliar with Crawford, he goes way back, having been trained as a technical analyst, Crawford uses astrology as his primary tool.

>>
"Astrologers call it the 'Cardinal Climax.' It is considered to be the most powerful and important planetary alignment of the modern era. Perhaps it heralds the beginning of the real 'Aquarian Age' or the end of the 'Mayan Calendar.' (After all, what's a few months in a 25,600-year cycle?) These energies actually maximize from July 30 through August 3. There have been 'shadows' preceding and will be echoes afterwards for quite some time."

Crawford adds: "This huge alignment will be followed by a Full Moon on the Fall Equinox and a Lunar Eclipse on the Winter Solstice. We expect the depth and scope of dislocations during this period to exceed anything we have ever witnessed, both in otherwise civilized interaction among nations, and likely our fill in natural disasters."

"We continue to recommend extreme caution and proper emergency measures such as extra food, water, medicines and cash over the next 24 months in particular. Do NOT wait any longer!!"
>>

The period starts today, and the last quoted paragraph extends the warning period for two full years. Crawford is reported to be 200% short [stocks].

Friday, July 23, 2010

Buy SPY (sell puts)

Buy SPY via selling SPY Aug 100 puts. More rebalancing of my short strangle, getting me close to net neutral on SPY, with SPY@110.5.

A few minutes later, I cover my short SPY Aug 84 puts for a nice profit to free up capital and in case there is a waterfall decline in the stock market . So for August I am currently short SPY Aug 87, Aug 95, Aug 100 puts, and short SDS Aug 31 puts.

Long BRKB, GLD, SPY*, TLT*
SPY offset by SDS, net neutral SPY
TLT offset by TBT, net long TLT

Buy BRKB (sell puts)

Buy BRKB via selling Sep 60 puts. My short Aug 60 puts are nearing delta zero, so I add more puts to continue to have exposure.

Long BRKB, GLD, SPY*, TLT*
SPY offset by SDS, net long SPY
TLT offset by TBT, net long TLT

Short Strangle on TLT (TLT/TBT)

Sell a strangle on TLT via selling TLT Sep 93 puts and TBT Sep 30 puts. I am skewing to the bullish side TLT@100.7. Sep to Dec is a seasonally good time for bonds.

Earnings season used to be a time when I did a lot of trading, but as readers can tell, I am mostly trading the options on ETFs now.

The stock market rally has pushed me to a net short position on SPY.

Long BRKB, GLD, SPY*, TLT*
SPY offset by SDS, net short SPY
TLT offset by TBT, net long TLT

Friday, July 16, 2010

7-0-1 for July cycle

Seven winners, one break even, zero losers for the July option cycle, another solid month.

The seven winners:
SPY Jul 66 put
TBT Jul 31 put
SDS Jul 30 put
TLT Jul 90 put
BRKB Jul 60 put
SPY Jul 92 put
SDS Aug 27 put

The one breakeven: SPY Jul 88 put

While the market did swing, it didn't move enough for the way out of the money option buyers to make money if they held until expiration.

Most of the winners expired without drama near delta zero. With the steep Friday sell off in stocks I am now net long SPY.

Long BRKB, GLD, SPY*, TLT*
SPY offset by SDS, net long SPY
TLT offset by TBT, net long TLT

Wednesday, July 14, 2010

Buy SPY (sell puts)

Buy SPY via selling Aug 95 puts SPY @109.7. More rebalancing, as the stock rally rolls on. I am surprised at the strength of the rally, and that bonds and gold also rally.

Long BRKB, GLD, SPY*, TLT*
SPY offset by SDS, net slightly short SPY
TLT offset by TBT, net long TLT

Sunday, July 11, 2010

Barrons: "Beware of Bond Funds"

Another is what sometimes seems like an endless stream of warnings about a top in the bond market is featured in Barrons this week. The fundamental arguments are clear enough. However, when the pundits are warning people, the top is usually still a ways off.

An interesting play might be high yield such as HYG as the spread between "junk bonds" and Treasuries is historically high for the current level of defaults. There are three ways this might correct: defaults are going to go way up, Treasury yields will rise, the yield on the junk bonds will fall.

As always, the blog is mostly about trading, so longer term investments are only talked about in general terms.

Thursday, July 08, 2010

"Invest like a millionaire"

From a Marketwatch article.

>>
According to the Capgemini and Merrill Lynch Global Wealth Management 2010 World Wealth Report, these high-net-worth individuals had, on average, 29% of their assets in stocks in 2009; 31% in bonds, and 17% in cash.

They also kept 18% in real estate, including commercial real estate, real estate investment trusts (REITs), residential real estate (excluding their primary residence), undeveloped property, farmland and the like, and 6% in alternative investments, such as structured products, hedge funds, derivatives, foreign currency, commodities, private equity, and venture capital.
>>

One caveat is that the survey is done by Merrill Lynch, so it is going to skew towards products they sell such as stocks and bonds. As I have always advocated since starting this blog, for the average investor (not trader), diversifying slowly into age appropriate assets is usually the best way to go.

Buy SPY (sell puts)

Buy SPY via selling SPY Aug 87 puts, SPY @106.8. I re-balance the short strangle back to delta neutral. As the market moves, the delta changes.

Long BRKB, GLD, SPY*, TLT*
SPY offset by SDS, net neutral SPY
TLT offset by TBT, net long TLT

Wednesday, July 07, 2010

Cover short put SDS

Cover short SDS Aug 27 puts. I close out this position for a profit, just in case the strong SPY rally rolls past resistance. These puts might come back into play at SPY 120 or so. I am still short SDS Aug 31 puts and Jul 30 puts. Because of the rally and the way options move, I am slightly short SPY now.

Long BRKB, GLD, SPY*, TLT*
SPY offset by SDS, net short SPY
TLT offset by TBT, net long TLT

Buy BRKB (sell puts)

Buy BRKB via selling Aug 60 puts BRKB@78.7. My Jul 60 puts are near delta zero.

Elsewhere, GLD has had a couple of hard down days. Looks like a shakeout, as the gold uptrend is still intact. As SPY rallies, I am close to delta neutral on SPY.

Long BRKB, GLD, SPY*, TLT*
SPY offset by SDS, net neutral SPY
TLT offset by TBT, net long TLT

Friday, July 02, 2010

Buy SDS (sell puts)

Buy SDS via selling Aug 31 puts SDS@38.6. I expected a market rally on the employment report. The tiny bump up only lasted a short time. I get closer to delta neutral with this trade, but am still net long SPY.

I am already short SDS Jul 30 puts, SDS Aug 27 puts, both are close to delta zero. On the other side I am short SPY Jul 66 puts, Jul 92 puts, Aug 84 puts, as well as a SPY Sep 96/88 put backratio.

Long BRKB, GLD, SPY*, TLT*
SPY offset by SDS, net long SPY
TLT offset by TBT, net long TLT

Thursday, July 01, 2010

Half way into the year

Half way into the year:
GLD up about 14%
SPY down about 8%
TLT up about 11%

TLT is neck-and-neck with GLD after factoring in dividends.

Stock market technicals look terrible. SPY has broken support at 104, activating a head-and-shoulders top that projects to about the 87 level. The 50 day-moving average is about to cross under the 200 DMA. Some call this a "death cross," with that moniker, it is bearish indicator.