Friday, November 26, 2010

Buy TBT (sell puts)

Buy TBT via selling Jan 30 puts, TBT around 36.3. Like I wrote earlier, the trend in bonds has reversed and the percentage play now seems to be to sell bond rallies.

Stocks and gold fall, while treasury bonds rally. As I have been writing, my schedule is packed now, so trading and blogging are going to be on the light side.


Friday, November 19, 2010

10-0 for November

Eleven winners, zero losers for the November option cycle. It was a bumpy ride, but all the short options expired out of the money. All small fish, or tiny fish in the net, but no losers to spoil the month.

Winners include a Backratio on AAPL, and short put trades: 3 SPY, 2 GDX, 1 TLT, 1 TBT, 1 BRKB, 1 GLD.

Open positions for Dec are slightly positive at this point, which is something considering how volatile the markets have been.

all are short puts well out of the money

Saturday, November 13, 2010

Has the trend changed?

Has the trend changed? That is the question on many minds. It almost certainly has for long dated bonds (TLT). I would tend to vote "nay" on stocks (SPY) and gold (GLD) for now, but more evidence, more technical damage can flip those as well.

A market can be trending or in a range, if trending up, it can go to being in a range or trending down. Violent reversals, that look like the letter V or the letter A on the chart tend to be uncommon occurrences.

Sentiment is one of the most valuable indicators for trend changes. Right now, the anecdotal is that gold bulls are relatively complacent despite the violent swings. More downside seems likely, but until that occurs and major support is broken, I would vote that the trend is still up.

For stocks, it will be interesting to see how quickly people turn bearish on this dip. In all three markets (bonds, gold, stocks), it did seem to me that the period right after the election and Fed moves, looked like massive short covering and whipsaw kind of action. That kind of trade often unwinds.

My only Nov short option position that seems to be in real danger for expiration week is TLT, with the strike at 94 and the trade at 95.8. The rest of the chickens are almost certainly going to come in safe for another positive month for these low risk low reward trades. My open Dec positions are slightly in the red overall.

Again, I don't have much time, for trading or blogging with my current schedule, so if there are fewer updates, or late updates, that is the primary reason.

Tuesday, November 09, 2010

Buy GDX (sell puts)

Buy GDX via selling Dec 52 puts, GDX @63.4. I open a Dec position. It is tough to do with the overextended up move, but the benefit of selling puts is the flexibility.

I bought these early in the day, close to the top. Can you say "oops?" Or perhaps some more colorful words come to mind as I am down about 130% on a notional basis, though as almost always with these naked put trades, the dollar amount is small.

The catalyst seems to be an increase in margin requirements for silver contracts.


Sunday, November 07, 2010

Common mistakes

Marketwatch has an article "The 7 biggest mistakes fund investors make" (link). Some of them apply directly to traders, some not so much.

1. Chasing returns
2. Rear-view investing
3. Overreliance on rankings and ratings
4. Assuming you can buy and hold a fund forever
5. Failing to understand what the fund does, how it invests or what it buys
6. Letting emotions rule
7. Focus too much on a fund, and not enough on the portfolio

For traders, 1, 2, 3, 6, apply directly. Another might be focusing too much on picking winning trades, and not enough on risk management and right sizing of positions. Number 4, doesn't apply direct, but perhaps for trading, thinking that a single indicator will always keep working.

An extra hour for thinking

With the extra hour of the time change, I have some time to type up some market thoughts. The old IBM had signs at all their offices "THINK," though for some that extra hour may be used for "DRINK." Cheers.

The hunt for yield, or capital appreciation, has folks moving mountains of cash into stocks, precious metals. The long bonds have taken a hit, though the shorter durations such as 2-year notes are still at the highs.

The Fed's QE2 and how bonds have responded, reminds me of when the Bank of England decided to sell off some of their gold reserves back in 1999/2000. By announcing the size before selling, they got some of the worst gold prices ever. The open question is whether the Fed is getting a similar deal as it buys bonds and notes, by announcing how much and when it is going to buy? The trick part is that there may be a QE3 and 4, and as many sequels as some movie titles get. So shorting bonds (or being long bonds) can be a rollercoaster ride--it certainly was this past week.

I think precious metals still point higher. I haven't seen much excitement at the public level, that often comes at intermediate term tops. Mostly I see caution. Caution isn't abundant at major tops for any market, or if the cautious majority turn out to be correct, they turned cautious about 30% or so too early in terms of price.

Bonds are split. HYG (junk bond ETF) rallied this past week, while TLT (20 year Treasury ETF) got crushed in a wild week. Seems like being net short the 20-year is the percentage play now, which is a reversal of what I've been doing most of this year.

I think stocks are in for some turbulence, but a big market down move seems extremely unlikely. With option premiums moving lower and lower, selling premium becomes less rewarding. I am even contemplating some longshots (lower probability trades with a high potential pay out) on the short side, such as bearish vertical SPY put spreads out to January.

Friday, November 05, 2010

Thursday, November 04, 2010

Buy TBT (sell puts)

Buy TBT via selling Dec 30 puts was filled during day.


Buy SPY (sell puts)

Buy SPY via selling Dec 104 puts, SPY @121.2 to open a Dec position.

I haven't had much time for blogging or trading recently.