Buy GLD (sell puts)

Buy GLD via selling April 95 puts, GLD @109.4. The March put position is nearing delta zero, so I am opening up an April position. This doesn't seem like a great entry, but time decay means there may not be a much better entry point in the time available.

Option traders need to look at both time and price. In general, option buyers need to get both time and price correct to make money.

Long GLD, SPY, TLT

Buy SPY (sell puts)

Buy SPY via selling April 90 puts, SPY @109.1. The delta on my March puts is getting close to zero. The big dip this morning is an opportunity to to get some elevated premium on April options. If I had to guess, I would guess SPY continues lower. However, for the 90 strike to come into play, stocks would fall another 18% by April, which would be full meltdown mode, and I don't see that.

Again, stock market declines of 10% are common. However, -10% in one month is an exceptionally bad month. Two such -10% months is a row would be even more exceptional. It seems like a relatively safe bet to take the other side.

Long GLD, TLT, SPY

Bears on the run

The stock market decline after the Consumer confidence number came in weak seemed too easy an opportunity to go short. The market had been up five days in a row and was near technical resistance. So what happens the next day? All those bears find themselves in a trap, and either have to cover and take their lumps, or hold on with losses.

GLD (chart) is showing a pattern of lower lows, lower highs--that is bearish.

TLT showing some strength, and is still outperforming both GLD and SPY since January 1. Who would have thunk that? For the most part, the news hasn't been surprising, just the usually chatter and reports. However, the sentiment on Treasury bonds was so bearish at the start of the year, that even though the news was about as expect (perhaps a bit worse for bonds with the Chinese government reducing their bond buys) all the fundamental information was already factored into the price.

Long GLD, SPY, TLT, though all options have decayed to the point that I am closer to flat than long on all three.

5-0 for February

Five winners, zero losers--a good month of trading for the February option cycle. It was certainly a rollercoaster ride, as every position was in the red for a time, many deeply in the red. The winning trades were short puts on GLD, SPY, TLT, TM, and a long put on SPY.

Yes, long premium worked out for a gain this time, even though the odds are against that result. I lucked out on the long SPY puts (part of a bearish SPY vertical put spread) as the market continued straight up after I sold the puts. The option value declined about 50% in three days, as the market rallied and time decay started to accelerate on the March option.

Toyota TM moved lower from 77 to 70 after I sold the put, but the margin of safety of selling the 65 strike, way out of the money, worked out. The drawdown was over 150%. Drawdown is the hypothetical exit at the worst point in the trade. It is extremely relevant for sellers of options because of potential margin calls.

The markets "dodged the meteor" when a surprise Fed rate hike rattled the overseas SP futures, but strong buyers stepped in and bought in New York. If the market was more fragile, that kind of news could bring -200 or -300 on the Dow on the day. Doing it on option expiration can make for a lot of impact on financial markets.

Long GLD, SPY, TLT for March expiration, all short puts

Upside bias

I've been busy with other things, and not spending so much time on the markets. There is a mostly upside bias. Some would say it is due to all the liquidity being pumped in by the Fed.

The bears have been hit hard lately. Later in the year, the tax law sunsets will loom larger. Taxes on dividends and capital gains are going back to the old higher rates. I don't know how much selling or reallocating this is going to cause, but it could add fuel to any equity declines in the fall.

Long GLD, SPY, TLT, TM
I have options on all of these expiring this Friday and all are safe, barring a meteor strike kind of event. I have already sold March options on GLD, SPY, TLT.

Happy Lunar New Year

Gung Hwa Fat Choy. It is the Year of the Tiger, the white Tiger at that. Yes, that is the genesis of the name of the blog, the year of the tiger.

Over at MarketWatch there is this bit (article):
>>
Turning to fortune tellers for the year ahead also offers limited comfort. Brokerage CLSA, in their annual light-hearted feng shui guide for investors, warn that Tiger years are typically marked by dramatic changes and even upheaval. Further, much like the tiger itself, the year will be energetic and powerful, but impulsive and risky.
>>

Cheers.

Long GLD, SPY, TLT, TM

Buy GLD (sell puts)

Buy GLD via selling Mar 91 puts, GLD around 106.50 at the time the order was filled. One person describes the trade this way, "you get paid to place bid." If the underlying goes down to the strike, you buy, if not you get the small premium. (I already sold Feb 92 GLD puts, and those are almost sure to go off the board.)

As for the stock market, it reminds me of the old saying about weather in the Midwest: "if you don't like the weather, wait a bit, it will change." Don't like the mood of the stock market, don't worry it will change. The market swings quickly from greed to fear and then back again.

Long GLD, TLT, TM, SPY

Buy SPY (close long put)

Buy SPY via selling the Mar 102 puts that I own, for a tiny profit, SPY at 107.05. Time decay is starting to accelerate. I entered this trade as part of a 102/94 vertical, and am still short the SPY Mar 94 put.

Yesterday's trade selling TLT puts was about as poorly timed as any. Soon after, TLT dropped on “saber rattling” by Chinese military officials saying that their government should sell some of their treasuries. It happens (SPY drifting lower as I type this up, too--I don't have much touch right now.)

I may sell a March GLD put soon, but would like a better entry point.

Long GLD, SPY, TLT, TM

Buy TLT (sell puts)

Buy TLT via selling Mar 86 puts, TLT at 91.50. I would have preferred to wait for TLT to decline under 90, but now am thinking the decline may come too late, to get much premium on March puts.

Remember the drumbeat at the beginning of the year that inflation was sure to rise, and bonds were sure to tank. So far it hasn't happened. Right now TLT is one of the better performing asset class long ETFs for calendar 2010.

Long TLT, GLD, TM
Short SPY

Weathering the storm

Reports are for a "snow" day in New York, so don't read too much from today's action. The ride has seen volatility rise. Overall, I still believe that the stock market trend is for lower lows. However, it is not going to be a straight down hill ski run. I am looking for an entry to roll the TLT short puts so that I continue to have exposure.

Long GLD, TLT, TM
Short SPY

SPY target 102.5, GLD 99

My chart reading gives targets of SPY 102.5, and GLD 99, TLT 89. As always, predictions can be entertaining, but the money tends to be made in managing the risk, with right sizing of positions, finding good entry points, and timely exits.

Wow, what a wild ride for most markets on Friday. Again, the exhortation is "don't do anything stupid, fast markets are not my friend." A reassuring thought is that sometimes option positions can be self managing, if the size remains small and the position is properly constructed.

My SPY position is:
short Feb 98 put
long Mar 102 put
short Mar 94 put
That boils down to net short SPY, but not by a lot. If the market decline continued to accelerate down, gamma would kick in and the position starts to reverse to net long SPY.

I'll state the obvious, options are not for everyone--there are a lot of variables.

Long GLD, TLT, TM
Short SPY

Bumpy ride

It sure has been a bumpy ride, especially in Toyota. I am holding my positions for now. I have a huge percentage loss in my TM short puts, though it is a relatively small dollar amount on a small position.

The stock market and gold are having their ups and downs as well.

Long TM, GLD, TLT
net short SPY

Doubling down with a "Texas" hedge

I haven't heard the term Texas hedge before. It is used in this Barron's article (link).

This is the context...
>> "I am thinking of selling Intel March 20 puts -- and as a hedge, selling an odd lot of the 17.50 puts as well," he said.

The natural question is: Why would someone bet that investors are too afraid and sell say five Intel March 20 puts and hedge with less than five March 17.50 puts? The likely answer is because he's willing to wager big that even if he misses out on the March 20 put trade, he'll make his money back.

"I love the Texas hedge," the trader said, referring to a position that increases risk even though a hedge is supposed to decrease risk.
>>

Market action has been surprising. After spending some time this past weekend looking at charts, I thought more downside stock market action was likely, not a big rally day. I also thought gold was in for more downside. I lucked out on getting in near the bottom on Toyota (TM), though as almost always it is a small bet.

Long TM, GLD, TLT
Net short SPY