Friday, December 27, 2013

Weekly recap: sell puts on BRKB and V

My schedule is going to get better for blogging. However, I am toying with the idea of weekly updates, instead of reporting each trade in near real time. This week I held my nose and sold puts on V Visa and BRKB Berkshire Hathway. Yes, the stock market is extended on the upside, but what is a person to do? Keep waiting? Hedge? I choose to hold my nose and buy a little.

Again for the new readers, selling puts means I am bullish on a stock. Selling out of the money puts is a low risk, low reward, high probability strategy. Again, do not be excited by the high percentage of winners. Those are the approximate odds of profit going in. The person buying the puts is hoping for a 5-to-1 or 10-to-1 payoff, with a small chance of getting paid. I am taking the opposite side, selling the put with a 80% to 90% of winning, but getting paid very little for taking that side of the trade.
Long BA BRKB IWM IYR TM V XOP XRT
Net long SPY
Net short APC

Friday, December 20, 2013

16-3 for December, grade C-


16 winners, 3 losers for the December option cycle. Unfortunately, all 3 losers were painful, with the worst at about 900% basis the premium collected. I apologize taht I didn't report all the trades on the blose. 
As almost always with options, could have been better, could have been worse. I reported closing out my short puts on LGF, and I would have had a 100% gain instead of a -175% loss had I held on. On the other side, I close some Dec 85 APC puts while the stock was around 84.5. Had I held on, that loss would have snowballed. I close my short Dec 80 puts while the stock was near its lows near 75 for about a 900% loss basis the initial premium. It wasn't a good month.

As I often write, fast markets are not my friend. While other more nimble traders thrive on fast moving prices, my trading often suffers. My trading account was down just a tad (less than 1%) for the month. Given all circumstances, I was tempted to bump up my grade. Closing each loser was a rational decision. However, with the stock market at record highs, and my account down for the month, there is only so much rationalizing I can justify. Unlike some others on the Internet, I do report my losers as well as my winners.

Going forward:
Long BA BRKB GDX IWM IYR TM XOP XRT
Net long SPY
Net short APC

Monday, December 09, 2013

Cover short LGF puts (ouch)

I covered my short Dec 30 puts for a huge percentage loss (-350% basis the premium). I played with fire and got burned, staying too long at the Lions Gate bull party. As always, there is the chance that this is the bottom. 

However, the loss is already more than I typically want to take. It is the big risk of selling puts, a quick dive in the stock price. I sold these puts when the stock was about 35. I am still short Dec 39 and Dec 43 calls, but the premium from those do not balance out the huge hit I took on the put side of the short strangle. These things happen.

Long BA BRKB GDX GILD IWM IYR
Long KORS M NSC WHR TM XOP XRT
Net long APC
Net short LGF

Sunday, December 08, 2013

The Sound of Music and gold

I watched the recent live performance of The Sound of Music on TV. The investment angle that came to mind is all those that are preparing to hunker down, with ammo, food and water stockpiles. About half the time, it is like the movie, there is a very short time to leave. The family or person fleeing often has to go with what they can carry. Any financial assets, such as stocks, bonds, deeds to real estate, may or may not have any value. Many assets get frozen during emergency times.

That's where a bit of gold and a bit of silver can be helpful. If the fleeing family has a few rolls of gold and/or silver coins, that might be enough to buy passage, or bribes, or food or lodging during extreme times. Paper money, checks, other forms of payment may not be as useful during turbulent times. I'll not overlook the value of friends (the nuns helped them escape, the young man decided not to turn in his girlfriend) and faith. I believe that faith is more valuable than gold during the worst of times.


As much as I am fan of the Vanguard Way, the Boglehead Way, historic events are times when having some physical assets may come in handy. No paper asset allocation can be sure to withstand the storms of war, or revolution. Of course, physical assets too have their flaws. They can be stolen, or confiscated, or paint a target on the person with those assets if word gets around. Say, there are a thousand refugees arriving in a foreign town. A couple of those families are flashing gold and silver. Word gets around. Muggings or worse may be in store for those paying in metal.

Some may say I am being alarmist. To that I say: read some history. Look at the great powers in 1900 and how many experienced major events by 1950. How many stocks, bonds, deeds to real estate in those nations, became essentially worthless? Americans like to cite their own financial history, but in so many other major powers, the financial reset button got hit. Only in England, among the financial powers in 1900, was there a relatively stable financial market. Japan, China, Russia, France, Italy, Germany, all saw huge disruptions in their stock and bond markets. This is where the Boglehead philosophy of stocks and bonds can fail. 


Let's just put it in round numbers, with the U.K. and U.S. having stable markets, the rest of the major financial powers unstable (Switzerland is not a major power). So 2 out of 8 is 25%, 25% chance of stable markets during that 50 year span. Stable is a euphemism because it includes the Great Depression and a 90% drop in U.S. equities. This is why I have always been an advocate of having some physical assets. Again, nothing, absolutely nothing is foolproof and anything done the wrong way, can be more trouble than it is worth. Still...

Hulbert on: seeing bunnies in cloud formations

Mark Hulbert has an article at Marketwatch (link) with this eye-catching quote:
Leinweber views charts such as this one as an example of a potentially dangerous practice known as “data mining”— endlessly analyzing a database until you “discover” a pattern. The result of this practice is “the analytical equivalent of finding bunnies in the clouds

Traders, analysts, talking heads do it all the time. They might use it for forecasts, to "prove" manipulation, mostly for selling and promotion. What it often boils down to is seeing bunnies in clouds. Some may say that I am doing similar, and in part that is true. I see what I believe are repeated patterns and trade based off them.

The catch with the charts in the article are that the scales are not similar. The 1929 chart has the market booming from 200 to 350 a 75% up move on the part of the chart shown. Yes, the current stock market rally has moved up that much and more off the lows, but the part that is supposed to match is a much more modest move.

Wednesday, December 04, 2013

Buy BA BRKB TM, sell APC strangles

An abbreviated update:
Sell puts on BRKB, TM, BA,
again selling puts is bullish move

Sell strangles on APC,
again, selling strangles is a bet on a trading range

Long BA BRKB GDX GILD IWM IYR
Long KORS M NSC WHR TM XOP XRT
Net long APC, LGF

Sunday, December 01, 2013

Fearful rookie getting back in

I've been away. I did one small trade, selling BRKB puts.

There is a recent post on the Boglehead (Vanguard) forum about missing out on the bull move (link).
>>
I did not participate in the market rally of the past 4 years due to fear...

>>
 
Like I sometimes write, on the Internet almost everyone that reports is a winner. The losers tend to slink away in silence. For the most part, market timing is a losing game. Most individual investors do poorly. The post linked is not a good sign for the stock market bulls, but by itself doesn't mean much.

Still, I have found that anecdotes are useful. When silver was topping, there were many posts from novices thinking it was a sure thing, a sure win, when silver is among the most volatile of vehicles.

There was an appearance at a stock market group of a recent finance degree graduate who wanted to tell all of the market veterans there that gold was the only sound investment. That hyperinflation was the only possible outcome. When novices and rookies some how have that in their heads, the odds of that happening are near zero. Yes, there may be a rookie out there that lucks into a correct call. Some even have a string of correct calls and make decent money trading.

Readers know that I like to have the odds in my favor, so the 1-in-1000 chance that a rookie or novice gets it right is not my kind of play. Better to take the 99.9% odds.

I came into this year (calendar 2013) with a bearish outlook. One thing that turned me around was anecdotes from several people that were extremely afraid of the stock market.

Updates may or may not be forthcoming. By January 2014, I should be back to a more regular schedule. In the interim, I can not say.

Thank you to all the readers, especially the few that may have been with me for the years I have been blogging.

Friday, November 15, 2013

16-1 for November, also roll XOP XRT put sales

Sixteen winners, one loser for the November cycle. Again, before new readers get too excited, almost all of these were high probability, low reward trades. The trader taking the other side was hoping for a 10-to-1 payoff for buying such risky options.
 
I have another positive month. It may seem like child's play to trade a mostly up market. However it is tempting to out think the room and try to be the hero and call the top.

I also sell puts on XOP XRT.
Sell XOP Dec 60 puts
Sell XRT Dec 81 puts

This is the Oil Exploration ETF (XOP) and the Retail ETF (XRT). Both trades are way out of the money, very low reward, high probability of success (aka as worm trades).

Going forward I am:
Long BA BRKB GDX GILD IWM IYR
Long KORS M NSC WHR TM XOP XRT
Net long APC
Net neutral LGF

Wednesday, November 13, 2013

Buy M (sell puts)

Buy M via selling Dec 45 puts
Macy's up on earnings. Yes, another worm trade. As option expiration approaches, I am putting some capital to work.

Long AMGN BA BRKB FDX GDX GILD IWM IYR
Long KORS M NKE NSC WHR TM XOP XRT
Net long APC GLD LGF SPY

Tuesday, November 12, 2013

Buy GILD (sell puts)

Buy GILD via selling Dec 55 puts
Gilead Science is a drug company. GILD has had a good run, and 55 is way out of the money, making this yet another worm trade.

Long AMGN BA BRKB FDX GDX GILD IWM IYR
Long KORS NKE NSC WHR TM XOP XRT
Net long APC GLD LGF SPY

Thursday, November 07, 2013

Rebalance APC LGF (sell calls)

Sell APC Dec 100 calls
Sell LGF Dec 39 calls

As the stock market moves lower, the short strangles take on more delta and lose money. I rebalance closer to neutral, though am still net long both Anardarko and LionsGate. Overall, lots of red minus signs for my trading account.

Long AMGN BA BRKB FDX GDX IWM IYR
Long KORS NKE NSC WHR TM XOP XRT
Net long APC GLD LGF SPY

Wednesday, November 06, 2013

Buy KORS & TM, sell APC strangles

Buy KORS via selling Dec 60 puts
Buy TM via selling Dec 115 puts
Sell APC strangles: Dec 85 puts/Dec 105 calls

Some late reports from me. Michael Kors is the luxury goods maker, TM is Toyota Motors, APC Anadarko Petroleum.
Long AMGN BA BRKB FDX GDX IWM IYR
Long KORS NKE NSC WHR TM XOP XRT
Net long APC GLD LGF SPY

Sunday, November 03, 2013

Fear of missing out: Marketwatch article

Fear and greed are what tends to drive the markets. Fear of missing out is one of the more common forms. Kirk Spano at Marketwatch has an article about so-called panic buying (link), or the fear of missing out. Performance chasing is another word for it.

Those that only listen to those bragging about profits, might think that market timing is easy because 90% of the reports on the Internet and in person, seem to come from winners. Keep in mind, that the reportage comes from a self-selective group, where the losers tend to be silent. The saddest cases are those that lose everything and never want to speak about the markets again. You rarely hear about the losers on Internet brag boards.

As always, this kind of article is a red flag. However, by itself it is not actionable. A person can continue to watch for other signs and stay alert. It is a not a low risk time to be buying stocks. The bear visits all markets. Trying to time market tops tends to be a difficult, low probability game. Readers know that I tend to favor high probability trades.

Saturday, November 02, 2013

85/15 the Taleb Portfolio

Roger Nusbaum has a blog entry about the Taleb Portfolio (link). Basically, it is keeping 85% to 90% very safe and taking big risks with the rest. In a recent study, 85% in CDs or cash equivalents, and 15% in triple-leveraged ETFs was a winning mix. The caveats as always, are that this is backwards looking. What worked last time may fail the next time.


/edit to add: stable markets would be a time when the 85/15 would under perform standard buy-and-hold. For example, if the stock market (or other market is someone is trading gold or bonds) is up say 5%, a triple-leveraged ETF would likely be down 10% to 15% for the year because of decay and costs, while the average ETF might be up 4.7% (after modest costs). Some might chirp that the interest earned from the CD or Treasury bills might make up for that. However, keep in mind, that if interest rates go up, the decay and carrying costs for the leveraged ETFs will tend to go up as well.

As a fan of process, I find ideas interesting. That said, I am a relatively old dog in the markets (I started trading in 1987), and never have been a big fan of the leveraged ETFs. Others find them useful. Leveraged ETFs are a way to avoid margin calls while using margin and a way to use leverage in retirement accounts.


As I always say, there are a thousand different ways to make money in the markets. Find one (or two or more) that work for you, that match your personality, your strengths. What works for another person may not work for me and vice-versa.

Friday, November 01, 2013

Sell LGF strangles

Sell LGF Dec 30 puts
Sell LGF Dec 42 calls
LionsGate Entertainment has Enders Game opening this weekend and Catching Fire on 11/22, so this a roll of the dice. A short strangle is a bet on a trading range. With the movie releases, option volatility is up.

Long AMGN APC BA BRKB FDX GDX IWM IYR
Long KORS NKE NSC WHR XOP XRT
Net long GLD LGF SPY

/edit to add: Early report is $28 million for the opening weekend for Enders Game. One estimate was $25 to $30 million, so right in the range is what a strangle seller hopes for. We will see if the stock moves on the news. 

Again a reminder, that I will be reporting trades way after the close for the next two months because of limited computer access.

Wednesday, October 23, 2013

Buy BA NSC (sell puts)

Buy BA via selling Dec 105 puts
Buy NSC via selling Dec 75 puts

I sell puts on Boeing and Norfolk-Southern Railroad on their earnings moves. Story is mostly the same, low risk, low reward, high probability worm trades.

Oil and oil stocks drops today, and my positions in APC and XOP move against me.

Long AMGN APC BA BRKB FDX GDX IWM KORS
Long LGF NKE NSC WHR XOP XRT
Net long GLD SPY

Tuesday, October 22, 2013

Buy WHR (sell puts)

Buy WHR via selling Dec 110 puts
Whirlpool up on earnings. I see chart support at 130 and 120. Elsewhere Amgen AMGN is up after good earnings.

Long AMGN APC BA BRKB FDX GDX IWM KORS
Long LGF NKE WHR XOP XRT
Net long GLD SPY

Monday, October 21, 2013

Buy APC BRKB IWM (sell puts)

Buy APC via selling Nov 80 puts
Buy BRKB via selling Dec 100 puts
Buy IWM via selling Dec 95 puts

I sell puts on Anadarko Petroleum, Berkshire Hathaway and the Russell 2000 ETF. Option expiration frees up a lot of buying power and I put some of it to use. Record highs in the stock market mean less equity exposure than I would like at this point in the option cycle. All of these are what I have termed worm trades, way out of the money, high probability, low profit. The fishing terminology is a catch so small that it isn't even a small fish, it is digging for worms.

Again, the caveat for newer readers excited by my high percentage of wins (12 and 1 for October). Most of my trades are at 80% to 90% probability to begin with. The payoffs are scaled to match. The folks buying the puts that I am selling have a low percentage chance of a profit, but hope their option is a big winner paying off 5-to-1 or better to compensate for the low probablity.

Long AMGN APC BA BRKB FDX GDX IWM KORS LGF NKE XOP XRT
Net long GLD SPY

Sunday, October 20, 2013

Protective puts and collars

There is a thread on the Vanguard forum (link) asking about protective puts. The rough outline is as follows:

Example of an 100k portfolio:
20k cd ladder (1 to 10 year with 5 year average duration)
79.2k SP500 ETF (example only)
0.8k put (2 to 3 month in duration) which gives me the right to sell my ETF if it drops below 55.4k (70% of 79.2k) before the put expires

The cost of protection with at the money puts is easier to find, it is the VIX. For example if VIX is 14 on SPY puts, the cost of insuring with at the money puts is 14% per year. For out of the money puts, the skew means the implied volatility is higher, typically about 25 if at the money is at 14. I know that I have lost almost all of you by now by keep reading the mud gets clearer.

The other problem with the strategy is that insurance is not at a fixed cost. When the market is in turmoil, the cost of insurance, doubles and doubles again. So what is projected as a 1% annual cost becomes 2% or 4% in volatile markets. Interest rate is another input for option pricing, and high interest rates would mean the same, much higher premiums.

Another point is that 10% monthly declines are rare. Back-to-back 10% declines even more so. Three in a row are even more so. Someone buying puts that far out of the money is only going to get to use their insurance maybe two or three times in a typical decade. Of course, if a person knows when the big banana is coming, they can do better--but we don't know. No one knows. Options try and price things according to the odds.

Right now, there has been some research into collars, selling calls and buying puts, as a profitable strategy. Like most strategies that get published, it has a recency bias (worked recently). Publishing also tends to make a strategy more popular, and less profitable as more people use it.

The bottom line, buying protective puts is a form of insurance, and it costs. In the example given the premium is about 1% a year in calm markets, with the caveat that the premium will expand during volatile markets. The protection is rather modest, with a 20% deductible so to speak, before a claim is paid.

Collars can be useful for people with special circumstances. The more famous examples are executives at high tech companies that have just gone public, but the stock they are given has a lock up period before they can sell. By doing a collar, the person guarantees a floor, and gives up some upside. For average folks, reducing the equity allocation is a simpler plan, with nearly the same benefits. Another possibility is that tax reasons mean a sale next year works out better than a sale right now. Same deal, give up some upside to get a floor, by doing a collar.

Friday, October 18, 2013

12-1 for October, grade B+ buy XOP

Twelve winners, one loser for the October option cycle, grade B+. I sell some XOP Nov 65 puts. XOP is the Oil Exploration ETF. I did okay this month. I avoided some possible losers such as IBM and EBay that I have traded earlier. 

My timing was so-so on most of the put sales. Most went deep into the red before recovering and expiring worthless for a win. So for the most part, I was on the right side of the markets. My recent forays into gold have been profitable, though it takes a lot of capital to sell GLD puts.
 
Long AMGN APC BA BRKB FDX GDX IWM KORS LGF NKE XOP XRT
Net long GLD SPY

Tuesday, October 15, 2013

Buy BA FDX (sell puts)

Buy BA via selling Nov 100 puts
Buy FDX via selling Nov 105 puts

I sell puts on Boeing and Federal Express. Some time back FDX had a nice break out at the 105 level and that is the strike price for the short puts. Boeing has been a strong stock, except when one of their planes has an incident.

The stock market closes near the lows, so these positions start in the red. However, they are more of the low risk, low reward, high probability put sales that I have been doing for some time now. None of my October positions looks to be in serious danger of assignment (when the stock moves below my put strike price).

Long AMGN APC BA BRKB FDX GDX IWM KORS LGF NKE XRT
Net long GLD SPY

Thursday, October 10, 2013

Sell GLD strangles (puts and calls)

Sell GLD Nov 106 puts
Sell GLD Nov 144 calls
A short strangle is a bet on a trading range. This one is far out with tiny premiums. Some may ask why bother? The premiums are tiny, but I have buying power and don't think I will find that many new positions to take before October expiration.

Massive rally in stocks today, thank goodness, as the red ink was getting rather deep.

Long AMGN APC BA BRKB GDX IWM KORS LGF NKE XRT
Net long GLD SPY

Monday, October 07, 2013

SPY backratio

Buy SPY Nov 154 puts
Sell 2x SPY Nov 151 puts
This backratio is for a net credit, is net bullish, theta positive, delta positive. It is a bullish trade, with an explosive profit potential on a decline to the lower strike. A decline below SPY 148 and losses get large. I've been doing similar SPY backratios for many months now, and so far I have collected the smallish premiums each time.

Long AMGN APC BA BRKB GDX IWM KORS LGF NKE XRT
Net long GLD SPY

Thursday, October 03, 2013

Buy XRT (sell puts)

Buy XRT via selling Nov 75 puts
 
I open a November position in the retail ETF. Again, I am selling puts far out of the money. Most of the other November positions are sinker deeper in the red. For now I am holding on.

Long AMGN APC BA BRKB GDX IWM KORS LGF NKE XRT
Net long GLD SPY

Wednesday, October 02, 2013

Buy KORS (sell puts)

Buy KORS via selling Nov 57.5 puts
 
This is after November earnings for luxury goods company Michael Kors, so there is added premium and added risk. I compensate, by going further out of the money.

Long AMGN APC BA BRKB GDX IWM KORS LGF NKE XRT
Net long GLD SPY

Monday, September 30, 2013

Buy LGF (sell puts) plus a stock list

Buy LGF via selling Nov 28 puts
 
An important date for Lionsgate Entertainment is November 22. This is when the second movie from The Hunger Games trilogy starts. For a long time, I have looked at that date as a kind of pivot for the stock. A time, when the easy bull money might well be over. As with everything I write and every position I take, I could be totally off, but it is my current thinking.

There is a modest sell off in stocks today. Most of the November positions I opened are in the red, some significantly so. However, the positions were all low risk, low reward, and the worst case, is that I get assigned some of the stocks at much lower prices (or roll the options out to the next month).

To my surprise, a Saturday chart review turned up a large crop of interesting charts for put sales (bullish): dow fdx hal hon low mmm mon nov nsc oxy pg qcom twx unp ups wmb

As always, nothing on this site is a recommendation to buy or sell. I may or may not take any new positions, but thought a few readers might find the list of interest. As I mentioned before, I will have limited computer access for the next couple of months, so my trades will tend to be reported late, sometimes very late.

Long AMGN APC BA BRKB GDX IWM KORS LGF NKE XRT
Net long GLD SPY

Friday, September 27, 2013

Buy APC GDX NKE (sell puts)

Buy APC via selling Nov 80 puts
Buy GDX via selling Nov 20.5 puts
Buy NKE via selling Nov 65 puts

I sell puts on Anadarko, the Gold mining ETF, and Nike. Again, I am putting some capital to work after the recent option expiration. Nike had a good earnings report and a nice chart pattern. Anadarko has been my war horse all of 2013. The gold miners are choppy, but the strike price is way out, so not that much risk.

Long AMGN APC BA BRKB GDX IWM KORS LGF NKE XRT
Net long GLD SPY

Thursday, September 26, 2013

Buy AMGN BRKB IWM (sell puts)

Buy AMGN via selling Nov 95 puts
Buy BRKB via selling Nov 105 puts
Buy IWM via selling Nov 92 puts

I sell puts on Amgen, Berkshire Hathaway, the Russell 2000 ETF for November. As is often the case, option expiration frees up a lot of capital. I put some of it to work with low risk, low reward trades for November.

For the next couple of months, I will report after the close because I have limited computer access during the trading day.

Long AMGN APC BA BRKB IWM KORS LGF XRT
Net long GLD SPY

Friday, September 20, 2013

21-4 for September, grade B-

I count 21 winners, 4 losers for the September option cycle. For new readers, that sounds fantastic. Let me temper that enthusiasm by explaining some basics. I tend to take high probability trades. The opposite end of those buying 10-1 long shot tickets. So of course, I am going to have a high percentage of winners. Those buying long shot tickets are hoping for that ten times payoff, and that is the big risk for the kind of trades that I favor. That I will be on the wrong end of a big move. 

Overall, a good month, but as always with options, it could have been better. This month short calls in Boeing, and the retailer ETF reached the way out of the money strike price, and I covered the short calls. Gold also had some wide swings and the pain was too much, so I closed some positions. For all of them, I would have been better off holding on. That said, no one knows at that time that it would have been the case. If a trader stands firm instead of taking their lumps, the risk is going down with the ship, if a big move continues against a trader.

I made some money in gold, but selling options on GLD ties up a ton of capital and the gains were relative meager considering how many trades I made, and how much time I spent looking at it. Once again, APC Anadarko Petroleum was a cash cow as it has been most of the year, with short strangles (selling both puts and calls).

I again stayed clear of bonds. People talk about manipulation in other markets, but in bonds, the powers that be are quite open about intervention and other tools (taper, quantitive easing, setting interest rates, setting bank reserve requirements).

Going forward, my exposure is modest:
Long APC BA BRKB IWM KORS LGF XRT
Net long GLD SPY

Thursday, September 19, 2013

Cover short calls BA XRT

Cover short BA Sep 120 calls @120.1
Cover short XRT Sep 83 calls @83.1
Both Boeing and the retailer ETF advance beyond my strike price so I cover. Boeing at a break even loss, XRT for a break even gain, because I was short puts on both as well. Basically, a whole lot of nothing for me, the broker and exchange made their money though. Being short calls when the Fed makes a surprising move can be a painful place to be. Yes, I could have covered yesterday, but I did not and it cost me the tiny profits on these trades.

Long BA BRKB EMN GE GDX IWM KORS LGF XRT
Net long APC GLD SPY

/edit to add: looks like I closed my positions at a bad time (again). It happens. In my mind, better to be out near break even than risk having a winner turn into a big loser. The psychological damage from those kind of losers is often worse than the financial damage. Selling naked options tends to involve the possibility of huge percentage losses. One analogy is picking up nickels in front of a steam roller. Play long enough, be bold enough and a person eventually gets flattened with huge losses. One rule has always been "live to trade another day." In other words, try my best to avoid account busting losers. Risk management, position sizing, are ways to do this, even if each individual trade often involves substantial downside risk on big moves.

Tuesday, September 17, 2013

Buy BA (sell puts)

Buy BA via selling Oct 105 puts @117.4
I open an October position in Boeing. It broke out yesterday after a brokerage upgrade.

Long BRKB EMN GE GDX IWM KORS LGF
Net long APC BA GLD SPY XRT

OT: goals, plans and balance

Marketwatch (link) has a article about investors being too optimistic about retirement. The headline is about having no goals or plans but being optimistic.
>>
Fully 89% of investors surveyed said they’re confident their investing strategy will allow them to realize their retirement goals ... But 72% admit their investment knowledge is weak, 54% said they don’t have a financial plan and 45% said they don’t even have clear financial goals
>>

There is a separate statistic (USNews link2) that cites this:
>>
The median retirement saving balance for households ages 55-64 is just $12,000.
>> 

In my travels, I can echo the sentiments. The Bogleheads (Vanguard forum on the side tab and at link3) have a simple philosophy: Live under your means, save a lot (a real lot for high income), figure on about a 4% safe withdrawal rate, use index funds in a balanced manner. That's the best recipe I have seen. As much as I thrive on the complexity of options and short term trading, maybe 5% of investors, maybe 1% of the population is cut out for options trading. For many of the rest, index funds at a set percentage and rebalance is the best road to travel.

For young people, my advice is to find balance. Balance between saving and spending, make finding a rewarding career, and a great life partner (marriage for many) high priorities. There is a world of opportunity out there, even though it may be more competitive than ever, the top end is doing as well or better than ever. There seem to be fewer in that top group though.

In my travels, I do tend to find that those that set goals, that have plans tend to do better than those that don't. Obviously there are exceptions, but any person, especially a young person can think about what kind of life they want and how they might go about getting there. There is nothing wrong with big dreams. However, a person does need to move towards that star and not sit idle.

Monday, September 16, 2013

Buy GLD QCOM (sell puts)

Sell GLD Oct 111 puts @127.9
If an observer says that I am playing gold badly, that person is correct. I got whacked on the dip and am adding back long exposure on this relief rally. These puts are way out of the money and below the prior lows.

The stock market is ripping to the upside, and once again the big time bears, like the ones warning about a crash have egg on their faces, and excuses for their subscribers or losses in their accounts. The rally means I have less exposure going forward. It is more difficult to find new positions because option premiums are down and many stocks are extended to the upside.
/edit to add: buy QCOM via selling Oct 60 puts @68.3
Qualcomm announced a continuation of their stock buy back program. The premium is tiny, making this a tiny worm trade (fishing analogy, small fish, big fish, worms are too small to be called fish). However, 60 is far enough out of the money to give me some comfort.

Long BRKB EMN GE GDX IWM KORS LGF
Net long APC BA GLD SPY XRT

Friday, September 13, 2013

Sell GLD (cover puts)

I cover short Oct 122 GLD puts @126.5
The decline is causing too much pain for me to tolerate. This move is part of unwinding a short strangle in gold. I am still net long, and some of the other short puts are also underwater. This leg of the complicated position is closed at about 60% loss basis the price of the option. Fortunately, the dollar amount is relatively small.

Long BRKB EMN GE GDX IWM KORS LGF
Net long APC BA GLD SPY XRT

/edit to add: looks like I covered close to the worst possible time of day. So it goes. The choice of holding, has the possibility of go down with the ship.

Thursday, September 12, 2013

Sell GLD (cover puts)

I cover short Sep 120 GLD puts @128.2.
Gold is plunging this morning, and I am overexposed. I net a 55% profit based on the option price, which is more like 0.2% factoring in the margin requirements for selling short puts. 
 
I am undecided on the other layers of the short strangle for now. Gold is at the 50 day moving average, but technical levels may not provide much support if some big sellers want out. Only in hindsight will I know what the most profitable course is. In the meantime, I can look at the odds, the chart, and make a reasonable decision.

I am still net long gold. Just a couple of days ago, I was feeling smug about my gold positions, how quickly the market can again teach me to be humble.

/edit to add: Let me plug in some numbers for an example. I'll may up a stock, XYZ corporation, with a price of 100. Say I sold the XYZ Oct 90 put for 50 cents with five weeks until expiration. After holding for a couple of weeks, I close the position at 25 cents. So the profit on each contract is $25 less any commissions. The option buyer takes a straight 50% loss. The option sell can report that as a profit. However, typical $1000 (or about 10%) is required as margin to sell the put. This makes the return on capital more like 0.25% not the more exciting 50%. 

The most common scenario is that I hold until expiration and get 100%, though it might be more like 0.5% or 1% return on capital. Sounds terrible? Well, these are 80% to 90% probability trades. Compound 1% several times a year, and all those small fish make a meal.
Long BRKB EMN GE GDX IWM KORS LGF
Net long APC BA GLD SPY XRT

Wednesday, September 11, 2013

Buy XRT (sell puts)

Buy XRT via selling Oct 74 puts @81.0
XRT is the retailer ETF. I was short Sep strangles (75 puts, 83 calls). In part, this is a rebalancing move, as XRT is closer to the short call strike price. 74 is below a recent low.

Long BRKB EMN GE GDX IWM KORS LGF
Net long APC BA GLD SPY XRT

Monday, September 09, 2013

Buy APC KORS (sell puts)

Sell APC Oct 80 puts @94.0
Anadarko moving to new highs. I open an October position. APC has been my best trading stock this year. It is establishing a beautiful chart base in this area. My reason for being in APC is fracking.

Long BRKB EMN GE GDX IWM KORS LGF
Net long APC BA GLD SPY XRT

/edit: correction, strike price is 80 on these 
later in the day I add an October position in KORS
Sell KORS Oct 65 puts @75.7
Nice base at 65 for Michael Kors. The fundamentals look good as well.

Thursday, September 05, 2013

Rebalance GLD (sell calls)

Sell Sep GLD 142 calls @132.2 to reduce my long position.
If it feels like ground hog day (Bill Murray movie where a day is repeated over and over), it is. Another day, another rebalancing move for gold. Yes, I wish I knew what the next $20 move in gold was going to be. For now, I have my money on a modest trading range.

Long BRKB EMN GE GDX IWM KORS LGF
Net long APC BA GLD SPY XRT

Wednesday, September 04, 2013

Rebalance GLD (sell calls)

Sell Oct GLD 150 calls @134.3 
This reduces my long position in gold. I take on the risk of an upside explosion in the gold price past 150, what I get is the small call premium. I am short strangles (short both puts and calls) on GLD. 

In plain English, this means I make a small profit if gold stays in a trading range, and lose if there is a big move up or down, with the possibility of huge losses on a huge move.
 
Long BRKB EMN GE GDX IWM KORS LGF
Net long APC BA GLD SPY XRT

Wednesday, August 28, 2013

Rebalance GLD (sell puts)

Sell GLD Oct 122 puts @137.1
I rebalance back to net long on gold. The rally has pushed my short Sep 145 calls deep into the red. I have three layers of short Sep puts against those calls. I still tend to think that the gap resistance will hold. We are all waiting for more news from the Middle East. Gold has had a decent rally and it is extended.

There is more risk in selling puts on something extended to the upside. My recent move in Liongate Entertainment LGF is a reminder. The puts I sold on Monday are deep in the red.

As always, I don't like fast markets because I tend to be a relatively slow moving trader. Sometimes the cliche of "don't do something, just stand there" is the best course for slow moving traders and investors.

Long BRKB EMN GE GDX IWM KORS LGF
Net long APC BA GLD SPY XRT

Monday, August 26, 2013

Buy LGF (sell puts)

I add to my long LGF position by selling Oct 31 puts @36.2
Lionsgate Entertainment continues its bull run. Again, I see continued upside bias until the release date for the second Hunger Games movie Catching Fire on 11/22/13. Because of the up move the stock is extended. However, the 50 day moving average has contained previous pullbacks, and is 31.8.

Long BRKB EMN GE GDX IWM KORS LGF
Net long APC BA GLD SPY XRT

Friday, August 23, 2013

Rebalance GLD (sell puts)

Sell Sep GLD 123 puts @134.9
I sell a third set of gold puts, against the short Sep GLD 145 calls, to get back to a long position. The risk in the short strangle is a big move either way. Right now the calls are in the red as gold has moved up.

Long BRKB EMN GE GDX IWM KORS LGF
Net long APC BA GLD SPY XRT

Thursday, August 22, 2013

Buy BRKB IWM LGF (sell puts)

Buy BRKB via selling Oct 100 puts @114.3
Buy LGF via selling Oct 29 puts @35.3

I sell some October puts on Berkshire Hathaway.

I open an October position in Lions Gate Entertainment.The sequel to Hunger Games is opening November 22, 2013. Prior experience and intuition tells me it will be bullish until then. That said, this is a another worm trade, way out of the money, so I have some cushion.

/edit to add: sell IWM Oct 88 puts @102.7
Another worm trade (low risk, low reward, small premium). The 50 day moving average is around 91, and 88 is several chart support levels lower.

Long BRKB EMN GE GDX IWM KORS LGF
Net long APC BA GLD SPY XRT

Wednesday, August 21, 2013

Sell XRT calls

Sell XRT Sep 83 calls @79.0
Retail ETF has been moving down. Instead of covering my short Sep 75 puts, I sell some calls. This lowers my exposure, while adding the possibility of losses on a big rally above the strike price of 83. By the time I write this entry, XRT is back to 79.4, so not the best timing today.

Long BRKB EMN GE GDX IWM KORS
Net long APC BA GLD LGF SPY XRT

Two of the hardest things to learn

At the recent Investor's Business Daily CANSLIM meetup, someone mentioned two of the hardest things for traders to learn:
To admit that you are wrong, and to ride a long term trend. Depending on a person's personality, one tends to be harder than the other, and they do tend to work against each other. A person can always rationalize about long term if they are sitting on a loser. A person can always want to take profits saying that they were wrong about the long term trend.

The context was for floor traders, the hardest thing is to admit you are wrong. Most men that become floor traders have healthy egos, alpha males, so admitting you are wrong is not something they learn easily. The other side is after getting burned, or whipsawed, it is easy to want to take profits after a small move, instead of riding a big winner.

Some may say this is doublespeak, but there is some wisdom in these cliches. One reason to keep a trading journal (and that is basically what this blog is), is to learn from your mistakes. Having a written record and in this case a public record tends to help a person learn more from each trade. The reasons that a person went in, and why they got out. If they followed a plan, some indicator, some talking head on TV, some blog writer, or other financial writer, some news item.

For me, riding winners is one thing I am learning from attending the CANSLIM meetings. As long time readers observe, most of my trades are low risk, low reward, high probability. Some describe selling way out of the money naked puts as picking up nickels in front of a bulldozer, because there is the low probability risk of a big loss. 

Lions Gate Entertainment LGF has been an example of not getting the full value of identifying a winning stock. The stock has more than doubled since I started trading it (15 now 34). Because I am mostly selling puts, often puts way out, I haven't made as much as I might have doing other strategies. Of course, some of this is hindsight. If I was sure that a stock would double in 18 months, there isn't much need to hedge or do conservative strategies, just go all in and let it ride.

The other side of this was mentioned at the meetup. A person took a position in a recent IPO before earnings. The report was poor and the stock dropped. Boeing and the troubles with the 787 is another example of how news can have a dramatic effect. Hopefully I can learn to get more profit out of a long term uptrend or downtrend and still temper the risk. And yes, despite decades in the markets, I am always open to learning. Even a beginner sometimes has something to teach me. In my younger days, I was sometimes too arrogant. I see it sometimes on various forums, that some people would rather argue than listen, rather preach than possibly learn. 

The other side, is that a person does need to make their own decisions and be confident in them. Relying and being dependent on another person's advice is different from listening, and perhaps adding that information.

Friday, August 16, 2013

16-1 for August, grade B+

Sixteen winners, one loser for the August option cycle. The one loser was part of a backratio, so really 15-0. SPY was down about 2% for the option month, and my trading account was near flat. Winners included short strangles on APC and LGF. All were small fish or worm size winners. My recent trades into GLD and GDX are working out. 

I am still staying away from bonds. All this talk of taper in a market where the Fed openly intervenes is a bit much. Technical levels may not matter. The stock market remains richly valued, but all the recent chatter about an 1987 style crash makes me think that any down turn will be contained at a 10% downside.

There is the romantic notion that I could have timed the highs and lows much better, but if I could do that, I wouldn't be using cautious hedging strategies. I'd go all in every time and own the world in a few years.

Long BRKB EMN GE GDX IWM KORS XRT
Net long APC BA GLD LGF SPY

Rebalance GLD (sell puts)

Sell GLD Sep 120 puts @133.0
This rebalances my position back to net long. I was already short Sep 111 puts and Sep 145 calls. The recent rally pushed my short calls to a loss.

Elsewhere, some of my more recent moves KORS, XRT, SPY are in the red. The long awaited correction the stock market is unfolding. Just how deep and how long it will be are the open questions.

Long BRKB EMN GE GDX IWM KORS XRT
Net long APC BA GLD LGF SPY
Expiring PG

Wednesday, August 14, 2013

Buy XRT, sell APC strangles

Sell APC strangles @88.9
sell APC Sep 80 puts and Sep 105 calls
Anadarko Petroleum is a fracking play. Premiums are up today, possibly related to options rolling to September. APC has been my best trading stock for calendar 2013.

Buy XRT via selling Sep 75 puts
XRT is the retail ETF. I've seen quite a few articles about skittishness over back to school sales.

Long BRKB EMN GE GDX IWM KORS XRT
Net long APC BA GLD LGF SPY
Expiring this Friday PG

Tuesday, August 13, 2013

Buy KORS (sell puts) SPY backratio

Buy KORS via selling Sep 62.5 puts @72.6
I double down on Michael Kors as it moves up. I was already short Sep 57.5 puts. The last two times KORS broke out, it got cut down with additional news from the company. Perhaps the third time is the charm, and it gets to run a bit. The fundamentals seem extremely positive. Much of the growth is coming at the expense of Coach. The longer term dangers are saturation with too much exposure, and perhaps another strong competitor entering the luxury goods arena. Option traders need not concern themselves with the long term. The next earnings report is plenty long term for us.

Elsewhere, there are what I see as ridiculous articles warning about another 1987 style crash on Marketwatch. While it is always a possibility, the probability essential goes to zero, when pundits have an article leading Marketwatch with that headline. What is causing much of the angst is the 19% year to date gains in the stock market, and so many having completely missed the rally. This is on top of a 100%+ gain from the 666 SPX lows in 2009 (now 1690). Folks that have missed that entire move have to write something.


edit to add/ SPY Backratio for October
Buy SPY Oct 154 puts, Sell 2x SPY Oct 151 puts @168.9
This is for a net credit, a net bullish position with an explosive profit on a decline to SPY 151. Below 148, losses start to snowball. A move up, or no change means I pocket the small premium.

Long BRKB EMN GE GDX IWM KORS PG
Net long APC BA GLD LGF SPY

Thursday, August 08, 2013

Buy LGF (sell puts)

Buy LGF via selling Sep 27 puts @33.8
Lionsgate Entertainment reports earnings after the close. Options are indicating a modest two point move up or down. 27 is the break out point of this recent leg up. This is another worm, a tiny premium with a small chance of a losing trade.

Long BRKB EMN GE GDX IWM KORS PG
Net long APC BA GLD LGF SPY

Tuesday, August 06, 2013

Buy APC KORS (sell puts)

Buy KORS via selling Sep 57.5 puts @70.4
Luxury goods maker Michael Kors is moving up on earnings. The last couple of times, the stock pulled back after the news event. The strike price of 57.5 is at the lower range of the recent base, and is several support levels lower.

I also sell APC Sep 75 puts @88.9. Anadarko Petroleum is a fracking stock, and recent earnings were in line. It has been my best trading stock this year.

Both APC and KORS are some more worm trades. In fishing terms, the premiums so small, they aren't even small fish, they are like digging for worms.

Long BRKB EMN GE GDX IWM KORS PG
Net long APC BA GLD LGF SPY