Friday, March 29, 2013

First quarter perspective

For the first quarter some of the ETFs:
+12.0% Russell 2000 IWM
+10.0% S&P 500 SPY
- 2.8%   20-year US Treasury TLT -2.8
- 3.6%   Emerging Markets EEM
- 4.7%   Gold GLD
- 6.6%   Silver SLV

Three more quarters of the same would mean +40% to +50% for the stock market, so odds are against that. Same for silver, three more quarters like this one and it is down 30% for the year, unlikely. (None of the above factors in the modest dividends.)

That said, I am not with the crows cawing about an imminent stock market correction, or the true believers saying this is a great time to be buying precious metals. The stock market advance is almost sure to reach more new highs. Metals haven't shown any real signs of a bottom, especially on headline sentiment and chatter.

As almost always, when the stock market goes straight up, my accounts tend to lag. I was on the right side of the market, mostly long, but because I hedge, because I trade long and short, because I sometimes trade bonds, or metals, I tend to lag behind. It goes with the territory. I had a good quarter, but not as good as the top ETFs (or as poor as the bottom of the list).

I recently had breakfast with a young relative and I talked about this tendency to be cautious. I prefer that my account go up slow and steady, with a high percentage of winners. I have little stomach for losers. Some trading styles are taught with 1/3 winners, 2/3 losers, but the winners are big home runs so the overall picture is profitable. I don't have a personality that can stomach so many losers. I am also a relatively slow moving trader, so vehicles such as the triple leveraged ETFs are not for me. Weekly options are not either. I'm not a big fan of the new 10 options either.

"Stick to my knitting," do what I am relatively good at. If I see something really good, maybe take a shot here or there, but it has been a long time since I have done that even. Certainly on big movers such as LGF Lions Gate Entertainment which is up about 50% since December 2012 (and 400% from 2011 when it was 6), more aggressive strategies would have reaped huge rewards. 

I am always learning. One reason I go to the Canslim meetings is to try and adapt parts of that home run swinging strategy to my relatively cautious trading style.

I hope all my readers had a good quarter, and continue on to have a good rest of the year. Cheers.

Thursday, March 28, 2013

Buy BA PG (sell puts)

Buy PG via selling May 70 puts @77.1
Proctor and Gamble looks to be basing again, the previous base at 70 is support.

Buy BA via selling May 75 puts @85.8
Boeing popped higher on news of a successful test flight for the 787. It has a massive three-year-long base at 70 to 75. 

Both trades are low risk, low reward, high probability trades. One consideration is that the sell in May calendar effect may start to kick in by the May expiration.

Net long APC KORS

Tuesday, March 26, 2013

Buy APC LGF LEN WFC (sell puts)

Buy LGF (sell puts)
Buy LGF via selling May 21 puts @23.8
Lions Gate Entertainment continues its epic run up. I am reluctant to chase it, but am willing to take this low risk low reward position.

Buy LEN via selling May 36 puts @41.6
Lennar Homes had a good earnings report and then gave back its gain on that report. Support at 36.

Buy WFC via selling May 34 puts @37.2
Wells Fargo Bank has one of the cleanest balance sheets of major U.S. based banks. However it got hit with the other banks over Cyprus. Chart support at 34/35.

These are the best longs I could find. I still think it is too early to play the short side. There was blaring headline on the Marketwatch site predicting SP&500 1400, which would be 10% lower. It is always easy to sell fear. However, market tops are much more likely when the headline features a bull and a prediction of another easy 10% or more upside, rather than a sharp correction.

Later in the day, I sell some APC May 77.5 puts @88.9 to rebalance my complicated position in Anardarko Petroleum back to net long.

Net long APC KORS

Friday, March 22, 2013

Buy NKE SPY APC (sell puts, strangles)

Buy NKE via selling Apr 55 puts @59.7
Nike higher on earnings. Chart pattern is a text book breakout from a cup-and-handle base formation. Support is at the base at 55. If it drifts down to the base, the plan is to roll out or perhaps even double the position.

Buy SPY via selling Apr 145 puts @155.3
I add to my tiny long position in the S&P 500 ETF. SPY has about an 8% chance of being below 145 at April expiration. Yes, there is the Monday Cyrus decision, but waiting until after that may mean smaller premiums. So I add a bit today, and may add more if it the market moves lower.

Buy APC via selling strangles: 
May 75 puts, May 100 calls @86.9
A short strangle is a bet on a trading range. These strikes add to my net long position. My interest in Anadarko Petroleum is mostly because it is the biggest component of the oil fracking etf. There is chart resistance right here at 87/88 and support at 77 and 75.

Why all this activity today? I am flush with cash from 14 positions expiring last week. With Monday and possible Cyprus news, even though there is a rally today, premiums may go down after the news comes out. There is always the risk of some explosive news, and I still have plenty of dry powder after opening four positions.

Net long APC KORS

Wednesday, March 20, 2013

Rebalance APC (sell puts)

Sell Apr APC 77.5 puts @86.9

I rebalance my Anadarko Petroleum position back to net long. APC is up on news of oil from a well in the Gulf of Mexico. Oops, even before I can type all of this APC has dipped to 86.2, so a poor entry.

The news dominating the stock market is from Cyprus. There is also possible Fed news today. April is a long period option month, because the third Friday comes a bit later in the month. There are quite a few companies that will report earnings before April expiration. All of these factors mean there is no hurry to sell premium. I am watching and waiting. The other shoe might be some bank runs on rumors in other Euro countries.

Cyprus is too small to mean anything, but if one of the bigger countries destabilizes it can be trouble. Confidence is a fragile thing. The drum beat of fear is strong. It almost seems like that is what is desired to scare people as much as possible. Don't give in to fear. Act rationally, look at possibilities and probabilities, Don't invest on the 1% or less chance. I prefer to play the 80% or 90% chance and get the small rewards.

Net long APC KORS

Friday, March 15, 2013

14-0 for March, grade A-

Fourteen winners, zero losers for the March option cycle. When the stock market goes straight up, I will tend to underperform. I am glad for the many small profits. BA and LGF had strong run ups. My short strangles (selling the calls and the puts) all worked out.

So why the A- and not A or A+? Because I lagged the indexes, and because there were opportunities for some home runs in Boeing and Lions Gate that I did not take advantage of. I have been trading LGF for a full year now, was still reluctant to play this rally even in a small way. The secure thought is that if I can keep grading out at A-, it is going to be a fine year.

I am getting slightly better at profiting during extended bull moves. I am letting go of the idea of getting in at the low tick and am happy if I am in on a decent day or within a day or two. 

Net neutral APC KORS

Thursday, March 14, 2013

Sell KORS strangles

Sell KORS strangles Apr 50 puts, Apr 67.5 calls @58.0
A short strangle is a bet that a stock stays in a trading range. For Michael Kors there is chart support at 55 and lower, and resistance at the price of the recent secondary offering 61, and the recent high at 65.

The zombie bull takes the Dow to its 10th straight record high. It is a nervous ride as the zombie is not to be trusted. A correction is sure to happen, but timing the in and out is not easy. Higher highs are a virtual certainty when there is this kind of sustained strength and that remains the percentage play. The coffee shop comments from two different people with bearish views on the stock market, mentioned in earlier posts, also point to higher highs. I don't know anyone that is a giddy, caution-to-the-wind bull. The kind that are everywhere when major market tops occur.

April gets us to a the seasonally strong six months for bonds. Option premiums continue to be low almost across the board, so pickings are relatively slim for option sellers.

There was an article on Yahoo about gold crashing to $1000. That is constructive for gold bulls, but not worth hanging a hat on without more indicators to back it. I haven't seen any gold permabulls that have thrown in the towel, or that have sold most of their gold to buy stocks and chase performance.

Net neutral APC KORS
expiring longs MON QCOM

Thursday, March 07, 2013

Joyless bulls and adds for BA SPY (sell puts)

I add to my long position by selling BA Apr 72.5 puts @81.7
Boeing breaking out to new highs from a year-long chart base. There are multiple chart support levels. The calendar indicates a good chance for a sharp and quick stock market pullback in late March. Boeing is the kind of stock I would like to get more of on such a pullback.

I also add SPY longs via selling SPY Apr 140 puts @154.9. The gap at 142 to 144, I see as strong chart support.

I had coffee with some friends and one of them talked about a stock market bubble with no fundamentals to back it. Yesterday, I talked to another friend. He has been invested in various individual stocks all his adult life. This second friend talked about selling all his stocks, moving to cash and staying there. These kind of stories are not signs of a market top. A short pullback is in the seasonal cards, but it will likely be met by buyers. There was a talking head from a discount brokerage on TV, saying that customer accounts are still heavy in cash. 

Separately, there are reports of investors buying stuff like SPLV, a low volatility index ETF that declines less when the market goes down. While all these anecdotes are not data, they do influence my decision making.

Net neutral APC KORS

Wednesday, March 06, 2013

Gold cup half full or half empty?

With the Dow making a new all time record high a couple of notes on gold. On ZeroHedge they show a graph of gold vs. the Dow from the last high in 2007 (link1). It would be even more dramatic going to the older high in 2000, when gold was in the $400 range. Basically during these 13 years, those buying SPY at the highs have nothing but the modest dividends, and gold investors are up 300% ($400 to $1600 in round numbers).

The gold half empty case is mentioned on some stock market shows, that during the past 14 months gold is flat. For calendar 2013, gold is down. From the lows of 2008/2009 gold is up, but has underperformed the broad stock market from its lows. So gold vs. the S&P 500 can show what a person wants it to show, depending on the time frame chosen.

The hindsight trader can claim to have bought the lows, got out at each high, for each asset. Of course most reporting that they did this are liars, and I wouldn't believe them unless they had a real time audited account and no dummy accounts (like playing multiple March madness sheets picking so many possible winners, that one sheet is almost sure to have the winner). No one is that smooth that smart to be in the best asset every year, and get in at the lows and out at the highs, at least no one I have ever met.

The more important questions are what next. I already posted an idea for the stock market of early 2014 being a high, using the cycle time between the two previous tops instead of price. Time is just as important as price for option traders. For gold, I would like GDX, the gold miner ETF to make higher highs to confirm a turn in GLD. For now, any rallies in GLD are suspect. 

The big fundamentals for GLD are the Asian economies, because they drive 70%+ of the demand for physical. Some will argue about currencies, but the bottom line demand for physical is what ultimately is the long term driver. Some will point to record gold buying by central banks. I see this more as a negative in the long term. The bottom in gold was when the Bank of England clumsily sold their gold holdings at below $300 per ounce. Now that central banks are buying, it is more likely indicative of a longer term top than a bottom.

Some like to say the Fed is pumping up the stock market. However, the Fed pump is likely helping bonds, stocks, and gold. If Treasuries were yielding 5% or 7%, the opportunity cost of owning gold goes up dramatically.

On this trading blog, I have mostly avoided gold for the past year. With my bullish bias towards gold, it has been the right call. There have been better opportunities else where. That isn't to say that gold has no place in a long term investment portfolio, but trading and investing are different hats. For trading, I much prefer tailwinds and a high probability of profits, and that hasn't been happening in gold.

To recap, rallies in gold are suspect until the gold miner index GDX can start trending up. The back of envelope stock market top is scheduled for early 2014. Readers know that I view predictions as entertainment, so keep that in mind when reading my missives. The money is made with correct position sizing and risk management, predictions are less important.

Tuesday, March 05, 2013

Sell APC strangles and the zombie bull

Sell APC strangles Apr 75 puts, Apr 95 calls @82.5
I rebalance my position in Anadarko Petroleum to about neutral. I have a complicated position with several layers of short puts and calls.

The stock market continues what I like to call a zombie bull advance. Seems like virtually nothing can stop the market from lurching forward. At some point it comes back, but when? As I often write, calling tops and bottoms is more for entertainment than for real life traders.

Net neutral APC KORS

Monday, March 04, 2013

Buy IWM (sell puts)

Buy IWM via selling Apr 80 puts @90.8
IWM is the Russell 2000 ETF. I open a fifth position for April. Again, it is low risk, low reward. March and April can be tricky months, so I am even a bit more cautious than my usual careful self. Chart support that beginning of the year gap up at 84. More than a few stocks will report earnings before April expiration, so I am reluctant to sell puts this early.

Net long APC KORS