Friday, May 31, 2013

Buy KORS LGF (sell puts)

Buy KORS via selling Jun 55 puts @65.0
Buy LGF via selling Jul 25 puts @30.0
Luxury goods maker and seller Kors had earnings the other day, and Lions Gate Entertainment today. These are more of my so-called worm trades, puts way out of the money, sold for tiny premiums. I missed a better entry on LGF as the stock rallied up before my order went through, even though I was on the bid. For both of these, I would consider doubling down if they dip, depending on what causes a dip.

Net long SPY

Wednesday, May 29, 2013

Buy PG (sell puts)

Buy PG via selling Jul 67.5 puts @79.2
I open a July position in Proctor and Gamble. Chart support at 70. Yesterday's put sales on BA and IWM were poorly timed, but I have a lot of cushion. 

Overall, I am still under invested. I have some SPY backratios that will help in a 5% to 10% correction, and hurt in the case of a full crash.

Net long SPY

Tuesday, May 28, 2013

Buy BA IWM (sell puts)

Buy IWM via selling Jul 85 puts @99.6
Chasing markets isn't my favorite move. However, these puts are way out, and I have capital to deploy. As has been my recent pattern the sold puts are further out than usual. This means a smaller premium, with a higher probability of success. Some of the premiums are so small the fishing analogy is down to eating the worms.

Later in the day, I sell some BA Jul 85 puts @100.8. Story is similar. Boeing in an uptrend. Chart support at 89 and 85.

I am tempted to sell puts on TLT the bond ETF, but the distortions in the bond market make it difficult to read. Same with gold. Central banks and other big players are distorting the markets and they aren't motivated the same way as other traders.

Net long SPY

Sunday, May 26, 2013

Lifestyle creep-why the rich don't feel rich

There is an article on Yahoo (link) about a top 1% income earner that doesn't feel rich. I've seen another quote from the 19th century about a man that has an income of 20 pounds per year and expenses of 19 that feels well to do. Readers know that I am an advocate of living under your means. Luxuries are fine as long as they are conscious choices.

I remember when the show Lifestyles of the Rich and Famous started. I think that show and similar shows did a lot for lifestyle creep. It used to be that a $100,000 or $200,000 car was all that, and a $5,000 watch, an expensive one. Now the luxury companies have gotten word and have upped the ante. There are now super cars that cost seven figures and another $50k or $100k a year to insure and maintain them. There are watches that costs the same. No wonder the one-percenter doesn't feel rich, they can't buy into the lifestyle of the one-percent of the one-percent.

Even at the very top, billionaire Mark Cuban considered buying the baseball team, the Los Angeles Dodgers and the price tag was too high. In the art world, not so famous pieces are sometimes fetching astronomical prices at auction.

For average folks, the word balance is a good one, a balance between saving and spending. Misers tend to be unhappy people. At the other end, those that stretch their lifestyles to spend 100% or more of their income often feel worried and stressed. These extremes are not good things. The miser doesn't enjoy their money. The spender that lives on the edge feels a lot of stress when an unexpected bill comes up or there are rumors of layoffs. A healthy balance, making conscious choices about where the money goes, about the kind of life you really want, are what I suggest. A healthy dose of charitable giving and/or giving of time is another component for a grateful and healthy life.

Finally, for Memorial Day, here is Trace Adkins' Arlington on Youtube (link2). Remember and honor those that gave their lives.

Friday, May 24, 2013

Buy APC (sell puts)

Buy APC via selling Jul 75 puts @88.2
I open a July position in Anadarko Petroleum. A decline to 75 would wipe out all of the gain for calendar 2013. APC has been my biggest winner for the year.

Some of my earlier put sales for this month are taking on water. However, most are still out of the money. It remains to be seen how bumpy the ride will be. I came in with a lot of dry powder and am deploying some.

Net long SPY

Thursday, May 23, 2013

Buy BRKB and SPY Backratio

Buy BRKB via selling Jul 100 puts @110.9
Buy Bershire Hathaway on this minor decline.
I layer another put backration on SPY @165.2
selling 2x Jul 148 puts
buying 1x Jul 151 puts
I like to do the backratio as net bullish. It has an explosive profit on a decline to 148 at expiration. Large losses occur on a decline below 145. No move or a move up lets me keep the tiny credit.

I have had the stock market on storm watch for some time now. Is this two day hiccup a passing shower, or the start of monsoon season, or something in between?

Net long SPY

Wednesday, May 22, 2013

Buy NTAP (sell puts)

Buy NTAP via selling Jun 35 puts @38.3
Network Appliance gapping higher after earnings and a dividend. Chart support at the gap and at 36.

Net long SPY

Monday, May 20, 2013

Buy IWM via selling Jun 90 puts @99.2

I add a layer of short IWM puts. Chart support at 90. This is like putting in a bid at the 90 level, which is a 10% pullback. If it doesn't go there, I collect a tiny premium. It is tough to find ideas with premiums low, the holiday next Monday, many stocks over bought and extended.

Net long SPY

Friday, May 17, 2013

12-3 for May, grade C+

I count 12 winners, 3 losers for closed option trades during the May option cycle. The losers include AMZN, SPY, LEN. It is a coulda-woulda-shoulda kind of month. Call buyers hit mammoth home runs and hedgers like me fell further behind the roaring bull market in stocks. Both Boeing and Telsa were mammoth home runs for the call buyers. I wasn't a call buyer, I was a seller, and took losses on the calls I sold on BA, LEN, TSLA. Only Lennar Homes counts for this cycle because I closed the other trades last month. 

Some like to paper over their losses. Some never seem to report any losses. Beware of anyone that never loses, the vast majority of the 100% winner on the Internet are liars or paper traders that don't even have any money at stake. I tend to be hard on myself and thus the grade of C plus even though in dollar gains this is by best month of the year.

I can be thankful that I avoided trading gold or silver, or bonds, as those markets were treacherous this month.

Going forward, I have have smallish short put positions, less than usual. Like I have been saying the stock market is on red flag warning. There is the Schiller PE10, the Value Line Appreciation estimate, a bull on the pogo stick on the cover of Barrons are the main factors. On the bullish side, is that there is no chatter at the coffee house or at church about the stock market. More people seem interested in gold than the stock market. Again, this points to more pain for gold bulls.

Again for gold, averaging down during a major bear market is the road to the poor house. Gold has had 12 straight up years. If this is a down year, it may be the first of several.

Thursday, May 16, 2013

Buy HOT SBUX (sell puts) SPY backratio

Buy HOT via selling Jun 60 puts @66.7
Buy SBUX via selling Jun 57.5 puts @63.8
Buy SPY via selling Jun 153/156 put backratio @166.0

I add longs for Starwood Hotels HOT and Starbucks coffee SBUX. Again, the puts I am selling are far out of the money and the premiums are tiny. I am way underinvested, have been for most of the month. These put sales are part of the scaling in process. I was hoping for more of a pullback for a better entry, but option expiration is tomorrow. I have been sitting on a lot of buying power, and have a slew of short option positions will expire tomorrow, that will free up yet more capital.

The SPY backratio consists of selling two Jun 153 puts for every one Jun 156 put bought. It nets out to slightly bullish at about break even. There is a big profit on a decline to the 153 to 156 range. Losses get large if the decline is below 150.

So while I continue to have a red flag warning up for the stock market, I don't want to sit with zero long exposure as the zombie bull rally rolls forward. I think of it as having about half or one-third the exposure I might have if I were full on bullish on the stock market. The SPY backratio gives some modest protection against a normal correction.

Elsewhere, gold is drifting back to its recent lows. Bonds have an uptick after a week of selling. If I were to anything in these two markets, it would be a long bond position.


Net long APC SPY
expiring LEN TSLA WFC

Tuesday, May 14, 2013

Cover LEN short calls (ouch)

I cover my short LEN May 43 calls @43.9
Lennar Homes is breaking out to new highs, and XHB the home builder ETF is also trending higher. As always when being stopped out, there is a chance of a whipsaw. This is the last card from three sets of calls I sold on the dip back a few weeks ago. Like the other two short call trades, LEN was a big loser. 

The others were Boeing BA and Telsa Motors TSLA. Had I stuck to my guns on those, I would be looking at huge losses because the rally has rolled on. Today is a bad day to be short as the stock market rally picks up speed.

Net long APC SPY

Monday, May 13, 2013

Buy BA PG (sell puts)

Buy BA via selling Jun 82.5 puts @95.0
Buy PG via selling Jun 70 puts @78.9

I add June positions for Boeing and Proctor and Gamble, as I continue to scale into a few June longs. Again, I am way out of the money on these put sales and the premiums are tiny. What I call the zombie bull continues to lurch forward. I have also seen the phrase, the most hated rally of all time. 
Small investors are adding to longs, but are still under invested in stocks. Money managers, especially hedge fund managers are way behind for calendar 2013 and are in a pickle. Buy the rally and perhaps get trapped at a top, continue to avoid stocks and the performance gap is getting wider with each passing month.

Elsewhere, my short strangle (short puts and calls) on LEN Lennar Homes is now in the money and causing me distress. For now I am staying.

Net long APC SPY
Net short LEN

Friday, May 10, 2013

Buy APC (sell puts)

Buy APC via selling Jun 72.5 puts @86.3
I open a tiny long position for June in Anadarko Petroleum. APC has been my biggest winner this year. This is yet another low risk, low reward trade, a little further out of the money than usual due to my red flag warning on the stock market.

Telsa Motors has had an amazing rocket move up, burning the many shorts in TSLA. For a brief time I was short May 50 calls. Had I stayed with that position it would have been an epic 100x loser. The other side, is that someone had the chance to make 100x on their money in a few weeks. Jackpot results are why people buy calls. However, like big slot machine jackpots, the math works out so that all the losers pay for the big winners with plenty extra to build and staff the huge casinos.

In precious metals, I continue to believe that those buying physical at the high premiums being asked for by dealers are unlikely to make much money. Silver buyers need about a 35% up move in the spot to get to about break even. Yikes. 

Averaging down in a strong bear market is the road to the poor house. It will only be in hindsight that we will be able to tell if the precious metal bear is Ursa Minor or Ursa Major. If major, then it might be more than a decade before those buying today will get a chance to get out even. As always I am talking about paying retail prices. The dealers are making money on the spread, the retail buyers paying that money.

Net long APC SPY
Net short LEN

Wednesday, May 08, 2013

Buy BRKB IWM (sell puts)

Buy BRKB via selling Jun 97.5 puts @110.4
Buy IWM via selling Jun 85 puts @96.1
I take tiny June positions in Berkshire and the Russell 2000 ETF. Both are way out of the money and the premiums are tiny. I am doing it because I have virtually no exposure. 

These are even more conservative than my usual low risk, low reward put sales. I remain skittish, but don't want to sit entirely out. I plan to add a few more positions for June, but it will fewer positions that I have been doing because I still have the stock market on storm watch.

APC Anadarko Petroleum came out with good earnings yesterday, and sold off on a reversal day. I paln to do something with APC for June, but am waiting for a better entry. The May APC option sales are looking good for now.

Net long SPY
Net short APC LEN

Sunday, May 05, 2013

Worst feeling, short in an up market

One of the worst feelings is to be short stocks when the market is moving up strong. At this week's ThinkorSwim recap, one of the participants was short and losing. Most folks assume that a person involved in the stock market makes money when the market moves up. So it becomes ever more awkward when making casual conversation and saying nothing or trying to explain why it isn't working out.

That said, I am not short, I am still net long. The other possible subject line was "Sitting out the Dance." I did open one tiny position for June in LGF, but for now, that is it for June. Like most hedgers, I am lagging behind the stock indices in terms of performance for 2013. I have a list, and will continue to consider some low risk, low reward positions. The stock market feels so weird, I don't see it as a time to be aggressive, long or short. The call buyers have done very well lately, but it hard to say when the rug will be pulled from them. Same with bonds and gold, the markets feel so weird, it is not a time to be aggressive long or short.

Meanwhile, in Omaha, Berkshire is having its annual shareholder weekend. Some describe it as a Woodstock for stock market geeks. I've never been. Here is a link to the Wall Street Journal's blog about the questions segment: link

I know some of the readers are interested in gold and silver. For now, short feels like the percentage play. Buyers of physical silver may need a huge rally just to get break even. I remember buying some 90% when silver was around $32, and paying 22x and 23x. It is tough to find 90% at 19x or 20x, which is about where dealers will buy it, if and when silver goes back to $32. This is not a good percentage play, no matter what emotion is involved. The exception is for those that can get the dealer's side of the spread. Dealers tend to win as long as the game keeps going.

As always, I prefer to move slowly into stable markets. Fast markets are not my friend. During fast markets spreads widen and small fish get gobbled up by the bigger fish with staying power. The small fish are often best off seeking shelter to avoid being the food. For the slow moving traders like me, sometimes the smart move is to sit tight. I'll leave the magician's tricks and heroics for the more nimble.