Buy QCOM (sell puts)

Buy QCOM via selling Mar 60 puts @66.7

Qualcomm up on earnings. Chart support at 65, 62.

As for the broader stock market, I am looking at February 4th or 5th as a time to look for at least a pause to refresh from this January rally. Marketwatch has a headline best January since 1989. The individual investor is starting to stir again, after missing the entire huge 100%+ rally off the stock market lows. 

Long EBAY GPS IWM LEN LGF MON PG QCOM TBT

Net long AMZN APC BA

Buy AMZN (sell vertical put spread)

Buy AMZN via selling a vertical put spread

buy Feb 210 puts, sell Feb 220 puts @270.3

Amazon.com earnings will be out after the close. 

My thinking is that there have been a raft of big moves in other stocks, so these options are priced higher. Chart support at 260, 240 and 220. As I type this up, AMZN is slipping lower, so not the best entry. There is about an 8% chance that the 220 puts come into play by expiration. I tend to think volatility is pumped up because of earlier big movers on their earnings (GOOG, NFLX, AAPL and others).

Doing a vertical instead of a straight put sale helps with the margin requirement. Also protects against a crash scenario. On higher priced stocks selling puts before a crash can do permanent damage to an account.

Long EBAY GPS IWM LEN LGF MON PG TBT

Net long AMZN APC BA

Buy TBT (sell puts)

Buy TBT via selling Feb 63 puts @67.1

TBT is the double inverse treasury bond ETF. There is minor chart support at 63.5. If my puts come into play, the plan is to roll down and out. One negative to selling puts on TBT is the relatively large margin requirement, because it is a leveraged ETF.

Bonds have broken down. The seasonality for bonds remains negative (positive for TBT) until April. November to April tends to be the weaker six months of the year for bonds, and the other six months tend to be supportive for bonds.

Long EBAY GPS IWM LEN LGF MON PG TBT

Net long APC BA

Ferri: Mr. Market doesn't care what you think

Rick Ferri contributing to Forbes writes an article with the title: Mr. Market doesn't care what you think (link). There is a slight negative correlation, but not enough to be actionable. The exception is at extremes, however in the vast middle it is not enough to be a useful indicator.

Let me make some general comments about sentiment. I find it to be a useful indicator. I remember back at the height of the dot-com bubble and the day trading craze, one of the ladies at church, proudly announced that she had opened a brokerage account and was in the game. Looking back it is easy to see that as a huge blinking red light. 

More recently, when silver was making its run to $49, three different novices at three different places talked about silver and their expectations of easy money to be made on the bullish side.

It doesn't always work. As I often write nothing is 100%, and it tends to be the lucky and the liars that get out near the exact top. However, I find sentiment to be useful and powerful. When news comes out on a company, I like to look at the Yahoo finance message board for that company (link to LGF message board substitute the company's ticker for LGF) to see what others are thinking. I look to run contrary. If a stock forum is dominated by negative nellies, that is often a prelude to higher prices. The opposite is also true, if everyone is positive, it might be time to go the other way.

Headline articles or talking heads on financial TV can be good contrary indicators. In particular if a talking head says something like I am 100% sure, that is a strong signal to go the other way. No one with an audited track record is 100%.

Buy PG (sell puts)

Buy PG via selling Mar 70 puts @73.0

Proctor and Gamble up on earnings, breaking out from a beautiful base at 70. There is not much premium on this low volatility stock. Same is true for a lot of other stocks.

Elsewhere, I place an order to sell an IBM put spread to take a long position on IBM, but it drifts away from me and looks like no fill. 

Most traders have been focused on AAPL, NFLX, GOOG. For those fast moving high value stocks, it is often best for slow moving little fish traders like me to steer clear.

Long EBAY GPS IWM LEN LGF MON PG

Net neutral APC BA

Rebalance APC (sell puts)

Sell APC Feb 70 puts @78.5

I rebalance my short strangle on Anadarko Petroleum. The drift higher moved my short straddle to delta negative. Chart support at 74 and 70.

/edit to add: Later in the day, I sell another layer of APC Mar 67.5 puts. APC@79.4 

 

Long EBAY GPS IWM LEN LGF MON

Net long APC BA

4-0 for January grade B-

Four winners, zero losers for January. I give myself a B- grade for month. I came in under invested and gradually put money to work. Just as important as the trades I took were the ones I avoided. Both gold and bonds seemed too risky to be selling options on. I almost sold puts on AMGN and it kept sliding lower and would have been a big loser. The BA Boeing trade was right before the bad news, but again, that will happen. The Boeing news was not like an earnings report, in that it was a surprise. 

 

I also avoided AAPL. I see that super popular stock as being more appropriate for more nimble traders. As long time readers know, I am a relatively slow moving position trader. I like to have time work for me, though with the low volatility it is getting tougher to make money by selling options. Again, eventually, the market will correct and go down, but the blast off seen at the beginning of the year often can keep flying for a while before that fuel runs out.

Long EBAY GPS IWM LEN LGF MON

Net long APC BA

Buy EBAY and IWM (sell puts)

Buy IWM via selling Mar 77 puts @88.1

I add to my IWM Russell 2000 delta. There are multiple chart support levels, 82, 80, 78, 76. A move back to 78 would negate the entire rally off the November 2012 lows. A pullback seems inevitable, especially because February can be a down month. However, I don't expect a big drop.

I also buy EBAY via selling Feb 50 puts @54.3.

Ebay is up nicely on earnings. Decent chart support at 50. Neither is a perfect trade. I still feel underinvested with January expiration coming this Friday, so want to put more money to work.

Long EBAY GPS IWM LEN LGF MON UNP XRT

Net long APC BA

Sell BA calls

I lighten up on BA by selling Feb 80 calls @73.9

I was long Boeing by being short BA Feb 67.5 puts.I don't like the tape action and the news is getting worse. It seems unlikely that all the uncertainty will be lifted by February expiration.

Long GPS IWM LEN LGF MON UNP XRT

Net long APC BA

Buy LEN, Sell APC strangles

Sell APC strangles with a bullish tilt @77.2

Sell Mar 67.5 puts

Sell Mar 90 calls

A short strangle is a bet on a trading range for Anadarko Petroleum. There is chart support at 70 and resistance at 90. APC is the largest holding in FRAK, the oil fracking ETF.

I also buy LEN Lennar Homes via selling Feb 36 puts @40.7. Their earnings were solid, though the stock dipped during the conference call. Some folks like to think of selling puts as placing a GTC buy order at that strike and getting paid for it, if the stock never falls to that level.

Boeing has been all over the news and my position is in the red. News happens, and sometimes it is bad news.

Long BA GPS IWM LEN LGF MON UNP XRT

Net long APC

11 books for traders

Minyanville has a list that the firm First New York uses for its trainees (link). From that list I have read:
Reminisciences..., Market Wizards, the first Trader Vic book, the Murphy, Weinstein and McMillan books, so 6 out of 11.

It is not a bad list. The opening quip is one I tell everyone though not in the same words: "One thing that every beginning trader needs to learn is there are a lot of ways to skin the cat,“ says Tommy Goelz

There are a 1000 ways to make money (or lose) in the markets. What works for me, may not work for you, and vice-versa. Journaling (what this blog is), is a powerful tool to learn what works for you.

As for today's market, the low option premiums continue to be a challenge. I am tempted to take on more risk. The AAPL drop sure is tempting. However, I remind myself my worst trade of 2012 was a short Iron Condor on AAPL. I have found that yes, some stocks become associated with profits, some with losses. There are plenty of other stocks to trade.

Ritholtz post: cash really has been trash

One of the more popular posts on the sidebar has been "Cash is Trash." At the Ritholtz blog an interesting graphic about ten year asset class returns, that confirms this.

http://www.ritholtz.com/blog/2013/01/asset-class-returns-2003-2012/

Missing from the list are long term treasuries, straight gold, straight silver, all of which would be near the top of the list. So the list makers likely have a bias towards equity oriented investments. AGG is the bond entry and it has a shorter duration than TLT, and hasn't done as well.

Cash has returned zero since the 2008 financial crisis (0.1%), and may stay there for a while yet. Those with money market accounts have seen those statements perhaps with 0.01% as the stated rate. Zero returns are bad, though many might say, better zero than risking another -30% down year in the stock market, or a similar move in bonds (some European bonds already saw that during their crisis). However, the other side is that those that moved to cash during the crisis have missed out on a doubling in the U.S. stock market.

Obviously if someone or some group were smart and lucky enough to be in one of the top performing asset classes every year, their returns would be tremendous. Just as obviously, no one does that, well maybe 0.05% but there are far more liars saying they did (usually after the fact, in hindsight) than real life people that actually did and have the records to prove it.

I know a lot of traders dislike hearing it, especially novice traders, but steady state allocations such as PERM (25/25/25/25 gold, stocks, bonds, cash) or a 50/50 stock and bond allocation do okay in most markets and over the long term will out perform most professional money managers. Yes, every trader thinks they will be in the top group, the outperforming group. In reality, 80% of active managers lag the indexes over the long term. These are the smartest of the smart.

Buy MON (sell puts)

Buy MON via selling Feb 90 puts @99.3

Monsanto broke out from a flat base on strong earnings. There is chart support at 92 and 90. Again, I am going with a 90% percentage option for a tiny premium. The low VIX readings mean pickings are slim for put sells (and call sellers).

Long APC BA GPS IWM LGF MON UNP XRT

Buy IWM (sell puts)

Buy IWM via selling Feb 78 puts @86.6

I continue to edge into the stock market by selling 90% probability puts on the Russell 2000 ETF. There is a 90% chance that the puts will expire worthless if held until expiration. It seems difficult to imagine a scenario where the stock market gives up all its gains from the November 2012 lows. It could happen, but historically, less than a 10% chance.

This trade feels uncomfortable. Some recent trades moved against me quickly, so it feels like I have a cold hand. I remind myself that I came into the year, way under exposed to the stock market, so even if on the 10% that some of these puts come into play, getting assigned stock on a sharp pullback wouldn't be the worst thing.

Long APC BA GPS IWM LGF UNP XRT

Buy BA (sell puts)

Buy BA Boeing via selling Feb 67.5 puts @76.2

Boeing has been trading in a narrow range for about two years now. The recent market rally saw modest new highs. There is chart support at 75, 70. The strike is near the 2012 lows.

Long APC BA GPS IWM LGF UNP XRT

Buy UNP (sell puts)

Buy UNP via selling Jan 125 puts @130.2

I buy Union Pacific railroad, it broke out from a base at 125 and there is minor support at 127. Since breaking out, it made a higher low and now a higher high. If it does move down to the strike price, a roll down and out is the plan. Being under-invested is an uncomfortable feeling during this roaring bull week for the stock market.

Elsewhere, gold and bonds are moving lower, in part because the slowing and possible end of the Fed's massive quantitative easing program. I wistfully look at the up move in TBT (inverse bond ETF) and how little I participated. 

I continue to be tempted to take a shot at the short side of the stock market, but fighting the tape can be an expensive battle. I remind myself that often it is the third time that will break. The stock market has not even faced strike one. The tepid decline on Thursday, did not scare any bull, or excite any bears. 

I went into 2013 expect a down year for the stock market. So far I have been wrong.

Long APC, GPS, IWM, LGF, UNP, XRT

Buy GPS (sell puts)

Buy GPS via selling Feb 28 puts

Having for the most part missed the massive two day rally, I buy Gap Stores on the strength of a public pronouncement to short it (Yahoo link). There is minor chart support at 30, 29, 28.

Long APC, GPS, IWM, LGF, XRT