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

Friday, August 02, 2013

OT: Seven Habits ...

There is the famous book Seven Habits of Highly Effective People (wiki link). Off the cuff, here are seven for traders:

1) Know yourself - I always tell beginners that there are a thousand ways to make money in the markets. Find one or more that work for you. What works for me, may not work for you.

2) Stay humble - When I was a young trader, I was too cool, I was smart, I didn't need to learn from others. An acquaintance of mine started trading. Instead of asking me for advice, he was mostly concerned with preaching to me. At that time I had over 10 years in the markets and he was still wet behind the ears. Odds were way against him because of ego. These days, I still sometimes try and have a beginner's mind, open to learning from anyone that may have a lesson for me. I now have over 25 years in the markets, and sometimes still have something to learn from a beginner.

3) Noise vs. signal - There is a lot of noise out there. A person can watch the financial news or read websites all day long. It adds little, and after a modest point detracts. If something isn't adding to your decision making, try tuning it out. A lot of it is more about entertainment, and possibly generating commissions than useful financial information.

4) Keep it simple - ironic coming from an options trader that often does complex trades. Many strategies can be boiled down to a relatively simple idea. Complexity is often sometimes used to hide something.
5) Risk management is just as important as correct calls - so many beginners focus on market timing, and many want to go "all in." Live to trade another day, is a strong motto, especially for beginners. All in traders tend to crash and burn because at some point their number comes up, and nothing, nothing is 100%.

6) Perspective - despite all the bad news, most of us are blessed to live in the U.S. Most have relatively good health, and those reading here, almost certainly have money to invest. That is better than most, though not as good as some.
 
7) Look ahead - there are cliches about driving while looking at the rear view mirror. Early on, I learned about curve fitting, finding what worked in the past, and trying to apply that to the future. Indicators often work until widely publicized, and after they become popular stop working. 

Another related point is that many folks focus on the bad news, the bad economy, the debt levels, the underfunded pensions, corruption in government and business, and on and on. The future does not have to be dismal. Back in 1900, middle class Americans lived to about 45. Who knows what that age will be in 2100? Young people may well live to 120 or 150 or 200. They may also have the chance to leave the planet and explore new worlds. I've never been accused of being a rose-colored optimist, but the future may be brighter and better than any of us can imagine.

Think of the inventions that changed the world, such as electricity, steam engines, automobiles, airplanes. The Iphone is less than 10 years old. The Ipad about five years old. These are already seen as old news, but have already had a huge impact in a short time. There are sure to be bigger inventions, hopefully that will improve the lives of average Americans.