Wednesday, December 31, 2014

Year in Review: Nothing to brag about grade C+

I made money in 2014, but it is nothing to brag about. In round numbers, my trading account is up about 7%. For blog reported closed trades, I count 390 winners and 69 losers, which is about an 85% win percentage. Before anyone gets excited by the 85% win percentage, those are about the odds going in. 

Understand that the payouts scale to the odds. The person buying the 15% chance of profit option is hoping for a 7-to-1 payout when they win. Why else would someone buy an option with only a 15% chance of profit? I give myself a C+ grade for the year which to most people is a meh grade. With SPY up about 11% and VTI about the same. I trailed those big indexes. However, IWM (the Russell 2000) was up less than 4%, and gold, silver and emerging markets all went down for the year. On the other side, bonds, utilities, and REITs all had big up years.

Some of my most profitable trading tickers include:

Some of my worst include:

Biotech shows on both lists. APC was on the winners list until the spike down in oil prices flipped it over. SPY is up about 12% from the October lows, which is about the same as the gain for entire year. A few nimble traders rode the waves and made money on the down move and the rally. Some slower moving traders got caught in the turbulence, I lost money during the sharp moves. Only a few of those losses would I describe as stupid, but for an experienced trader, that is a few too many.

I loosely track a few ETFs, in round numbers, here are the best to worst for 2014:

TLT +24% (20 year treasury bonds)
SPY +11% (S&P 500)
IWM + 4% (Russell 2000)
GLD - 2% (Gold)
EEM - 6% (Emerging Markets)
SLV -20% (Silver)

Long term treasury bonds surprise as the best performing major asset class in 2014 with TLT up 24% for the year. Who predicted that? Especially as Fed bond buying ended right on schedule. Utilities and Real Estate Investment Trusts (REITs) were other big beneficiaries of the rally in bonds, with XLU and IYR up near the same amount.Silver craters down again, after a big down year in 2013 as well. Averaging down into a major bear market can be the road to the poor house.

I often write that predictions are mostly for entertainment. So just for fun, lets glance at that crystal ball. There are cross currents for the stock market. Seasonal factors such as the 10-year cycle, the 4-year presidential cycle point to a strong year, up 28% in year 5 of a decade is average. On the other side, valuation measures such as CAPE (aka as PE 10, the ten year price-earnings of the market), and market dividend yield, point to over valuation. I posted about the warning signs of a top before (link). I'll continue to remind myself of those, because a top is inevitable. However, ten tops tend to be predicted for every top that occurs. 
On the anecdotal side, there is a tiny bit more exuberance, as two young relatives opened accounts and bought a few shares. Neither is going "all in" or thinking about trading full time, but still it is a minor negative. I mentioned that one of the local CANSLIM meetup groups closed down. I see this as a minor positive. Stock market meetups would be booming, not closing down, if this was a popular market bubble ala 1999/2000. Instead, it remains a tough task to find intelligent casual conversation about the stock market. I still often hear people saying "the stock market is fixed. I don't trust the stock market." So this remains one of the most hated bull markets ever, up about 200% of the SPY 666 lows.

My plan is to listen to the market, instead of having a set in stone prediction. In May 2014, I wrote a post "Tea Leaves for a Market Top" (link) and continue to watch for those signs (transports lagging, inverted yield curve, magazine cover sentiment). Over my many years in the market, I observe that my predictions tend to be no better than coin flips. In other words, I don't make money on my predictions. I am bit better at risk management and that's where I see the profits coming form. Each trader has biases. Old timers have history. Hopefully, I can translate my vast experience into wisdom instead of bias.

Let me close with a toast: Here's to 2015 being the best year ever! Cheers!

Saturday, December 27, 2014

Weekly: Merry Christmas and Happy New Year

I trust all had a good holiday. A quick update for a quiet holiday up week.
Wed I ping-pong on AMGN, in a wrong-way fashion, and rebalance again.
Sell AMGN Jan 148 p
Sell IWM Feb 106 p

Tue I rebalance short strangles in Amgen and Honeywell. I hedge my neutral position in SPY.
Sell SPY Feb 220 c
Sell HON Feb 92.5 p
Sell AMGN 175 c

Mon I rebalance my position in Federal Express by selling puts
Sell FDX Jan 165 p .58

I didn't check my deltas so won't post a new position summary. Next week may be even quieter for me, so HAPPY NEW YEAR to all the readers. May you have the best year ever!

I'll post a year in review at some point. There was some good, some bad, some ugly. 

Saturday, December 20, 2014

Weekly: Playing with fire, getting burned

Selling options with only a short time until expiration is playing with fire. This week, I get burned by selling some calls for this cycle. Calls on WHR, UNP, AMGN all became big time losers. Whirlpool was the worst, and I took a 2500% percentage loss basis the option premium collected. 

As almost always, my positions are small dollar amounts. I also had enough offsetting options expire worthless so the week was profitable. It is still painful to have a firecracker blown up in your hand, so to speak, though.

Here are the trades:
p = puts / c = calls, all are the monthly third week of expiration options.

Sat Assignments on calls in ASH at 115 and WHR at 185. Ashland was a nice, though small profit. Whirlpool a mind-numbing, shell-shocking loss.

Fri New long position in KMX, up on earnings. 
Sell KMX Jan 60 p

Thu Ouch! I get burned by the monster two-day rally. Selling short term calls is playing with fire, and an entire finale rack went off in my face (a finale rack is the big ending of a major fireworks show). The percentage loss on the short WHR calls is about 2500%, on the UNP and AMGN about 300%, in two or three days!!! Now don't get the wrong impression, my trading account is up big during the past two days, but would have been up even more had I not played with fire.

Buy WHR shares @190.98 to cover short calls. I bite the bullet instead of trying to finesse for a better price. As it turns out I am on the bad side of the price curve, but with such a shell-shocking percentage loss (2500%), rational logic is difficult to discern.

Cover short AMGN Dec 167.5 calls
Cover short UNP Dec 118 calls
Sell IWM Jan 108 puts
Wed Sell FDX Jan 180 c

Tue Sell WHR Dec 185 c

Mon Sell IWM strangles:
Sell IWM Feb 126 c
Sell IWM Feb 92 p

Sell AMGN Dec 167.5 c
Sell JWN Jan 82.5 c

Sell NKE Jan 105 c
Sell UNP Dec 118 c 

Position Summary
net long NKE SPY
net neutral AMGN APC WHR YHOO
net short BBY FDX IWM JWN
expired GLD TLT
assignments on ASH 115 calls, WHR 185 calls, both covered by stock purchases

Saturday, December 13, 2014

Weekly: Baby swans and pipers

I see the recent market action as a "baby swan event." There are so-called black swans which are rare. Swans live for 10 to 20 years and mate after age four. So the baby swan is something that might happen every four or five years. The sharp decline in oil is that kind of event--not an every day event, but not a black swan which I see more as a once every 20 or 30 year event. Hence, my tag "baby swan," the kind of thing that might happen every five years or so.

During volatile markets I sometimes wish I were a more nimble trader, with better instincts as to directional movements. As is, I am slow moving. My directional predictions tend to be no better than coin flips. As is, this week was painful, with a lot of red ink. I close two layers of short puts on APC for huge percentage losses. I layered some SPY put backratios to hedge. I added to longs on Monday. Trades are below:

Fri Cover short APC Dec 75 p @74.3. for about a 600% loss basis the premium collected. I pay the piper his/her second installment on Anadarko, the first is below. Wow!

Wed I layer a second SPY put Backratio
Buy SPY Feb 183 p
Sell 2x SPY Feb 178 p

Tue I hedge by selling a SPY put backratio:
Buy SPY Jan 188 p
Sell 2x SPY Jan 184 p
Again, these are bullish positions but have an explosive profit with a decline to the lower strike. If there is a crash, they start to lose big time below SPY M180.

Mon I pay the piper today in APC taking a big loss coverin some short puts. I roll down to a much lower strike, and that new position is deep in the red before the day is over. Other than taking my lumps in oil, I add to longs in ILMN, DIS, rebalance WHR.

Sell ILMN Jan 155 p @190.0
Sell DIS Jan 85 p @94.0
Sell WHR Jan 165 p @188.0
Cover short APC Jan 77.5 p @77.2
roll down by selling APC Jan 60 p

Position summary:
net neutral APC GLD TLT

Saturday, December 06, 2014

Weekly: calm after the storms

Relative calm returns to the markets, as the zombie bull continues to lurch slowly forward. Highlights include a new long position in MSFT, adding to longs in many existing positions, and hedging my position in BBY.

Fri I hedge my long position in Best Buy by selling calls. I add to longs in Union Pacific Railroad and United Healthcare.

Sell BBY Jan 42 c @35.5
Sell UNP Jan 105 p @119.3
Sell UNH Jan 92.5 p @99.8

Wed Add to longs in Nike, Sell strangles in Amgen:
Sell AMGN 190 c @167.5
Sell AMGN 145 p @167.5
Sell NKE Jan 87.5 p @98.0

Tue New long position in Microsoft and add to longs Federal Express and Nordstroms.
Sell FDX Jan 160 p @180.5
Sell JWN Jan 67.5 p @75.3
Sell MSFT Jan 44 p @48.4

Mon I open January positions on some of my existing longs
Sell HON Jan 87.5 p @97.5
Sell NKE Jan 87.5 p @97.8
Sell YHOO Jan 44 p @50.2
Sell ASH Jan 105 p @116.2
Sell ILMN Dec 172.5 p @189

Position Summary:
net neutral AMGN FDX GLD IWM SPY

Saturday, November 29, 2014

Weekly: Oil crush

I hope all had a good Thanksgiving. Those long oil felt like turkeys. The sharp move down in oil hurt me. My position in Anadarko Petroleum moves deep into the red.

Fri Oil spikes lower on OPEC news. My short puts in APC get crushed. I sell calls in an effort to do damage control, but the horse is long gone from the barn.
Sell APC Dec 90 p @80.3
Sell APC Jan 97.5 p
I am short APC Dec 75 puts and APC Jan 77.5 puts. Yikes!

Tue I continue to put capital to work
Sell BBY Jan 32 p @38.5
Sell MMM Jan 145 p @158.1

Sell TLT Dec 118 p @120.9
Sell GLD Dec 122 c @115.2

Sell FDX strangles: FDX Jan 155 p @175.2
Sell FDX Jan 195 c

Sell WHR strangles: WHR Jan 160 p @184.7
Sell WHR Jan 210 c

Mon Option expiration frees up a lot of capital, and I use some of it. Most of these are adding to long positions.

Sell AMGN Dec 150 p @164.2
Sell VRX Dec 110 p @142.4

Sell APC Jan 77.5 p @92.4
Sell BRKB Jan 135 p @147.1

Sell IWM strangles @117.8: Jan 101 p / Jan 127 c

Position Summary:
net neutral FDX GLD SPY

Saturday, November 22, 2014

39-8 for November Grade C

Modest profits for me, as I count 38 wins, 8 losses for the November cycle. Again, before anyone gets excited by the high win percentage, those tend to be the odds going in. I enter most trades with a 80% to 90% chance of a profit. The other side of high probability is that profits are small, and losses can be substantial. 

Traders buy options with a 10% chance of profit, hoping for a 10-to-1 payout or more. With the market moving straight up, many call buyers got rewarded. Call sellers like me got skewered. Fortunately, I am one to take my losses (vs. wait and hope or doubling down), so my losses were contained, though painful.

I covered the call side of many short strangles for losses: AMGN ASH HON SPY VRX YHOO. For some positions I resorted to buying stock because of wide spreads on the options. Buying stock means adding capital and risk, but helps with the bid/ask spread. Another cost is an extra level of commissions for assignment, when the stock gets called away.

Some strangles came in safe, but the percentage was not what I wanted. During these straight up moves, I tend to lag an all-in long strategy. There is no getting around this for hedgers. The alternative is to be directional, and my history with directional trades is poor. Two recent examples are in gold and bonds (GLD, TLT). I recently bought calendar spreads, taking a long position in gold, short bonds, both directions were wrong. Gold went down, bonds went up. For gold, I reverse the position so I am at a profit. The bond position is near worthless now.

What next? There remain many red flags for the stock market. QE in the U.S. is ending. Bullish sentiment is high. Valuations are near red line, though not nose-bleed bubble territory. Again, my directional predictions tend to be no better than coin flips. This is one reason that I hedge the way I do, because it is a way to make money in the market while being just okay on direction. The risk management side came into play this past month and saved my bacon. While some losses were huge percentage losers, overall I made money.

Weekly: Same crap, different week

There is saying in Spanish, same crap, different day. This week was more of the same for those with hedged positions. The bull marches forward, bears get crushed. My trades include: a new long position in BBY, roll some covered calls on ASH, buy VRX stock to cover short calls. 

Lest, I sound whiny, it was a profitable week and month for me, so overall there are positives. However, during these straight up moves, I lag an all-in long strategy.
Fri Cover short FDX Nov 175 calls @174.5. I cover mid-day, rather than waiting until the last minute and a potential dance with the devil. FDX closed below 175, so I would have been better off holding. However, Federal Express traded all over the place, with a high over 176.

Roll ASH short calls: Cover short ASH Nov 110 calls, sell ASH Dec 115 calls @113.25. I bought shares of Ashland to cover short calls because of the wide spreads on the options. I was happy to let the stock get called, but I could buy back the call for a decent price and sold December calls at a higher strike. This adds risk and capital.
VRX and AMGN are going to get called away tomorrow. I bought shares of both to cover short call positions. Again, I bought shares because the spreads on the options were so wide. In the case of Amgen, I tried limit orders several times only to watch it climb ever higher. Ouch.

Thu Sell BBY Dec 34 puts @37.8. New long position in retailer Best Buy, which is up on earnings news today.

Sell IWM Dec 105 puts @116.1. Add a bit to longs in the Russell 2000 etf.

Tue Buy VRX shares to cover short Nov 140 calls @141.58. I add a lot capital and take on a lot more risk by buying shares of Valeant Pharma.

Position Summary:
net long ASH IWM
net neutral SPY
short TLT
expired ILMN

Saturday, November 15, 2014

Weekly: return of the Zombie Bull

The Zombie Bull market continues to lurch forward. I am still paying for selling calls short about a month ago. This week is particularly frustrating because AMGN and ASH pull back from their highs after I bought shares to cover short calls. GLD bounces a bit. 

Some side notes are that the AAII sentiment (link) is near nose bleed levels. This week it is 58% bulls, 23% neutral, 19% bears, a danger sign for bulls, though they have been right for a while. The local CANSLIM meetup is disbanding because the most dedicated leader is moving on. Stock market meetups closing down, tend not to be the kind of thing that happens during bubble bull markets.

Fri I open December long positions in Nordstroms and Nike.
Sell JWN Dec 67.5 puts @75.1
Sell NKE Dec 87.5 puts @95.5

I cover a couple of options for a buck or two to free up that margin.
Cover short YHOO Nov 39 puts @51.2
Cover short NKE Nov 82.5 puts @95.1

Wed Cover short SPY Nov 204 calls @204.1. Another day, another short call covered for a huge percentage loss about 600% basis the premium collected. Phooey.

I open December long positions in Union Pacific railroad and Amgen
Sell UNP Dec 110 puts @120.2 .51
Sell AMGN Dec 145 puts @162.3 .45

Mon Buy ASH shares to hedge the short Nov 110 calls @110.77. Another busted short strangle, another scramble for damage control.

Cover FDX Nove 145 puts @171. I free up some buying power by covering these way out of the money puts. They are almost sure to expire worthless, but I am near the yellow line on buying power. I don't want to red line and face an unexpected and unwelcome margin call, especially with my current schedule with limited computer access.

Position Summary
net short DIS FDX VRX
net neutral BRKB GLD IWM SPY TLT

Saturday, November 08, 2014

Weekly: plowing ahead

After recent losses, I plow forward. This week, I rebalance several positions by selling December puts. I hit another bump in the road (or rock in the field) with another big loss on some short calls, this time on YHOO. ASH is also near the strike price of those short calls. GLD and some oil related stocks finally have a relief rally after some relentless selling. DIS earnings disappoint. Here are this week's trades:

Fri Cover short YHOO Nov 48 calls @48.2. Another big loss on short calls, about 600% basis the premium collected. The rally in Yahoo has been substantial since the BABA IPO. The call side of my short strangles got crushed.

Wed I open December positions in 3M Corp, Anadarko Petroleum, United Healthcare and Whirlpool.

Sell MMM Dec 145 puts @155.0
Sell APC Dec 75 puts @91.5
Sell UNH Dec 82.5 puts @95.5
Sell WHR Dec 150 puts @173.0

Tue I open December positions in Honeywell and Nordstroms.
Sell HON Dec 85 puts @95.1
Sell JWN Dec 62.5 puts @71.9

Mon A busy day, nine trades, mostly rebalancing trades on existing positions. I sell some December puts to offset some of the short November calls that may be threatened. I make too many trades to notate the prices of the underlyings. Most are done between 45 minutes and 1:15 after the open. These days I have limited computer access, and that time is one of my trading windows.

Sell ASH Dec 95 puts
Sell DIS Dec 82.5 puts
Sell FDX Dec 145 puts

Sell IWM strangles: Dec 127 calls / Dec 103 puts
Sell YHOO Dec 41 puts
Sell VRX Dec 110 puts
Sell BRKB Dec 130 puts

Position Summary:
net neutral DIS GLD UNH

Saturday, November 01, 2014

Seminar report: TDAmeritrade Marketdrive

I attend a day long stock market seminar sponsored by TD Ameritrade, CBOE and the CME. The presenters include Don Kaufman and John "The Geek" from ThinkorSwim, Tom Sosnoff from Tastytrade, education guys Russell Rhoades from CBOE and Pete Mulmat from CME.

Some might ask why attend a seminar when I've been trading for decades. Well, I am always open to learning something new, and I often get anecdotes about the mood of market participants. Also at this event there was a free lunch (Turkey sandwich and more).Unlike some similar events there was no hard sell, just a few minutes of information from CME and CBOE.

Don Kaufman leads off. He says the #1 reason beginners blow up their accounts is they trade too many contracts. Most people are going to be wrong some percentage of the time. Being wrong in options with a large position and the account gets blown up. Next is a discussion of theta neutral trades. The example given is TWTR vertical call spreads. With TWTR near $41.50, the $41/$42 call vertical prices out near the same 6 days out, a month out and three months out. I would have never guessed that. 

Kaufman says he is terrible at predicting market direction, but decent at risk management. The golden traders are good at both. The ones that lose all their money tend to be bad at both, risk management and direction. I am so-so on direction, a bit better at risk management.

Kaufman talks about his last trade on AAPL, a vertical call spread sold for a credit. He sold the 200/210 call spread with AAPL around 203 and watched it go to 243, maxxing out his loss. AAPL is now one of his "nemesis stocks," stocks that he no longer trades. I have a similar list, though after a year or more I might try again.

Kaufman says that most traders are either buyers of premium or sellers, that it is a rare trader that can be successful at both. I've never had much luck buying premium. I am only so-so at selling premium, but at least I make something. Kaufman is not big on back testing for finding strategies. He prefers looking at current pricing and extrapolating. For example, looking at the price of a January spread, and then a December, to perhaps get an idea of what the spread might price out at in a month with no price change.

Kaufman asks the 500 or so attendees, how many watch CNBC, only a very few hands go up. He says it is mostly noise now. He goes on to show the high correlation with SPY. 362 out 500 S&P stocks had an 80%+ correlation the past 10 days. This despite earnings season which some might think would create more dispersion.

The free lunch is decent (Turkey sandwich and more). After the end of the seminar, there is free beer and wine, and more snacks. During the break I notice a local guy and chat with him while we eat lunch. A third guy joins us. The first guy has mostly done stocks only, and very little with options. The third guy is three years in, and with the help of the many ThinkorSwim educational tools seems to know quite a bit. The catch is that brokers love option traders. The average option trader might be 10x as active as a stock trader and the commissions pile up for the broker. 
Russell Rhoades, CFA from the CBOE wrote a book called VIX. Not very many people talk to him during the breaks, so I don't get a good vibe from him. He does mention the launch of the new VXST (a nine-day VIX type instrument) and VXTYN a bond market volatility instrument.

The CME education guy, Pete Mulmat mostly focuses on how trading futures is much more capital efficient, because of the lower margin requirements. For example to buy or sell one /GC (gold 100 ounces), the opening margin is a mere $6600 or so to control about $120,000 worth of gold. Of course that 20x leverage can get a person in a lot of trouble. The recent tumble in gold would have wiped out all that equity for a long positon and resulted in a quick margin call if the full leverage was used.

The keynote speaker is Tom Sosnoff, founder of ThinkorSwim, now with Tastytrade and As always, Tom has an interesting perspective. He mentions lecturing 100 USC finance majors the night before. He came away disappointed that they seemed to know so little. 

One question for the finance majors was about the Friday market event. "What do you do" in response to the Bank of Japan news that they are selling yen to buy dollars? None of the USC students came up with a decent answer. Two people in the audience answer. One says he would buy the Nikkei. Another says he would buy yen. A third says to buy S&Ps. My gut response is "fade the move," which is what Tom Sosnoff did. He sold S&P sold Nasdaq and bought Euros. All three were green by the end of Friday. My observation is that it isn't always a good idea to fade the news, but in this instance it was the correct call.

Sosnoff presents a lot of evidence in favor of selling options, naked strangles. I remembered Don Kaufman's scold against back testing. I keep in mind that the last five years have been mostly good for option sellers. However, as my recent few weeks of trading have shown in a most painful way, the losses can be quite large from selling naked strangles, while the profits are capped at the premium collected.

I recall a similar seminar event a few years ago, where selling covered calls was the "in thing to do." Of course, the huge market rally made that only a so-so strategy going forward. Another big thing was selling iron condors relatively close in. Again, the big market rally would have made that strategy so-so going forward. So the caution is, that if they are telling 500 retail traders that selling strangles is a good idea, it might not work out so well going forward. This is from my perspective as someone that sells naked strangles quite often. 
There is more. There is a demonstration of Trade Architect, a new part of the TD Ameritrade website. A question on high frequency trading, and a lengthy answer. Some I am going to leave some out as this post is getting rather lengthy.

Friday, October 31, 2014

Weekly: Steamroller crushes option sellers (and da bears)

There is a popular analogy for strangle sellers, that it is like picking up nickels in front of a slow moving steamroller. Most of the of the time, the option seller gets the nickel. Once in a great while, there might be a slip and fall, a muscle cramp, or just inattention or too much boldness, and the steam roller flattens the person. 

Well, this week I got flattened as the monster stock market rally continued to roll forward, crushing some of my short call sides of strangles. Most notable was AMGN. I also did some fear based covering on Friday, near the top of the move on NKE and again on AMGN. All told, my account was down just a bit for the week. However, with yet another huge up week in the stock market, down just a tad, has me feeling like I've been through the ringer.

Being short calls was near the worst possible position to have during the last few weeks, and I have paid for it. On Friday I gave into some fear covering and covered near the worst levels of the move.

I can rationalize or hem and haw or take responsibility. What is done is done. All I can do is try and learn from the experience, the mistakes, and move forward. The glass half full perspective is that this is one of the worst trading periods in recent memory, and yet my account is only down a few percentage points from all time highs. 

One small highlight for the week is a new long position in WHR and some other recent longs going my way. Some low lights include covering calls on HON, YHOO, the already mentioned AMGN and NKE, and watching my once proud profits in GLD disappear and turn red. Thankfully GLD is a tiny position. Here are the ugly looking trades for the week:

Fri Another big up day for the stock market, another slightly down day for my trading account. While most others got some Halloween candy. I got some more lumps of coal :( 

Cover short NKE Nov 95 calls @93.4. I cover Nike calls near the worst levels. Fear based covering.

Cover short AMGN Nov 165 calls @163.4. Same for Amgen, covering calls near the highs of the entire move. Fear based covering.

Thu Sell AMGN Nov 152.5 puts @160.0. Yet, another damage control move on Amgen as the bull steamroller rolls forward. I try to sell some more November calls on GLD, but it keeps slipping lower so my limit order doesn't get filled. (Next day gold craters lower, yikes.)

Wed Buy AMGN stock sell Nov 165 calls @158.6. I place another limit order to close the short Nov 155 puts, still no fill. So I cancel that and do a buy/write to hedge my position. I add a lot more capital, and more risk in doing this.

Tue A truly painful day, as I chase AMGN higher all day with a buy to close limit order on my short calls. The spread is wide and I don't get filled as Amgen closes near the highs of the day. Another big loss is covering some short HON calls for a huge loss. Some traders use the analogy of picking up nickels in front of a steam roller for those that sell naked options. Well, today, I got flattened on some short calls. Overall, my account is only down a smidge, so I am over dramatizing, but the loss on the AMGN calls is approaching 2000% basis the premium collected. In other words, the call buyer has about a twenty times winner. Wow.

Cover short HON Nov 95 calls @45.2 1.69

Sell AMGN Nov 145 puts @155.0. I mitigate the disaster of the short calls by having layers of short puts.

Sell WHR Nov 155 puts @168.0. New long position in Whirlpool. WHR up on earnings.

Mon Cover short YHOO Nov 44 calls @44.4. Yahoo! keeps rising, and I cover for a big loss, about 800% basis the premium collected. I am still short Nov 48 calls, Nov 36 and Nov 39 puts.

Saturday, October 25, 2014

Weekly: Up is Down, Mercury Retrograde

Stock market up big, best up week of 2014. My trading account is up only a little. Highlights of the week include a new long position in ILMN, covering short calls for a big loss in MMM. One of the worst feelings is seeing the stock market up big time and my account down. Friends that know about my stock market activity tend to assume that an up market means good times for everyone and down markets the opposite. Option traders know that isn't always the case.

Thursday was a big up day in the market, and a down day for my account, not much fun in that. Being short calls on a stock that gaps up on an earnings report is a bad feeling. HON, MMM, YHOO recently had good reports and I was short strangles on all. I covered MMM calls for a huge loss, and may eventually cover the others.

Someome mentioned that Mercury is coming out of retrograde today 10/25/14. I know that many readers are tuning out with the mention of astrology. It doesn't matter what a person uses, I am a fan of anything that works. Some very successful traders use astrological indicators. Mercury went retrograde on 10/4. My really bad streak of trading started 10/6 Monday, the first trading day after that. Coincidence? Probably, but I would have done much better sitting out most of the dance during this retrograde time period. The next retrograde period is January 21, 2015 to February 15, 2015.

I have already made a record number of trades for one month in calendar October. For the most part, the more I trades I made, the deeper the hole got. Thankfully, I tend to be a timid trader as opposed to a a super aggressive, all in, all out, double and double again, kind of options trader. A bold trader with a month full of bad trades can lose their entire account.

I personally know two traders that went completely belly up and no longer trade at all. Both thought they could trade for a living. Both were very smart guys, but the stock market is full of smart people. I know a third person that borrowed money from mom to meet a margin call, lost that, and had to eat bag lunches for years to pay mom back. In the options market, it is often one smart person betting against another smart person. The dumb ones tend to lose their lunch money in a short time period, then stop playing.

I attended the local monthly CANSLIM meetup. Attendance and energy level are steady. ILMN was mentioned at the meeting. This continues to be one of the most hated bull markets, with little excitement, little enthusiasm. One minor anecdote is that a couple of young relatives have opened up stock market accounts. Used to be that V-shaped chart formations were rare, but during the recent years, V-shaped charts are relatively common.

Enough of the stories and astrology for now, here are this week's retrograde trades in a booming up week for stocks:

Fri Sell VRX Nov 110 puts @128.3. Rebalance short strangles by selling another layer of puts on Valeant Pharma.

Sell TLT Nov 115 puts @120.2. Hedge my long Dec 110 puts in the Treasury ETF by selling these Novembers. Another poor intra-day move, as I sell the puts near the worst time of the day.

Thu The market is up big and my account down, so it is a crappy day for me. The culprit is 3M Corp which gaps higher on news. I cover short calls near the highs of the day, only to see it close near the strike price of the short calls. I continue to scramble to add longs as the market rallies, but my timing leaves much to be desired.

Cover short MMM Nov 145 calls @147.2 for a huge loss, about 600% basis the premium collected.

Sell UNP Nov 100 puts @111.2 Union Pacific Rail
Sell HON Nov 87.5 puts @93.4 Honeywell
Sell YHOO Nov 39 puts @42.8 Yahoo!
Sell AMGN Nov 133 puts @147.5 Amgen

Sell GLD Nov 134 calls @118.2. I also rebalance my net long position in gold as it declines.

Tue A rip your face off rally today in stocks. I scramble to add long delta as I caught flat footed after expiration. So much for taking a break from trading after the losing streak with seven fills today and three more that didn't fill. I take a new long position in ILMN Illumina on earnings. The rest are rebalancing on short strangles. I wrote down the prices at the time of the fills, but lost that scrap of paper before I could type them here.

Sell MMM Nov 128 puts 3M Corp
Sell FDX Nov 145 puts Federal Express
Sell DIS Nov 77.5 puts Disney

Sell IWM Nov 98 puts Russell 2000 ETF
Sell ASH Nov 95 puts Ashland
Sell NKE Nov 82.5 puts Nike
Sell ILMN Nov 155 puts. New long position Illumina, mentioned at the local CANSLIM meetup group.

Mon Sell HON Nov 80 puts @89.7. Rebalance short strangles on Honeywell.
Position Summary:
net neutral FDX SPY UNH

Saturday, October 18, 2014

27-13 for October Grade D

Strictly on profit/loss, the October option cycle would grade out at F. This was my worst month in some time with 27 winners and 13 losers. Most of my trades are 80% to 90% probability going in, so that ratio is poor. Some of my losers were whoppers, 1000% basis the premium collected. Put buyers made ten times their money, if they bought when I sold and covered when I covered. 

Overall, I give back about 60% of my modest profits for 2014. The reason for the D grade, is the curve of a difficult market. More than a few strangle sellers and put sellers suffered huge losses this month. Some may experienced margin calls.

As for me, I got a bit too enamored of the bullish calendar cycle, ignoring so many of the the other warning signs. I did take out some insurance against an October smash. Back on July 31, I bought an October put spread on SPY, buying SPY Oct 180 puts and selling the Oct 171 puts. Unfortunately, my timing and my strikes prices on this insurance purchase were a bit off and it expired worthless.

The good news is that I live to trade another day. Hopefully a bit wiser from the experience. I didn't panic. I kept moving. Unfortunately, a lot of my moves were wrong. Many traders trade less, trade smaller, or take a break after a losing streak. Sounds good to me, so I may be more selective the next couple of weeks. The emotional reponse might be revenge trading to try and make up for recent losses. Most traders end up digging a deeper hole with revenge trading. 

Weekly: Wild Whipsaw Washout

Wednesday's huge gap opening lower took out many of my mental stops. I closed many short puts for huge percentage losses, near the lows. For the week, I am down signficantly, though still up for the year. What's done is done. 

One reason I have this blog is to help me learn by writing about my trading. The main thing I might have done differently is wait a bit long on Wednesday before covering. I covered most of the puts in the first 15 minutes of trading (which turned out to be near the lows for many of those stocks). Waiting another 15 minutes to 30 minutes would have been so much better. Had I held on until expiration, I believe all of those losers came back above the strike price by expiration Friday. Big gaps like that rarely keep moving in the direction of the gap. I acted like a trading robot, closing so many positions in a short time period, as they touched on my mental stops.

The fantasy hindsight replay has me closing out all my long puts and doubling down on short puts at the bottom on Wednesday, but readers know that I am not such a bold trader. I tend to be a relatively slow moving options trader with a dislike for fast markets. I am not nimble, don't have good instincts. don't have a good gut. On the plus side, I am good with numbers, with odds, and am patient. My style of trading works towards my strengths. Many are bored by what I do. I always tell novices to find a style a method that works for you. There are a thousand ways to make money in the markets. Find one or two that work for you, that fit your personality.

The lowlights of the trading week include closing out short puts on AMGN BRKB HON FDX IBB MRK MSFT WFC, all for losses. I also sold some calls on Thursday, which wasn't the best move either. One bright spot was my GLD bull calendar, up about 60%. My TLT bear calendar is down about 75%. I initiate new longs in UNH UNP. It is a jelly side down kind of week (a piece of bread with jelly spread on one side seems to land jelly side down more often than not). Since the Alibaba IPO day market peak, about 60% of my modest profits for the year have been given back. I brush myself off and move ahead. Hopefully, I am a bit wiser from this recent turbulence. I'll post a monthly summary with more thoughts within a day. Here are this week's trades:

Thu Another big gap down this morning on the stock market, but near unchanged by the close. I don't do that much better with intra-day timing as I sell some calls to hedge some of my short puts.

Sell GLD Nov 128 calls @119.0. I was long a call calendar, and am selling the Novembers before the Oct 123 calls expire (hopefully worthless). I may get a bit more premium by selling now instead of on Monday after expiration.

Sell YHOO Nov 44 puts @37.6. Rebalance short strangles on Yahoo!, I am short the Nov 36 puts, Nov 48 calls, and some October options which hopefully expire safe.

Hedge short puts on Nordstroms, Nike and Disney by selling calls.
Sell JWM Nov 77.5 calls @67.4
Sell NKE Nov 95 calls @84.8
Sell DIS Nov 92.5 calls @81.3.

New long positions in United Healthcare and Union Pacific Railroad.

Sell UNH Nov 75 puts @85.4.
Sell UNP Nov puts @104.0.

Wed Disaster morning with SPY gapping down 3 full points. I cover any short puts that move into the money, closing six positions in the first 15 minutes for huge losses. It is not a time to be cute, not for someone like me, who isn't in front of the computer all day, and tends to be a slow moving position trader. I see it as time to survive. As the fills come in, SPY is bouncing off the lows, so I could have gotten out at better prices on most. 
C'est la vie. Obviously, I would have been better off holding on for 20 minutes or so. Some might criticize and say that I panicked. No, I followed my rules. Fast markets are not my friend. My account is still up a tiny bit for the year, with about 85% of the year's peak profits now gone (it was at 50% on Sunday!).
Cover MSFT Oct 43 puts @42.5. Microsoft gaps lower after Intel earnings. Loss is 800% basis the premium collected.
Cover MRK Oct 55 puts @54.8 220% loss
Cover AMGN Oct 130 puts @129.7 350% loss
Cover FDX Oct 150 puts @149.7 500% loss
Cover IBB Oct 250 puts @249.9 600% loss
Cover BRKB Oct 135 puts @134.9 240% loss

By the end of trading, it looks like Wednesday morning was a wash out low. Most of the positions I covered were up sharply off their low by the end of trading. Some were actually positive for the day (shakes head).

Sell VRX Nov 140 calls @114.8 .50. One final trade for wash out Wednesday, I hedge my short puts on Valeant Pharma by selling calls.

Tue Cover WFC Oct 50 puts @49.3. Another day, another loser. Wells Fargo bank earnings disappoint and the stock breaks support at 50, which is also my strike price. Loss is about 700% basis the premium collected. Despite this morning's stock market relief rally, I am following the mechanical rule of closing positions if they break the strike price. As I type this, WFC drifts higher, so I could have gotten out at a better price by waiting five minutes. It is an illusion that I can call highs and lows, and when stocks will turn on a dime.

Sell AMGN Nov 155 calls @133.7. I rebalance a net long position in Amgen by selling calls.

Sell HON Nov 95 calls @86.2. I hedge short puts by selling calls on Honeywell.

Sell MMM Nov 145 calls @135.2. Hedge short puts on 3M Corp by selling calls.

Mon Sell AMGN Nov 115 puts @136.6. I open a November position in Amgen. SPY has broken support at 190.5 so we will see what happens next.

Sell JWN Nov 60 puts @69.2. I open a November position in Nordstroms, as the stock market continues lower. AMGN another 2 points lower so I continue to do poorly on the short term timing.

Cover short HON Oct 87.5 puts @87.4. I take the loss on Honeywell at it crosses the strike price of my short puts. The loss is about 700% basis the premium collected. HON chart is a waterfall decline. Wow.

Sell BRKB Nov 150 calls @137.8. I rebalance my net long position in Berkshire Hathaway by selling calls.
Sell ASH Nov 110 calls @98.8. I hedge my short puts in Ashland by selling calls. Chart resistance at the 110 level.

Position summary:
long UNH UNP
short TLT / net short HON
closed or expired: IBB MRK MSFT SLB TTM WFC

Friday, October 10, 2014

Weekly: clock cleaned

I got my clock cleaned during the recent market decline. I lost about half my profits for calendar 2014 during the past few weeks. Keep in mind that I tend to be what some call a chicken trader, making small bets for small wins and losses. 

Risk and reward often go hand in hand with options. I didn't do much right, but I didn't panic, didn't trade emotionally, didn't try to get even. I still lost a lot. It seems like ages since Monday's up opening with SPY over 197 (close 190.52). One tiny pin point of light is my position in GLD is near break even. My foray into TLT has been a big loser.

Low lights of the week include a terrible one-day whipsaw in FDX, big losses in most positions, covering some short puts for 1000% percentage losses. Here are this week's trades:

Fri Cover short SLB 95 puts @93.4. Big ouch as Schlumberger continues lower. I cover these puts at about a 1000% loss (not a typo, a thousand percent basis the premium sold). Fast market means wide spreads on the exit. Rule #1 is to live to trade another day. Being short naked puts means the losses can spiral out of control in dollar terms once the strike price is crossed.

Cover short APC 90 puts @89.0. Ouch number two is Anadarko Petroleum, covered for another loss in the 1000% range.

Both SLB and APC are coming back a bit as I type so I may have covered on the low. What can a trader do? Either a trader takes losses or doesn't. For traders that take losses, there is always the chance that they get out near the worst possible time. It is the nature of stops, support/resistance trade that I favor.

At the open this morning, the decline has cost me about 40% of my modest profits for the year. It has been a painful time. While the losses are eye popping in terms of percentage of the premium collected, they are relatively small in dollar terms and in terms of the account.

Cover short IWM Oct 105 puts @104.9. Third loss makes an ugly trifecta for this morning. The loss on these Russell 2000 etfs is about 500% basis the premium collected. Similar deal, the underlying moves below the strike price of the short puts, so I am getting out. IWM ticks a bit higher after I get out. Grrr. The stock market is lower again, after some early short covering, but could change direction at any time. Some technicians are looking for support for SPY at the recent lows, which is about 1 point lower as I type.
Sell YHOO Nov 48 calls @40.1. I hedge my net long position in Yahoo! by selling some calls. I am short Nov 36 puts.

Thu Sell SLB Oct 103 calls @96.0. Rebalance short strangles in Schlumberger. I cover SLB Oct 115 calls and sell the 103s, rolling some of my short SLB calls down to reduce the delta. SLB threatening my short Oct 95 puts. To add to the mix there are earnings before expiration.

Wed Sell APC Nov 115 calls @92.2. Rebalance a net long position in Anadarko Petroleum. APC getting slammed today on news about a credit downgrade. I am short Oct 90 puts, Oct 120 calls, Nov 82.5 puts and deep in the red on the short puts.

Sell SPY Nov 204 calls @192.5. Minor rebalance to my net long position in the S&P 500 etf. 

Tue Crunch day as SPY falls 3 full points.
Cover FDX Oct 160 puts @157.7. I take a big loss on Federal Express. It's been a while since I slipped on a banana peel that badly. FDX seemingly broke out to the upside, but reversed within an hour and today's market weakness has it weaker still. One day loss is about 700% basis the premium collected. Ouch!

Sell SPY Backratio @194.7: Buy SPY Dec 180 puts
Sell 2x SPY Dec 175 puts
Not the best timing as SPY is down about 1.5 when I get filled on the way to a -3.0 close. Again, I like to do these put back ratios for a net credit making them a net long position, but with an explosive profit on a decline to the lower strike at expiration.

Mon Sell YHOO Nov 36 puts @41.3. Rebalance short Oct strangles in Yahoo! by selling November puts.
Sell BRKB Nov 130 puts @140.2. Add to net long position in Berkshire Hathaway by selling November puts.

Sell FDX Oct 160 puts @165. Rebalance short strangles on Federal Express by selling another layer of Oct puts.
WTF? Federal Express fades to negative for the day. My just sold puts are down over 100% in less than an hour. I sell Nov calls to hedge

Sell FDX Nov 175 calls @162.5 to hedge a net long position.

Position Summary:
net short SLB TLT