Friday, February 28, 2014

Howard Gold: have investors learned anything?

A while back I attended some live seminars at the local Charles Schwab office. The broker said it is always the same: market goes down, people come into the office wanting to get more defensive. Market goes up, almost everyone wants to be more aggressive.

A recent article by Howard Gold at Marketwatch (link) echoes this. The article also cites this:
>>
Extensive research using data from millions of trading accounts found that 99% — that's no typo — of active traders lost money ...
>>

This isn't to say that a top is imminent. There continue to be cries of wolf, telling people to prepare for a 1929 style crash (link2).

Readers can see that my trading activity has increased. Am I what the study says is an "active trader?" Hmmm. Sometimes less is more.

As always for the average person that doesn't thrive on learning about the markets and trading, some kind of exchange traded fund or mutual fund strategy is what will work out best. The Vanguard forum (aka Boglehead forum) on the sidebar (link3) is where those folks hang out. The philosophy is simple: live under your means, save a lot, set an age and risk appropriate asset allocation, stick with it. 

Buy, hold, rebalance, means a person is always buying low, selling high. However, they never go all in, or all out, just modest small changes. Again, for average folks this is the best road. For folks that have no idea what asset allocation, 50/50 isn't the worst idea, 50% total stock market, 50% total bond market. Those with a bent towards precious metals perhaps 50/40/5, with 5% in physical gold.
Keep in mind, that the Bogleheads advocate a cash reserve of about six months in living expenses for minor emergencies (car breaking down, new roof for house, dental work, the list is long). For middle class people ramping up, that cash will skew the allocation for more like 40/40/20, 20% cash (40% in stocks and bonds).

Saturday, February 22, 2014

39 - 9 - 2 for February, grade C


Thirty-nine winners, nine losers, two breakeven trades for the February option cycle. It was a wild trading month that included a 300 point down day for the Dow and a snapback rally to get the overall market to about unchanged for the year. My trading account is close to unchanged as well. I am at slight paper gain that is less than the commissions. At least the broker (ThinkorSwim) is happy.

It was a trading month with many opportunities, some blunders, and some good trades. The losing tickers include: Boeing BA, Toyota TM, the retail etf XRT, Michael Kors KORS, oil production etf XOP. Winners include Amgen AMGN, Valeant Pharma VRX, Goldman Sachs GS, Russell 2000 etf IWM, and the gold etf GLD.

Mostly it was about treading water. With the big smash I went into survival mode and closed out several positions. The account draw down was about 2% at the lows. Most I view view as rational decision making. Only a couple I see as blunders, such as closing out Toyota and selling some calls on Kors.

Going forward, gold and treasury (GLD and TLT) option premiums are so low that is hard to justify selling premium. I got a little too fine with some of my delta adjustments. As long time readers might observe, I increased my trading activity. For now, that increase in activity hasn't brought about better results. It isn't 2013 (big up year) any more, but I doubt it is 2008 (a big down year) either.

Position summary:

net long BRKB IWM KORS SPY TLT
net neutral AMGN
long DIS GILD HON NSC VRX

Friday, February 21, 2014

Weekly: rally keeps rolling

The stock market and gold rallies keep rolling. Here is a recap of my trades:

Thu Sell IWM Mar 106 puts rebalance again @115.3. I rebalance a second time for the Russell 2000 ETF.

Tue Sell IWM Mar 104 puts rebalance @114.8. I rebalance my short strangle.
Sell NSC Mar 82.5 puts new long position @91.2. A open a low risk, low reward position in railroad Norfolk Southern. I often refer to these as worm trades, fish so small, it isn't about fishing, but more about digging for worms.

Position summary:

net short AMBA BA BRKB TLT XRT XOP
net long ASH GLD GS IWM KORS OXY SPY
net neutral AMGN
long DAL DIS GILD HON LGF MRK NSC PG WFC

I'll clean out these expiring options after I post my monthly recap, which will be a bit later.

expired AMBA BA XRT XOP, ASH GLD GS, OXY, DAL LGF MRK PG WFC

Friday, February 14, 2014

Weekly: bounce back rally

The rallies in the stock market and precious metals are strong. I have an up week, though I wish for more. Haha. Happy V-day to all. Here's a recap of my trading week:

Fri sell IWM strangles @113.9, sell Mar 100 puts and sell Mar 120 calls. A short strangle is a bet on a trading range.

Sell GILD Mar 70 puts @81.0. I initiate a small long position in Gilead Sciences mostly based on the chart, and seeing GILD on the losers list.

Thu sell AMGN Feb 110 puts rebalance @123.7. I rebalance my Amgen position back to net long by selling puts. As for the overall stock market, the rally is a wonder to behold.

Wed sell VRX Mar 100 puts @140.6. I add to longs on Valeant Pharma. The reason for 40 points out of the money is that option has 90% probability for profit, on this volatile stock. Earnings are coming up, and in hindsight, the premium expands further, so waiting a couple of days to sell these would have been better.

Sell KORS Mar 82.5 puts @96.0. I add to my long complicated long position in Michael Kors. Again, I choose the 90% probability option to sell. The ThinkorSwim platform has this information. For those on platforms without this information, the delta gives a decent approximation for probability. For example, a delta of .10 means about a 10% chance for that option to expire in the money.

Tue cover short BRKB Mar 115 calls rebalance @113.7. This is another painful covering of short calls at a big loss, during this rip-the-face off the bears stock market rally.

Sell SPY Mar 168 puts @182.3. I close out a leg of my March put backratio. I am taking on more risk and using up more margin, but the odds are about 11% of a decline below 168 before March expiration.

Mon cover short BRKB Feb 115 calls rebalance @112.6. Berkshire Hathaway continues to bounce. I cover short calls to rebalance my complicated position back to near neutral.

Cover short KORS Feb 110 calls rebalance @95.6. Michael Kors is running higher, I cover some short calls to rebalance back to a long position. Should have never sold these calls (shakes head). A few minutes later and it looks like a head fake on both these as KORS fades below 95, and BRKB back to negative.

Sell HON Mar 82.5 puts @92.6. Honeywell came up during my weekend chart review of the stocks in the SP100. I open a small position with a worm trade (low risk, tiny premium collected).

Sell DIS Mar 70 puts @77.0. I double up on my long position in Disney as it moves to new highs.

Position Summary
net short AMBA BA BRKB TLT XRT XOP
net long ASH GLD GS IWM KORS OXY SPY
net neutral AMGN
long DAL DIS GILD HON LGF MRK PG TM WFC

Friday, February 07, 2014

Weekly: wide swings


I did okay during this extremely volatile week. For those not following the action closely, Monday the stock market tumbled, only to see it recover all those losses and end higher for the week. Thursday and Friday completely routed the bears. As always with options, could have been better, could have been worse. A few trades look stupid, so there is a lot of room for improvement. Here's a recap:

Fri Sell BRKB Mar 105 puts rebalance @111.4
Berkshire Hathaway continues to bounce back, and I add more deltas to my complex position via selling another round of puts.
Sell KORS Mar 80 puts rebalance @93.5
Michael Kors rallies a bit and add delta to my complicated position.

Thu Sell DIS Mar 67.5 puts @75.8
I open a new long position in Disney. DIS up on earnings.
Sell to close SPY Feb 169 puts @176.5
These puts are down to about a 15% chance of coming into the money. They are part of a put backratio (still short 2x Feb 166 puts), so I add to my risk and eat up some margin too.
Sell BRKB Mar 100 puts rebalance @110.0
I add some long delta to a complicated Berkshire Hathaway position, rebalancing as the stock rallies.

Wed Sell BRKB Mar 115 calls to rebalance @108.5
I reduce the delta on my long position on Berkshire Hathaway
Sell KORS Feb 100 calls to offset @89.6
Sell some way out of the money calls on KORS for a tiny premium. The frustrating thing is that if I had just sat through the turbulent morning yesterday, I would be in an okay position. Instead, I locked in a loss, and am at the risk of more losses by being long stock. Ah well, if I knew every wiggle on the chart ahead of time, I would be rich beyond Midas.
Cover short AMBA Feb 24 puts @.55 @26.6
Ambarella falling fast. I cover the short put leg of the strangle so the entire trade doesn't turn into yet another loser. This leg is at a tiny loss, but it is offset by the premium from selling Feb 42 calls.
Sell KORS Feb 80 puts rebalance @.20 @91.4
KORS rebounds off the lows, I rebalance for the second time today

Tue Buy KORS stock to compensate for being short Feb 90 calls @92.5
I am short calls going into earnings and Michael Kors shoots the moon and gaps up to over 92. Yikes. The options trade at a wide spread, so I decide to cover by buying the stock, capping the loss at $2.50 per contract. However, there is the risk is that it fades the gap and goes below 90. I didn't want to dilly-dally in case it gaps higher and keeps going. It is an uncomfortable position to be in. It is already fading as I type to below 91.0. These kind of situations remind me why I don't do well in fast markets, don't do well day trading. My streak of red continues as KORS closes under 90 for the day.

Mon Cover BRKB Feb 110 puts @113.3
cover TM Feb 110 puts @1.88 @112.2
I take two more big losses on Toyota and Berkshire as the stock market careens lower. I didn't want to risk being short puts on Toyota going into earnings. Earnings came out pretty good, so this was a bad one.

net short AMBA BA BRKB TLT XRT XOP
net long ASH GLD GS IWM KORS OXY SPY
net neutral AMGN
long DAL DIS LGF MRK PG TM WFC