38
Winners 5 losers for the April option cycle. Grade B-. Most
profitable month of 2014. Stock market was choppy. Winners include
AMGN, IWM, VRX. I sold nine layers of IWM options, five layers of puts,
four layers of calls, on the Russell 2000 etf and all came in safe. I
took big losses in GILD, UAL, UNH. Had I held on to my losers, it
would have worked out, but the draw downs were deep. The bears had
one week in the sun, but for the most part, the bears got slaughtered
during expiration week.
My
profits for the year inch ahead of commissions paid. Any green during
this difficult year is welcome, so I'll take it. As always, before
any readers get excited by the high win percentage (38-5), those are
the approximate odds going in. I tend to sell options that have about
a 10% to 20% chance of coming into the money, so 80% to 90% of the
time I win. However, some of the losses can be for huge
percentages--that's why speculators buy those options, hoping for a
5-to-1 or 10-to-1 payout.
About
market tops, it was about a year ago that I posted a Storm Warning
for the stock market based on valuations (link). The stock market is up over 20% since that warning, again
demonstrating the cliche that valuation tends to be a poor tool for
calling market turns. More useful indicators include chart patterns
and sentiment. Both charts and sentiment say there remains a good
chance for many more sunny days to come.
The terrible bear market of
2008 has scarred a generation of investors. So much so, that there is
still a large group that has never come back to the stock market. The
recent buzz about high-frequency trading doesn't inspire confidence
either. I often hear chatter from various folks, along the lines of: the stock market is rigged and that they want no part of it. Does a major top have to come with frothy sentiment? No, no
indicator is 100%. In any case, a major top is unlikely without a
major correction in the 10% to 20% range before the big bear shows
its claws.
As
I have often written, calling top is a low percentage game. The
higher percentage is waiting for a top, and shorting the rally
failure. It isn't so easy to do this easier, but the odds are better
than calling top. There have been a rash of articles and chatter about
a replay of 1929, or 2008 or 1987. Investors still tend towards the
cautious side (I almost always tend towards caution). Crashes rarely
happen when so many are cautious, and so few are giddy.
The
Fed wouldn't let a full on crash occur without major intervention.
The Fed has distorted most markets, most especially the bond market
with quantitative easing. What is surprising to many is that bonds
are the best major asset class for 2014.
The old cliche is "two
steps and stumble," meaning two Fed interest rate hikes then a
stock market decline. The earliest Fed tightening guess is late this
year. However, the new Fed chief Yellen hinted at 2016 or later for a
hike in Fed rates. Again, nothing is written in stone. At some point,
I still believe that being short U.S. bonds will be the trade of the
century. However, the timing is up in the air. Again,
sentiment and charts may be helpful for timing.
As
for gold, the upward bias of 2014 continues. My recent small trade in gold
is still open and so far is right down the wide middle for profit.
Again, I tend to like to sell options and the premiums on options on
gold and bonds are tiny, and the margin requirements steep. This
makes it hard to justify selling premium on GLD or TLT or similar.
Position
summary:
long
AMGN BA DAL HON HPQ MSFT SLB UAL UNH VRX
net
long APC ASH DIS IWM SPY
short
GILD
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