Friday, April 04, 2014

Weekly: Vomit Comet market

Astronauts train for zero gravity by flying in a modified aircraft that goes up and then zooms down to simulate zero gravity for a minute or so. The stock market followed that kind of flight path this week.

I added longs in APC Anadarko Petroleum and WDC Western Digital. APC is an old friend. I also opened several May positions and most are in the red. Early in the week, it seemed like there was rotation out of bonds into stocks and that reversed on Friday. Continuing down this week are some of the big name winners of this bull market. Google, Amazon, Netflix, some big biotech names, all peaked two or three weeks ago.

Fri A frantic Friday, with a higher open, then a knife down in some stocks.
Sell APC May 87.5 puts @102.1. Add to longs as Anadarko climbs even more.
Sell ASH May 85 puts @98.7. Open a May position in Ashland.
Sell IWM May 123 calls @114.3. Rebalance my net long position in the Russell 2000 ETF.

Thu Sell APC May 85 puts @99.2. Anadarko Petroleum up big on news of a settlement. 85 is the breakout point. I traded APC extensively in 2013, but have stayed away from it this year because of the law suit.

Wed Sell UAL Apr 43 puts @47.8. I rebalance as United Continental moves higher. Another point higher and I will cover my short Apr 50 calls for a loss.

Tue A busy day, eight trades. Let's hope I am not the April Fool.
Sell UAL May 38 puts @46.3. Sell May puts to rebalance my position in United Continental. I am short April strangles.
Buy to cover GILD Apr 80 calls @73.2. I cover these short calls while there is still a small profit, in part to avoid the possibility of losing big on both ends of the short strangle. It is galling enough to have covered short puts near the lows. It would be worse to get crunched on both sides if there is a monster rally.

Sell DIS May 70 puts @81.0. Add to longs in Disney.
Sell UNH May 72.5 puts @81.7. Open a May position in United Healthcare.

Sell MRK May 50 puts @56.1. Open a May position in Merck.
Sell KORS May 80 puts @94.6. Open a May position in Michael Kors.

Sell WDC Apr 82.5 puts @93.0. New long position, Western Digital making new highs. 82.5 is the bottom of the trading range.

Sell IWM May 101 puts @117.1. I add a fourth layer of May short puts for the Russell 2000 to rebalance back to net long.

Most of these eight Tuesday trades are more worm trades. (Fishing analogy of digging for worms instead of fishing.) While April tends to be a good month, May is often not.

Mon Sell IWM Apr 109 puts @.30 @116.5 rebalance. I sell puts to rebalance my position in the Russell 2000 ETF.

Sell GILD Apr 62.5 puts @.30 @70.7 rebalance. Same for Gilead Sciences. In hindsight, Friday might have been the bottom, about where I closed my Apr 70 puts. These things happen. Either a person uses stops and takes losses or they don't. The alternatives are to "go down with the ship" or perhaps even double down. Selling way out of the money naked options, means the odds of losing are low, but there is the potential for huge losses. Again, a popular analogy is picking up nickels in front of a moving. The profits are tiny, with the risk of getting flattened if something unusual happens. It is still painful to lose.

Position summary:

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