Friday, May 16, 2014

Weekly: SPY fake out

The upside breakout in SPY turned into a fakeout. A breakout on Monday turned sour and most major indices were down for the the week. Bears got two big days for their side of the ledger. Bulls got gored by the trap. On Monday and Tuesday, I was chiding myself for not being aggressive enough on the long side with the record highs. By Thursday and two down days, it was the opposite, feeling like I was a bit too aggressive.

Highlights of my week include a new position in EPI, an India stock ETF, some SPY backratios and a few of what I call mechanical trades. Rebalancing trades to maintain a certain net delta. A monthly wrap up will be posted soon. There was also an interesting post just below this one about calling market tops, Tea Leaves for a Market Top, dated 5/13/2014.

As always the slogan for the blog is, real trades, no advice. Here are this week's trades:

Fri Sell VRX Jun 100 puts @123.1. I open a June position on Valeant Pharma. VRX earnings were so-so. The stock has been in the news over its role in a takeover attempt on Allergan AGN. I became interested in the stock by seeing it as a top holding in Sequoia fund. So far for 2014, VRX has been my most profitable stock so wanted to have a June position.

Thu Sell Jun SPY Backratio @187.2
Buy Jun SPY 176 puts / Sell 2x Jun SPY 173 puts
I net out to a tiny credit. This put back ratio is net bullish (delta positive), but has a chance of a explosive profit on a decline to the lower strike of 173. If stocks are up or unchanged, I keep the tiny credit. If down, I do well if the decline stops at 173. Below SPY 170, losses pile up. I already sold a July put backratio, and that is in the red.

Wed Sell IWM Jun 118 calls @109.8. The ping-pong ball market goes back the other way. I rebalance my short strangles on the Russell 2000 by selling calls. The premium is extremely tiny for selling these calls.

Tue Sell APC Jun 92.5 puts @101.5. I rebalance my short strangle position in Anardarko Petroleum to net long. It is a mechanical trade.

Sell IWM Jun 99 puts @111.9. Same deal with the Russell 2000 etf, I rebalance to net long, because I want to maintain a bullish bias and don't want to cover any short calls.

Sell EPI Jun 19 puts @20.7. EPI is an India stock ETF. There was a breakout on possible election news two days ago. 19 is the base of the break out. I placed an order yesterday, but did not get a fill. I am chasing a bit, but this is a tiny position on a low priced underlying.

Sell SPY put backratio for July @190.0:
Buy Jul SPY 174 puts / Sell 2x Jul SPY 171 puts for a small credit.
This backratio is net bullish (delta positive) with an explosive profit on a decline to the lower strike. It gives modest insurance against a measured decline to the lower strike of 171. In the case of a crash, it becomes a big loser.

Mon A monster rally day with new all time highs for SPY. I regret being so cautious for the May option cycle. The bright side it, at least I wasn't bearish or totally sitting out the dance.

Sell BEAV Jun 90 puts @99.0. I open a June position, long in BE Aerospace. Company says it is looking for strategic alternatives so it is in play. Chart support is at the strike price of 90.

Sell BRKB Jun 120 puts @127.0. Add to longs, Berkshire Hathaway is not participating in today's monster stock market rally. Considering how diversified it is, that is an anomaly.

Position Summary:

expired: ba gild hog hpq kors msft ual

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