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

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