Saturday, October 18, 2014

Weekly: Wild Whipsaw Washout

Wednesday's huge gap opening lower took out many of my mental stops. I closed many short puts for huge percentage losses, near the lows. For the week, I am down signficantly, though still up for the year. What's done is done. 

One reason I have this blog is to help me learn by writing about my trading. The main thing I might have done differently is wait a bit long on Wednesday before covering. I covered most of the puts in the first 15 minutes of trading (which turned out to be near the lows for many of those stocks). Waiting another 15 minutes to 30 minutes would have been so much better. Had I held on until expiration, I believe all of those losers came back above the strike price by expiration Friday. Big gaps like that rarely keep moving in the direction of the gap. I acted like a trading robot, closing so many positions in a short time period, as they touched on my mental stops.

The fantasy hindsight replay has me closing out all my long puts and doubling down on short puts at the bottom on Wednesday, but readers know that I am not such a bold trader. I tend to be a relatively slow moving options trader with a dislike for fast markets. I am not nimble, don't have good instincts. don't have a good gut. On the plus side, I am good with numbers, with odds, and am patient. My style of trading works towards my strengths. Many are bored by what I do. I always tell novices to find a style a method that works for you. There are a thousand ways to make money in the markets. Find one or two that work for you, that fit your personality.

The lowlights of the trading week include closing out short puts on AMGN BRKB HON FDX IBB MRK MSFT WFC, all for losses. I also sold some calls on Thursday, which wasn't the best move either. One bright spot was my GLD bull calendar, up about 60%. My TLT bear calendar is down about 75%. I initiate new longs in UNH UNP. It is a jelly side down kind of week (a piece of bread with jelly spread on one side seems to land jelly side down more often than not). Since the Alibaba IPO day market peak, about 60% of my modest profits for the year have been given back. I brush myself off and move ahead. Hopefully, I am a bit wiser from this recent turbulence. I'll post a monthly summary with more thoughts within a day. Here are this week's trades:

Thu Another big gap down this morning on the stock market, but near unchanged by the close. I don't do that much better with intra-day timing as I sell some calls to hedge some of my short puts.

Sell GLD Nov 128 calls @119.0. I was long a call calendar, and am selling the Novembers before the Oct 123 calls expire (hopefully worthless). I may get a bit more premium by selling now instead of on Monday after expiration.

Sell YHOO Nov 44 puts @37.6. Rebalance short strangles on Yahoo!, I am short the Nov 36 puts, Nov 48 calls, and some October options which hopefully expire safe.

Hedge short puts on Nordstroms, Nike and Disney by selling calls.
Sell JWM Nov 77.5 calls @67.4
Sell NKE Nov 95 calls @84.8
Sell DIS Nov 92.5 calls @81.3.

New long positions in United Healthcare and Union Pacific Railroad.

Sell UNH Nov 75 puts @85.4.
Sell UNP Nov puts @104.0.

Wed Disaster morning with SPY gapping down 3 full points. I cover any short puts that move into the money, closing six positions in the first 15 minutes for huge losses. It is not a time to be cute, not for someone like me, who isn't in front of the computer all day, and tends to be a slow moving position trader. I see it as time to survive. As the fills come in, SPY is bouncing off the lows, so I could have gotten out at better prices on most. 
 
C'est la vie. Obviously, I would have been better off holding on for 20 minutes or so. Some might criticize and say that I panicked. No, I followed my rules. Fast markets are not my friend. My account is still up a tiny bit for the year, with about 85% of the year's peak profits now gone (it was at 50% on Sunday!).
 
Cover MSFT Oct 43 puts @42.5. Microsoft gaps lower after Intel earnings. Loss is 800% basis the premium collected.
Cover MRK Oct 55 puts @54.8 220% loss
Cover AMGN Oct 130 puts @129.7 350% loss
Cover FDX Oct 150 puts @149.7 500% loss
Cover IBB Oct 250 puts @249.9 600% loss
Cover BRKB Oct 135 puts @134.9 240% loss

By the end of trading, it looks like Wednesday morning was a wash out low. Most of the positions I covered were up sharply off their low by the end of trading. Some were actually positive for the day (shakes head).

Sell VRX Nov 140 calls @114.8 .50. One final trade for wash out Wednesday, I hedge my short puts on Valeant Pharma by selling calls.

Tue Cover WFC Oct 50 puts @49.3. Another day, another loser. Wells Fargo bank earnings disappoint and the stock breaks support at 50, which is also my strike price. Loss is about 700% basis the premium collected. Despite this morning's stock market relief rally, I am following the mechanical rule of closing positions if they break the strike price. As I type this, WFC drifts higher, so I could have gotten out at a better price by waiting five minutes. It is an illusion that I can call highs and lows, and when stocks will turn on a dime.

Sell AMGN Nov 155 calls @133.7. I rebalance a net long position in Amgen by selling calls.

Sell HON Nov 95 calls @86.2. I hedge short puts by selling calls on Honeywell.

Sell MMM Nov 145 calls @135.2. Hedge short puts on 3M Corp by selling calls.

Mon Sell AMGN Nov 115 puts @136.6. I open a November position in Amgen. SPY has broken support at 190.5 so we will see what happens next.

Sell JWN Nov 60 puts @69.2. I open a November position in Nordstroms, as the stock market continues lower. AMGN another 2 points lower so I continue to do poorly on the short term timing.

Cover short HON Oct 87.5 puts @87.4. I take the loss on Honeywell at it crosses the strike price of my short puts. The loss is about 700% basis the premium collected. HON chart is a waterfall decline. Wow.

Sell BRKB Nov 150 calls @137.8. I rebalance my net long position in Berkshire Hathaway by selling calls.
Sell ASH Nov 110 calls @98.8. I hedge my short puts in Ashland by selling calls. Chart resistance at the 110 level.

Position summary:
long UNH UNP
net long APC ASH BRKB GLD IWM MMM SPY
net neutral AMGN DIS FDX JWN NKE VRX
short TLT / net short HON
closed or expired: IBB MRK MSFT SLB TTM WFC

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