Saturday, February 28, 2015

Weekly: Mr. Spock's logic

Many are commenting on the passing of Leonard Nimoy. Nimoy is most famous for playing Mr. Spock on the original Star Trek TV series. Some would say the current stock market is not logical. 

Sometimes the thread of logic isn't always straight. With the recent drop in oil prices, many traders have been trading airline and oil stocks. For the most part profits have been modest, with more than a few losers on the more obvious bets. Looking a bit wider, Monster MNST had blow out earnings. The logic is that these drinks are often bought at gas stations by young people, and that their customers had a bit more money.

A person at the local CANSLIM meetup was trying to follow that gas money trail to other areas. Home Depot HD also recently had great earnings. So while the hot money was playing airlines and oil companies, taking opposides of the oil drop trade, the bigger money was to be made in the logic trail.

I wish I was that smart, but rarely am. Sometimes the logic trail can lead a person up the wrong path. Just because one person likes a product or store, it may not mean the stock is good. Trading and investing is easy in hindsight, not so easy in real time.

As for my week, mostly quiet, up a tiny bit overall. Apple caused some heart burn by moving up the I-Watch announcement date from April to March. This meant both puts and calls went up in price, and cost me both way. Honeywell's weakness was another concern. After the recent Goldilocks market of just right, I am that much more sensitive to "too hot, too cold," market conditions. Here are the trades (p = puts, c = calls, all are week 3 expiration unless noted):
Fri Sell HON Mar 105 c @103.0. Rebalance a complicated position in Honeywell by selling another layer of calls. This one is messy.

Thu Sell AAPL Mar 138 c @127.0. Rebalance short strangles on Apple as it keeps sliding. As it keeps moving lower, I keep tap dancing. I am short multiple layers of puts and calls. The Mar 125 puts are deep into red ink, because I sold them near the highs of the recent move. Wow, by mid-day, Apple rallies to over 129 and I get whipsawed on these calls. On days like this, I wish I were a more nimble trader. Unfortunately, that isn't going to happen. I don't think that quickly, and am not in front of the computer all day.

Sell DIS Apr 95 p @104.9. Add to longs in Disney by opening an April position. A lot of folks are looking forward to the new Star Wars movies. The box office will be a fraction of the potential. Toys, theme parks, clothing, collectibles are all sources for revenue.

Cover (buy to close) IWM Mar 103 p @123.2. I free up some buying power by covering these puts for a big gain. With so many days until expiration, I can likely make better use of the capital before then.

Wed Sell AAPL MarW2 140 c @129.5.
Sell AAPL Mar 140 c @129.4. Rebalance short strangles on Apple by selling two layers of 140 calls, the Mar week 2, and the regular Mar week 3's. The burst higher is looking like a trap. It has been a common pattern early in 2015, a push higher than a sharp retracement. AAPL bouncing a bit, so not so good timing on these moves.

Sell UNH Mar 120 c @114.0. Rebalance short strangles on United Healthcare. Same deal, stock popped higher, now dropping. I rebalanced on the way up, and now am counter balancing on the way down.

Tue Sell BA Apr 135 p @154.1. New long position in Boeing. Chart breakout level is 135. BA was downgraded yesterday, which means to me it likely has more room to run. At tops, it is all upgrades and higher price targets.

Mon Sell UNH Mar 108 p @114.5. Rebalance short strangles on United Healthcare as it continues to rally. A bit later, I sell another layer of puts:

Sell UNH Mar 111 p @116.4. Another rebalance. Apparently, UNH up on Medicare rate news. I am short the Mar 120 calls.

Sell VRX Apr 160 p @197.4. Renewed long position in Valeant Pharma. VRX up huge on earnings. Breakout is from an ascending base, which can be dangerous. However, there are likely a lot of shorts that are scrambling to cover on the news. In hindsight, I became too cautious too soon on VRX.

Sell AAPL Mar 125 p @132.5. Rebalance short strangles in Apple by layering more puts. AAPL at new all time highs.

Position Summary:
renewed long VRX

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