Saturday, March 07, 2015

Weekly: Mark Cuban, a Freaky Friday, market top?

A hard down day on Friday ruined what was an okay week for me. The trifecta of falling bonds, gold and stocks, puts me and a lot of other bulls into the red. After so many up weeks, it is not a good feeling. I initiate new longs in COST HD and new net long positions in AMBA MNST. All four recently had good earnings reports and gapped up on the news. The puts I sold are at or below the breakout base point.
I attend another Canslim meetup. I have mentioned a few times that a stock market top is unlikely as long as the local group was poorly attended. That if at a top, the room would be full. Well, guess what? The Santa Monica group is turning away people, and the Hermosa Beach room was jammed full.

So I am calling market top? Going back to my post from May 2014, Tea Leaves for a Market Top (link), the answer remains no. I am still looking for an inverted yield curve, when short term interest rates exceed long term rates. Still looking for a significant divergence between transports, IYT, and SPY S&P 500, with IYT usually topping well ahead of the broad market. So even though sentiment is troubling, and valuation has been troubling for a while, this doesn't look like a top. 

Mark Cuban all over the media calling bubble subtracts from the bear case. Cuban's sale of Facebook stock in the 30s as a data point for his market timing. Cuban bought like a 150k shares of FB near the IPO price, sold for about a 20% loss, or $200,000 a couple of months later. If he had kept it, his FB stock around 80 now, would be at about a 100% gain by now. 

Cuban does have a point about IPOs, but IPOs are only a small slice of the market. Some recent IPOs saw a parabola trip, up then down. GPRO LOCO are two examples.

I also read the monthly missives of Liz Ann Sonders from Schwab. She looks at a lot of fundamental data, and doesn't see signs of a major top either. However, a long awaited correction and more volatility may occur.

Here are the trades:
* p = puts, c = calls, third week expiration unless indicated otherwise.

Fri Sell SPY May put backratios @209.5
Buy SPY May 188 p / Sell 2x May 183 p
Stock market lower on employment news. I sell some put backratios for a credit. These are delta positive, theta positive. There is a chance of a big profit on a move to the lower strike. On a move below SPY 178, losses grow.

Sell AMBA Apr 50 p @63.7. 70 New long position in Ambarella. AMBA had decent earnings a couple of days ago. It is a CANSLIM type of stock. Chart support at 50. AMBA is a supplier to GPRO and also for wearable cameras for police departments.
Sell AMBA Mar 75 c @64.5. 15 A bit later in the day I turn the Ambarella into a short strangle with a positive skew. This is a reaction to overall market weakness.

Sell COST Apr 160 c @149.7. 36 I hedge my recent put sale in Costco by selling calls.

Sell BA Apr 170 c @153.3. 19 I hedge my short puts in Boeing by selling calls.

Thu Sell UNH MarW4 108 p @115.4. Rebalance a complicated position in United Healthcare with week 4 puts. I am once again tending to sell the lows, buying the highs and trying to stay near delta neutral. I took the bid on these options, which is painful on the wide spread. However, a mid-order on another was probably not going to get filled. To quote Laurel and Hardy, another fine mess.

Sell COST Apr 140 p @150.4. New long position in Costco. COST gaps higher on earnings news.Chart support at 140.

Wed Sell MNST Apr 155 c @138.4. I hedge the puts I sold on Tuesday by selling calls as Monster Beverage declines. Some might ask the reasoning. The idea is to keep delta about the same. The risk is of a big rally bringing these calls into play. So now I have a short strangle.

Sell HD Apr 105 p @115.0. New long position in Home Depot. HD reported strong earnings about a week ago. Has been consolidating a bit lower. Good chart support at 105.

Sell IWM strangles @122.4:
Sell IWM 110 p and Sell IWM 130 c
A short strangle is a bet on a trading range. I tend to sell them about six weeks out, and sell the options around the 10% probability line. So there is an 80% chance of profit, but if there is a big move, losses can be large.

Tue Sell UNH MarW4 118 c @113.3. I rebalance short strangles on United Healthcare by selling some week four calls. I choose these because there is a decent bid. This leaves me net long. The nearest options I am short are the Mar 111 puts.

Sell XOM Apr 95 c @87.4. A similar rebalance of short strangles, in Exxon Mobil. Nearest short options are the Mar 85 puts. I am hoping the chart low around 86 acts as support.

Sell MNST Apr 125 p @140.6. New long position in Monster Beverage. MNST gapped higher on recent earnings. 125 is about the level of the base.

Mon Sell HON Mar 100 p @103.9. I rebalance a complicated position in Honeywell. I have mangled the managing of this position. I have some shares, short some strangles. Mostly I have been buying the highs and selling the lows, which is kind of the opposite of how to make money.

Position summary:
new longs: COST HD / new net longs: AMBA MNST

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