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:
long APC ASH BA BRKB DIS GDX LUV JWN MMM UNP VRX WFC
net long AAPL AMBA AMGN GDX HON MNST UNH XOM
net neutral FDX ILMN IWM PANW SPY WHR
new longs: COST HD / new net longs: AMBA MNST

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