Weekly: Down Goes Frazier

I took some profits and experience a couple of bad losses. The losses dominated and it was a bad week. With the big boxing match on Saturday, Howard Cosell's famous call for Foreman-Frazier came to my mind.

https://www.youtube.com/watch?v=JZEIMQ42-oU (link)

Following the boxing analogy, I take a couple of body blows. HAR is the main culprit, gapping down on earnings. The worst part might be how badly I was chewed up and spit out, by the tape action. Either a trader takes losses or doesn't. Either uses stops or doesn't. With a financial bloody nose, I tread ever more cautiously. The huge rally on Friday adds to my frustration. 

All I can do is dust myself off, get up from the mat, clear my head, and get ready for whatever comes next.

The April 27 Barrons had an article about big money managers. Most of their wealthy clients are cautious. Many are pulling money out of the stock market. Again, this might be the most hated bull market I have ever seen. 78% of the advisors and clients expect a 10% stock market correction within 12 months. Rarely do markets accommodate the crowd. One scenario is a speculative phase, with a swift and sharp move up. A speculative phase would increase risk and reward. As always predictions are mostly for entertainment. Risk management is where I tend to make my money.

Here are the trades (p = puts, c = calls, sell means sell-to-open, all are third week expiration): 

Thu Disaster! Harmon Intl (makes car audio equipment) gaps lower on earnings. I bail out of my sold puts for huge losses:

Cover (buy to close) HAR May 125 p @124 About a 650% loss

Cover (buy to close) HAR May 120 p @122 About a 350% loss

I am still short HAR May 165 calls. OMG. I close both sold puts in the first ten minutes, not waiting for a bounce (or possibly more damage). Market for HAR is fast and wide. I use limit orders, closer to the ask than the bid. Rule #1 is to live to trade another day. While a 650% loss is painful, it comes with the style of selling options at the 10% probability line. The trader buying options with a 10% chance of profit is hoping for a 10x pay out. As the option seller, sometimes I have to pay off on the long shot. These two losses put a rather large dent in my profits for 2015. Mid-day update, wowsers, HAR back over 133 by mid-day. Grrr. These things happen.

Cover PANW May 145 p @151.0. I take a 100% loss in three days, on this leg for Palo Alto Networks (cyber security). After the shell shocker loss in HAR I am reducing risk. I don't like the tape action in PANW, and am short two other layers of puts.

Sell GPRO May 57.5 c @50.9. I hedge sold puts by selling calls on GoPro as it dips after the big up day.

Sell DIS May 118 c @109.3. Hedge sold puts in Disney by selling calls. Earnings due before options expire.

Cover (buy to close) FB May 75 p @79.4. I close this leg on Facebook for a 45% profit. FB breaks minor support at 80.

Wed I take some risk off the table by closing some positions in KORS UA UNH WHR:

Cover (buy to close) UA strangles May 75 p / May 90 c @79.5. I close the short strangle on Under Armor. UA broke 80 to the downside, so I am closing both legs for a tiny profit while I still can get out of the position with a plus sign. The puts are at a big loss, but the calls more than make up for that. For the summaries, I count each leg separately.

Cover (buy to close) KORS strangles May 60 p / May 67.5 c @61.5. Michael Kors giving up the ghost today, so I close this one for a 25% profit, basis premium collected. Same thinking here, to get out while I can get out with a profit. Both legs come in as small winners.

Cover (buy to close) UNH May 110 p @114.3. United Healthcare down hard after breaking the 50 day moving average. I am still short two layers of calls. I close this leg for about a 150% loss. Even if both calls come in safe, the overall position will still be slightly in the red.

Cover (buy to close) WHR May 165 p @179.4. Whirlpool earnings a day or two ago were poor. I sold way out of the money, so am able to book a 35% profit. Again, getting while I can get out green. WHR can be a fast moving stock and options bid/ask spreads sometimes are ridiculously wide, so the exit can be difficult.

Cover (buy to close) CAT May 89 c @87.7. I take a 400% loss on this leg on Caterpillar. Simple explanation is I made a mistake, bad trade, bad timing, bad loss. I decide to take my medicine instead of using the strike price as a stop level.

Sell GPRO May 46.5 p @53.4 New long position in GoPro. The gap is at 47 on the chart. These are near the 10% probability line that I prefer.

Tue Sell STJ May 75 c @71.9. Hedge sold puts by selling calls. St. Jude Medical is another pop higher on earnings, now flopping with no follow through.

Sell MRK May 58 p @60.1. New long position in Merck. MRK higher on earnings. On the chart, 58 is the gap.

Mon Sell PANW May 145 p @157.5. Rebalance my position in Palo Alto Networks as it continues higher.

Sell DIS May 103 p @110.3. Add to longs in Disney, which is higher on a strong opening for the new Avengers movie, Age of Ultron.