Weekly: tide goes out

Money flows out of my account this week. There was a headline on Marketwatch about money flowing out of U.S. stocks. Headlines like that tend to be supportive for bulls. As for my week, I didn't do much, and what I little I did do turned out badly. I got whipsawed out of some positions in DIS and HD. That said, it wasn't as if I was aggressively positioned one way or another. The losses make me ever more cautious.

Trades (p=put, c=call, 3rd week of expiration unless specified):

Thu Cover (buy to close) HD Apr 112 p @112.4. Ouch! Home Depot knifes lower at the open and I cover this leg of puts for a 350% loss in three days. Like I said ouch. I don't think it is time to be cute or patient or brave. It is time to be mechanical and unemotional. HD broke the strike price 112 then bounced. The strike price is my mental stop. I got a mediocre fill in a fast and wide market. A few minutes later, HD bounces hard, so I was whipsawed out for the big loss. It happens. It is a hazard of using stops. The hazard of not using stops is risking huge losses if the move continues.

Wed Cover (buy to close) DIS Apr 105 p @105.4. When in doubt get out. In this case for about a 65% loss basis the premium collected. Disney had a nice run up, but now that it is moving down, I'm not seeing chart support until 103. I got into this layer of puts as a rebalancing move. I am getting out early because I have more layers of sold puts at lower strike prices.

Sell HON Apr 105 p @102.0. Rebalance a complicated position in Honeywell. I feel like Charlie Brown from the Peanuts, and Lucy Van Pelt pulled away the football again. HON made a high at expiration back in February and another one now at March expiration. I thought, I was getting head faked, but it was the real deal.

Sell UNH Apr 124 c @116.6. Rebalance short strangles in United Healthcare.

Mon Sell HD Apr 112 p @117.6. Rebalance short strangles on Home Depot.

Position Summary:

long AMBA APC ASH JWN LOCO VRX

net long BRKB DIS FDX HD HON IWM XOM

net neutral BA COST MNST PANW SPY UNH WHR

47-9-2 for March, grade B-

I count forty seven winners, nine losers, two break even trades for the March option cycle. As always, a reminder to new readers, don't get excited by the high win percentage. 80% to 90% is about the odds when I go in. Profits tend to be small, and losses can be large. So B- is about right for 81% winners (47/(47+9+2)=81%) because it is around the expected win rate for my style of trading.

It is close to the end of the 1st quarter so I'll update the year to date gains, not including dividends.

SLV +6.5% Silver

IWM +5.3% Russell 2000

TLT +4.4% US 20 year bonds

SPY +2.4% S&P 500

EEM +2.0% Emerging markets

GLD +0.0% Gold

With a late burst Silver takes the suprising lead. Bonds and stocks also had a good week. My trading account is up about 6% in round numbers, which I see as good not great. I know that +6% for 11 weeks sounds boring to many option traders. Risk can translate into reward in options, if a person is correct. I never had much luck buying options, only selling.

Market commentary: Predictions are mostly for entertainment. My market timing skills tend to be about as good as flipping a coin. That said, the bull market is intact for stocks. Bear market intact for gold and silver. 

Some talking heads are talking about a bubble in IPOs and biotech. I got too cautious too early on the biotechs I am trading (AMGN ILMN VRX). Another strong group has been healthcare (UNH), and that group may be nearing a similar blow off top situation. Sometimes a steep rise evolves into another flat base instead of the downslope of a parabola.

There aren't hard numbers about what defines a blow off top. It is more of a picture on a chart. During major tops such as SLV experienced, it doubled the 200 day moving average before peaking. TSLA did similar during its huge run up, but then made higher highs, even after going to 100% above its 200 day moving average. 

Another thing to look for is a 30% to 60% up move during a short time period. Again, no hard definition for short time period, but 30 to 60 days is the ball park I am looking at. So a 30% to 60% gain in 30 to 60 days, after a doubling in stock price or more in the prior year, two, or three years. Lots of wiggle room in that barn, but it may be worth looking for blow off tops for some stocks. Timing the time tends to be difficult, but it can be an entertaining game. In a blow off, smart money tends to be selling at 30% or more, under the ultimate top.

Winning tickers so far for 2015 include: ILMN FDX UNH WHR PANW XOM. Some of this is straight risk/reward and implied volatility. I took some bigger risks on some of these tickers and for some the higher than market IV rewarded me. A remarkable bit of trivia is that I don't have any losing tickers so far for 2015. HON, UNH and XOM have been frustrating at times, but all are at a profit for the year.

Going forward? Again, I fall back to my post Tea Leaves for a Market Top (link). Until we see a divergence in transports (IYT), an inverted yield curve (short term interest rates greater than long term rates), a confirmation of a bear market move by breaking through technical support, the bull market is intact. 

Sentiment is a bit mixed. I mentioned the large crowds at the local stock market meetups. Best to sit near the exit in case someone rings the bell to get out, but for now stay at the stock market party.

Weekly:Yellin and Yelling

This week was dominated by Fed day and the huge rallies in stocks, bonds, gold that came after. I scrambled to cover short calls. I lost patience with GLD and got out before the Fed news. I got whipsawed on some moves, and glad I covered on some others. My overall market position might be described as short strangles with a bullish bias, so I made money, but not as much as bullish traders did. It was a tough week to be a bear.
 

Most of the week was spent rebalancing, covering layers of calls on rallying stocks, and covering winning positions early to free up the buying power. I spent most of the week near the redline of buying power, so maybe some over trading. I may look to cut back on the number of trades. The broker always makes money, but activity doesn't always equate to profits. My monthly update will come before Monday.

Here are this week's trades (p = puts, c = calls, all 3rd week expiration unless noted):

Fri Cover (buy to close) HON Mar 105 c x2 @105.2. I close these with about 80 minutes left to trade, rather than "dance with the devil" at expiration. I have two layers, one closes with a decent profit, a breakeven profit on the other. So rather than risk the psychological damage of letting these winners turn into losers, I get out. The other side is that there are only 80 more minutes to trade, and maybe I wouldn't have to cover at all, if Honeywell drifts down. Readers know that I do not see myself as a nimble trader, so playing the last hour at expiration doesn't appeal to me.

Roll (buy to close) HON Apr 105 c @105.4. A few minutes later I roll my April leg up. I close the April 105 calls for about a 300% loss, basis the premium collected, and sell HON Apr 110 calls. Last month's expiration marked a short term high in HON. While that might happen again, I am thinking that this expiration may be a head fake and HON may continue higher. I still have half a position in shares and some short puts. Despite some poor timing on my rebalancing moves, I am still up overall for 2015 on HON.

Sell MNST Apr 130 p @138.1. Rebalance short strangles on Monster Beverage.

Sell UNH Apr 110 p @120.1. Rebalance short strangles on United Healthcare. Looks like it might be a pin situation for UNH at the 120 strike.

Thu I close the last of my Apple options to free up buying power.

Cover (buy to close) AAPL Mar 115 p @129.0

Cover (buy to close) AAPL Mar 138 c

A modest profit overall on Apple, with six trades. There was one 70% loser on the March 125 puts the rest 90%+ winners. I close early to free up the buying power. I used to think of Apple as one of my nemesis stocks, a stock to be avoided because of prior losing trades. I have dispelled that curse.

Wed (Fed day) Sell FDX Apr 185 c @172.2. Federal Express moves lower on earnings. I rebalance short strangles.

Sell MNST Apr 145 c @134.5. Rebalance short strangles on Monster Beverage. MNST broke out on earnings a while ago. Since then it has drifted lower. Resistance at the break out high of 143.9.

Sell APC Apr 70 p @81.4. I open an April position in Anadarko Petroleum. Despite crude making new lows, APC is above its recent lows. This divergence is encouraging.

Sell XOM Apr 77.5 p @85.3. Rebalance short strangles on Exxon Mobil. Similar deals. I was washed out of some Mar 82.5 puts about 8 trading days ago. I am edging back in at a lower strike and near net neutral.

Sell IWM Apr 114 p @124.0. My token response to the rally after the Fed announcement is to rebalance some strangles on the Russell 2000 etf.

Cover (buy to close) HON Apr 105 c @103.5. Honeywell moving higher after Fed news. I was short two layers of April 105 calls and cover one of them for a 55% loss, basis the premium collected. HON has been a "devil-dog" stock for me for the past month or so. I've been mostly selling the lows, buying the highs. My over all HON position is now back to net long.

Cover (buy to close) XOM Apr 90 c @85.7. I close this leg at break even after commissions. That's the main reason for getting out, it is crossing back over the break even line.

Sell DIS Apr 105 p @108.3. Rebalance short strangles on Disney.

Tue I close some SPY and AAPL legs for a buck per contract to free up some buying power.

Cover (buy to close) SPY Mar 179 p x2 @207.3

Cover (buy to close) SPY Mar 218 c @207.3

Cover (buy to close) AAPL Mar 105 p @126.5

Cover (buy to close) AAPL Mar 140 c 2x @126.5

Sell JWN Apr 72.5 p @80.1. I open an April position in Nordstroms.

Mon Cover (buy to close) UNH MarW4 118 c @117.3. Ouch. United Healthcare moving higher this morning and I cover this leg of short calls for about a 110% loss (basis the premium collected).

Sell UNH Apr 110 p @117.8. Two minutes later, I sell some put as UNH at the bid, as it continues to push higher. I am short strangles, but it is a complicated layered position.

Cover (buy to close) UNH Mar 120 c x2 @118.2. It's a runaway train to the upside, and I am getting crushed on calls that I sold. I get out of a double layer of calls, both at modest losses.

Sell HON Apr 97.5 p @102.0. Honeywell is another problem position, and I rebalance a messy position by selling another layer of puts.

Sell PANW Apr 125 p @141.9. Rebalance short strangles on Palo Alto Networks.

Sell DIS AprW2 102 p @107.4. Rebalance short strangles on Disney.

Sell AMBA Apr 55 p @69.6. Ambarella has held up well and continues to advance. I add to a net long position by selling another layer of puts. 50 day moving average is around 58 and I see that as significant support.

Sell FDX Apr 160 p @176.9. Rebalance short strangles on Federal Express.

Cover (buy to close) MMM Mar 145 p @164. I close my position in 3M Corp for a 95% gain, to free up buying power. The flurry of activity today, has me at the red line.

Position summary:

long AMBA APC LOCO JWN VRX

net long UNH XOM

net neutral BRKB DIS IWM MNST PANW SPY WHR

net short COST HD HON

expired AMGN GDX ILMN LUV UNP

closed AAPL MMM

Weekly: treading water

Treading water might be a good analogy for this market. A lot of movement and energy expended to go no where. I spent the week focused on the problem positions that were near the strike price. So my week was similar, a lot of activity, not much to show for it. However, just keeping my head above water is a good thing during a volatile market.

The V-shaped stock market bottom some were expecting, turned into a W and then a squiggly line. SPY S&P 500 is now about flat for 2015. TLT bonds same. GLD gold now down after a bullish January.

Highlights include a new long position in LOCO, new short strangles in PANW and closing my position in GLD. I take losses on some option legs in AAPL HON XOM. Here are the trades:

(p = put, c = call, all 3rd week expiration unless noted).

Fri Cover (buy to close) BRKB Mar 130 p @144.9. Cover these puts on Berkshire for a 96% gain, to free up buying power.

Cover (buy to close) XOM Mar 82.5 p @83.6. Exxon Mobil keeps drifting lower. I close out two layers of puts at this strike price, profit one, loss on the other, basically out commissions plus the price of a cup of coffee on the pair.

Sell XOM Apr 75 p @83.5. After closing those two layers of March puts, I was net short XOM, so I rebalance back towards neutral by selling this layer.

Cover (buy to close) GLD strangles Mar 110 p / Mar 130 c @110.9.

I close strangles on gold for a tiny profit. The puts lose, the calls win. GLD has been in a drip, drip, drip steady decline with the rally in the U.S. dollar. GLD is near support at a recent low. I am out before the overall position turns into a loss. My thinking, is if gold was going have a decent relief rally, today looked to be the day on an up open, then it faltered again.

Sell HON Apr 105 c @100.3. Rebalance a complicated position in Honeywell. I've made quite a mess with HON.

Sell LOCO Apr 23 p @27.4. New long position in El Pollo Loco. LOCO holding up well today in a weak market environment. Chart looks supportive. Strike price of 23 is below the recent lows.

Thu Sell AMBA AprW2 58 p @68.9. Rebalance short strangles in Ambarella back to net long. as it continues to rally. AMBA one of the few stocks that held up well during the recent market sell off.

Sell DIS Apr 100 p @105.2. Rebalance short strangles on Disney on a strong up move.

Cover (buy to close) DIS Mar 90 p and 95 p @104.9, a few minutes later I cover two layers of March puts for a 90%+ gains to free up the buying power.

Sell HD AprW1 108 p @115.4. Rebalance short strangles in Home Depot.

Sell UNH Apr 105 p @114.8. Rebalance short strangles in United Healthcare.

Sell HON Apr 95 p @102.0. Rebalance a complicated position in Honeywell.

Wed Cover (buy to close) IWM Mar 100 p @120.4. I close this layer of Russell 2000 puts for a 96% gain to free up some buying power. After yesterday's activity, I am near the red line.

Cover (buy to close) HON Mar 100 p @100.7. I close this layer on Honeywell for about a 90% basis the premium collected. Tape action on HON is bearish. I have more layers of sold puts at 97.5 and below, so I am being cautious and taking my loss. Another idea is to sell yet another layer of calls, but that would be a riskier move. With the overall market acting so poorly, more risk isn't needed. Especially since I am near the red line on buying power.

Sell AMBA Mar 58.5 p @67.4. Rebalance short strangles on Ambarella. AMBA showing strength after a good earnings report. It is a bit extended on the upside. These puts are around the 10% probability line, which is where I tend to like to sell options.

Tue Cover (buy to close) XOM Mar 85 p @85.1. I cover this leg of a complicated position in Exxon Mobil as it crosses the strike price. XOM does pop back up. However,today is not a day to try and be a hero with the broad market tumbling, chart support broken. I have several legs of puts at lower strikes. So I take the loss, about 230% basis premium collected. Limit order is at the ask, and I get a better fill than my limit.

A bit later, I reduce delta in XOM by selling calls:

Sell XOM Apr 90 c @84.7. LImit order at the mid price gets a quick fill.

Sell FDX Apr 190 c @171.4. I sell calls on Federal Express to hedge some puts I sold yesterday. I place the limit order a tick below the mid price and gets filled instantly.

Sell HON Apr 105 c @101.8. I rebalance a complicated position in Honeywell by selling April calls. All the other option layers I sold expire in March. I also have a half position in shares. It is a messy position, heavy net long, so I reduce the delta by selling calls. Limit order at mid just sits, so I move it the limit down a tick and HON goes up a tick and I get filled.

Sell BRKB Apr 155 c @143.9. I hedge short puts in Berkshire Hathaway by selling calls. Limit order at mid sits for a while but eventually gets filled.

Sell DIS Apr 110 c @103.5. Hedge short puts in Disney by selling calls.

Sell WHR Apr 230 c @203.5. Hedge short puts in Whirlpool by selling calls.

Sell UNH Apr 120 c @113.5. Rebalance a complicated position in United Healthcare.

Sell HD AprW1 120 c @113.0. Hedge short puts in Home Depot by selling calls. I choose the April Week 1 calls because I want to stay near the 10% probability line for selling options. Minor resistance at the recent highs around 117.9.

Mon Sell AMBA Mar 57 p @66.4. Rebalance short strangles on Ambarella. I hit the bid on these puts as AMBA moves up. 57 is around the 50 day moving average.

Sell strangles on PANW @136.6

Sell PANW Apr 115 p / Sell PANW Apr 165 c

I sell April strangles on Palo Alto Networks. PANW popped higher on earnings and news and now is fading back. A short strangle is a bet on a trading range.

Sell WHR Apr 175 p @203.6. I open an April position in Whirlpool. WHR is yet another stock that moved up on earnings and is now fading. It is near the 50 day moving average. I am going way out of the money on these puts because it has run up so much during the past 52 weeks.

Cover (buy to close) AAPL Mar 125 p @127.0. I cover one layer of a complicated position on Apple. The other options I sold look to be relatively safe. I am selling because I don't like the intra-day chart action. I am taking about a 90% loss on this leg, basis the premium collected. Obviously, I would have been much better off if I covered at the highs of the day. If I could call tops and bottoms reliably, I wouldn't sell strangles, I would trade directionally and make 10x as much money on the capital invested.

By the time I type this, AAPL is now down. Whoosh! Maybe my other legs aren't safe. Low of the day so far is 125.06, high 129.57, then a slightly positive close. The sell off might be a down move to take out some day trading stop-loss orders. Long time readers know that I don't like fast moving markets.

Sell FDX Apr 155 p @173.1. I open an April position in Federal Express.

Position summary:

net neutral: AAPL BA FDX ILMN IWM PANW WHR XOM

long AMGN APC ASH GDX JWN MMM / net long: AMBA BRKB COST HD HON MNST SPY

net short: DIS UNH

new long LOCO

closed GLD strangles

expired some AAPL weekly strangles, still have more for next week and next month

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