Saturday, July 22, 2017

Monthly: Meat Grinder market 60-11 Grade B-

The modest dip turned out to be a head fake. I sold a lot of calls on the dip and had to cover some of them for huge percentages losses. BA, NVDA, QQQ, ULTA were some of the problem stocks. The big picture is that I was up about 1.7% for the trading month, now up about 8.8% for 2017. Half a loaf is how I often describe these kinds of results. Makes sense for someone that is almost always hedging their bets. The calendar 2017 recap, ranking them best to worst:

EEM +24.6% emerging market equity
SPY +10.4% S&P 500, U.S. large cap

GLD +8.8% gold
IWM +5.7% Russell 2000, U.S. small cap

TLT +5.5% U.S. 20 year treasuries
SLV +3.2% silver

My account +8.8%, so I am in the game, but lagging buy and hold of SPY. There is approximately another +1% on SPY and TLT for dividends, I am just looking at raw numbers for the etfs. Biggest losers so far in 2017 include: ULTA, FL, AAPL. Biggest winners include NVDA (despite the huge losses), BRKB, SPG, NTES, UNH.

A few people on Reddit are citing some new Etrade TV ads as a sign of a market top. For those that haven’t seen them, there is one where a young kid buys a boat, and the tag line is don’t get mad, get even, get Etrade. As if the stock market is free money.

Certainly this is the kind of thing seen at market tops. However, by itself, it is not enough evidence for me. People I talk to, seem still skittish, still afraid of the market. Seems like a lot of people are preparing for the next bear market, when we haven’t even seen a decent correction in a long while. I am still guessing at a pull back in Sep/Oct, but it is just a guess.

Friday, July 21, 2017

Weekly: Lucky 11, new longs NFLX COF

Nasdaq finally declines on Friday, after ten straight up days. Straight line moves tend to be bad for premium sellers. I take some more losses: BA NVDA QQQ. All is not doom and gloom, because I am up for the week, the month. I'll post the monthly summary in a day or so. New longs include NFLX COF

Here are the trades (p = puts, c = calls, number near the end is price per contract, sell means sell-to-open, cover means buy-to-close):

Tue Cover NVDA Jul 165 c 345 for a 1000% loss
Sell NVDA JulW4 190 c 26

Sell NFLX AugW1 160 p 33 new long

Sell QQQ AugW1 135 p 18
Sell QQQ Aug 135 p 41

Wed More losses on sold calls, though there are some profits too
Cover BA Jul 210 c 115 for a 300% loss
Cover QQQ Jul 144 c 62 for a 250% loss

Cover COST Jul 175 c 01
Cover SPY Jul 212 p 01

Cover BA Jul 170 p 01

Roll BRKB for 58 credit: Cover BRKB Jul 170 c 142
Sell BRKB Sep 175 c 194

Sell BA AugW1 195 p 47

Thu Roll VRX: Cover VRX Jul 17.5 c 19 for a 50% lossSell VRX Aug 22 c 21

Sell TSLA strangle: Sell TSLA JulW4 295 p 88
Sell TSLA JulW4 360 c 41

Sell NVDA AugW1 148 p 42
Sell NVDA AugW1 182.5 c 62

Sell QQQ AugW2 136 p 25

Fri Cover IWM Jul 132 p 01
Sell COF Aug 80 p 22 earnings, new long

Saturday, July 15, 2017

Weekly: Both sides now

It was a good week for buy-and-hold, especially tech and defense stocks, not so good for strangle sellers. I get hit on both sides, taking big losses in BA, NVDA, ULTA. It could have been a lot worse. I started covering sold calls on NVDA at 155, it closed the week at 165. A 27 point move (about 20% on 138) in a short time period is going to cause problems for strangle sellers. The good news is a slight gain for the week, but I fall further behind the bogey of buy-and-hold on SPY.

Here are the trades (p = puts, c = calls, sell means sell-to-open, cover means buy-to-close, number near the end is price per contract):

Mon Sell NVDA Jul 138 p 103
Sell NVDA JulW4 135 p 95

Roll BA: Cover BA Jul 175 p 05
Sell BA Aug 180 p 75
Sell BA Jul 195 p 29

Roll LMT 70: Cover LMT Jul 255 p 15
Sell LMT Aug 260 p

Roll TSLA 56: Cover TSLA Jul 400 c 09
Sell TSLA Jul 352.5 c

Roll ULTA : Cover ULTA Jul 290 c 20
Sell ULTA Jul 280 c

Roll IBB 140: Cover IBB Jul 287.5 p
Sell IBB Aug 285 p

Tue Ulta Beauty and NVDA move against me. They both cross the strike price, which is my mental stop level. I cover both for big losses.

Cover ULTA 260 p 810 for a 1100% loss
Cover NVDA JulW2 155 c 276 for a 500% loss

Sell BA Jul 197.5 p 31
Sell NVDA Jul 142 p 46

Wed Another frustrating day, as more stops get run. Percent loss is vs. premium collected.

Cover BA Jul 207.5 c 278 for a 600% loss
Cover SPY Jul 225 p 03 buying power move for 95% gain

Cover NVDA Jul 120 p 03 for 93% gain
Cover NVDA Jul 160 c 420 for a 500% loss

Sell BA Aug 185 p 68
Sell QQQ Aug 130 p 48

Sell NVDA Aug 120 p 70

Fri Sell QQQ Aug 132 p 30

Friday, July 07, 2017

Weekly: Fireworks

A wild week, but like most fireworks displays, it was mostly sound and light, not much lasting change. TSLA finally came back to earth. Unfortunately, strangle sellers can hit on both ends of big moves. The jury is still out on TSLA and many more positions, but it is uncomfortable. Some are saying the trends is now down in QQQ. Could be, but I need more evidence.

Here are the trades (p=puts, c=calls, sell means sell-to-open, cover means buy-to-close, the number near the end is price per contract).

On Monday morning, I thought it would be quite holiday trade for the half day, but the fireworks started early. Big moves in BRKB, NVDA and others,
make for an active trading day.

Mon Sell IWM Aug 129 p 44
Sell NVDA Jul 160 c 68
Sell SPG Aug 145 p 64
Sell BRKB Aug 165 p 87
Cover ULTA Jul 330 c 05
Cover NVDA Jul 200 c 04

Sell NVDA Jul 165 c 33
Sell IBB Jul 287.5 p 76

Sell NVDA JulW2 155 c 44
Sell JPM Aug 82.5 p 25
Wed Roll TSLA: Cover TSLA Jul 450 c 04 for 87% profit
Sell TSLA Jul 400 c 27
Sell SPG Aug 175 c 42
Cover FDX Jul 170 p 02 for 92% profit

Cover ULTA Jul 315 c 05 for 90% profit

Thu Sell ULTA Jul 290 c 55

Cover QQQ Jul 146 c 01 for 95% profit
Thu Sell ULTA Jul 290 c 55

Saturday, July 01, 2017

Weekly: Rollercoaster

The market goes up, goes down. Sector rotate in and out of favor. I had computer troubles this week. Bought a new computer. Like moving, getting a new computer tends to mean a lot of unpleasant chores. I bought a Lenovo Flex. It isn't the latest and greatest, but my computer needs tend to modest. I also have an Ipad Air.

As for the market, I attended the Investor’s Business Weekly meetup (CANSLIM). The phrase “show me” market is a good description. One person said that the upcoming July earnings cycle could make or break many stocks, and the market as a whole.

I keep dancing, even though I still feel out of synch with the markets. Here are the trades (p = puts, c = calls, sell means sell-to-open, cover means buy-to-close, number near the end if price per contract.

Mon Sell VRX Aug 12 p 22Sell SPG Aug 140 p 56

Tue Sell TSLA strangle: Sell TSLA Jul 295 p 61Sell TSLA Jul 450 c 35

Sell NVDA JulW2 167.5 c 57
Sell NVDA JunW5 157.5 c 18

Sell QQQ Aug 148 c 24
Sell SPY backratio: Sell 2x SPY Sep 217 p 84 each
Buy SPY Sep 222 p 113 each

Thu Sell NVDA Jul 162.5 cSell QQQ Jul 144 c 19

Sell QQQ Aug 145 c 55
Sell IWM Jul 145 c 25

Sell BA Jul 207.5 c 41

Fri Sell VRX Aug 13 p 31

Saturday, June 24, 2017

Weekly: retail bust

The shake out caused by Amazons acquisitiong of Whole Foods continues to send tremors. The latest AMZN idea of sending a big box full of clothes for people to try on, with no charge for returns, and a discount for buying multiple items sent some stocks lower. ULTA would seem to be Amazon-proof, but that stock moved lower, and I took a big loss on one leg. I sold strangles on COST, and so far it is in the red.

Here are the trades (p = puts, c = calls, sell means sell-to-open, cover means buy-to-close, number near the end is price per contract)

Mon Sell MCD Jul 141 p 20
Sell NVDA JunW5 141 p 41
Sell ULTA Jul 315 c 50

Sell MCD Aug 140 p 61
Sell BA Aug 175 p 80

Sell BA Aug 220 c 51
Sell NVDA JulW1 177.5 c 66
Sell BA JulW1 185 p 24

Sell COST strangle:
Sell COST Aug 145 p 58
Sell COST Aug 185 c 17

Cover ULTA Jul 285 p 680 for a 700% loss. Ouch

Sell BRKB Jul 175 c 49

Sell TSLA JunW5 337.5 p 45
Sell VRX Aug 11 p 27

Sell UNH Jul 170 p 43
Sell UNH Jul 205 c 19

Sell QQQ Aug 128 p 50

Sell COST Jul 175 c
Sell BRKB Aug 175 c 90

Sell NVDA Jul 172.5 c 151
Sell BA Jul 185 p 37

Saturday, June 17, 2017

Monthly: 61-9 Grade C as tech falters

I count 61 winners, 9 losers for the June cycle, self-grade is C. Overall, a modest profit, even with some whopper losers in percentage terms. There were more than a few frustrating whipsaw moves, where I covered and then the underlying reversed. The tech sell off made for a difficult month. It could have been a lot worse. The AMZN merger with WFM set off more land mines for premium sellers. 
A few ETFs from best to worst for 2017:
EEM +17.7% emerging markets equity
GLD +8.9% gold
SPY +8.5% S&P 500, U.S. large cap
TLT +6.0% U.S. 20 year treasuries
SLV +4.5% silver
IWM +4.0% Russell 2000, U.S. small cap

My account is up +7.0%, lagging behind SPY, ahead of IWM. Note, the above numbers do not include dividends, which add about another 1% to SPY and a bit more to TLT.

Going forward, the bull market is intact. Again, signs of the top will be inverted yield curve, transports leading the first leg down, exuberant sentiment. Of these only the sentiment of stock market newsletters is in the red zone. Yields are getting there, but not yet inverted in the U.S. Transports are still okay. I am guessing there will be a steeper correction in late September, early October, but it is just a guess. Bear market? Don't see a bear market.

Weekly: land mines

Tough week, with a lot of land mines. I took a few hits, but came out ahead for the week.

Here are the trades (p = puts, c = calls, cover means buy-to-close, sell means sell-to-open, number near the end is the price per contract):

Mon Tech wreck continues. I book some huge losses on AAPL and NVDA.

Cover AAPL Jun 145 p 320 approximately 450% loss
Cover NVDA Jun 145 p 545 about a 1000% loss in 2 trading days
I move closer back to delta neutral with some small moves:
Sell AAPL JunW4 130 p 42
Sell NVDA Jun 162.5 c 46
Sell MCD Jul 160 c 18
Sell ULTA Jul 330 c 65
Roll BRKB: Cover Jun 165 c 468
Sell BRKB Jul 170 c 288

Tue Cover LMT Jun 260 p 04
Roll and rebalance Tesla as it zooms higher
Cover TSLA Jun 285 p 02
Sell TSLA JunW5 320 p
Sell TSLA Jun 350 p 61
Wed Cover TSLA Jun 375 c 805 another monster loss -1400%
Cover ULTA Jun 300 p 210 another bad loss -250%
Sell TSLA Jun 407.5 33
Sell NVDA Jul 185 c 92
Sell TSLA JunW4 325 p 139
Cover WYNN Jun 135 c 127 for a 300% loss
Roll BA: Cover BA Jun 177.5 p 04
Cover BA Jun 167.5 01
Sell BA Jul 175 p 42 
Sell BA Aug 170 p 98

Sell NVDA Jun 140 p 17
Sell QQQ Jul 146 c 23

Thu Cover AAPL Jun 157.5 c 01
Roll BA: Cover Jun 195 c 93 for a 600% loss
Sell BA Jul 210c 29
Fri Sell IWM Jul 147 c
Sell C Jul 57.5 p 15
Sell WYNN Jul 115 p 50

Friday, June 09, 2017

Weekly: Rule #1, Bat vs. Bat, and the Wrecking Ball

The pop song Wrecking Ball is the theme for this week. As the long rally in the big name tech stocks reverses in spectacular fashion on Friday. I suffer some losses, but am glad I tend to be such a cautious trader. Action like this was inevitable. Only unicorns and liars are able to buy the bottoms and sell the tops. I am neither. 

More than a few do the opposite Bat junior on Tastytrade called the exact top within a few minutes with his abysmal timing. Here the links to the two Tastytrade episodes: Link1 is the Thursday show with NVDA still moving up, and Link2 is Friday after the whipsaw crash move. For those that don't do links the message is to stay mechanical. Limit your losses, no matter what the market is doing.

For me, it boils down to:

Rule #1: Live to Trade Another Day

Here are the trades (p = puts, c = calls, sell means sell-to-open, cover means buy-to-close, number near the end of each line is price per contract):

Mon Sell NVDA Jun 134 p 32
Sell QQQ Jul 132 p 35
Sell BRKB Jul 160 p 79
Sell ULTA Jun 300 p 60
Sell ULTA Jul 285 p 90
Tue I close a few more positions for profit. I am getting whipsawed in ULTA, TSLA and more.
Cover CAT Jun 90 p 03
Cover FB Jun 140 p 04
Cover TSLA Jun 260 p 04
Cover BRKB Jun 150 p 01
Sell TSLA JunW4 310 p 84
Sell SPY Jul 225 p 54
Thu Damage control on NVDA and TSLA as they continue up
Cover TSLA Jun 275 p 05
Cover IWM Jun 129 p 05
Cover NVDA Jun 125 p 05
Sell NVDA Jun 143 p 42
Sell TSLA Jun 335 p 87
Sell IWM Jul 129 p 47
Sell NVDA Jul 130 p 87
Sell NVDA Jul 200 c 50
Buy NVDA shares 1/2 unit 155.18
Sell NVDA Jun 145 p 49

Fri Holy whipsaw Batman! Flash crash in some big name tech stocks, whipsaws more than a few. I keep dancing, but the music is way too fast for me to keep up. I suffer modest losses.
Cover JPM Jun 77.5 p 02
Cover BRKB Jun 155 p 01
Cover BRKB Jun 170 c 88
Roll IWM: 
Cover IWM Jul 125 p 20
Sell IWM Jul 132 p 50
Sell NVDA Jun 170 c 58
Sell NVDA JunW4 180 c 68

Sell AAPL Jun 157.5 c 21
Sell TSLA JunW4 400 c 117
Sell QQQ Jul 148 c 27

Friday, June 02, 2017

Weekly: Good news and bad news

On Thursday, the bull market accelerates to the upside. The good news is that the rally is broadening. The bad news is that June is typically a flat month, and that the summer rally is often the weakest rally of the year. That said, a lot of stocks look bullish. I roll a bunch of sold puts up in price, and out to July. I leg into an iron condor in AMZN. New long are FDX JPM. Also in the cup half empty category is that I am up for the week, but am falling further behind SPY as it roars ahead.

Here are the trades (p = puts, c = call, sell means sell-to-open, cover means buy-to-close, number near the end of line is price per contract).

Tue Sell NVDA Jul 120 p 83
Sell TSLA Jun 285 p 69
Sell AMZN vertical call spread for 100 credit:
Sell AMZN Jul 1110 c 303
Buy AMZN Jul 1130 c 203
Roll QQQ: Cover Jun 122 p 03 for 90% profit
Sell QQQ Jul 129 p 35
Wed Sell AMZN vertical to turn into Iron Condor:
Sell AMZN Jul 875 p 255
Buy AMZN Jul 855 p 175
Sell JPM Jun 77.5 p 21 buy-the-dip

Roll HON: Cover HON Jun 120 p 02
Sell HON Jul 120 p 33
Roll SPG: Cover SPG Jun 185 c
Sell SPG Jul 175 c 43
Roll BA: Cover BA Jun 165 p 07
Sell BA Jun 177.5 34
Thu Bull market rally accelerates to the upside. I roll a bunch of positions to increase long delta. The only loser is the SPY Jun 218 p which was part of a back ratio.

Roll MSFT: Cover MSFT Jun 62.5 p 03
Sell MSFT Jul 62.5 p 20

Rebalance WYNN as it gaps higher
Sell WYNN Jun 124 p 34
Cover WYNN Jun 110 p 05
Cover WYNN Jun 115 p 05

Cover RCL Jun 97.5 p 03
Rebalance SPY:
Cover SPY Jun 215 p 05
Sell-to-close SPY Jun 218 p 35
Roll IWM:
Cover IWM Jun 123 p 05 
Sell IWM Jul 125 p 46
Cover ADSK Jun 95 p 03
Cover NVDA Jun 110 p 03
Cover WDC Jun 75 p 03

Fri Sell IWM Jul 127 p 42
Sell RCL Jul 97.5 p 23
Sell BA Jul 170 p 46
Sell FDX Jul 170 p 40

Sunday, May 28, 2017

Weekly: Bull market

As I often do for Memorial day, here is a link to Trace Adkins song "Arlington" (link1). Take a moment to remember the sacrifices made for this country.

I attended a CANSLIM Investors Business Weekly meetup. The presenters were bullish. At this point, the market and many leading stocks are extended, but this is what a bull market looks like. Many big names such as AAPL, FB, GOOG are up 15% or more since January 1. MCD is another leader. A person can learn a lot by observing (vs. predicting).
So I skewed slightly bullish this week. I added to some longs, took a few new positions (BBY, ULTA). Here are the trades (p = puts, c = calls, sell means sell-to-open, number near end is price per contract):

Mon sell NVDA Jun 118 p 38
Sell BA Jun 167.5 36

Sell LMT Jun 260 p 65
Sell BRKB Jun 160 p 52

Sell SPG Jul 135 p 65
Sell BA Jul 160 p 47 second layer today

Tue Sell BRKB Jul 155 p 67

Thu Sell MCD Jul 135 p 34
Sell FB Jun 140 p 19

Fri new positions in ULTA and BBY
Sell TSLA Jun 275 p 64
Sell BBY Jul 50 p 26
Sell NVDA Jun 125 p 46

Sell ULTA unbalanced strangle: 
Sell ULTA Jul 260 p 71
Sell ULTA Jun 320 c 54

Saturday, May 20, 2017

Monthly: Just Okay, 42 - 3, Grade B-

I rate this month of trading as just okay. I count 42 winners 3 losers. The losers were for big percentages. Overall, I was up a bit for the month.

Some etfs that I track, best to worst for calendar 2017:
EEM +17.5% Emerging markets equity
GLD +8.9% gold
SPY +6.6% S&P 500, U.S. large cap
SLV +5.5% silver
TLT +3.8% U.S. 20 year treasury bonds
IWM +0.9% Russell 2000, U.S. small cap

My trading account is +5.5% so I am lagging SPY, ahead of IWM. Gold and silver got a good start in 2017 but have been coming back to the pack. Emerging market equities continue to power ahead.

I expect relatively clear sailing until late September. As always, predictions are for entertainment, managing risk is where the money is made. My predictions tend to be as good as coin flips (not very good).

Friday, May 19, 2017

Weekly: Paying the piper FL

FootLocker earnings blew apart what would have been an okay week. FL dropped on news, resulting in a 2500% loss. This Jekyll and Hyde market has land mines. Hard to say if market Jekyll or Hyde shows up next. I still think that a significant correction of 5% or more, is much more likely in September or October, not during the summer months. 

As always, predictions are for entertainment, and mine tend do about as well as coin flips. Profits are made by managing risk, not making predictions.

Here are the trades (p = puts, c = calls, cover means buy-to-close, sell means sell-to-open, number near the end is price per contract, percentage gain/loss uses option premium as the basis):

Mon Sell NVDA May 150 c 14 hedge
Tue Close some positions for $1 for buying power:
Cover (buy-to-close) AAPL May 139 p 01 for 95% gain
Cover NFLX May 135 p 01 for 95% gain
Cover SPY May 214 p 01 for 98% gain
Sell TGT May 50 p 17 ahead of earnings
Sell WYNN Jun 115 p 50 rebalance
Wed Market gaps down and closes near its lows. I do a bunch of trades, hedging longs, closing a few positions, and adding a SPY put backratio.
Sell AAPL MayW4 157.5 c 41
Sell BA Jun 195 c 15
Sell TSLA MayW4 335 c 35
Sell SPG Jun 170 c 30
Sell BRKB Jun 165 c 112
Sell IWM Jun 143 c 25
Sell NVDA Jun 155 c 31
Sell WYNN Jun 135 c 59
Sell SPY backratio Jul 212/218: 
Sell x2 SPY Jul 212 p 81 per
Buy 1x SPY Jul 218 p 118 per
Cover (buy-to-close) AAPL May 120 p 01 for a 95% profit
Cover TGT May 50 p 01 for a 93% profit
Cover TLSA May 290 p 24 for a 50% profit
Thu Cover IWM May 123 p 01 for 98% profit
Cover IWM Jun 150 c 03 for a 75% profit
Fri Cover FL May 67.5 p 740 for a 2500% loss
Sell ADSK Jun 95 p 33 earnings
Sell NVDA Jun 110 p 30 rebalance

I'll do my monthly summary post soon.

Friday, May 12, 2017


Apple, Tesla and Valeant dominate my trading week. Overall, it was about a break even week.

Here are the trades (p = puts, c = calls, numbers near the end is price per contract, cover typically means buy-to-close):

Sell AAPL Jun 145 p 78
Sell AAPL Jun 165 c 41
Sell TSLA Jun 375 c 53
Sell TSLA Jun 240 p 42
Tue rebalance after earnings on MAR, VRX
Sell MAR Jun 95 p 55
Sell VRX Jun 9 p 20
Sell VRX Jun 10 p
Other rebalancing moves:
Sell AAPL May 148 p 33
Sell TSLA Jun 260 p 86
Sell TSLA May 290 p 42
Sell BRKB JunW1 170 c 41
Cover SPY May 218 p 03 for a 95% profit, buying power move
Wed Cover VRX Jul 12.5 c 158 for a 350% loss
Sell VRX Jul 19 c 15 roll
Sell NVDA Jun 95 p 24 earnings
Sell NVDA May 108 p add
Sell TSLA May 300 p 75 roll
Cover TSLA May 235 p 03
More buying power moves (buy to close)
Cover AAPL May 125 p 01 for a 98% gain
Cover DIA May 183 p 02 for a 98% gain
Cover IWM May 119 p 01 for a 97% gain
Fri Rebalancing moves are when I have sold both puts and calls, and the underlying has moved. I often rebalance by selling another layer of options to get closer to the desired delta (often delta neutral):

Sell WYNN Jun 110 p 32
Sell AAPL Jun 145 p 57
Sell VRX Jul 10 p 37

Saturday, May 06, 2017

Weekly: Trimming the hedge

New longs include CMI MLM. I did a lot of hedging of longs, rebalancing, a few adds. Market is at record highs. The good news is that Barrons has an article about how to protect from a crash. Rarely does a sharp decline happen when those are featured articles. Hedge means selling calls when puts have already been sold. Rebalance means adding another layer to a complicated position to get back closer to delta neutral. Add means selling a second or third layer of puts.
Here are the trades (p = puts, c = calls, number near the end is price per contract.
Tue Sell VRX May 8.5 p 21 rebalance
Sell CMI Jun 140 p 35 earnings
Sell MLM May 220 p 50 earnings

Wed Sell IWM Jun 150 c 14 rebalance
Sell SPG Jun 185 c 29 rebalance
Sell AAPL May 139 p 19 earnings
Sell HON Jun 120 p 40 add
Sell MSFT Jun 17 62.5 p 16 add
Thu Sell CAT May 91 p 12 add
Sell CMI Jun 170 c 25 hedge
Sell UNH Jun 185 c 29 hedge
Sell TSLA May 340 c 19 hedge

Fri Sell TLSA May 267.5 p 28 rebalance
Sell WYNN May 130 c 24 hedge
Sell BA Jun 165 p 31 add

Saturday, April 29, 2017

Weekly: French election rally

Mon French election results set off a world-wide stock market rally. I came in underinvested with a lot of free buying power. I added longs, mostly selling puts at the 7% probability line. I don't want to take on a lot of risk if the rally evaporates.

Sell SPY Jun 215 p 52
Sell IWM Jun 123 p 43
Sell BRKB Jun 155 p 75
Sell QQQ Jun 122 p 34
Sell AAPL May 157.5 c 12
Sell UNH Jun 155 p 51
Sell to close AAPL May 130 p 22 for a 85% loss on this leg. This was part of a put tree ratio, long the 130 puts, short 2x the 120 puts in ratio. Originally it was a bearish bet, but I hedged to near delta neutral after the stock held firm.
Tue French connection rally continues. I add more longs, going way out on the probability curves.
Sell IWM May 132 p 34
Sell SPY May 228 p 31
Sell CAT Jun 90 p 34
Sell MSFT May 62.5 p 20
Sell NFLX May 135 p 25

Wed Sell WYNN May 112 p 42 earnings
Sell IWM Jun 129 p 49
Sell SPY May 230 p 34
Sell DIA Jun 190 p 36
Sell BA May 170 p 38

Thu Sell SPY Jun 250 c 17 rebalance
Sell XLNX Jun 57.5 p 35 earnings
Sell SPG Jun 145 p 53 earnings

Fri Sell RCL Jun 97.5 p 45 earnings
Sell WDC Jun 75 p 50 earnings

Sunday, April 23, 2017

Monthly: Landmines GS TSLA, 42-3 Grade C+

It was a stress filled month. I count 42 winners, 3 losers, which sounds good on the surface. However, the three losers included two 2000%+ losers in Tesla (as measured by the premium collected) losers and big loss on one leg in Goldman. Had I held until expiration, two would have been smaller losers, one would have come back to profit. My self grade is another C+. C'est la vie.

I track a few etfs, here is the etf summary best to worst for calendar 2017

SLV +12.6% silver
EEM +12.2% emerging markets equity
GLD +11.6% gold
SPY +4.9% S&P 500, U.S. large cap
TLT +3.7% U.S. 20 year treasuries
IWM +1.8% Russell 2000, U.S. small cap
My account is at +4.6%, which is slightly behind buy and hold of SPY (SPY would have another +0.5% from dividends). So it isn't all bad, but I can do better.

I remain cautiously bullish. BRKB tends to dip ahead of the May 13th annual meeting, and rally afterwards. The overall market remains positive, though the rocket ahead pace from earlier in the year seems to be a thing of the past. While Market Vane investment advisors remain extremely bullish, AAII (American Association of Individual Investors) sentiment is neutral. Anecdotal chatter remains neutral. The stock market is not a popular topic of discussion.
Technicals look good. Fundmentals continue to unfold during earnings season. This week, several market leaders report, and are big enought to help or hinder the overall market.

Two weeks of quiet trading with landmines

Weekly: Another week, another land mine GS 
Another trading week, another one of my positions blew up. Goldman Sachs moved lower on earnings. I close some sold puts for a large percentage loss.
Here are the trades for two weeks (p = puts, c = calls, number at end is price per contract).

4/18/17 Tue Goldman Sachs drops after its earnings report. I cover this leg for a large loss.
Cover GS Apr 220 p 335 for a 350% loss
Sell UNH May 155 p 40 earnings
Sell BRKB Jun 170 c 162 rebalance
Sell VRX Jul 12.5 c 38 rebalance
Sell VRX Jul 5 p 17 rebalance
Thu Sell CSX May 45 p 22
Sell FL May 67.5 p 30
Sell BRKB May 155 p 46
Sell BABA May 97.5 23
Fri Sell HON May 120 p 46

4/14/17 Good Friday Weekly: an off week 
I don't do much other than take a second monster loss in TSLA. Market came down a bit. I am in the yellow as far as buying power. Please check out the post previous to this for a lengthy write up on the book, Trading in the Zone by Mark Douglas.

4/10/17 Mon Telsa nightmare continues
Cover TSLA Apr 310 c 9.3 for a 2100% loss

Tue Sell BRKB Jun 175 c 89
Sell TIF May 100 c 41

Monday, April 10, 2017

Trading in the Zone by Mark Douglas

I recently finished reading the book: Trading in the Zone by Mark Douglas 
My overall impression is that the book is worthwhile. Yes, there is some fluff, some pop psych, some things I might not agree with. I've been trading a long time, so even a few small insights, a nugget or two of information, is worthwhile to me. If I can improve on a couple of trades a year, that made it well worth my time to read the book, and type up these notes. Yes, hope for more, but as a person learns more, each increment of improvement tends to be more marginal.
Notes for Chapters 1 & 2:

Like markets, others may find other high points, other things that stick in their mind. I'm not going to go into great detail, just hit a few high points. I suggest reading the book for yourself and taking your own notes. I'm sure another person's notes will be far different from mine.

There is a long questionaire in the preface, with questions about how a person perceives the markets. Here are two sample questions (agree or disagree):

"I often find myself feeling that markets are against me personally."

"As much as I might try to let go, I find it very difficult to put past emotional wounds behind me."

Why do people want to be traders? The action, the freedom are two big reasons. Douglas asks why so many would-be traders fail. An interesting follow up question is why so many traders avoid taking responbility for their trades. Another follow up is why so many ask for or take advice. There is a bit about how often a child is told "no," or "you can't."

Douglas is big on rules, a person might imagine given the title of his other book The Disciplined Trader. I have a few rules, though I do bend mine on occasion. My Rule #1 is "live to trade another day," meaning never YOLO your account, no matter how sure you are. Someone with better gut instincts might find this to be silly, but my forays into directional trading are no better then coin flips, perhaps worse.

There is a bit on random rewards. A simple real life example is a slot machine in a casino. The occassional winning spin is enough to addict some people to the things. People that are prone to be addicts can become addicted to more than a few things.

Some people that come to the market with huge success in other fields are often frustrated. Many of them owe their success to charm, personality, the ability to bend others to their own will. Markets can't be charmed by individual traders.

Chapters 3 and 4

Taking responsibility, by shaping your mental environment. The ultimate goal is consistency, to be able to trade without fear, without recklessness. Ironically, many beginner traders lack fear. It is when the beginner experiences losses does he/she feel the fear. The average reaction is to study more, try and find more indicators, do more back testing. The aim is to conquer the market with knowledge.

Brief discussion of athletes in the zone (hence the book title). Musicians, artists can also feel like they are in the zone. Douglas describes it as acting instinctively, just doing. The zone is a state of mind that is inherently creative. Another phrase is a winning attitude. In many sports and competitive activities, the competitors are all highly skill. What often separates winner from loser is a winning attitude. If there is a significant skill difference, the competitor with much more skill will usually win.

My thought: Oprah Winfrey popularized The Secret, that attitude, intent are the keys to the kingdom. Douglas is saying something similar.

Back to Douglas, the market owes you nothing. The market is not your adversary. Any meaning is in your mind. The market does have a flow, though it can be erratic. To start sensing the flow of the market, a mind has to be relatively free of fear, anger, regret, betrayal, despair and disappointment. Knowing about markets while carrying the burder of these emotions will usually result in losses. The emotion will override the knowledge.

A trader that has to win, has to be right, will tend to have a distorted image of the market. That trader is unlikely to be able to flow with the market, because the ego, the need to be right is often primary. Losses can not be avoided.

Douglas observes three groups: consistent winners, which are about 10% of traders. Consistent losers are about 30 to 40% of traders. The losers often have horrible habits such as trading emotionally (fear of loss, fear of missing out, revenge trading, freezing when all their indicators line up). The other 50% to 60% or so, win some and lose some. Those in this large group that lack risk management skills tend to blow up their accounts.

Hypothetical question: if you undid every trade that was flat out stupid (eg: revenge trade) or reckless, how much would your profit/loss improve for the past year? Next question: did you ever think to try to identify how your might change your perspective, your attitude, and eventually your behavior? The market has nothing to do with a trader being reckless.

A difficult concept is that the market acts as a mirror, reflecting back what's inside you. Like an ink blot, different people see different things in the same market. Premise: the solution is in your mind, not in the market, not in studying the market. Your state of mind is a by product of your beliefs and attitudes. Douglas drifts into Yoda's famous line from Star Wars, there is no try. A trader is consistent by nature, he/she doesn't have to try to be consistent. It becomes second nature.

There is a book for musicians called Effortless Mastery by Kenny Werner with similar thoughts. To become a good musician requires a lot of time, effort, practice. The master musician can make it seem effortless. When the musician is in the zone, like the athlete in the zone, it feels effortless.
Back to Douglas: learn to create a state of mind that is not affected by the market's behavior, and the struggle will cease to exist. When the internal struggle ends, everything becomes easy. The challenge is that losses are part of trading. Can the mind accept the losses, without feeling pain or regret or despair? Can a person experience those losses and enter the next trade without fear?

Knowledge is not enough. One trader that Douglas worked with was terrified of snakes. That trader understood that some snakes were relatively harmless, but the physical and emotional reaction was one of terror. For that person a lot of training, cognitive behavioral therapy is one form of training needed to overcome a deep rooted fear.

My comment: Many of us have deep thoughts, emotions that we don't fully understand. Suzy Orman asks you about your first memory about money. Her's was picking up a coin in a sand box and her mom telling her that it was dirty and to put it back. A person with that kind of first memory of money is likely to have a lot of emotional baggage attached to money.

Douglas uses the analogy of a computer program with one typo in the thousands of lines of code. That one typo might cause terrible problems in that program. Douglas compares that faulty program to a person's state of mind. It might be one click away, or a thousand clicks away. Of course, Douglas tended to work with traders that had some degree of success. If a person never had any success, why would they see 

Douglas and pay his hefty fee? So the analogy might be to top athletes, all with a high degree of skill, not top athletes vs. the players at the local gym.

Douglas mentions the movie Cool Hand Luke. For those not familiar with the movie, Luke is a prisoner on a chain gang. He escapes, then is recaptured and beaten severely. Luke escapes a second time. The warden and guards tell him not to try a third time, because they will kill him. Spoiler alert. Luke escapes a third time. To Douglas this is analogy for some traders, that the market punish, and eventually kill. Maybe I have to see the movie again, because the analogy doesn't click with me.

Chapters 5 and 6

People see what they want to see, or as Douglas puts it: People see what they've learned to see, and everything else is invisible until they learn how to counteract the energy that blocks their awareness of whatever is unlearned and waiting to be discovered.

Example about a kid seeing a dog for the first time. The first encounter will generate history. If the first dog is friendly, it is likely the kid will see the second dog as friendly. If the first dog is dangerous or angry, the kid will likely think the next dog will be similar. Now take this to trading, a trader is considering a certain trade. Does the recent history color his/her perception? What if the last three similar setups resulted in winners? What if losers? What if the last ten were winners? Or losers?

I go back to Douglas' earlier categorization of traders, with about 30% to 40% that tend to generate consistent losses. Ten losers in a row, may mean doing the opposite trade is a better path. I am huge fan of keeping a trade journal. There is a time to go back and look at what's working, what's not. However that time is not in the middle of a trade. Markets do change. Winning strategies in one kind of market often become losers after the change.

Every trader that Douglas has worked with had to train their brain to focus on the now. Like a baseball relief pitcher, a short memory, letting go of any pain, is vital to success.
Douglas gives his secrets to trading:

1 ) trade without fear, without over confidence

2 ) perceive what the market is offering from its perspective

3 ) stay completely focused on the "now moment of opportunity flow."

4 ) spontaneously enter the "zone"

Traders who have experienced being tapped into the collective consciousness of the market can anticipate a change of direction just as a bird in the middle of a flock or a fish in a middle of a school will turn at the price moment that all others turn. To get there, a person needs to focus entirely on the now moment, to tap the creative side of the brain (vs. the logical side). True inspiration, intuition can not be readily explained.

The best traders believe that anything can happen. To me the obvious corollary is that while anything can happen, the profits tend to be with the odds in your favor (vs. long odds against you). The bit about intuition, I categorize as gut. A few people have what I call "golden guts." They have remarkable market instincts and their gut feelings can lead to huge profits. I don't have this. I think I am average, and that my "gut" is more often emotion (greed or fear), and tends to lead to bad decisions. Not bad enough to be a contrary indicator, but bad enough that trading on my gut would likely lead to the poor house.

Back to Douglas: most people believe that a successful trader is a good market analyst. In his experience, this isn't close to true. In his travels, analysis and trading are separate, though analysis can contribute to trading success. To Douglas, way too much attention is paid to analysis, not enough inner work on your own psyche and biases.


Chapter 7 and 8

Thinking in probabilities is the trader's edge. My comment: This will come naturally to experienced options traders. If markets are efficient, every trade has the same expected value (zero), but have different odds, different payouts.

Douglas uses the example of Las Vegas casinos. He goes on to say that an individual can't anticipate how other players will play their Blackjack hands. The casino has the edge, so won't attach any emotion on the outcome of any individual hand.

Douglas tells the story of a client who consistently made 12 to 18% per year for 30 years. However, the client had analysis that indicated he was leaving a lot of money on the table. Douglas goes through one futures trade, where the trade goes against his client. It doesn't reach the stop loss level, however, when the trade comes back, he exits for break even. The trade would have gone on to be a big winner. My comment is that if there is some rule in place to exit at break even in that instance, there is no problem. The problem is the client "felt bad" about the trade, and just wanted to get out at even. There was no plan or rule to exit at that point. Perhaps prior experience of a trade that moves against the client, then gets back to even, then blows through the stop level, influenced the exit.

I think back to the analogy of the kid that meets an angry aggressive dog as his first dog. That experience imprints and fear becomes built in. Recent trading losses can influence us, but the deep dark history is often where the bigger demons are.

Everyone experiences some degree of anger, resentment, despair, regret, disappointment, or betrayal. A trader that feels great when the market moves in his/her favor, or feels terrible when it moves against them, is human. However, that person often loses objectivity, and acts like the client in the story, allowing emotion to influence the decision making.

An experienced trader watching a market he has no position in, no possibility of putting on a position, tends to be objective. My comment: this is one reason many traders take a break after a bad stretch, to clear their mind, to become objective again.

Douglas: when I put on a trade, all I expect is that something will happen. Ideally, losses don't do any emotional damage, because there is no expectation. If and when the market tells them their edges aren't working, they accept what the market is offering them. My comment, the fine line is objectivity, vs. emotion. It is the rare person that can trade consistently on emotion. More rare might be a person that never gives into to emotion.

Back to Douglas: putting on a winning trade or even a series of winning trades requires no skill. Creating consistent results and being able to keep what we've created does require skill. Making money consistently is a by-product of acquiring and mastering certain mental skills. The degree to which you understand this is the same degree to which you will stop focusing on the money and focus instead on how your can use your trading as a tool to master these skills.

Consistency is the results of a carefree, objective state of mind, where we are making ourselves available to perceive and act upon whatever hte market is offering us (from its perspective) in any given "now moment."

Carefree means confident, but not euphoric. You don't feel any fear, hesitation or compulsion to do anything because you've effectively eliminated the potential to define and interpret market information as threatening. To remove the sense of threat, you have to accept the risk completely. When you have accepted the risk, you will be at peace with any outcome.

Edge is an indication of a higher probability of one thing happening over another. Trading isn't about hoping, wondering or gathering evidence. Adding random variables makes it difficult, if not impossible to determine what works and what doesn't. To the degree that you lack confidence, you will experience fear.

Every moment in the market is unique.

Chapter 9 and 10

Story about a TV show doing a stunt. They dress up a man in a suit, hang a big sign that says "free money," on him and have him try to give out cash in a high end business district. Virtually no one wants his money. Note, this stunt was back in 1987. My comment is that I am city kid, so the scam radar goes way up when I see something like this. In this case it was a stunt, but a lot of offers of "free money" are scams. The other thought is about expectations and beliefs. If a person believes that money has to come hard, that tends to be self-fulfilling.

Beliefs take on a life of their own. My thought is about confirmation bias. How many people will only seek out information and sources that confirm their existing beliefs. These days it is easier and easier to slide into these kind of protective bubbles. Harders and harder to find objective groups of people. Even facts can no longer be agreed upon. Almost everyone believes they are objective. In the markets, results speak volumes.

Douglas believed in both the tooth fairy and Santa Claus as a child. (I believed in neither.) Beliefs can be active or inactive. Active beliefs are energized. Douglas believes that creativity is boundless, limitless. Beliefs keep on working in the background, even if they are not on a conscious level.

Everyone has a sense of self-valuation. It is a core belief. There can be huge gaps between how much money we desire, how much we perceive is available, how much we think we deserve. The dynamics can be complex and go beyond the scope of any book. My stray thought is Warren Buffett visualized money as being like a snowball rolling down a mountain. Find a high mountain with a lot of snow, start the ball rolling early and you will accumulate a large pile, and that's what he did. Buffett bought real estate before graduating high school and was earning more than most of his teachers by the time he graduated, all from businesses he started when he was a kid (paper routes, golf balls from the lake, pinball machine repair and leasing).

For young people that want to be the next Buffett, perhaps think about starting a simple business, instead of trying to get that first little pile by trading. Buffett eventually hired other kids to deliver papers, eventually outsourced the retrieval of golf balls from the lake and found an unfilled niche with the pinball machines. I'm sure others have seen the many posts from people with next to no money asking for advice. Best advice might be to be like Buffett and make that first pile of money with a job or a business, before thinking about equity or option investing.

Douglas worked with many traders that would acheive a certain level of success, but their core beliefs limited them. They had an invisible ceiling in their mind, and when they reached a certain dollar level or certain annual percentage gain, they would start losing. A trader that demonstrates this kind of consistent pattern may have to do a lot of psychological work to alter their belief system to lift or remove the ceiling.

Chapter 11 (last chapter)

Douglas writes about becoming intuitive. This might seem opposite of discipline (his other book is The Disciplined Trader). He also talks about mechanical sets of rules. Most people have to learn how to execute a mechanical system before they can use an intelligent intuitive system. The irony is that many beginners trade mostly on their intuition, their gut. 

However, with little or no training, the beginners tend to bumble and stumble around. There is that fine line where skill, training, and intuition all can line up--that's the zone that is mentioned in the title. Musicians can be in the zone, athletes too, and traders. The mind trick is to go through all that training, and still be able to go back to the "beginners mind" that Zen philosophers talk about.

The dog analogy used in many chapters is a good one (kid meets their first dog, it is angry and aggressive, so it imprints on the young person that all dogs are dangerous). In this chapter Douglas introduces a second analogy, about walking across a bridge without any rails on the sides. If the bridge is wide, say 20 feet (6 meters) wide, a person may feel a bit of discomfort. If the bridge is say 3 feet wide, most people are going to be nervous if the bridge is of any length. Narrow it down to one foot or less and most will not want to cross. A few adrenaline junky types may want the thrill, but average folks are going to turn away. In trading, the risk can be like the width of the bridge. Those doing YOLO (you only live once, bet the farm) trades have very little margin for error. Those that continuous do them are almost sure to fall off before they reach their goal.

It can be difficult to observe yourself. Douglas thinks this is a critical step in trader development.

Douglas writes about his road to becoming a runner. Being relatively young and fit, he thought it would be easy, even though he had never run before. First time out, he ran maybe 50 yards, before running out of steam. This was so discouraging that he didn't try again for weeks. Eventually, the weather turned nicer and he gave it another go. It wasn't much better. Douglas decided that setting a goal of running five miles by the end of summer would be helpful to him. He started keeping a running diary of distance, time, and how he felt. There were a lot of excuses, distractions.

After several weeks of running, he was able to run one mile, and felt elated. Douglas found his happiness to be troubling, so he decided to add what he calls his "five-mile rule." Each time he went out running, he would go at least one yard further than the last time. He could do more than that if he felt like it, but even if he felt terrible, or the weather wasn't so good, he decide that each time out he would go a bit further. With this rule in place, he reached his goal of a five mile run, on schedule.

My thought is that running five miles is a fair enough goal for a relatively young, relatively fit person with no major physical limitations. Douglas writes about doing 20 trades as a decent sample size, though for some people a lot more than 20 trades are going to be needed to feel confident.

Back to Douglas, beliefs can be changed. The goal is to create the belief that "I am a consistent winner." Like the first dog story, if a person has imprinted early with stories of discouragement or loss, the road can be long and hard. My other thought that this book is 17 years old. Thousands of traders have read and processed the material. Think about golfers in a tournament. If only a few golfers have worked on sport psychology to try and improve their results, that small group might have an advantage (assuming the program is worthwhile). After all these years, a new trader just going through the cycle, will only get to even with the other more experienced traders that have already been through training. That said, if a person is new, any training is likely to have a positive effect.


Five fundamental truths:

1. Anything can happen

2. You don't need to know what is going to happen next in order to make money.

3. There is a random distribution between wins and losses for any given set of variables that define an edge.

4. An edge is nothing more than an indication of a higher probability of one thing happening over another.

5. Every moment in the market is unique


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