Buy BA, PG (sell puts)

Buy PG via selling Apr 67.5 puts @76.8

I was already short Mar 70 puts. This is my third position for April, which I see as a low number. Chart support at the 50 day moving average at 72, and at the base of 70. Proctor and Gamble is sometimes labeled as a defensive stock. However, its options are trading at 25% implied volatility vs. about 19% for SPY. 

 

Buy BA via selling Apr 67.5 puts @76.9. I still like Boeing, am already short Mar 70 puts. Chart support at 70, one strike lower gives me a margin for error. These two moves give me four open positions for April, 14 open for March. March is another short time month for options because the month starts on a Friday.

Long BA BRKB IWM LGF MON PG QCOM SPY

Net long APC KORS

Rebalance APC (sell calls)

I rebalance my complicated position on Anadarko Petroleum by selling Mar 87.5 calls @78.7. I was already short Mar 90 calls, Mar 75 puts, Mar 67.5 puts x2. As APC moved toward the 75 strike price, my positive delta (bullish bets) increased. The recent highs at 85 are chart resistance.

The markets are too fast for my tastes. I am not in front of a screen all day, and I tend to plod along, more like a turtle. Yes, there are opportunities for the nimble, but I am not in that group of the more nimble traders that can take advantage of these day-to-day moves.

My most recent moves last Friday were akin to slipping on a banana peel. Oops and ouch. A lot of ideas cross my mind. ThinkorSwim (my broker) seems sluggish this week. The volatile markets might be a factor. 

 

Long BA BRKB IWM LGF MON PG QCOM SPY

Net long APC KORS

Spano: Fear of Missing Out

Kirk Spano at Marketwatch (link) has an article about the fear of missing out. Some symptoms are checking your account much more frequently, considering much more volatile stocks or instruments. After a 150% rally off the stock market lows in March 2009 (in round numbers SPY 67 to 150), and a strong start to 2013, more and more folks are infected.

That said, some other talking head on TV pointed out that virtually no one at the coffee shop is bragging about their stock market profits or talking about their high flying winners. So it hasn't reached epic proportions that might signal a major top.

Again, I find that anecdotal stories can be powerful sentiment indicators. At the March 2009 lows, someone told me they were selling all their stocks, the exact week of the lows. At the height of the Internet bubble one of the little old ladies at church bragged to me about opening up a brokerage account for the first time in her life. During the run up in silver when it went from $14 to $49, several novices seemed to think they could not lose by being long silver.

Of course, it is easy in hindsight to see these turning points. It is not so easy in real time. It is sometimes difficult to distinguish a smart player from the classic dumb money, and rarely do they signal the exact market turn. At market tops there are a relative maximum number of buyers, at market bottoms the opposite, a relative maximum number of sellers. Nothing can change that, it is how markets work.

There are thing an investor can do to guard against the disaster moves. Avoid the all in, all out mentality. I tried very hard to tell the person that wanted to sell at the 2009 lows to scale out, to sell 20% now and then maybe another 20% in a few months. But they were too scared to consider anything other than their fear. At market tops, the opposite, there are a hundred reasons (usually all fundamentals) about why whatever they are buying will continue to go up.

Scaling in, scaling out is a reasonable strategy. I came into 2013 way underinvested in my trading account. I scaled in, day by day adding one position at a time. This way, if the market did turn, I had a variety of prices.

Another thing is to look at the chart. Runaway markets often form a parabolic blow off top. Markets don't always peak like that, but when a chart looks like a rocket taking off, ala silver running to $49, the risk for longs (and shorts for that matter) is high.

A person can learn by listening, by watching. Not the talking heads on TV which is 80% noise, but ordinary people that have always invested in something or always avoided something. When those folks move and want to talk about it, it might be useful information.

Buy BRKB LGF SPY (sell puts) hedge KORS

Buy BRKB via selling Apr 90 puts @100.7

Berkshire Hathaway has a chart base at 90, which is also where it broke out at the start of the year.

Buy SPY via selling Mar 142 puts @151.4

SPY is the S&P 500 ETF, the first ETF, and still the biggest. There is a gap at 142 to 145, again from the start of calendar 2013. I believe 145 will be support, and 142 gives me an extra margin of safety.

Buy LGF via selling Apr 19 puts @20.6

I also add to my longs in Lions Gate Entertainment by selling Apr 19 puts. Chart continues to look constructive to me, with a shelf of support at 19.2.

Sell KORS via selling Mar 65 calls @59.3
Michael Kors priced a secondary offering at 61.5 and that put pressure on the stock. The principle is also selling some of his shares. The recent high was 65.1. I am already short KORS Mar 55 puts.

All three put sales are low risk, low reward trades. The call sale, a hedge. I am putting some money to work from the 11 positions that expired last week. I am a bit skittish about the stock market because February and March have often seen quick and fast drops. 

Elsewhere, bonds and gold charts have broken down. The weak seasonality for bonds extends to April. Gold doesn't look good, but I am reluctant to trade it from the short side. $1500 on physical gold may provide round number support. Volatility has perked up a little bit.

Long BA BRKB IWM LGF MON PG QCOM SPY

Net long APC KORS

10-1 for February, A- grade

Ten winners, one loser for the February option cycle, I Ten winners, one loser for the February option cycle. I give myself an A- for the month.
 

A bit of luck, and a bit of skill, yield a lot of small winners. The one loser was part of a vertical spread on AMZN, so really there were no losers. Even the worst entry of selling puts on Boeing (BA) before the 787 grounding news worked out, with me making money on both sides of the short strangle (selling puts and calls). I didn't take many risks, so the winners were all small fish. I was a bit lucky especially on AMZN.

The tight and narrow advance looks like big money scaling in. It won't last forever, but while it does last, shorts, especially option buying shorts are being punished. Eventually, the trend breaks, the elephants stall or turn and run. Worst case is that the elephants stampede, and then the stock market bulls get their turn at being punished.

 

Long BA IWM LGF KORS MON PG QCOM

Net long APC

Buy LGF (sell puts)

Buy LGF Lions Gate via selling Mar 19 puts @20.0

I was already short Mar 14 puts. I interpret the short term action as constructive. There is a shelf of short term support at 19.2. I mentioned the Lions Gate earnings report in Tuesday's post. 

I believe the best is yet to come for LGF. For years, this company had losses, so no matter how strong the franchises were, most money managers would not, could not buy. Two quarters of earnings, with upside surprises, may bring in more institutional support. Yes, LGF has had a good run, so there is risk in going long at this time. A SeekingAlpha write up said to wait for a pullback to 19, so there are some small fish likely waiting to get in at that price.

Long BA IWM LGF KORS MON PG QCOM

Net long APC

Expiring this Friday AMZN EBAY GPS LEN TBT

Buy KORS (sell puts) and LGF earnings

Buy KORS via selling March 55 puts @62.6

Luxury goods maker Michael Kors gaps up on earnings. Chart support at 57 and 55.

Elsewhere LGF Lions Gate Entertainment has good earnings. LGF ran up into the report and is drifting lower for the day. The breakout base is at 16, so there is some air in the stock at the 19 range. I am looking at the options, but nothing is compelling. Going out to June means waiting through another earnings report. I may wait until next week when April options become available.

Long BA IWM LGF KORS MON PG QCOM

Net long APC

Expiring this Friday AMZN EBAY GPS LEN TBT

Buy APC BA MON (sell puts)

I sell puts on three stocks: Anadarko Petroleum, Boeing, Monsanto. I already had positions in all three.

Buy BA via selling Mar 70 puts @76.5

Boeing moving up today. The 787 grounding news could not move the stock below 73. I was already short BA Feb strangles, 67.5 puts and Feb 80 calls. There are multiple chart support levels, 70 looks like solid support.

Buy APC via selling Mar 75 puts @82.4

I rebalance my APC Anadarko Petroleum position to bullish. APC moving up after earnings. I was already short strangles, Mar 90 calls, Mar 67.5 puts and Feb 70 puts.

Buy MON via selling Mar 92.5 puts @101.9

I sell Mar 92.5 puts on Monsanto. I was already short Feb 90 puts. Chart support at the 50-day moving average and the gap up, both around 95/96.

Long EBAY GPS IWM LEN LGF MON PG QCOM TBT

Net long AMZN APC BA

Ground hog sees another year of bull, top in 2014

The subject line is an attempt at humor as I type this up on Ground Hog day 2013. During a recent ThinkorSwim webinar (Swim Lessons Thursday January 31, 2012) they spent a lot of time on the long term SPY chart. Here is a link to a similar Yahoo chart.

A lot of traders are focused on the potential of a triple top, and the price for SPY 157 or so. What caught my eye is the time frame. If the next market top is the same distance in time as the others, that gives another year of bull market with a possible top in early 2014. That fits in with the shifting sands of stock market sentiment.

While there are a few headlines trumpeting Dow 14000 and the best January since 1989, there were also articles featuring doom-and-gloomers such as Marc Faber calling for a 20% smash, and another less famous pundit calling for a 50% waterfall decline. These tend not to be the kind of articles featured at long time market tops.

So many seem to be focused on the price level of the two prior peaks, I don't think it will matter that much. Not many seem to be focused on the cycle length.

During the ThinkorSwim weekly market wrap up, one presenter lamented that low volatility grinds higher was one of the worst kinds of markets for his style of trading. It is increasingly difficult for option premium sellers to find good risk/reward situations.

Buy QCOM (sell puts)

Buy QCOM via selling Mar 60 puts @66.7

Qualcomm up on earnings. Chart support at 65, 62.

As for the broader stock market, I am looking at February 4th or 5th as a time to look for at least a pause to refresh from this January rally. Marketwatch has a headline best January since 1989. The individual investor is starting to stir again, after missing the entire huge 100%+ rally off the stock market lows. 

Long EBAY GPS IWM LEN LGF MON PG QCOM TBT

Net long AMZN APC BA

Buy AMZN (sell vertical put spread)

Buy AMZN via selling a vertical put spread

buy Feb 210 puts, sell Feb 220 puts @270.3

Amazon.com earnings will be out after the close. 

My thinking is that there have been a raft of big moves in other stocks, so these options are priced higher. Chart support at 260, 240 and 220. As I type this up, AMZN is slipping lower, so not the best entry. There is about an 8% chance that the 220 puts come into play by expiration. I tend to think volatility is pumped up because of earlier big movers on their earnings (GOOG, NFLX, AAPL and others).

Doing a vertical instead of a straight put sale helps with the margin requirement. Also protects against a crash scenario. On higher priced stocks selling puts before a crash can do permanent damage to an account.

Long EBAY GPS IWM LEN LGF MON PG TBT

Net long AMZN APC BA

Buy TBT (sell puts)

Buy TBT via selling Feb 63 puts @67.1

TBT is the double inverse treasury bond ETF. There is minor chart support at 63.5. If my puts come into play, the plan is to roll down and out. One negative to selling puts on TBT is the relatively large margin requirement, because it is a leveraged ETF.

Bonds have broken down. The seasonality for bonds remains negative (positive for TBT) until April. November to April tends to be the weaker six months of the year for bonds, and the other six months tend to be supportive for bonds.

Long EBAY GPS IWM LEN LGF MON PG TBT

Net long APC BA

Ferri: Mr. Market doesn't care what you think

Rick Ferri contributing to Forbes writes an article with the title: Mr. Market doesn't care what you think (link). There is a slight negative correlation, but not enough to be actionable. The exception is at extremes, however in the vast middle it is not enough to be a useful indicator.

Let me make some general comments about sentiment. I find it to be a useful indicator. I remember back at the height of the dot-com bubble and the day trading craze, one of the ladies at church, proudly announced that she had opened a brokerage account and was in the game. Looking back it is easy to see that as a huge blinking red light. 

More recently, when silver was making its run to $49, three different novices at three different places talked about silver and their expectations of easy money to be made on the bullish side.

It doesn't always work. As I often write nothing is 100%, and it tends to be the lucky and the liars that get out near the exact top. However, I find sentiment to be useful and powerful. When news comes out on a company, I like to look at the Yahoo finance message board for that company (link to LGF message board substitute the company's ticker for LGF) to see what others are thinking. I look to run contrary. If a stock forum is dominated by negative nellies, that is often a prelude to higher prices. The opposite is also true, if everyone is positive, it might be time to go the other way.

Headline articles or talking heads on financial TV can be good contrary indicators. In particular if a talking head says something like I am 100% sure, that is a strong signal to go the other way. No one with an audited track record is 100%.

Buy PG (sell puts)

Buy PG via selling Mar 70 puts @73.0

Proctor and Gamble up on earnings, breaking out from a beautiful base at 70. There is not much premium on this low volatility stock. Same is true for a lot of other stocks.

Elsewhere, I place an order to sell an IBM put spread to take a long position on IBM, but it drifts away from me and looks like no fill. 

Most traders have been focused on AAPL, NFLX, GOOG. For those fast moving high value stocks, it is often best for slow moving little fish traders like me to steer clear.

Long EBAY GPS IWM LEN LGF MON PG

Net neutral APC BA

Rebalance APC (sell puts)

Sell APC Feb 70 puts @78.5

I rebalance my short strangle on Anadarko Petroleum. The drift higher moved my short straddle to delta negative. Chart support at 74 and 70.

/edit to add: Later in the day, I sell another layer of APC Mar 67.5 puts. APC@79.4 

 

Long EBAY GPS IWM LEN LGF MON

Net long APC BA

4-0 for January grade B-

Four winners, zero losers for January. I give myself a B- grade for month. I came in under invested and gradually put money to work. Just as important as the trades I took were the ones I avoided. Both gold and bonds seemed too risky to be selling options on. I almost sold puts on AMGN and it kept sliding lower and would have been a big loser. The BA Boeing trade was right before the bad news, but again, that will happen. The Boeing news was not like an earnings report, in that it was a surprise. 

 

I also avoided AAPL. I see that super popular stock as being more appropriate for more nimble traders. As long time readers know, I am a relatively slow moving position trader. I like to have time work for me, though with the low volatility it is getting tougher to make money by selling options. Again, eventually, the market will correct and go down, but the blast off seen at the beginning of the year often can keep flying for a while before that fuel runs out.

Long EBAY GPS IWM LEN LGF MON

Net long APC BA

Buy EBAY and IWM (sell puts)

Buy IWM via selling Mar 77 puts @88.1

I add to my IWM Russell 2000 delta. There are multiple chart support levels, 82, 80, 78, 76. A move back to 78 would negate the entire rally off the November 2012 lows. A pullback seems inevitable, especially because February can be a down month. However, I don't expect a big drop.

I also buy EBAY via selling Feb 50 puts @54.3.

Ebay is up nicely on earnings. Decent chart support at 50. Neither is a perfect trade. I still feel underinvested with January expiration coming this Friday, so want to put more money to work.

Long EBAY GPS IWM LEN LGF MON UNP XRT

Net long APC BA

Sell BA calls

I lighten up on BA by selling Feb 80 calls @73.9

I was long Boeing by being short BA Feb 67.5 puts.I don't like the tape action and the news is getting worse. It seems unlikely that all the uncertainty will be lifted by February expiration.

Long GPS IWM LEN LGF MON UNP XRT

Net long APC BA

Buy LEN, Sell APC strangles

Sell APC strangles with a bullish tilt @77.2

Sell Mar 67.5 puts

Sell Mar 90 calls

A short strangle is a bet on a trading range for Anadarko Petroleum. There is chart support at 70 and resistance at 90. APC is the largest holding in FRAK, the oil fracking ETF.

I also buy LEN Lennar Homes via selling Feb 36 puts @40.7. Their earnings were solid, though the stock dipped during the conference call. Some folks like to think of selling puts as placing a GTC buy order at that strike and getting paid for it, if the stock never falls to that level.

Boeing has been all over the news and my position is in the red. News happens, and sometimes it is bad news.

Long BA GPS IWM LEN LGF MON UNP XRT

Net long APC

11 books for traders

Minyanville has a list that the firm First New York uses for its trainees (link). From that list I have read:
Reminisciences..., Market Wizards, the first Trader Vic book, the Murphy, Weinstein and McMillan books, so 6 out of 11.

It is not a bad list. The opening quip is one I tell everyone though not in the same words: "One thing that every beginning trader needs to learn is there are a lot of ways to skin the cat,“ says Tommy Goelz

There are a 1000 ways to make money (or lose) in the markets. What works for me, may not work for you, and vice-versa. Journaling (what this blog is), is a powerful tool to learn what works for you.

As for today's market, the low option premiums continue to be a challenge. I am tempted to take on more risk. The AAPL drop sure is tempting. However, I remind myself my worst trade of 2012 was a short Iron Condor on AAPL. I have found that yes, some stocks become associated with profits, some with losses. There are plenty of other stocks to trade.