Weekly: Mr. Spock's logic

Many are commenting on the passing of Leonard Nimoy. Nimoy is most famous for playing Mr. Spock on the original Star Trek TV series. Some would say the current stock market is not logical. 

Sometimes the thread of logic isn't always straight. With the recent drop in oil prices, many traders have been trading airline and oil stocks. For the most part profits have been modest, with more than a few losers on the more obvious bets. Looking a bit wider, Monster MNST had blow out earnings. The logic is that these drinks are often bought at gas stations by young people, and that their customers had a bit more money.

A person at the local CANSLIM meetup was trying to follow that gas money trail to other areas. Home Depot HD also recently had great earnings. So while the hot money was playing airlines and oil companies, taking opposides of the oil drop trade, the bigger money was to be made in the logic trail.

I wish I was that smart, but rarely am. Sometimes the logic trail can lead a person up the wrong path. Just because one person likes a product or store, it may not mean the stock is good. Trading and investing is easy in hindsight, not so easy in real time.

As for my week, mostly quiet, up a tiny bit overall. Apple caused some heart burn by moving up the I-Watch announcement date from April to March. This meant both puts and calls went up in price, and cost me both way. Honeywell's weakness was another concern. After the recent Goldilocks market of just right, I am that much more sensitive to "too hot, too cold," market conditions. Here are the trades (p = puts, c = calls, all are week 3 expiration unless noted):

Fri Sell HON Mar 105 c @103.0. Rebalance a complicated position in Honeywell by selling another layer of calls. This one is messy.

Thu Sell AAPL Mar 138 c @127.0. Rebalance short strangles on Apple as it keeps sliding. As it keeps moving lower, I keep tap dancing. I am short multiple layers of puts and calls. The Mar 125 puts are deep into red ink, because I sold them near the highs of the recent move. Wow, by mid-day, Apple rallies to over 129 and I get whipsawed on these calls. On days like this, I wish I were a more nimble trader. Unfortunately, that isn't going to happen. I don't think that quickly, and am not in front of the computer all day.

Sell DIS Apr 95 p @104.9. Add to longs in Disney by opening an April position. A lot of folks are looking forward to the new Star Wars movies. The box office will be a fraction of the potential. Toys, theme parks, clothing, collectibles are all sources for revenue.

Cover (buy to close) IWM Mar 103 p @123.2. I free up some buying power by covering these puts for a big gain. With so many days until expiration, I can likely make better use of the capital before then.

Wed Sell AAPL MarW2 140 c @129.5.

Sell AAPL Mar 140 c @129.4. Rebalance short strangles on Apple by selling two layers of 140 calls, the Mar week 2, and the regular Mar week 3's. The burst higher is looking like a trap. It has been a common pattern early in 2015, a push higher than a sharp retracement. AAPL bouncing a bit, so not so good timing on these moves.

Sell UNH Mar 120 c @114.0. Rebalance short strangles on United Healthcare. Same deal, stock popped higher, now dropping. I rebalanced on the way up, and now am counter balancing on the way down.

Tue Sell BA Apr 135 p @154.1. New long position in Boeing. Chart breakout level is 135. BA was downgraded yesterday, which means to me it likely has more room to run. At tops, it is all upgrades and higher price targets.

Mon Sell UNH Mar 108 p @114.5. Rebalance short strangles on United Healthcare as it continues to rally. A bit later, I sell another layer of puts:

Sell UNH Mar 111 p @116.4. Another rebalance. Apparently, UNH up on Medicare rate news. I am short the Mar 120 calls.

Sell VRX Apr 160 p @197.4. Renewed long position in Valeant Pharma. VRX up huge on earnings. Breakout is from an ascending base, which can be dangerous. However, there are likely a lot of shorts that are scrambling to cover on the news. In hindsight, I became too cautious too soon on VRX.

Sell AAPL Mar 125 p @132.5. Rebalance short strangles in Apple by layering more puts. AAPL at new all time highs.

Position Summary:

long APC ASH BA BRKB DIS GDX LUV JWN MMM UNP VRX WFC

net long AAPL AMGN GLD HON UNH XOM

net neutral BABA FDX ILMN IWM PANW SPY WHR

renewed long VRX

49-1 for February, grade A

The stock market was down about 3% in January, and up about 5% for February. This was a just right, a Goldilocks scenario for strangle sellers with a bullish bias. Some winners with multiple layers of strangles include IWM and UNH. The lone losing leg was part of a SPY put backratio, so really isn't a loss. I count each leg separately, just because it gets difficult to figure when I layer positions.

It wasn't a perfect month, but with so many winners, only one loser, the grade is A. I initiated profitable new positions in some big name stocks such as AAPL BABA PANW. 

Even in an A month there is room for improvement. I tried to do more Boeing trades, but never got filled, as BA kept moving higher. Another runaway train to the upside was VRX Valeant Pharma. TLT the bond etf saw a parabola kind of chart. It is unrealistic to think that I could have shorted the exact top. Gold has been in the doldrums. I am still at a slight profit on my GLD trades for the year.


I forgot the position summary in the Friday post, so I'll put it here:

Position Summary:
long: AMGN APC ASH BRKB DIS GDX LUV JWN MMM UNP WHR
nlong: GLD HON XOM
nneutral: AAPL FDX ILMN IWM PANW
nshort: SPY UNH
expired: BA VRX WFC

Weekly: Goldilocks and the sad bears

It was a Goldilocks market for me, as all my short February options came in safe. Bears are sad and frustrated with new record highs in SPY. I'll post my monthly summary on Saturday. Here are the trades from the shortened trading week (Monday was a holiday):

Fri Turned into a bit of a wild day with news about Greece. I sold some weekly options for the first time in a very long time. I also bought some shares of HON to hedge my short calls.

Sell XOM Mar 95 c @89.4. 19 I rebalance short strangles in ExxonMobil.

Sell PANW MAR1w 122 p @142.0. Rebalance short strangles.

Sell AAPL MAR2w 118 p @129.0. Rebalance short strangles

Buy half a position in Honeywell shares @105.26 to offset short HON Mar 105 calls.

Thu Sell HON Mar 97.5 p @ 104.6. 39 I rebalance short strangles in Honeywell. I plan to buy shares on a close above 105.2, to offset short Mar 105 calls.

Sell PANW Mar 115 p @139.0. 65 I rebalance short stranges in Palo Alto Networks.

Wed Cover AAPL Feb 117 p @127.7. 01 I buy to close these Apple puts for a buck, to free up buying power. I place some limit orders, sell to open, and want a bit more wiggle room, just in case something strange happens before expiration this Friday.

Weekly: all time highs, new: AAPL PANW

Another positive week for me. New positions are short strangles in AAPL and PANW. Stock market near all time highs.
Trades: * p = puts, c = calls, sell means sell-to-open, all are third week of expiration

Fri Sell PANW Mar 110 p @134.4. New long position (which I quickly change to a strangle) in Palo Alto Networks. This is a cyber-security play. PANW is a bit extended from its base. My puts are several support levels lower. A bit later I sell calls to make it a short strangle
Sell PANW Mar 165 c @133.0. PANW droops so I hedge my short puts by selling calls.
Sell IWM Mar 110 p @121.3. I rebalance short strangles on the Russell 2000 etf. Even with this move I am net short IWM.
Sell XOM Mar 85 p @93.1. I rebalance short stranges on Exxon Mobil. My position is net short even with the adjustment.

Cover several layers of SPY options: Cover SPY Feb 120 calls, Cover 2x SPY Feb 175 puts. I cover these for a buck or two to free up buying power. I often let these expire worthless, but want to have a bit of free buying power for flexibility.
Cover FDX Feb 150 puts @176, same deal, cover for a buck, to free up buying power

Thu Sell AAPL Mar 115 p @126.4. I rebalance short strangles again on Apple as it continues to rally.
Sell HON Feb 100 p @103.2. I rebalance short March strangles in Honeywell. I am short Mar 105 calls, so it nearing my mental stop.
Sell DIS Mar 95 p @103.4. I add to longs in Disney as it moves higher.

Cover short puts on Union Pacific Railroad and Exxon Mobil for $1 per contract, to free up some buying power. At ThinkorSwim covering short options that are five cents or less are commission free trades. (Sell to open is charged.)
Cover UNP Feb 90 p @123.
Cover XOM Feb 75 p @91.5.

Wed Sell AAPL Feb 117 p @123.4. I rebalance short strangles in Apple as it continues to rally.

Tue Sell AAPL strangles @120.9: 
Sell Mar 105 p and Mar 140 c
Apple moves to all time highs. My strangle is delta positive. A short strangle is a bet on a trading range.
Sell AMGN Mar 130 p @151.2. I open a March long position leg on Amgen. I am short February strangles.

Mon Sell ASH Apr 110 p @125.7. Add to longs in Ashland as it has run higher after earnings, breaking out from a base at 115. ASH options often have a wide spread, my order is a tick below the mid.

Cover (Buy to close) GLD Mar 145 c @119.0. I cover this layer of short gold calls for no commission to free up buying power. I am still short strangles on GLD. There are six weeks until expiration, only about a 2% chance for these to come into the money, but I may have better uses for that capital in the next six weeks.

Sell XOM Mar 82.5 p @91.8. I rebalance on Exxon Mobil yet again. Adding a layer of short puts to increase my delta.

Position Summary:
long APC ASH BA BRKB DIS GDX LUV MMM UNP VRX WFC
net long AAPL AMGN UNH
net neutral BABA FDX GLD ILMN JWN PANW WHR
net short HON IWM SPY XOM

Weekly: Best week in a year

I heard on the radio that the stock market had its best week in a year (52 week period). SPY made up all of January's losses and sits near break even for 2015. Gold and bonds had a down week, but are still outperforming stocks for calendar 2015.

I don't track my week-to-week progress that closely, but it was a good week for me. A few of my short calls went into the red, but it was close to a Goldilocks scenario, just right for my positioning. For newer readers, understand that I tend to be a cautious trader, often taking small positions and hedging them, so a good week for me, is going to be like watching paint dry for the all-in river boat gambler types.

I did a lot of rebalancing trades. I scramble to add delta by selling puts as the market rallies. Here are the trades:

* Sell means sell-to-open, p = puts, c = calls, all are third week expiration

Fri Sell GLD Mar 130 c @119.4. I rebalance short strangles on gold on the decline. GLD had a news driven pop, but is now fading.

Sell IWM Feb 113 p @120.1. 25. Rebalance short strangles on the Russell 2000 again, as the market nudges higher. Even with this add, I am net short, with the short Feb 123 call leg deep in the red.

Buy to close IWM Feb 92 p @120.0.

Buy to close BABA Feb 105 c @86.4.

Buy to close DIS Feb 80 p @102.0

I close several positions for a 90%+ profit (basis premium collected), to free up some buying power. With my recent flurry of sell to open activity, the margin needle is in the yellow zone. I prefer keep a decent amount of dry power to allow more flexibility. The current situation means my typical strategy of selling to open naked puts on some high value stocks such as BWLD or LNKD (AMZN, NFLX even worse) might use up too much of my remaining buying power.

Thu Sell IWM Feb 112 p @119.3. I rebalance short strangles on the Russell 2000 as the rally continues to roll.

Sell BABA Feb 94.5 c @86.8. I rebalance short strangles on Alibaba as it drops. A big move down on a big rally day is a bearish indication.

Sell JWN Mar 67.5 p @79.1. I rebalance short strangles on Nordstroms by adding a March leg.

Sell HON Mar 92.5 p @102.2. I rebalance short strangles on Honeywell as it rallies.

Wed Sell DIS Mar 90 p @99.5. Add to longs on Disney as it moves higher on earnings.

Sell WHR Feb 190 p @213.0. Rebalance short strangles on Whirlpool as it moves up on earnings.

Tue I scramble to rebalance and add longs as the market continues to rally. Many options have wide spreads and I place my orders at the mid or one tick below mid and mostly get filled. I am mildly surprised by the rally.

Sell IWM Mar 103 p @118.0. Russell 2000

Sell XOM Mar 82.5 p @91.4. Exxon Mobil

Sell APC Mar 65 p @85.2 Anadarko Petroleum

Sell ASH Mar 100 p @119.9. Ashland

Sell WHR Mar 160 p @200.0. Whirlpool

Sell HON Mar 92.5 p @100.8. Honeywell

After that flurry of six morning trades, I make it seven with a trade late in the day:

Sell XOM Feb 84.5 p @92.1. More rebalancing for Exxon Mobil.

Mon Sell UNH Feb 115 c @105.9. I rebalance short strangles on United Healthcare. The stock moved up nicely on earnings, but has been fading. I have a complicated net long position.

Sell HON Mar 105 c @97.9. I hedge short puts on Honeywell by selling calls. HON had a similar pop-and-drop on earnings.

Sell SPY put backratio @199.3:

Buy SPY Apr 179 p / Sell 2x Apr 174 p

This is for a credit, delta positive, theta positive, a net long position. If the market is up or unchanged, I get to keep the modest premium. Max profit occurs if the market moves down to the lower strike at expiration. If there is a crash below SPY 169, it starts to lose a lot of money.

Sell BABA Feb 80 p @89.3. I hedge short puts by selling calls on Alibaba. My thinking, is if this was going to crash, the earnings report would resulted in follow through to the downside. The trading low is in the 82 range, IPO price 68. Both those numbers are support.

Position Summary

long APC ASH BA BRKB GDX MMM UNP VRX WFC

net long AMGN BABA FDX HON IWM SPY UNH

net neutral GLD ILMN JWN WHR XOM

net short IWM