Weekly: new highs

New highs might be in a tiny font because the fanfare is subdued. While there are stirrings of the public getting in, most people on the street still have a tepid attitude towards what has been one of the great bull markets. Some big company earnings came out this week. I did okay with my FB earnings play, new longs in SKX STJ, new short strangles in CAT HAR KORS LOCO UA. (p = puts, c = calls, sell means sell-to-open, all are third week expiration unless noted).

Fri Sell FB May 88 c @82.1. I hedge the May 75 puts I sold a while ago, by selling calls. This gets me to near neutral. The big up days in AMZN, GOOG, MSFT likely means a lot more attention for those stocks and less for Facebook.

Thu Close FB backratio @83.9: sell May 85 c / buy 2x May 90 c

FB earnings a bit disappointing. I was hoping for a couple of bucks of rally. I see any profit when buying premium going into earnings as a good thing, so I get out very early in the day for about a 45% profit after the substantial commissions. Using a baseball analogy, I swung hard, and ended up with a bloop single off the end of the bat. It looks like I could have done better by waiting 20 minutes as FB goes green for the day. If my "bad trades" are coming in at +45% it is going to be a great year. The three other FB legs where I sold premium doing great on the flat report.

Sell CAT May 80 p @86.2 New long position in Caterpillar. CAT up on earnings. Not much premium in these puts, but I am giving myself some room. About an hour later, CAT now in the red, I sell May 89 c @84.2 19 to turn it into a short strangle. Another earnings pop that turns into a flop. Grrr.

Sell HAR May 125 p @147.1. Rebalance short strangles in Harmon Intl car audio supplier. HAR continues to move up after its break out on earnings.

Sell SKX May 80 p @86.2. New long position in Sketchers (sneakers). SKX up on earnings, followed by two analyst upgrades. Another pretty chart formation.

Wed Sell FXI Jun 45 p @52.2. Rebalance my position in the large cap China etf by opening a June position. On the chart, 45 is the 50 day moving average.

Sell STJ May 70 p @73.1. New long position in St. Jude Medical. STJ up on earnings. The chart is a beautiful text-book breakout pattern from a flat base.

Sell UNH May 125 c @117.5. Rebalance short strangles in United Healthcare. UNH not acting well. Recent high is 123.8.

Tue Sell FB May 75 p @84.3. Rebalance a complicated position in Facebook, back to net long, as FB rallies ahead of earnings.

Sell PANW May 135 p @149.9. Rebalance short strangles on Palo Alto Networks as it breaks out from a chart base. This gets me to net long.

Sell BRKB Jun 130 p @142.1. Add to longs by opening a June position in Berkshire Hathaway.

Sell FXI May 46.5 p @51.7. Rebalance short strangles in the large cap China ETF as it bumps higher.

Sell UA strangles: May 75 p / May 90 c @84.0.

New short strangle with a bearish slant on Under Armor. UA down after earnings.

Sell KORS May 67.5 c @62.4 23. I hedge yesterday's newly sold puts by selling calls on Michael Kors.

Mon Sell HAR strangles: May 120 p / May 165 c @143.2

Harmon International, car audio supplier is up after an analyst upgrade. Earnings due out in early May so volatility is elevated on the May options. A short strangle is a bet on a trading range.

Sell LOCO strangles: Jun 23 p / Jun 35 c @28.7

El Pollo Loco is a regional restaurant chain. I like the 23 price point on the chart. LOCO a bit extended on the upside so I hedge by selling otm calls.

Sell KORS May 60 p @62.0. New long position in Michael Kors, clothes, purses, accessories. KORS down on analyst downgrade. Chart looks like it may be capitulation, with another down day on the news, after a long down trend. This is much closer in than I tend to sell puts.

Position Summary:

long: APC ASH BRKB DIS SKX STJ VRX XO

net long: AMBA FXI HON JPM KMX PANW 

net neutral: CAT FB HAR IWM KORS LOCO SPY UA WHR 

net short: JWN UNH

Sell in May? 57 - 3 - 1 for April, grade A-

Another month of solid gains. I count of 57 winners, 3 losers, 1 unchanged, for the April option cycle, grade A-. Stock market consolidation can be good for option premium sellers. Some ways I have been evolving is doing a few more weekly options, and trading some big name stocks. I still do mostly traditional third week of expiration, but occasionally find something in the weeklies. In the past, I haven't had good experiences trading some of the big name option stocks such as Apple or Tesla. 
 
Again, for new readers, don't get too excited by the high win percentage. 80% to 90% is expected for my style of trading. The option buyer is hoping for a big 10x payoff, with only a 10% chance of profit.

The big question on many minds is whether sell in May and go away will work or not this year. Back in May 2014, I wrote "Tea Leaves for a Market Top." I keep going back to that. Some pieces of the puzzle are now present. The transports (IYT) are diverging from the overall market (SPY or VTI). The local stock market meetups are full of people. The Santa Monica meetup has to turn people away. Newbies are coming into the market. The main piece that is missing is the inverted yield curve. Quantitative easing in Europe and expansionary monetary policy in much of Asia remain big engines driving the global markets. 
 
The U.S. Fed is getting ready to tighten. There have been many articles about how the stock market keeps going up after the first Fed rate hike. The cliche I learned is two steps and a stumble, meaning the market goes down after the second rate hike. With so many people playing this game, it might be a good idea to leave the party early. No need to stay for the very last dance. However, the market's last bull phase can be rewarding as speculative behavior can be excessive. Some might say it is already that way, but only in hindsight will we know for sure.

I'm almost always cautious, but even more caution might be a good idea. For the most part, stock market bears have been frustrated. There are a few isolated stocks that have had decent down moves, but pickings have been slim and difficult. In the last days of a bull, the action can be choppy, so timing the tops is an extremely difficult game.

For now the bull market is still in force. The last piece of the bear market case, perhaps the most important piece, is an inverted yield curve and that tends to happen with Fed rate hikes. Some may wait for stock market technicals to confirm the down move by breaking below some long term moving averages. If it is a shallow correction, instead of a bear market, those moving averages can be good times to buy. Again, we won't know if it is correction or bear market until the dust settles.

Weekly: boat limps into harbor

It felt like a very long week, mostly due to the action on Friday. The down move has my boat limping into expiration harbor after the storm. I survived okay, but it wasn't smooth sailing. 

A few highlights include a new position in JPM, some damage control in XOM, adding long to FB ahead of earnings. I am up a bit for the week. TSLA was a lot of the gain, as all five April legs sold on TSLA came in profitable. UNH earnings came in good, HON not so good. 

I'll post the monthly round up in another day or so. Here are this week's trades (p = puts, c = calls, all are third week expiration unless noted):

Fri Sell JPM May 65 c @63.2. I hedge the Jun 60 puts I sold, by selling May 65 calls on JP Morgan Chase. With a new Star Wars movie trailer in the news, I paraphrase Hans Solo, "I have a bad feeling about this," with SPY down hard on news from China.

Sell HON May 105 c 101.7. Honeywell down after earnings news. The layers of April options I sold look to be safe, but I have a half position in shares that I am hedging by selling calls. I bought the shares when I was short 105 Mar calls and HON went to 106. It hasn't exactly worked out as planned. Despite some poor timing, I am still up a bit for 2015 tallying up all the trades for HON.

Sell UNH May 130 c @119.4. United Healthcare was up on earnings the other day. I sold some May 110 puts, and am hedging those by selling calls.

Sell FB AprW4 90 c @81.2. I reduce delta on a complicated position in Facebook by selling these earning's week calls (earnings out next week, these are week four options).

Cover (buy to close) TSLA Apr 190 p @203.7. Cover Tesla puts for a few bucks to free up buying power.

Sell JWN May 82.5 c @77.6. Nordstroms not acting well, lagging the retail etf, so I am hedging sold puts by selling calls.

Sell FXI May 58 c @50.0. Hedge sold puts by selling calls on the China ETF.

Later in the day, I cover some puts, just in case there is a knife down at the close. I am in no mood to "dance with the devil" on expiration day.

Cover (buy to close) COST Apr 140 p @143.6]

Cover (buy to close) FB Apr 79.5 p @80.6

Cover (buy to close) TSLA Apr 197.5 p @204.5. 

The market rallies a bit into the close, so my precautionary moves cost me a buck, two or three on some of these contracts. Rule #1 is live to trade another day, Ninety minutes ago there was little way to tell if the closing action would be wild or mild.

Thu Cover (buy to close) XOM May 82.5 p @87.6. I got head faked yesterday, closing out short May 90 calls on strength. I decide to cut my risk and bail from this leg of Exxon Mobil for break even. I don't have a good feel for XOM at the moment. When in doubt get out.

Sell UNH May 110 p @121.4. United Healthcare up on earnings. My short strangles for April look to be safe. I rolled the dice holding through earnings and rolled a 7. All the April legs look relatively safe with only one day left and earnings news out.

Wed Cover (buy to close) XOM May 90 c @88.4. Exxon Mobil up again today. I cover this leg for about a 300% loss, basis the premium collected. I am doing this so that the loss from this leg doesn't exceed the gain from selling other legs, so the overall position comes out okay. Some might say this is convoluted logic. My thinking is that if my bad trades tend to be near break even, it will end up as a good year.

Tue Sell PANW May 165 c @144.2. I hedge my short May 125 puts by selling calls on Palo Alto Networks. Earnings are after May expiration, and I don't see it breaking out of its base before then.

Sell XOM May 82.5 p @87.0. I rebalance short strangles on Exxon Mobil as it rallies. I am short the May 90 calls, so it is getting a bit uncomfortable.

Cover (buy to close) HD Apr 105 p @114.0. Cover for two bucks for buying power.

Sell JPM Jun 60 p @63.1. New long position in JP Morgan Chase bank. JPM up on earning. I like the chart pattern. I am selling puts further out in time and closer in price than I often do, because the setup looks very good. I will see if this works or not. When timid traders get a bit more aggressive, sometimes they get burned.

Mon Sell TSLA Apr 197.5 p @212.1 Rebalance my position in Tesla Motors with yet another layers of puts as TSLA creeps higher. My short calls are a 222.5.

Sell FB AprW4 74 p @83.4. I add more delta as Facebook moves higher. These expire after earnings, so implied volatility is elevated. There is a thick band of support on the chart at 77 and lower. I have a complicated position in FB, net long. 

Position summary:

long APC ASH BRKB DIS VRX WHR XOM

net long AMBA HON IWM JWN JPM KMX UNH

net neutral FXI PANW SPY 

 

expired/closed AAPL BA COST FDX HD LOCO MNST TSLA

 

Weekly: AAPL FB TSLA FXI

I figured some big name ticker symbols might get some attention. I initiate complicated positions in Facebook and Tesla Motors. I dipped my big toe in the water with new longs in Apple and the China Large Cap ETF. Stock market is up about 1.6% for week, which is a pretty good week. With the gap down on Monday after the Good Friday employment report, aggressive bears got skewered. Traders that keep trying to call a trading top have to be discouraged at the up week after a gap lower open on weekend news. 

 

I was tempted to use the topic header Spring has Sprung. After a couple of tepid weeks, making only a few trades, I made a bunch of trades this week. I already gave the highlights, so on to the trades. (p = puts, c = calls, all are third week expiration unless noted).

Fri Sell FXI May 44 p @50.2. New long position in the China Large Cap ETF. On the chart, 44 is the break out base. 44 is also at the 10% probability line, where I prefer to establish new positions.

Sell AMBA May 60 p @76.3. I add delta to a complicated position in Ambarella as it moves up. AMBA is a supplier to GPRO and some police camera makers. Probably moving up on news of more orders by police departments.

Thu Sell FB Apr 79.5 p @82.6. I add delta to what has become a complicated position in Facebook.
Cover (buy to close) XOM Apr 75 p @84.2. Close a layer on Exxon Mobil for a buck per, to free up buying power.

Wed Sell TSLA Apr 190 p @210.2. Tesla gaps up and I rebalance again.

Sell PANW May 125 p @146.0. I open a May position in Palo Alto Networks.

Cover (buy to close) 2x SPY Apr 174 p @208.1. I free up some buying power by covering this leg of the put backratio for a buck per contract. I am to the yellow line on buying power, this gives me more room to maneuver.

Sell JWN May 72.5 p @80.1. Add to longs by opening a May position in JW Nordstroms.

Sell WHR May 165 p @195.0. I open a May position in Whirlpool. WHR down in sympathy with Electrolux which says appliance sales are weak.

Cover (buy to close) DIS Apr 95 p @106.0. Cover this layer on Disney, for a couple of bucks to free up money.

Sell FB call backratio / 

Buy May 85 c / Sell 2x May 90 c @82.2

I add to longs in Facebook with a call backratio, which is something new for me. This is a debit spread, max profit occurs on a move to 90 at May expiration. Unchanged, down or a big rally past 95 makes for losses. Delta positive, theta slightly negative, small debit. Why this? I am bullish on Facebook, but think any earnings rally will meet resistance at 90. Past moves have been more like 5 points. A five point rally would be good for this position.

Cover (buy to close) IWM Apr 110 p @125.5. Russell 2000 cover, to free up money.

Tue Sell BRKB May 135 p @143.9. Add to longs by opening a May position in Berkshire Hathaway.

Sell KMX strangles May 67.5 p / May 80 c @73.9

Car dealer CarMax recently gapped up on earnings. The last couple of times it did that, KMX drifted lower, but not quite filling the gap. A short strangle is a bet on a trading range.

Sell TSLA Apr 222.5 c @201.5. Tesla Motors moving lower after a big up day yesterday. I go net short by selling calls (was short puts). I now have a short strangle. By the time I type this, TSLA goes green for the morning. Sheesh.

A few minutes after selling the calls I rebalance by selling another layer of puts:

Sell TSLA Apr 185 p @203.4. (shakes head) Readers can see this as Exhibit A as to why I favor delta neutral, high probability option selling vs. buying premium and being directional. My intra-day timing is often poor.

Sell DIS May 95 p @106.0 I open a May position on Disney. On the chart, 95 is the old breakout level.

Sell VRX May 145 p @200.5 I open a May position in Valeant Pharma, way way out of the money to the 93% probability line. 145 is an old break out level on the chart.

Mon Stock market gaps lower at the open, but now is up for the day.

Sell FB Apr 77.5 p @81.7. New long position in Facebook. FB tried to break out from a base and is now back down. I see 80 as chart support, 79 is the 50 day moving average.

Sell TSLA Apr 175 p @202.5. New long position in Tesla Motors. TSLA reporting a 55% year-over-year sales gain. TSLA tested chart support and on the news is popping up. I am going way out of the money, to give myself lots of room. This means a higher probability but a much smaller premium (profit).

Sell SPY backratio @206.5: buy Jun 185 p, sell 2x Jun 180 p I sell these put backratios on SPY as a hedge against a 10% correction for my net long portfolio. If the market is up or sideways, I keep the small credit. If there is a 10% decline into expiration, there can be an explosive profit. If SPY crashes through the lower strike, losses occur. These add delta (net long).

Sell AAPL Apr 119 p @127.0. Renewed long position in Apple. Market rally continues to gather steam. 120 is chart support. Premium is tiny, but the market has been so choppy, I am giving myself some room.

Sell XOM May 77.5 p @85.1. Rebalance short strangles on Exxon Mobil back to net long.

Later in the day I add some more delta (add to longs):

Sell APC May 72.5 p @86.3. Add to longs on Anadarko Petroleum with a May position.

Sell IWM May 114 p @125.3. Rebalance short strangles on the Russell 2000 etf.

Position Summary:

long AAPL APC BRKB FXI HD JWN LOCO UNH VRX

net long AMBA FB PANW WHR

net neutral BA COST DIS FDX HON IWM KMX MNST SPY XOM

net short TSLA

Trading Styles

If you are looking for the typical weekly trade summary, it is right under this post. With the market holiday, time for a rare bonus post. I don't give specific advice. However, I often tell novices that there are thousand ways to make money in the markets, and for each person to look for one or two that work for you. What works for me, may be a terrible fit for you, and vice-versa. So this post is about a few different styles.

My style tends to be low risk, low reward, high probability. I use a mix of technicals and fundamentals. My analysis tends to be shallow. I tend to have a lot of small to tiny positions, and I tend to use mental stops.

Classic trading training involves 33% winners, 66% losers, but with small losers and big winners. The CANSLIM method teaches this kind of risk management. With 7% stop losses and 20% gains as the first price target. So even if a trader loses 2 out of 3 times, it they are losing 7% on the losers and making 20% on the winners, they net out to plus six percent.

Some traders like charts. Others like to trade news. In the old days, there tape readers. These old timers could watch the ticker and get a good feel for the market or for their stocks. There are those that invest (rare for traders) mostly on fundamentals.

At the recent CANSLIM meetup, there was some discussion on concentration. IBD, CANSLIM, William O'Neill teach concentration. Maybe 5 stocks in the portfolio, no more than 10. 

Some at the meetup focus even more, perhaps putting half or one-third of their entire cash account into one position. Age plays a role. A young person with a high income, stable job, high savings rate, can take more chances. They will quickly replace any losses with new savings. 

Someone with limited income, or perhaps a big nest egg from an inheritance or other one-time event, would probably do better taking smaller risks and diversifying.

Indexing is as popular as ever. Search on Three Fund Portfolio, or Lazy Portfolio to get an idea of what that is about. The biggest colony of indexers call themselves Bogleheads, after Jack Bogle, founder of Vanguard. These folks keep it simple. They write out an Investment Policy Statement, and stick to that. Typically that will set an allocation for various asset classes (most stick to stocks, bonds, and international stocks), and what they plan to do if and when the market moves a lot. Whether to rebalance into a weak class or hold firm.

For technical traders there are many sub-types. There are trend followers, range traders, scalpers, home run hitters. Some use simple analysis. I tend to mostly look at a few moving averages, support and resistance and maybe a momentum indicator. I don't get heavy into indicators. Many beginners are attracted to stochastics. Bollinger bands, MACS are two more very popular tools. I never found much value in Elliot Wave theory, but others have been successful with that.

So if you are a beginner, try a lot of different things. Do you like reading balance sheets and digging through fundamental data, perhaps using screening tools? Do the charts "speak to you," or does it mostly seem like an arcane art. Do you have a high tolerance for losses, or is a high probability style with occasion big losses more suitable? Obvious the financail "unicorn" is high probability and high profits, but if a person had that, they wouldn't be reading my blog.

There are few rights and wrongs. There isn't a one-size fits all. Traders (and investors) can be successful using almost anything. What works for one person may be a terrible fit for another person. Keep a trading journal. Find what works for you.

Weekly: chop chop

For those that celebrate, Happy Easter and Happy Passover.

The market continues its choppiness. I get chopped up a bit more in UNH. UNH gapped higher on news, then gave that all up, and I traded against the moves and it cost me a bit. I opened up some May strangles on AMBA, IWM, and XOM. I add to longs in ASH. That's it for a quiet week for me. Futures gapped lower on the Good Friday employment news, so next week may be interesting.

Here are the trades (p = put, c = call, sell means sell to open, all are third week of expiration):

Thu Sell AMBA strangles: May 60 p / May 95 c @74.9

I sell May strangles on Ambarella. AMBA has been a strong stock. It is a bit extended on the upside. The strangle skews towards the bullish side.

Sell XOM strangles: May 77.5 p / May 90 c @84.4 

I sell May strangles on Exxon Mobil. XOM seems to be finding a bottom, but upside seems limited. This strangle also skews bullish.

Sell ASH May 110 p @127.3 35 I add to longs by opening a May position in Ashland.

Wed Sell IWM strangles: May 111 p / May 132 c @124.0

I sell strangles on the Russell 2000 etf. This is a bet on a trading range. The put is near the 90% probability of profit line, the call at 93% probability.

Mon Sell UNH Apr 115 p @122.2. Rebalance short strangles on United Healthcare. When is good news, bad news? When you are short calls and the stock gaps higher. Cheese. I am short 124 and 125 strike puts. Will close each on a close above each price level.