Weekly: too clever by half

I got a bit too cute this week. I eek out a gain, but traded myself into all sorts of crap. Overall, I am still down for 2016. This week, I took a big loss in Tesoro, and got scorched by huge earnings moves in Facebook and Under Armor. 

Here are the trades (c = calls, p = puts, sell means sell-to-open, cover means buy-to-close, all are third week expiration)

Mon Sell MCD Mar 105 p 56

Sell MCD Mar 130 c 39

Sell SPY Mar 200 c 113 rebalance

Tue Sell SPY Mar 170 p 156 rebalance

Sell MCD Mar 105 p 49 rebalance

Wed Sell BA Feb 126 c 48 Boeing gaps lower earnings.

Sell AAPL Feb 105 c 28 Apple also lower on earnings.

Sell NFLX Feb 121 c 23

Cover TSO Feb 82.5 p 435 about a 600% loss

Buy FB call backratio 50 debit:

Buy FB Feb 101 c

Sell 2x FB Feb 106 c

Thu Facebook and Under Armor gap up on earnings. I buy shares to compensate for sold calls.

Buy UA shares 81.61

Buy FB shares 107.21

Sell to close IWM Feb 117 c 01 for buying power

Sell UA Feb 87 c 45 Rebalance as Under Armor fades.

Sell FB Feb 97 p 49

Sell FB Mar 97.5 p 144

Sell UA Mar 70 p 97

Sell UA Feb 75 p 61

Fri Need to free up some buying power

Cover DIS Feb 110 c 05

Cover BA Feb 140 c 05

Cover BA Feb 150 c 02

Cover TSO Feb 120 c 03

Cover V Feb 60 p 05

Cover CMG Feb 365 p 310 about a 5% profit

Cover 1x FB Feb 106 c 649 about a 1200% loss on this leg

New record high for FB and I am taking some lumps. My position after this move is extremely complicated, net long: long some shares and short a bunch of different options, and long the Feb 101 calls.

Sell FB Feb 100 p 50

Cover MCD 130 c 32 about a 10% gain

Cover UA Feb 87 c 225 about a 500% loss

Sell UA Feb 80 p 90

Sell SPY Mar 178 p 180

Weekly: Relief rally

It felt like another difficult trading week for me. I got washed out of a couple of positions (BA, USO, SPY) near the lows. Overall a positive week as I cut my losses for the year. Am now about -3.3% was at about -5% last Friday, and down about 7% at the intra-day lows this week. We'll see what next week brings. It felt like at least a minor selling climax.

Here are the trades: (c = calls, p = puts, sell means sell-to-open, cover means buy-to-close, all are third week expiration options)

Tue Morning rally is followed by a sharp sell off. I rebalance by selling out of the money calls.

Sell SPY Feb 200 c 38 rebalance

Sell TSO Feb 108 c 45

Sell GPRO Feb 15 c 23

Sell DIS Feb 105 c 23

Sell BA Feb 140 c 30

Sell FB Feb 111 c 45

Sell SPY Mar 202 c 68

Sell UA Feb 80 c 35

Sell AAPL Feb 113 c 28

Sell IWM Feb 83 p 29

Sell SPY Mar 160 p 122

Wed Cover BA Feb 125 p 545 about a 900% loss. Ouch. The strike price of the sold option is the stop.

Sell SPY Backratio:

Buy SPY May 170 p 559 gross 173 credit

Sell 2x SPY May 160 p 366

Sell SPY Feb 198 c 38

Sell NFLX Feb 135 c 51

Sell COST Feb 160 c 28

Cover USO Feb 8 p 63 about a 200% loss (missing)

Sell IWM Mar 80 p 54

Sell WFC Mar 38 p 29

Cover SPY Apr 182 p 857 about a 250% loss

Sell SPY Apr 187 p 905 about a 9% gain

(Yes, I mangled this one)

Thu Sell NFLX Feb 80 p 65 (another poor entry)

Sell BA Feb 95 p 28

Sell SPY Feb 160 p 51

Fri Sell SPY Feb 170 p 67 add to longs

Sell AAPL Feb 83 p 33 rebalance

Sell UA Feb 57.5 p 60

Sell COST Feb 140 p 70

Sell GPRO Feb 8.5 p 39

Sell NFLX Feb 130 c 49

Sell SPY Feb 180 p 140

Monthly: Still in Kansas? 41-13-2 Grade D

I count 41 winners, 13 losers, 2 break even trades for the January option cycle. Unfortunately, for naked premium sellers, losses can be enormous and gains are capped at 100%. I took a lot of big whopper losses.

Are we in a bear market? In the movie, The Wizard of Oz, Dorothy says to Toto, "we are not in Kansas anymore," after being lifted away by a tornado. It certainly feels like a bear. The indexes are closer to -10%, but many (75%?) stocks have already declined more than 20% from their highs.

I am down close to 5% for the two weeks. SPY about -8%, IWM (Russell) about -11%, GLD (gold) up 2.6%, TLT (bonds) up 4.5%. So grading on the curve, I give myself a D. For the absolute result, the grade is F. If a person loses 5% of starting capital every two weeks, the account will before October. Starting with a big loss means that it might be a very long road back for a cautious premium seller. I might make 1% in a good month.

What is done is done. I will regroup. If this is still a bull market, and we are still in Kansas, bull market strategies will eventually start to work. Buying dips, selling puts, are things that work in bull markets. In a bear market those strategies are the road to the poor house. There were a couple of sharp rallies, so shorting willy-nilly can get a person in trouble as well.

Bonds are up pretty good, but some of that is flight to safety. The sharp stock market decline is deflationary. Walmart, Macys and some other retailers have reported poor results.

I do sometimes put on a fundamentalist hat and look at PE ratios, price-to-book, total market cap to GDP, Shiller PE10. The market isn't cheap by traditional measures, even after the 10% drop from the highs. In any case, there tends to be overshoot, where the market gets quite cheap, so scaling in, rather than going all in would be the strategy if we get to that bridge.

Anecdotally, the mood at recent in-person stock market meetings has been a bit too upbeat given the market action. One young relative recently asked about opening up a brokerage account. No one I know is talking about selling all their stocks. So there is a lot of room on the sentiment side before it feels like a bottom. In 2008/2009, virtually no one was opening brokerage accounts. Plenty of folks I knew either did sell everything or strongly considered it.

Calendar-wise, January is not usually time when the market goes straight down. So this year has been exceptional. Going forward, if I can only find the yellow brick road, a lion, a scare crow and a tin man :)

Weekly: swept away

What comes to mind is a story from my youth. I would go to the beach, wade out into the water to swim. Some days the waves were big and powerful. With gentle swells a person can easily wade out. On the days with big waves, not so much. Sometimes the waves were so big that it knocked a person over. One or two times, the life guard had to come out and push me back to shore. 

 

That was this week in the stock market. I think I have the wave gauged, that I can make it. Then boom, the wave hits and it is more powerful than I anticipated and I go tumbling. I took some big losses. For the most part I followed my mental stops. With the trending move lower, losses were substantial. In round numbers, I am down about 5% in my trading account for 2016.

I traded too much, was too aggressive. Big losses in BA, DIS, IWM, TSO, VLO. Some other positions are deep-deep in the red, but haven't been closed yet. There were a few small potato winners, but overall it was a sea of red ink for me.

Mon Another wide ranging day. I get washed out near the lows on Boeing and the Russell 2000 etf. I initiate a new position in Under Armor as it moves lower on a downgrade.

Cover two legs of BA Jan 130 puts 200

one for about a 300% loss, the other at about 700%. Ouch. Boeing closed on Friday below 130 which is my mental stop level.

Sell BA Feb 145 c 53 Rebalance, I am still short Feb 125 puts.

Cover IWM Jan 103 p 167 about a 800% loss :(

Cover AMZN Jan 800 c 01 97% profit :)

Sell TSO Jan 80 c 30

Sell VLO Jan 72 c 15

Sell DIS Feb 110 c 43

Sell UA Feb 55 p 70

Sell UA Feb 90 c 15

Sell UA Jan 62.5 p 15

Sell VLO Jan 64.0 p 30

Tue I close out all my SPY puts (sell-to-close).

Close SPY Feb 182 p 170 about a 15% profit, long anticipated rally is happening.

Close SPY Mar 172 p 161 about a 17% profit.

Close SPY Apr 190 p 626 about a 16% profit

Cover (buy-to-close) DIS Jan 107 c 04 70% profit

Sell VLO Jan 65 p 18 rebalance

Sell VLO Feb 60 p 71 rebalance

Sell TSO Jan 97.5 p 27 rebalance

Wed Rally looks tepid, so I rebalance back towards neutral on the index etfs by selling calls

Sell SPY Feb 208 c 20

Sell SPY Mar 207 c 79

Sell SPY Apr 205 c 191

As the market drops, I cover some sold puts for big losses

Cover IWM Feb 101 p 211 about a 500% loss

Cover TSO Jan 97.5 p 226 about a 900% loss

Cover VLO Jan 65 p 74 about a 400% loss

Sell VLO Feb 75 c 61

Sell TSO Feb 120 c 47

As the market continues to tumble, I sell more calls, and buy some puts

Sell SPY Mar 207 c 62

Sell SPY Feb 204 c 51

Buy-to-open SPY Apr 188 p 677

Buy-to-open SPY Jan 191 p 191

sell-to-close late in the day 242 about 25% day trade gain

Cover TSO Feb 95 p 234 about a 500% loss

Cover IWM Feb 97 p 171 about a 500% loss

Cover VLO Jan 64 p 150 about a 600% loss

Cover VLO Feb 60 p 300 about a 800% loss

Cover SPY Jan 186 p 80 about a 90% loss

Thu Cover (sell-to-close) SPY Apr 188 p 776 about a 14% gain

Sell strangles: GPRO Feb 8 p 21

Sell GPRO Feb 20 c 16

Sell CMG Feb 325 p 175

Sell VLO Feb 55 p 66

Cover CMG Jan 480 c 30 about a 50% gain

Cover SPY Mar 207 c 66 about breakeven

Cover SPY Feb 204 c 52 about 10% loss

Cover SPY Apr 205 c 166 about a 15% gain

Fri Huge gap down on the open

Buy SPY Apr 187 p 827

Cover DIS Jan 97.5 170 for about a 700% loss

Sell SPY Feb 205 c 19

Sell SPY Mar 206 c 47

Sell SPY Mar 204 c 70

Sell CMG Feb 365 p 330

Weekly: Stormy weather

Wow what a week. The sky seemed to fall. Stock markets all around the world, mostly moved lower. I took it on the chin, taking some big whopper losses. I was a bit too aggressive, opening up new long positions and that added to the damage. For the week my trading account is down about 3% in round numbers. Any way you slice it, that's a log of damage.

I attended the local Canslim/IBD sponsored meetup on Thursday. The mood seemed a bit too upbeat, so more downside action might be on its way. A couple of nuggets are that corrections typical last 2 to 3 months. Say we started it on 12/28 or so that would mean March 15th as a time frame for the correction to end. If this is a bear market, 9 months is average.

However, the caveat is that we had an extraordinarily long bull market, so both the correction or bear may also be prolonged. I am following my trading rules, and taking losses as they come.

I made a lot of trades this week, a lot of bad ones, maybe two or three that were okay. Here they are: (c = calls, p = puts, sell means sell-to-open, cover means buy-to-close, all are third week expiration.

Mon 1/4/2016: My response to the steep sell off is rebalancing. All of the calls I sold this morning are balanced off by previously sold puts. I plan to hit eject if my stop loss levels are breached, up or down. The stop is usually the strike price of the sold option.

Sell DIS Feb 115 c 64

Sell IWM Feb 119 c 33

Sell BA Feb 155 c 43

Sell FB Feb 120 c 45

Sell MCD Jan 122 c 18

Sell SPY backratio: buy SPY Feb 182 p 141

sell 2x SPY Feb 177 p 97 gross credit 53 per unit

This put backratio is a net bullish position with an explosive profit if the underlying is near the lower strike at expiration. In this case another 180 is about another 10% down for SPY and would give a very high profit. An up move or sideways means I keep the credit. In a full on crash the position losses a ton of money.

Sell AMZN Jan 710 c 51

Tue Sell DIS Feb 115 c 44

Sell DIS Jan 108 c 19 rebalance as Disney continues to drift lower. I sold Jan 100 puts and it is getting close to bail out time on that leg. On a close below 100, I hit eject.

Sell TSO Feb 82.5 p 66

Wed Sell BA Feb 150 c 73

Sell DIS Jan 108 c 17

Cover DIS Jan 100 p 175 for about a 350% loss on this leg. I cover a bit early with DIS still above 100, but it looks like a dying quail at this point. I also am short some Jan 97.5 puts and a bunch of other options.

Sell CMG Jan 480 c 65 Chipotle down hard again. I rebalance my position by selling another leg of calls.

Cover CMG Jan 600 c 05 I cover this leg for no commission at 95% profit

Sell CMG Feb 550 c 179 I go naked on this leg. The news seems more serious, so buying the dips like I have been doing, seems like a really bad idea right now.

Later in the day:

Sell CMG Feb 300 p 210 strong bid on this strike, and stock seems to have found some support, at least for the day.

Sell AAPL strangles slight bearish bias:

Sell AAPL Feb 75 p 26

Sell AAPL Feb 120 c 30

I do another SPY backratio. This one brackets a 13% to 18% SPY decline into March.

Sell SPY backratio:

Buy SPY 172 c 132 gross credit 32 per unit

Sell 2x SPY 165 p 85

Buy SPY vertical put spread, a tiny bit of protection though it has a cost.

Buy SPY Apr 190 p 535 gross 183

Sell SPY Apr 182 p 352

Sell IWM Feb 117 c 27 Rebalance

Thu Sell COST Feb 170 c 29

Sell BA Jan 144 c 20

Cover BA Jan 135 p 315 for a 1300% loss

Sell DIS Feb 80 p 24

Sell AAPL Jan 105 c 22

Sell TSO Feb 130 c 51

Sell ALK Feb 85 c 50

Cover AMZN 555 p 194 for a 30% profit

Another day in the woodshed, with more red ink. My consolation prize is that my losses are not as big as some other investors.

Fri New strangle position in Valero Energy, perhaps the worst entry of a very bad week. Yikes.

Sell VLO Mar 57.5 p 92

Sell VLO Mar 85 c 43

Sell AMZN Jan 537.5 p 42

I got scared on Thursday and covered the AMZN 555's. I am getting a crumb by selling these lower priced options further out.

Cover ALK Jan 72.5 p 215 for about a 1500% loss. A big whopper loss to close out a terrible week. Monday may bring more covering for whopper losses. I will continue to follow my mechanical rules. As painful as it is to take a big loss, much more painful is letting losses go exponential and perhaps threaten the entire account.

Year in Review, 579-92-5 grade A- for 2015

For 2015 I am up about 14% in my trading account. I count 579 winners, 92 losers, 5 break even, for about an 85% win percentage. Again, for new readers that isn't remarkable because that's about the probability of the trades I initiate. The other side to a high win percentage is that losses can be big, and gains almost always very small. The bigger picture for 2015, is +14% is very good as compared to buy-and-hold in most asset classes. Here are a few etfs, best to worst:

SPY -0.8% S&P 500

TLT -4.3% U.S. 20-year bonds

IWM -5.9% Russell 2000

GLD -10.7% Gold

SLV -12.4% Silver

EEM -18.1% Emerging markets

For average investors, 2015 was a year to preserve capital. Sure, on the Internet you'll read reports from braggarts (some real, some paper traders) with enormous profits. Just keep in mind that it is like fish stories often selective memory and inflated imaginations. On the Internet, losers tell few tales.

As low as bank CD rates are, they did better than most asset classes. SPY edged out a 1.0% bank CD rate after factoring the 2% yield. Everything else on the etf list lost money. As always, predictions are more about entertainment (and sometimes selling subscriptions) than making money. The U.S. stock market does feel top heavy. A very few stocks seem to be leading while there are land mines all over the place for would-be bulls.

Perhaps a bigger question than the direction of the stock market is the bond market. 2015 saw some cracks in the armor. Will there be a slaughter? Or a slow down trend? Or something else? Bond market bears may have made modest amounts of money, but there were big drawdowns if they stayed bearish all year. I would not be in any hurry to buy precious metals. The bear markets tend to be long and drawn out and the bull often offers many chances to buy. A person probably won't buy near the lows, but buying near the lows tends to be a high risk, low percentage play. I prefer better percentage odds, even if it means missing some of the move.

One big thing that I worked on in 2015 is focusing on process not results. This idea comes from pro golfer Bubba Watson. Mr. Watson used to get upset after missing a putt, or shanking a shot. So upset, that he would often make several emotion unforced errors. This was similar to me, that I would experience an inevitable loss and overcompensate, or trade emotionally. Instead, I will focus on staying calm. Losses are inevitable. Letting those losses cause unforced errors is something I can work on.

Predictions are mostly for entertainment. With that disclaimer here are a few of mine. U.S. stocks flattish, not unlike 2015. U.S. bonds, more of a slow errosion. Same for gold, the gentle drift down continues. As always, I find it more useful to listen to the market, look at the charts, then to try and predict. Directional trading is not my strength. Slow and steady turtle or chicken kind of trading is what I tend to favor. Once in a great while I may take a shot, but most of those turn out to be whiffs.

Happy new year to all. May 2016 be the best year ever.

Two weeks of trades

Like some folks, I was too busy with holiday activities to pay much attention to the markets. I did manage about an hour per day, total time, to do a few trades. Almost all are the same as the recent past. Selling way out of the money premium. Rebalancing if there is a big move. Taking the loss if the underlying crosses the strike price.

Here are two weeks of trades. My yearly update will be posted soon. (c = calls, p = puts, sell means sell-to-open, cover means buy-to-close, all are third week options unless noted).

12/28/15 Mon Sell IWM Feb 97 p 36

Sell IWM Feb 123 c 17

Sell DIS Feb 90 p 58

Sell COST Feb 140 p 47

Tue Sell BA Feb 125 p 62

Sell MCD Feb 105 p 60

Sell FB Feb 85 p 50

Sell IWM Feb 101 p 41

Wed Sell BA Jan 135 p 26

Thu Sell AMZN Jan 745 c 65

Sell MCD Jan 130 c 40

12/21/15 Mon Sell COST Jan 145 p 50

Sell DIS Jan 115 c 53

Wed Sell DIS Jan 112 c 43

Sell BA Jan 130 p 31

Sell CMG Jan 385 p 150

Sell CMG Jan 600 c 50