Sell GLD (sell call calendar spread)

Sell GLD by selling my May/Jun 147 call calendar spread, GLD @147.8 when trade filled. I net a 45% profit after spreads and commissions. As usual, while the percentage gain is impressive, the dollar amount is small. As GLD moves above the strike price, the spread starts to decrease in value. Each part, the May 147 call, the Jun 147 call and the calendar all went up.

The calendar has the advantages of positive theta (time decay works for me) and lower cost and a smoother ride vs. buying straight calls. A negative for calendars is two bid/ask spreads, two commissions each way. If there were no commissions, no bid/ask spreads, like paper traders might report, or some option training programs permit, the profit might have been more like 65% instead of 45% on the exact same trade.

I am still long GLD via being short some May and Jun puts.

Long EEM, GDX, GLD, IWM, SPY, TBT/TLT
TBT/TLT = short strangle on TLT

Silver: time and price

Silver futures /SI on ThinkorSwim neared the sun at $50 yesterday and fell back. Many are trying to predict how low it will go on this first pullback. I often write that when price is uncertain, look at time. On the /SI chart, the futures made a run towards $30 on 11/9/10 and fell back for five days.

It took two more runs at $30 to break through. The second run at 12/6 took out the level, but again fell back for a period of consolidation. The third try 12/31 went a little high, but actually resulted in a longer and deeper correction of three weeks.

With so many looking at price levels, time may be as good an indicator here. Next Monday 5/2/11 is five days, and may see a first bottoming attempt for silver.

Looks like I would have been done better waiting on my GDX and GLD puts sales from yesterday. I haven't hit too many trades solidly square lately.

Buy GDX and GLD (sell puts)

Buy GDX via selling Jun 51 puts, GDX @61.3. I open a Jun position. The low for calendar 2011 is 52, so a move to the strike would mean the entire year's gain is given up. Another low risk, low reward, bullish bet. Volatility on SPY is way down, but still about 37% on these way out puts.

/edit to add: I also buy GLD via selling Jun 134 puts, GLD @147.2. Support at the breakout level of 139 and the dip at 135. I also have a lot of thoughts about SLV, but it is moving too fast for me.

Long EEM, GDX, GLD, IWM, SPY, TBT/TLT
TBT/TLT = short strangle on TLT

Change in fashion

I find an interesting discussion on the Vanguard forum about changes in suggested asset allocation (link).

From that discussion:
>>
... evidence of faddishness and trendiness in investment advice. In 1989, we were being told that retirees should have 0-20% in stocks, 50% bonds, and 30%-50% cash. Today, Vanguard Target Retirement 2010 would put someone at retirement in 47.53% stocks, 51.94% bonds, and a whopping 0.53% short-term reserves ...
>>

This is normal human behavior. Every age will have investment cliches that may or may not be sound. Way back in the 19th century, the advice was to "never sell consuls [British bonds with no expiration date]," then World War I and II happened and the sun set on the Empire and the bonds weren't so good to have any more. Things change.

More recently there has been a lot more recommendations towards international investments, mostly stocks, but now international bonds are coming into fashion. Even more in the news is the current run for silver and gold. Will the Bogle-heads ever acknowledge metals? Probably not any time soon, however, the permanent portfolio folks have, and do, and it is similar approach though with a 25% weighting to gold (link to gyroscopic investment forum).

Wouldn't it be great to know what the gurus will be recommending in 2030? Odds are that it will be widely different from what is in fashion now, just as the allocations changed so much from 1989 to 2011.

Buy SPY (sell puts)

Buy SPY via selling Jun 119 puts, SPY @133.8. I open a June position on SPY. I am already short several layers of May puts (bullish bets) and have a Jul vertical put spread (bearish bet) as a hedge. SPY looks like it wants to spend some time basing at the recent highs. Support at 130 and 125.

GLD nearing my target of 147. I may let it drift a bit higher before exiting my calendar spread, because time decay is in my favor as I am short the May 147 calls, and long the Jun 147 calls.

Bonds have been volatile this week due to the S&P outlook. I still think a range is the most likely scenario and have positioned myself accordingly.

Long EEM, GDX, GLD, IWM, SPY, TBT/TLT
TBT/TLT = short strangle on TLT

The race against yourself

A guy on the radio talks about the race against yourself. It is a totally different context than trading, but it is a worthy topic. Another similar title that I've been thinking about is the "fear of missing out."

In trading, there is almost always someone who has a higher rate of return over any given period. With every monthly summary, I can point to trades not taken, or gotten out of too early, or slightly better timing that would have yielded huge gains. That is the nature of options when a doubling or tripling in a week, can be common.

Risk and reward often go hand in hand. The fear of missing out, is another phrase to describe greed. When a stock or ETF rockets higher, or lower for that matter, a lot of folks will want in, due to greed. When to chase the rocket, and when not to, tends to be clear in hindsight. In real time, those kinds of decisions might be determined by trading style or trading system, and/or by years of market experience.

Some traders do well following trend, others do better trading counter-trend. That's part of the race against yourself, that inner game of knowing yourself and knowing what kind of style, what kind of system might work best for you. Personality, risk tolerance, pain tolerance, available capital, are all factors into trading style. A good or poor memory, attention to detail, ability to pull the trigger, quick thinking vs. slow analytics and seeing the bigger picture are some more factors.

Especially for novice traders, a trading journal can be an extremely valuable tool. That's one reason I do this blog, it is a public trading journal with a record of my short term trades. If a novice trader writes about every trade, and then takes time to look back, they will start to see what kind of trades work for them. Over time a trader will develop a style that fits them, that works for them.

Some folks, aye, most folks would do better taking the other pill, and go with low cost indexing, the Vanguard way, and forget about trading. Just as options are not for everyone, position trading is not for everyone either. Day trading is for an even more select group, especially as the skill required and capital required grow ever greater as computerized "Watsons" dominate the day trade with an average holding time of 13 seconds and profits that might average 1/8 of a cent per share.

Long time readers know that I like to use baseball analogies, that I see my trading style like that of a singles hitter, striving for a high batting average, with few home runs. Bunt singles are a fine thing for me, but beyond boring for big home run hitters. For the race against yourself, golf might be the best sports analogy. While a person might compete against others, a golfer has to focus on that inner game, and keep a calm and clear mind to succeed at golf.

7-1 for April

Seven winners, one loser for closed trades during the April option cycle. The one loser was a bearish vertical put on SPY. By legging out of the trade, the overall loss was small. The winners include 3 other short puts on SPY, and short puts on GDX, GLD, EEM, TBT. All the short puts expire worthless, so the gain is 100% on the trade amount. The return based on margin required is in the 2% range for most of the short puts.

The good news is April is my best trading month of the year so far. That is faint praise because while I made profits every month, the pickings from Jan to Mar were meager.

Some new readers might ask why I bother selling way out of the money puts for small premiums. The answer is: the high probability of success, and continued heavy skew on puts making them trade for more than historical volatility would indicate. In plain English it is a slow nickels strategy, vs. fast dollars directional gunslinging. Some think of it as being paid to put in a bid at or below support. If there is an immediate sharp drop, the put seller is assigned and buys the underlying.

Yes, if a trader goes to full leverage and sells naked puts on exchange minimum margins it can become a highly leveraged, risky strategy. That is not my style, I tend to move slowly, do layers of different strikes, different months, hedge by buying an occasional option or vertical. If the market turns turbulent, I will use stop-losses. I also may occasionally take a shot on a low probability high reward trades.

Buy TLT/TBT (sell strangle)

Buy TLT via selling Jun 85 puts TLT @92.6. I am buying the bond rally. As I mentioned before May/Jun are two of the best months for bond seasonality. I am already short TLT May 86 puts. I also sell Jun TBT 33 puts with TBT @36.7 to make the position equivalent to a short strangle on TLT or a bet that bonds stay in a range.

Long EEM, GDX, GLD, IWM, SPY, TBT/TLT
TBT/TLT = short strangle on TLT

Buy SPY (sell puts)

Buy SPY via selling May 119 puts SPY @131.7. I add another layer of short puts. SPY down five days in a row, finding some support at the 50 day moving average. I also expect tax refunds to continue to flow into the market. I am already short May 107 and May 117 SPY puts, and have some more SPY positions, netting to slightly long SPY. Support at 125, 123, 120 and 118.

Long EEM, GDX, GLD, IWM, SPY, TBT/TLT
TBT/TLT = short strangle on TLT

$1 million in SLV put options?

Making the rounds is a story about a large put option purchase on SLV (link).

>>
A trader’s almost $1 million bet that an exchange-traded fund tracking silver will decline by July was today’s biggest single options trade on U.S. exchanges as futures on the metal reached a 31-year high.

The 100,000 puts, or options to sell 100 shares each of the iShares Silver Trust (SLV) at $25 by July, changed hands at the ask price of about 10 cents and exceeded the open interest of 6,054 outstanding contracts before today, indicating that a buyer of a new bearish position initiated the transaction.
>>

There is a chance that this is the whole story, but unlikely. Option traders prefer complexity, and often hedge one position against another. I'd put the odds at 95% that this is the case here, that the reported trade is part of a more complex strategy. My most likely guess would be a collar, financing the purchase of the puts by selling out of the money calls, while being long the underlying. A collar is a conservative bullish position with limited upside and crash protection, not a bearish bet.

Elsewhere in the news, PIMCO is reported to be shorting U. S. Treasuries (link2), and Goldman Sachs is reported to be telling clients to get out of oil (link3). I doubt that these stories are revealing all.

The old spy cliche comes to mind: "trust no one," especially news headlines, especially when they are about options.

Options 201: calendars vs. verticals

I am liking spreads more and more. Spreads typically involve two options. A vertical is the same type of option, same month, buying one strike and selling a different strike. A calendar involves the same type of option, different month, same strike, buying one month, selling a different month.

Lets look a bit closer at verticals, vs. calendars, vs. buying straight stock, vs. buying straight calls.

The purest play is just buying the underlying stock or ETF. Delta is 1, theta is not an issue. Downside is to zero.

Buying calls at the money, the delta is .5, theta is negative, especially for front month calls. Profit potential is high. Downside is the price of the option or 100%, but the option cost a small fraction of the underlying. If the stock stagnates, you lose money every day due to time decay.

The vertical has slower time decay than just buying the lower strike call. The trade off is less upside, max profit is the width of the vertical or the difference between the two strikes. The cost can be much lower than just buying straight calls.

The calendar has little to no time decay. Depending on the options chosen, theta may start out positive. The max profit price target is right at the strike, vs. way past the upper strike for the vertical, or buying one call option. The downside is that the max profit is lower than a same cost vertical, and if the underlying jumps quickly, the calendar becomes a loser.

So most bullish is just buying the underlying stock, but this isn't capital efficent as there isn't any leverage. Buying calls limits downside, and has rapid time decay. Buying a vertical call spread is cheaper than buying calls, and slows the decay. Buying a calendar means no time decay (though it varies based on options selected), and pushes the max profit zone to a closer price target, has less max profit than the vertical and also turns into a loser if the price jumps way past the strike quickly.

For example, I recently bought:
GLD calendar May/Jun 147 calls
Selling GLD May 147 calls
buying GLD Jun 147 calls

Another choice might have been
GLD vertical Jun 147/152 calls
buying Jun 147 calls
selling Jun 152 calls

Other bullish choices might be just to buy straight calls, or straight stock, or my other favorite, selling puts. For each choice there is a trade off, in terms of time decay, and cost vs. max profit and profit zone. The good news if that a person understands verticals and calendars, there is nothing more to learn. The more complex strategies are layers or combos of those.

/edited: correction made, calendars are actually positive theta benefitting from time decay, also added a link below to some free options videos, though registration is required. Option Industry Council webcasts on option basics and strategies
link

Buy GLD (calendar call spread)

Buy GLD May/Jun 147 calendar call spread
GLD @141.7 new all time highs today.

GLD breaks out from a base. My target is 147, which would correspond to $1500 for physical spot. Profit range on the calendar spread is 4 points around 147, or 143 to 151. So it bullish, but only mildly bullish. Time is a factor too, May expiration would be the best time to land on 147. Decay eats away if GLD stagnates here.

A calendar spread consists of buying the out month, and selling the earlier month.
Buy GLD Jun 147 calls
Sell GLD May 147 calls

Long EEM, GDX, GLD, IWM, SPY, TBT/TLT
TBT/TLT = short strangle on TLT

Hui: chasing premium

Cam Hui writes about the risk of chasing high option premiums when doing buy-writes (link). Similar caveats apply to those chasing high yielding stocks.

>>
the lure of free money brings out the worst in people. I think that one key area of that is the seeking of yield.
>>

I've been burned more than a few times chasing premiums. The most memorable was one time I escaped, and that was the weekend before Lehman. The stock was trading in the 30s, and front month LEH 10 puts still had decent premium. I figured it was "free money," I mean Lehman wasn't going to go from 30 to 10 over one weekend? Well, it went to about 3 the next week. It was a valuable lesson, and that particular one didn't even cost me anything.

Sometimes the market knows more than is being revealed. The closest thing to a free lunch might occur when Barrons or some brokerage house recommends a specific option trade at specific strikes. A bunch of newbies see that and get in, and pay up. Get on the other side and it is typically only a few bucks of extra premium, but it is often enough to buy that happy meal.

More on permanent portfolio

The concept of a permanent portfolio was popularized by Harry Browne. Here's another person's allocation for a permanent portfolio (link).

If I were asked, I would tend to favor something simpler for average folks. The simple Simon version is 25% each in stocks, bonds, gold, money markets or CDs, and rebalance using bands or once a year. If using ETFs 25% to VTI (Vanguard Total Stock Market) or perhaps split some to VXUS (Vanguard Total International), BND (total bond market), GLD (or PHYS), SHY or just money in the account. Simple is often better for long term investors.

Even simpler might be 50/50 VTI/BND for the investment account, some CDs and some physical gold. Again rebalancing one a year or with bands (a large market move in one or more sectors triggers a rebalance). Rebalancing is easiest if done with new money coming in, as that doesn't require selling and the taxable event in taxable accounts.

The one linked tends towards to lean towards what is hot right now, and anti-dollar themes. To illustrate the point about tilting towards the news and what is hot, I can use the example of gold. One of the best times to load up on gold was in 1999, when gold was $300 and most saw as "dead money" after a decade of poor performance. The U.S. had a Federal budget surplus, employment was near the theoretical "full employment." Stocks were doing so well, that many baby boomers were counting their chickens for an early retirement. Someone tilting then may have underweighted gold and overweighted tech stocks, and would have done poorly because of that tilt.

1st quarter review

For the first quarter (12/31 close to 3/31)
SPY +5.4%
TLT -2.1%
GLD +0.8%

SLV +21.8%
EEM +2.2%
IWM +7.6%

So again risk was rewarded with the more volatile IWM (Russell 2000) and SLV (silver) outperforming. Treasuries (TLT) were down, Emerging markets (EEM) trailed.

For stock traders the previous SPY top just a bit higher is a line in the sand for the bears. How many will cover if that is broken with conviction? How many are positioning short with the top only a point or so away (6 month chart). Support at 125, 123 and then 118 and that's why I am using those strikes to sell puts around and below.

For TLT support at 88/87 (two year chart). Observant readers might see that I recently sold TLT puts for the first time all year, after focusing exclusively on TBT (inverse bonds). I did so because of chart support, sentiment and seasonality.

The two year GLD chart (link3) is forming a base at the highs. The gold chart looks more exciting on the 6-month view, but the previous long base at 120 just below, the current basing behavior is not as exciting. We may get a bit of pop breaking out from this base, but there is not a lot of fuel, at least not yet.

More Layers for SPY

I add more layers to my SPY position. I buy a Jul 120/115 vertical put spread (a bearish bet), and I sell short May 117 puts (bullish bet). SPY @133.0 to 133.1 when these trades are legged into. It is net debit for the three new positions, slightly delta positive SPY, close to theta (time decay) neutral to May. Adding these layers doesn't change my net position of being long SPY, but does give me some measure of SPY downside protection out to July.

Long EEM, GDX, GLD, IWM, SPY, TBT/TLT
TBT/TLT = short strangle on TLT

Ritholz: QE3 here already?

Barry Ritholz writes about the Bank of Japan, injecting the equivalent of QE3 into the system with its post earthquake intervention (link).

I express some of my thoughts about QE2 a couple of weeks ago, on the PCGS Precious Metals forum (link2).

>>
I can't explain it [QE] in simple terms. It is not an easy topic. Intuitively, I know that printing money to buy Treasury bonds is a very dangerous game. It is a complicated game, where the players, don't have a good grasp of what kind of genie they have let loose on the land. I read a New York Times article about the team that does the actual buying and how and when they do it. Would it trouble you to know that the team consists of six 20 somethings? That the oldest person on the desk that does the daily buying of bonds and notes that will eventually total $700 billion is 29 years old? Well, it bothers me.

QE is playing with fire, and there is a chance that the house (the entire financial system) might burn to the ground. Again, one unintended brush fire from the policy is record food and commodity prices as well as recovery highs in the U. S. stock market. Food riots are starting to break out in the poorer countries. Is there cause and effect? Some would say no, but we won't know the history until it is written. If things go badly, historians may look back and blame QE and qe2 as the catalysts to massive starvation of hundreds of millions of poor people all over the world. That's the magnitude of the kind of fire they are playing with. If things go badly, QE might be viewed like the Treaty of Versailles (ending World War I) and the punitive reparations demanded which had a long term cost. When that war ended, very smart people sat down and wrote out the terms. It made logical sense to them.

Humans are capable of incredible financial folly. That you and others don't see a problem doesn't mean there isn't a problem. Quantitative easing is almost certain to have a long term cost. We don't know the price yet. Those in charge don't know the rules of the game. The rules of the game are being made up as we go. I see QE as a genie that has been let loose on the land, and the price wasn't negotiated when he was set free. The genie isn't going back into the bottle until his price is paid, and that price may be high, and there is the chance it may involve blood.
>>

Kaeppel on Bond seasonality (and gold too)

Jay Kaeppel at Optionetics writes about seasonal trends for U. S. Treasuries (link). The short and sweet version is January thru April are the worst four months, and four single months May, June, August and November are the best months to own bonds. As always seasonality is only one indicator, and one of the less dependable ones and one that gets easily jumped (eg: if traders expect a strong May, they will jump the trade and move that up to mid-April).

In a dated article from 2009, Jeff Clark addresses the question "What is the best month to buy gold?," specifically gold miners (link2).

I am tempted to play this by shorting gold using a Jun/Jul calendar put spread, or vertical put spread out to July. My history is that I tend to be early with these urges, so may just sit on the idea until I get more clarity or see some actual downside action. As always, calling top (or bottom) tends to be a low probability game.

Buy TBT (sell puts)

Buy TBT via selling May 34 puts, TBT @36.7. I open a May position on this double-inverse bond ETF. I am already short TBT Apr 34 puts, and TLT May 86 puts. This makes for a short strangle on TLT, or a bet that bonds will stay in a range.

Long EEM, GDX, GLD, IWM, SPY, TBT/TLT
TBT/TLT = short strangle on TLT

Buy GDX (sell puts)

Buy GDX and SPY (sell puts)
Buy GDX via selling May 48 puts, GDX @58.7. The short April puts are near delta zero, so I open a May position to have continued exposure. Like the GLD puts I sold, these are way out, with a high probability of success.

I also layer on more SPY longs via selling SPY Apr 123 puts SPY @131.8. I figure if all the news couldn't get SPY much below 125, it will take a wallop to get it below 123 before April expiration. I am already short SPY puts for Apr 103, Apr 113, Apr 117, May 107.

These are low risk and low reward trades. My broker ThinkorSwim lets me do the trades with exchange minimum margins of about 10% of the underlying strike. I can't remember ever running out of buying power or even getting close. So while these can be risky trades at full margin, I don't go near using full leverage. For any new readers, I survived 2008 selling puts, so do occasionally cut and run and take my lumps.

Long EEM, GDX, GLD, IWM, SPY, TBT, TLT

Wolfinger on Emotional capital

I found a blog called "Options for Rookies," written by Mark Wolfinger. In the linked entry, there is a first hand account of a relatively new trader caught up in an churn of emotion.

The blog has entries on a lot of topics that I don't have the time or inclination to explain, such as basic option strategy and trading tactics. The author was an options market maker in the 1970s, but does try to bring ideas down to a basic level.

A lot of traders focus entirely on the account balance, the profit and loss. A big factor is the emotional state, the emotional capital, the wear and tear on a person's psyche. What a trader chooses to spend time and energy on will have a huge long term impact on the bottom line. Sometimes it is better to exit a trade, even if odds favor it working out, if the emotional capital expended is too much.

There is the old investor cliche, "sell down to the sleeping point," for investors that can't sleep at night because they worry about their investments. I don't have a witty equivalent for short term traders, perhaps conserve your time and energy, spend it wisely.

Buy TLT (sell puts)

Buy TLT via selling May 86 puts, TLT @92.4. Support at 88 and 87. In my mind, this is like placing a bid at 86, and getting paid if it doesn't fill, and being okay with it if it does fill.

Long EEM, GDX, GLD, IWM, SPY, TBT, TLT
TBT/TLT = short strangle on TLT

Vanguard vs. the Matrix

Recently I've been reading the Vanguard forums (link1 and link2). The regulars there call themselves Bogleheads. A tribute to Vanguard founder Jack Bogle.

While much of the Internet is devoted to market timing and hot tips, a person will find none on that on planet Bogle-head. The language is different as is the attitude.

I was tempted to give this post the title, red pill or blue pill. The main character in the Matrix movie is given that choice. In the movie, the red pill leads to an escape from the Matrix. As a young person with their first decent job and some money to invest, you can take either pill. Let me randomly assign the red pill to Vanguard, this pill means you will likely be in the top 25% of U. S. investors in performance. However, what you give up is any excitement, action, and the possibility of a financial home run. With the prequisites of a high savings rate, frugal living, and a relative stable political environment (the U. S. still is on world maps) you will likely have a decent retirement.

Most people choose the blue pill, which means more excitement, more action, more frustration, and mostly lower performance. Yes, a tiny percentage will out do the other group. A tinier percentage will hit that home run (eg: loading the investment boat full of Apple, or Bershire, or Walmart at a good time in their curve).

I took the blue pill. Options might be described as the big blue pill with an exception for a few conservative strategies such as covered calls and collars. If you are reading this, you likely have chosen the blue pill. Well, I am can talk about the benefits of the red pill. It is what I suggest to young relatives that ask me about investments. Steady savings, no credit card debt, living under one's means, age appropriate asset allocation. Not many want to buy it, vs. if I had offered a hot penny stock tip. I certainly did not when I was 25. Still, for the average person that is interested in bottom line results, that doesn't want to spend a lot of time learning, or doesn't have the aptitude, the red pill, the Vanguard way, is the better way to go.

Buy EEM (sell puts)

Buy EEM via selling May 41 puts, IWM @47.4. EEM acting strong considering all the world news. My Aprils are near delta zero so I open a May position for continued exposure.

Long EEM, GDX, GLD, IWM, SPY, TBT

Buy GLD (sell puts)

Buy GLD via selling May 125 puts, GLD @139.7. I open a May position. I was tempted to move the strike to 127, but the 125s are a bit safer, give a bit more margin for error. The compromise is less premium.

Long EEM, GDX, GLD, IWM, SPY, TBT
(all short puts)

Buy IWM (sell puts)

Buy IWM via selling May 69 puts, IWM @81.5. Yesterday's attempt to split the bid/ask on EEM puts wasn't the best move. Bid was 32 cents and I tried for 33 and did not get filled. Today they are bid 22 cents. It happens.

Long EEM, GDX, GLD, IWM, SPY

Buy SPY (sell long puts)

Buy SPY as I leg out of my vertical put spread, selling the SPY Apr 122 puts for a 65% loss. The vertical served its purpose, hedging the other short puts. SPY @129.8

Earlier, I placed an order to sell short some EEM May Apr 40 puts, but didn't get filled.

Long EEM, GDX, GLD, SPY, TBT

Buy SPY (sell puts)

Buy SPY via selling May 107 puts, SPY @129.4. I add May 107 to my pile of SPY puts (short Apr 103, 113, 117, long Apr 123 puts).

Long EEM, GDX, GLD, SPY, TBT

4-1 for March

Four winners, one loser for the March option cycle. A relief rally saved my bacon on my three short SPY puts, the fourth winner was a TBT short put. The big loser was a closed trade on an April XME short put. Overall, a sliver of profit, as the one loser was a big one and the four winners small ones.

Again, it serves to illustrate how difficult it is to buy way out puts and hold until expiration. Even, with the news events from Libya and Japan, and wild market action, none of the SPY puts ever came into the money and went to a 100% loss if held to expiration. That said, at the worst of the selling, the SPY March 123 put went to a possible profit of 250%, if a person timed the best exit. That's the lure, the big winner, the home run.

In 2008, some of short puts did go well into the money, so the lesson isn't to sell puts willy-nilly and never to use stops. However, it is an exceptional market that goes straight down. Again, a 10% correction in SPY is common, but 10% down in a single month tends to be an exceptionally bad month.

Going forward I am net long SPY, TBT, GLD, and GDX, mostly with short puts. Turns out that my decision to skip selling short gold puts this cycle was a mistake as gold and miners held up ok.

The NCAA basketball tournament is sometimes called the big dance. For that theme I link the Lee Ann Womack song "I Hope You Dance (youtube link). Enjoy.

The woodshed

Like a lot of longs, I got spanked today. I vaguely remember a financial book from the 1980s, the go-go days of the Nikkei when it was 40,000. It was about a financial market crash precipitated by a massive Japanese earthquake. I don't remember the title.

I am hoping that today's wild witching Wednesday action was related to option expiration this Friday. A few more days like this and I will be in trouble, because of all the layers of short SPY puts I have on. If the 123 price level holds for this option cycle, I can rest a lot easier. There is a minor shelf of support at SPY 125.

I was tempted to sell some SLV puts early this morning. Good thing I did not, as it too turned tail.

Buying or selling on the news

Some investors are taking a look at Japan, or Japanese equities thinking to buy or sell based on the news. It is difficult to predict such a fluid situation. Sentiment can be useful. If it seems like a "smart idea" to buy, it may not be. If others are actually moving in, again, it is likely not such a good move. Traders might look at the recent chart of BP (link).

In the case of BP, the bad news was not a buying opportunity, at least not on the day of the news. The bottom came about a month later as events got worse and worse. This doesn't mean it will be time to buy TM or EWJ a month from now. That would be too easy a lesson, and too far a reach for a conclusion. It does mean that things might be bad, a stock might be at support, but if more bad news comes out, there can be a lot more downside. The chart can be helpful. For example, the two day move down in TM (link2) might be approximately half the move, so another 6 or 7 points lower to 75 makes it a lot more interesting.

Those few buying today or Friday, might use up their dry powder quickly and if the markets drop another 10% or 20%, won't have much more to commit. While those selling, might have huge positions they wish to get out of.

As always, for relatively slow moving position traders like me, it is almost always better to wait and watch. The heroes and the nimble can try and time the exact bottom, slow moving traders almost never do. Yes, sometimes a person will miss the move, but that is always the case.

The quick and the dead

For those with relatives or friends in the earthquake zone, my prayers and good wishes for safe outcomes.

I have more ideas for trades today, but after the recent disaster of XME, I stay away. I have plenty of positions for April. A big loss can make a trader punch drunk. The temptation is to try and make it back as soon as possible. That works for a few traders, but it can also lead to a spiraling losses. For any novice traders reading along, I would suggest the safer path, of trading smaller or taking a break after a loss that stings.

During volatile markets like we have been experiencing, it would be nice to be a more nimble, quicker thinking, quicker moving trader. After over 20 years in the markets, there is always more to learn, but a big change in overall trading style is unlikely to come to pass. As I often write, I usually do better after the dust has settled and trade off the support and resistance levels that have been established.

Sell XME (cover short puts)

I cover my short XME Apr 59 puts for a huge percentage loss, XME @67.0. My timing was close to the worst possible, resulting in a 180% loss on the notional value, holding for a week. I am taking my lumps and moving on. This was a “throw in trade” to me, hedging my other positions. Yeah, I was "thrown in" all right, thrown into the frying pan. Thankfully, the dollar amounts are small.

Long GDX, GLD, SPY, TBT

Anniversary talk

I started this blog in February 2006. So I can note five years of semi-regular posting.

There is some chatter about another anniversary, it is two years since SPY bottomed around 66. Back then, virtually no one thought the stock market would double in the next two years. I certainly did not. I quote a post below, and reading it back, the mention of Dow 3000 looks silly in hindsight, but I was not the only one. If I knew then, what today's prices would be, investing and trading would be real easy, it always is in hindsight. Trees don't grow to the sky, neither does a major economic power tend to wither and die overnight and go to zero. Here are a couple quotes from the depths of the lows:

From a March 3, 2009 post
"SPY Limbo, how low can it go?"
>>
... the market is not historically cheap yet, not based on current earnings. SPY 300!? Dow 3000? That would not be a pretty picture and would likely coincide with a major economic depression. Let's hope things don't get that bad. The chart does project that low. SPY 600 is some support, but it is not major support on the long term chart, not really.
>>

Though to my credit I did tell this story in my February 28, 2009 post
"Worst February since 1933"
>>
I like to tell the story about when my dad first started investing. The stock market was near a top in 1967, it went sideways for a while before spiraling down in 1973/74.

After losing 60% to 70% of his money, dad wanted to sell all his stocks and mutual funds near the bottom. My mom, who had been against the entire idea of investing in the first place, told my dad that he was an idiot. That after a 70% decline it wasn't time to sell, that it was time to buy. My dad ended up doubling his monthly mutual fund purchases. In hindsight, we all know things did turn out okay, and increasing the stock allocation was a smart move.
>>

As a footnote, the fall from the all time SPY high of 150 to 66 is about 56%.

The anniversary of the market lows is a reminder that reversion to the mean is a powerful theme for long term investors. In plain English it means if things are really bad, there is a tendency for things to get better, and if things are really good, they tend to fall back towards average. It tends to take a major historical event such as the loss of a major war, major famine, major plague, or revolution and fall of government, to destroy a major economy.

Frustrated Puddle duck

I am flummoxed and frustrated by the markets. Last week, I initiated four trades and all four are below the line after commissions. The image of the puddle duck comes to mind because it looks like he is floating effortless on top of the water while below his feet are churning for all they are worth. It seems a fitting metaphor for a lot of trading activity with nothing positive to show.

For now, I plan to let my positions sort themselves out and hope that support levels eventually hold, and that expiration comes without more shoes (or bombs) dropping.

Long GDX, GLD, SPY, TBT, XME

Buy XME (sell puts)

Buy XME mining ETF via selling Apr 59 puts. 65 and 60 are support, XME @73.0. I consider lifting the long put in the SPY vertical put spread to go totally long SPY with short puts. Instead of doing that I buy into a strong sector and leave the long put in place.

Long GDX, GLD, SPY, TBT, XME

Short SPY (buy vertical put spread)

I short SPY via buying a vertical put spread.
Buy Apr 122 p/ Sell Apr 117 p
SPY @ 131.0

I really stepped in it with my poorly timed put sales on Monday. Yikes! I am hedging my longs, though still net long SPY deltas. There are seven different options in the SPY web.

I thought I was back in rhythm with the markets, but got smacked down. Precious metals continue to run. I don't have a position in SLV, but I have a price target of 36 for the silver ETF.

/edit to add: As I tidy up my post, I see SPY rallying off its lows, so the put spread just entered is already taking on water. As the Shirelles' song goes, "Momma said there would be days like this" (Youtube link).

Long EEM, GDX, GLD, SPY, TBT

Buy SPY (sell puts)

I buy SPY by layering on more short puts, selling Mar 123 and Apr 113 puts with SPY @133.0. This adds to my SPY longs. I already short Apr 103 puts, and Mar 106, 116 puts.

Long EEM, GDX, GLD, SPY, TBT

"It's in the price" and calendar spreads

The stock market tends to be a discounting mechanism. Traders and investors are not only going by what is, but what they expect. Mark Hulbert wrote about the impact of a CEO's death, and more pointedly about Apple and Steve Jobs (link).

>>
the stock market does an impressive job of discounting the consequences of developments that are coming down the pike. So when a CEO’s health is as fragile as Steve Jobs’, and when that fact is as widely known as is the case among Apple’s investors, the negative impact of his passing will — at least for the most part — have long since been reflected in the price of the company’s stock.
>>

The game within the game is whether the news is fully discounted, usually it is not and there is a reaction on the news. However, as Hulbert's research points out, that reaction is often an over reaction. Readers know I sometimes like to buy stocks that are having headline making bad news (eg: Toyota when it was having all its recall problems.) I am also fond of buying on good earnings news and a decent looking chart, and buying ETFs on strength rather than weakness.

Changing the topic, on the Friday ThinkorSwim market wrap (anyone can listen, they just have to register at the website, highly recommended), a bearish calendar spread was mentioned. I never have done calendar spreads, and never quite understood the play. On Friday it was like lightbulb went off and I am coming to a much better understanding of when a person might use calendar spreads.

The basics are buying one option a few months out, and selling the same strike closer in. The buyer of the calendar spread profits if the market is near the strike price at the first expiration. A big move either way means a loss. In theory, downside and margin requirements are limited to the price of the spread. What can wreck that is if there is fast market and an early exercise on the short option.

Buy GDX and TBT (sell puts)

Buy TBT via selling Apr 34 puts, TBT @38.2. This opens an April position, adding to my short Mar 34 puts.

The three day bear raid has been beaten back. The puts I sold earlier this week are all now at a profit. As the Rolling Stones phrase it in their song "Paint it Black" (link) take that red door and paint it black (red being a loss, black being a profit).

/edit to add: Buy GDX via selling Apr 48 puts, GDX @58.7

Long EEM, GDX, GLD, SPY, TBT

Buy SPY (sell puts)

I add to my SPY longs via selling Apr 103 puts, SPY @130.7. I am already short SPY Mar 116 puts and Mar 105 puts. Basically, those buying the way out puts are betting on a stock market crash, or buying insurance against a crash. I am taking the other side.

My trades earlier today are under water as option premiums continue to climb and EEM moves lower. My timing could definitely have been better. I came into the cycle with minimal exposure and plan to continue to scale into positions.

Long EEM, GLD, SPY, TBT

Buy EEM and GLD (sell puts)

Buy GLD via selling Apr 122 puts, GLD @137.8. Another low risk, low reward, low conviction position. I let my Feb gold positions expire without opening up any new ones. Buy EEM via selling Apr 38 puts, EEM @45.1. EEM is near support, more support at 40.

Long EEM, GLD, SPY, TBT

3-1 for February

Three small winners, one big loser for the February option cycle gets me to about break even for trading results for this cycle. The loser was the bearish vertical put spread on SPY. The winners were short puts on GDX, GLD, TBT. The gold puts were underwater a month ago, so I am relieved that they came in safe. However, when a market rallies, traders often wish they were more aggressively positioned.

Going forward I am short puts on SPY, TBT.

For some traders there is angst about the stock market. Stock market bears can not even get one day or one hour of sustained down movement. During the last 30% increase, there have only been 13 down days of 1% or more. That is unprecedented, never has a rally of that magnitude been punctuated by so few down days. Again, some point to the high frequency trading phenomenon, some point to Bernanke. Whatever the case, the bulls have been making money and bears have been losing.

Calling turns

It is difficult to call market turns. As I have often written, calling top (or bottom) tends to be a low percentage play.

The stock market rolls on, frustrating the crowd of smart folks expecting a correction or worse. I have been in the bear camp since the beginning of the year. Thankfully, I didn't bet heavily on my belief, as stock market bears have lost their shirts with what seems like an unstoppable, almost irrational rally.

It is not so important to figure out why. I have mentioned that QE2 may be distorting normal flows. That much of that newly printed money is finding its way to the stock market. That and near zero short term interest rates on money market funds and equivalents, means folks don't want to sit in cash. Cash is and has been trash.

Many readers know of the 1988 book "Market Wizards" (link). I remember the chapter with the legend Paul Tudor Jones and his knack for calling market turns. What I remember goes along the lines of he often takes several small losses before getting the timing right and making a bundle. The headline is that Jones called the turn, when it was try-fail, try-fail, try-succeed.

I am not so ingrained a bear that I am willing to keep shoveling money into bearish stock market bets. The percentage play tends to be to wait until a turn is verified, then short the reaction rally. That may be what we are seeing in gold. There is resistance at the highs. Gold is now overbought. With that, it is difficult to go bearish on gold when the long term uptrend is so strong.

I was extremely tempted to add some small positions yesterday. Then I remembered what I wrote on the blog about sitting, and how much sense it makes to sit. So again, I did nothing. That's one way the blog helps me. It makes me accountable to my own thinking. Sounds simple, but when that itch to get in comes, logical thinking sometimes goes out the window.

Ritholtz: books and lists

Barry Ritholz has a list of lists, as well as a list of books (link).

I haven't gone through all of the entries on the list. However, from one of his blog entries "The Zen of Trading," (link2) here are a couple of nuggets:
>>
6. Take Responsibility: Many folks believe “the game is fixed.” To them, I say: get over it. Stop whining and take the proper responsibility for your trades, your losses and yourself. ...
>>

That's one of the reasons I tend to spend so little time on conspiracy theories (precious metals market writers seem most prone to this). It is mostly a waste of time and energy to ponder for traders. Little fish won't ever know the whole truth. Best to do what you can or to avoid certain markets. Reading and writing about manipulation are mostly a waste of valuable time.

>>
7. Constantly Improve: Investing is so competitive that you cannot afford to stand still. Investors should constantly seek to raise their skill level by learning as much as possible about the markets, the economy, trading technologies and various schools of investing thought. But whatever you read, you must do so with a keenly skeptical eye, while retaining an open mind (‘taint easy to do).
>>

The markets are a moving target. Back-tested trading systems marketed to individuals tend to sell well. Unfortunately, the markets change, so what worked in the past may not keep working. These days, the big firms are constantly having their computers fine tune their algorithms, every day, every hour. The same holds for any number of other indicators.

All the markets still seem risky to me. Option premiums remain low, so the risk-reward for selling options doesn't look so good. Buying options for a directional move requires a high degree of confidence and conviction. I don't have that sense of clarity for any market. For now, I have a few small positions and am reluctant to put on more. Sitting is boring. Reading about sitting is even more boring. Better to be bored than to seek action and likely lose money to avoid the boredom.

Buy SPY (sell puts)

Buy SPY via selling Mar 116 puts, SPY @131.9. A low conviction add, I am already short Mar 105 puts and Feb 112 puts. With premiums down, selling options becomes less attractive. GLD and GDX options for March don't seem to offer enough premium for what I perceive as growing short term downside risk.

Long GLD, GDX, SPY, TBT

Unwinding the vertical

I unwind one leg of my SPY Vertical, sell SPY Feb 118 put for a 95% loss on this leg of the trade. I am still short the Feb 112 puts and Mar 105 puts, so I am now net long SPY. This was a disaster trade as I bet that SPY would go down and it rallied strongly. I limited the damage by selling Jan SPY puts which have already expired.

Long GDX, GLD, TBT, SPY

Everything seems risky

On last Friday's ThinkorSwim weekly market wrap, one of the participants said something to the effect: I wouldn't buy anything, not stocks, not bonds, not gold.

I am almost in the same camp, I have a few small positions, but nothing looks compelling. Unfortunately, cash brings next to nothing with many money market funds at zero or close to it. For bonds, TLT is approaching 88, which I think is decent support.

If reports are to believed, gold was manipulated higher mostly by one hedge fund (WSJ link). The unwinding of the position pushed gold lower, so it seems highly likely that putting it on, pushed gold higher. Given the reports (which may or may not be 100% truthful) that hedge fund may have accounted for a decent portion of the 29% up year for gold in 2010.

As for stocks, the rally rolls on. Some are concerned about high frequency trading. Many old-school techniques may now be failing as computers parse every possible pattern, every hour, every day, looking for tiny one cent or even half cent trades. Some say all the Fed money from QE2 is flowing into the stock market.

Sometimes the best thing for a trader to do is to sit and do nothing, as boring as that is. I am tempted to turn towards ever more exotic option trades. The logical mind, says it is better to keep it simple, wait for more clarity, better opportunity. Again, what worked last year may not work this year. With VIX at 16, selling option premium seems like an ever more dangerous game of chicken.

As for seasonality, Feb is a poor month for stocks. Bonds are due for a seasonal low in May. March tends to be a poor month for gold, with June and September often providing much better buying opportunities.

Nusbaum: The 4% rule

Random Roger writes more about the 4% rule (link1). In the comments section a FPA article is cited as another source (link2).

For those unfamiliar with the term, the 4% rule that retirees can only count on withdrawals of 4% each year. I have been familiar with this for a long time. I remember a conversation many, many years ago, when money markets and one-year CDs were yielding over 5%. I mentioned that endowment funds will only spend 3% of their capital each year.

Over time, with average market conditions 3% means the endowment can maintain its level of giving in terms of steady buying power. So if inflation ticks up, the returns are likely to be higher than 3%, but the level of spending has to go up to maintain the level of giving in real terms.

Tomlin's call, 401k mistakes

Some random thoughts for a calm market Monday, after the frantic Friday.

Adam Warner breaks down odds the way option traders often do, for Steeler's coach Mike Tomlin's call against the Jets (link1).
>>
So you’re the Steelers, you have the ball on the Jets 40 yard line, and a 5 point lead . There’s two minutes left, and the Jets have no timeouts. What do you do? ...

>>

Roger Nusbaum cites a Barrons article about how poorly most Americans are preparing for retirement (link2).
>>
... people are often their own worst enemy when it comes to their finances and portfolios for things related to poor spending decisions and occasional panic selling or panic buying.
>>

This is something I write about often. In theory, with hindsight, any person can pick tops and bottoms and imagine the vast returns that might have been. In reality, the average punter makes bad decisions, often very bad decisions.

On the Internet, you will mostly read reports about profits. Some reports are real, from exceptionally talented (or lucky) traders, the top 1% or 5%. Some are selective memory (mis-remembering so a 10% return becomes 30% when the story is told). Some are hindsight traders that only report their winners, and only after the trade is done, never in real time, so they never have to report a loss. A few are liars, fabricating their entire story. Understand the nature of reporting when reading message boards, so you don't feel left out. Exceptional returns are exceptional, but if a person only reads investment boards, you'd think everyone makes big money.

That's why, for the average investor (not trader), I have always suggested that being average is a fine thing. Getting an average price when buying or selling, seeking an age appropriate asset allocation as far as strategy. That kind of averageness, especially for those searching around for advice, tends to be better than making drastic all-in, all-out decisions that get the attention.

Lewis: GLD signaling a bottom?

Lance Lewis has an article at Minyanville, looking at a potential bottom on GLD (link).

>>
The GLD gold ETF puked up 31 tonnes (or 2.48% of its bullion holdings) yesterday to bring its holdings down to 1,229 tonnes.

Now, a bullion puke of that size is interesting, because as we’ve noted before, one-day declines in the holdings of this ETF of over 1% have tended to be capitulatory in nature and have typically occurred near important lows in the gold price during gold’s secular bull market.
>>

Lewis also writes about rumors of a leveraged hedge fund coughing up most of this gold. As with most rumors, the little fish, rarely get a version that is anywhere close to the truth, in a timely fashion.

As always with oversold markets, oversold readings can become oversold-er. The bigger question to me, is whether the major uptrend is intact. If it is, then this is an opportunity to add to longs. However, as Lewis notes, only after the fact will traders know for sure.

I don't this is an intermediate or long term top because sentiment tends to get much frothier at major tops. Gold newsletter timers, small time gold investors are still relative cautious. Bold bullishness in the face of a decline is the typical reaction when the trend changes. Instead, I observe folks taking profits, and/or shy about new long positions.

Weighing against this is flat to down seasonal tendencies for gold into February/March. The recent highs are significant resistance, limiting potential upside. For the other markets, Feb can be risky for stocks, bonds tend down into a bottom in May. With the caveat that I find seasonality tends to be one of the weaker and less reliable indicators.

Long GDX, GLD, TBT (short puts)
Neutral SPY (net neutral with a three-leg option position)

5-0 for January

Five winners, zero losers for the January option cycle. Two winners in SPY, one each in GDX, GLD, TBT, all short puts. That's the good news. The bad news is that several of my open positions for February are under water. My short GDX options are down over 130% on a notional basis. My long SPY vertical put spread is down about 70%. Fortunately, while the percentage losses are frighteningly large, the dollar amounts are relatively small.

These past few weeks have been tough sledding. I have been mostly wrong on market direction, and relatively poor on timing entries. The baseball analogy might be fouling off several pitches, scuffling, staying up at the plate, working to regain that smooth and near effortless swing.

As I often write, when a trader reaches the inevitable cold spell, or losing streak, often the best thing to do is to trade smaller, simplify the analysis, and get back to basics.

Buy TBT (sell puts)

Buy TBT via selling Mar 34 puts, TBT @39.7. I open a March position, as my Jan 30 puts expire. I already am short TBT Feb 33 puts.

Long GDX, GLD, TBT
Neutral SPY

Learning to trade

At a recent ThinkorSwim chat, the comment was made that a trader has to do live trades, to really learn how to trade. The New York Times has an article about test-taking vs. study and retention (free registration may be required link). The study concludes that students that are immediately tested on material remember it better than those that either just study or study and take notes.

As always, what works well for one person may not work so well for another, so there may be some folks that do better using the other methods. I tend to focus on the average experience, what the average person can expect, not the top 5% or top 1%, so for the average person it is likely that trading real money (taking the test) is going to be the better path to learning.

There are a lot more caveats to my analogy, but I thought it interesting to draw the comparison.

As for the markets, GLD, GDX, TLT fell out of bed today. GDX and TLT are at short term support. We'll see if support can hold. With time, delta and gamma moving, I am now net neutral on SPY. None of my short January options that expire tomorrow are in serious danger of coming into play.

Long GDX, GLD, TBT
Neutral SPY

Ritholtz: Why Blog?

Barry Ritzholz writes about the reasons for blogging (link).

>>
1. You have something to say

2. You enjoy the craft of writing

3. You want to figure out what you think, and do so in public

4. You want to be part of a larger community of like minded individuals

5. You have a hobby or interest that you are really, really into

6. You want to maintain a presence on the Intertubes

7. You have an expertise and you want to share it

8. You have an eye for content (text, graphics and video) and you enjoy leading other people to them

9. You want to create a permament online record of what you are reading, looking at or thinking about

10. You like engaging in debate with total strangers

>>
For me, public blogging helps clarify my thoughts and motivations for entering or exiting a trade. Being publicly accountable, also seems to temper my emotional reactions. The old cliche is that by sharing knowledge a person increases their knowledge.

Things I have purposefully avoided are controversial topics such as politics. That is one reason that I get very little feedback on my blog. That is fine with me. Arguments, especially petty arguments are a scourge on the Internet, and in most cases shed very little light, and generate a lot of heat and anger. I've seen folks get bent out of shape over the most minor of issues and it costs them their mental health and sometimes physical health.

This blog started in February 2006, so it is almost four years now, with 930 posts. My trading and my results have improved. I don't post every day, which means I don't have as many readers as many other blogs. As a relatively slow moving position trader, I don't always have something interesting to say, and I don't always have time to blog.

I thank the regular readers, and I hope that some of the posts have been useful if not enlightening. Cheers.

Strike two

I am counting today's stock market action as strike two (three strikes and the bear will come out to steal some picnic baskets). Stock market bears were likely licking their chops, when the news about Steve Jobs and AAPL came out. AAPL went down 7% in overseas trading, but is now only down about 2%, with the broad market moving up.

Earnings will be a huge factor in how the game is played out in coming days, but active bears have already been skewered--their visions of a big down day dashed again.

I came into the year long gold, short bonds, short stocks. For now it looks like a whiff on gold and a whiff on stocks. Fortunately, my gold positions were of the low conviction variety, so have weathered the mild downturn.

Not so much my SPY bear spread, as that has lost 60% of its value. When the stock market opened the year with a strong rally, instead of the decline I was looking for, I quickly hedged the Feb put spread, by selling January puts. That action saved the bacon, getting me to about at break even for SPY trading despite being so wrong at the gate.

Long GDX, GLD, SPY, TBT

Buy SPY (sell puts)

Buy SPY via selling Mar 105 puts, SPY @128.3. This brings my net position to ever slightly long. My bearish Feb vertical put spread was ill-timed. I quickly hedged by selling Jan puts and that brings it to about break even. The stock market remains overdue for a 5% to 10% correction, so I don't want to unwind the Feb position. A bigger 20% correction seems unlikely, as money continues to flow into the market.

As for gold, Hulbert reports a positive sentiment environment for gold bulls. At a minimum, it means there are buyers at lower prices (link).

Bonds continue to churn, and my play continues to be to sell rallies by selling puts on TBT. I may evolve to a short strangle by selling puts on TLT on further weakness.

Long GDX, GLD, SPY, TBT

My current thinking

For stocks, the recovery off Friday's lows showed the bears that the bulls still rule the town. I would count this as strike one. The SPY chart shows remarkable strength. Still, the move is extended, sentiment is poor.

For bonds, it looks like TLT (chart2) is trying to find a bottom in the 90 range, after a sharp correction. I would prefer to be a buyer at slightly lower levels, and will continue to short any rallies.

For GLD (chart3), there are three failures at the highs, on declining momentum. That isn't good news, and the highs now represent significant resistance.

On a "third strike" for SPY, I will look for bearish plays. Right now, it is only strike one, and that may disappear if the bulls can make new highs on good volume. For bonds, the sentiment has turned, but so has the trend. The QE2 may mark historic highs in the bond market. The analogy is when central banks were selling gold, marking major all time lows in gold. Now, the Fed is buying bonds.

For gold, last year's 30% up move means that some digestion is likely. A continued strong up move after that kind of run tends to be unsustainable. A new base in the 1200 to 1400 level is one of the best scenarios for long term gold bulls.

Long GDX, GLD, TBT
Net neutral SPY

Buy SPY (sell puts)

I move to neutral on SPY by selling Jan 120 puts with SPY @127.2. Despite the big rally and me being net short, today's losses on SPY were tiny of time decay.

Long GDX, GLD, TBT
Net Neutral SPY

2010 year in review

For those readers that may be new to the blog, I tend towards high probability, low risk, low reward trades. The baseball analogy is someone that hits for average, vs. swinging for the fences. I may occasionally take a shot, but mostly I am happy with small gains.

For 2010 in round numbers:
SPY up 13%, GLD up 30%, TLT up 5%

My trading profits ranked SPY, TLT, GLD, so I didn't take full advantage of the run in GLD. Now I occasionally short as well as go long, so at least I didn't go short heavily in this mostly bullish year.

Rounding out a few more ETFs:
IWM up 25%, BND up 2%, SLV up an incredible 84%, unfortunately I don't trade SLV

The stock market year was mostly up, with the sudden and scary flash crash in April. Precious metals had their best year in a decade, which is amazing considering this is the 10th straight up year for gold. Bonds soared and then came back to Earth, ending the year with a modest gain.

For blog reported trades I show 64 wins, 5 losses, 2 breakeven trades. That may seem like a remarkable record, but considering that many of the trades have a 85% to 95% probability of success from the get go, it is about average. One change I made this year was very few stop losses. In 2008, stops saved my bacon. In 2010, stops were for the most part whipsaws.

It is dangerous to think that the coming year will be a replay of the 2010. That said, trends in motion have a power of their own. Sentiment is one of the more useful tools in trying to trade counter-trend. The popular press is often an indicator of public sentiment.

Predictions are mostly for entertainment. Someone telling me what they are doing in terms of buying, selling or hedging is more useful to me.

Long GLD, GDX, TBT
Short SPY

Buy SPY (sell puts)

Buy SPY via selling Jan 117 puts, SPY @125.7.

I also placed an order to short SPY via buying a vertical put spread, long Feb 118, short Feb 112, but it did not fill. I am thinking that there is likely to be a bit more pop to the upside in the stock market then a downturn. That said, if I could call every little wiggle in the markets, I wouldn't need to hedge or trade cautiously.

/edit to add: got a fill a few minutes after the close for the Feb put spread, making me net short SPY.

Long GDX, GLD, TBT
Short SPY

Buy GLD, GDX, TBT (sell puts)

Sell GDX Feb 49 puts and TBT Feb 33 puts with GDX @61.1 and TBT @37.4. As my open Jan positions approach delta zero, I open some Februarys.

/edit to add sale of GLD Feb 120 puts

Long GDX, GLD, TBT

Jaffe: Investing goals

Chuck Jaffe has an insightful column about what investors should focus on (link).

>>
most people are investing as if they are trying to make the most money, but what they want — and what they should be investing for — is the best life ...
>>

I strongly agree with the above. I was talking to a long time friend about investments. My friend has a method of choosing stocks that works for him. It has served him well for a long time. Other people sometimes suggest new things for him to try, but I remind him, if it ain't broke don't fix it. If a person has found peace of mind and relative financial security using what they already know and understand, there is little reason to tinker all that much with a tried and true formula.

Sometimes I'll meet young (or old) gunslinger type traders that report huge gains in a short period of time. I sometimes may look wistfully at those returns, but realize that I am not a spring chicken and would be foolish to take on big risks because I am almost certainly in a different phase in life from where they are.

Readers know that I like the term "mental capital." That wear and tear on the psyche is sometimes not worth a bit more return. Drawdown is an important concept (the loss if a position is sold at the worst possible time during the cycle). Some others may crave excitement, but again, at my place in life, I am happy to be free of excessive focus on every percentage point of return. Slow nickels are fine. I dislike fast moving markets, so will often sit out those conditions until the dust settles.

Merry Christmas

For all the readers that celebrate Christmas, a hearty wish for a merry one.

It has been a good year for trades reported on the blog. Sure, the glass half empty side is to think that I could have made more, especially with 20-20 hindsight, and taking on more risk.

For history buffs, there is a well known tendency for military generals to plan to fight the previous war. That is a danger in financial markets as well, to think that what worked last year is going to work in the coming year.

Merry Christmas to all. Cheers.

Dogs of the Dow

Dogs of the Dow is an investment strategy that picks the highest yielding DOW 30 stocks. Current list is at this link. The strategy hit an iceberg when the then high yielding bank stocks blew up. My favorites on the current list are MCD and JNJ. As always, I am not offering investment advice, just offering an opinion.

Investment themes often go in cycles. What worked one year, stops working the next. What was a big loser sometimes turns around.

Readers know that I see the popular press mostly as a contrary indicator. When I see blaring headlines or talking heads on TV warning about the dangers of a certain asset class, it is often a low risk time to go long, or sell some puts because downside is limited. When there are headlines about huge profits, past, present, and future, it is often time to short or at least hedge.

I recently read an article in a local newspaper saying that U. S. tech stocks are going to remain strong, gold and emerging markets are high risk. If anything that kind of article makes me want lean the other way, long gold, long EEM, short tech stocks. As always, one article, one indicator doesn't mean too much, but when lots of popular pundits start saying the same thing, it is opportunity time.

4-0 for December

Four winners, zero losers for the December option cycle. The four were short puts in GDX, GLD, SPY, TBT. All are tiny guppy-size morsels, but considering my busy schedule, it was a good way to go. Bigger fish usually involve more risk, and with little time to devote to the markets, risk is something to avoid.

I have three open positions for January, GDX, GLD, TBT, and all are on the positive side. I am looking at shorting SPY out to February with a bearish vertical put spread. Timing is tricky as the markets can be sleepy during holiday time, but sometimes they do move.

Long GDX, GLD, TBT

Buy GLD (sell puts)

Buy GLD via selling Jan 120 puts (GLD @138.5 or so). I open a January position.

Long GDX, GLD, SPY, TLT

Buy GDX (sell puts)

Buy GDX via selling Jan 47 puts, GDX @60.9, opening a January position.

Long GLD, GDX, SPY, TBT

Buy TBT (sell puts)

Buy TBT via selling Jan 30 puts, TBT around 36.3. Like I wrote earlier, the trend in bonds has reversed and the percentage play now seems to be to sell bond rallies.

Stocks and gold fall, while treasury bonds rally. As I have been writing, my schedule is packed now, so trading and blogging are going to be on the light side.

Long GDX, GLD, SPY, TBT

10-0 for November

Eleven winners, zero losers for the November option cycle. It was a bumpy ride, but all the short options expired out of the money. All small fish, or tiny fish in the net, but no losers to spoil the month.

Winners include a Backratio on AAPL, and short put trades: 3 SPY, 2 GDX, 1 TLT, 1 TBT, 1 BRKB, 1 GLD.

Open positions for Dec are slightly positive at this point, which is something considering how volatile the markets have been.

Long GDX, GLD, SPY, TBT
all are short puts well out of the money

Has the trend changed?

Has the trend changed? That is the question on many minds. It almost certainly has for long dated bonds (TLT). I would tend to vote "nay" on stocks (SPY) and gold (GLD) for now, but more evidence, more technical damage can flip those as well.

A market can be trending or in a range, if trending up, it can go to being in a range or trending down. Violent reversals, that look like the letter V or the letter A on the chart tend to be uncommon occurrences.

Sentiment is one of the most valuable indicators for trend changes. Right now, the anecdotal is that gold bulls are relatively complacent despite the violent swings. More downside seems likely, but until that occurs and major support is broken, I would vote that the trend is still up.

For stocks, it will be interesting to see how quickly people turn bearish on this dip. In all three markets (bonds, gold, stocks), it did seem to me that the period right after the election and Fed moves, looked like massive short covering and whipsaw kind of action. That kind of trade often unwinds.

My only Nov short option position that seems to be in real danger for expiration week is TLT, with the strike at 94 and the trade at 95.8. The rest of the chickens are almost certainly going to come in safe for another positive month for these low risk low reward trades. My open Dec positions are slightly in the red overall.

Again, I don't have much time, for trading or blogging with my current schedule, so if there are fewer updates, or late updates, that is the primary reason.

Buy GDX (sell puts)

Buy GDX via selling Dec 52 puts, GDX @63.4. I open a Dec position. It is tough to do with the overextended up move, but the benefit of selling puts is the flexibility.

I bought these early in the day, close to the top. Can you say "oops?" Or perhaps some more colorful words come to mind as I am down about 130% on a notional basis, though as almost always with these naked put trades, the dollar amount is small.

The catalyst seems to be an increase in margin requirements for silver contracts.

Long AAPL, BRKB, GDX, GLD, SPY, TBT, TLT

Common mistakes

Marketwatch has an article "The 7 biggest mistakes fund investors make" (link). Some of them apply directly to traders, some not so much.

1. Chasing returns
2. Rear-view investing
3. Overreliance on rankings and ratings
4. Assuming you can buy and hold a fund forever
5. Failing to understand what the fund does, how it invests or what it buys
6. Letting emotions rule
7. Focus too much on a fund, and not enough on the portfolio

For traders, 1, 2, 3, 6, apply directly. Another might be focusing too much on picking winning trades, and not enough on risk management and right sizing of positions. Number 4, doesn't apply direct, but perhaps for trading, thinking that a single indicator will always keep working.

An extra hour for thinking

With the extra hour of the time change, I have some time to type up some market thoughts. The old IBM had signs at all their offices "THINK," though for some that extra hour may be used for "DRINK." Cheers.

The hunt for yield, or capital appreciation, has folks moving mountains of cash into stocks, precious metals. The long bonds have taken a hit, though the shorter durations such as 2-year notes are still at the highs.

The Fed's QE2 and how bonds have responded, reminds me of when the Bank of England decided to sell off some of their gold reserves back in 1999/2000. By announcing the size before selling, they got some of the worst gold prices ever. The open question is whether the Fed is getting a similar deal as it buys bonds and notes, by announcing how much and when it is going to buy? The trick part is that there may be a QE3 and 4, and as many sequels as some movie titles get. So shorting bonds (or being long bonds) can be a rollercoaster ride--it certainly was this past week.

I think precious metals still point higher. I haven't seen much excitement at the public level, that often comes at intermediate term tops. Mostly I see caution. Caution isn't abundant at major tops for any market, or if the cautious majority turn out to be correct, they turned cautious about 30% or so too early in terms of price.

Bonds are split. HYG (junk bond ETF) rallied this past week, while TLT (20 year Treasury ETF) got crushed in a wild week. Seems like being net short the 20-year is the percentage play now, which is a reversal of what I've been doing most of this year.

I think stocks are in for some turbulence, but a big market down move seems extremely unlikely. With option premiums moving lower and lower, selling premium becomes less rewarding. I am even contemplating some longshots (lower probability trades with a high potential pay out) on the short side, such as bearish vertical SPY put spreads out to January.

Buy GLD (sell puts)

Buy GLD via selling Dec 120 puts @135.2

Buy TBT (sell puts)

Buy TBT via selling Dec 30 puts was filled during day.

Long AAPL, BRKB, GDX, GLD, TBT, TLT, SPY

Buy SPY (sell puts)

Buy SPY via selling Dec 104 puts, SPY @121.2 to open a Dec position.

I haven't had much time for blogging or trading recently.

Long AAPL, BRKB, GDX, GLD, TBT, TLT, SPY

Election priced in or not?

Tuesday is election day. The question for traders is whether the anticipated results are baked into current prices, or not.

Intrade tracks odds on the election (link) and many other events. Presently the lead item on the page is whether the Republicans will have a House majority. Right now the betting odds are 92% in favor, 8% against. So at least for the Intrade population, that result is 92% baked in.

The caveats are that Intrade bets are small and may not be indicative of the expectations of major stock, bond or gold market participants. Intrade is also likely to be all U.S. participants, while most markets are now global markets. Still, Intrade can indicate whether a result was "surprise" or not.

The election is like a major earnings report or economic data release. If the results are in line with expectations, there may be chatter about a whisper number or some part of the result that is more closely looked at.

Another thing to look at is VIX and option premiums. VIX may have a slight premium due to the election, but not a big one. So option players don't expect a big move either way from election day. I'd guess there is a bit of turbulence, next week, but not much more than that.

Buy TBT (sell puts)

Buy TBT via selling Nov 30 puts, TBT@ 33.2. Strong support at the lows around 30. I am already short TLT Nov 94 puts, so this makes the overall bond position a short strangle.

Long AAPL, BRKB, GDX, GLD, SPY
TBT/TLT equivalent to short strangle

Fibonacci time and price

Most technicians use the key Fibonacci retracement ratios of 23.6%, 38.2%, 50%, 61.8% and 100%, when measuring price objectives. The reaction to a move is often a percentage retracement.

GLD has had a good run since 7/28. Like I said, virtually every technician is looking at the Fibonacci price levels. Not many use Fibonacci in regards to time. When price is uncertain, time can be a valuable tool. I see price as uncertain, because much of the gold rally was driven by the currency market.

Using 38% of the time of the recent gold rally takes us to about November 4th, for a projected long entry point.

Babak on the Golden Cross

The "death cross" got a lot of press this summer. Now that the opposite is happening, not so much. Over at Traders Narrative, Babak has an entry about the "golden cross" (link).

>>
... it is important to remember that these patterns hold true on average - not every single time. Like seasonality or the presidential cycle, they hold powerful sway over the market but are never to be considered as a dictatorial mandate.

As well, according to a study done by Jason Goepfert, when we have similar back-to-back signals - that is reversing a “death cross” with a “golden cross” within a 3 month period. The results are lackluster, showing that within a year the S&P 500 index is slightly higher (+1.4%) with a 60% positive occurrence.
>>

4-0 for October

Four winners, no losers for the October option cycle. My cautiousness from September translated into only a few small fish coming in for this month. Winners were short puts in GLD, TLT, two for SPY.

The glass half full side is that I didn't sell strangles like I did in August, or go short--either move would have translated into losses. Instead, I took smaller and fewer long positions.

Going forward I have more positions with some dry powder. Gold is due for a correction any time now, but I think it will be contained. Same for stocks, overbought, extended, but any correction has numerous support levels under it.

Bonds are oversold, but that doesn't mean bonds won't continue lower. I may sell bonds (or sell puts on TBT) on rallies as there are now resistance at multiple levels higher. On the TLT chart 102, 104, 106, 108 are all resistance levels, with TLT at 100.5.

Backratio (net long) AAPL
Short puts (long) on BRKB, GDX, GLD, SPY, TLT

Grant on QE (quantitative easing)

There is a a lot of market chatter about QE (quantitative easing). I suspect a good many novices read my blog. I found a couple of informative Youtube entries on QE. The first is from a year ago and tries to explain in as much plain English as possible (link1).

The second is a Bloomberg interview from about a week ago, with James Grant (link2).

Aggressive use of QE is almost sure to end badly. That said, estimating the time table, or which assets will move up or down and when is more difficult. Second level effects are likely to produce unexpected market moves, unexpected inefficiencies in various markets.

The Bank of Japan has been one of the most aggressive QE players. The conundrum is why the yen continues to appreciate when their government debt levels and monetary policy makes Japan one of the more likely countries to default on their government debt.

Buy GDX, SPY (sell puts)

I had technical trouble, so these trades are a few hours after the fact.

Buy SPY via selling Nov 104 puts, SPY@117.9. As the stock market rallies, the puts I am short provide less and less exposure, the delta goes down. I already am short Nov 91 and Nov 95 puts, as well as some Octobers.

Buy GDX via selling Nov 47 puts, GDX@58.5. GLD continues to run higher. I had a notion to short gold yesterday, but there hasn't been even one signficant break in the rally from the summer lows. The chart looks like “elephant tracks,” or big money flowing in. Don't stand in the way of the elephant.

Bonds (TLT) look weak and likely to get weaker. Treasuries are suffering the brunt of the decline. Corporate bonds (BND) and junk (HYG) are holding firm.

Long AAPL, BRKB, GDX, GLD, SPY, TLT

Backratio on AAPL

I initiate a backratio on AAPL using Nov 230/240 puts, selling two 230s for every 240 bought, AAPL @292.0. The backratio is a net long position, there is an explosive profit possibility on a measured decline.

The max profit is if AAPL lands on 230 at Nov expiration. Losses pile up if AAPL moves sharply lower and is below 220 in Nov. If AAPL is steady to higher, I pocket the tiny credit.

Long AAPL, BRKB, GDX, GLD, SPY, TLT

Buy GDX (sell puts)

Buy GDX via selling Nov 44 puts GDX@56.8. I initiate a small position in GDX to add a sliver to my gold exposure. For 44 to come into play, the entire rally from the summer lows would be given back.

Long BRKB, GDX, GLD, SPY, TLT

Buy SPY (sell puts)

Buy SPY via selling Nov 95 puts, SPY @116.0. I add a bit more exposure.

Long BRKB, GLD, SPY, TLT

Boom! Stocks, gold explode higher

Strong rallies this morning in gold and stocks as both move thru minor resistance. I am long both GLD and SPY, but my trading positions remain small. A coffee shop buddy often asks how my stocks are doing, and if I made any money. I often reply, yes, I am making a little, and it never seems to be enough :).

Yesterday, I took a long look at shorting AMZN and selling a put backratio on AAPL (net long position with an explosion on a measured decline).

As I have mentioned before, I am not a spring chicken any more, so my gunslinging trading days are over. Most of my trades tend to be low risk, low reward, high probability. I may still take an occasion shot on a small position, but as with all longshots only a few will tend to come in.

Mental capital and gold $3000

I stumbled around an old trading rules list. This one is on Dacharts, quoting 22 rules from Dennis Gartman circa 2005 (link). There are the standard and familiar rules that most traders have heard, but there is also #3 about mental capital.

>>
Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. ...
>>

Readers know that I am a fan of the concept. Sometimes I cut winners or losers because of the mental wear and tear that riding it out might cause. The most familiar manifestation might be the "sleeping point." During volatile markets, if a person can't sleep at night, sell enough or cover enough so that the risk doesn't keep a person up all night.

I can mention gold. It continues to make new highs. I had a conversation with some younger relatives. I mentioned gold continues to be strong, and one of them replied, "I heard gold was a bubble." This kind of talk is a huge positive for long term gold bulls such as myself. When young people that don't know much, are hearing that gold is bubble, it isn't true.

Just as all the bond market bubble talk makes me more bullish on bonds, gold bubble talk makes me more bullish on gold. To be sure, gold is extended and may correct at any time. However, longer term, I stick to my long standing belief (since 2005) that gold is headed for ~$3000 an ounce.

As for allocations, there is no one size fits all. So much depends on age, income, asset base, risk aversion, life situation, investment knowledge and history, that I never argue about allocations to various classes. There are plenty of other sites or articles that talk about allocations. I see it as highly personal because so much financial and psychological detail need to be provided to give an intelligent answer.

Buy SPY and GLD (sell puts)

Buy SPY via selling Nov 91 puts, SPY@114.4. I add to my long SPY position. Despite the market rally there is still quite a bit of skittishness in the option premiums.

Buy GLD via selling Nov 113 puts, GLD@127.7. Gold futures fighting through the $1300 round number level. Yes, it is extended. My Oct position is approaching delta zero, so opening a Nov position continues to give me a small exposure.

Long BRKB, GLD, SPY, TLT

Buy SPY and TLT (sell puts)

Buy SPY via selling Oct 104 puts, SPY @114.2. I am already short SPY Oct 97 puts. There was an article on Barrons online suggesting the purchase of October SPY puts as portfolio protection. Buying short term puts is an expensive form of insurance, and when pundits make public suggestions to do so it is a sign of nervousness.

I also buy TLT via selling Nov 94 puts TLT@103.6.

Long BRKB, GLD, SPY, TLT

Buy BRKB (sell puts)

Buy BRKB via selling Nov 70 puts, BRKB @82.2. Chart support at 76 and then 70. I have an urge to open Nov positions on GLD, SPY, TLT, but think there will be a better time to sell options in a day or a few days.

Long BRKB, GLD, SPY, TLT

Luby: Education of a Trader

Bill Luby at Vix and More (link) has an interesting entry about the education of traders, and his own journey.

>>
As I see it, all traders are ultimately self-taught. There are no required classes, readings, homework assignments or even a syllabus with recommendations. Tests are administered on a daily basis, frequently with multiple tests on the same day. Worst of all, everyone is graded on an unfavorable curve in which there are more Fs than As.

Against this backdrop, education counts, but skill and experience count even more. An insatiable curiosity helps, as does a willingness to explore unfamiliar territory. Great trades, insights and strategies present themselves in somewhat random fashion and, as Louis Pasteur observed, “Chance favors the prepared mind.” ...
>>

Readers of my blog that have been with me from the beginning (over three years ago) can see an evolution in the types of trades that I take on. Keeping some kind of trading journal can be instructive for review. It helps a person learn from the past. Often times I find it is the emotional state to be a key indication of a winning or losing trade.

As I've written a few times, there are a lot of ways to skin a cat, a thousand ways to make money in the markets. Finding a style that suits a person's personality is a key. Try to copy someone else, or fit into a style that isn't the real you, and it will twice as hard.

6-1 for September

Six winners, one loser for the September option cycle, for a small profit. BRKB, GLD, TLT, SPY all came in on the positive side, with multiple trades on TLT. The loser, short TBT puts, was relatively big and ate up all the profits from the offsetting TLT trades.

The glass half full view is that opinion wise, I was wrong on all three markets (bonds, gold, stocks), and still eeked out a positive month by sitting out most of the action.

I have three small positions going forward to October, short puts on GLD, SPY, TLT.

Long GLD, SPY, TLT

Buy GLD, SPY, TLT (sell puts)

Buy GLD via selling Oct 115 puts, GLD @124.7. Buy TLT via selling Oct 95 puts, TLT @101.4

I get off the sidelines and open some small October positions. I may add SPY in a bit.

/edit to add: I went ahead on SPY selling SPY Oct 97 puts with SPY@112.6. Again, these are small positions just to keep some skin in the game for October.

Long BRKB, GLD, SPY, TLT

A theory as to why bonds are down

I have a theory as to why the bond market is down so much this month. Historical seasonality tends to favor weaker stocks, stronger bonds. Tuition bills are one reason that so much liquidation goes on this time of year. Many small investors save to pay those college bills.

The theory is that now that small timers have piled so much money into bonds, and bond funds, the outflows are coming from there.

Still here

I'm still here, still watching, and for the most part, I'm still sitting this one out. A bit of good news is that ThinkorSwim has straightened out their software problems.

I mentioned my biases a few posts back, and for the most part they have been wrong. Stocks and gold have moved up, bonds have moved down. My exposure is minimal. I don't have any open October positions.

Missing the boat

The stock market is in full rally mode today, with the Dow up over 200 points. For the most part, I missed the boat. In theory, a trader could have been short, long, short, long and made a bundle during the past few week or so. Nimble is not a word I use to describe my trading style. Problems related to the ThinkorSwim software platform add to my cautiousness. For now, I am sticking to the TOS website, which is slow but it is at least working.

There are worse things than missing the boat. A trader might be on the wrong side of the market. A trader can compound missed opportunities with high risk trades after the low risk entry point has passed. In hindsight, it is easy enough to see all the press about September being the historically worst month for stocks, to conclude that the decline into the end of August would be a good time to buy. Trading is easy in hindsight.

Leg out of SPY Backratio

I leg out of the short SPY backratio. I cover two of the three legs:
cover short half the SPY 88 puts
sell SPY 96 puts
still short half the the SPY 88 puts
Netting a small but useful profit, though I had lot more profit at Friday's lows.

The ThinkorSwim software is extremely sluggish for me today, so I use the website to execute the trades. I don't know if the sluggishness is due to the new release, more TD Ameritrade customers using the server, or what, but I had a frustrating morning trying to enter these trades.

The analogies about surfing come to mind, about the staying on a beach with a lifeguard but not depending on the lifeguard. Sometimes there are problems related to computers or software or phones, that can have a negative impact on trading. These kind of glitches happen, often during the worst possible days.

Long BRKB, GLD, SPY, TLT

Risk aversion

The end of the week after expiration is often the time during the option cycle that I sell options. However, I am not in a mood to take on more risk. Covering TBT puts at a big percentage loss the other day, likely contributes to my skittishness. As I have said before, when things turn south, trading smaller, taking on less risk is often the best way to regain the mojo.

I am leaning bullish on bonds, bearish on stocks, bearish on gold. Seasonality points towards up for bonds, down for stocks, up for gold. That said, with all the cross currents, just about any move in any market wouldn't be a huge surprise to me.

There is a quite a bit of chatter about insurance against Black Swan type of events. Mostly about another big drop in the stock market, and the bubble in the bond market. While a big drop seems unlikely when people are talking about it, a scary but limited drop of 10% or 20% wouldn't surprise me.