Buy LGF (sell puts) plus a stock list

Buy LGF via selling Nov 28 puts
 

An important date for Lionsgate Entertainment is November 22. This is when the second movie from The Hunger Games trilogy starts. For a long time, I have looked at that date as a kind of pivot for the stock. A time, when the easy bull money might well be over. As with everything I write and every position I take, I could be totally off, but it is my current thinking.

There is a modest sell off in stocks today. Most of the November positions I opened are in the red, some significantly so. However, the positions were all low risk, low reward, and the worst case, is that I get assigned some of the stocks at much lower prices (or roll the options out to the next month).

To my surprise, a Saturday chart review turned up a large crop of interesting charts for put sales (bullish): dow fdx hal hon low mmm mon nov nsc oxy pg qcom twx unp ups wmb

As always, nothing on this site is a recommendation to buy or sell. I may or may not take any new positions, but thought a few readers might find the list of interest. As I mentioned before, I will have limited computer access for the next couple of months, so my trades will tend to be reported late, sometimes very late.

Long AMGN APC BA BRKB GDX IWM KORS LGF NKE XRT

Net long GLD SPY

Buy APC GDX NKE (sell puts)

Buy APC via selling Nov 80 puts

Buy GDX via selling Nov 20.5 puts

Buy NKE via selling Nov 65 puts

I sell puts on Anadarko, the Gold mining ETF, and Nike. Again, I am putting some capital to work after the recent option expiration. Nike had a good earnings report and a nice chart pattern. Anadarko has been my war horse all of 2013. The gold miners are choppy, but the strike price is way out, so not that much risk.

Long AMGN APC BA BRKB GDX IWM KORS LGF NKE XRT

Net long GLD SPY

Buy AMGN BRKB IWM (sell puts)

Buy AMGN via selling Nov 95 puts

Buy BRKB via selling Nov 105 puts

Buy IWM via selling Nov 92 puts

I sell puts on Amgen, Berkshire Hathaway, the Russell 2000 ETF for November. As is often the case, option expiration frees up a lot of capital. I put some of it to work with low risk, low reward trades for November.

For the next couple of months, I will report after the close because I have limited computer access during the trading day.

Long AMGN APC BA BRKB IWM KORS LGF XRT

Net long GLD SPY

21-4 for September, grade B-

I count 21 winners, 4 losers for the September option cycle. For new readers, that sounds fantastic. Let me temper that enthusiasm by explaining some basics. I tend to take high probability trades. The opposite end of those buying 10-1 long shot tickets. So of course, I am going to have a high percentage of winners. Those buying long shot tickets are hoping for that ten times payoff, and that is the big risk for the kind of trades that I favor. That I will be on the wrong end of a big move. 

Overall, a good month, but as always with options, it could have been better. This month short calls in Boeing, and the retailer ETF reached the way out of the money strike price, and I covered the short calls. Gold also had some wide swings and the pain was too much, so I closed some positions. For all of them, I would have been better off holding on. That said, no one knows at that time that it would have been the case. If a trader stands firm instead of taking their lumps, the risk is going down with the ship, if a big move continues against a trader.

I made some money in gold, but selling options on GLD ties up a ton of capital and the gains were relative meager considering how many trades I made, and how much time I spent looking at it. Once again, APC Anadarko Petroleum was a cash cow as it has been most of the year, with short strangles (selling both puts and calls).

I again stayed clear of bonds. People talk about manipulation in other markets, but in bonds, the powers that be are quite open about intervention and other tools (taper, quantitive easing, setting interest rates, setting bank reserve requirements).

Going forward, my exposure is modest:

Long APC BA BRKB IWM KORS LGF XRT

Net long GLD SPY

Cover short calls BA XRT

Cover short BA Sep 120 calls @120.1

Cover short XRT Sep 83 calls @83.1

Both Boeing and the retailer ETF advance beyond my strike price so I cover. Boeing at a break even loss, XRT for a break even gain, because I was short puts on both as well. Basically, a whole lot of nothing for me, the broker and exchange made their money though. Being short calls when the Fed makes a surprising move can be a painful place to be. Yes, I could have covered yesterday, but I did not and it cost me the tiny profits on these trades.

Long BA BRKB EMN GE GDX IWM KORS LGF XRT

Net long APC GLD SPY

/edit to add: looks like I closed my positions at a bad time (again). It happens. In my mind, better to be out near break even than risk having a winner turn into a big loser. The psychological damage from those kind of losers is often worse than the financial damage. Selling naked options tends to involve the possibility of huge percentage losses. One analogy is picking up nickels in front of a steam roller. Play long enough, be bold enough and a person eventually gets flattened with huge losses. One rule has always been "live to trade another day." In other words, try my best to avoid account busting losers. Risk management, position sizing, are ways to do this, even if each individual trade often involves substantial downside risk on big moves.

Buy BA (sell puts)

Buy BA via selling Oct 105 puts @117.4

I open an October position in Boeing. It broke out yesterday after a brokerage upgrade.

Long BRKB EMN GE GDX IWM KORS LGF

Net long APC BA GLD SPY XRT

OT: goals, plans and balance

Marketwatch (link) has a article about investors being too optimistic about retirement. The headline is about having no goals or plans but being optimistic.

>>

Fully 89% of investors surveyed said they’re confident their investing strategy will allow them to realize their retirement goals ... But 72% admit their investment knowledge is weak, 54% said they don’t have a financial plan and 45% said they don’t even have clear financial goals

>>

There is a separate statistic (USNews link2) that cites this:

>>

The median retirement saving balance for households ages 55-64 is just $12,000.

>> 

In my travels, I can echo the sentiments. The Bogleheads (Vanguard forum on the side tab and at link3) have a simple philosophy: Live under your means, save a lot (a real lot for high income), figure on about a 4% safe withdrawal rate, use index funds in a balanced manner. That's the best recipe I have seen. As much as I thrive on the complexity of options and short term trading, maybe 5% of investors, maybe 1% of the population is cut out for options trading. For many of the rest, index funds at a set percentage and rebalance is the best road to travel.

For young people, my advice is to find balance. Balance between saving and spending, make finding a rewarding career, and a great life partner (marriage for many) high priorities. There is a world of opportunity out there, even though it may be more competitive than ever, the top end is doing as well or better than ever. There seem to be fewer in that top group though.

In my travels, I do tend to find that those that set goals, that have plans tend to do better than those that don't. Obviously there are exceptions, but any person, especially a young person can think about what kind of life they want and how they might go about getting there. There is nothing wrong with big dreams. However, a person does need to move towards that star and not sit idle.

Buy GLD QCOM (sell puts)

Sell GLD Oct 111 puts @127.9

If an observer says that I am playing gold badly, that person is correct. I got whacked on the dip and am adding back long exposure on this relief rally. These puts are way out of the money and below the prior lows.

The stock market is ripping to the upside, and once again the big time bears, like the ones warning about a crash have egg on their faces, and excuses for their subscribers or losses in their accounts. The rally means I have less exposure going forward. It is more difficult to find new positions because option premiums are down and many stocks are extended to the upside.

/edit to add: buy QCOM via selling Oct 60 puts @68.3

Qualcomm announced a continuation of their stock buy back program. The premium is tiny, making this a tiny worm trade (fishing analogy, small fish, big fish, worms are too small to be called fish). However, 60 is far enough out of the money to give me some comfort.

Long BRKB EMN GE GDX IWM KORS LGF

Net long APC BA GLD SPY XRT

Sell GLD (cover puts)

I cover short Oct 122 GLD puts @126.5

The decline is causing too much pain for me to tolerate. This move is part of unwinding a short strangle in gold. I am still net long, and some of the other short puts are also underwater. This leg of the complicated position is closed at about 60% loss basis the price of the option. Fortunately, the dollar amount is relatively small.

Long BRKB EMN GE GDX IWM KORS LGF

Net long APC BA GLD SPY XRT

/edit to add: looks like I covered close to the worst possible time of day. So it goes. The choice of holding, has the possibility of go down with the ship.

Sell GLD (cover puts)

I cover short Sep 120 GLD puts @128.2.

Gold is plunging this morning, and I am overexposed. I net a 55% profit based on the option price, which is more like 0.2% factoring in the margin requirements for selling short puts. 

 

I am undecided on the other layers of the short strangle for now. Gold is at the 50 day moving average, but technical levels may not provide much support if some big sellers want out. Only in hindsight will I know what the most profitable course is. In the meantime, I can look at the odds, the chart, and make a reasonable decision.

I am still net long gold. Just a couple of days ago, I was feeling smug about my gold positions, how quickly the market can again teach me to be humble.

/edit to add: Let me plug in some numbers for an example. I'll may up a stock, XYZ corporation, with a price of 100. Say I sold the XYZ Oct 90 put for 50 cents with five weeks until expiration. After holding for a couple of weeks, I close the position at 25 cents. So the profit on each contract is $25 less any commissions. The option buyer takes a straight 50% loss. The option sell can report that as a profit. However, typical $1000 (or about 10%) is required as margin to sell the put. This makes the return on capital more like 0.25% not the more exciting 50%. 

The most common scenario is that I hold until expiration and get 100%, though it might be more like 0.5% or 1% return on capital. Sounds terrible? Well, these are 80% to 90% probability trades. Compound 1% several times a year, and all those small fish make a meal.

Long BRKB EMN GE GDX IWM KORS LGF

Net long APC BA GLD SPY XRT

Buy XRT (sell puts)

Buy XRT via selling Oct 74 puts @81.0

XRT is the retailer ETF. I was short Sep strangles (75 puts, 83 calls). In part, this is a rebalancing move, as XRT is closer to the short call strike price. 74 is below a recent low.

Long BRKB EMN GE GDX IWM KORS LGF

Net long APC BA GLD SPY XRT

Buy APC KORS (sell puts)

Sell APC Oct 80 puts @94.0

Anadarko moving to new highs. I open an October position. APC has been my best trading stock this year. It is establishing a beautiful chart base in this area. My reason for being in APC is fracking.

Long BRKB EMN GE GDX IWM KORS LGF

Net long APC BA GLD SPY XRT

/edit: correction, strike price is 80 on these 
later in the day I add an October position in KORS
Sell KORS Oct 65 puts @75.7
Nice base at 65 for Michael Kors. The fundamentals look good as well.

Rebalance GLD (sell calls)

Sell Sep GLD 142 calls @132.2 to reduce my long position.

If it feels like ground hog day (Bill Murray movie where a day is repeated over and over), it is. Another day, another rebalancing move for gold. Yes, I wish I knew what the next $20 move in gold was going to be. For now, I have my money on a modest trading range.

Long BRKB EMN GE GDX IWM KORS LGF

Net long APC BA GLD SPY XRT

Rebalance GLD (sell calls)

Sell Oct GLD 150 calls @134.3 
This reduces my long position in gold. I take on the risk of an upside explosion in the gold price past 150, what I get is the small call premium. I am short strangles (short both puts and calls) on GLD. 

In plain English, this means I make a small profit if gold stays in a trading range, and lose if there is a big move up or down, with the possibility of huge losses on a huge move.
 

Long BRKB EMN GE GDX IWM KORS LGF

Net long APC BA GLD SPY XRT

Rebalance GLD (sell puts)

Sell GLD Oct 122 puts @137.1

I rebalance back to net long on gold. The rally has pushed my short Sep 145 calls deep into the red. I have three layers of short Sep puts against those calls. I still tend to think that the gap resistance will hold. We are all waiting for more news from the Middle East. Gold has had a decent rally and it is extended.

There is more risk in selling puts on something extended to the upside. My recent move in Liongate Entertainment LGF is a reminder. The puts I sold on Monday are deep in the red.

As always, I don't like fast markets because I tend to be a relatively slow moving trader. Sometimes the cliche of "don't do something, just stand there" is the best course for slow moving traders and investors.

Long BRKB EMN GE GDX IWM KORS LGF

Net long APC BA GLD SPY XRT

Buy LGF (sell puts)

I add to my long LGF position by selling Oct 31 puts @36.2

Lionsgate Entertainment continues its bull run. Again, I see continued upside bias until the release date for the second Hunger Games movie Catching Fire on 11/22/13. Because of the up move the stock is extended. However, the 50 day moving average has contained previous pullbacks, and is 31.8.

Long BRKB EMN GE GDX IWM KORS LGF

Net long APC BA GLD SPY XRT

Rebalance GLD (sell puts)

Sell Sep GLD 123 puts @134.9

I sell a third set of gold puts, against the short Sep GLD 145 calls, to get back to a long position. The risk in the short strangle is a big move either way. Right now the calls are in the red as gold has moved up.

Long BRKB EMN GE GDX IWM KORS LGF

Net long APC BA GLD SPY XRT

Buy BRKB IWM LGF (sell puts)

Buy BRKB via selling Oct 100 puts @114.3

Buy LGF via selling Oct 29 puts @35.3

I sell some October puts on Berkshire Hathaway.

I open an October position in Lions Gate Entertainment.The sequel to Hunger Games is opening November 22, 2013. Prior experience and intuition tells me it will be bullish until then. That said, this is a another worm trade, way out of the money, so I have some cushion.

/edit to add: sell IWM Oct 88 puts @102.7

Another worm trade (low risk, low reward, small premium). The 50 day moving average is around 91, and 88 is several chart support levels lower.

Long BRKB EMN GE GDX IWM KORS LGF

Net long APC BA GLD SPY XRT

Sell XRT calls

Sell XRT Sep 83 calls @79.0

Retail ETF has been moving down. Instead of covering my short Sep 75 puts, I sell some calls. This lowers my exposure, while adding the possibility of losses on a big rally above the strike price of 83. By the time I write this entry, XRT is back to 79.4, so not the best timing today.

Long BRKB EMN GE GDX IWM KORS

Net long APC BA GLD LGF SPY XRT

Two of the hardest things to learn

At the recent Investor's Business Daily CANSLIM meetup, someone mentioned two of the hardest things for traders to learn:

To admit that you are wrong, and to ride a long term trend. Depending on a person's personality, one tends to be harder than the other, and they do tend to work against each other. A person can always rationalize about long term if they are sitting on a loser. A person can always want to take profits saying that they were wrong about the long term trend.

The context was for floor traders, the hardest thing is to admit you are wrong. Most men that become floor traders have healthy egos, alpha males, so admitting you are wrong is not something they learn easily. The other side is after getting burned, or whipsawed, it is easy to want to take profits after a small move, instead of riding a big winner.

Some may say this is doublespeak, but there is some wisdom in these cliches. One reason to keep a trading journal (and that is basically what this blog is), is to learn from your mistakes. Having a written record and in this case a public record tends to help a person learn more from each trade. The reasons that a person went in, and why they got out. If they followed a plan, some indicator, some talking head on TV, some blog writer, or other financial writer, some news item.

For me, riding winners is one thing I am learning from attending the CANSLIM meetings. As long time readers observe, most of my trades are low risk, low reward, high probability. Some describe selling way out of the money naked puts as picking up nickels in front of a bulldozer, because there is the low probability risk of a big loss. 

Lions Gate Entertainment LGF has been an example of not getting the full value of identifying a winning stock. The stock has more than doubled since I started trading it (15 now 34). Because I am mostly selling puts, often puts way out, I haven't made as much as I might have doing other strategies. Of course, some of this is hindsight. If I was sure that a stock would double in 18 months, there isn't much need to hedge or do conservative strategies, just go all in and let it ride.

The other side of this was mentioned at the meetup. A person took a position in a recent IPO before earnings. The report was poor and the stock dropped. Boeing and the troubles with the 787 is another example of how news can have a dramatic effect. Hopefully I can learn to get more profit out of a long term uptrend or downtrend and still temper the risk. And yes, despite decades in the markets, I am always open to learning. Even a beginner sometimes has something to teach me. In my younger days, I was sometimes too arrogant. I see it sometimes on various forums, that some people would rather argue than listen, rather preach than possibly learn. 

The other side, is that a person does need to make their own decisions and be confident in them. Relying and being dependent on another person's advice is different from listening, and perhaps adding that information.