Weekly: Mr. Spock's logic

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

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

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

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

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

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

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

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

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

Wed Sell AAPL MarW2 140 c @129.5.

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

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

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

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

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

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

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

Position Summary:

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

net long AAPL AMGN GLD HON UNH XOM

net neutral BABA FDX ILMN IWM PANW SPY WHR

renewed long VRX

49-1 for February, grade A

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

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

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


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

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

Weekly: Goldilocks and the sad bears

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

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

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

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

Sell AAPL MAR2w 118 p @129.0. Rebalance short strangles

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

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

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

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

Weekly: all time highs, new: AAPL PANW

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

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

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

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

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

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

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

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

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

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

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

Weekly: Best week in a year

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

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

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

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

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

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

Buy to close IWM Feb 92 p @120.0.

Buy to close BABA Feb 105 c @86.4.

Buy to close DIS Feb 80 p @102.0

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

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

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

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

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

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

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

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

Sell IWM Mar 103 p @118.0. Russell 2000

Sell XOM Mar 82.5 p @91.4. Exxon Mobil

Sell APC Mar 65 p @85.2 Anadarko Petroleum

Sell ASH Mar 100 p @119.9. Ashland

Sell WHR Mar 160 p @200.0. Whirlpool

Sell HON Mar 92.5 p @100.8. Honeywell

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

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

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

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

Sell SPY put backratio @199.3:

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

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

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

Position Summary

long APC ASH BA BRKB GDX MMM UNP VRX WFC

net long AMGN BABA FDX HON IWM SPY UNH

net neutral GLD ILMN JWN WHR XOM

net short IWM

Santa Monica CANSLIM meetup 1/28/15

Agenda for the meeting:

1) Current Market Outlook--Alex Marenco, former portfolio manager for O'Neil Data Systems, Inc.

2) TBA Lesson--Amy Smith, KRLA radio co-host, & Irusha Peiris, MarketSmith product coach.

3) Review of Watch List stocks submitted by members--Alex Marenco.

4) Ten stocks near a buy point from Alex Marenco's Watch List.

Meeting is sponsored by Investors Business Daily. For those that are not familiar with the CANSLIM method, the book it How to Make Money in Stocks. It focuses on high growth stocks with positive chart momentum. For those looking for my weekly report, it is the next post.

It is standing room only at the Santa Monica stock market meetup. I arrive fifteen minutes later and get one of the last chairs. They do bring out more chairs, but it is elbow to elbow. I sit next to a guy that tags himself as "the bear in the room." He rattles off a litany of doom and gloom that would frighten anyone away from the stock market. Surprisingly, later during the meeting he raises his hand for owning BABA.

Overall thoughts: a lot of very smart people presenting. The meeting is fast moving, covers a lot of stocks. Two that I added to my watch list are UA Under Armour and NXPI a semiconductor stock. I always tell people at the meetup that I am not strictly a CANSLIM trader, but I do use some information, some ideas that I get and incorporate it into my own trading style.

Market Outlook is choppy. There have been five signals changes before the Jan 28 meetup. There were 21 all of 2014, so it is getting choppier. The bull market is long in the tooth. A comment is made that a 20% bear market would be a good way to clean everything out. My thought is that it is like an overgrown forest and there is fire. Then new stock leaders can rise from the clearing.

They ask for a show of hands "who is making money in this market?" Only one hand goes up. Later, they ask how many still own BABA and maybe six hands go up in a room of 50. Earnings for BABA came out the next morning and there were at least six unhappy people as it went down about 10% on the report.

The meetup was on the day of the Fed meeting ending and the market was down hard. The Fed is talking about raising rates in June or July. However, if the stock market careens lower, they may put that on hold, and may even do another round of QE.

A question from the audience is about Europe, specifically Russia. One portfolio guy says he doesn't look at Europe at all, the other says he only looks at EWG, the German stock etf. Another theory fromo the audience is about the broad stock market decline being related to margin calls in the oil futures. It is possible, but it is difficult to make this cause and effect.

A few of my own market thoughts: the broad indices were down about 3% for January 2015. I looked up similar events in the Stock Market Almanac. Mostly it is slightly down, slightly up years when January starts like that. If forced to a number, I'd say -5% for 2015, or -2% from here. A lot of money continues to pour into oil stock ETFs. To me that means lower lows in oil and oil stocks are highly likely.

Weekly: long APC BA short BABA

What a wild week! Lots of big movers on earnings. SPY down for the week, but it was a choppy ride. I attend a CANSLIM meetup and will do a separate write up on that tomorrow. One question asked was "who is making money in this market?" Only one hand went up.

For me, my account took a big haircut, but I am still up for 2015. New longs this week are APC and BA. New short BABA. Here are the trades:

* p = put, c = call, all 3rd-week of the month expiration

Fri Sell XOM Mar 95 c @87.4. I rebalance short strangles on Exxon Mobil by selling some March calls to offset short March 75 puts.

Thu Sell BABA Feb 105 c @89.4. New short positon in Alibaba on disappointing earnings. Sold these calls during the first 15 minutes of trade, at the bid, to get an immediate fill in a wide market. My thinking was volatility would get crushed as the day continued. This turned out to be correct and I had around 50% profit basis the premium collected, by the end of the day.

Sell IWM Feb 123 c @116.3. Rebalance short strangles on the Russell 2000 etf. I sold these during the morning weakness and it is the opposite effect, sitting on about a 100% loss by the end of the day. The market giveth, the market taketh.

Sell UNH Mar 120 c @109. Hedge short Mar 95 puts by selling calls. I placed the order during morning weakness, where it sat, until the monster market rally came in. What a crazy market!?

Wed Sell BA Feb 123 p @137.5. New long position in Boeing after earnings.

Sell MMM Mar 145 p @164.5 Add to longs in 3M Corp by opening a March position. Earnings are just okay, but it removes one uncertainty.

Mon Sell FDX Mar 200 c @176.1. I hedge my short puts by selling calls on Federal Express.

Sell SPY Feb 213 c @204.0. SPY looks weak, I see little chance of new highs by February expiration. As SPY rallies against this recent move, I compensate by selling SPY Feb 189 p @205.3.

Sell APC Feb 68.5 p @82.7. New long position in Anadarko Petroleum

Position Summary:

long APC ASH BA DIS GDX HON LUV MMM SPY UNH VRX WFC

net long AMGN FDX ILMN IWM JWN UNP XOM

net neutral GLD WHR

short BABA

Weekly: new long LUV, new neutral GLD

Spreads were wide on many of the less active stock options. Mostly I go for the mid or a penny or two below the mid. Sometimes I get filled, sometimes not. New positions: sell puts on LUV for a new long position, sell strangles on GLD for net neutral.

In the news was the ECB news, more earnings, and Mercury going retrograde. I remember hedge fund manager David Tepper talking about his reaction to the Fed's most recent QE news. Tepper thought it would be good for just about all U.S. stocks and went all in on the long side. It remains to be seen whether the European version will be good for stocks, more particularly for us, U.S. stocks. I am out of my depth there, but it is worth looking at. So far, the European QE has been very good for U.S. bonds, and pretty good for U.S. stocks.

Fri Sell HON Mar 87.5 p @101.3. Add to longs in Honeywell as it moves up on earnings.

Sell UNH Mar 95 p @113.0. Rebalance short strangles on United Healthcare. UNH had a big follow through day to the upside and is nearing the strike of the short Feb 116 calls. If it does go up through 116, I plan to buy stock to cover.

Sell ILMN Mar 150 p @197.0. Rebalance short strangles in Illumina. It can be hard to get a fill on ILMN options. I tried for a couple of days. This one got filled a dime below the mid with a wide bid/ask spread.

Sell IWM Feb 107 p @118.2. Rebalance short strangles on the Russell 2000 etf.

Thu Sell UNP Mar 100 p @118.5. Add to longs on Union Pacific Railroad as it moves up after earnings.

Sell UNH Feb 102 p @109.7. Rebalance short strangles on United Healthcare. UNH closed strong yesterday and opened strong this morning. I get filled as it corrects back.

Sell LUV Mar 35 p @43.8. New long position in Southwest Airlines. LUV makes new highs on earnings news. Support at 37.

Sell FDX Mar 155 p @179.4. Add to longs in Federal Express by opening a March position. As the market rallies, I add long delta.

Wed After options expiration, I often plow the capital right back into the market. I wanted to note that the Mercury retrograde alignment starts today 1/21/15 and ends 2/15/15. Last retrograde cycle was a difficult market time for me. Some may say this is superstition, but I am making note of it. Perhaps with the shaky start to 2015, the retrograde changes the energy and we start trending.

Sell BRKB Mar 130 p @147.5. I add to longs by opening a March position in Berkshire Hathaway.

Sell GLD strangles @123.9. 
Sell Mar 110 p / Sell Mar 145 c
GLD premiums up a bit due to pending European Central Bank (ECB) news. 109 is the recent low, and the 145 strike balances it out nicely.

Sell XOM Mar 75 p @91.5. I rebalance short strangles by selling some March puts on Exxon Mobil.

Sell UNH strangles @108.6: United Healthcare up on earnings
Sell Feb 100 p / Sell Feb 116 c

Position Summary:
long APC DIS FDX GDX HON MMM UNP VRX WFC
net long XOM / net short UNH
net neutral AMGN ILMN IWM JWN SPY WHR 
new long LUV 
new net neutral GLD 

38-2-1 for January, grade A-

Thirty eight winners, two losers, one break even for the January cycle, grade A-. I experience modest gains and a high win percentage during this turbulent start to 2015. The two losers were BBY and SPY. Both had offsetting profits, so I didn't lose money on any ticker symbol for the month. A bit of skill, a bit of luck, and some stock picking are factors. Best winners include FDX (Federal Express) and IWM (Russell 2000 etf). 
 
My SPY backratio insurance did not come into play despite the down start to the year. I have more put ratios for February and March. Basically, these help with a 10% decline into an expiration Friday.

I initiated new longs in GDX the gold mining etf and so far that has worked well. These are tiny positions. Biotech was mostly a big winner for me in 2014, but this year the road looks to be more difficult. I don't have any position in bonds, even though it looks near parabolic to the upside. Oil continues to attract a lot of attention, so I think there is more time needed to form a bottom. It may be years before the price of oil recovers in a meaningful and lasting way.

A few months ago, I blogged about my trading difficulties when Mercury went retrograde. That three-time a year configuration for Mercury starts again on January 18th. I am a fan of anything that works, so I will watch myself. I won't be fearful, I will be observant. 

Many eyes will be on the European Central Bank (ECB), as to what it might do next. It is widely anticipated that a massive quantitative easing program will be announced next week. What is announced and what is expected may not be in alignment and the markets may react. Earnings reports continue, and there are often trading opportunities around those earnings events.

Weekly: Cow patch crap

It is a trip through the cow patch for me, one misstep after another. During this stressful market week. I was short strangles in BBY when it tumbled, I sold puts on ILMN and watched it drop 16 points an hour after going long. Friday's relief rally means that I come out okay at the end, but may have a few more grey hairs for the experience. I'll post the monthly recap in a little bit. Here are this week's trades: (p = puts, c = calls, all are traditional 3rd Friday of the month expiration)

Fri Sell ILMN Mar 230 c @182.0. Hedge short puts by sellings calls on Illumina to reduce my delta. ILMN is 14 points lower from when I sold the March puts. The ILMN Jan 200 calls I sold are about to expire in my favor.

Sell AMGN Feb 175 c @153.5. Hedge short puts by selling calls on Amgen. Later in the day, I get the ping-pong effect as AMGN rallies after I get my fill. I rebalance again, by selling AMGN Feb 130 p @157.5.

Sell XOM Feb 77.5 p @90.9. Rebalance short strangles on Exxon/Mobil as some short January puts expire.

Thu Buy to close (cover short) BBY Jan 34.5 puts @34.0. Best Buy gaps lower after holiday results. This wasn't the earnings report, it was the Christmas holiday quarter sales. It is tough to trade the fast moving market. There seem to be some terrible fills on market orders. 

I get out for a -105% loss on this BBY leg, basis the premium collected. I am still short BBY Jan 32 puts and Jan 42 calls. I thought about shorting the stock to cover the short puts, but the market is moving too fast for me. What if there is a giant rally and I am caught short? Seems unlikely, but there have been some big mood swings. Holding is too risky for my timid tastes, given the wild market swings. If there is another big down day and that 105% loss might go to ten times that.

Wed Sell WHR Feb 230 c @195.0. I hedge my recent put sales in Whirlpool. With the wide spreads, my order is at the mid and I get a quick fill.

Sell JWN Feb 85 c @76.9. I hedge short Feb puts in Nordstroms by selling calls.

Sell IWM Feb 125 c @115.8. I rebalance my short strangles on the Russell 2000.

Tue Different day, more crap, morning upside and then more downside. I feel like I stepped into a pile of crap with some of my recent trades. All a trader can do is scrap the crap off their shoes/boots, and move on, and hopefully not step into too many more cow piles.

Sell IWM Mar 100 p @119.3. I rebalance short strangles on the Russell 2000 etf. The move up had me net short and I move back to near neutral.

Sell WHR Feb 155 p @202. I rebalance short strangles on Whirlpool.

Sell ILMN Jan 200 c @184.7. I hedge my short puts by selling some calls. Illumina down over 10 points from when I sold Mar 160 puts 23 hours earlier.

Sell IWM Mar 128 c @116.2. I rebalance again on IWM as I got whacked on the morning move.

Mon Stock market head fakes to the upside in the morning before it reverses and drops quickly. I add to longs in United Healthcare and Illumina, and rebalance short strangles on Exxon Mobil.

Sell UNH Feb 85 p @102.5.
Sell XOM Feb 97.5 c @90.0.

Sell ILMN Mar 160 p @196.1. ILMN options can be tough to trade because there are wide spreads and not much volume. I like the chart, and the way the stock has been strong during the shaky market start for 2015. Wowsers! A few minutes after I get my fill ILMN bumps up a couple of points than drops to 180 in a few minutes. Yikes! At the moment, there is nothing showing as far as news. ILMN is not the most liquid stock. It is coming back to 192 as I type so my thinking is that the most likely event is a fat finger mistake.

A bit later, there is a news report about ILMN presenting at a conference and giving luke warm earnings projections. Another factor is that it is a Investors Business Daily CANSLIM stock. The low of the day is about 8% below the buy point. The CANSLIM method preaches a 7% stop loss, so strict followers would have been taken out by the sharp drop. For those that want to sing the manipulation song, yes, it does happen. As small fish traders, not much we can do about it. Sometimes there are lawsuits and years later, it is the lawyers getting a slice, and the investors a slice.

Position Summary:
long APC DIS FDX GDX HON MMM UNH UNP VRX WFC
net long ILMN JWN XOM
net neutral AMGN IWM SPY WHR
expired APC BBY KMX MSFT NKE YHOO

Weekly: New Year starts with a bang

2015 starts off with a rollercoaster ride, ending with the week on a down note. My trading account is up a tad, so I managed the ups and downs better than I have in the recent past. Some highlights include many rebalancing trades, new position in XOM (near neutral), new longs GDX, WFC, many rebalancing trades, and opening some February positions on existing longs. Here are the trades (p =puts, c = calls, all are third week of the month expiration):

Thu Sell WHR Feb 155 p @194.5. Rebalance back to net long on Whirlpool and Amgen.

Sell AMGN Feb 135 p @161.2.
With the wide option spreads, I am entering the orders at the mid or a penny or two below the mid as day limit orders. Sometimes I get filled right away, sometimes it takes a while and the stock to come back. Sometimes the order sits and expires. It isn't easy to trade these wide spreads, though on actively traded stocks fills are more likely.

Sell SPY Jan 196 p @204.9. Rebalance SPY back to net neutral. Those Mar 218 calls I sold are deep in the red. I selling puts to hedge. The strike is below both sets of recent lows.

Sell FDX Feb 150 p @174.1. Add to longs in Federal Express
Sell XOM Jan 86 p @91.7. Rebalance short strangles in Exxon Mobil by selling calls. The strike is below the recent low of 86.1.


Wed Sell XOM Feb 77.5 p @90.7. Rebalance short strangles on Exxon Mobil.

Sell VRX Feb 105 p @144.1. Add to longs in Valeant Pharma, one of my best bull stocks from 2014.

Sell MMM Feb 135 p @159.9. Add to longs in 3M Corp. MMM is at the 50 day moving average line on the chart.

Sell JWN Feb 70 p @79.3. Rebalance my position in Nordstroms back to net long. 70 is a support level.


Tue Cover AMGN Jan 148 p @155.2. I close these short puts near breakeven to take some risk off the table.

Sell UNP Feb 95 p @113.9. Add to longs in Union Pacific railroad.

Sell GDX Mar 16 p @20.3. Add to longs in gold miners.

Sell SPY Mar 218 c @199.5. Rebalance in a minor way my net long position in SPY by selling calls.

Sell XOM Feb 97.5 c @89.4. Hedge short puts by sellings calls. The thought in my mind "well, that didn't work, buying the dip in oil," so I move closer to a neutral position in Exxon Mobil.

Sell ASH Feb 95 p @117.2. Add to longs in Ashland Corp. ASH was one of my best bull stocks during 2014.


Mon New long position in the gold mining etf. 16.45 is the 52-week-low, so I pick the strike below that.

Sell GDX Feb 16 p @19.1

Sell SPY Backratio @203.3: Buy SPY Mar 184 p
Sell 2x SPY Mar 179 p for a credit
Again, I like to sell SPY backratios after a tick up in volatility. These are delta positive, theta positive, for a net credit. There is the possibility of an explosive profit on a decline to the lower strike. A decline below 174 and losses start to spiral. In an up or unchanged market, I get to keep the small credit.

Sell DIS Feb 80 p @92.5. I add to longs in Disney. 80 is several support levels away.

Sell WFC Feb 45 p @52.3. New long position in Wells Fargo

Sell IWM Feb 122 c @117.0. Rebalance short strangles on the Russell 2000 etf. I reduce my net long position by selling calls. The minor high is 121.41.


Some trades from the prior week:
Fri 1/2/15 Sell BRKB Feb 135 p @151.1
Turns out that the early morning rally is a head fake. The double pump fake has the market moving lower, then closing near unchanged.

Wed 12/31/14 I rebalance short strangles back to neutral on the Russell 2000 etf.
Sell IWM Jan 113 p @120.6

Tue 12/30/14 Sell BBY Jan 34.5 p
Mon 12/29/14 Sell JWN Jan 75 p

Position Summary:
net long AMGN BBY FDX GDX HON JWN SPY
net neutral APC NKE WHR XOM YHOO
long ASH BRKB DIS ILMN KMX MMM MSFT UNH UNP VRX WFC

new positions: GDX, WFC long, XOM net neutral

Year in Review: Nothing to brag about grade C+

I made money in 2014, but it is nothing to brag about. In round numbers, my trading account is up about 7%. For blog reported closed trades, I count 390 winners and 69 losers, which is about an 85% win percentage. Before anyone gets excited by the 85% win percentage, those are about the odds going in. 

Understand that the payouts scale to the odds. The person buying the 15% chance of profit option is hoping for a 7-to-1 payout when they win. Why else would someone buy an option with only a 15% chance of profit? I give myself a C+ grade for the year which to most people is a meh grade. With SPY up about 11% and VTI about the same. I trailed those big indexes. However, IWM (the Russell 2000) was up less than 4%, and gold, silver and emerging markets all went down for the year. On the other side, bonds, utilities, and REITs all had big up years.

Some of my most profitable trading tickers include:

AMGN ASH BRKB DIS GLD IWM SPY VRX

Some of my worst include:

APC BA FDX GILD IBB TM UAL WHR

Biotech shows on both lists. APC was on the winners list until the spike down in oil prices flipped it over. SPY is up about 12% from the October lows, which is about the same as the gain for entire year. A few nimble traders rode the waves and made money on the down move and the rally. Some slower moving traders got caught in the turbulence, I lost money during the sharp moves. Only a few of those losses would I describe as stupid, but for an experienced trader, that is a few too many.

I loosely track a few ETFs, in round numbers, here are the best to worst for 2014:

TLT +24% (20 year treasury bonds)

SPY +11% (S&P 500)

IWM + 4% (Russell 2000)

GLD - 2% (Gold)

EEM - 6% (Emerging Markets)

SLV -20% (Silver)

Long term treasury bonds surprise as the best performing major asset class in 2014 with TLT up 24% for the year. Who predicted that? Especially as Fed bond buying ended right on schedule. Utilities and Real Estate Investment Trusts (REITs) were other big beneficiaries of the rally in bonds, with XLU and IYR up near the same amount.Silver craters down again, after a big down year in 2013 as well. Averaging down into a major bear market can be the road to the poor house.

I often write that predictions are mostly for entertainment. So just for fun, lets glance at that crystal ball. There are cross currents for the stock market. Seasonal factors such as the 10-year cycle, the 4-year presidential cycle point to a strong year, up 28% in year 5 of a decade is average. On the other side, valuation measures such as CAPE (aka as PE 10, the ten year price-earnings of the market), and market dividend yield, point to over valuation. I posted about the warning signs of a top before (link). I'll continue to remind myself of those, because a top is inevitable. However, ten tops tend to be predicted for every top that occurs. 

 

On the anecdotal side, there is a tiny bit more exuberance, as two young relatives opened accounts and bought a few shares. Neither is going "all in" or thinking about trading full time, but still it is a minor negative. I mentioned that one of the local CANSLIM meetup groups closed down. I see this as a minor positive. Stock market meetups would be booming, not closing down, if this was a popular market bubble ala 1999/2000. Instead, it remains a tough task to find intelligent casual conversation about the stock market. I still often hear people saying "the stock market is fixed. I don't trust the stock market." So this remains one of the most hated bull markets ever, up about 200% of the SPY 666 lows.

My plan is to listen to the market, instead of having a set in stone prediction. In May 2014, I wrote a post "Tea Leaves for a Market Top" (link) and continue to watch for those signs (transports lagging, inverted yield curve, magazine cover sentiment). Over my many years in the market, I observe that my predictions tend to be no better than coin flips. In other words, I don't make money on my predictions. I am bit better at risk management and that's where I see the profits coming form. Each trader has biases. Old timers have history. Hopefully, I can translate my vast experience into wisdom instead of bias.

Let me close with a toast: Here's to 2015 being the best year ever! Cheers!

Weekly: Merry Christmas and Happy New Year

I trust all had a good holiday. A quick update for a quiet holiday up week.

Wed I ping-pong on AMGN, in a wrong-way fashion, and rebalance again.

Sell AMGN Jan 148 p

Sell IWM Feb 106 p

Tue I rebalance short strangles in Amgen and Honeywell. I hedge my neutral position in SPY.

Sell SPY Feb 220 c

Sell HON Feb 92.5 p

Sell AMGN 175 c

Mon I rebalance my position in Federal Express by selling puts

Sell FDX Jan 165 p .58

I didn't check my deltas so won't post a new position summary. Next week may be even quieter for me, so HAPPY NEW YEAR to all the readers. May you have the best year ever!

I'll post a year in review at some point. There was some good, some bad, some ugly. 

Weekly: Playing with fire, getting burned

Selling options with only a short time until expiration is playing with fire. This week, I get burned by selling some calls for this cycle. Calls on WHR, UNP, AMGN all became big time losers. Whirlpool was the worst, and I took a 2500% percentage loss basis the option premium collected. 

As almost always, my positions are small dollar amounts. I also had enough offsetting options expire worthless so the week was profitable. It is still painful to have a firecracker blown up in your hand, so to speak, though.

Here are the trades:
* p = puts / c = calls, all are the monthly third week of expiration options.

Sat Assignments on calls in ASH at 115 and WHR at 185. Ashland was a nice, though small profit. Whirlpool a mind-numbing, shell-shocking loss.

Fri New long position in KMX, up on earnings. 

Sell KMX Jan 60 p

Thu Ouch! I get burned by the monster two-day rally. Selling short term calls is playing with fire, and an entire finale rack went off in my face (a finale rack is the big ending of a major fireworks show). The percentage loss on the short WHR calls is about 2500%, on the UNP and AMGN about 300%, in two or three days!!! Now don't get the wrong impression, my trading account is up big during the past two days, but would have been up even more had I not played with fire.

Buy WHR shares @190.98 to cover short calls. I bite the bullet instead of trying to finesse for a better price. As it turns out I am on the bad side of the price curve, but with such a shell-shocking percentage loss (2500%), rational logic is difficult to discern.

Cover short AMGN Dec 167.5 calls

Cover short UNP Dec 118 calls

Sell IWM Jan 108 puts

 

Wed Sell FDX Jan 180 c

Tue Sell WHR Dec 185 c

Mon Sell IWM strangles:

Sell IWM Feb 126 c

Sell IWM Feb 92 p

Sell AMGN Dec 167.5 c

Sell JWN Jan 82.5 c

Sell NKE Jan 105 c

Sell UNP Dec 118 c 

Position Summary

long ASH BRKB DIS HON ILMN KMX MMM MSFT UNH UNP VRX

net long NKE SPY

net neutral AMGN APC WHR YHOO

net short BBY FDX IWM JWN

expired GLD TLT

assignments on ASH 115 calls, WHR 185 calls, both covered by stock purchases

Weekly: Baby swans and pipers

I see the recent market action as a "baby swan event." There are so-called black swans which are rare. Swans live for 10 to 20 years and mate after age four. So the baby swan is something that might happen every four or five years. The sharp decline in oil is that kind of event--not an every day event, but not a black swan which I see more as a once every 20 or 30 year event. Hence, my tag "baby swan," the kind of thing that might happen every five years or so.

During volatile markets I sometimes wish I were a more nimble trader, with better instincts as to directional movements. As is, I am slow moving. My directional predictions tend to be no better than coin flips. As is, this week was painful, with a lot of red ink. I close two layers of short puts on APC for huge percentage losses. I layered some SPY put backratios to hedge. I added to longs on Monday. Trades are below:

Fri Cover short APC Dec 75 p @74.3. for about a 600% loss basis the premium collected. I pay the piper his/her second installment on Anadarko, the first is below. Wow!

Wed I layer a second SPY put Backratio

Buy SPY Feb 183 p

Sell 2x SPY Feb 178 p

Tue I hedge by selling a SPY put backratio:

Buy SPY Jan 188 p

Sell 2x SPY Jan 184 p

Again, these are bullish positions but have an explosive profit with a decline to the lower strike. If there is a crash, they start to lose big time below SPY M180.

Mon I pay the piper today in APC taking a big loss coverin some short puts. I roll down to a much lower strike, and that new position is deep in the red before the day is over. Other than taking my lumps in oil, I add to longs in ILMN, DIS, rebalance WHR.

Sell ILMN Jan 155 p @190.0

Sell DIS Jan 85 p @94.0

Sell WHR Jan 165 p @188.0

Cover short APC Jan 77.5 p @77.2

roll down by selling APC Jan 60 p

Position summary:

long BRKB DIS HON ILMN JWN MMM MSFT NKE UNH UNP VRX

net long AMGN ASH BBY FDX IWM SPY WHR YHOO

net neutral APC GLD TLT

Weekly: calm after the storms

Relative calm returns to the markets, as the zombie bull continues to lurch slowly forward. Highlights include a new long position in MSFT, adding to longs in many existing positions, and hedging my position in BBY.

Fri I hedge my long position in Best Buy by selling calls. I add to longs in Union Pacific Railroad and United Healthcare.

Sell BBY Jan 42 c @35.5

Sell UNP Jan 105 p @119.3

Sell UNH Jan 92.5 p @99.8

Wed Add to longs in Nike, Sell strangles in Amgen:

Sell AMGN 190 c @167.5

Sell AMGN 145 p @167.5

Sell NKE Jan 87.5 p @98.0

Tue New long position in Microsoft and add to longs Federal Express and Nordstroms.

Sell FDX Jan 160 p @180.5

Sell JWN Jan 67.5 p @75.3

Sell MSFT Jan 44 p @48.4

Mon I open January positions on some of my existing longs

Sell HON Jan 87.5 p @97.5

Sell NKE Jan 87.5 p @97.8

Sell YHOO Jan 44 p @50.2

Sell ASH Jan 105 p @116.2
Sell ILMN Dec 172.5 p @189

Position Summary:

long BRKB DIS HON ILMN JWN MMM

long MSFT NKE UNH UNP VRX WHR YHOO

net long APC ASH BBY IWM TLT WHR

net neutral AMGN FDX GLD IWM SPY

Weekly: Oil crush

I hope all had a good Thanksgiving. Those long oil felt like turkeys. The sharp move down in oil hurt me. My position in Anadarko Petroleum moves deep into the red.


Fri Oil spikes lower on OPEC news. My short puts in APC get crushed. I sell calls in an effort to do damage control, but the horse is long gone from the barn.
Sell APC Dec 90 p @80.3
Sell APC Jan 97.5 p
I am short APC Dec 75 puts and APC Jan 77.5 puts. Yikes!


Tue I continue to put capital to work
Sell BBY Jan 32 p @38.5
Sell MMM Jan 145 p @158.1

Sell TLT Dec 118 p @120.9
Sell GLD Dec 122 c @115.2

Sell FDX strangles: FDX Jan 155 p @175.2
Sell FDX Jan 195 c

Sell WHR strangles: WHR Jan 160 p @184.7
Sell WHR Jan 210 c


Mon Option expiration frees up a lot of capital, and I use some of it. Most of these are adding to long positions.

Sell AMGN Dec 150 p @164.2
Sell VRX Dec 110 p @142.4

Sell APC Jan 77.5 p @92.4
Sell BRKB Jan 135 p @147.1

Sell IWM strangles @117.8: Jan 101 p / Jan 127 c

Position Summary:
long AMGN BBY BRKB DIS HON
long JWN MMM NKE UNH UNP VRX WHR YHOO
net long APC ASH IWM TLT WHR
net neutral FDX GLD SPY

39-8 for November Grade C

Modest profits for me, as I count 38 wins, 8 losses for the November cycle. Again, before anyone gets excited by the high win percentage, those tend to be the odds going in. I enter most trades with a 80% to 90% chance of a profit. The other side of high probability is that profits are small, and losses can be substantial. 

Traders buy options with a 10% chance of profit, hoping for a 10-to-1 payout or more. With the market moving straight up, many call buyers got rewarded. Call sellers like me got skewered. Fortunately, I am one to take my losses (vs. wait and hope or doubling down), so my losses were contained, though painful.

I covered the call side of many short strangles for losses: AMGN ASH HON SPY VRX YHOO. For some positions I resorted to buying stock because of wide spreads on the options. Buying stock means adding capital and risk, but helps with the bid/ask spread. Another cost is an extra level of commissions for assignment, when the stock gets called away.

Some strangles came in safe, but the percentage was not what I wanted. During these straight up moves, I tend to lag an all-in long strategy. There is no getting around this for hedgers. The alternative is to be directional, and my history with directional trades is poor. Two recent examples are in gold and bonds (GLD, TLT). I recently bought calendar spreads, taking a long position in gold, short bonds, both directions were wrong. Gold went down, bonds went up. For gold, I reverse the position so I am at a profit. The bond position is near worthless now.

What next? There remain many red flags for the stock market. QE in the U.S. is ending. Bullish sentiment is high. Valuations are near red line, though not nose-bleed bubble territory. Again, my directional predictions tend to be no better than coin flips. This is one reason that I hedge the way I do, because it is a way to make money in the market while being just okay on direction. The risk management side came into play this past month and saved my bacon. While some losses were huge percentage losers, overall I made money.

Weekly: Same crap, different week

There is saying in Spanish, same crap, different day. This week was more of the same for those with hedged positions. The bull marches forward, bears get crushed. My trades include: a new long position in BBY, roll some covered calls on ASH, buy VRX stock to cover short calls. 

Lest, I sound whiny, it was a profitable week and month for me, so overall there are positives. However, during these straight up moves, I lag an all-in long strategy.

 

Fri Cover short FDX Nov 175 calls @174.5. I cover mid-day, rather than waiting until the last minute and a potential dance with the devil. FDX closed below 175, so I would have been better off holding. However, Federal Express traded all over the place, with a high over 176.

Roll ASH short calls: Cover short ASH Nov 110 calls, sell ASH Dec 115 calls @113.25. I bought shares of Ashland to cover short calls because of the wide spreads on the options. I was happy to let the stock get called, but I could buy back the call for a decent price and sold December calls at a higher strike. This adds risk and capital.

VRX and AMGN are going to get called away tomorrow. I bought shares of both to cover short call positions. Again, I bought shares because the spreads on the options were so wide. In the case of Amgen, I tried limit orders several times only to watch it climb ever higher. Ouch.

Thu Sell BBY Dec 34 puts @37.8. New long position in retailer Best Buy, which is up on earnings news today.

Sell IWM Dec 105 puts @116.1. Add a bit to longs in the Russell 2000 etf.

Tue Buy VRX shares to cover short Nov 140 calls @141.58. I add a lot capital and take on a lot more risk by buying shares of Valeant Pharma.

Position Summary:

long AMGN APC BBY BRKB DIS FDX GLD HON

long JWN MMM NKE UNH UNP VRX WHR YHOO

net long ASH IWM

net neutral SPY

short TLT

expired ILMN