Stock Investment » Finance

Stocks Investments :Closed VXX Naked Call

admin — Sun, 11 Dec 2011 13:06:27 +0000

I was planning to ride my VXX naked call all of the way to expiration and then sell covered puts on it for as long as I could ride it. Once I saw $SPX hit resistance around its 200 day moving average I started wondering if my downside risk was greater than my upside potential [...]

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I was planning to ride my VXX naked call all of the way to expiration and then sell covered puts on it for as long as I could ride it. Once I saw $SPX hit resistance around its 200 day moving average I started wondering if my downside risk was greater than my upside potential and decided to exit and try it another day. While VXX was trading at .13 I bought to close one December naked call for .30 and paid $0.72 with commissions. This gave me a realized loss of .46 on this option. I almost made a few cents on it, but my original order didn’t hit and I had to chase it up the ladder some. I could’ve bought this call back with a market order for .95 just a few minutes before I changed the order.

$SPX was around 1,258 at the time I made the trade and now it’s down to 1,252 while I write this with VXX up to .80. I ran a few alternate trades through my head before running with this one. All of them pushed me into January with VXX exposure and I didn’t really want that any more. I thought selling a January covered put for a little more than .00, but figured VXX could pop another .00 higher and waste more money for me in a single day. That made me consider a January covered put for about .00. It would’ve put my cost per share around .00 and might not have been a bad trade since I would’ve set myself up for another 0 profit over the next seven weeks. I really debated that, but finally decided it was better to just get out, move on and concentrate on my core positions of index ETFs. I’ll probably come back to VXX again next year and might start my trade with a calendar spread to try to work off the faster time value erosion in the front couple of months versus four to six months out.

I also considered new covered calls on JPM. I have December covered calls on my 200 shares right now. I’ve left them in place even though they are only worth $content.10 so that I’m forced to sell if JPM rips higher again. It’s already so far off its recent lows that I wondered if I should lower this strike and try to get out with the guarantee of more premiums in my pocket. I got as far as entering the limit order, but never hit “transmit” before I deleted it. I’ll probably regret not taking in more premiums since JPM looks like it might have gained as much as it’s going to for now. I opted to risk it though and see if how it does tomorrow. If it starts to falter, I’ll go ahead and sell new covered calls at lower strikes or might just close the position if it looks too risky.

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Stock Market Investment :S&P 500 Chart – Moving Averages with a Bullish Crossover

admin — Sun, 11 Dec 2011 13:06:27 +0000

This S&P 500 ($SPX) chart shows the past three months of daily prices after the index finished the week at 1,244.28 on Friday, December 2, 2011. The large cap index just finished its second best weekly point gain ever, but is facing resistance from its 200 day moving average

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This S&P 500 ($SPX) chart shows the past three months of daily prices after the index finished the week at 1,244.28 on Friday, December 2, 2011.

The large cap index just finished its second best weekly point gain ever, but is facing resistance from its 200 day moving average (dma) now. Although the SPX has made it above the key moving average this fall, it hasn’t closed above it for three consecutive days since July.

One bright spot comes from the bullish break of resistance from the trend line of lower highs. This past week’s rally took the index above this trend line only to see it use the same line as support the next two days. The line that was once resistance could (as it often does) turn into support, albeit with a declining trend. At the same time the line that was ascending support for two months in the form of higher lows now appears to be acting as resistance. This sets up an expanding wedge where the days’ highs and lows could get wider until a new trend is found.

The 200 dma will have to break resistance before this upper line of resistance can come back into play for more than another day. To the downside, support could come from the 50 and 100 dma which just converged. The 50 and 100 dma are actually showing a bullish crossover. The index tends to be at the cusp of a multi-month trend when these two moving averages cross. For now this trend favors the bulls which means this past week’s 7+% gain might just be the beginning. The Williams %R indicator is also favoring the bulls. At the end of Thanksgiving week the indicator literally ran off the bottom of the chart for its 14 and 28 day periods. This is an extremely rare occurrence and showed an excessively oversold market. This aided the bulls when shorts were squeezed out of their positions and were forced to buy back their positions.

If history does not repeat itself and the bears have more fight left in them, the S&P 500 could fall back to its lower ascending trend line of higher lows that started with this year’s low and touches the Thanksgiving week low. This trend line is the next major line after the moving averages that computer based algorithmic traders will be watching and a break below this could send the index back down closer to the 1,100 area. If history does repeat and this is the beginning of a new long term uptrend, the bulls will have to be patient before going all in until the October high of 1,292.66 is taken out. This is the magic line for the computer models and a close above this line should send in mass buy orders over the following days. That line is almost 4% above Friday’s closing level and leaves a lot of room for day traders to toy with longer term investors before patient bulls are fully rewarded.

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Stock Market Investment :Sold DIA Naked Put

admin — Sun, 11 Dec 2011 13:06:27 +0000

Yesterday I mentioned my plans to come in on either direction the jobs data pointed us. Although the details within the jobs data were mixed, the headline number helped push the scrum to the bulls’ side to start the day. Seeing the ECB showing more teeth in their snarl helped

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Yesterday I mentioned my plans to come in on either direction the jobs data pointed us. Although the details within the jobs data were mixed, the headline number helped push the scrum to the bulls’ side to start the day. Seeing the ECB showing more teeth in their snarl helped too. (The ECB is reported to be setting up a 100-200 euro loan to the IMF.) What I see more and more of is a reduced probability of another hard recession in the near term. While the troubles and concerns are very far from being resolved the majority of macro-economic fundamentals are looking more and more bullish (outside of China which is a whole other concern). This creates a little firmer floor for any dips, much like the one we’re still springing off of this week.

With all of this in mind I thought I should add in some large cap exposure. I’m deep enough into small caps already and have a decent amount of mid-cap exposure, so the Dow was the next logical place to look for me to diversify a little, not that diversity has done much for anyone lately in a market that seems to have a beta of one for every sector. While DIA was trading at 0.94 I sold one DIA December 30th 1 naked put for .05 and received 4.65 after commissions.

I sold at the money because I’m more bullish than bearish, but not so much that I considered going in the money for more than about 10 seconds. This trade sets me up for a potential gain of 2.6% or 31.9% annualized. I picked the short duration because I’m really banking on the Santa Claus rally to pull us through the end of the year with strength. By the time January rolls around we could be ready for another leg down briefly. I’d like to have this option window brief enough that the time value melts quicker and close enough to the money that the bid/ask spreads stay tight in case I want to exit. My plan is to take the assignment if it ends in the money and then try to work some tactical market timing trades on it with covered calls. I’m half hoping I get assigned the shares. With the 2.6% cushion I’ll gain back some of my lagging to the Dow’s return.

I’m really trying to make an effort to move away from the ultra ETFs somewhat compared to how I’ve used them the past few years. If the markets go back to a more “normal” flow of regular trending I might switch back, but the speed the markets plummet and then rocket higher make the ultra ETFs much less comfortable for a good night’s sleep. If we can see 3-4% changes in SPY and DIA in a single day I have no need to try to double that. The trick is just to be on the right side of the trade most of the time. I don’t even need to get it right every time. For example, if this DIA trade works for me five times in 2012 and I break even on the other seven attempts I’ll still have a 13% return for the year in addition to any dividends I catch along the way. I’d like to think I can do better than batting .417. If not, I’m in trouble.

Also worth mentioning – have y’all seen VXX lately? My December naked put is only $content.46 in the red. I might enter a limit order to buy it back soon, but I’m still considering taking the assignment and then writing a covered put on the short shares. One bad story out of Europe could send it back to the moon though.

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Stocks Investments :Closed TWM Naked Puts

admin — Sun, 11 Dec 2011 13:06:27 +0000

Yesterday I mentioned that I might have to close these puts early if small caps continued to rise. This morning in my month end summary I referenced the move again when I said I need to be better about closing positions early when I have a good profit. Soon after I wrote that I decided [...]

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Yesterday I mentioned that I might have to close these puts early if small caps continued to rise. This morning in my month end summary I referenced the move again when I said I need to be better about closing positions early when I have a good profit. Soon after I wrote that I decided to go ahead and bite the bullet and closed my TWM position for a tiny loss just to avoid having a bigger loss. While TWM was trading at .42 I bought to close three TWM December naked puts for .95 each and paid 7.17 with commissions. I took a realized loss of .45 on the trade.

The thing that irritates me most about this trade is that I should’ve made it last week when I could’ve paid closer to $content.40 or $content.45. I ended up spending an extra 0+- because I waited. At the time, it seemed reasonable to wait another three weeks to pocket another 0-135, but that’s not how it played out. The funny part is that I’m not sure I should’ve closed it yet today. Obviously if I had waited a few hours I would’ve done better because small caps retreated and TWM gained some again, but that’s not anything I could count on.

What I did know (but didn’t consider enough) was there were not quite 12 full days left in the contracts and the puts were still out of the money. TWM was also close to its recent lows and the fast money is probably over. If TWM was to continue falling I still had .37 that it could fall before I’d be .95 in the money. To do that IWM and the markets would have to hit new highs. The risk is in what happens with the jobs data tomorrow. It could easily kick off another rally or another sell off. If we get another sell off I might use another inverse ETF and repeat the trade for a December expiration with plans to close the position when I get a profit of half the premium or maybe 2/3.

The best news out of this is that UWM has risen sharply from its recent lows and my account is much better off for it. Seeing the market flat today after such a monster day yesterday has to make the bears nervous. A lot hinges on tomorrow’s numbers and I’m going to try to be ready to capitalize on the move in either direction.

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Stocks Investment :End of Month Summary – November 2011

admin — Sun, 11 Dec 2011 13:06:27 +0000

November showed how good October was. It made flat feel like a loss after having such easy money the month before. I gained a little, but was essentially flat. I could’ve done better if I didn’t pull back on my risk exposure as much as I did, but sometimes it’s

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November showed how good October was. It made flat feel like a loss after having such easy money the month before. I gained a little, but was essentially flat. I could’ve done better if I didn’t pull back on my risk exposure as much as I did, but sometimes it’s better to reduce risk and wait for a better day to trade than lose money. I have roughly ,500 in time value left to melt away between now and the December and January expirations. The vast majority of that is from my puts, so a flat to higher market will help me on that front. I still have a good chunk of intrinsic value in my MDY put and most of my UWM puts, so any gain there would obviously help too. Oil can pull back some and I’ll still be fine. Other positions like DSX, CSX and JPM will probably be closed out before the end of the year so I can start fresh and clear up some more cash. However, I’ll hold on for now to see if we get a good Santa Claus rally by the end of the year.

Just as I said last month, the speed at which the markets change directions continues to make selling options the less than ideal tool to use. I’ve proven that I’m not a good day trader, so I don’t see a major change in my approach coming. The only change that I’ve made so far that seems to be working is using more inverse ETFs and selling puts on these when I see the market starting to roll over. This is an art and I’m just getting started on it, so doubt I’ll go full steam with it any time soon, but as long as the market’s move are so violent I will probably have to start taking some profits sooner than expiration to make sure I lock them in before we get a reversal and those profits turn into losses.

This is the breakdown of the numbers for me:

The VIX ended the month at 27.80 and the VXN ended at 27.77. Both of these are even lower than at the end of the previous month. The road lower wasn’t straight by any means as any spike in volatility proved to be a great opportunity to sell puts. Now that volatility is back near the bottom of its trading range for the past four months it’ll be interesting to see if the bottom falls out or if we get another spike higher.

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Stocks Investments :Sold DDM Naked Put

admin — Sun, 11 Dec 2011 13:06:27 +0000

Like most bullish investors, I woke up to see some exciting futures this morning only to see them improve even more with each piece of data and news story that hit the wires. I was considering opening more exposure on Monday (and obviously should’ve), but the opening pop was

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Like most bullish investors, I woke up to see some exciting futures this morning only to see them improve even more with each piece of data and news story that hit the wires. I was considering opening more exposure on Monday (and obviously should’ve), but the opening pop was so strong that I thought I had missed it the majority of what might last. On Tuesday it looked like resistance was going to hold the markets back as it rolled over in the afternoon. I decided to wait for a clearer sign that this wasn’t just a dead cat bounce. This morning’s rally was hitting on all cylinders and I decided I couldn’t afford to wait any longer.

Rather than get too aggressive I decided to use last week’s low as my target and worked from there. I decided to use DDM, a double the daily return of the DJIA ETF, as my tool of the day. While DDM was trading at .77 I sold one DDM January naked put for .80 and received 9.57 after commissions. DDM hit .86 last week as an intraday and closing low. With the positive data coming out today (and throughout the month excluding Europe) I don’t think we’ll revisit the October lows, but could retest last week’s lows. I don’t see it as too likely, but possible and that’s why I didn’t want to get overly aggressive with this trade. I’m only looking at a 3.6% return if this works out for me, but that’s 27.8% annualized and the risk isn’t massive. DDM can drop 15.14% before I take a loss which is equivalent to more than 7% in the DJIA.

It’s easy to want to jump in with both feet on a day like today when they Dow was up over 400 points for most of the day and the SPX was up over 40 points too, but Europe’s troubles are far from over and we still have Friday’s employment report due. A lot can change very quickly and I’d rather settle for a 3.5% return in seven and a half weeks than risk another substantial beating.

The best part of this week’s rally for my account is the advance small caps have taken and in particular my UWM exposure. I’m long 100 shares and have six January naked puts on UWM plus one January put, three January puts and one January put. The January puts look more and more likely each day to finish out of the money and the others are eating away at the intrinsic value and the little time value still included. I haven’t closed my TWM (inverse UWM) puts for December yet, but might have to soon if this rally continues through the end of the week. I’m expecting some give back at some point though as we’re starting to draw in closer to the November highs (or the lows in TWM’s case) again.

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Stock Market Investment :DJIA Chart – November 25, 2011

admin — Tue, 29 Nov 2011 01:42:43 +0000

I charted the Dow Jones Industrial Average ($INDU, $DJI, DJIA), after the markets closed on Friday, November 25, 2011, after the Dow closed for the week at 11,231.78. The Dow is almost in no man’s land on its chart. It’s below its 10, 20, 50, 100 and 200 day moving

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I charted the Dow Jones Industrial Average ($INDU, $DJI, DJIA), after the markets closed on Friday, November 25, 2011, after the Dow closed for the week at 11,231.78.

The Dow is almost in no man’s land on its chart. It’s below its 10, 20, 50, 100 and 200 day moving averages and has decent space before it hits the next support or resistance level. The one trading channel that could continue to work is the trend line of lower lows and lower highs that started just a couple of weeks ago. This is a very steep descending channel and won’t last too much longer in its current narrow path. Its first true test to the downside will be at the 11,000 area. This area has played speed bump a few times recently and could be ready for another similar move. Below that, DJIA could make it all of the way down to its multi-month closing low at 10,655.30.

That looks like the direction the index is headed for, but Williams %R shows that it is at absolute oversold levels. In an extremely rare occurrence, it looks like the line for the 14 and 28 day periods has actually run off the page. However, the 56 day period hasn’t even made it down to the oversold level yet. A true wash out should move all three periods to oversold and the buy signal won’t be until they all move out of the oversold area. This looks like it’s shaping up to be a leveling point that could melt lower a little more while the 56 day period catches up.

It’s hard to want to catch a falling knife right here and start buying, but it might not be a bad place to cover any short positions. Such extreme oversold conditions are often followed by a quick short squeeze. Getting neutral before that can be a good way to preserve capital.

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Stock Investments :Sold UCO January Naked Puts

admin — Tue, 29 Nov 2011 01:42:43 +0000

It’s not that oil looks like it is going to shoot all that much higher from here, but maybe more that I don’t think it’s going to tank to ridiculously low levels. My current oil exposure is all in UCO and includes 300 shares long, plus a December 32 naked put and three January 40 [...]

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It’s not that oil looks like it is going to shoot all that much higher from here, but maybe more that I don’t think it’s going to tank to ridiculously low levels. My current oil exposure is all in UCO and includes 300 shares long, plus a December 32 naked put and three January 40 covered calls. After UCO climbed up to almost I started to wonder if I’d lose money on my calls. It’s rally was short and we saw a solid sell off, but today’s bounce made me pull the trigger on some additional naked puts to see if I can gain a full profit on one leg of the wide option strangle.

While UCO was trading at .03 I sold three UCO January 35 naked puts for .70 each and received 8.72 after commissions. This was a higher strike than I originally planned to sell new puts on, but UCO is higher than I thought it would climb also, so I decided to change plans. Even if oil sells off (and we all know it will again eventually), I don’t think it’ll fall too far below my cost per share on this new lot of .31. My average cost per share if assigned another 300 shares at .00 would be .29. That’s a price I can easily play with and be patient with.

The way oil is trading lately it seems my 300 shares stand a good change to be called away in January and I’ll just have to settle with taking my profit and starting over. I have a lot of time value left in the options to melt away in the next couple of months and would love to see UCO slide back into its sideways trading range between and . If it does that, I’ll be able to continue repeating this same trade until it doesn’t work. Thanks to the volatility in oil and doubly in UCO I stand to make a return of 8.3% or 49.3% annualized on this trade. Just as easily I could take a loss, but I like my odds over time. The time value in both legs of my UCO options equals nearly ,500. Hopefully I don’t lose much value on my actual shares before the time value erodes.

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Stock Investment :Shifting Risk with MVV, SSO and TBT + A Trading Model Change

admin — Tue, 29 Nov 2011 01:42:43 +0000

As I mentioned last week with my TWM trade and in my $SPX chart on Sunday, I’ve grown more bearish lately and I made some more changes today. I started with a basic sell to lighten my overall exposure to the markets. I sold 200 shares of SSO for .88 and received ,375.01

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As I mentioned last week with my TWM trade and in my $SPX chart on Sunday, I’ve grown more bearish lately and I made some more changes today. I started with a basic sell to lighten my overall exposure to the markets. I sold 200 shares of SSO for .88 and received ,375.01 after commissions. I thought about selling covered calls to bring in some cash and help reduce my cost per share, but decided that left too much downside risk with too little upside potential. Selling the shares outright seemed to fit my new plan I’m working on. More on that at the bottom of this post.

Once the day moved along and pessimism stayed the prevailing mood of the day I started to wonder if it was getting overdone. Bonds had rallied, but were not getting out of control yet. I checked TBT (ultra inverse 20 year bond ETF) to see if there was a trade to be had with options on it. The low for TBT on October 4th was 18.00. I don’t think the yields are going to get any smaller than they were back then and if they do it won’t be by much, so naked puts on the inverse ETF started to look like a reasonable trade for a nice potential return. While TBT was trading at .79 I sold five TBT December naked puts for $content.52 each and received 6.38 after commissions. I almost went out to the January expiration and also considered the strike, but I wanted a short duration and a cost if assigned of only .49 seems not to be too risky for something I wouldn’t mind holding longer and selling out of the money covered calls on. Eventually bond prices will go down again and I’ll be able to profit from the rise in TBT. I think my chances are good I’ll profit in four weeks, but with a potential return of almost 3% in four weeks (more than 38% annualized) apparently many others think it’s a risky trade. It’s not a full position for me, so the risk is somewhat limited in that respect too.

Soon after that order hit, my MVV trade hit too. Unlike my SSO order that I just cut bait and ran from, I opted to sell covered calls on the ultra mid-cap ETF. While MVV was trading at .88 I sold two MVV December covered calls for .60 each and received 8.54 after commissions. The potential return is great, but the upside risk of selling too low is high as is the downside risk of a bigger sell off. Essentially it was a compromise after dumping SSO. I wanted to keep some exposure and I don’t have a lot right now so this and TBT won out. As with TBT, I wanted a short duration on the options. It all builds towards my goal of starting the year with a clean slate.

I’m working on a new trading plan for next year that does not include selling LEAPS again. I liked the idea in theory and it would’ve been great if the market didn’t sell off 20%, but it did and it messed me up. I made better returns when I kept the durations shorter for my options. In general, my plan is to focus mainly on SPY, MDY, IWM, UCO and maybe TLT. I’ll keep working UCO similar to how I am already. Aside from my lack of hedging my entry earlier this year, my UCO trade series tend to turn a nice profit. For the indexes I’ll sell ITM naked puts to enter the position when I think the markets are bottoming and then I’ll stay long and uncovered while I think the markets are in rally mode. When I see a turn lower coming I’ll sell either at the money or in the money covered calls. The essence of the theory is that I’m not beating the indexes by trading individual stocks most of the time. If my goal for my own account and some of my clients’ accounts is to beat indexes I need to invest in them more directly. I’ll try to nibble an edge higher with options when my own market timing and the system I subscribe to predict changes coming.

Don’t get me wrong, I’ll still make trades on individual stocks like shorting NFLX when I see an opportunity, but for the most part I seem to better timing indexes than individual stocks. Keeping my option durations short allows me to be more nimble with my trades and not get caught out with big bid/ask spreads like I have with my current ultra ETF longer dated options. Earlier this year I was concerned about not having time to juggle trades each month or two. By limiting my focus to only a few ETFs I should be able to group trades better and get more done with few trades. I ran this type of model for one of my clients this year who wanted less volatility in her account. So far her account is beating mine nicely, so I thought I should do the same for me that I did for her. Hopefully it wasn’t a fluke and I’ll go back to my winning ways.

What has worked for some of you this year? What do you see changing next year for your trading model (if anything) and what do you think of my potential changes?

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Stock Investments :S&P 500 Chart – November 18, 2011

admin — Tue, 29 Nov 2011 01:42:43 +0000

This S&P 500 ($SPX) chart shows the past three months of daily prices after the index finished the week at 1,215.65 on Friday, November 18, 2011. The technical indicators are piling up to create a strong bearish case against the large cap index. The 200 day moving average (dma)

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This S&P 500 ($SPX) chart shows the past three months of daily prices after the index finished the week at 1,215.65 on Friday, November 18, 2011.

The technical indicators are piling up to create a strong bearish case against the large cap index. The 200 day moving average (dma) held out as resistance yet again as the market couldn’t push above it for more than a few hours on its second attempt above the line. On the next test at the moving average the SPX never even made it above it and that’s when the selling ensued. This failure at the 200 dma came at the same time as the trend line of lower highs maintained its unbreakable resistance. The always bearish 10/20 dma crossover (not shown) showed up a couple of days later and then the 100 dma broke too. The break of the 100 dma also came as the trend line of higher lows broke. This bottom part of the ascending triangle was crucial to hold and when it gave in to start the day on Thursday the bulls couldn’t find a reason to buy even if they wanted to. The bears were in control officially by then.

Two points of hope are available for the bulls to cling to for now. The 50 dma hasn’t broken support yet after being tested for the past two days and the longer trend line that was once resistance and is now acting as support has still held. This trend line is descending and as it melts will fall below the 50 dma. This will create an opportunity for the latter to fail, but the former to hold for a little while longer. The 1,200 line is occasionally worth watching, but only because it’s a round number. Support and resistance only tend to be seen as a speed bump along the way.

Williams %R has given more mixed signals since the summer began than it usually does when viewing the 14 and 28 day periods. They’ve still been accurate most of the time, but like any indicator, have proven they aren’t perfect. The 56 day period has been more reliable and is not showing a favorable view for the bulls. Another day lower within the 56 day period and we’ll see a much stronger choke hold held by the bears as the bulls cower farther out of site. Volume has been nothing to write home about for either side, but I kept it in the picture for those readers who still like to keep an eye on it.

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