Stock Investment » SSO

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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Stocks Investments :Options Expiration – August 2011

admin — Sat, 03 Sep 2011 12:59:52 +0000

Not that it’s a surprise to anyone, but this is not a good options expiration Friday for my account. All of my naked puts finished in the money and all of my covered calls finished out of the money. These are the 11 options I was short going into the day. CSX – 1 August [...]

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Not that it’s a surprise to anyone, but this is not a good options expiration Friday for my account. All of my naked puts finished in the money and all of my covered calls finished out of the money.

These are the 11 options I was short going into the day.

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Stocks Investments :Added More Large Cap Exposure

admin — Mon, 04 Jul 2011 13:01:12 +0000

While the markets were on a steady slide lower since the beginning of May I let my overall equity exposure slip away some. This was nice on the way down, but with what I see as limited downside remaining I’ve started to build my exposure up again with shorter dated options.

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While the markets were on a steady slide lower since the beginning of May I let my overall equity exposure slip away some. This was nice on the way down, but with what I see as limited downside remaining I’ve started to build my exposure up again with shorter dated options. I spent some time reviewing my asset allocation yesterday and saw my large cap exposure was less than 16% of my IB account. To remedy that, I turned to the ultra ETF for the S&P 500 ($SPX), SSO, to get as much “juice” out of the position as possible. Since I see the S&P 500 finishing the year higher than it started (close to current levels) I didn’t see much risk in selling a put close to the money. While SSO was trading at .37 I sold one SSO August naked put at .05 and received 4.63 after commissions. I almost made this trade yesterday, but wanted to make sure nothing weird happened with the austerity vote in Greece this morning.

As expected the vote passed and we got a good rally off of the news. This always could’ve been a “sell the news” event, but so far it hasn’t panned out that way. Seeing pending new homes sales contracts coming in higher than expected helped too. Nike (NKE) came out with positive news on their earnings call a couple of days ago and we’ve seen other large companies continuing their bullish outlooks. All together I don’t see us falling off a cliff any time soon. That’s not to say that macroeconomic factors can’t hold the markets back from another major rally, but it should keep any downside in check. On the positive technical indicator side, the 10 day moving average for $SPX is moving above the 20 day moving average. This is a bullish indicator that I’ve seen work multiple times.

I was even tempted to aim for a higher strike with my trade, but since I still have two short SSO January puts in place that give me a good bit of upside potential I chose limit my risk some and stay slightly out of the money. Even with being .37 out of the money I have a potential annualized return of 29.1% and can see SSO drop 6.64% before I take a loss. That’s not much more than 3% for $SPX to fall and not recover for me to avoid a loss, but after already being down more than 5% from its high the risk isn’t too bad for the reward if it works out.

I’ll keep adding more in the coming weeks if the news stays somewhat positive and the charts keep improving. I’m taking a vacation next week, although we aren’t going anywhere. I’ll keep my posts short for any trades I make to make sure I’m spending as much time as possible with my family.

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Stocks Investments :Current Portfolio – February 11, 2011

admin — Wed, 23 Feb 2011 13:36:38 +0000

I’ve intentionally not traded this week. Since I’ve been selling so many longer term options lately I thought I should take a step back, let the dust settle and see how (a little) time affects my current portfolio. With volatility currently so low compared to the past

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I’ve intentionally not traded this week. Since I’ve been selling so many longer term options lately I thought I should take a step back, let the dust settle and see how (a little) time affects my current portfolio. With volatility currently so low compared to the past couple of years the option selling trades aren’t jumping off the screen for me, so I’m being patient or at least trying to be. I’m still entering orders, they just aren’t hitting yet since I’m pricing all of them for at least a little dip before they hit. I have one on MVV that expires today and isn’t close to hitting any more. I have another on UWM I just entered that is set to last through next Wednesday. I entered the order $content.25 above the last trade’s price along with a couple of my clients’ orders. Surprisingly, one of theirs hit instantly. The other two contracts are still up for sale and I wouldn’t be surprised if they don’t even hit by the time the order expires. Then again, a nice dip this afternoon or early next week is all it needs to bring the bid up to it.

I didn’t even realize it until I started writing this post and double checked my positions and saw that my BA covered call was assigned at .50 at the end of the day on Tuesday, 2/8/11. This one was kind of interesting because the week before I made this covered call trade we discussed it in the comments section of another post. I opted to aim higher with my strike than was being advised and now it looks like I should’ve gone even higher since BA is .00 above the covered call strike that was assigned and I missed out on the dividend too. The dividend wasn’t my goal as much as the premiums were (two puts and one covered call for 4.84 total). I still have one put set to expire worthless that’s out-of -the-money (OTM). I might get back in on BA when the April contracts are posted.

I’m still not fully invested like I planned to be by now, so next week I feel I’ll have to get off my tail and start ponying up for some more risk. For now, this is what’s in my Interactive Brokers account with a balance of 4,135.58:

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Stocks Investment :2010 Stock Picks Contest – Q1 Review

admin — Tue, 06 Apr 2010 13:43:23 +0000

I’m starting off the 2010 Stock Picks contest better than I did last year. For pretty much all of last year I was in the bottom two places out of our small group of financial bloggers. This year has started out better as I’m in the top third of the group, but with

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I’m starting off the 2010 Stock Picks contest better than I did last year. For pretty much all of last year I was in the bottom two places out of our small group of financial bloggers. This year has started out better as I’m in the top third of the group, but with a lot of time remaining. The rules of the contest are that we pick four stocks or ETFs and hold them for the full year. We can’t change our picks (as much as I wanted to last year). I’m still happy with my picks and would probably pick all of them again if the contest was starting over today. Oil (UCO) still has some upside potential even if the US Dollar (UUP) keeps climbing. I think the S&P 500 (SSO) will finish the year higher than it is now and possibly lead by some major dividend paying stocks (DVY).

Here’s how my picks are doing so far:

UUP – Closed 12/31/09 at .08. Closed 3/31/10 at .79
DVY – Closed 12/31/09 at .91. Closed 3/31/10 at .02
UCO – Closed 12/31/09 at .68. Closed 3/31/10 at .06
SSO – Closed 12/31/09 at .24. Closed 3/31/10 at .01
Here are the first quarter updates for where we stand compared to each other:

Dividend Growth Investor           9.58%
The Wild Investor                            9.30%
MyTrader’sJournal                  5.78%
Where Does All My Money Go    5.45%
The Financial Blogger                     2.87%
ZachStocks                                          2.55%
Four Pillars                                         -1.01%
The Intelligent Speculator           -1.27%
Million Dollar Journey                  -11.83%

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Stock Investments :Options Expiration – March 2010

admin — Tue, 06 Apr 2010 13:43:23 +0000

After what started off shaky for some of these positions ended up being a boring finish for March options expiration and that’s what I like. It’s nice having all of my positions finish out of the money with no option assignments. It gives me the freedom to reassess

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After what started off shaky for some of these positions ended up being a boring finish for March options expiration and that’s what I like. It’s nice having all of my positions finish out of the money with no option assignments. It gives me the freedom to reassess what I should be holding and either get back in to some solid positions or wait for them to come back down from their little rallies.

This is what I had going into today:

Here is how each underlying stock finished by the end of the day:

For the most part, these underlying stocks (and I guess the entire market) have had a crazy run so far for March. I am going to have to give some serious thought to what I should do next. I’m pretty sure I’ll open another position on SSO close to at the money, but probably do it like I did for this expiry by starting with a small position and then adding to it if we get another dip. I want to be sure I have exposure to the upside, but at the same time want to be sure I have some cash ready if we fall another 5-7% again. I still think we’re somewhat safe from a 20+% correction and could also use a small dip to keep this bull market in check.

As a side note, AXA finished today at .35. I left a lot of money on the table by closing this early when it dipped. AXA was trading at .35 at the time I closed the position last month. That’s 0 I could have saved by waiting until today to close my naked puts. The rest of my positions made up for it to give me a profitable expiration, but I recognize I could’ve done better. At the same time, I did replace my AXA position with other options that are doing well, so it’s not exactly an 0 mistake when you consider the replacement positions. Still, I made a mistake by buying it back earlier than I should have.

I’m still easing my way into heavier exposure and today just opened the doors to get back into an options selling spree for any stocks I think could be worth a try. I took in some good premiums this week and just need to get back in the habit of doing that every week so that when I take a loss I still have the profit growth to reach my end of the year goal.

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