Retirement 01

So you’re thinking about retiring? Congratulations are in order for at least two reasons. First, you’ve survived to an age where retirement is a consideration. Not everyone does, of course, but you did. Either through luck or taking care of yourself you’ve gotten to this age where you are thinking that your career may take a back seat in your life.

Secondly, you have a minimum financial position that makes working and an earned income somewhat optional. Again, not everyone has this, but you do. For these two reasons you should celebrate, at least a little.

If watch any television whatsoever, and you are in the baby boomer demographic (roughly those born between 1946 and 1964) you’ve been seeing advertisements from financial companies touting their expertise at retirement. There are some folksy ones where the investment advisor attends the retirement party and reminds the retiree that they have been planning this for a long time and it’s all good. Some play to financial anxiety, asking if you are sure that you will outlive your retirement assets. Their message is to turn your money over to their financial institution and it will all be taken care of. That may or may not be true, and I am not here to criticize their skill at managing retirement funds. In fact, I have the majority of my retirement assets on deposit in three of the largest financial institutions. These institutions are some of the ones with the most aggressive commercials. What I do find fault with is the underlying assumption that retirement is only a financial calculation. Sure, having sufficient assets gives you more freedom to do what you want, but sometimes figuring out what you want to do is the bigger problem to solve and just because you can quit working doesn’t mean you should quit working.

News Flash -> The Money Managers didn’t steal your Money $SPY $QQQ $IWM

OK, its been a while. Actually quite a very long while since I have sat and written in this blog. I’ve meant to, a lot and often, but I didn’t. But you have to start somewhere, and sometime.

First, I want to recommend a podcast, the Stocktwits podcast with the interview of Brian Lund or @bclund. Great interview with a level headed, humble trader and entrepreneur. I also recommend subscribing to his newsletter at lundloop.com. The podcast can be found by searching for the Must Follow podcast series.

Tell me you haven’t seen some version of the following posts on StockTwits:

The damn MM decided to push $AAPL down again today.

$SPY Screwed by the MM again!

But I’ve got some news for you, they didn’t take your money, you just gave it away. You ALWAYS give it away. The only time you add money is when someone else decides to give it to you, and at that time you are willing to take it. There’s the rub, at that time you are probably unwilling to take it. When $AAPL is hitting a new 52 week or all time high, are you willing to sell your long position, or buy puts, or sell short if you are not long already? When it pulls back to, lets say about 125, are you willing to buy calls, or stock or sell puts or cover your short? If you can honestly answer yes to these scenarios then you are willing to take money from the other party, but most of us at that time are scared or greedy to pull the trigger.

To be sure there are big players that can move the market. Using $AAPL as the example, Carl Icahn has tweeted several times and gives interviews saying $AAPL is a ‘no brainer’ and this usually has some upward push to the stock. Also the company itself is set up to buy back 200 billion which I think they do every time the stock goes below 125. In fact, I’m betting that they will buy all you want to sell below 125.

But to think there is some consortium of players that can manipulate $AAPL or $SPY or $QQQ or $IWM is just ludicrous. If you really want to know what happened to your money, look in the mirror at the person that just gave it away and is unwilling to take it back from someone else when the opportunity arises.

The Invisible Gorilla – Inattentional Blindness

I listened to a podcast yesterday on my run around Lady Bird Lake from Motley Fool Money.  (you can find the podcast here) They had on the podcast three authors of three books that dovetails perfectly with what I am thinking these days about my trading. The first guest/author was Carl Richards who wrote ‘The Behavior Gap’, the second was Christopher Chabris who wrote ‘The Invisible Gorilla‘ and finally Dan Ariely, the author of many books on our tendency (really not a tendency, but an inclination) to be irrational.

I’ve previously read Dan Ariely’s first book ‘Predictably Irrational’ so I am putting him aside for the moment but I got my hands on ‘The Invisible Gorilla’ and started in on it and admittedly I am just on the first (of six) chapters. All of this is in service of my selfish pursuit of learning how to be a better trader, of being able to set aside harmful thought processes and false intuitions in order to perceive reality just a bit better. I’m betting that if I can get a firmer grip on reality, I’ll make better trading decisions.

So far what I’ve learned is that we suffer from an illusion of attention. We think we see and are aware of out surroundings, but in reality if we are not expecting something to be in front of us (like a gorilla on a basketball court, a motorcycle turning in front of us, or a plane on a runway we are set to land on) then about half the time we won’t see it. This is especially true when we are engaged in a task requiring our attention.

Chabris will go on to discuss 5 more illusions we suffer from but it is the last one that I am looking forward to reading about and that is the illusion of cause and effect. We, as humans, really like to construct stories about what has happened in the past and to ‘connect the dots’ even when it makes no sense. I see that this as having great implications for investor behavior. The financial pundits love to create stories to explain a stock’s rise or fall, when I have found many times the movement defies logic.

When the stories don’t make sense, the pundits say that the stock is no longer trading on fundamentals, but is trading technically.

As I said yesterday I am going to limit my exposure to CNBC during the trading day, but one of the pundits I refuse to give up is Josh Brown of The Reformed Broker. So for that reason I will still watch the Fast Money Halftime Report. If you haven’t read his blog, its the best there is in the world of finance. His most recent blog about investor behavior (which you can read here) is just priceless.

Happy Birthday USA! Goodbye @CNBC, Hello @BloombergTV

This week I witnessed something on StockTwits that really caught my eye. There is a user named Paul that has been a fairly active writer (poster? tweeter? I don’t know the correct term) about the movement of $AAPL. He was around in the fall of last year when the stock was trading in the mid to high 400’s. (before the split, of course). He was an adamant advocate of buying and holding the underlying stock, which as we know was a good strategy in hindsight. This strategy is in sharp contrast to me as I trade options almost exclusively with the calendar diagonal being my favorite strategy.

I noticed over the last month that Paul had discovered the power of options in that they can provide massive leverage and he was advocating buying October calls predicting that this would capture new product announcements. For the record I agree and I own a fairly hefty position of $AAPL calls that expire not only in October but in January 2015 as well as some in August, which will also capture the next earnings announcement. One difference in our strategy is I am ALWAYS short some near dated calls, and in this case I am short calls that expire July 19 and then on July 25. But I digress. . . . . .

As Paul started more aggressively advocating his long position, he PREDICTABLY started being challenged. If in the short term things didn’t go the way he predicted he was being slammed and some of the posts were ad hominem attacks. If you spend any time on StockTwits you know the community will pound on you mercilessly when you are wrong, but rarely give you kudos when you are right. Paul was the recipient of such treatment.

One morning this week Paul was looking to get some more followers. Why I am not sure, but maybe because when someone follows us, we feel affirmed in our value to the community. But 12 hours later Paul posted that he was closing his StockTwits stream as the hatefulness had gotten to be too much. Wow. What a quick turnaround . . .

Witnessing this drove the point home to me that trading is primarily an emotional experience. How we feel drives what we do. Some anonymous jerk with absolutely no “skin in the game” can post something on StockTwits that totally changes our thoughts about the market in general and individual stocks in particular. When your thoughts change, you trade based on how you feel, sometimes right but many times wrong.

As time goes on, I get more and more dispassionate about my trading. I am less certain about the direction of any particular name but try to take advantage of short term trends. You won’t see me telling anyone on StockTwits that any particular name is going to take off, or tank.

Paul’s story has reinforced to me that if you listen to what others say, it can have a profound effect on your emotions. Your emotions drive your trades. I don’t get attacked on StockTwits because I make very few predictions, so I don’t hear the noise and I think I trade better for it. But what I do hear every trading day is the tv and SiriusXM and for the last 8 years that has primarily been CNBC. This week I have decided to severely limit my exposure to them as I believe they try to either frighten me or to anger me because if you are frightened you feel you have to continue to watch as they will then give you a heads up about danger ahead. Anger just feels good but it also blinds you to reality, so you continue to watch. I’m going to switch to Bloomberg as, at the moment, I think they are merely more informative and less hyperbolic. I’ll still watch Fast Money Halftime but mostly because Josh Brown is on there, and I trust his analysis more than most others.

Will it make a difference? I’ll just have to wait and see. . . . . . .

I’m back, and a big welcome to my newest gazillion registrants

Man, a lot has happened since the last time I put fingers to the keyboard here. I figured I better get back to it, since I have accumulated somewhere close to a gazillion registrations since I left. Who knew that so many wanted me to return?

But seriously, what is the deal with registration spam? You don’t need to register to comment, or really to do anything. I don’t know the point. Does anyone? Let me know if anyone out there knows.

Ok, to the markets. Since I last posted here in February $AAPL went south, sometimes slowly and sometimes in lurches. My overall portfolio in July/Aug was down somewhere around 10% mostly because the value of my $AAPL calls evaporated. But I started restricting myself to selling weekly credit call spreads and accumulating both 400 and 500 strike Jan calls and later started trading the January calls for April calls.

The resurgence of $AAPL and the advancement of $GOOG, $PCLN and $MA all combined to turn things around and now the portfolio is up over 30% for the year and I am in the enviable position of doing some tax loss selling.

Whats next? Who knows, but I am thinking of taking some risk off the table after the first of the year and really pulling in on the trading. Now EVERYTHING has weekly options and my number of trades has really ballooned.

In the meantime I have celebrated the return of $AAPL by putting a little of the money back in, that is I have a new 128gb iPad Air and a new 512gb i7 MacBook Air on which I am typing at this very moment.

 

$AAPL is acting irrationally compared to almost all other equities

I listened to Fast Money yesterday and there was yet another talking head, whose primary expert qualification was that she called the Enron debacle (BACK IN 2000!). She was implying, without out-right saying, that the target price should be $200 based on her analysis. Her main premise is that transitions from a ‘growth tech stock’ to a value tech stock’ is a messy affair. To the credit of Karen Finerman, she buttoned up the conversation by saying that AAPL has never been valued as a growth stock. Finerman is correct, of course, and a valuation now that is bordering on single digits is certainly not a growth stock valuation. Nevermind that the PEG ratio is closing in on 0.5.

Here’s my rant on this stock: depending on whether or not AAPL is rising or falling analysts and talking heads will proffer the argument that AAPL is either just like other companies or that AAPL is special and different than other companies. That’s ok, but the bottom line is that it can’t be both! This is a binary type of distinction, like being pregnant or not.

Either way, no matter what your answer is,  the stock price is behaving irrationally. Lets take one side and say that AAPL is just like other companies. Lets compare it to two older tech stocks, MSFT and CSCO. I’ve chosen these two as AAPL is actually a blend of the two. CSCO primarily makes hardware that changes substantially with time (why I chose CSCO over INTC whose product is fast becoming a commodity) and MSFT primarly makes software with a few exceptions. Now let’s compare the P/E ratio using 12 month trailing earnings and PEG ratio using 5 year projections. Right now for P/E AAPL is trading at 10.37, CSCO at 13.67 and MSFT at 14.94. Their PEG ratios (which compares valuation to growth rate) are as follows: AAPL 0.75, CSCO 1.63, MSFT 1.83. Here’s the irrationality in this scenario – the PEG ratios are assuming that AAPL will not grow at all, anymore. In fact it assumes that it will contract, much like RIMM. But lets say that AAPL is like these old tech stalwarts and should trade with a similar P/E. Then if valued like CSCO, AAPL should be trading at 601.48, and if trading like MSFT then we should be seeing a share price of 657.36. But today, AAPL is trading at 456 instead.

What’s the other side of the argument? That AAPL is special, that its not like other companies, it is innovative and forward thinking, like say NFLX? Here the market is even more irrational. NFLX is trading at a PE of 636 and has a PEG of 33.91! Want to see what the company would be worth at this type of valuation? $27,984 a share! Yes, one share!

Well the answer to the question is obvious, the market is irrational. Therefore trading is a little like trying to predict what a crazy-assed schizophrenic will do at any given situation. I think I already knew that, but until you look at the numbers you don’t realize just how crazy it can be . . .

Is today the day that $AAPL starts the climb out of the pit?

I sleep pretty well and rarely worry about the performance of our portfolio. But I have had about 2-3 nights over the last month where I woke up early worrying about my AAPL position. This morning was one of those mornings. I don’t know why but maybe it was because the price action yesterday was so disappointing. The stock made it to about 455 or so but ended closing down around 442. When it hit the 440’s I sold a couple of bull credit put spreads that expires next week, the 440/425. Mind you I am long an April 440/425 bear put spread as a hedge, but it was still disconcerting to see the stock trade so poorly. I woke up this morning convinced that this was the start of the march down to 420 before going on down to the 300s.

The stock opened around 445 and then went back down to 442, but since then has started a 45 degree climb, slow but steady and as I write this it is trading about 459, up 16.8 or about 3.8%. I am long both the stock and spreads but have been reluctant to sell upside calls thinking that there would come a day that valuation would matter. Maybe today is that day.

Also today:

AMZN – bought a March 250 call to protect the Feb 265 and Mar 280 calls that I am short. Still own an Apr 275/255 put spread to hedge this long. I still don’t trust this stock and think when the market pull back occurs. It takes AMZN down farther than most.

Yesterday:

GOOG – bought a calendar spread, BTO Mar16 750 call and STO a Feb22 780 call

IBM – added a calendar spread BTO April 180 call and STO Feb16 205 call

TBT – added to long positions both underlying and; BTO Mar 68 call STO Mar 72 calls

Nervously trading AMZN. Getting a bit longer AAPL, but hedging with VXX

Greetings All.

One of my New Year resolutions is to trade less, a LOT less. But I have failed miserably thus far even going so far as to trade 33X yesterday. OK, I know Fidelity (my platform) thinks this is just great, but I think I trade much worse for it. So I am writing them down, and limiting them to just 10/day or 50/week. We’ll see how that goes.

Today I have taken off my last long call in AMZN, the Feb16 200 and made a good bit on it. However, I did not take off the Feb16 265 call that I am short. I got $10 for it when I sold it and now it is trading about $15. I’m nervous that AMZN could spike after earnings so I spent about $5 on a Feb16 280/300 bull call spread as a bit of insurance. This required 3 trades. I still own a Feb16 240 put and a Apr 275/255 bear put spread. If AMZN tanks after earnings, I’ll do pretty well. If it cranks up, well, then not so much.

I broke another rule today. I bought some long AAPL calls. I put on a couple of calendar spreads BTO the March 450 calls and STO the Feb8 465 calls for about $14.6/each. I am short a 450 call for this week and next and this helps provide a bit of protection if AAPL starts to take off, which I think it could. All it will take is some sort of announcement. Today’s move may just be announcement of a higher storage iPad. This is setting up for some new enterprise announcement. Health care?

Finally, bought a bit of insurance. Did a buy/write on VXX buying the underlying for about $23 and selling the Feb16 25 call for $0.50. This is a really low level in volatility that just can’t be sustained.

AMZN Earnings, What to do, Mr Grasso?

So I watch CNBC, probably too much. but I do like to catch Fast Money both at the noon hour and after the market closes. I like it because of the diversity of traders that appear, some I trust and some I don’t.

I like Steve Grasso. I particularly like his predictions in the S&P Cash Futures and his lines of resistance and support. One of the names he has been touting for at least the last few months is AMZN. I think I remember him saying it was one of his favorites. So I was a little shocked to hear him say today that for the whole time he has recommended it, he has never bought a share of the stock. Can’t get too pissed at him about that, the stock is at all time highs and he hasn’t profited a nickle. But I have, I had three calendar bull call spreads on using the February and April 200 calls as my stock replacement.

Today Grasso said he thinks the stock will pull back after earnings tomorrow, and I believe him. I took off three of those spreads today and left one on. I bought an April 775-750 bear put spread to protect the profits in that one. But I may just pull the trigger and close that one out tomorrow as well. We shall see. My other choice is to sell the call and make about a kilobuck on it and let ride the Feb16 265 call that I sold for about a kilobuck and is now trading at about $1.6K. If I do that I may buy a 280 call for a little insurance, but really the conservative move is to just close it out and see if I make a few $$ with my put spread. Hell I even sold the 10 measly shares of the underlying I had in the name, that I had kept mostly to just have the price on my screen.

Could be wrong here, but it never hurts to book a profit . . . .

PCLN pulled back a bit today. It was an excellent opportunity to square things up a bit. Most of my call spreads are now pretty deep in the money but was able to structure things so that I have about three of them with all of the short call positions being around 710 or so with lots of implied volatility that should dissipate as we get close to Feb 16 expiration.

GOOG is still my favorite name at the moment. Acting really well and earnings are in the rear view mirror.

CRM jumped up today on the news that there is a 4/1 stock split coming. Did you see that Mr AAPL? Did you see what CRM did, just with that mathematical accounting trick?

At least APPL did stabilize today. Carter Worth on Fast Money seems to feel pretty comfortable with it getting back to 500. His rec: short the S&P and go long AAPL. Truthfully, that’s my plan, at least to a certain extent. Bought 5 bear put spreads in the SPY today, the Mar 145/140, for about .65 each. Pretty cheap insurance, if you ask me . . .

1/27/2013 Trading AMZN ahead of earnings (and GOOG, PCLN, SPY, AAPL)

Looking ahead this week, as far as my portfolio goes, the most significant event is AMZN earnings on Tuesday. Currently I have 4 calendar spreads working, I am long 2 of the Feb16 200 calls and 2 of the April 200 calls. Up pretty good on the Febs, but just a bit on the Aprils.

My plan is to liquidate the April calls and the shorts against them and 1 of the 2 Feb16 calls. My basis on that call is about $63 and I will stay short a Feb16 275 against it. This way I can stomach a fall to about $253 before I start losing money. Against this I plan to buy an April 265/240 BEAR put spread in case we get a pullback to below $250. In that case I will wait for things to settle out and then probably sell a BULL put spread down at the lower valuation.

As to other positions:

AAPL – still just trading horribly. But just as stocks don’t go up forever, a stock with a PE of 6-7 (forward earnings, back out the cash) growing at 20%., just can’t go down forever. Still the largest single position in my portfolio (ouch). Feel like giving up, but I know that feeling generally only appears around the time of a bottom. I think there is still a good chance that they will announce something and everyone will jump on board again all at once. This usually happens about 2 weeks after I sell the entire position. James Altucher just published a great article here. And if you can appreciate a bit of sarcasm, check out Bryan Goldberg’s piece from yesterday here.

GOOG – fast becoming my favorite trading vehicle. Moves well, but not huge in either direction (see AAPL). I have been doing well selling credit spreads with moves up or down. AND they have already reported earnings.

PCLN – plan to take a good chunk of my calendar spreads off this week. Almost straight-line move up on Friday. Report earnings tentatively on Feb 25th. Seems like a good time to buy a BEAR put spread or two out a few months and sell short term BULL credit put spreads against them

QLD – I own about 400 shares of this etf and am short the Feb16 62 calls against them. I think I am going to roll this 4 calls into the Feb16 55 (or even 50) calls as a hedge against a market pullback. If that happens I will start to nibble on the QQQs eventually replacing all of the QLD with the QQQ. I have quite a bit more SSO and SPY than I do the QQQs but I think that the Nasdaq will get popped harder in a pullback. I am also accumulating a little bit of QID (inverse QLD), TWM (double inverse IWM), SDS (double inverse SPY) and VXX (plain old volatility)

So to summarize; AMZN-thinking it will pull back short term. Selling most longs. AAPL-hoping it stabilizes but did buy some April BEAR put spreads on Friday. GOOG- staying with this name. PCLN-staying mostly long now but will divest by earnings

Good luck to all this week and  . . . . . Aloha!