Political Investing & Another Day of trading $UVXY $VXX $XIV

Did you trade today based on anything that President Trump said last night? Did you trade today based on anything that he didn’t say? Are you worried that the market might tank if Robert Mueller indicts someone new? Are you trading on politics?

As much as I would like to say that I am free of bias, that is, my market view is agnostic as to politics, I’m afraid I can’t be sure. But what I am sure of is that I strive to be. I have political views, just like everyone. And I have a very strong opinion about what I think should happen. But I learned an important lesson in the 2016 election. 

I went into the 2016 Presidential election thinking the odds that Clinton would win at 2:1. Based on that I thought the market would continue its steady climb of the last seven years. Consensus was that If Trump won, the market would correct about 20%. I was hedged a bit, but decidedly long. 

We all know what happened. I was shocked when I got up the next morning. Overnight the S&P futures were limit down but had rebounded slightly by the morning. I did buy some put spreads when the market opened, but I did not sell the longs. 

Suffice it to say that I had done the right thing, but for an entirely wrong reason. I had thought the wheels would come off the economic wagon if Trump was elected. That, simply, was just plain wrong. 

As traders we are all trying to predict the future. We look at fundamentals. We listen to ‘The ChartMaster’. We have hunches. We believe, we have faith. We love Apple (and Tesla etc) and now we love Boeing. We create a story about why this happened and why that will happen next week, next month, next year.  

But what I want to emphasize tonight is we should not let our political biases influence that equation. In particular, you should not let your love of Trump (or the Republicans, the Democrats etc) or your disgust of Trump (or the Republicans, the Democrats etc) influence how you invest your money. You have only one goal in mind here, to make that money grow as quickly as possible. So save that political argument for some other forum besides StockTwits. I have a hard enough time keeping my emotions in check about AAPL or FB or AMZN or TSLA or . . . . .  

I got two examples from CNBC: 

Joe Kiernan has become much more of a conservative mouthpiece over the years. He wasn’t always this way, but it happens. When Obama was President he was always espousing how 44 was getting ready to regulate us into a recession. Obama was President for 8 years and he presided over an economic expansion. I was trading in 2008 and 2009. I was truly concerned we could enter a depression. Congress wouldn’t pass stimulus bills saying the deficit would explode. The Affordable Care Act was supposed to kill jobs, but that didn’t happen. If I believed Joe, I would have bought nothing but S&P puts. And I would have watched my portfolio slowly crumble while the rest of the world made money. 

Today, Dan Nathan on Fast Money and Options Action is our resident bear. He strongly disapproves of the Trump Administration and has stated several times that this rally we have had since the 2016 election just hast to come to an end. He thinks there is a good chance of Trump getting in trouble. I remember when there was time on Options Action where his trade was always a put spread in SPY or IWM or QQQ. 

Both Joe and Dan have been wrong. I’ll still listen to them, but if I detect their recommendation is based on love of Trump (Joe) or disgust of Trump (Dan) well, I will give their opinion much less weight. 

Volatility is back, deal with it! 

That was the chyron on Fast Money this afternoon. 

Yesterday I traded options in UVXY and VXX and bought a small bit of XIV. In the morning, when volatility spiked I sold covered calls in UVXY and VXX. 

Later that day I bought calendar put spreads in both names with the strike price of 27 for VXX and 12 for UVXY. 

Today as volatility pulled back, I rolled a few of those covered calls up and out and put on some call calendars at 30 for the VXX and 12, again for the UVXY. 

All of this has sent my speculative account up about 1% yesterday and 1% today. 

Chris Harvey of Wells Fargo thinks its back . . . . but we will see. I think it may whimper back down and we consolidate in the S&P. 

Volatility Persistent through the Trading Day $UVXY $VXX $XIV Jan 30 2018

As I said in an earlier post, many new traders woke up to an unusual volatility spike. Those of us doing this for more than a year remember when this happened on a regular basis. 


So far today: 

  • $SPY down to 281.22 but bounced up to around 282 
  • $VXX spiked up to over 31.80 but has settled down to about 30.75 at the moment or up about 3.35% on the day 
  • $XIV is the inverse of the $VXX, and $UVXY is double the $VXX and have moved accordingly.  
  • I bought a teensy amount of $XIV at 121, haven’t added, haven’t sold. 
  • I sold some covered calls against both the $UVXY and the $VXX.  These are spread out over the next three expirations Feb 2, Feb 9 and Feb 16. 

But here’s what I did this afternoon: 

I bought two calendar put spreads, one in the UVXY and the other in the VXX. 

For each 100 shares of equity in these names I bought the same number of puts with a strike price of 27 for the VXX and a strike price of 12 in the UVXY. 

I sold and equal number of puts with the same strike prices in the two names (27 and 12) that expire on Feb 16. 

I paid $120 for each UVXY put spread and $133 for each VXX put spread. 

Since all the long, covered calls expire by Feb 16 I figure I can’t lose. These names can’t be both above and below the two strike prices on Feb 16, right? 

Buying puts on volatility names has frequently been a winner for me in the past. When volatility is high is usually when you can get quite a good price for the near dated short option and then as volatility falls these short options peter out pretty quickly. 

Time to Panic? Time to Buy? Volatility and my morning trade in $AMZN, $VXX and $UVXY Jan 30 2018

If you just started trading just after the 2016 election you woke up this morning to something you have never seen. The market is down, and volatility is up.

Those ‘old timers’ that started trading, oh let’s say the summer of 2016, have some experience with this but its quite a shock to you, right? The market was set to drop about ½ to 1% (I always will use the S&P500 here for ‘the market’) and in fact did so. As I write this, the market is down about 0.86% 

As an option trader, when the market opens you can see the market value of your portfolio plummet out of proportion to the move. 

This is because volatility explodes on a day like today. One of the hedges in my portfolio are holdings in $VXX and $UVXY. Between the two they comprise about 12% of the market value of the portfolio. This morning $UVXY is up 11% and $VXX is up 5.5%. 

But my portfolio looked like it was blowing up, being down about 15% at the open when the market is down only 1%. 

This all has to do with how Fidelity prices my portfolio. It ALWAYS prices the options at the worst possible executions for every position. It always assumes that I will sell only at the low, bid price and buy only at the high, ask price. Volatility is a measure of that bid-ask spread so as it widens, the portfolio suffers. 

That also explains why every day at the close the market value of my option rich portfolio will drop 2 – 6% just seconds before the close. That’s because the bid-ask spreads widen right at the close. This is way more pronounced with puts than with calls.  

We have been in a historically low volatility environment and if you are new to trading you haven’t yet seen a rise in volatility quite like this. Trust me, it used to be normal. 

So today, I’ll be writing covered calls in the $UVXY and $VXX and maybe even some credit call spreads. 

I’m also going to buy a VERY small amount of $XIV and, in fact, I already have at 121. That’s the inverse of the $VXX. 


This mega-cap stock reports on Thursday and I am getting a little longer today. When $AMZN was under 1400 I bought the April 20 call butterfly spread, 1420/1440/1460 for about $90. I may also buy a calendar call spread buying another April 1460 call and selling a Mar 1460 call for $1,600 debit. I’ll fish for that one a little bit and see if I can get it cheaper . . . . I’ll let you know. 

Good Luck today! 

Value Investing and My Trade in $GOOGL and $OSTK

First to two trades I’m putting on today. One has already filled, $GOOGL, and one I am waiting to see if it will fill today, $OSTK.

I am long both these names via call spreads and also slightly hedged with one put spread in each of these names. All my calls are also hedged in the sense that I always sell a call when I buy a call, that is I RARELY outright buy either calls or puts. I am 95% spreads.

The $GOOGL trade:

The last post I wrote that I was considering a butterfly in $GOOGL. I, in fact, did that today buying one March 16 1210 call, selling two March 16 1270 calls and buying one Mar 16 1300 call. This cost me $1450. At this expiration, the breakeven would be 1224.5 and max profit would be at 1270.

However, I’m sure that should the stock really advance I would buy a call calendar buying the Mar 16 1300 and selling an earlier dated 1300 call.

The $OSTK trade:

$OSTK reports today. Implied volatility is VERY high for this name (mostly because of cryptocurrencies). So I wanted to take advantage of that and sell an iron condor. I’m going out to March 2cd as this is where the numbers seem to be the best. The strikes are 40/50 puts and 100/110 calls. I’m trying to get $270 for this which is pretty low for the $1000 you have to risk for it. But the I’ll take it if I can get it. Again, after earnings today either one or both of these spreads may be closer to the price and I can trade around it.

FastMoney Halftime today:

Mario Gabelli was their hedge fund guest today and he was very proud of the fact that he doesn’t trade derivatives. He just researches and then buys and sells the equities. He said he has something like 650 names in the portfolio.

I think that’s great and for the bulk of my assets I have something similar. That is I turn these funds over to a manager and they trade either funds or ETFs based on their research. As I stated before they returned about 18% last year, and yes that is less than the S&P which I believe was 27%.

But in my retirement account I trade in, and the account that these trades are in I got about 78% return last year. You just can’t get that kind of return without taking substantial risk and that’s why I don’t bet the farm on this account. And I get that kind of return by trading options, which of course are derivatives.

And even though it is a smaller part of my overall account, its still fun for me and the smaller position, I think, frees me up to be a better trader.

Bottom line, I think its good to have both value investing in your portfolio and a wee bit of speculation, too. Let’s face it, if you’re reading this, you like to trade. Me too. Just size you positions in each so it doesn’t consume you, or keep you awake at night!

Good Luck with your trading!


Should You Trust @CNBCFastMoney’s Chartmaster? Trading $IBB and $GOOGL

So, if you watch Fast Money and Options Action on CNBC. You are undoubtedly aware of Carter Worth. CBW , as they sometimes call him, appears calm and level headed on the show and when he is ‘at the plasma’ presents some very compelling charts. This week he made the case for trading Alphabet , specifically those shares that have some voting rights, GOOGL. 

This week he is bullish on GOOGL. He makes his case based on relative performance to other large cap tech names such as AAPL, MSFT, AMZN, FB and NFLX. NFLX is a bit of an outlier here as the five other names including GOOGL are the top 5 S&P stocks by market capitalization. These 6 names have a market cap of $3.7 TRILLION and are 14% of the S&P.  

CBW states that GOOGL has underperformed these other 5 stocks for the last two years and is just beginning to break out. He sees it breaking to the top of its rising channel another 10-12% which would place it at 1305 to 1330. 

I agree, and I am long GOOGL using 5 debit call spreads, 4 of which are either calendar call spreads or diagonal calendars. I am also slightly hedged with one put spread. 

But here’s the deal, I’m not long based on what CBW thinks about relative underperformance being a reason to be long. I have heard him countless times use relative underperformance to be BEARISH on a stock or even and index/sector. 

You see, sometimes these analysts will use technical analysis like this to bolster a claim and you can use it EITHER WAY. Sometimes analysts will use fundamental analysis and eschew the technicals saying they are of no use ‘in this circumstance’. 

Bottom line: if technical analysis was truly predictive virtually all the technicians would be in agreement about the interpretation of price action. And we would all make money just by subscribing to their newsletter. But more often than not, the analyst has made up his or her mind and using confirmation bias then goes to the chart to argue their point. 

So, you ask why am I BULLISH on GOOGL? Mostly because virtually everything is moving up these days (except AAPL which may help to explain why GOOGL is starting to catch up) and I don’t see GOOGL bucking the trend.  Tax cuts for corporations should be boosting earnings for at least a couple more quarters and has poured gasoline on bullish sentiment. I can see being long (and I am, 5:1), or being out. But what I can’t see anyone being short GOOGL here. 

Michael Khouw‘s trade is the Feb16 1185/1270 call spread for $26.5 ($2650 per contract spread).  This will break even at 1211.5. This can potentially make $8500.  

I like this idea but I want to pay less for this and give me more time to make money so I may buy a butterfly buying the Mar16 1200 call, selling 2 Mar16 1270 calls and buying the Mar16 1300 call for about $1,700 total. This breaks even at 1217 and gives another month to pay off. 

Trading $IBB 

Also in this episode of OA (the CNBC show, not the NFLX series, which is good BTW) Dan Nathan makes a case that biotech stocks are charging ahead. 

For the same reason I stated above with GOOGL, I agree that IBB moves higher. 

Dan’s trade is a straight up call spread, buying the Mar16 120/130 call spread paying about $225 for each contract spread. 

I like this trade and would put it on next week, and I may. I am already pretty long with 9 different call positions and 3 different put positions. 

What I might consider doing on top of Dan’s trade is to buy a calendar call spread in addition. You could buy the Mar16 131.67 call and sell the Feb16 132 call for about $25-30 which would make it easy to convert to a butterfly should it stay below 132 till Feb 16. 

The reason for these wack-a-doodle strike prices is based on the split the ETF went through a while back and 132 is the highest strike price available for the Feb16 expiration. 

Have a great weekend!