Adding credit spreads to calendar spreads. $TSLA

There was a guy in my west Austin neighborhood that had a Tesla Roadster just like in this picture. Same color. It was the first time I had seen one. Can’t remember the year, maybe around 2008-09? 

Yesterday I alluded to one of my favorite techniques that I use when I am going to roll a short call or put expiring the next Friday. I usually have this short call/put because in the past I have put on a calendar spread and now this is the near dated option that is near expiration. 

When these options are out of the money they are not yet valued at zero, that won’t happen until late on Friday. The simple way to handle this is to roll the call/put to the next week’s contract at the same strike price. 

But what I have become fond of doing is augmenting the trade with a credit spread that expires the following week. This gives me the ability to sell the next week’s option for a slightly higher price. 

Sounds confusing? Let’s look at one of these that I just put on today in TSLA. Today is Wednesday Feb 28. 

I am short the 360 call that expires on Friday Mar 2. This was set up as the near dated option in a calendar spread with the longer dated option being the April 20 360 call, which I am long. TSLA is down for the day about 1.5% 

This short call still has 75 cents of value and I could roll the call till next week and collect about $3.10 for a total credit of $2.35. 

Instead I sold the Mar 9 (next week) 362.5 call and bought the 367.5 call (again, next week) and collected $1.02 for that spread. It costs me $5 in margin requirements to hold this credit spread.  

Come Friday I have more options on my option. I can close out the credit spread by selling the 367.5 call now valued at about $1.88 or keep the credit spread and roll the 360 call to next week, or the week after or roll it to the 370 call next week. 

Another choice would be to keep the credit spread and open another put credit spread to make an iron condor. In fact, should TSLA stay down here, this will be my first choice. 

Happy Trading! 

Hello Friend. Trading a bit of $SPY today and doing a bit of housecleaning.

So, I’ve begun watching Mr Robot from the beginning. I’ve already seen Season 1 and 2 but forgot enough that I need to re-watch before seeing Season 3. Damn, it’s a good show. BTW Season 1 and 2 are on Amazon Prime Video. Should you need some entertainment. During SXSW in 2016, the show came to Austin setting up a ferris wheel downtown for a week. 

Today, Jerome Powell, testified before the House. During that testimony he sounded a bit more hawkish than his predecessor, Janet Yellen. That was enough to get the credit market’s panties in a wad, or I should say it set off the algorithms to sell the $SPY. We gave up a good bit of the gains made yesterday. The VXX shot up 9.5% and SPY was down 1.25%. After hours the SPY took back 0.32% but before you get too comfortable, the futures are down 0.21% tonight. 

I don’t think anything has fundamentally changed. I think this was algo driven. The market changed too quickly and there was no other real news to drive it.  

In my less risky, SPY trading account I did very little, getting a little bit longer and trading out of some put spreads at a small profit. 

In my speculative account I added just a few new long positions in AMZN and opened a few put calendars in AAPL and GOOGL. 

Mostly I just did some housecleaning. 

One technique I use is selling a credit spread for the following week if I am short either a put or call that expires this week and its close to the strike. This way I can close it out on Friday and sell the long call or put I bought this week to offset it.  

I’ll try to give a real-world example of this in the next few days.  

“Grown Men Will Weep” says Kevin O’Leary on Fast Money Halftime Report. Why will they weep, and what about grown women?

Today on CNBC’s Fast Money Halftime report Kevin O’Leary stated the QQQ should just change it’s name to AMZN. After he was challenged on that, he changed the point he was making to be that AMZN and NFLX had “insane” valuations. 

He went on to say that these names will eventually blow up and that “grown men will weep”. Are we to believe that grown women will maintain their composure during this apocalypse? Perhaps he just left them out accidently.   

His relatively short exposure on the show at the beginning made me wonder, is his appearance on the show really just an arrangement whereby the show gets a bit of apocalyptic talk and O’Leary gets some exposure for his O Shares investment product? 

O’Leary appears on CNBC with regularity. He always projects an image of calm and sanity. He only recommends stocks with dividends, particularly if they are “succulent”. Today he criticized Josh Brown for owning AMZN (despite Josh correcting him that he doesn’t own it). 

He also implies that he is studying all the balance sheets of the US based mid-cap companies finding those that will have outsize benefits from the most recent tax cut legislation.  

I think O’Leary is just marketing with these appearances. He’s not trying to give good advice to those of us trying to trade. He is just trying to scare us into buying into his ETF products. 

O’Leary is not the first of these marketers. In the relatively recent past, Dennis Gartman used to come on frequently and used to tout the buying of gold in a currency other than dollars. I thought at the time, and still do, that this is an absurd recommendation to those that may be watching the show. Gartman went on to launch some Risk On/Risk Off ETFs. I always got the impression that Melissa Lee didn’t really think much of Gartman.  

Before Gartman, there was Peter Schiff who believed that buying gold was the answer to everything. He was always sitting in front of a backdrop promoting his firm.  

And before him was Scaramucci . . . . .  

All of them, well maybe not the Mooch, had an apocalyptic shtick. They were the voices of reason in a topsy turvy world. Maybe just the sort of advisor that a senior, retired investor or widows/orphans might want. 

Who doesn’t love free advertising? 

Hell, I’ll go on if they want. Problem is, I don’t have an apocalyptic vision. That’s what sells . . . .  

Another re-test of the recent lows, or do we grind higher? $SPY $QQQ $IWM $VXX $UVXY

I’m on Maui right now so the Fast Money Halftime report airs at 7 am. That’s right about the time I head out for a run, so I tend to listen to it through my phone.  Here’s a view from my running route. 

Sometimes it’s hard to pay attention! 

Tony Dwyer was on again today, so I paid close attention. You may recall that he predicted the most recent downturn last month but said that the downturn would be the opportunity to buy. 

Today, he strongly believes that we retest these lows. He is not recommending selling and running for the hills but instead says when it comes, don’t panic and sell, but instead buy the dip. 

I tend to believe him, but I am not convinced of his historical argument. I agree that the past gives us an idea of what can come next but I also subscribe to the adage that is, this time it’s different. Actually, I think it’s always different, each and every time.  

Here’s what I think is different. For one thing, this recent pullback shook a lot of confidence. Howard Lindzon’s newsletter talks about the return of fear this morning. Tony Dwyer’s previous call for a downturn was based on market sentiment becoming too bullish. That’s no longer the case, as evidenced by the big data provided by Stocktwits bullish/bearish indicators.  

Secondly, the QQQ’s remain positive, even this afternoon when SPY has turned negative. That means the big players, AAPL, GOOGL, FB, AMZN, etc are still getting bids. I think its hard to have a meaningful pullback without these names coming under pressure. 

Having said all that, I have hedged my longs just a bit. How? 

  • In my speculative account I bought more UVXY and sold a next week 18 call for a net debit of 14.95 (a buy/write) 
  • In my less risky account where I only trade in SPY options I bought an April 20 270/260 put spread for net debit of 2.12 (I bought this at about 10:15 am eastern when it looked as if the SPY was going to close higher today). 

I have not taken either of these trades off today, although I could probably make a small profit on the put spread.  

Today’s market close was pretty ugly, but its hard to say if it’s the start of something bigger or not.  

I’m buying $WMT, right here. Right now.

Today I’m adding a bit of WalMart to my investment account. I’m buying a ‘starter’ position of the equity in this account. I bought at $95. 

In my speculative account I am going to buy a small number of call calendar spreads, buying to open the June 15 95 call for 4.95 and selling this Friday’s 95 call for 1.05 for a total debit of 3.90. 

With the call calendar, I will roll the calls weekly unless it really gets its footing and makes a move up above $100.  If that happens I will start to add call credit spreads.

WalMart reported today and basically admitted that the benefit from the new tax bill would not really apply to them, as it would some more USA focused companies. 

I am buying for only one reason, it’s a Dow 30 stock that’s down 10% on the day. That’s just too big of a haircut.  

I could be wrong and it could go down more. But if it does, I buy more. Here and now the dividend is approaching 2%. 

At the risk of being, once again, labelled a moron, I am going to say that this name has just ‘gone down enough’.