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.

 

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!

 

Goodbye 2012, Hello 2013

I came into this year like I do most years, eschewing resolutions. I’ve never found them to work, and many times backfire when they go unrealized. I broke this rule this year, deciding on one resolution that seemed easy to fulfill. That resolution was to post to this blog at least 5 times a week.

Suffice it to say, I am about a month late . . . .

But on to other matters. 2012 was shaping up to be a very good year for me. I trade in several accounts, about half of which is our taxable account. I also have several retirement accounts I trade in as well as a couple that I manage for my adult daughters. I trade these accounts very differently, being the most aggressive in out taxable account and more conservative in the others. In my kids accounts I can only write covered calls and in the retirement accounts I limit myself to covered calls and buying just a few calls or puts. Only in the taxable account do I buy and sell spreads and other multi-leg strategies. Up until about the end of October I was doing really well in the trading account projecting a return of about 25-30% for the year compared to a 10-15% return in the others.

But then, the proverbial wheels came off the wagon. AAPL started to fall just after the iPhone release and I chased it down thinking it was going to stop falling. It stopped about 600 around October earnings and then proceeded down to 502 or so. It then rebounded to above 590, making many of us believe the rally would continue. But, no. It turned around and went back down to 500 and lingered until January earnings. After that it gapped down to 460 and settled today at 440.

The numbers are staggering. AAPL lost an enormous amount of market cap and now trades at a PE of about 10 trailing earnings, a discount to the S&P 500. Back out the cash, which is almost 1/3 of the share price and the PE is about 7.

Is it over for AAPL? Will it trade down to 400, or lower? Will it gap fill back up to 500? Hell, I have no idea. But then, I read the following article:

http://seekingalpha.com/article/1132401-in-defense-of-apple-battling-the-mounting-hysteria?source=email_rt_article_readmore

One of the more interesting points in this article is how much AAPL has ramped up it’s R&D budget from about $750M to a little over a billion from the 1st quarter of 2012 to the first quarter of 2013. The implication is that AAPL is working on something new. Also, why doesn’t AAPL buy back stock at this depressed level with their cash hoard? Perhaps they are saving some to build out infrastructure to support this new product.

Analysts are all falling into line saying that the growth of AAPL is over, that their products will soon be commodities with declining margins. But leave it to AAPL to come out with something else, a product or perhaps even a service that could blow everyone away. If that happens, I don’t want it to be just about a month after I’ve sold all my stock

Friday Nov 30 2012 Never Sell a Quiet Market

Investing is full of adages. You know them, ‘buy the rumor, sell the news’ and ‘ buy when others are fearful, and sell when others are greedy. But I like the one in the subject line and I think today is a relatively quiet market. Volumes are low and most of the charts are relatively horizontal.

My favorite option trade is some sort of variation of a calender spread. I’ll try to buy an in the money spread that’s out a few months and with a really high spread in between in lieu of buying the underlying security. I’ll give you a real example that i have on now with GOOG.

I own a small position in GOOG, 100 shares with a basis of 684 and today GOOG is trading at about 695. Some time in the last month I bought two spreads one is a January call spread – buying the Jan 600 call for about $70 and selling the 720 for about $9. Total cost – $61 or $6,100. Right now I am up about $2200 on this spread today

I also bought the March 600 for $83 and sold the 740 for $11, total cost about $7,200. I am up $1,200 on this spread today

So the way I look at it I am essentially long 300 shares and can write short term calls against them.

Right now I am short a Dec7 695 call at $6.5, and short a Dec7 700 at $5, I am also short a Dec22 690 call at  $3.5.(took this one out when I opened the Mar spread).

Should GOOG take off from here I will have to cover the short calls I have but 700 seems to be resistance. If that is the case I can liquidate my spreads to finance the buy back. But usually the premium deteriorates so that by Thursday when the new weeklies come out I can roll them into the next week. In fact I have been doing that for some time now.

I really should only write credit spreads short term and say I will do it the next week, but it comes at a cost and, of course, I am a bit greedy . . . . . just like everyone else.