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.

Thursday November 29 2012 Climbing and Stumbling the Fiscal Cliff

Yesterday, I think it was, one of the traders on Fast Money said that the way to time the markets was to find out when Harry Reid was going to speak, and then go short. Then find out when John Boehner was speaking and go long.

That correlation held for about . . . . let’s see . . . .24 hours or so. I was sitting at the computer today when Boehner walked out and started speaking at 11:40. I know what time he came out b/c I looked at the chart and saw the drop in the SPY with the spike in volume.Boehner was definitely much more of a Debbie Downer today than the last time. In fact the markets sold in his first sentence.

So you tell me, is this a skittish market or what? I mean, really . . . . ?

But as it turns out it was a good opportunity to get a bit longer, which I did in PCLN and AMZN. I tend to buy deep in the money spreads that are out a few months and then sell short dated bear credit spreads against them. The move up in PCLN caught me a bit flat footed and was happy to see it pull back to 660 to square things up a bit. I am now short a 660 call expiring tomorrow and a 675 and 680 call expiring next week against my January 600/700 spreads. If it pulls back more I may buy a next week 670 call.

The market did come back, but this time after Harry Reid started speaking. He was no less stern than Boehner but I suppose the market is used to him being a Debbie Downer, so the event was discounted.

AAPL, I think, is consolidating still and may very well have some upside to it after all. David Pogue had a review of the tablets in the NYTimes today and says the iPad Mini is the best. Having just gotten one myself, I can see why they are going to be the gift this Christmas. Like the iPhone 5 the only thing that will limit them is the ability to make them.

Must be great to be a company where the limitations as to what you sell is how fast you can make your product.

You can read David Pogue’s article here: http://nyti.ms/TlUhPD

 

Wednesday Morning 11/28/2012 AAPL Weekly Options

Pre-market indicators were down this morning and the equity markets did, indeed, open lower. I took advantage of the pullback in AAPL to square up a few weekly positions.

Speaking of weekly options . . . .

Something interesting happened the week before Thanksgiving and that was weekly options in AAPL all the way until the traditional monthly December expiration became available to trade all at once. If you trade these weekly options you know that the following weekly options that expire on Friday become available to trade on Thursday morning eight days before, but this time on, Nov 15th, the options expiring on Nov 23, Nov 30, Dec 7, and Dec 14 all appeared.

Normally I make sure that I am present at the market open on Thursdays as I trade weeklies not only in AAPL but also in AMZN, GOOG, MA, PCLN as well as the SPY and the SSO. I trade these options because the underlying equities trade at high volumes and are therefore liquid, but also (with the exception of the SSO) all have a share price over 100. In fact AAPL, GOOG, MA and PCLN all trade over $400/share. This makes the options much more interesting and valuable. On Thursdays I usually roll my short option positions from one week to the next as the premium almost always has come out by Thursday before expiration.

But on that Thursday, I had to decide about putting on some positions for the whole month and the amount of open positions I held swelled. Not a position I like to be in . . .

The only other equity that I trade in on a regular basis that seems to be offering these ‘new’ weekly options is the SPY. However, after I did a bit of research it looks like the CBOE amended a rule to allow up to five weeks of weekly options to be open at any given time and I have seen that now the Dec28 options are available for AAPL

So much for making my trading, and my life, simpler. I guess I will need to step up some self imposed rules and rely less on the market makers to keep me in check . . .

Sometimes CNBC Makes Me Crazy

Just about every morning I get up and go to the gym, getting there about 45 minutes before the market opens. I get on the elliptical trainer first and usually turn on CNBC and watch ‘Squawk on the Street’. But sometimes I catch the end of ‘Squawk Box’ and I almost always regret it. I used to like to watch Joe Kernan, but no more. It seems to me since the 2008 election that CNBC has become much more of a political channel than a pure financial channel. Now, instead of more focused insight into issues that matter to traders and investors, we are treated to a sour grapes bitterness about the last election and why, despite the fact that the election is over, why it should not have been decided the way it was. Right before the 2012 election the person on CNBC that summed it up best was Cramer, of all people. He said (and I paraphrase) ‘I’m on the side of making money’.

And Kernan is not the only one. The Tea Party favorite, Rick Santelli, whiteboards ideas from the CME, again denigrating our elected officials, and seems sure his view is correct because he turns around and asks the traders on the floor what they think and they all clamor his position. Since when is a CME trader pool a representative sample of the United States? Lastly there is Michelle Caruso Cabrera who rails against the nanny state and government regulation as if the only impediment to a robust economy is the federal government.

I realize that ratings helps sell advertisements which is the life blood of cable news, but CNBC does not need to use the tactics of Fox News or MSNBC to get people to watch. Or maybe they do . . . .and maybe I just need to vote with my feet.Come to think of it, Bloomberg has stolen some of the best of CNBC and are certainly  less hyperbolic.I should just make it a point to watch them instead, if I just have to watch financial news.

I remember the old days of FNN in the mid 80’s. Sue Herera and Bill Griffith were the two I remember and its great to still see them in the afternoons on CNBC and I remember them here because they are NOT part of what I perceive to be the problem at CNBC. They represent just good, solid financial reporting.

Please, if I want to get stirred up, I can watch Fox or MSNBC. But all I want out of my financial media is just a little help making money.

Tuesday Morning Nov 27 2012

The market opens down a bit this morning but seems to have firmed a bit as we approach halftime. I have 31 open positions in AAPL this morning as I write this. I think I had about 6 more this morning but I spent some time closing out deep in the money call spreads and out of the money puts and put spreads that I was net short, that is bull credit put spreads.

I opened a new bull put credit spread, the Dec22 600/570 spread for which I received about $15. However I came into the morning already short a Dec22 580 put at about $25 so this creates a bit of a put fly.

I also opened a new bull call spread, the Feb2013 600/700 which cost me $24.35. Seems pretty safe that AAPL should close above 624.35 after Q1 earnings

GOOG opened down below 660 but looks to rebounding above 668 now. I am long the equity itself but also long a Jan2013 600/720 call spread and a Dec22 680/690 call spread. Against this I am short a couple of this weeks 680 calls at 2.25 each. I am considering rolling these short calls into a Dec22 700 short call and then Thursday will look to sell another weekly call expiring on Dec7.

 

Trading is an Emotional Experience

Every endeavor in life takes practice. I have practiced both medicine and law and I have come to believe that there is no such thing as a ‘natural’ in anything. Anyone who masters their craft, whether it is a profession, a fine art or an athletic skill, has put in a significant amount of time getting there. Malcom Gladwell, in ‘Outliers’ says it takes about 10,000 hours to get good at something. Trading is no exception. Some of my former colleagues think that all one has to do to trade is read a few books, paper trade a bit and voila, thousands can be made in a day.

But if you trade with any regularity, you know this isn’t true. It takes a while. And the reason it takes a while is because trading is incredibly emotional. The score is kept in dollars and it is hard to hide and fudge the results. It stares at you on computer screens and mocks your intelligence at every chance.

I don’t agree with those that say that hedge fund managers and institutional traders manipulate the market to the disadvantage of the retail trader. The big advantage, besides their size, is that they are trading with someone else’s money and they can weather emotional storms much better.

I think that if we get better at trading, it is because we know that sometimes stocks go down, way down (like AAPL!) but they come back eventually, especially if the fundamentals are so strong. But when AAPL is trading at 506, it feels hopeless and you can never imagine that within a week it could be closing in on 600 again. If you can keep from panicking and throwing in the towel at levels like that you can be positioned for the comeback. I’m not gonna tell you that I closed out all my short calls when AAPL was 506, because I didn’t. I actually sold a couple of 525/530 weekly credit bear call spreads down there, but I did close them out when it passed 520.

The only way to get to this point though, is to suffer a few losses, only to see the equity bounce back. That’s why I don’t think paper trading works, because it doesn’t count. Losses don’t hurt and gains don’t feel good.

The only way to get there is to do it, and do it, and do it.