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! 

Should you listen to the talking heads on CNBC? Part One

Should you listen to the talking heads on CNBC?  Part One 

The simple answer is yes. Why? Because it’s free and  if they were your advisor they would be charging you some obscene fee. 

But you gotta be smart and realize that the interests of these guys are not aligned necessarily with your interests. 

First, the purpose of CNBC (or Bloomberg or Fox or MSNBC et al) is not to make you money, but to make money for themselves. I know, seems obvious right? But most of the time it seems like they have our best interest at heart.  They want all of us to make money.

Well, yes and no, they don’t really care as long as you come back again tomorrow. And the day after, and the day after that. They just want your attention, just like Facebook and just like Twitter. All of these media outlets can charge more money to advertisers if they have more eyeballs and more engagement with those eyeballs. Your eyeballs specifically. 

One way CNBC does this is they scare you. How many teases do you here for upcoming Fast Money segments where they say that have one analyst who sees something in the charts that could bring this rally to a screeching halt, that could take Bitcoin to zero. I’ll tell you how often. Daily. 

So you stay. You watch. Turns out it’s not so scary after all. But don’t miss an episode because you might miss that bell at the top of the market, or the sign that makes this or that definitive

Second, many of the guests aren’t necessarily there to help you either. Most of them are there to sell something and I think even the most upstanding and reliable of them would probably admit it. The ones that wouldn’t admit that, probably should be the most ignored. 

Sometimes what they are selling is just a bit of legitimacy and sometimes they are more overt about selling. For instance, just this week Kevin O’Leary closed his final trade on Fast Money Halftime by recommending small cap international stocks. He touted them throughout the show. Guess what his recommendation for this was? A Vanguard low fee international ETF? Nah, it was for $ONTL which is a fund THAT HE OWNS. Feels like advice, but is really just a selling platform. 

But on the other end of the scale is my favorite analyst, Josh Brown, who now works for Ritholz Wealth Management. He is pretty up front that he is a wealth manager but doesn’t push his service.  He is also absurdly honest about the market imploring us to calm down and shooting down theories and aphorisms as well as the fear mongers. If he is on FM Halftime I always try to listen to the first 20-30 minutes of the show. I wish they sent out a podcast of Halftime so I wouldn’t have to watch it on the DVR or live . . . .maybe that’s on purpose 

And then there are a few regulars on the evening Fast Money show. Guy Adami is there almost every day and I can’t quite figure that out. Same with Karen Finerman and Tim Seymour. Do these guys get paid? Anybody know? 

AlohaTrades is Back and wants to help you with trading!

I started this blog in late 2012 trying to use it to help sort my thoughts about my personal investing and trading. At that time I managed the great bulk of both my taxable and retirement accounts. In 2013 I had what I considered to be a phenomenal year, up about 45%. 

 I thought I was pretty smart, that maybe I had finally figured out how to make money. I was right and I was wrong. In the first quarter of 2014, using the same techniques, I lost about 30% putting my account back to where it was at the start of 2013. I had made a round trip. But I had really lost money as I had to pay taxes on good portion of my 2013 gains so I ended up 2014 with losses that I couldn’t deduct (other than $3K) and had to carry them forward. 

 I wasn’t sleeping well at night and many times during the day I would ruminate on my 30% loss. Losing felt far worse than what I would have predicted. I couldn’t remember how good making money felt. 

 So I made a change. I took most of my assets and placed them with Fidelity’s managed portfolio and carved out two accounts to trade options, one retirement account, and one taxable account. I also have a taxable account where I just buy and hold. No options trading. 

 These two accounts now comprise about 20% of the value of my retirement accounts and about 15% of the value of my taxable accounts. 

 Last year I made about 75% in the retirement account and about 35% in the taxable account. The managed accounts returned a bit under 19%. I pull cash out of the two active trader accounts twice a year and put them into managed accounts so that the trading accounts keep about the same dollar value going forward. 

 This has been a really good technique for me and the fact that they comprise a ever shrinking part of my assets frees me up to take risk. Simply put it has made trading fun for me again. I look forward to it every day and I sleep well every night. I haven’t lost any sleep on my positions for over 2 years, not one night. Gains feel good and losses sting, but its pretty equal now, not asymmetric. 

 So I’m here again, mostly for myself. I want to write some of this down to help me focus, but I also want to help others, particularly people like me, retired but looking for something stimulating and social. 

 So I invite you to join me. I’m going to build this site slowly and hope to eventually add an email newsletter. I’ll tell you waht I’m doing. I’ll tell you what has worked and what hasn’t. I want to critique some of the free content out there, particularly that promulgated by CNBC. I watch CNBC way more than I should but I have a much better relationship with them than I used to. I plan on talking about soon, maybe the next post. 

 Until then, good luck with your trading and investing! Aloha!