The Middle Path $SPY $QQQ $IWM $DIA

It’s getting close to about six weeks since the start of the correction. SPY went from about 285 in the final days of January 2018 to a low of about 256 on February 9 or 10. 

There was a rebound to about 275 around February 25 or so and then another pull back to 265 around the first of March. 

Another rally to 277 and now we sit about 275. Let’s take a look. 

Here’s what I see, this looks like a couple of higher highs, after the pull back of course, and a couple of higher lows. This assumes this low holds at 275. 

Providing this happens I think we ultimately get back to the rally and a new high, maybe before the end of this month or the next.  

But until then I am banking a bit on us trading within a range from 275 to around 283. 

Since I am net long the SPY I am selling call credit spreads every time we have an intra-day rally. At the end of the day and selling occurs these spreads fall in value. 

Should we have more of a pull back, I will sell corresponding put credit spreads expiring on the same date as the call credit spreads and thus create iron condors for that date. 

Stocks can go up or go down or they can do the unthinkable. They can go sideways.  

Kevin O’Leary on buying Twitter $TWTR, “I just don’t get it.”

Well, duh! 

Can anyone be surprised when Mr. Wonderful can’t find it in himself to buy TWTR (or NFLX, AMZN . . . . ). He states that you look at the balance sheet and it’s a “piece of . . . well you know what I want to say”. Yeah, Kevin, we know. You mean piece of shit.  

I’ve said it before. I have experience with people like him. He’s an old white guy, very full of himself. Sometimes wrong, but never in doubt. I’m a doctor and a lawyer. I’ve met and I know plenty of people like him. 

Well, because I’m a moron I bought TWTR when it was around 32 and change. I even bought call spreads in it, you know, because I like to buy pieces of shit.  

Old white guys tend to use these platforms less than millennials and have less appreciation for the potential of these platforms. If I am going to follow someone’s recommendations about these types of names, it is not an old white guy pushing his own conservative ETF.  

My investment in TWTR was recent and it was based on a recommendation by Josh Brown, a millennial. As I said it was trading around 32 and change and he recommended a stop at 30. This was on Feb 22. My investment is up about 12% 

Contrast that with Kevin O’Leary’s trade on Boeing BA. It was trading about 350 on Feb 22, today about 327. 

Why do I pick on Mr. O’Leary? Maybe because he’s an old white guy who has no curiosity about the future, with no ability to admit that he could be wrong. 

Does this remind you of anyone else? 



Why Carter Worth is (probably) Wrong about Facebook $FB $TWTR

A very long time ago I decided I wanted to write some fiction. Rather than just haphazardly spending a lot of time writing, I decided I wanted a bit of help. Unfortunately, this was before Google and the only web searches one could do was to use services that compiled and indexed websites. Anyone remember Dogpile? It was advanced for the time, being a compilation of compilations, a meta-search engine.  

So, I went to my local Barnes and Noble and looked for books and came across a book by Stephen King called ‘On Writing‘. It was really, really good. But one of the main takeaways I remember is you have very little hope of being a good writer if you don’t read and read a great deal.  

On this past Options Action (3-9-2018) Carter Worth recommended selling Facebook. It seems his favorite technical indicator is whether or not the equity is underperforming the S&P 500, or underperforming their sector, in this case the $XLK or technology sector.  

I discount this analysis on its face. A technical analyst can say a name is an underperformer and will continue to do so, like CBW does here, or there will be reversion to the mean and outperform.  

That aside, I disagree with this analysis on more fundamental grounds. On January 12th of this year FB announced it was changing its algorithm which would result in less engagement with its users. FB fell 4% that day, understandably because investors that know the product know this could result in less advertising revenue. I was a buyer on that day, and a seller of put credit spreads. 

Why? Because I am an old white guy that uses Facebook. I was unhappy with looking at FB and seeing radical political views from either side and then realizing sometime last year that these were being sent to me by bots. The fact that FB was changing its core business meant they were serious about changing it for the better, so they could continue to make money.  

Since that time FB regained highs up until Feb 1 when the market took its hiatus from advancing. It has consolidated since but over the last week has stayed with its technology brethren.  

Carter Worth makes no mention of this huge announcement about changing algorithms probably because he has no FB account or is even vaguely aware of how it works. I think this is the reason the name has underperformed and why it may actually out perform in the future. I may not be a committed bull on FB, but I am certainly not a bear. 

PS – Dogpile still exists, I assumed they disappeared with many of the early compilers. For a great fictionalized look at this time see the last season of ‘Halt and Catch Fire’ S4E9 here. It’s the one where Yahoo! ends being on the Netscape portal page.  

PSS – kudos to Guy Adami for admitting he was wrong on Friday’s show about the market retesting the low. Contrast that to Dan Nathan making no mention of the put spreads he admitted to buying earlier in the week in SPY, QQQ and IWM. Dan didn’t even come up with a final trade. Just said goodbye and good luck! 

$AMZN goes Brick and Mortar in my Home Town. I’m celebrating with an Iron Condor.

In the Austin American Statesman, our local paper, it was noted that Amazon opened a bookstore in a mixed use area of north Austin called the Domain.  

The Domain is a happening place. Apple has a new store there specifically built for them and all the hip retailers are there, too. Even Tesla has a showroom there.  

This is the first store for Amazon in the state and follows other stores in Seattle, Portland, Los Angeles and New York. Notably, none of the other 20 finalists for HQ2 have a bookstore but I believe that one is coming to Washington, DC.

In celebration of this event, I’ve decided to open a new Iron Condor in $AMZN. I already have a number of other spreads open in the name, but with today’s little Gary Cohn blip I think the downside is set for a bit, at least until a week from Friday when this expires. 

An Iron Condor is the marriage of two credit spreads, one put credit spread and one call credit spread. All the options expire on the same date, and this date is Friday March 16. Typically, one will use this strategy when one feels the stock will close in a range on the expiration date in between the two credit spreads.  

For the credit call spread: I’ve sold the 1575 call for $880 and I have bought the 1585 call for $655. Spread credit = $215 

For the credit put spread: I’ve sold the 1500 put for $1225 and bought the 1490 put for $1000. Spread credit = $225 

The Total Credit is the sum of these two spread credits or $440. The Total Risk is $1000, which is the margin requirement of holding this strategy open. The margin requirement is half of what it would normally be because with these options expiring on the same day it is impossible for the price at the close of that day to be both above 1575 and below 1500. 

It may seem imprudent to risk $1000 to make $440 but remember there is no requirement to hold this strategy to that day. Frequently I will open new spreads around this trade. 

Another name looking to trade today is $NFLX, which someone downgraded. Seems like a buying opportunity of sorts.  

Good Luck today!  

Skip Intro. $NFLX is Next up on your Watchlist.

Jim Cramer was on Fast Money Halftime today and said something that caught my attention. He said that one of the big knocks on Netflix USED TO BE that they were having to pay up for content, both original and otherwise. As recently as January, Michael Pachter of Wedbush continued to call Netflix a ‘House of Cards’ and that their purchases of content would sink them.  

Today NFLX was up on a note from Macquarie Research that raised the price target $300 to $330 and from neutral to outperform. They based this on subscriber growth and quality of content.  

I bring this up to show a flaw in fundamental analysis. Here an analyst in the past (maybe still now) has been bearish on a stock for the same reason that another analyst now says is bullish for the stock. 

Previously I have said there are flaws in technical analysis. If it was easy to call price movement based on technical analysis, everybody would be rich. Same with fundamentals. The truth is that we should all be skeptical of all the analysis. There is no guru that gets it right all the time. Most don’t get it right most of the time.  

What do I base my decisions on? First, I think that the macro trend is the most important. If the market goes up, most of the time that is a tailwind for other stocks. When consensus is overwhelmingly positive, that’s the time I’ll put on either a put spread or a calendar put spread and if there is a pullback in the market or the individual name, then I write credit spreads against them. 

I also love it when a name I am interested in pulls back for no real reason. For instance, I bought calendar call spreads in WalMart after its pullback and then added put spreads when it gets a little strength.  

As for $NFLX, I was already long May/April calendar put spreads. I rolled up and out on a few call spreads which I was able to do using the ‘custom’ strategy on my trading platform. I sold a March 16 260/270 call spread and bought a April 20 300/310 call spread in its place. I was able to pull 3.4 out of each set of contracts with this.  

I think the bull run in NFLX continues and I will keep buying calendar spreads on the way up.