I Can’t Complain

. . . but sometimes I still do.

–   Joe Walsh

Why do people complain even when things are going well?  Is it because of what could have been?   Is it because they feel that they have missed out on something even better.

“What could have been?”

In regards to investing, most people have rules by which we use to govern when to buy and when to sell.

Sometimes these rules, designed to protect us, or rather our capital / profits, can be seen as preventing us from earning even greater returns.

Some personal examples from the past month or so for me are . . .

OLED:

  • Bought 200 shares in April at $81.90.
  • Soon after OLED went on a nice 10% run (~$1800) but leveled off the week before earnings.
  • Happy with my quick profit, I sold 100 shares.  Still up ~ $900.00
  • But then I started thinking about all the “what if” scenarios around earnings.
  • Long story short, I bought a May 19 $95 call for $2.70 and sold an $85 put to finance it.
  • The stock reported record blow-out earnings and revisions and jumped 22%.
  • My remaining equity position made an additional $1900.
  • My out of the money call ~$900. Oh and the premium for the put brought that up to ~ $1200.
  • Yes, there was that voice saying I should have just kept my original investment.  Even though I was up a good $3000.

Greed is a terrible emotion.

EA:

  • I actually liked both EA and ATVI but EA was reporting after ATVI and had really good (cheap) options.  So I bought 3 May 12 $96 calls of EA before ATVI reported for $1.8 each.
  • Basically nothing happened.  The stock didn’t move much at all as a result of ATVI’s earnings.
  • So I sold 2 of the 3 for a very, very measly profit right before EA earnings report.
  • The next day those calls were worth somewhat north of $1100 each.
  • Who knew EA was going to pop 12% on earnings.
  • Certainly not the market.  They had options priced in for less than half that amount of a move.
  • Again, that little voice in the back of my head gave a very vocal 2200 cough.
  • Even though I was in the money by nearly another $1000 or so.

This week presents another “alternative” like minded play on earnings.  Similar to EA and ATVI.

Not that I am predicting a double digit return but the price is right.  IMHO.

Home Depot (HD) reports on the 16th.

Lowes (LOW) reports on the 24th.

The retail sector has taken a beating lately thanks to the likes of Macy’s and other big name brick and mortar retailers.  As a result LOW stock has fallen along with the sector.  HD has actually held up quite well.

One could very easily be tempted to buy HD before earnings because they are more directly related to the housing industry which has experienced remarkable strength lately.  LOW falls into this same category.

So even though they are “retail” companies.  They both play to a fairly strong housing sector.

Why am I looking at LOW instead of HD.  Because their weekly option premiums and volatility are significantly lower than that of HD because HD reports this week and LOW does not.  If HD has a really strong quarterly report and forward looking estimate, the market could very easily drive up the price of LOW before they report a week later.

Indeed, if one looks at the numbers, the market is already pricing in the moves for each companies reports.

HD reports on the 16th and options are reasonably priced with the market pricing in approximately a 3.3% price move based on May 19th expiration date.

LOW reports a week later on the 24th and options are even more reasonably priced with an approximate 2.3% price move for this weeks May  19th expiration.

But all those numbers for LOW’s more than double for the “after” report expiration date for May 26th.

What do you think?

Would you invest in both or play one off of the other?

Financial Independence !!!

Financial independence has always been a goal of mine. It is the primary reason I invest in the stock market.

Over the years I have developed and refined my trading style from investing in standard mutual funds, to investing in individual stocks to recently, trading options.

Thanks to Oracle, Adobe, Darden, Western Digital and Amazon, the month of March was a very good month for me on the option front.

However, that is not the reason I can claim financial independence.

Last night I hit the jackpot!

Ironic, after all these years of working like a dog, scraping and saving and investing to eventually retire comfortably and all I had to do was win the lottery.

YAY!

But don’t worry, I will still keep blogging about the stock market and finances. But don’t be surprised if I throw in a couple posts about some exotic vacation spot from time to time.

My biggest worry now is how to properly set up trusts and funds for myself and my family. I never thought I would do this but now I guess I will also start looking for a financial management advisor and or estate lawyer.

It’s a nice problem to have.

Oh, and no I have not told my boss yet.  Shhhh . . .

I’m going to wait until the check clears to do that.

Until next time.

Trade well my friends.

Cheers!

EA vs ATVI and Options

A gaming colleague of mine at work asked me this question the other day.
Which is the better stock, EA or ATVI?

He is a gamer.  Not and investor.  But that does not prevent him from asking very interesting questions.

Gaming wise, I like many of the products both companies have.  Both are readily expanding their online and mobile business and EA has been developing more and more eSports related opportunities than ATVI.  IMHO, eSports gaming and competition is going to be big business.  EA also has the Star Wars branded games that ATVI does not.

Value and management wise, I think EA is better.

Chart wise, I find both intriguing.  ATVI could be a good reversal candidate.

atvi

EA has shown better strength and is in the process of staging a breakout after a consolidation since last October.  This breakout could very well be in anticipation of earning.  EA reports January 31 AMC.  ATVI reports February 9 AMC.

ea

Option wise, I like ATVI better.  If EA reports well, there is not only more time with the February 17 options but also a lot more interest which could drive up ATVI before they report.

What do you, think?  EA or ATVI?

OPTION Update:

Since this is the end of the month and I am most likely going to wait and see what EA does, here is my Option activity and accounting for the Month of January.

Stock Cost Sold Gain/Loss
GOOGL 410 756-102.5 243.5
MSFT 336 456 120
MS 105 180 75
DIS 306 TBD TBD
PROFIT / LOSS 438.5

My biggest mistake (I actually have two) was I held on to one of my four call options on GOOGL through earnings.    I was really on the fence regarding Google but when it started make its move I bought four to take advantage of the pre report hype.   Very much a buy the rumor sell the news strategy.   I have come to use this strategy quite a bit during earnings season.

Of the two, my confidence level was good only for MSFT.  I for one see the growth of their AZURE cloud solutions on a daily basis.  So I let MSFT ride through earnings and sold all but 1 of GOOGL (just in case if I was wrong).

That lonely call expired worthless.

MS I bought when it hit the lower Bollinger band support strictly for the bounce.

My second mistake (sort-of) was I a bit too quick on the trigger closing out MSFT when it dipped early morning which made me miss out on some later gains.  But hey.  A profit is a profit and I can’t complain. . . much.

I’m still holding the February 17 DIS 110 Call Options.

Until next time Happy Trading.

Resolutions, Trumpnomics and OPM

Trumpnomics:

So the new era of POTUS Trump and Trumpnomics has begun. In honor of this event, I was tempted to rename my blog to Bear with the Trump; But then I thought both names were equally synonymous, especially when dealing with politics and politicians, so I am keeping Bear with the Bull.

What I am going to do just for giggles is keep track of certain economic and market indicators as a gauge for Trumpnomics. I am going to start out by displaying sector and market indexes to the right but plan on eventually dedicating an entire page of information. Whenever possible, I will start the “gauges” as of 12 noon Friday January 20, 2017. So stand by for that.

Resolutions and OPM:

They say 80% of option purchases either lose money or expire worthless.

Over the past two years, I managed to do better than that, but my overall results pretty much prove that consistently making money buying options is really, really tough. Yes, I have had some massively good trades; such as with Google back in July of 2015.

googl-trade

But not every option trade worked out that well. In fact, I had my share of 100% loses.

When I add it all up, I still turn a profit, but I certainly do not have the stellar returns I was expecting. And, more importantly, IMHO, it did not add enough to my overall profit to make it significantly worthwhile.
So, with 2017, this is my resolution. I am trying a different approach.

I should have done all along but just like everything else in life, I had to learn and develop and come to the same conclusions that all the experts already have. Perhaps the safest way to earn money in options is with OPM “Other People’s Money” and sell options instead of buying them.

I actually started this on a small scale with the Trump Rally last November – December with certain banking stocks like MS and GS by selling an out of the money put and buying an equivalent call with the premium.
That works really well in strong up-trending markets.

Actually, I think I prefer to trade options during strong trends either up or down instead of trying to predict what is going to happen with a quarterly report.

However, I chose to throw caution to the wind and ignore this revelation and picked a stock which reported last week as my first OPM option trade of 2017.

I know, I’m a slow learner and don’t often follow my own advice – but I’m getting better, and that is what counts – Right?

With my first trade for 2017 I chose Netflix. Probably not the best choice. Highly volatile. I actually have a love hate relationship with Netflix. I love to trade it but hate that it often manages to bite me in the-you-know-what. Especially around quarterly reports.  Netflix has seen some analyst recommendations and upgrades lately and is gaining favor going into the reporting season and it showed up on my radar for 2017 stocks to watch and there is a rumor out there that they could be a buy-out target for Disney or other big entertainment company.

This is what the put option chains looked like right before earnings.

nflx-options

As you can see, the premium and implied volatility is insanely high. Too high. So I did away with the idea of buying a call and just stuck with wanting to sell a put. The only question was, which one.

To do this I looked at what the option traders were pricing in.

nflx-straddle

Looking at the straddle view, traders were pricing in nearly a +- 10% price move. 10% down would be about the 120 range. Probably the safe bet but I am feeling reasonable confident so I start looking around the 5% range and the open interest and volume.

The 130 was looking really attractive to me and if I had had absolutely no fear whatsoever I probably would have gone with selling a 130 put. But I wasn’t. So I didn’t. Instead I compromised and sold a 125 put. If Netflix disappointed, then I would have had the opportunity to purchase it at a discount. If they did not disappoint, then I get to keep the premium.

In the end, Netflix went up after earnings. In fact, they have gone up 8 out of 9 times with their January quarterly report. And for once I can smile at my play on Netflix.

I’ll be keeping track of future option trades and how they turn out with OPM right here on this blog as the year progresses.  Most likely with a couple lessons learned along the way too.  So stay tuned.

Until next time.

Happy Trading!

An Implied Alternate Reality

2016-election

Earlier this year a fellow blogger emailed me with one brief question.
“Am I in an alternate universe?”
Despite the ambiguity of context, I knew exactly what he was talking about.
You see, at that time a highly unlikely GOP front-runner was emerging from the ranks and dominating the headlines.
There was also a highly unlikely Dem candidate making headway into the Dem front-runners lead.   It was a very strange time in American Politics.
And it still is.
After all, how many presidential candidates can get away with insulting just about every demographic group there is, brag about “playing the system” and not paying taxes, and throw temper tantrums and name call everybody he doesn’t like (including the Fed Chair) AND STILL be considered seriously to lead the United States of America.
Now don’t get me wrong, I don’t like the “other candidate” either. Having held a security clearance myself, I know very well that I and any other regular shmuck caught doing the things she has and saying the things, or not saying the things, she has would end up sending our sorry stupid butts right into the slammer. But not hers.
Yes, I am afraid we really do live in an alternative political universe unlike any we have ever witnessed before.
But back to my original email . . .
My response to the alternate universe question was this essentially this.
And I quote . . .

“People are either for or against Trump. He has a very vocal and loyal base but, I’m not sure how well that translates into growth potential.
In other words, as more republican candidates drop out, their supporters are primarily anti Trump and will go vote for whomever is left, thereby decreasing Trumps front runner status. My guess is that whomever is left standing against Trump will have the votes to win the nomination”

Well, we all know how that turned out now don’t we.

So, it is with great trepidation that I make the following points, and ultimate predictions . . .

But before I do, let me point out some interesting stats from a recent IBD article on trading the presidents.

  1. Democratic Presidents have enjoyed a 12% annual return in the S&P since 1981
  2. Republicans 4%
  3. The standard deviation of the S&P for Dems is 12%
  4. Republicans 18%
  5. You can’t time the market and there is often no way to determine exactly when a catastrophic event or crash can or will happen. If you move the 2008 crash out a few months, the differences in the above numbers essentially goes away.

So what about GDP?

  1. Annualize GDP during the same time period is about 5.31%
  2. Republicans enjoyed a 5.87% average annualized return
  3. Dems, 4.57%
  4. The GDP standard deviation for the GOP, 2.75%
  5. Dems, .75%

Does all this mean that there is a direct correlation to market performance and who happens to occupy the White House?
Perhaps, and perhaps not.
I still think you need to factor in other things like the fed, interest rates, the dollar, oil prices, economic data and corporate earnings. Built into all these things is another factor called uncertainty. And if there is one thing the market hates is uncertainty and unexpected events. This uncertainty is expressed as implied volatility.
The market is essentially a collective “opinion” of what might, or probably will, happen.
So as the election nears and the results come in, take a look at how the market is reacting by measuring the implied volatility.
IBD had the following suggestions:
If implied volatility is high:
– Bullish strategies > cash secured short puts, short put verticals and covered calls.
– Bearish strategies > short call verticals
– Neutral strategies > iron condors
If implied volatility is low:
– Bullish strategies > long call verticals
– Bearish strategies > long put verticals or long out of the money put calendar spreads
– Neutral strategies > at the money calendar spreads
And what about my predictions?
I predict one candidate will cause greater volatility than another.
I predict that should the high volatility candidate win, he will be in for a really big shock and hate his new job.
I predict that the fed will raise rates this year, after the election.

  • one quarter of a point for the non-harassing low volatility candidate
  • half a point for the high volatility harassing and personally insulting candidate.

And as tempting as it is to use this little gift of memorabilia, I predict that I never will. It just might be worth something some day.

trump-roll