OptionPundit

Tag: option trading

  • OPNewsletter (Jul’09) +5.2% (Open)

    General Market Move Since opening of OPNewsletter Jul'09 portfolio
    General Market Move Since opening of OPNewsletter Jul'09 portfolio

    4th down week for the markets. It’s interesting to evaluate how underlyings have moved since we started our portfolios. X moved +1% to -23% and moved wildly. GDX moved from +3% to -11%, and all major market indices including S&P 500, DOW and Russell 2000 ended down, ranging from -5.5% to -6.5% (Ref point June 16th). On contrary, OPNewsletter, using 43.3% of capital is up +5.2% x-commissions.

    If you recall mid-June when we started our portfolios, the “green shoots” theory was gaining momentum (maybe still it is, but less so) and markets were making high. These pages on OptionPundit reflect my bearish bias. The problem with bear market is that you may know it is about to happen, but not sure of time. Hence we have to keep OPN portfolio to cater to upside moves as well. The strategy paid off.

    The above results don’t include returns on speculative trades of either VIX or RIMM, POT or Indonesia related Trades.

    I have been saying for sometime now Smiley I shall say it again-
    As I shared earlier, market internals are deteriorating day by day. I don’t know when will the tide turn upside down “big time”..I feel that March lows are about to be tested..if not all, then maybe a significant gains will since then might be reversed. If you have a long stock portfolio, you may want to erect defense lines while the IVs are lower and defense will be cheaper. For stocks, there is no harm in reducing the gains in order to protect and preserve capital. I’ll reinforce what I often say- Making money is not difficult, preserving it is.

    We shall soon be starting Aug portfolio. If you would like to join, pls click here.

    oNext week is an interesting one, as it has GOOG, IBM, HOG and some other great earnings’ play; option expiration is on Friday which sets it up for a highly leveraged opportunistic time. I may share some trade ideas via e-mail alerts to registered members. If you have not signed-up for free membership, you may want to join now.

    Profitable Trading, OP

  • OPNewsletter (Jul’09) + 2.64% (Open)

    DJI Market techincals Jun 28 09Overall an interesting week that it was, but I think there is more to come. On a weekly basis, it appears as if MACD and RSI are about to register sell signals. Mr. Market can go whichever direction it wants to, but hey, at the end of the day, this is all about probability. And as I interpret the current market data, the probability of markets going lower are higher vs probability of its rallying higher. Oh well, maybe that I am the only one still standing and claiming that it is bear market rally. The jury is still out there and soon we shall know what lies ahead as companies starts to announce earnings, and window dressing comes to a completion. Hedge funds who participated since March lows are up and probably have booked bonuses for the year.

    For overall OPNewsletter, we increased investment from 38.7% to 43.3% (for an assumed 10K capital). We are up +2.64% x-commissions and +0.68% including commissions. I usually aim for +60% capital deployment but overriding philosophy here is “preservation of capital is more important than missing a potential investment opportunity”. According to Lowry’s statistics, as I interpret, in spite of a very little change in the Friday close, the markets internals almost gave back whatever it gained during Thursday’s rally. It is a very interesting market; It is seems very different on the surface vs. what lies beneath.

    As I shared earlier, market internals are deteriorating day by day. I don’t know when will the tide turn upside down. If you have a long stock portfolio, you may want to erect defense lines while the IVs are lower and defense will be cheaper. For stocks, there is no harm in reducing the gains in order to protect and preserve capital. I’ll reinforce what I often say- Making money is not difficult, preserving it is.

    Let the week begin, there is more economic data this week

    Profitable Trading, OP

  • OPNewsletter (Jul’09) +3.55%

    Last week markets tried very hard to rally but ended in negative territory. Market’s character can now be defined by more of “withdrawal of demand” vs anything else. For overall OPNewsletter, we have invested 38.7% of assumed 10K capital. As of last Friday close, we are up +3.55% x-commissions and +2.2% including commissions. I usually aim for +60% capital deployment but overriding philosophy here is “preservation of capital is more important that missing a potential investment opportunity”.

    As of Friday closing, here is an update on OPN portfolios-

    • IWM is down -0.47%
    • X is up +4.50%
    • GDX is up +5.13%
    • DIA is up +5.26%

    This doesn’t include returns on speculative trades of either VIX or RIMM.

    As I shared earlier, market internals are deteriorating day by day. I don’t know when will the tide turn upside down. [b]If you have a long stock portfolio, you may want to erect defense lines while the IVs are lower and defense will be cheaper]. There is no harm in reducing the gains in order to protect and preserve capital. Making money is not difficult, preserving it is.

    If you would like to sign-up for the OPNewsletter, pls click here to reserve your place. Or if you would to read what other customers think, pls click here to read subscriber’s testimonials.

    Profitable Trading, OP

    (This post is 2 days old, original post was published on the forum for OPN Members)

  • The Week Ahead

    RIMM free trade that was shared here delivered a +19%, an excellent trade for two days holding period. Hope you have been in touch with the blog posts either via RSS or via basic blog membership.

    The coming week will see a flurry of economic data, the biggest one being FOMC announcement on Wednesday 2:15pm US EST. Fed is expected to leave rates unchanged. This will also observe a huge Bill auctions, and markets, as we saw last week, may be volatile depending upon success of these auctions.

    Existing Home sales data will be released on Tuesday. Durable good orders, New Home sales and FOMC meeting minutes will drive Wednesday crazy. GDP number as well as Jobless claims announcements will set the tone of market opening on Thursday. Personal Income and consumer sentiment will be stepping stones for Friday’s market beat.

    Before even all this is released, The World Bank said the global recession this year will be deeper than it predicted in March and warned that a flight of capital from developing nations will swell the ranks of the poor and the unemployed. It lowered its forecast for the global economy to contract 2.9 percent this year, compared with a prior estimate of a 1.7 percent decline. Global growth will return next year with a 2 percent expansion, the bank said, cutting its forecast from a 2.3 percent prediction about three months ago.

    I shall also encourage OP readers to read an excellent article written by John Hussman of Hussman funds (The Outlook is Not Up, But Very Widely Sideways); John has done an excellent job in explaining what does “money on the sidelines” really mean.

    Cash does not ever find a “home” in a secondary market. Every time you hear the phrase “investors are putting money into…” or “investors are taking money out of …” or “money is flowing out of … and into …,” it is a signal that the speaker is unable to distinguish a secondary market from a primary one.

    “As I used to teach my students, if Mickey sells his money market fund to buy stocks from Ricky, the money market fund has to sell some of its T-bills or commercial paper to Nicky, whose cash goes to Mickey, who uses the cash to buy stocks from Ricky. In the end, the cash that was held by Nicky is now held by Ricky, the money market securities that were held by Mickey are now held by Nicky, and the stock that was held by Ricky is now held by Mickey. There may have been some change in the relative prices between cash, money market securities and stocks, depending on which of the three was most eager, but there is precisely the same amount of “cash on the sidelines” after that set of transactions as there was before it.

    “I’m similarly convinced that Wall Street has no idea what it’s talking about when it uses the word “liquidity.” While using the phrase “global liquidity” lends a further element of worldly sophistication, Wall Street still hasn’t the slightest idea what it’s talking about. The phenomenon that’s being called “liquidity” is nothing more than a combination of fiscal irresponsibility and risk blindness, and will ultimately prove itself to be the time-bomb that it is when investors begin to “re-price” that risk.

    All of that is as true now as it was at the time in 2007, when the S&P 500 was above 1400. Investors hoping to ride a “wave of liquidity” may eventually discover that the wave leads to a plunge over the falls.”

    OP’s Bottomline – I have been and am still bearish. But I want to keep options open for limited upside as well. For OPNewsletter, we are prepared for either direction with slightly short portfolio delta.

    Profitable Trading, OP

  • A Record Month OPN (Jun’09) up +14.7%

    June 2009 was a record month (2009) for OPNewsletter! Overall June’09 OPN is closed up +14.7% (x- brokerage commissions) and +12.1% (including commissions). We invested almost 60% of 10K assumed capital across various sectors and diversified strategies. All the portfolios were closed positively. Overall an excellent performance that was almost double the OPNewsletter objective of 5-7% per month.

    Here is an update by individual portfolio-

    • GDX was closed for +5.15%
    • UPS was closed for +8.9%
    • X was closed for +13.85%
    • RUT was closed for +23.08%
    • DIA was closed for +22.89%
    • IWM was closed for +26.07%

    This doesn’t include returns on speculative trades on POT, GDX and GMCR, MCO and AAPL (Pls read here on OP calculates it’s results)

    To Reinforce what I said last week, and I still believe in it-

    Believe it or not, market internals are deteriorating day by day and the surprising thing so far is that it is still holding very well. I have trimmed my personal stock holdings by almost half (as lot of those increased by almost 60-70% in a few weeks time). The only holdings where i still continue to hold (or rather increase on every pull back) is gold. But pls don’t follow it without full due diligence as gold trading is not for everyone.

    This time around, our strategy was slightly different vs. usual way of adjusting. We were short delta all throughout the month, expecting for a sharp correction which didn’t arrive but markets didn’t rally either and didn’t go beyond the expected upsides break-even. This was a well thought out technical as well as psychological analysis that helped determine what to expect and when to move. We were short delta and as soon as markets fell, our results improved.

    This was another record setting month for RUT Iron condor. Since re-opening OPNewsletter in Jan’09, OPN’s RUT Iron Condor never lost money and just one condor alone was more than enough to pay for the subscription.

    We have started to open Jul’09 income portfolios. If you would like to sign-up, pls click here to join waitlist.

    Profitable Trading, OP

  • A Bearish Apple (AAPL) Trade

    The Apple Worldwide Developers Conference (AWDC) is starting today and AAPL stock has been on an upward movement for past few weeks. At OptionPundit, we played this event around this time last year and made good gains. While the same approach (Bearish bias) has pretty good chance of making money, context however matters. This time around we have two key things in play a) Uncertainty around Steve Job’s return and b) General Macro Economic Environment. So read my post through skeptical lenses.

    There are a lot of speculation around “what if” Steve returns and “what if he doesn’t”. Most markets participants don’t expect any significant move in stock as Tim Cook has been doing a good job in keeping both investors as well as Wall Street happy (AAPL stock moved from a lows of $80s to $146 last week.)

    Let me share some observation (shared by another OPN member) on AAPL price action leading to AWDC. The price upward movement starts as early as 8 to 18 days prior to the AWDC since 2003. And on the 1st day of AWDC, it is generally higher but either the same day or in a matter of few days it closes sharply lower. It behaved the same way last year; dropped sharply on the opening day of the AWDC itself.  If you are looking for past dates for an analysis, here are past AWDC dates:

    • 2008: June 9-13
    • 2007: June 11-15
    • 2006: Aug 7-11
    • 2005: Jun 6-10
    • 2004: Jun 28-30
    • 2003: June 23-27

    While you are doing your analysis and stock price movement, you may want to look at-

    1. When was the AWDC date announced?
    2. How did the price behave leading to the date? rather how many days before price started to advance?
    3. How did the price behave on the opening day?

    That’s for above the surface analysis. For below the surface, you may want to look at Greeks, Price/Volume analysis to assess what happened to AAPL internals pre and post AWDC. For, even if you are on the right side of the trade, you may not make money if greeks are not in favor. I am looking for a bearish trade set-up and If I get more time I shall share what trade set-up I am looking for. You may consider Bear call spread, Bear put debit spread, put diagonal, straight put, etc.

    If you want to share your views or participate in a conversation, start sharing your views via comments here in this post. I shall add my trade idea later in the comments section.

    Disclaimer– Past performance is no guarantee of future returns and hence pls do your due diligence before investing. I don’t have it opened yet but I may do so anytime.

    Profitable Trading, OP