As of last Saturday's option expiration much happened in this volatile market - mostly good: Two LO puts that I had sold to take on the stock before ex-D, expired worthless, netting $240 (ex-D next week); MAT was put to me and I sold some nice 26 calls on them. One of my 3 plungers - DIA - was put to me at 122, so I'll wait on a rebound to sell a call, taking in monthly dividends - a positive.
In this 20% decline only 2 of my 22 stocks plunged - NOC and TOT - so I'll just collect the larger % dividends while I wait as with DIA. Remaining stocks are just above or below water.
Fine-tuning: since MAT was put above the current price (as with the DIA) I wrote calls ABOVE, not the usual DITM below. Any stock that plummets much lower than the market, such as my last (and only) stock losses of 1 1/2 years ago - BP and UVV deserves to be sold. Since there have never been more than two Bear markets in a decade since 1900 (or less than one) let us hope this is one and it is mostly over.
KEEP THE BABY, FAITH!
Wednesday, August 24, 2011
Thursday, August 18, 2011
"Are You Ready For Some DEFENSE?"
In lieu of today's 500+ point rout, I wanted to update the DITM portfolio in my account:
Of the 22 current positions, 9 are still above water ! Mostly because the rose a bit under QE II, and should rise again by year end.
8 positions (covered calls and short puts) are within 3-4 points of B/E (break even) where I receive maximum return (DITM is a fixed income strategy on the stock market, not hoped for appreciation, which can be done outside of it, such as GOLD).
That leaves 5 stocks down as much as 10 points, BUT I am receiving a much higher dividend % on them while I await their return, as well as milking some option premium.
As much as I hate to make or receive market projections - give me facts, not opinions- the strong position of the US stock market and its appeal from European and other foreign investors make me anticipate a huge rally down the line. At worst, entering DITM positions at this time, for the strong of heart, makes a great deal of sense.
BTW - I just learned that Trader's Press has expressed an interest in selling my books.
Of the 22 current positions, 9 are still above water ! Mostly because the rose a bit under QE II, and should rise again by year end.
8 positions (covered calls and short puts) are within 3-4 points of B/E (break even) where I receive maximum return (DITM is a fixed income strategy on the stock market, not hoped for appreciation, which can be done outside of it, such as GOLD).
That leaves 5 stocks down as much as 10 points, BUT I am receiving a much higher dividend % on them while I await their return, as well as milking some option premium.
As much as I hate to make or receive market projections - give me facts, not opinions- the strong position of the US stock market and its appeal from European and other foreign investors make me anticipate a huge rally down the line. At worst, entering DITM positions at this time, for the strong of heart, makes a great deal of sense.
BTW - I just learned that Trader's Press has expressed an interest in selling my books.
Wednesday, August 10, 2011
WHAT, ME WORRY???:
For the first time in nearly 30 years of investing (including the 1987 Crash), at no time have I felt the panic or need to bail out of any of my 15 DITM positions. Although at the recent lows of 20%, most stocks were under water, with the Safety Net cutting losses (as well as some timely hedges -puts and Inverse ETFs), my rationale was that as long as I was receiving the dividends and milking Call premium, I would be well ahead when the downdraft was over - which it inevitably is.
The 4 or 5 worst stocks are defense and energy, along with WM.
Here is what I call a hypothetical microcosm of the market decline:
The following theoretical stock trade best illustrates how the DITM defensive strategy works in the typical market cycle:
Stock XYZ trades at $50; in its usual upward path of a normal market, it rises to $60 (stocks normally have a right translation, meaning they rise 50-60% of the time, partially due to Inflation, correct down 10-20% and trades sideways for the balance). XYZ pays a 4% dividend - $.50 a quarter.
The Investor does a Buy/Write on XYZ at $55, selling an ITM (in-the-money) covered call at $50 strike price for $6 , five months into the future ($5 for the top part of the stock to be surrendered later, and $1 option premium).
Upon reaching $60, a Bear Market sets in and it falls 25%, from $60 to $45 ! The Investor's cost basis is only $48, including the immediate and second dividends.
Meanwhile, anyone else who bought XYZ near $60 is at a huge loss - $15- and must consider selling at some point. However, our Investor, being only down $3, will hold on while receiving the dividend and milking call option premium. No panic, no fear!
5 months later, the stock has rallied back to above $50 again - a normal occurrence. As the 50-strike call expires, the Investor "steps down" and sells the $45 call another 5-6 months out (for another $6). Now the stock is paying a higher dividend %, and the Implied Volatility of the call has risen with the fear from the decline, and should they want to buy more, the stock price is now cheaper.
Bottom line: after 1 year, the stock is called away at $45. Profit/loss is as follows-
Cost: $55.
1st call sold: $6
2nd call sold: $6
4 dividends: $2
XYZ sale: $45
TOTAL: $59 - $55: $4 profit, or 7.37%, while the stock has dropped 10-15%!
Although DITM is a defensive strategy, if one considers the other possible stock scenarios, the Investor would have made a similar profit had the stock moved sideways or slightly up. Only a large rise would have profited more, and the Investor has the choice of only investing a portion (CD or money market funds) into DITM, while chasing stocks with options, ETFs, and other stocks.
More information is available at:brentleonard.com. Brent has written a print book and now an eBook on the DITM strategy, called Zero (IN) Tolerance.
The 4 or 5 worst stocks are defense and energy, along with WM.
Here is what I call a hypothetical microcosm of the market decline:
The following theoretical stock trade best illustrates how the DITM defensive strategy works in the typical market cycle:
Stock XYZ trades at $50; in its usual upward path of a normal market, it rises to $60 (stocks normally have a right translation, meaning they rise 50-60% of the time, partially due to Inflation, correct down 10-20% and trades sideways for the balance). XYZ pays a 4% dividend - $.50 a quarter.
The Investor does a Buy/Write on XYZ at $55, selling an ITM (in-the-money) covered call at $50 strike price for $6 , five months into the future ($5 for the top part of the stock to be surrendered later, and $1 option premium).
Upon reaching $60, a Bear Market sets in and it falls 25%, from $60 to $45 ! The Investor's cost basis is only $48, including the immediate and second dividends.
Meanwhile, anyone else who bought XYZ near $60 is at a huge loss - $15- and must consider selling at some point. However, our Investor, being only down $3, will hold on while receiving the dividend and milking call option premium. No panic, no fear!
5 months later, the stock has rallied back to above $50 again - a normal occurrence. As the 50-strike call expires, the Investor "steps down" and sells the $45 call another 5-6 months out (for another $6). Now the stock is paying a higher dividend %, and the Implied Volatility of the call has risen with the fear from the decline, and should they want to buy more, the stock price is now cheaper.
Bottom line: after 1 year, the stock is called away at $45. Profit/loss is as follows-
Cost: $55.
1st call sold: $6
2nd call sold: $6
4 dividends: $2
XYZ sale: $45
TOTAL: $59 - $55: $4 profit, or 7.37%, while the stock has dropped 10-15%!
Although DITM is a defensive strategy, if one considers the other possible stock scenarios, the Investor would have made a similar profit had the stock moved sideways or slightly up. Only a large rise would have profited more, and the Investor has the choice of only investing a portion (CD or money market funds) into DITM, while chasing stocks with options, ETFs, and other stocks.
More information is available at:brentleonard.com. Brent has written a print book and now an eBook on the DITM strategy, called Zero (IN) Tolerance.
Friday, July 29, 2011
JUNE SWOON AND UNRULY JULY:
Since the start of the cyclical Bull Market of March 2009 (and the start of my DITM strategy the following May) there have been 9 corrections of 5% or more - as of today's low. Including the Flash Crash of May 2010, the strategy has sustained only 3 losses, 2 of which regained some ( BP and TLT )- only the UVV trade was a large plunger. This is over 100 round trip trades, and no losses have occurred in more than a year.
Currently of my 22 positions (fully invested) 14 are safely above water - 8 slightly below. Half of the belows are naked puts which:1) take me up to ex-dividend date 2) add to total return and 3)alert me that the date is imminent, whether the put is ITM or OTM. Upcoming very profitable candidates include LO and MAT.
This has been a very interesting summer so far. In hopes of finding a fund that I could subadvise on to get a pure results reading, I attended a very civilized Schwab dinner at the swank Omni hotel, put on by US Global funds; Thursday, the TSAA held a luncheon at Alfred's hosting Matt Hougan from IndexUniverse.com, an ETF analyzer who will also be at the Money Show.
Also this week I was happily informed that my magazine article on DITM came out in tradersonline-mag.com - an English version of the German trading and T/A Zine; also the eBook version of Zero(IN)Tolerance purportedly arrived at screens such as Nook, iPads, Sony, etc. - everyone except Kindle, which may happen in December.
BTW, I would appreciated any feedback about accessing the eBook, as I do not have an eReader. Although successful in bringing it up on the iPad and Nook -both were prices, 2010 dates and ISBN# from my Print book.
The Money Show is August 10 through 12, with Tom Hudson and Hilary Kramer from Nightly Business Report; Charles Biderman, Harry Domash of Dividend Detective and the SF Chronicle; also the TSAA and GGU will have a booth there, and a room on Thursday evening.
This debt decline poses a possible great opportunity to initiate some DITM trades, starting with the DIA, which pays monthly.
Currently of my 22 positions (fully invested) 14 are safely above water - 8 slightly below. Half of the belows are naked puts which:1) take me up to ex-dividend date 2) add to total return and 3)alert me that the date is imminent, whether the put is ITM or OTM. Upcoming very profitable candidates include LO and MAT.
This has been a very interesting summer so far. In hopes of finding a fund that I could subadvise on to get a pure results reading, I attended a very civilized Schwab dinner at the swank Omni hotel, put on by US Global funds; Thursday, the TSAA held a luncheon at Alfred's hosting Matt Hougan from IndexUniverse.com, an ETF analyzer who will also be at the Money Show.
Also this week I was happily informed that my magazine article on DITM came out in tradersonline-mag.com - an English version of the German trading and T/A Zine; also the eBook version of Zero(IN)Tolerance purportedly arrived at screens such as Nook, iPads, Sony, etc. - everyone except Kindle, which may happen in December.
BTW, I would appreciated any feedback about accessing the eBook, as I do not have an eReader. Although successful in bringing it up on the iPad and Nook -both were prices, 2010 dates and ISBN# from my Print book.
The Money Show is August 10 through 12, with Tom Hudson and Hilary Kramer from Nightly Business Report; Charles Biderman, Harry Domash of Dividend Detective and the SF Chronicle; also the TSAA and GGU will have a booth there, and a room on Thursday evening.
This debt decline poses a possible great opportunity to initiate some DITM trades, starting with the DIA, which pays monthly.
Monday, July 18, 2011
"EXC" STANDS FOR EXCELLENCE:
What a Weekend! Friday (actually Saturday) was option expiry and several of my short "naked" puts expired -none ITM, so I did not have to take on stocks, although I would not have minded. These July puts: SCCO,HCN,INTC,LLY,TAL, not only brought in several hundred $$, but were a reminder that their ex-D dates were approaching, so whatever extra money in accounts will be spent on buy/writes.
EXC - actually Exelon - was a stock I did a B/W on in Aug. 2009, so I thought holding it 2 years was enough, espec. after Japan. As outlined in my talk Saturday morning to the SF Options Group , the "reversed" annualized return (instead of the normal doubling or tripling of partial year %- I cut it in half for 1 year)was 8.12%.
Cost was $4996 (actually less when discounting the call sold); dividends (9) were $477, net calls sold (after buybacks/rollouts)were $1439; stock was called at my last call strike of $39, or $3891 net of commissions. Net return:$811 or 16.2% over 24 months - a record, beating INTC's 17 month hold. Peace of mind (almost like a 2-year CD):PRICELESS
EXC was not a one-off event for having a stock drop several points after the B/W and still making money; another example was NUE, Nucor, which I illustrated in a magazine article for : onlinetrading-mag.com coming out July 25. Also dropping ten points.
I'm also having my book -Zero (IN) Tolerance -converted to an eBook next week, cutting the price by 1/2.
Next Thursday, the 28th, the TSAA is having a very civilized luncheon at Alfred's with a speaker from ETF Universe, Matt Hougan, who is also at the Money Show in August. See TSAASF.org for details of Alfred's. Universe was also mentioned in the Barron's expansive coverage of ETFs this weekend.
DOES ANYONE KNOW OF AN ETF LOOKING FOR A STRATEGY? I'M AVAILABLE!!!
I also learned some things at my talk Saturday, including TOS (ThinkorSwim) has a capability to reverse or close out a buy/write which could ameliorate the Bear market danger of DITM with a stop order; otherwise spending a few cents on a OTM put (making a COLLAR)would be safer.
Also, a couple DITM websites were suggested to me: fullyinformed.com and borntosell.com for put-selling.
EXC - actually Exelon - was a stock I did a B/W on in Aug. 2009, so I thought holding it 2 years was enough, espec. after Japan. As outlined in my talk Saturday morning to the SF Options Group , the "reversed" annualized return (instead of the normal doubling or tripling of partial year %- I cut it in half for 1 year)was 8.12%.
Cost was $4996 (actually less when discounting the call sold); dividends (9) were $477, net calls sold (after buybacks/rollouts)were $1439; stock was called at my last call strike of $39, or $3891 net of commissions. Net return:$811 or 16.2% over 24 months - a record, beating INTC's 17 month hold. Peace of mind (almost like a 2-year CD):PRICELESS
EXC was not a one-off event for having a stock drop several points after the B/W and still making money; another example was NUE, Nucor, which I illustrated in a magazine article for : onlinetrading-mag.com coming out July 25. Also dropping ten points.
I'm also having my book -Zero (IN) Tolerance -converted to an eBook next week, cutting the price by 1/2.
Next Thursday, the 28th, the TSAA is having a very civilized luncheon at Alfred's with a speaker from ETF Universe, Matt Hougan, who is also at the Money Show in August. See TSAASF.org for details of Alfred's. Universe was also mentioned in the Barron's expansive coverage of ETFs this weekend.
DOES ANYONE KNOW OF AN ETF LOOKING FOR A STRATEGY? I'M AVAILABLE!!!
I also learned some things at my talk Saturday, including TOS (ThinkorSwim) has a capability to reverse or close out a buy/write which could ameliorate the Bear market danger of DITM with a stop order; otherwise spending a few cents on a OTM put (making a COLLAR)would be safer.
Also, a couple DITM websites were suggested to me: fullyinformed.com and borntosell.com for put-selling.
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