Category Archives: OPTION TRADING

MARCH 13, 2018-A TRADER LOST

A TRADER LOST

The market has been interesting the past few weeks to say the least. 2018 started out with a bang and I was up nearly $45,000.00 in just a few weeks…more than 20% overall. I was happy and loving life until two (2) things happened in February: the great VIX manipulation and subsequent market selloff and the passing of my father on February 16, 2018. I predicted both and, unfortunately, they both caught me off-guard.

MY TRADING BUDDY

dad

 

 

 

 

 

 

My father was a special man and he was the best dad a boy could have. He could fix anything, would tell you how to build a clock if you asked what time it was and no matter what he was always there providing the support required to keep going. I joke and say he was my Google before Google existed because the man knew absolutely everything about any subject. It was fascinating and he will be forever missed.

Over the past year his health had declined significantly to the point where he couldn’t get out of bed during the last few months. It was hard to watch, but as sick and tired as he was he still wanted me to buy NVDA and WDC! He used to say NVDA was one of my generations greatest growth stocks and this was back when it was $40.00 a share! Somehow, he was always right.

During his last week in February he didn’t know what day it was or what time, but he would still ask if the market was open or closed. He wanted to know what I had bought and sold and what the prices were for his favorite stocks. His mind was a machine and sharp until his last breathe. Some of you might think this was a blessing; for him it was a curse. For a man that never sat down or stopped a day in his life laying in that bed was his living hell. He is definitely in a better place…

LIKE FATHER, LIKE SON

My father and I had so many things in common it’s just too much to talk about, and I never really knew how much until the end. I am a very transactional person and I ultimately handled the actual passing in the same manner. I believe he knew I would and he would understand. I continued working and handling the affairs all while keeping everything and everyone headed down the right path. The funeral came and went like a weird dream and after all was said and done I never shed a tear.

For me, it’s the little things…the times when I’m not sure what move to make next in the market or when I have a question about building a clock. It’s those times I go to text him to look at WDC finally above $100 as he always said it would be only to realize he’ll never respond and never enjoy the fact he was right all along.

PATIENCE

We all mourn loss differently and right now I miss my trading buddy. I miss the man that taught me everything I know and whenever I would get anxious or want to make a move I would text him and his response would be one word: patience (of which I have none).

I hope wherever he is he’s watching the tape and enjoying himself knowing he led a good life, was very much loved and his son couldn’t have done it without him…

HOW TO BLOW A DAY

mondayHOW TO BLOW A DAY!

UGH! How ridiculous is this! All I was trying to do was make up a few trades that were negative YTD. I had seven (7) equities out of twenty-two (22) that were negative so far. I hate that and I wanted to fix it. So what did I do?

Well, the first three (3) I worked on this morning were ROKU, WATT and GE. I mean who isn’t down on GE right? However, I was only down $350, $20 and $50 respectively. I thought I did pretty good only being down $50 on GE!

FIRST UP – GE

Pre-market I purchased 200 shares of GE at $15.99 per share and sold shortly after the open for $16.28 per share easily covering my $50.00 YTD loss and making me profitable for the year.

SECOND – WATT

WATT is just a dog and it shot up after they announced the FCC approved their wireless charging technology, but quickly came right back down to Earth. All I needed was $20.00 so I purchased 1000 shares at $17.80 after the open thinking it would bounce right back to $18.00, but it did not. It bit me hard and I am now down further at $187.00 YTD. This really frustrated me.

THIRD CAME ROKU

ROKU was my largest loser of 2018 so far and I missed a HUGE opportunity to make it one of my best! I was down $350.00 and I’ve been trying to figure out for weeks how to make it back quickly and get out. I purchased 1000 shares at $40.34 around 9 am central this morning with a 50 cent trailing stop (this is very important). I let it go and went to take a shower. When I got out of the shower it was $40.84 and I was up $500.00! Yay! My trailing stop was already at $40.34 (my break even) and all I had to do was let my trailing stop do its job…but OH NO! I just had to take the profit and consider myself lucky. I watched ROKU go up all damn day and eventually hit $45.00 per share after hours. I missed out on a cool $4,500.00 additional profit for the day!

OH WELL…THERE GOES $18,000!

In the end, after selling ROKU too soon and SQ (Square) too soon and several others this morning too soon I made $4500.00 for the day, but would have made $18,000.00!! Yeah, $18,000.00 had I simply held everything until the closing bell.

Day’s like this make you happy, but also an alcoholic haha!

 

PUT OPTIONS – EXPLAINED

stockPUT OPTIONS
EXPLAINED

Put Options are like buying one of those insurance policies that the old man in the cheap suite tried to sell your grandpappy in case his crop of corn turned out to be crap that year. At first glance it seems shady and expensive, but in reality when compared to potential losses it makes perfect sense.

OPTIONS DEFINE RISK

Keeping with grandpappy’s farm analogy: Your grandpa had corn. Lot’s of corn. All he cared about was corn and making sure that come harvest time that corn was still there and still worth enough money to pay for his family’s future corn needs. He needed to make sure he kept the value of said corn regardless of what might happen to the corn or the world around him. This was imperative to his family’s future (sound familiar?). The insurance salesman in the cheap suite offers to pay for his corn at a predetermined price for a predetermined amount of time. The insurance salesman is the seller of the put option and your grandpappy is the buyer of the put option. It’s that simple.

WTF IS THE CORN AGAIN?

In this analogy the corn is the underlying asset (stock). The predetermined price the insurance salesman will pay grandpappy for the corn is the strike (stock price). The predetermined amount of time is the expiration date (maturity) of the option contract.

Option Facts: Put Options are really just insurance policies! Options are also legally binding contracts between two parties and are not associated with the company itself. In other words, the underlying company can go bankrupt and the buyer of the put still has the right to sell his shares to the seller of the put and the seller still has the obligation to buy said shares even if they’re worthless.

REAL WORLD EXAMPLE

Buying insurance is often expensive, but let’s think about it: If you own 1000 shares of NDVA and you’re up $30,000.00 you are might be nervous and worried about losing all of your gains. To help you sleep you could buy a put option to “protect” a certain amount of those gains for a certain amount of time – like through an earnings announcement on Feb 8th.

You would first need to determine your objective and timeline. If you’re looking for 1st Qtr protection then you could buy a March Put Option to cover the entire 1000 share position at the $225.00 per share strike price (nearly $3.00 per share more than where the underlying stock closed Friday) for $15,000.00. This would cover you for the entire 1st Quarter or three (3) months of 2018.

Now, again, this seems really expensive, but keep in mind that’s $3.00 per share higher than where it closed Friday so that makes your actual realized cost only $12,000.00 for the policy because the seller is going to pay you $225.00 per share regardless.

If I’m holding $222,300.00 worth of stock on Friday with an unrealized gain of $30,000.00 YTD and you came to me and said, “I will guarantee that you will not lose more than $12,000.00 (the cost of the insurance minus the $3.00 extra per share) total, regardless of what happens, I would take it. Especially if I was the least bit worried about earnings…

OPTIONS ARE FUN!

That’s all there is to it. In this example grandpappy was the buyer of the Put Option and this should be interpreted as a negative sentiment towards the future of his corn or maybe he’s just scared to death of losing his ass again like last year when his neighbor Jesse set the corn field on fire during the 4th of July town gathering. Ol’ gramps decided at that moment he would never watch his family fortune go up in flames again without having some protection. You, the savvy investor reader person may be thinking this is dumb and expensive, but never judge a man until you’ve walked in his shoes.

Regardless, the term “put” comes from the fact grandpappy, as the buyer, has the right to “put up for sale” his corn. No matter what happens to his corn (even if Jesse sets it on fire) he will be paid the predetermined price (strike).

Options may seem risky or scary or complicated, but they are not. They should be viewed as tools and can be used strategically. In this example, a put option is used to protect your portfolio gains.

FINAL NOTES

Corn was probably a bad example because it’s a commodity and likely to be worthless to the insurance company upon claim (especially if on fire). Stocks are different in this respect and typically have intrinsic value remaining when or if “put” to the insurance policy holder (seller of the put option).

In other words, NVDA might be down at the time of expiration and the insurance company (seller of the put option) might be put the shares at that time, but it doesn’t mean it won’t come right back up. The corn on the other hand, once burned, would be forever destroyed.

Also, NVDA was probably a bad example as well because option premiums are elevated for NVDA currently and it’s expensive to protect.

ADVANCED NOTES

For those that are wondering and thinking ahead: if you were the insurance man in this analogy (the seller of the put option) and you were paid $15,000.00 from grandpa (the buyer of the put option) and NVDA was below the strike of $225.00 at expiration and you were put the shares your cost basis for the actual shares of stock would be $225.00 minus what you were paid from grandpa (the buyer) or $15.00 per share . This means your actual realized cost basis would be $210.00 per share. However, your portfolio would show your cost basis as $225.00 per share because that’s the price you were put the shares. Ok, enough explaining…tweet me @bullorbust if you have questions!

DECEMBER 12, 2018-FRIDAY

DECEMBER 12, 2018-FRIDAY

It’s Friday again! So sad…I always hate to see another trading week come to an end. This one has been good, and maybe next week will be the same! Please remember we have a short trading week next week due to the MLK Monday holiday…

TODAY’S TOP PERFORMERS

Activision-Blizzard (ATVI): I purchased the ATVI May 60 Calls and I’m profitable $1,150.00. I beleive ATVI is definitely going higher! It has formed a good base over the past few months and is in the process of a breakout.

Disney (DIS): I purchased the DIS April 100 Calls and I’m profitable $1,850.00. In my opinion, DIS is now back to the $112.00 resistance area and could go either way. It looked really good this afternoon with a nice jump to $112.72 after lunch and looks like it is trying hard to go higher!

TODAY’S TRADES

Home Depot (HD): I closed my Jan 180/192.5 Put Spread this morning. I’m a week away from expiration and HD was on a run so I took 85% of my premium (profit) and cashed out.

It’s not like I’m going to be put the shares next week unless something terrible happens to the market (possible, but not probable) so I figured it was time to get out. I did, foolishly, notice a heavy spike in volume and price after lunch and jumped back in with 250 shares to try and make the remaining spread premium real fast, but it turned against me fast and cost me $600.00 of today’s profits. Stupid! That pissed me off briefly, but then I just laughed and thought: this is why you don’t chase or do anything on a Friday afternoon! I will make it back soon enough…love Home Depot!

Intel (INTC): I continue to hold a Jan 40/45 Put Spread (expires next Friday) with a break even of $43.74 and a March 38/48 Put Spread with a break even of $45.02.

Intel has been tricky this week with the whole security debacle of 2018, but I believe it will come back with a vengeance so I added 1000 shares @ $43.15 before lunch with a target sell price of $44.95. Why did I add the shares? Because I’m down $1789.00 on my spreads and if I can catch a bounce back to $45.00 per share the stock alone with make up the deficit making my spreads easier to hold and more profitable overall (not the spreads, but my Intel trades YTD period)!

Cool Intel Event: If you have not seen the synchronized drone light show Intel pulled off at CES this week I have included the video below. I was impressed to say the least. Most don’t realize what it takes to do such. Enjoy!

General Electric (GE)

As GE approached $19.00 per share I added March 19 puts to cover my existing 1000 shares. Max loss is $500 so I was cool with that for nearly a fiscal quarter of protection. My goal is to make sure GE is not about to dump to $17.00 and if it does I intend on selling the puts profitable and adding to my stock position. I do not intend on selling any shares. I have a $24.00 per share price target on GE by summer.

HAVE A GREAT WEEKEND! 

JANUARY 5, 2018-FRIDAY

JANUARY 5, 2018-FRIDAY

WHOA HORSEY! Good lord people who is out there buying everything on the planet? It appears…everybody!! They said the orders at the close of market were 2 billion to BUY. Wow…

AND THEN CAME THE CRASH…

I’m a natural bull. Let’s face it, my web domain says it all. I’m a bull, I’m an optimist and I always think things are going higher. However, even I’m skeptical of this market. It’s too far too fast. It has been too long since a descent pullback and I’m being very careful.

I’m warning all of you that what goes up must come down. The harder and faster it goes up, the harder and faster it comes down. It’s common sense: every Joe Blow in the country heard their buddies talk about how much money they made during the holidays (I was one of those buddies) and now everybody wants in the market.

The problem with this mentality: much like everything in life, once everybody wants in it’s already too late. You cannot be late to the show in the market. The big guys are pulling money and taking huge gains while the little guys are buying their positions and taking the loss when it crashes…just to have the big guys buy it all back when the little guy capitulates.

WHEN AND WHAT WILL HAPPEN?

No one knows. I don’t know. Maybe the market doesn’t crash until this time next year? 2018 could be a wonderful year for all investors…until it’s not. The market will correct. It’s a guaranteed fact. All I’m saying is be careful. Do not trade on margin. Do not execute or hold any trades that you are not willing to hold long-term or be forced to purchase.

MY STRATEGY

I play it safer these days than in the past because I have learned that consistent profits, even small profits, are better than huge, random gains. I hold only what I am willing to purchase. If it’s options it is only the amount I can afford to buy in cash and at strikes I am willing to pay. I own good companies and do not speculate on penny stocks or things like Riot Blockchain or Bitcoin. If I wanted to truly gamble I would just go to a casino…you have the same odds.

I would prefer to be net short premium during this time. Meaning, I want to get paid to wait regardless of what the stock does. Selling puts is the best bet in my opinion. Sure, it’s not the best return or greatest profit and it’s frankly boring, but it’s safe. Wait, be patient and pick a stock that’s having a down day and sell the elevated put premiums. If the market continues higher you make money. If the market sits still you make money and if it goes down you get the shares (or sometimes still make money and you can buy your way out). Regardless, I do not want to hold a depreciable asset such as a long call. I want something that appreciates as time passes.

WHAT I DID TODAY-FRIDAY

I sold everything except 3M, Nvidia and Intel. Below I will explain what I hold and why:

INTEL – I actually hold two (2) bull put spreads on Intel. The January expiration 40/45 put spread expires two (2) weeks from today and I will make maximum profit if Intel closes above $45 per share two (2) weeks from today. Max profit is $1260.00 with a break even of $43.74. The second spread is the March expiration 38/48 put spread expiring in a little more than two (2) months and I will make maximum profit if Intel closes above $48 per share two (2) months (roughly) from today. Max profit is $1470.00 with a break even of $45.06. I have owned the second March spread for several weeks.

Intel pays a good dividend and put premiums are elevated due to this chip security scandal. Intel will be fine long-term and I don’t mind owning it at $43.74 or $45.06 so I’m prepared to take the shares. Intel closed today at $44.74 per share. Yay!

NVIDIA – This is my largest holding and we could see more upward movement next week during the CES Las Vegas show. The CEO will kick off CES Sunday night and provide information on new products and technology. Should be fun! Can’t wait!!

My holdings include long calls and another bull put spread. I executed the long calls yesterday and opened the March 160 calls for $54.45 each making my break even $214.45 per share. I purchased ten (10) contracts for 1000 shares worth for a grand total of $54,450.00. I am currently up 3.9% or $2125.00 at close today. I was up nearly 10% at one point during today’s session, but Nvidia sold off at the close. Why did I buy the long calls? Because I owned 1000 shares of stock for $214,000.00 and sold them at the open today. Instead of burying myself in stock and cash requirements I chose to buy long calls that break even at nearly the price I owned the stock for 25% of total cash required. Notice, I paid 50k roughly for the same exact stock at nearly the same price per share instead of $214,000.00. I personally like having more in cash and this is why I like options!

I also hold the March 180/210 bull put spread. I opened this trade a while back knowing Nvidia was heading back to $210.00 per share…I had no idea it would do it so fast! I am profitable to say the least and my break even is $195.54! Max profit is $14,500.00 and Nvidia needs to stay above $210.00 until the third Friday of March to have max profit. Hopefully, this run to $215.50 today is just the beginning of a gradual move up to earnings on February 8th.

3M – I wanted to buy 3M last year this time when it was below $200 per share. A couple of days ago I purchased two (2) contracts of the March 200 calls. I really wish I had purchased ten (10), but oh well. I’m up 3.19% today. I did not purchase more than two (2) because I was thinking the market might sell off at the end of this week, but that did not happen. I was planning on doubling down at the very least.

EXCELLENT TRADING WEEK…

 

WELCOME 2018!

WELCOME 2018-GREAT START!

So unless you’ve been living under a rock all week you have probably heard the stock market is having a pretty good week. Everyone, including myself, was extremely nervous about this week due to possible selling or realizing of 2017 gains. I truly thought everyone was waiting for the new year to rollover so they could dump it all after such an amazing year.

Sometime around last Friday afternoon, after having sold several positions, I had the thought: what if next week starts higher and continues? Will that be a green light for everyone to keep holding or add new money? Well…

That thought appears to have been the correct one and I think that’s exactly what happened. We all waited Tuesday morning, the first day of trading for 2018, to see if everything crashed and when it didn’t, it was game-on…like seriously.

CURRENT HOLDINGS

For the most part I got it right and cleared some serious cash in just a few days. I was, technically, down from last week so I simply recovered plus a little. That sucks, but the part that really got me was the positions I sold last Friday afternoon purely out of fear of what might happen on Tuesday.  Those positions would have made me another $25,000.00 this week!!

Yeah, that hurts to think about, of course, if you do the math you should realize I had a lot at risk and that’s why I sold on Friday. I just didn’t have the balls to hold that much into the new year. It was a 50/50 shot and I lost. Ok, “lost” is a bad word. I did not realize the full profit potential of the market. I did not “lose” anything I already had. Just for clarification…

I hold options in the following US equities and ETF’s:

Home Depot (HD)
Intel (INTC)
3M (MMM)
Nvidia (NVDA)
Rite Aid (RAD)
S&P 500 (SPY)
Square Inc (SQ)
Wal-Mart (WMT)
Energy Select ETF (XLE)

JANUARY 2018

I am still not convinced we won’t see a market correction or at least some form of pullback in the month of January if not February. In my opinion, we have moved too high too fast and I’m really hoping for a dip. I would love to own more, but valuations are just too high on many of my favorite companies.

For example: I want to add Best Buy (BBY) for the long-term badly. I owned it at $53.00 and sold it around $57-$58 if I remember correctly. It is now $67.00 and some change. I never thought it would go this high so fast and would love to see it come back down to the low 60’s at least so I could buy the 50 calls and have a break even in the neighborhood of $65.00 per share ($60 would be better).

CES 2018

Also, keep in mind the CES show in Las Vegas starts this weekend and the Nvidia (NVDA) CEO is supposed to give a presentation and discuss new technology. This should be interesting and provide a nice bounce in stock price come Monday (wishful thinking?).

DECEMBER 18, 2017

DECEMBER 18, 2017

Say farewell to 2017! What a wild ride it has been!! I will never forget it and I learned so much. There have been a lot of changes for me personally during the year and (not to jinx myself) everything seems to have worked out for the best. I have been very fortunate and I do not let this go unnoticed. I am very thankful for everything I have and try to give back as much as possible. I believe it is in giving that we shall receive…

I have never been busier with my “day job” and the company is doing fabulously well…I consider myself very blessed in that respect as well. It has very difficult to post here over the past few weeks due to several large projects. I plan to do better in 2018 (New Year’s resolution).

The year in trading has been phenomenal and I am slowly moving funds over to my trading portfolio in preparation for 2018. I’m nervous, but I am currently working on my annual Stock Pick List which I hope to have out before the end of the year.

WARNING

I believe 2018 will be harder to make money in the market than 2017 so I am going to play it much more conservatively during the first quarter of 2018 than I did this year. I recommend anyone thinking about adding funds or starting to invest to wait until at least the second week of January before adding new money. I feel a selloff coming.

HAPPY HOLIDAY’S!

I am officially taking the remainder of the year off and plan to relax and enjoy the holidays. I wish you and yours a Happy Holiday!

NOVEMBER 20, 2017

thanksgivingHappy Thanksgiving!

As you will notice I have not been posting much this month. Briefly, I have been extraordinarily busy with work during the month of November. I had a client’s office flood and I’ve been working on a huge new construction project in Alabama so a lot of my time has been with my “day job” and not with this blog.

I still find time to trade and really screwed up with Dominos a couple of weeks ago. I just happen to execute a lovely 170/180 bull put spread the day before the Papa John’s NFL and earnings debacle. Terrible timing and it cost me $14,000.00 at one point. Luckily, due to experience, I did not panic. I actually closed the bull put spread and waited patiently for DPZ to bottom. When it went below $170 per share I began buying the Jan 170 call pretty aggressively. Within a few days I pulled out of my loss and recovered completely. Whew!!

Home Depot

Then came Home Depot (HD). Wow! Love me some HD and I have literally kicked myself for two years for not buying it and just holding. I cannot remember if it was before or after earnings, but I bought 10 Jan 150 calls and I’ve made great money so far. I intend on holding this time.

November Winners

I’ve also done well this month with Square Inc (SQ), Verizon (VZ) and my favorite stock of the year XPO Logistics (XPO). All of this combined has not only recovered my initial loss with DPZ, but brought me higher than I started. If you have been following along you might wonder why my balance is only $70,800 and some change if I’ve done so well this month and that’s simple: commissions. I closed two huge and highly unprofitable positions in Pandora (P) and Rite Aid (RAD) within the past week. The commissions alone for closing both were above $2,500.00. Ouch!! But hey, at least my balance is higher for the month so far…even with the commissions!

Pandora and Rite Aid (Ouch!)

Pandora kicked me pretty hard, and I’m sorry I’m out, but I don’t see anything good for the short-term. I’m still watching it close. Rite Aid I will execute a covered stock purchase in January. I was going to do it this week, but I am waiting to see what happens the first week of January. I have a feeling the market will sell off as those that are waiting to take profits finally get their chance (to save taxes). I plan on buying 10,000 shares of Rite Aid and covering with the 2019 1.5 put. I have a feeling it will be above $2.5 before the end of 2018 and I want my money (and commissions) back!

Current Holdings

Home Depot – holding Jan 150 calls – 1000 shares worth

Verizon – holding Jan 40 calls – 1000 shares worth

XPO Logistics – opened new position in 60 / 80 call spread – 1000 shares worth. Hoping for a pullback before Christmas so I can buy back the 80’s profitable (collecting most of the premium) and double down on the 60’s which is what I really want to call…

I hope everyone has a Happy Thanksgiving…I will be working the entire week even on Thanksgiving day! There is no reward without risk…and hard work! Enjoy!

HAPPY HALLOWEEN INDEED!

octoberSay goodbye to October! Cannot believe it’s already gone, but it sure is good to be a bull these days! My bull put spreads are working like a champ and I’ll be the first to tell everyone I cashed out 75% of my holdings this morning! Very glad I did and this includes all of my Micron (MU) positions. I didn’t really want to sell the JAN 35 CALL’s, but I was up over 40% and MU was up nearly 6% today so I took the gain. I mean who wouldn’t?

I still hold spreads on NVDA, DPZ, NFLX and XPO and will for at least the next week or until my balance gets closer to $80,000.00. I was very excited to hit 70% YTD return last week (after commissions), but I gained another 10% this week already! Whohoo!

This is why I’m cashing out. Being an experienced trader involves being disciplined and everything has been hitting my predetermined exit amounts. I can’t help but exit some of the positions. I’ve been waiting for Micron to make a move for weeks and when it went above $44.00 per share I started selling.

I still hold calls in MGP, GE, P, RAD and IBM

How I Missed Amazon (AMZN)

AmazonYeah, I missed Amazon (AMZN). I’m sure you’re asking how? How could someone in the tech industry and having traded Amazon so many times in the past not be ready for this? Well, that’s a good question, but it really goes back to fear and dislike of earnings season.

Earnings Season Blues

I have this problem with earnings season. I always lose money and bet on the wrong horse. Those I hold long term always do better, but if I decide to buy anything within two (2) weeks of any earnings announcement I typically lose.

I have already lost on AMD (I have no idea why I tried) and P&G. I was not in the mood to be wrong again so I remained on the sidelines for Amazon. I almost (hovered over the submit button for an hour) purchased several Jan 950 Calls yesterday morning for nearly $15,000 (they’re not cheap), but ultimately took the safe route. What would they be worth today? Try $30,000…yeah 100% gain. Ahhhh!!!!

2017 YTD Risk Management

Let’s be honest, I’m up over 60% for the year. There was no reason to take the risk. I’m happy with where I am with my holdings and with the year. Why push my luck? (trying to justify my stupidity)

Because I knew this was coming. Everybody thought it would be last quarter and the jump failed to materialize (I lost on that one too). But I’ve known this entire year that Amazon was too hard to beat and one day it would pop. Last night was that night.

Congratulations

To anyone who was brave enough to hold through earnings congratulations. You deserve the massive gains this morning.