Closing the “Forgotten Trades” Folder
by Phil - December 31st, 2006 6:24 pm
I was going to get fancy and try to put all these trades in the context of what was going on at the time but, frankly, there is just no enough time in my week for that!
I’m sure you’re more interested in getting on with the next year that an elaborate review of the past one and I want to close all these trades out so we can concentrate on our current long-term positions, which already have 23 entries, 8 of which we took this past month. Those positions are already up 92% but, judging from this year’s run, they could still have a long way to go!
As I said in November: "Sometimes it’s nice to just buy something and walk away for a while." Other than selling calls against, there was little movement from that post until last week, when I began to cash out at what I thought was a market top. I’ll try to give a quick appraisal on each and hopefully we can all learn a little from my successes and mistakes of last year.
Also, let’s bear (oops, don’t say bear!) in mind that this was a fabulous year – we thought it was a big deal to break 11,000 in January, the extra 1,500 points was just a bonus we took full advantage of!
=============================================================
AAPL Jan $55s seemed expensive at $9.40 on 6/20 but we held through the dip by selling the July $60s and collecting $2.50, lowering our base to $6.90. They went up to $38.40 on 11/24 and I chickened out there and sold the Jan $95s for $6.50, dropping the basis down to $3 and I was able to take that caller out this week for $1, bringing the basis back to $4 - not bad but the $55s had dropped down to $25 and I was lucky to get $29.50 (up 638%) off the table at the close.
We have new Apple plays but I will be a lot more cautious until we get through earnings. The reason these Apple calls worked so well was we picked them up when they dropped from $86 in January to $55 in June (they went all the way to $50), this is nothing like that now!
I got tired of waiting for ADM Jan $35 puts (9/18 – $1.35) as they were the protective side of a…
Facebook
Twitter
LinkedIn 
del.icio.us
DiggApologies!
by Phil - December 30th, 2006 4:22 pm
Sorry about the mix-up!
Google is not buying AOL, that was last year (they did invest some money but no actual purchase).
I’m doing a very tedious process of transferring entries from the old blog to this one and every once in a while it doesn’t take the old date and posts as new, so don’t trust anything that isn’t titled Yearly Wrap-up or Closing Forgotten Trades, which will be my next new posts.
Sorry about the confusion.
- Phil
Monthly Mop-Up
by Phil - December 30th, 2006 6:53 am
I’m not going to spend too long on this as I’d rather get to the 2006 Year In Review but I hate to short-shrift December, as it was a spectacular month!
After cutting back all short-term positions last week to "placeholders" I ended up with no real reason to close out 63 of them despite my reservations about going into a 4-day weekend with a lot of open positions.
We did decide to cover this morning with the DIA Jan $125 puts for $1 and those are, for good or ill, up a quarter already and if I were to apply that quarter to the basis of my existing contracts, we would be in amazing shape, but it’s still open so we’ll see what the weekend brings – hopefully by Wednesday I’ll be adding a dime to the basis each of my existing calls!
So even though the calls are technically +.25 and we’re reporting without, we are left with a very optimistic 63 open positions that average 16 days open (up substantially as we have taken few new positions and closed few existing ones) with an average gain of a ridiculous 81% due to a 2,150% gain on the AAPL Feb $80s (basis .10, profit $2.15) and a 1,450% gain on NKE (basis .10, profit $1.45) that are unusual due to very profitable sales against the positions that reduced the basis.
If I drop these down to a mere double the remaining positions are up just 27%, not counting the cover quarter, of course!
Our 22 long-term positions are another story entirely! Up a stunning 573% due to a ridiculous 11,000% gain on the PD $120 puts we took on 11/22 and have just a nickel basis in with a $5.50 profit. Throwing that one out we have "just" a 99% gain on 38 average days held. This is to be expected as the people who make real money in a choppy market are the people selling options, not the people buying them - and it is my job to teach you how to play the house!
In fact, 13 of our open short-term trades have contracts sold against them, the main reason we were able to let so many trades ride! You’ll see when I write up the close of the "Forgotten Trades" virtual portfolio how powerful this model can be over the course…
Final Friday of 2006!
by Phil - December 29th, 2006 8:38 am
Congrats to all on making it through another year!
This has certainly been a fun one for us investors and I’ve sure had a great time writing about it. I’m not going to get all retrospective as that’s my job for the weekend but I want to wish a very Happy New Year to those of you who are sensible enough to have something better to do on the weekend than hear what I have to say…
Asia was flat today but Australia closed at a record high. China’s final 2006 growth tally looks like 10.5% and CHL got a little more hope on the long-awaited licenses.
Europe is off a touch this morning but everyone is going home early at this point with not much happening.
I have an easy morning because nothing happened yesterday and we are watching the same downsidelevels as yesterday:
-
Dow 12,480 would be nice to hold, it was the resistance we fell off last Thursday.
-
Transports are much improved but MUST break over the 50 dma at 2,617.
-
-
NYSE 9,140 is our soft spot but I think falling below 9,150 is an early warning.
-
Nasdaq MUST firm up over 2,425 and that is no big deal at all.
-
SOX are a big deal if they don’t turn up! They were at 475 last week – this is pathetic!
-
-
Russell is well above last week’s levels and needs to pass 800 to lead us into a real rally.
There is likely to be a lot of wild selling today, especially in the few stocks that give people a tax loss for the year to offset a lot of huge gains but they have to be stocks you are willing to live without for 30 days, tricky for losers like Intel or SNDK who could pop at any time.
Apple will get a relief rally and we’ll have to decide what to do with our callers this morning so tune into comments for that discussion. Let’s not forget that Apple says Apple’s probe clears executives. While it is highly unlikely they are, at this…
Don’t Sit Under the Apple Tree
by Phil - December 29th, 2006 7:24 am
We often discuss gravity in relation to the stock market in general but, in honor of Sir Isaac Newton, I think it is apropos to discuss gravity as it relates to one particular stock – Apple.
As Sir Isaac discovered, when an apple gets to a certain mass, the weight of the Apple becomes greater than the strength of the stem and gravity causes it to break off the tree and fall to the ground (I know, Duh!, but modern physics is based on this guy figuring it out).
When you want an apple you can either wait for nature to take it’s course or you can try shaking the tree to knock a few Apples loose, even though they weren’t quite ready to fall just yet.
A stock is much like that, Apple computer’s stock in particular looked ripe and juicy (overbought) and there were a lot of people standing around under the tree thinking it would fall to a more reasonable price any moment but the tree (the overall market) just kept growing and the Apple stock just got further and further away from what they wanted to pay (myself included).
Since the Apple stock wasn’t really falling on it’s own, some people got impatient and tried to shake the tree, using rumor and innuendo in a quiet market week when they thought no one would be watching. They did manage to shake out a few shares but, in the new age of rapid electronic media (REM), rumor mongering will only get you so far…
I’m very proud of the discussions that were held on my web-site as well as much good, factual reporting I have read around the web that kept this little incident from depriving our readers of their shares with what looks to be "much ado about nothing."
While I have been a huge advocate of "wait an see" while the Apple tree was shaking and we have done very well grabbing calls during the panic, I am still glad we did cover those bets by selling other calls against them. The real issue, the SEC investigation, is still not over so we will have to wait a bit today, perhaps pick up a few higher calls with our profits from our earlier trades as momentum plays but let’s not lose our heads as we are not out of the woods yet and that’s still…
Thursday Wrap-Up
by Phil - December 28th, 2006 6:23 pm
Much better than last Thursday!
I got worried at 11:12 as canaries were dying all over the place but, after going through the virtual portfolio, by 12:59 I still couldn’t find any positions I wanted to close out. It turned out the markets weren’t as weak as the headlines made them look and the volume just isn’t there to cause us to worry just yet.
We did a pretty good job of holding my morning levels:
-
-
Transports lost critical ground, now 20 points below the 50 dma at 2,617.
-
-
-
SOX could not break 470 – still pathetic!
-
-
Russell could not crack 800 and finished just under 795.
So we have 3 sick canaries – the Transports, the SOX and the Russell but none are actively breaking down just yet. As with any sick bird, this bears (oops – don’t say bear!) careful attention as the slightest breeze can knock them off their perches.
Oil held its perch at $60.53 but failed to get back over my DOWNSIDE target for the week at $60.80 so how can we not be happy with that? During the day it bounced off the $60 mark before being rescued at 1:30 by the pump team.
Still 299,000 open contracts with just 14 trading days before 299Mb of crude head on the way to Cushing, OK where they need to be offloaded and stored until someone is willing to buy them for $60.53 or more (but anything less than $61 would certainly be a loss). Don’t hold them too long as all contracts from July ’08 onward went negative again today!
I guess T. Boone read my article because someone bought a whopping 803 Dec 2012 contracts at $64.76 – good luck with those!
The dollar did nothing today but gold jumped a full percent to $634, a wise move into the long weekend but NEM was not impressed for some reason and lagged behind the other miners. Let’s keep an eye on them tomorrow! The March $47.50s for $1.75…
Thursday Morning
by Phil - December 28th, 2006 8:06 am
Last Thursday was a disaster!
Keep that in mind today as last week was a canary catastrophe when BRK.A dropped below $110K, down 5% for that week and we lost levels on the Nasdaq, S&P, SOX and transports.
In the wrap-up that day I said I wasn’t worried and that has worked out nicely for us as we played this rebound correctly but I’m now concerned we are going to ping-pong off these highs and fall into a toppy looking range. It’s very difficult as the markets just don’t want to consoilidate any more, it’s either up or down with no rest in between.
With almost 200 Dow points added on in 2 days we can only conclude that the traders who left (volume is down 40%) felt confident enough not to place a lot of sell orders. Just holding half of yesterday’s gains would be great today and any positive move would be spectacular:
-
Dow 12,480 would be nice to hold, it was the resistance we fell off last Thursday.
-
Transports are much improved but MUST break over the 50 dma at 2,617.
-
-
NYSE 9,140 is our soft spot but I think falling below 9,150 is an early warning.
-
Nasdaq MUST firm up over 2,425 and that is no big deal at all.
-
SOX are a big deal if they don’t turn up! They were at 475 last week – this is pathetic!
-
-
Russell is well above last week’s levels and needs to pass 800 to lead us into a real rally.
As I said on Tuesday: "The "January effect" when it happens, is a small-cap mover so the NYSE and the Russel should lead the way."
Last Thursday I also said that $60.80 was my downside oil target and here we are so let’s not get our hopes too high ahead of inventories today. As usual, we will keep right on top of the action in comments but we are already being set up for failure by "analysts" who predict:
-
A 1.2Mb draw in crude (despite the ship
…
World Record Wednesday
by Phil - December 27th, 2006 11:24 pm
What a way to end the year!
Dow 12,510! If only this weren’t a low volume week I’d be really psyched right now but we’ll certainly take what we can get and we got a lot today…
- Dow 12,500 is already in the rearview mirror – can we hold it?
- Transports leaped over the 200 dma at 2,580 and finished at 2,605
- S&P took out 1,425 and proved it’s serious!
- NYSE gave us a new high at 9,179.
- Nasdaq beat 2,425 but we remain unimpressed under 2,450!
- SOX could not break the 50 dma at 70 and is our only danger sign at the moment (but it’s a big flashing one!).
- RUT blew through 790 and still needs another attempt at 800.
The market reacted very well to the housing news today as the earlier drop in mortgage applications (less chance of Fed hike) balanced perfectly with a rise in new home sales, meaning we may have actually cooled the housing market without crashing it! While it still remains to be seen – mega kudos to the builders for putting the brakes on (most of them) without getting into too much trouble.
Oil was a great help to the markets with crude falling all the way down to $60.34 after failing to hold $61 early in the day. With 15 trading days left, the February open contracts still stand at 300M barrels so tomorrow’s inventories will be very telling (of course, without a 100M barrel draw, they are still in trouble!).
Most of the energy stocks kept the faith today and I just couldn’t resitst the XOM Feb $75 puts when they hit $1.70 at the close. Hopefully we can buy some more tomorrow for a little less! Here’s an interesting development – while the ’07 contracts generally dropped .75 today, ’09-’11 contracts dropped over $1 across the board. If you need to lock in some oil for Dec 2012, $64.80 a barrel is the going price!
Come on peak oil guys! This is the opportunity of a lifetime to be the last man in America with a barrel of oil… Demand is rising, supply is falling, Brazil, China, India… 5 more years of depleting our reserves…
Why be a Wallflower Wednesday?
by Phil - December 27th, 2006 7:08 am
There’s a global stock party going on and I hope we are invited!
The Hang Seng jumped over 400 points to 19,725. We can no longer ignore the FXI, an ETF of 25 major Chinese stocks that I have been avoiding due to the inclusion of ICBC, a bank with a p/e of 32. But you can’t ignore this chart or what is now going on in China so we will start watching this along with our usual global indexes.
I can’t bring myself to buy these stocks at the moment (we do have CHL) but ICBC jumped another 11% this morning, LFC rose 8.2% and Bank of Communications (another holding) gained 6.2%. Despite these amazing performances, the Hang Seng was out gained by mainland China’s market which rose 5.7% this morning to 10,137 - Now that’s a Santa Clause Rally!
"People have to realize hedge fund managers from around the world are looking at China, Japan and India as the big plays for next year," said Chris Tang, a fund manager with Marco Polo Investments. "
China is not immune to growing pains though, the CB is concerned about inflation and the auto industry may be overproducing (as Chinese demand is NOT what people tell you). And please, let’s never forget how this economy is being built – it’s not all fun and games at the Barbie factory!
The rest of Asia was up but a little more modest than China, who is clearly the life of the party (this is why my 2 girls are learning Mandarin!). Toyota, Honda and Mazda all gained about 2%, taking the Nikkei to a 7-month high at 17,223 and all of this went on as an earthquake knocked out a lot communications throughout Asia!
Europe continues it’s slow but very steady march up, not looking much different than our major exchanges with the CAC, DAX and FTSE all just off slightly from their highs – only they are not fretting over it like our traders are!
Over here, we had a very nice day yesterday and hopefully we can return to looking at our upside targets again. I am still calling for 75% cash into the long weekend but, if we survive next week, we have plenty of positions we can add to:
…
Tuesday Wrap-Up
by Phil - December 26th, 2006 5:33 pm
Hey today went pretty well!
I missed a really good article in Barron’s that may have cheered up investors. It’s neatly summarized by Eli Hoffmann of Seeking Alpha but the original is worth reading too.
The premise is that US stocks are, in fact, underpriced while our trade and debt woes are highly overstated. It is similar to many articles I wrote about outsourcing earlier in the year. I got bored talking about how outsourcing is good back in August but it’s nice to know Barron’s is catching on in December!
Since the Barron’s guys stole my premise (and took all the fun out of it by making it sound all academic), I beg your indulgence as I reprint my original (8/30) take here:
GDP day! Is the economy in a hard landing, a soft landing or is it in my patent pending Bumpy Landing ™? A bumpy landing means that we have flown too close to the sun on inflated housing and speculative commodity prices which are now losing their lift and we need our other engines to kick in before we lose too much altitude.
The other engines are strong: We deliver the world’s goods with our transports, dominate the Internet, have 95 of the world’s top 100 brand names, supply most of the planet’s junk food (sorry), and even Arabian MTC carries a version of The Simpsons (Al Shamsoon’s, where "Omar" avoids beer and hot dogs (banned) and eats cookies instead of donuts but he still yells at "Badr" and tries to strangle him (what no stoning?)).
It is the flexibility of our culture (otherwise known as lack of artistic integrity) that allows us to export it around the world. We export $1.5T in goods and services around the world. The much publicized trade deficit of $700Bn is currently close to 50% oil and no one should be surprised that the richest country in the world (by a factor of 4) spends an extra 4% of their GDP on imports!
When you are the richest person in a bar (say with your college friends) do you worry about the drink deficit if you buy an extra round or two? Can you reasonably expect that you should benefit from a drink surplus as poorer friends struggle to keep you in Martinis? Of course not, the error should always…
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(