OK, let's see if we can finish January off!
Actually, I hate to see it go as our Trade Ideas in Parts, 1, 2 & 3 have had 51 winners and just 8 losers (87.6%) so far, not bad in a choppy market! Now it's crunch time (or crash time) as we left off at the top, on Jan 10th and it's all downhill from here for the rest of the month.
Keep in mind that timing is fairly arbitrary, of course, between the review and when the trade was made so our short trade idea on the Russell Futures at 1,160 from 1/10, made $6,000 per contract by 1/28 but is down $320 per contact as of Friday's close. Whether we specifially called a stop to that trade or not – if you rode the contract from a $6,000 gain to a $320 loss, you are an idiot. That's right – I'm not going to sugar-coat it – that is idiotic and you need to seek help!
Hopefully, this is not your case and you have reasonable expectations and set reasonable stops on your trades. My rule of thumb for Futures is, if we specifically call a stop (we usually do) then I count that total but if we make a general call, like we did on 1/10 in the main post, then I will put down the total gain on the trade with a reasonable stop (the /TF Futures went to 1,180 for an $8,000 gain before turning back up) based on our normal trading rules (see Strategy Section).
We had been playing the top of the rally "Cashy and Cautious," with means we should be CONSERVATIVELY taking pofits off the table (and that's what we switched back to this week as well). Unfortunately, as the old saying goes: "You can lead a trader to profits, but you can't make him take them off the table."
Jan 13: Merger Monday – Suntory Buys Beam for 25% Premium ($16Bn)
Mergers are great market boosters.
They make investors think everything is undervalued in a sector when one company gets bought for high cash premiums and BEAM (Jim Beam) is one of those companies many of us know and love but not, apparently, as much as the Japanese who will be taking over this 110 year-old American Icon. BEAM did not rise 30% last year, making it "cheap" vs other S&P choices and, of couse, the only thing in the World more plentiful than Free Dollars is Free Yen – so why not gobble up some assets while the gobbling's good?
Overall, we're still "Cashy and Cautious" as the Macros are NOT matching up to the markets' performance. Mean reversion can be a real bitch, so there's no harm in us keeping the bulk of our cash on the sidelines, while we wait to see if this discrepancy can hold up through earnings or not (we're betting not).
- SHLD long at $35.30, now $40.93 - up 15%
- 10 SHLD Jan $30/45 bull call spreads at $6 ($6,00)), now $7 ($7,000) - up $1,000 (16%)
- 4 TWTR $65 calls sold for $4.50 ($1,800), expired worthless - up $1,800 (100%)
- 5 FAS Feb $90 calls sold for $5.30 ($2,150), expired worthless - up $2,150 (100%)
- RFMD Jan $3 calls at $1.70, selling 2016 $5 puts for $1.30 for net .40, now $2.15 - up 437%
- 20 XLF Feb $23 puts at $1.10 ($1,100), out at $2.20 - up ($1,100) 100%
- T at $33.42, selling 2015 $30 puts and calls for $7.30 for net $26.12/28.06, now $32.80 + .46 dividend collected - on track
- Russell Futures (/TF) short at 1,160, out at 1,140 - up $2,000 per contract
- Nasdaq Futures (/NQ) short at 3,575 , out at 3,500 - up $1,500 per contract
Jan 14: Testy Tuesday – Letting off Steam or Sending a Warning?
Keep in mind though, that we are up from TERRIBLE comps. People tend to forget that but sales were NEGATIVE in '08 and '09 so imagine the benchmark for 2007 was 100 and we fell to 97 and then 93 on 3% and 4% drops. That means a 2% gain in 2010 takes us to 94 and a 6% gain in 2011 takes us to 99.5 and 4% last year is 103.5 and 4% this year is almost 108 so it's an 8% total increase in sales over 6 years – not all that impressive since consumer spending is 70% of our economy and, of course, not even keeping up with inflation.
- Oil Futures (/CL) short at $93, out at $92 - up $1,000 per contract
- S&P Fututres (/ES) long at 1,820, out at 1,823.50 - up $175 per contract
- Dow Futures (/YM) long at 16,250, out at 16,350 - up $500 per contract
- BTU 2016 $15/22 bull call spread at $2.80, selling $15 puts for $2.75 for net .05, now $0 - down 100%
- Russell Futuures (/TF) short at 1,160 – out at 1,100 - up $6,000 per contract
- TZA Feb $16 calls at $1.44, selling $16 puts for .50 for net 0.94, out at $3.50 - up 272%
- TSLA March $180/160 bear put spread at $12.20, selling $180 calls for $8 for net $4.20, now $30 - down 614%
Leverage does cut both ways! The same sensible stops you should be using on a winning trade should also apply to a losing one, like TSLA above. On longer-term trades, we have strategies to cover long-term short positions with upside momentum trades or hedges like we threw on the next day (see below) but, when your time-frame is less than a year – you simply need to not let trades get away from you.
We've played this game before with TSLA and we know not to stand in the way of a runaway train. We'll stop out of our Feb puts with a small loss if we have to and then re-short for April and again for July if they keep going higher because that strategy, of followed last year, eventually hit the jackpot as they dove from $195 all the way back to $120 between Oct 1st and Thanksgiving.
Just like a Futures trade (and see Tuesday's Webcast for a good example), the key to success is having tight stops when you are wrong so you have another chance to reload at the next stop. We expect some resistance at $165 and a pullback to $150 but, if not, then we'll see how $180 goes ($24Bn!). While TSLA was crowing about ramping up production to 600 cars a week, TM, who produce 600 cars AN HOUR announced their HYDROGEN fuel cell Prius should be ready next year.
- Oil Futures (/CL) short at $93.50, out at $93 - up $500 per contract
- Gasoline Futures (/RB) long at $2.60, now $2.83 - up $9.660 per contract
- Silver Futures (/SI) long at $20, now $21.83 - up $9,150 per contract
- 15 TSLA 2016 $140/200 bull call spread at $20, selling 15 $100 puts for $17 for net $3 ($4,500), now $18.82 ($28,230) - up $23,730 (527%)
- 15 TSLA 2016 $140/200 bull call spreads at $20 ($30,000), selling 7 AAPL 2016 $450 puts for $44 ($30,800) for a net $800 credit, now $12,960 - up $12,160 (1,520%)
- Russell Futures (/TF) short at 1,160, out at 1,161 - down $100 per contract
- TSLA Feb $140 puts at $3.20, expired worthless - down 100%
- Gold Futures (/YG) long at $1,237, now $1,324 - up $2,888 per contract
- USO weekly $33.50 puts at .30, out at .26 - down 13%
- Oil Futures (/CL) short at $94.50, out at $93.50 - up $1,000 per contract
- USO Feb $34 puts at .92, out at .80 - down 13%
- SQQQ Feb $56 calls at $2.80, selling $56 puts for $2.60 for net .20, out at $3.50 - up 1,650%
- TZA Feb $16 calls at $1.20, selling $17 puts for $1.25 for net .05 credit, out at $2.50 - up 5,100%
- 6 WYNN Jan $210/240 bull call spreads at $10 ($6,000), selling 10 March $210 calls for $8.20 ($8,200) for a net $2,200 credit, now -$2,800 - down $600 (27%)
First thing first, if you are short TSLA, then the 2016 $140/200 bull call spread described above for $20 gives you another $40 of upside protection, even without a short put. Also, in a PM account, it knocks off $40 of margin – another plus. So, the way I want to cover 6 short $155 calls (looking like $15 for a $10 loss) is to buy 6 long spreads and then I'll want to sell 6 Feb somethings for about $15 as a pre-roll and put a stop on the $155s at $20 (+$5).
I already put out an early morning Alert to our Members to short the Futures at Russell 1,170 (/TF), Dow 16,400 (/YM) and, of course, Oil $94.50 (/CL) and we'll stop out if any two of the 3 get back over the line or the Nasdaq (/NQ) gets over 3,600 or the S&P (/ES) gets over 1,840 but these are just follow-on plays to yesterday's aggressive short option positions we sent out as an Alert yesterday afternoon at 12:33.
… That's the real sentiment (bearish), from people who actually put their own money on the line to predict the future, not the sentiment of paid pumpers, who shuttle from interview to interview so they can drill their talking points into the heads of retail investors, driving them into whatever positions the pumpers are paid to promote that day. The entire financial network is itself just another propoganda machine for their advertisers, who are generally Investment Banksters who make their money churning retail investors in and out of positions. It's a gigantic SCAM – don't take it seriously…
- Russell (/TF) Futures short at 1,170, out at 1,100 - up $7,000 per contract
- Dow (/YM) Futures short at 16,400, out at 15,400 - up $5,000 per contract
- Oil (/CL) Futures short at $94.50, out at $93.50 - up $1,000 per contract
- Gold (/YG) Futures long at $1,235, now $1,324 - up $2,955 per contract
- Nikkei (/NKD) Futures short at 16,000, out at 14,000 - up $10,000 per contract
- 8 SCTY 2016 $65/80 bull call spreads at $4.50 ($3,600), selling 12 Feb $75 calls for $5.25 ($6,300) for a net $2,700 credit, expired at $2,968 - up $5,678 (210%)
- Oil (/CL) Futures short at $94.50, out at $94 - up $500 per contract
- Natural Gas (/NG) Futures long at $4.35, now $6.24 - up $18,900 per contract
- SHLD 2016 $25/40 bull call spread at $7, selling 2016 $25 puts for $6.50 for net .50, now 0.60 - up 20%
- Nasdaq (/NQ) Futures short at 3,600, out at 3,450 - up $3,000 per contract
- SSO March $98/102 bull call spread at $2.60, selling SHLD March $30 puts for $1.20 for net $1.40, now $1.85 - up 32%
BE THE HOUSE – Not the Gambler! That's our theme for 2014 and we are drilling this point home in our series of weekly Webcasts, as well as our live weekend conferences. If you want to see our first Webcast on this topic with Mike MacDonald – you can see a replay HERE. We have a lot of fun doing short-term trades but it's really just something to do while we wait for our SENSIBLE, CONSERVATIVE long-term positions to bare fruit.
These are the kind of trades we like at Philstockworld, the "set and forget" trades where we SELL premium to other people (Being the House!) and simply sit back and let time do the work for us. Also, as Fundamental Investors, we like to pick out spots and we PATIENTLY wait for opportunities to go long. That's why last year's inflation-fighting picks didn't come out until April, when we thought the timing was right for our entries while, for 2011, we put up our "Secret Santa's Inflation Hedges" (also wildly successful) on Christmas day of 2010.
So, timing is very important but so is understanding our strategies and learning the one technique I have the most trouble teaching to our Members – how to be PATIENT! We're still "Cashy and Cautious" in the current market, expecting a drop as more and more earnings pour in. So far, all bad news has been ignored but perhaps there will be a straw that breaks the camel's back. Or perhaps not – either way, cash makes us comfortable at the moment and I will be making some new selections in our Member Chat Roomand during our weekly Webcasts.
- Oil Futures (/CL) short at $94.50, out at $94.20, up $300 per contract
- Nikkei Futures (/NKD) short at 15,800, out at 14,000 - up $9,000 per contract
- Dow Futures (/YM) short at 16,350, out at 15,400 - up $4,750 per contract
- FXI March $39/37 bear put spread at $1.50, now $1.70 - up 13%
- FXI March $39/37 bear put spread at $1.50, selling CHL 2016 $40 puts for $2.70 for net $1.20 credit, still net $1.20 credi – even
- HMY at $2.80, selling 2016 $3 calls for .75 and $4 puts for $1.75 for net 0.30/2.15, now $3.37 - on track
- XCO at $4.88, selling 2016 $5 puts and calls for $2.85 for net $2.03/3.52, now $4.77 - on track
I'm ready to give up.
I WANT to give up, actually. I want to bash my brains in with a BRIC and just mindlessly BUYBUYBUY so that, when I wake up to yet another Central Bank staving off yet another near-collapse by dumping money on the problem, I can go "Yay, they fixed it" instead of "OMG, we almost collapsed again!"
It's so much more fun being an optimist. An optimist can whistle right up to the edge of the cliff and whistle all the way down, right up until the inevitable SPLAT. Of course the bad news in that case is very short-lived while we otherwise enjoy the entire ride – just like a sperm whale that spontaneously appears in the upper atmostphere (and yes, there's a relevant link for that!).
- Oil (/CL) Futures short at $95, out at $94.75 - up $250 per contract
- Russel (/TF) Futures short at 1,172, out at 1,165 - up $700 per contract
- 10 DBA 2015 $26 calls at 0.70 ($700), selling 10 MCD 2015 $75 puts for $85 ($850) for a net $150 credit, now $1,100 - up $950 (633%)
- DBA Jan $24/28 bull call spread at $1.10, selling CAKE July $40 puts for $1.30 for net .20 credit, still $1.30 - even
- Gold Futures (/YG) long at $1,235, now $1,324 - up $2,955 per contract
- Oil Fututes (/CL) short at $95.25, out at $95 - up $250 per contract
- 10 CLF 2016 $18/25 bull call spreads at $2.80 ($2,800) selling 5 short 2016 $18 puts for $4 ($2,000) for net $800, now $1,150 - up $350 (43%)
- Dow Futures (/YM) long at 16,250, out at 16,350 - up $500 per contract
- 10 LULU 2016 $45/60 bull call spread at $4.20 ($4,200), selling 5 2016 $45 puts for $8 ($4,000) for net $200, now $2,880 - up $2,680 (1,340%)
- Russell (/TF) Futures short at 1,172, out at 1,171 - up $100 per contract
We had our weekly webcast that day, where we discussed our inflation-fighting trades - a replay is available here.
If the S&P has trouble at 1,840, that's going to be a bearish sign and we expect the Dollar to pop so Oil Futures will be a short below $95.75 (/CL) or off a rejection at $96, whichever comes first. The Russell (/TF) may retest 1,175 again and a failure there is "game on" for the shorts as well (see yesterday's webcast). That trade was a $1,000 per contract winner yesterday morning and worked out better than our Dow (/YM) shorts at 16,350 but those were good for $500 and far less stressful to play.
- Gasoline (/RB) long at $2.64, now $2.83 - up $7,980 per contract
- SLW 2016 $18/25 bull call spread at $3.05, selling 2016 $18 puts for $2.74 for net .31, now $1.85 - up 496%
- Oil (/CL) Futures short at $96, out at $96.15 - down $150 per contract
- Russell (/TF) Futures short at 1,173, out at 1,170 - up $300 per contract
- 4 NFLX 2015 $370/400 bull call spreads at $10 ($4,000), selling 5 Feb $360 calls for $10.10 ($5,500) for a net $1,500 credit, now -$26,600 - down 1,806%
- EWJ June $11 puts at .17, out at .50 - up 194%
- LGF 2016 $28 puts sold for $5.20, now $4.30 - up 17%
- SCO March $32/35 bull call spread at $1.20, selling March $32 puts for $1.35 for net .15 credit, now -$3.25 - down 2,066%
- BRCM 2016 $25/32 bull call spread at $3.20, selling 2016 $25 puts for $3.10 for net .10, now $3.25 - up 3,150%
- BBY 2016 $23 puts sold for $5.25, now $4.80 - up 8%
- EBAY 2016 $45 puts sold for $4.30, now $4 - up 7%
- HOV 2016 $5/10 bull call spread at $1.45, selling $5 puts for .90 for net .55, now .35 - down 57%
Notice how these leveraged plays can make outrageous gains OR LOSSES for us. That's why it's very important to use stops. In reality, SCO is at $28.83, so we would simply roll the short March $32 puts ($3.40) along to a lower strike in a longer month. As long as you REALLY want to own the position you sell a short put in, the "loss" is not a big deal. Also, of course, as long as you don't go too crazy with your position sizes!
In SCO's case, stops and strategy were detailed in the Webcast and the Summary Notes. In the case of NFLX – we decided at 9:37 the next morning to kill the trade with a $3,400 loss, not ride it out to the current $26,000 loss!
Meanwhile, the short 2015 $400s are $53 so net $24 on that spread and the short Feb $360s are $29 so a loss of 5x $18 ($9,000) on the short calls and a gain of 4x$14 ($5,600) on the long means the whole trade is a net $3,400 loss – not devastating but annoying. So, best to just cash it and do a new trade unless you want to go with my above suggestion to add more risk.
The rally is looking a little tired.
Despite repeated doses of Central Bankster stimulus, we just can't seem to get a proper breakout over our key levels. As you can see from Dave Fry's charts, yesterday's volume was so low we may as well have been closed yet despite all the "good" news (see this mornings News Flast for details and Futures trading notes) the S&P only made a half-assed attempt at 1,850 and barely held 1,840 in the end.
- Russell (/TF) Futures shorts at 1,175, out at 1,163 - up $1,200 per contract
- Oil (/CL) Futures shorts at $97, out at $97.15 - down $150 per contract
- NFLX Feb $375 puts at $10, expired worthless - down 100%
- NFLX Jan $420/380 bear put spread at $23.50, selling $500 calls for $23 for net .50, now $55 - down 10,900%
- NFLX weekly $375 puts at $2.60, stopped at $1.70 - down 34%
- NFLX next weekly $370 puts at $2.50, expired worthless - down 100%
- Oil (/CL) Futures short at $97, out at $97.15 - down $150
- TSLA Jan $210/180 bear put spread at $20, selling Jan $220 calls for $18.60, covered with March $190 calls at $10 for net $13.40, now net $5.75 - down 57%
Our Long-Term Portfolio held a $4,375 gain (set up on 11/26/13) and, because we anticipated the sell-off, our Short-Term Portfolio jumped to a $1,370 gain as of yesterday's close. That's the value of learning to BALANCE our portfolios as well as following our core strategy of BEING THE HOUSE – Not the Gambler.
That $1,370 gain in the Short-Term Portfolio is off a $2,035 cash credit, so up 67% in less than 2 months. In the Long-Term Portfolio, we have a $13,710 cash credit and that makes the $4,375 profit 32% against the credit and "on track" in our more conservative portfolio. As I have been saying over and over until I'm sure you are sick of it – we are "Cashy and Cautious" because we've been waiting for a pullback to make bigger investments – but that doesn't mean we can't make a few Dollars while we wait, right?
… Still very choppy and not a good day to buy. Too much investor optimism out there and people can be SHOCKED if they take the time to read the news this week and the news happens to start talking about the melt-down in Emerging Markets, the riots in the Ukraine, Turkey's mess, Argentina, China…. That, combined with the holiday week in China that will cut off a big chunk of the World's potential market participants (they take this holiday seriously) – does not make for a good investing climate.
Sure we want to pick up deals like LULU or SHLD when they crash below value on earnings misses but let's not consider every stock that pulls back 5% from a 50% one-year run to be a "bargain"!
- Oil (/CL) Futures short at $97.50, out at $96.50 - up $1,000 per contract
- Natural Gas (/NG) Futures short at $5, out at $4.90 - up $1,000 per contract
- Russell (/TF) Futures short at 1,160, out at 1,140 - up $2,000 per contract
- TZA March $17/21 bull call spread at 0.93, selling $16 puts for .75 for net .18, out at $1.20 - up 566%
- 5 TZA March $17/21 bull call spread at 0.93 ($465), selling 1 CLF 2016 $18 put for $4.20 ($420 ) for net $45, out at $600 - up 1,233%
- S&P (/ES) Futures long at 1,800, out at 1,810 - up $500 per contract
- Dow (/YM) Futures long at 16,000, out at 16.050 - up $250 per contract
- Oil (/CL) short at $97.25, out at $96.50 - up $750 per contract
CEOs – I have tried explaining, in the past, to several major corporations why they should lobby FOR higher wages. Even for a company with as much interest in cheap wages as MCD, the logic is that raising the wages for 100M of their CUSTOMERS offsets the damage that will be done by raising the wages for their staff by 10% (adding 2.5% to cost of food). It's not complicated logic but the Conservative brain-washing is very thorough and they are all terrified of rising wages.
That finally brings us up to Jan 25th, where we did Part 1 of our Trade Review. This last section had a whopping 86 trade ideas with 19 misses (78% positive), bringing our total for the month (we always start the next month at the end of the previous month) to 118 winners and 27 losers, for a very respectable 81% success rate.
The main reason there were so many trades is that we had our Futures trading workshop and we've been getting into more detail on those quick in and out plays. If you can't play the Futures – you can always just play the index or options on the indexes (deep in the money work best) and you get the same effect – only without so much leverage – which can be a good thing, when you're on the wrong side!