The 50/50 Basket update – 04/13/2014

For those not familiar with this Basket of stocks here is a brief review behind the picking of stocks for this basket:

1) I look for stocks that achieve a move that is 50% above the 50 SMA. In my view these are extended and are due for profit taking, getting parabolic, etc. This is NOT a fundamental call, I don’t use any moving averages or other indicators. I enter at any sign of a Topping Tail. Only $BIOF has hit this scan this week (a rarity to be so thin but a nice tell on the market)

2) I typically short the stock (so this takes margin) but sometimes will just buy Puts if good liquidity in the Option chain(s)

3) The basket approach helps to smooth out the daily whipsaw in some of these stocks individually

4) The original plan was to hold up to 10 but March provided a LOT of high flyers. The list reached 20 but I have closed 4 positions recently so I am down to 16

5) I added Bear Collars this week on 2 positions that look like they are seeing some stakes in the ground now from the Bulls

Now on to the Table for the Basket:

04132014

A trade review starring Ambarella

When the market is under selling pressure there are several key things that a trader must do to protect capital:

1) Obey your Stops

2) Utilize Options to protect gains and/or take advantage of the elevated volatility

3) Don’t over-trade, it is ok to sit on your hands (especially if you are long-only)

One of the common elements to my own trading – personal & for clients – is in the use of Options. This can be as a trade by itself or in conjunction with stock (long or short). I add Collars a LOT to my trades and a week like this one reminds me just how important they are in protecting a position.

To illustrate this I chose the current $AMBA position to discuss in this post. Here is the trade:

  • I am long stock at $13.45 (since 08/26/2013)
  • I have an April 28/30/24 Collar PS (put spread). This means I am short the April $28 Calls & long the 30/24 Put Spread
  • In addition, I have a Stop set on the stock piece at $25.01

Here is a Daily chart that shows the price range for the Collar PS:

AMBA_CollarThe Green area represent the range from the PS pieces and the Blue line is the short Call strike. A few things to note here:

1) The long $30 Puts are well ITM so they are providing protection to the long stock piece already

2) The short $28 Calls are now OTM so the stock is no longer capped

3) The $24 Puts “cap” the PS so this is why I want to have the Stop set on the stock, in case it tries to run at the 200 SMA (protection won’t help me beyond $24)

The Fab 5 – 04122014

It has been quiet in the Fab 5 recently as the market selling pressure makes it more difficult for momentum trades like the $100 Roll. Despite this I did manage to add a new position this week as a 6th man: $SNP on 04/07.

Notable activity:

  • $AGU I adjusted the April weekly Collar to next week April monthly
  • $HON I adjusted the April weekly short Calls to next week April monthly
  • $SNP A new position at a $90 trigger on 04/07. I added an April $95 Collar on 04/10
  • $WDC I adjusted the short Calls down to $91 on 04/07 to improve the Options Net

Here is the Summary:

04122014

Positions Update – 04/12/2014

Given the market jitters I elected to trade less and just manage the existing positions I have. Some of the activity this week:

  • $ALK I had exited the existing Call Spread on 04/07 but wanted to revisit a new trade. I initiated a May Risk Reversal CS on 04/09
  • $AMBA I lowered the Stop on the stock piece to $25.01 (has a Collar but that doesn’t mean you get complacent)
  • $AVGO I will need to monitor the $57.5 level for the stock piece (bottom of PS protection is at that strike)
  • $CRR I exercised the long April $125 Calls & sold the stock. I then StO the April $140 Calls to make a short 135/140 CS. The short $120 Puts remain
  • $FRX A new position this week that has an April Collar
  • $IYR I had initiated a Risk Reversal for April but exited on 04/11 for a small loss
  • $PLUG I adjusted the April weekly Bear Collar to April 25 weekly
  • $SQQQ This portfolio hedge is capped so I will need to deal with that before Friday (april expiration)
  • $AIG I adjusted the April weekly Calls to the April 25 weekly expiration (short calls against stock in LT acct)
  • $XONE The Stop hit on the April $35 Puts on 04/07 so I am left with long $30 April Puts
  • $WFM I adjusted the April weekly Collar to the April 25 weekly expiration (50/52 Collar). That adjustment added $3.91 to the Options Net
  • $STKL I sold the April Calls and added a May 10/12.5 CS
  • $STZ I am short the April 85/77.5 Strangle (Earnings). There is a sell short stop set at $77
  • $FAST I am long the Apr/May 50/45 1×2 Diag Put Ratio Calendar (Earnings)

Submarine Basket (see Blog, just did a post earlier on that)

Earnings:

Here is the Summary:

Positions_04122014

 

Submarine Basket update

Just a little activity this week in the basket:

  • $FSLR I adjusted the April weekly Collar to next week Monthly $67 Collar
  • $GIMO The only new position I attempted to start (initial long at 17.45 on 04/09, 1/3 size) but ultimately closed on 04/10 for a $.20 loss
  • $PBR I adjusted the April weekly Collar to next week Monthly $13.5 Collar

04122014

A look at the Measured Move starring Kindred Healthcare

Here is some basic info on the Measured Move:

MMNow let’s look at a Daily chart of $KND to see how a Measured Move is calculated:

KNDThe 1st Rising trend line has a move from $13.13 to $21.40 for a move of $8.27 to the 01/15/2014 highs. After the retracement to 02/05 lows ($17.58), a new uptrend began. If you take the $8.27 move from the 1st uptrend – and add to $17.58 – you get a target of $25.85 for this current uptrend.

Position mid-week update

Newly added this week that remain:

  • $FRX long stock at $86.40 with an Apr 90/87.5 Collar
  • $IYR Long the April 69/67 Risk Reversal (takes margin)
  • $GIMO long stock at 17.45 (1/3 size, a starter position). I will likely sell a Strangle as the next step
  • $STZ short the April 85/77.5 Strangle (Earnings). Options Net is: $2.34
  • $SNP long stock at $90 for the Fab 5 (6th man)
  • $ADM long stock at $43.87 with a May 02w 44.5/43.5 Collar (clients)
  • $EPD long stock at 71.73 with a May 72.5 Collar (clients)
  • $NRG long stock 32.64 with a May 33/32 Collar (clients)
  • $PEP long stock at 83.82 with a May 85/82.5 Collar (clients)
  • $SYY long stock at 36.04 with a May 09w 37/36 Collar (clients)

I had exited the Call Spread for $ALK earlier in the week but had noted I wanted to revisit it. I added a May 95/100/85 Risk Reversal CS (last piece was today).

 

Earnings Trades update – 04/05/2014

I receive questions each week on my Earnings trades so I try to post my Trading Journal view from time to time as an update and/or reference point:

April_2014The above trades are specifically initiated for the Earnings catalyst and include trades for personal accounts as well as for clients. A few things to note:

1) Hedging with stock is an element to each trade – regardless of the bias or design – when using Options. This could include a basic Long Call Spread position where there is concern that price may fade before the next normal market hours session. Hedging with stock helps to “lock in” profit

2) Selling Option premium “naked” takes margin so I am very selective when I do this. With that in mind, the point to have a Basket approach is that I can amass a substantial cushion to work with

3) As you can see in the graphic above, I utilize a variety of strategies to extract $ from the market in the Earnings event:

  • I sell Strangles
  • I use Risk Reversals
  • I use Calendars (Call or Put – or sometimes both)
  • I use Ratios
  • I use Spreads (Call or Put – or sometimes both)
  • I use normal stock, sometimes with a Collar (this is usually after the event)

Each situation is unique and sometimes I just don’t have a real bias so I design a trade where that doesn’t matter.

Position Updates – 04/05/2014

A busy week in the Swing account as I was up to 12 positions at one point. The 4 swing trades that did not survive to the weekend:

  • $INSM I owned an April 17.5/20 CS that hit a Stop on 04/04
  • $KING I was bottom fishing in this new IPO with long stock. The position hit a Stop on 04/02
  • $MNKD I had a trade on from the FDA Panel event
  • $NUS This was a short stock trade from 03/24 that I let get called due to expiring Options that were ITM

Other notable elements to existing positions (including LT & IRA accounts):

  • $ALK CS is not capped anymore and will need to keep an eye on it to ensure I get some good value for it
  • $AMBA The Stop on the stock remains at $25.75 (has a Collar PS with a lower PS strike at $24) and I will likely lower the stock Stop next week
  • $APC The stock saw a huge move up over the $100 level on some legal settlement news. I adjusted the April long Puts way up to the $95 level for a very small debit. Now need to work on the Call side (likely move up to May soon as it is quite capped)
  • $AVGO The stock is still capped by short Calls. I added a PS this week to protect it
  • $CRR I adjusted the top of the CS up to the $135 strike
  • $SQQQ This portfolio hedge remains. I adjusted the long Put piece down to $54 on 04/03: SQQQ
  • $PLUG The April 11 Weekly $6 Bear Collar will need to be dealt with this week (Calls are ITM, protecting the short stock piece well)
  • $EWW This LT position continues to rebound well. I adjusted the short April $60 Strangle to May 02 Weekly $63 on 04/04
  • $AKS This April 7/8/6 Risk Reversal CS is working well as steel gets a bid
  • $SLCA I adjusted the Puts up to the $37 strike for the April Collar on 04/02

Earnings Trades:

$GIII
$KBH
$KMX
$MON
$NES
$NKE
$PVH
$RH

There is an Options Net/Cushion of $29.585 on the Earnings Trades Basket. There is one position with a stock hedge and that is $PVH. Exits this week in Earnings trades:

Submarine Basket:

Here is the Summary:

Positions_04052014