Wednesday, January 21, 2015

Teddi Knight :: Staying Out Of Harm’s Way – Patience Equals Profits

[Edited for brevity]

Investors tend to be impatient when market direction is [uncertain].

I saw on the forum a posting from an investor anxious to get his capital working.

My Reply: Think Safety and Have Patience

This past weekend I was asked how I have managed to do so well over the past decades. The answer of course is simple. I have a lot of patience and I know that successful investing is about protecting your capital.

Making money in stocks since the spring of 2009 has been easier simply because stocks had room to run higher after losing more than half of their value in the bear market. But with the Fed pulling liquidity out of the markets, the hint of interest rates rising on the near horizon, an economy that is expanding at home but not abroad, problems in Europe, Russia, Asia, the rise of the US Dollar, collapse of oil and commodity prices, investors, I think, need to step back a bit and keep cash at the ready.

Investing is not always having your capital tied to the market and hoping it works out. There will be opportunities ahead but I prefer a cautious stance right now. Over the past 2 week I have posted a dozen trades but all are conservative and smaller than usual.

Think Beyond A Few Weeks

When it comes to investing, think longer term than a day, week or month. Think years. 2015 right now looks volatile.

VIX Index For January

So far this month we have had just 11 trading days and on none of those days has the VIX Index fallen below 16, let alone below 14 or 12 where I prefer to set up trades. Above 20 in the VIX Index is a definite warning to be cautious, build cash and keep it at the ready but safely out of harm’s way.

Review and Plan

This is an ideal time to review last year’s trades. It’s a perfect chance to figure out what trades worked and why and which ones failed and how they could have been corrected. It is also a chance to remove stocks from your watch list and add new ones. It’s an opportunity to decide which stocks you want to be trading this year. It is also a great opportunity to adjust longer-term trades and figure out where you will be placing your capital next, depending on what direction the markets may be heading.

Investing is about becoming a better investor, not just always being invested.

Patience Equals Profits

Patience can create profits. Once the market direction becomes clearer there will be more opportunities for profits. Until then I think the better course of action is to do some review, plan for some upcoming trade possibilities, take on smaller positions and keep much of my capital tucked safely out of harm’s way.

Saturday, January 17, 2015

Lawrence G. McMillan Option Strategist Newsletter 2014 Market Review

Full Article:

My trimmed-down version:

2014 Recap

  • About a 12% gain for 2014.
  • Corrections were fast and somewhat nasty – especially those in January, October, and December.

Some McMillan Market Timing Systems:

$VIX Spike Peak Buy Signals

A $VIX spike peak buy signal occurs when the CBOE’s volatility index ($VIX) rises swiftly and then snaps back down, leaving a spike peak on the chart. We have specific rules as to what constitutes a buy signal, but they are too long to list here.

We buy at-the-money options, with a duration of one month or more, and we are out of the trade after 22 trading days at most.

“modified Bollinger Bands” (mBB)

mBB signals occur when $SPX exceeds +/–4-sigma (σ) from its 20-day moving average and then moves back inside the corresponding +/–3σ Band. Both buy and sell signals can occur.

In designing this system, we were hard-pressed to find an “optimum” stop. The best result is when $SPX trades all the way from the signal to the opposite 4σ Band. That terminates the signal for a profit. It’s the signals that wander in between that are more difficult to quantify.

Total Put-call Ratio

The total put-call ratio gives rare buy signals after extreme oversold conditions. Each buy signal targets a 100-point gain for $SPX. There is also a secondary, short-term system, whereby one-day oversold reading generate one-day buy signals.

Volatility Crossover

This system centers on the relationship of $VIX and $VXV. This system – like many of the others – has two facets: when $VIX crosses above $VXV, one can short the market, and when $VIX later crosses back below $VXV, one can buy the market. They sometimes come in groups or “bunches.”

Wednesday, November 26, 2014

Rules for rolling deep in the money naked puts

excerpt from
  1. If you are deep in the money you should roll out two to three weeks before the options expiry takes place.
  2. If you are deep in the money and the underlying stock pays a dividend you should check the date of dividend and amount being paid. If the amount being paid exceeds the [extrinsic?] value of your naked puts, roll out at least 3 months to avoid being assigned shares.
  3. The deeper in the money you are with your puts, the further out in time you should be. For example for investors holding naked puts at the $35 strike in CLF Stock you should be at the least, sitting in July for July 20 2013 options expiry. At the time of writing this article, CLF has closed the day at $17.53 (Apr 18 2013).

Friday, November 21, 2014

Outlook for Stock Markets November 2014: Time to Get Flat

What's happening in the Stock Markets?

Markets are trending strongly up, but there may be signs of peakiness.

Here are some market breadth charts ( of the Advance/Decline Ratios for the NYSE and NASDAQ exchanges:

Daily points are forming a peak, and the 10-day moving average may be topping as well.

Monday, November 03, 2014

Stocks in IRAs are not marginable

Stocks in IRAs are not marginable.

My main strategy is selling premium, and holding stock ties up capital that could be securing short puts.

Today I am wondering whether it is better to do "stock substitution": sell the stock, buy a call, sell a put.

I have paper traded long synthetic LEAPS in the past, and found that holding stock was better. But perhaps a little finagling would help:
  • Place a covered order to sell the stock and buy a call (saves $3 in fees)
  • Buy a long-dated call (ex. LEAPS) (minimize time decay)
  • Sell a front-month put (3-12 weeks) (maximize time decay)

Friday, October 31, 2014

Weeklies Expiration 31 10 2014

These are the option positions I am monitoring for the Oct 31 2014 (weeklies) expiration:
Symbol 10/29 closing price Position NotesPlan
CL65.85-1 CL Oct5 $65 CallCL in uptrend, OI small in weekliesroll
EEM41.58-1 EEM Oct5 $40 PutEEM in uptrendlet expire
EWZ41.11-1 EWZ Oct5 $41.5 PutEWZ IV down post electionlet expire
GDX19.64-1 GDX Oct5 $23 PutGDX crateringroll ratio
GDXJ19.64-1 GDXJ Oct5 $23 PutGDX crateringroll ratio
KO40.96-1 KO Oct5 $41 PutKO in uptrendlet expire, sto next series