6/27/2020 Markets down about 3% for the week. I sold my PSEC and barely missed my short entry on Facebook. Looking to sell puts on MRO to increase my long exposure.

Hi everyone and welcome back. I hope you had a nice week and are having a great weekend as well!

The S&P500 closed about 3% lower this week, which was mostly the result of the Friday sell-off. Although I think there’s a good chance we move higher the first couple of days of next week, my original downward target of 275 still stands. If selling gets intense, we could reach it in a matter of 2 days.

Because I’m bearish on the overall market, I decided to sell my PSEC. I had planned to hold for much longer (1 year+) and to sell it at a slightly higher price. I got out at 5.09 on Thursday, and I bought in at 3.81 in April of this year.

I had been wanting to short either the SPY or QQQ for the last couple weeks, but since my broker doesn’t have shares available to short, I decided I would short Facebook (FB) instead because I noticed that it was under performing the indexes. Because I was only going to hold this short for 1 month until its earnings date, I waited patiently for a retest of 240 which never happened (highest it got on Thursday was 237). Facebook closed down 10% on Friday if you include afterhours and is trading at 212.5. Although I think it’s likely to continue lower from here, the risk reward is no longer favorable for me to short it here.

Daily chart of FB below:

Lastly, let’s look at MRO, a stock that I am planning on adding more shares to. Daily chart below. I plan to average up into this position sometime in the next couple weeks by selling cash secured puts until I get filled. I don’t mind owning more shares at $5 and below since I think the stock has a fair value around 11-12 dollars based off its 15 year average price to book ratio. Discussion of MRO’s fair value below this chart.

I almost never look at fundamentals, but I figured if I plan to hold MRO for up to 5 years that I might as well look at some key financial ratios. Again, I’m new to this so I could be totally wrong on my fundamental analysis. Let me know if you have any suggestions.

My thought is that a stock will eventually trade at its average price to book ratio in the long run, as long as it doesn’t go bankrupt of course. Since MRO has been around for over 100 years (founded in 1887), I suspect the risk that they go bankrupt in the next few years is relatively low.

The above lines represent where MRO is cheap, average, and expensive based off its 15 year price to book ratio. It has a current price to book ratio of .4, with a 15 year average price to book ratio of roughly .8. The red line is where the price usually stalls out, which is a price to book ratio of 1.2 or so.

If we convert these price to book ratios to prices, MRO’s fair value is around $11-$12, with anything near $6 being half off and the $15-$16 range as being expensive. I plan to use this to gauge when I buy and sell this ticker. Since we are under 6, I plan to sell cash secured puts like I mentioned above.

I hope you enjoyed the post, and please let me know if you have any questions. Stay safe and enjoy the rest of your weekend. See you next week like usual!

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