4/17/2020 Stocks continue rally this week largely due to the technology sector. I’m still thinking it’s more likely we go sideways or down next week than up. I didn’t short Netflix this week.

Hi everyone, welcome back. 

Let’s take a look at Netflix’s weekly chart since I was originally planning on going short this week, but changed my mind once I realized that it is going opposite the market. It would have been used as a hedge against my positions in Boeing and Marathon Oil, but since it goes opposite the market, I would actually have to go long Netflix to hedge my long positions.  

NFLX weekly 4_17_2020

The plan was to short a half position near 380, and another half position near all time highs in the 400-420 zone with a stop loss just above. If I took the trade, I would have been stopped out near the highs at 440 and whipsawed. 

Below is the weekly chart of SPY with resistance levels marked. I’m thinking any weekly close above the 295-300 zone means we are likely to test all time highs. However, I think there’s a good chance the index will get stopped in the 295-300 zone and drop back down to the 260-270 zone.

So although I think it’s more likely we go sideways or down next week than up, the momentum could easily carry us another 5% higher before there’s any sort of meaningful pullback. I’m still long Boeing and Marathon Oil, and don’t plan to sell below $240 and $11 respectively. 

SPY weekly 4_17_2020

 

4/12/2020 Stocks extend monster gains and jump over 10% this week. Futures point to a small opening loss on Monday. I’m thinking it’s more likely we move lower next week than up – and I plan to short Netflix (NFLX) as a hedge against my long positions.

Hi everyone, welcome back. Below is the weekly chart of SPY (S&P 500). 

SPY weekly 4_12_2020

The market jumped about 12% this week, which is a very significant bounce. I suspect the momentum could carry us up to 290 next week, but still think it’s more likely we move sideways or down a little next week than to continue higher. People looking to go long could buy shares near the 265-270 support zone with a profit target near 290 and stop loss about 10 below the entry point. 

I’m thinking about, and probably will short NFLX as a hedge sometime next week. The reasoning is that I’m thinking we the market could move lower and NFLX looks like it might want to drop from the resistance level here. It also acts as a hedge against my long positions in Boeing and MRO. Weekly chart of NFLX below. 

NFLX weekly 4_12_2020

The current plan is to short a half position near 370-380, and to short another half (average “down”) in the 400-425 zone. I plan to cover in the 225 to 250 zone. My stop loss will be at around 450. Everytime I’ve shorted NFLX in the past as a short term trade hasn’t worked out, but who knows what will happen this time. 

Stay safe and see you next week. 

4/3/2020 Bullish longer term (1 year +). Near term thinking we could still easily retest the most recent low. I’m 45% stocks, 55% cash now.

Hi everyone, I hope you enjoyed your week.

Indexes closed slightly lower this week, but the VIX continues to drop rapidly.  Although I think the indexes could still retest the lows made last week, I think very sharp “limit down” moves and extremely large drops (more than 5%) are much less likely now. 

VIX Daily 4_3_2020

Above is the daily chart of the VIX (volatility index). VIX moves up if there is more option buying (both puts and calls), although put purchases have a larger impact on the price than calls. Although the indexes moved down a bit today, the VIX moved down, hinting that the bottom is in, or that at least we are near it. 

More evidence that we are at or near a bottom comes from insider activity. Take a look at the recent insider purchase activity here. Last time it was near this level was when the majority of the stock market bottomed in late 2008 and when the entire market finally bottomed in March of 2009. 

Lastly, bearish sentiment has been unusually high (1 or more deviations above the mean) for the last 3 weeks. Source. We use this as a contrarian indicator – if everyone is bearish, they already sold, and thus the market “has” to go up. 

Because I am long term bullish at these price levels, I bought more shares of Boeing after my put expired in the money today (sold the 140 strike put for 10 dollars). I don’t plan to add any more shares unless we dip below 100. 

In terms of asset allocation, I am now 45% stocks and 55% cash. Thanks for reading and see you next week. 

3/30/2020 Markets look like they don’t want to move much lower this week as the VIX continues to collapse. Sold the 140 put on Boeing for $10 and averaged down on MRO at $3.21. I’m neutral/bullish.

Hi everyone, I hope you are having a great start to the week. Charts are at the bottom of the post, and a description of cash secured puts and the trade I took this morning are below. 

I sold another put on Boeing this morning in order to get more exposure to the stock in the case that I’m filled. I wanted to be long at 125 a couple weeks ago, but the put I sold expired last Friday so I’m selling another cash secured put expiring this Friday. I sold it for 10 dollars this morning when Boeing dropped to about 146 from the open. If I kept my morning limit order for $11 banking on the fact that Boeing would retest the top of the gap fill at 140, it would have been even better. Either way, I sold it for $10 which was the original plan. 

What I like about selling these weekly / bi-weekly puts is that time decay works great in my favor. As each day that passes, the option’s time premium is worth less and less, meaning time is working in my favor.

The reason why I’m selling the put is because I don’t want to own the shares at current prices, but would be glad to own shares at cheaper prices (like 130 for Boeing). If I sell a put with a strike price of 140 for $10, if Boeing closes below 140, I am forced to buy the shares from the put owner at 140. Since I receive the $10/share premium upfront, I’m effectively buying Boeing at 130. 

Now, the best part is that if Boeing closes above 140 by the end of the week, the put option expires worthless and I keep the $10/share or $1000 per contract premium, and  can sell another put the following week. 

Another small benefit of selling a cash secured put is that if the option expires in the money, forcing me to buy the shares at 140 from the put buyer, the option premium reduces the cost basis of the shares so you aren’t taxed until you sell the shares. 

I want to point out that there are 3 trade-offs in selling the put versus setting a limit order at $130. 

  1. Since this is a cash secured put, my money is tied up. For each put I sell, I’m tying up $14,000 of capital (strike price of 140 times 100 shares) that I can’t use to purchase stocks. This is offset by the premium so I’m tying up $13,000 per option contract. If you set a limit order, it can be cancelled or revised at any time so no capital is tied up.
  2. If Boeing drops to 130 then quickly reverses before the week ends and rebounds sharply to let’s say 180, the limit order for 100 shares would have given me a gain of $50 per share for $5000, whereas selling the put only gives me the premium of $1000.
  3. A large downside of selling the put versus setting a limit order to buy shares is that if the stock tanks, you are still forced to buy the stock at the strike price of the put, leading to large losses. This is true if you are trading the stock and don’t plan to own it for a long time. In my case, since I’m fine with owning Boeing shares at 130, it doesn’t matter to me even if the stock drops to something like 70 by the end of the week. In other words, selling the put is equivalent to having a permanent weekly limit order set at 130 and getting paid for it. 

Below is the daily chart of Boeing. The horizontal lines show where the put I sold today is profitable and where it starts generating losses. 

BA Daily 3_30_2020

I’m surprised MRO hasn’t bounced yet, but the entire energy sector is still not doing great with crude oil briefly breaking below $20 today. 

MRO daily 3_30_2020

3/27/2020 Markets surge this week and hit my recovery targets. I am unsure of next week’s market direction although I suspect markets will want to retest the previous low made on Monday this week. Looking to sell another cash secured put on Boeing.

Hi everyone, I hope you enjoyed your week. I just got notified today that school is now “effectively” cancelled since we can choose to have a pass/fail for our classes after we’ve seen our letter grades. More time to stare at the stock market 🙂

The indexes and Boeing reached my recovery targets I posted a few days ago. For a reminder, they were:

SPY 255, DIA 215, QQQ 190, BA 150

The indexes look like they want to drop from their current levels, although I am unsure where we will go next week. I suspect we will get a gap down on Monday, and might retest the previous lows (about 15% lower). 

Regardless of what happens, when the market is volatile like this, it presents good opportunities to buy discounted stocks when everyone is panic selling. Since my Boeing put expired today, I plan to sell another one at a strike price of 140 for next week. 

Daily chart of Boeing below:

BA Daily 3_27_2020

Enjoy your weekend, and stay healthy. 

3/25/2020 [Long post] Markets start recovery and Boeing surges past my 150 recovery target. Still holding long from 90 and a batch at ~125 and 156. New long added to MRO.

Hi everyone, I hope you are having a great day. 

I was quite surprised by the move that Boeing has made these last few days and am slightly upset that my 150 strike price put I sold last week is now “far” out of the money. I sold it for $25 meaning I wanted to buy Boeing at 125. Since I’m selling the put, I only go long when Boeing closes below 150 at expiration (this Friday). Unfortunately, it isn’t under 150 right now, but who knows what will happen – the stock went up almost double in the last 3 days so it wouldn’t be outrageous for it to shed 20% in a day or two.

Luckily, the other 100 strike price put I sold for 10 dollars expired in the money last Friday (Boeing closed at ~95), meaning I am at least long 100 shares at a price of 90. I’m also still long in my retirement account from a price of 156, although that position size is a bit smaller. 

Daily chart of Boeing below. 

BA daily stock 3_25_2020

The original plan to sell the shares at 240+ remains the same. I want to sell at or above 240 for 2 reasons.

  1. The stock has a gap to fill just above 240, so I expect resistance near 240
  2. Mean reversion would be in the low 300s, but I don’t think it would be a super great investment if it reaches that price. I suspect it will reach that price relatively quickly, but I will likely still sell it early.    

Here’s the reasoning. If one investment could earn you 25% in a year (Boeing from 240 to 300) while another could earn you 100% in a year with a bit more risk, which would you take? Since I am still in my early 20s, I strongly prefer the second option. More risk more reward. The stock that I think has a great chance to go up 100% – 200% in a year is MRO.


 

MRO daily chart below. Trade idea below chart.

MRO daily 3_25_2020

MRO is a small cap oil company worth 3 Billion dollars. It has sold off extremely hard since the oil price collapse recently. Nevertheless, the CEO / chairman has been buying shares at around $4. Source

I bought half my position at $3.79 this morning and have a limit order set for $3.35 for the other half. Remember to keep your position size much smaller for this company because it is very volatile. It is also trading at all time lows so it can easily go much lower.

My minimum sell target is $7 (gap fill) and I plan to hold until it reaches the low $10s. Also, I don’t plan to sell it on the down side unless something drastic happens (like the same insiders that are buying it now start selling it). 

 

 

 

 

3/22/2020 Futures tanking Sunday night (implied open 5-7% lower), but it is still a better time to be buying than to be selling.

Hi everyone. Here’s a quick update from my previous post. 

I was very surprised that the market sold off into the close on Friday because I was expecting the opposite after so much selling pressure during the week. Despite the selling pressure on Friday, I still think we will rebound ~15-20% beginning this coming week. 

Recovery targets slightly lowered from last post (3-4 week timeframe):

SPY 255, DIA 215, QQQ 190 (targets were ~5% higher before)

Dow Jones Futures (monthly chart) below. Notice that we are nearing the 16000-18000 support zone. I suspect we will get a strong bounce from there.

DIA futures Sunday 3_22_2020 Monthly