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!

6/25/2020 Sold all my PSEC shares at 5.09 today, and looking to short Facebook (FB) for 1 month until their earnings report in late July.

I sold all of my PSEC shares at 5.09 today due to the recent market’s reaction to new information regarding the state of the economy and the Corona-virus. Although my minimum target of $5 was reached in a really short period of time – roughly 2 months from late April where I purchased it – I originally planned to sell it in the $6 to $6.5 for a mean reversion.

Either way, the position sizing was pretty small, so although I’m up over 30% (I bought in at 3.81), the capital gains aren’t substantial. With this sale, I’m just over 90% cash, with my only position being MRO.

I’m still looking to re-enter Boeing in the 90-140 range for a medium to longer term swing trade or investment. This time I’m thinking of implementing “The wheel” options trading strategy, where I sell cash secured puts, and when filled, sell covered calls until my shares are called away. In some sense, this is no longer a swing trade nor an investment, but a play on theta (time decay) for options.

I’m looking to do either a regular short on Facebook, or a covered short trade which reduces my risk and reward. I would normally like to short the indexes like SPY or QQQ instead, but my broker won’t let me short them right now. I also don’t like messing around with inverse ETFs, since they aren’t meant to be held for more than a couple days with all the volatility drag shenanigans.

The plan is to short FB at or near 240, with a hard stop loss 15 dollars above my entry (1% risk), and a minimum profit exit at 200. This gives us a risk reward of about 2.5:1 which is decent. I plan to exit my trade early if it quickly goes against me and the overall market moves higher. I also have a timed stop of 1 month since I don’t want to hold the short through the earnings report.

If I do the covered short strategy, I plan to sell the monthly 220 put for a 5 dollar premium, which gives me some protection if the stock moves up, but also caps my gains if the stock falls below 220.

I’ll post charts of FB this weekend if I take this trade.