Short CRM - Deja Vu All Over Again

Yes, that is right, CCI is short CRM again. 

CRM has risen back up a few points the past few day and the charts (which seems like the basis for trading in this stock) suggested it might be near the top of its short term range. 

So CCI decided to risk some the profits from prior shorting of this stock to hopefully add to the gain. Shorted the stock at $146.50. Rational the same as before.

Investigated implementing a short position via options. However, it would seem most advantageous to go out until  the August expiration to capture their next earnings announcement, and it seemed a little early to get a good price and IV at this point in time.   So put on the more basic short position with the hope of scalping a small gain now.

GDX and GLD - A bet on reversion to the mean

CCI has previously described an options strategy around the gold ETF (GLD) and the gold miners (GDX).

A key to that strategy was the assumption that since these two entities have traded with high correlation in the past they would continue to do that in the future.   Take a look at the recent chart below.

Two year chart of GLD vs GDX

Surprise, surprise....over about the past 2-3 months gold has been relatively flat and the gold miners have lost nearly 20%.   Hmmm.  That could mean
a). something is causing this correlation to no longer be true (like general stock market concerns)
b). gold is due to fall
c). the miners are oversold and due for a bounce back.

Common sense would seem to dictate the miners would follow the price of gold so CCI chooses "c". On Friday bought a lot of GDX just over $52.50. 

Hopefully earning season will bolster the confidence in these stocks.  We will be watching the relationship on  this chart hoping to see the pattern "revert to the mean" and GDX get a nice bounce over the coming months.

Insurance for Falling Oil Prices

Preamble
Big news this week was the release of oil from the US, Europe and Asia strategic reserves.  There are plenty of opinions on the merits of this decision.  From a supply/demand perspective the amounts of oil released does not seem that significant, and there are "not too many bullets in this gun" so it hard to see how this changes the long term picture.  Many talking heads on US TV seem to want to make this simply about US politics, but of course they make everything about US politics. 

Full disclosure: I'm not an oil expert.....but of course that does not stop me from having an opinion...lol

IMO I think the oil consuming countries see a few opportunities to change the oil game a little. A few points

• Apparently, the last OPEC meeting did not end well with the Saudi's and countries like Iran and Venezuela not seeing eye to eye. 
• The Saudi regime feels as threatened as ever, and much of this threat comes from other Opec countries (mostly Iran) subtly undermining their authority in the Arabian Peninsula
• The "west" now controls Iraqi/Kuwaiti oil and is likely to control Libian oil soon.  
• Brazil is having success in offshore drilling, and Canada the US are getting some oil from shale. 
• China is buying up, and and taking control of African oil reserves.
• Natural Gas is being pushed as an alternative to oil (even in transportation) by many parties in the US.

All these points could mean that now is the time where the oil consuming countries and the Saudi's can have the power and mutual incentive to ban together and "break the back" the rest  of the Opec cartel. 

Further, many governments perceive that some larger financial players have figured out how to "game" the oil markets (shocking I know).  I suspect many governments would not be too upset if some of these players got burned by a change in the world oil game.  Lastly, the world economy would benefit from a drop in the price of oil and that would help the popularity of politicians across the globe.


Trading Strategies

There are a lot of opinions, assumptions and theories in that long preamble with which a reader can agree/ disagree and like/dislike.  However, CCI feels that major governments may have set out to drive the price of oil down in the short term.  The release of oil reserves might just be one step in that process.   Generally, CCI's full portfolio is overweight energy and wants to remain that way in the longer term.  However, in the shorter term, CCI does not want to fight this potential trend and is looking for ways to short the energy markets.


Over the past two days, CCI day traded the double short energy etf  (DUG)
 There was plenty of volatility which meant there were chances to make money in this trade, but disappointingly  CCI only managed to break even on these trades.   So for the year, CCI is 5-0-2 trading the double shorts.

I wanted to close out the position in DUG before the weekend  (mostly because of the weird way these double short etfs are structured), but wanted to have some hedge against falling oil prices for the weekend.  Hence CCI just bought a lots worth of  July $35 puts in the oil etf (USO) at the end of the day as a straight insurance policy against falling oil prices. 

Stay tuned to see if this was a good insurance policy to write, and if other vehicles to short the energy space might be deployed next week.

Teva Time

Over the past few months, CCI has been considering establishing a position in Teva pharmaceuticals. Rational for investing in Teva can be found in the following article.

Seeking Alpha - Teva Time

This article suggests that selling naked puts might be a viable approach for investors just starting to consider buying this stock (as a low risk ay to get a better price.)  CCI had taken this approach when the stock was down in April and the stock rebounded, so CCI has already pocketed $2.32/share in option premium using this approach.   With that gain in the bank,  CCI bough an initial lot at a price of $48.01 after commissions earlier this week and will be looking for an options based approach to control a second lot of shares in the near future.

Cisco - Did I say $17......no $16.....I meant $15

Initially bought options at an effective price of $17.


$16 put options assigned this weekend.

Hence CCI is the "proud owner" of a second lot of the stock at an effective price of $15.75

Unfortunately Cisco is now down to $15, and things look bleak.
However, there is still about $8/share in cash on the books means the estimated $1.60 in earnings is even cheaper and the div yield is up to 1.6%.

Time to sit tight for awhile and see what news earning season brings for the stock.



At that time CCI felt $17 was a good entry price.
Clearly, what I meant to say is $16 is a good entry price....lol.
That is where it is trading now.

Xerex Coverd Naked Puts

Bought back the $10 XRX June puts for $.18.
These puts  were sold about four weeks ago for $.28.
So this lot of stock made $.10 or a little over 1% in a little less than a month.

Still bullish on Xerox, but wanted to pocket this modest profit with the thought that a better options based risk/reward opportunity to re-invest the proceeds may present itself in the near future. 

Stay tuned.

Short Game - Sliding along with the market

More noise from Europe and poor US economic data made it seem like another down day from the open.
So it was once again time to slide along with the market.

Day traded the double short financial ETF (SKF) to collect a  modest .75% gain (only a fraction of the 4% day's price decline) to provide a little hedge against the big down day today.

CCI is 5-0-1 playing the double short game this year.

Intel - Covered Calls Rolled Forward

With Intel trading just under $22, CCI rolled the June $22 covered calls in the portfolio to Aug.
Specifically the $22 June calls were bought and $22 Aug calls sold for a net credit of $.61/share.

The June calls were originally sold for $.84 on 4/26 and covered by this transaction at $.18 for a gain of $.66 or 3% over just under 2 months.

The August calls were sold at $.79, and that expiration is after the next earning release and x-date.  
Scenarios. It is almost a sure thing that the June $23 puts sold on June 1 will be assigned this week at an effective cost basis of around $21.90

Stock Up -  The stock trades over $22 by August, and in essence a lot will have been purchased at $21.90, sold at $22.79 and collect a $.18 dividend.  That is about a $1.07 (4.8%).

Stock down - If held to expiration the portfolio would keep the $.79 premium reducing the purchase price by about 4% and CCI will likely be once again looking to sell a lot of the stock via covered calls.


 

Short game - Saving a Stroke

A sixth straight down day in the markets is overall bad news, but the market never goes straight up.   In the downtrend,  CCI continues to try to save some money via its short game. 

Today's  news that triggered a mini-panic was from DC where the Senate did not reverse the movement towards more regulated (i.e. lower)  bank fees for debit/credit cards.  CCI  is not trying to comment on the pros or cons of this direction, just that it was bad news for the banks and financial stocks took a big blip down today.

CCI effectively day traded one lot of a double short financials etf (SKF) to a .8% gain while the momentum on these stocks was negative today.  Obviously, by itself this is not a huge impact on the portfolio.  However grinding out a little green on a down day does add up over time. 

YTD - CCI is now 4-0-1 on day trading double short etfs.

Short Game - Covered CRM Short Position (Again)

Bought CRM shares at just over $143 on Monday to cover the short position initiated in late May.

For those of you keeping score at home
- The first time CRM was shorted in late April  it made $8.25/sh.
- $4.48/share of these profits was "re-invested"  in a short options play around earnings and lost.
- This short trade made $6.38/sh.

Net/net this set of trades is up about $10.15/share or about 6.8% over the past 6 weeks.


Those are particularly pleasing results given
- The market is down about 3.5% since the first position was taken.  A 10.3% over perform.
- CRM is up about 2% since CCI made the call to short, yet the short position has made money.
- The investment thesis of CRM's excesive valuation dragging it down faster than other tech stock has not happened.


As they say....better lucky than good!

Now that the unlimited risk of a short position has been removed, CCI will be looking for an opportunity to recycle some of these gains into short option position on CRM.

.

Cisco - Did I say $17.....I meant $16

Previously CCI bought the first lot of Cisco trade via Jan, ITM call options.

At that time CCI felt $17 was a good entry price.
Clearly, what I meant to say is $16 is a good entry price....lol.
That is where it is trading now.

Having looked a little more closely at past earnings reports the drop in revenues in some of the core products is a little disturbing. However, the overall fundamental value still seems sufficient to justify a trade.

Sold $16 June puts today for $.25 after commissions. If held for the next 10 days either
- the stock will continue to fall and the second lot of the trade will be acquired at an effective price of about $15.75.
- the stock will hold the $16 level and the portfolio will make about $1.5% in 10 days.

Intel - Battle of the Titans!

In one corner we have Goldman Sachs.....the 800 pound gorilla, and legend on the street. Last week, they lower Intel's rating to sell and lowered its price target to $20. They citing “slowing processor shipments, rising competition and record capital spending this year”.

In the other corner we have CCI...the .8oz chimp and a legend in his own mind. CCI still believes in the bullish story for Intel and continues to look to add to the position below $22.

* * *

Intel fell back to $22 on Wednesday. Reasons might include

• Goldman Saks publishing a downgrade last week with a price target of $20.

• The general market pull back in response to a perceived slowing US economy
  

• Technical analysts “filling the gap”

CCI has been and continues to be bullish on Intel and continues to be willing to accumulate under $22.

Yes, that puts CCI in direct conflict with Goldman Sachs. It is worth pointing out that

• In January with Intel trading around $21, the same GS analyst was “ recommending that investors avoid INTC shares ahead of 4Q earnings as he sees risks skewed to the downside. Specifically "we see overwriting (at $22) as a way for investors to generate additional returns.” Conversely in January , CCI was suggesting it was time to accumulate under $22, even with going so far to suggest using Leaps for leverage. The stock reached $24.

• At the risk of being cynical and a conspiracy theory kind of guy..... there is a lot of open interest in the $24 strike price, and $23 is the option “max pain” point for June. I won't try to explain max pain, but suffice it to stay that someone who wrote these options (like GS recommended) could be a looser if the price continues to rise, and there is some evidence the stock price might "pin" towards this level ($23) by option day. Of course that would imply that the street might manipulate a stock price via its trading or recommendations to improve its derivative position. How could that be...hmmm.
  

From a trading perspective, CCI readers will recall that June $22 calls were sold for $.84 a few weeks ago. At the time of this post, they are trading at $.45. So the portfolio is sitting on a $.39 unrealized gain. As Intel hit $22, CCI added to its Intel position by selling one lot of June $23 puts for $1.07 after commission. These options will move in opposite directions. One of three scenarios plays out if held to expiration

• Worse case – the stock continues to fall well under $22, The portfolio harvests the $.45 remaining on the covered calls sold a month ago , and will have juiced the performance on that lot by 4%. More importantly, another lot is acquired at an effective price about $21.92. CCI thinks that is a good price. GS disagrees. We will see who is right.

• Assumed Case or the Scenario CCI is hoping will happen - the stock holds $22 support but does not rise over $23 by June expiration. In this case one lot will be sold at an effective price of $22.8 and one will be bought at an effective price of $21.9. Swapping those lots has the potential to effectively have generated a potential $.90 trading gain (4.5%)

• Best case – The stock bounces quickly back over $23. One lot of the stock will be called away at $22, but the portfolio will have harvested both the $.84 and $1.07 option premiums. That is an effective sales price of the lot at $23.91.

Of course, those are the scenarios if held to expiration. CCI may likely trade out of these positions if the stock moves substantially in the short term.

Day Trading/Hedging via Leveraged Short ETFs

All golfers know that a good short game requires having all kind of approach shots in their bag. One approach to shorting the market is using the double (or triple) short ETFs. Similar to a golfer hitting a flop shot over a bunker it can be challenging and should not be used all the time, but at times it is the right play. Today seemed like a day to try the challenging leveraged short ETF play.

First and foremost: it is absolutely critical that an investor understand that these leveraged short ETFS are designed to track the inverse of their benchmark on a daily basis. There are plenty of places to get an explanation of how these products work so this post won't duplicate that info. Suffice it to say these should not be consider investments. They are designed as a daily hedges against market downdrafts......(which is also a nice way of saying......day trader heaven!).


On days when it seems like panic has set in, CCI has successfully used these vehicles in the past (and unsuccessfully used them too...lol). There were several days during the last "crisis" when it seemed clear that all the "big money" was heading to the exits, and this vehicle worked well. In general, if a small investor decides to get out of the market during a panic (for better or worse) they can sell something in their portfolio. However, the act of selling (and possible reentering the market) is filled with intangible, psychological challenges and tangible tax consequences. So actually it can make common sense to quickly buy and sell a leveraged short etf during a potential panic ..or at least that is a good rationalization....lol!


With that intro, today's bad economic news seemed to start a min-panic,and the "efficient" market dropped 2.25%. CCI doesn't usually day trade but this approach is an exception. CCI successfully bought and sold the SDS (double short S&P500) today. Using "best practices" in day trading, this was done with tight, pre-defined stops (while I was out enjoying the nice weather). Unfortunately that means the position did trigger some limits and the portfolio only made about .6% on this one lot trade. Of course in the context of the market down 2.25% that is nearly a 3% over-perform for the day! Since this was a one lot trade the absolute dollar amounts are not that material, but psychologically having a winner on a down day always feel good.

While this can be justified as hedging, it also is clearly market timing at its best/worst. CCI only enters these trades on days where it seems like mini-panic has set in, and only with tight stops on the trade. This is the fourth time this year CCI has entered this type of short position, and so far the trade has made money 3 times and broke even once. So 3-0-1 YTD. That is positive, but not statistically relevant .....yet. CCI plans to keep this shot in the bag, use it again when appropriate, and hopes to save a few dollars via this approach over the year.