Wednesday, June 13, 2012

Rolling Insurance

CCI has held a put spread on the market through out the year as a hedge against the specific holdings of the overall portfolio  The last round of this trade was discussed here .

Today I rolled the June $133-$128 put spread to the July $132 - $127 put spread.   The June put spread made a modest gain of $165 per contract, but in essence the insurance was just rolled out a month.

Monday, June 11, 2012

Doubel Shorting the "NasDapple"

With the market seemingly somewhat unsatisfied by the bailout of Spanish banks and jittery, CCI was looking for a way to get a little hedge in the portfolio today.  I decided to buy the double short NASDAQ ETF (QLD) today. I chose that trading vehicle because Apple was holding its world wide development conference and it seemed like the recent increase in Apple could have been an example of  the classic "buy on the rumor, sell on the news".  Apple is a big, big part of the NASDAQ. 

For whatever reason, the market did fade badly at the end of the day.   CCI skimmed a little over 1%  from  this day trade.....(ahhh.... what I meant to say is "profited from this sophisticated, leveraged, hedge".) 

3-1-4 on the double shorts this year.

Sunday, June 3, 2012

Every blogger "needs" to have a position on in FB and APPL

These days it seems like everyone in the financial press has some opinion about Facebook (FB) and Apple(AAPL).   Hence CCI felt "the pressure" to join the club and have a trade for these two stocks.

CCI's view for these two stocks is that there will likely be a very public tug of war between people who are  bullish and bearish in these stocks over the summer.  Everyone talking their book. That mean perhaps these stocks will trade sideways this summer.  If this is true the best trading strategy for these two stock is to try to generate some income from option premiums.  Further, this strategy will likely drive results that are somewhat uncorrelated to stock market returns which is another key goal of many CCI positions.

Specifically, CCI established two July iron condors this week. (Selling both a put spread and call spread)
- Apple $495-$500, $610-$615 for a $2/contract credit
- Facebook $25-$27, $33-$35 for a $1/contract credit (more details on this trade are documented in this Seeking Alpha article entitled Using Options to Profit From the Facebook Tug of War)

Each trade has a defined risk/reward that makes it somewhat different that traditional investments.   I'm reluctant to describe it in "gambling" terms...but
- The Facebook trade:  Risks $1 to make $1 trade (i.e. 50/50 odds)  that the stock trades between $26 an $34 (a 26% range) by July expiration.
- The Apple trade: Risks $3 to make $2 trade (i.e. 40/60 odds) that the stock trades between $498 and $612 (a 21% range) by July expiration.

Of course, neither trade needs to be held until the expiration date.  If at some point in time between now and the expiration date the stock gyrates to a price near the midpoint of the iron condor range, it will be "in the money" and  gains can be harvested at that time.  Hence these trade actually have much better odds of being profitable than the static odds of maximum gain at expiration.

 In full disclosure, these are not huge positions in CCI's overall portfolio, but are more intended as an  illustration of  an alternative way to try to generate income in today's go nowhere marketplace.

Plus now CCI has officially joined the crazy world of the financial press and can talk "my book" on these stocks like every other blogger and tv interview

Friday, June 1, 2012

Options on Double Shorts....(aka: A win is a win)

CCI was looking to get a short position in play before the unemployment report this morning. Late Thursday, I considered my usual strategy of buying the double short S&P500 (SDS) to provide some portfolio hedge. However, I chose a slightly different strategy.

With SDS trading around $17 late Thursday, I sold one lot of June 1 weekly $17 puts for $.26.  A weekly option made this essentially a 1 day trade. That is about as long as you can hold these double short etfs anyway, so it seems like this approach enforces the discipline of a short holding period for these type pf positions. Also implied volatility was high so the option premium seemed rich.  Yes, I know this is a derivative of a leverage derivative, but....hey....when in

Anyway...This trade capped the potential gain for trade at 1.8%, in exchange for having a 1.5% cushion on the downside before the trade would lose money.  My logic was
  •  if the unemployment numbers would be good, that might not be enough to drive the market up too much and the 1.5% cushion might provide a way to get out of the trade with a tie. 
  • if the unemployment report was bad , the market would be down and the trade would return 1.8%
The unemployment report was worse than expected and the market went down more than usual.  Just having bought SDS (as I usually do in this situation) would have returned over 5% today.  Instead this trade "only" made 1.8% in 1 day.   A small consolation prize on an overall bad day.  Also, in hindsight using this more complex strategy was not the right choice. 

BUT....A win is a win.

2-1-4 hedging via double shorts this year.