It Only Took Two Years..but Booked a Profit in the Short Position in Lulu

As discussed here, back in Jan. of 2012, CCI felt unreasonably high valuations for Lululemon (lulu )made this a good candidate a portion of the overall portfolio allocated to short positions.

It took awhile (OK..it took a long time), and some mental toughness (as the say the market can be irrational for longer than you can stay patient) but this week Lulu announced some disappointing sales. The stock finally came down enough for CCI to take about a 10% profit in this short position.  Along the way, CCI actually enhanced that return by a few more percentage points with the sale of puts against this position (aka: the inverse of covered calls.)

A 10+% gain over a period where almost any "normal" long position would have been up 30+% does not sound that exciting.  Of course, that is easy to say in hindsight. Who knew two years ago that the market would go straight up. It is nice to be able to get a win from a short position that was acting as a hedge for the long bias of the overall portfolio. A win/win!

Over the past two years, LULU has somewhat grown into its valuation, with its PE down to 25ish. There might be more room for it to fall further, but there are also now many stocks with high valuations. That means there might be other stocks that represent better short opportunities.  Hence,  CCI took these profits and will be looking for other short opportunities in the near future.

Keeping Some Portfolio Insurance in Place

CCI has continually been keeping a short put spread on the S&P500 (SPY) in the portfolio as a bit of insurance for a down move.  When last discussed here CCI had rolled the put spread to July.   Through the summer, CCI has been keeping this position in play.  During the market upswing of July, September and October these puts spreads were losers. (i.e. the cost of insurance).  With the expiration of November options last week, the put spread paid out reasonable nicely last month.  The portfolio is still overall down on these trades for the year. This should be expected in a year when the market is up.   CCI continues to hold this type of position in the portfolio to try to buffer any potential downturn.   Specifically, currently the portfolio has established the Dec $138- $131 put spread as a small hedge for any potential down draft in the coming weeks. 

Establishing some Insurance in QQQ

With the stock market up and volatility still relatively low, CCI wanted to establish a little hedge/insurance against a market pull back.  Specifically CCI bought the Oct $71 puts and sold the Oct $69 puts in the Nasdaq100 ETF (QQQ).

Read this article for the general rationale and specific probabilities of this hedging trade.

Lulu covered put harvested.

As discussed here,  the covered put in Lululemon lulu expired this weekend.  CCI pocketed the about 1% premium collected to get the break even point on this trade up to $54.    Lulu still has a large multiple that will likely come crashing down with any Lulu stumble around earnings.   CCI plans to hold onto the short position through earnings announcement but may layer some sore of protective option over the position if the stock moves back down toward $55.

Making our Lulu position into a Covered Put

Back at the beginning of the year, as discussed here, CCI shorted Lululemon Antheltic (lulu ) at $53.54.
The stock pretty much went straight up to $80 from there.....ouch.
But.....last quarter's results finally were less stellar than anticipated and the stock is now trading back around $55.  The "pressure" to unload this position as it approached getting back to even has been "large".
However, its pe is still over 40.  Further, general retail sales numbers this quarter seem to be somewhat challenged.   Hence it does not seem like this stock will be bouncing back anytime before the catalyst of its next earnings call.

So instead of unloading this position now, CCI sold the July $52.50 puts for $.55.  This creates a covered put situation.  The inverse of the popular covered call strategy. Scenarios include:

• The stock continues its plunge this week down below $52.50 and the position will be closed at around a price of $52.  "Getting out" with a modest 3% position.
• The stock levels off or rises from here, in which case we will pocket the 1% premium (over 1 week) to reduce our exposure on this trade.  Then we will have to re-evaluate this position going into their earning call.

Profiting While Going No Where

First day back from vacation was spent looking at the performance of the market over the past three weeks.

Basically the market has gone no where the last three weeks
 Of course the market has gone no where for the last dozen years, so this is kind of fitting.

Before CCI, left town, I wanted to have a little less exposure to the market so I purchased one lot of  the double short S&P 500 (SDS).   I also entered a standing order to sell the position if it went up 1.5% (i.e. the market wiggled down a little).  This level was chosen based on some relatively standard chart levels.   On a big down day a few weeks ago the order was executed. 

This was not the  "normal" process I use for using the double shorts, but....it worked!

4-1-4 playing the double shorts for the first half of the year.
Percentage wise, overall up a modest 4.5%.
Given the market is up for the first half of the year, being up while trading from the short side is not too bad!

Of course, regular readers will recall last year's double short trading record was an impressive 14-0-6.

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.

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.

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 Rome...lol


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.

Yet Another Tie

Going into the holiday weekend CCI felt there was some risk of the market  melting down as investors might take some risk off the table before the long weekend.  Hence Friday morning CCI bought one lot of the double short SP500 etf (SDS) and........got stopped out that afternoon for a gain of.......$1.87!!!!

Yes, yet another tie.
  A totally unexciting 1-1-4 when short-term hedging via  double short index etfs this year.

Taking Off Some Insurance - Part 2

As discussed in  yesterday's post CCI is taking profits on portfolio insurance positions.

Today CCI rolled the option position in the S&P 500 (SPY) from May to June. Specifically;

•  closed the May $136-$130 put spread.  Paid $1.1/contract. Sold for $2.65/contract!
•  used the gains of this trade to re-purchase insurance via the June $133- $128 put spread for $1.61/contract. 

Insurance is starting to get more expensive to buy as implied volatility increases (i.e vix over 22 ).
If the market continues its current downward path, this might be the last time CCI buys insurance in the option market for awhile.

Taking Off Some of the Insusrance, for a profit!

As discussed here,   in late April,  CCI established two, May, index,  short put spreads to provide a little insurance for a portfolio for the chance/probability that a correction in them market was likely to come at some point this year.

Yesterday, CCI  closed the May $67 -$65 QQQ (Nadaq-100) put spread.  This spread was purchased for $.82/contract and sold for $1.80/contract.  That's a nice, "little",  20% gain to provide a small buffer against the recent market slide.

CCI still owns the SPY May $136-$130 put spread,  but anticipates rolling that out to June in the very near future.

You can put in on the board.....yes!

Yesterday CCI felt the market had showed a lot of apathy on the news of European election results, and risk of a pullback remains. Monday afternoon CCI bought the double sort S&P500 etf (SDS). Sold it on today's market pull back for a 1.35% gain. 

The first win of the year trying to put some modest, short-term hedges in place against the portfolio via double short etfs. That brings this years record to a boring 1-1-3.  Considering the market is up this year, it could be expected that this type of strategy would be down for the year. Hence, it is nice to report that these 5 trades actually show a small, cumulative positive gain for the year. 

Obviously not much opportunity to use this strategy so far this year. That is  mostly due to low volatility in the markets, but perhaps that will change as the year progresses.

More hedges

The market continues to go sideways making hedging challenging.   However, it seems like at some time this year there should be a pull back in the market.  It is very, very rare for a whole year to go by without a good pull-back.  CCI plans to continue to keep some hedges in place by being short options.

Specifically this week
- On Monday , CCI sold the May $136-$130 put spread on SPY on Monday in case "sell in May and go away" gains traction.
- Today,  on the large move in the "Nasd-apple" today, CCI sold the $67-$65 put spread on QQQ thinking the good Apple news will fade into the background in the short-term.

More useless hedging via double shorts

Last week was the worst week of the year for the US equity markets.   CCI thought there was a chance the market might continue this sell off more substantially going into or over the weekend. 

So, ......Once again,  we purchased the double short etf for the S&P500 (SDS) on Thursday to provide a small hedge to the portfolio.

And......Once again, the market......did nothing.

Closed the position for a negligible gain today, essentially another tie.

 0-1-3 trying to use the double shorts as short-term hedges this year.

I'm not sure if /when market volatility will return to make holding these leveraged short etfs profitable again.  However, we will keep these in our tool kit, and continue to look for opportunities to use them effectively.

Double Shorts Continue to Go No Where

CCI thought that the market might erode into the three day weekend.  Hence we purchased the double short etf for the S&P500 (SDS) at the market close on Wednesday to provide a small hedge to the portfolio.

Today this double short.....went no where....again.
Closed the position for a negligible gain, essentially another tie.

 0-1-3 trying to use the double shorts as short-term hedges this year.

Keep "putting" on the insurance

Our hedges keep losing....and we are "happy" about it..because overall the market continues to rise.

Continuing with our practice of having a market hedge in place CCI rolled the March $135 - $129 put spread out and up to the April $137-$130 put spread late Wednesday.  Net cost after commissions of $1.10/contract. That is the max loss. Break even at $135.90.  Max gain of $5.90/contract.   

"Hopefully" we will lose that again as the market continues higher.  Seems like  there "has" to be a pull back at some point and this relatively cheap, leveraged play provides some insurance against such an event. 

"Linsanity" could make shorting MSG a slam dunk

With the market hitting new highs, CCI continues to contrarily look for  positions to provide a hedge to the overall rising portfolio.

Read this article for rational why Madison Square Garden ( MSG )  stock might be overvalued, largely based on Linsanity.

Hoping the Heat Wave will continue the Decker melt down.

Decker Outdoors (DECK) engages in the design, manufacture, and marketing of footwear and accessories for outdoor activities and casual lifestyle use for men, women, and children.  Mostly known for the UGG brand name.   This previously high-flying stock has plummeted this year.  The most common rationale for the melt down in the stock has been a warm winter meaning lower demand for their well know boots.  Several analysts have downgraded the stock recently.

CCI considered shorting the stock.  However, decided to make a short-term more speculative play. Specifically with the stock trading around $69.20 today,  sold the Mar. $70 call and bought the Mar $72.50 call.  Received a credit of $.57/contract after commissions.  That is the most the trade can make if the stock continues to trade below $70 for four more days.  Pure theory says there is about a 60% chance of that happening, but I'm hoping this week's warm weather is not going to trigger a lot of demand for someone to buy this stock this week.   The trade starts to lose money if the stock trades over $70.57. This is a little more speculative play than CCI normally makes.  I did not commit a lot of capital to the trade, but it does provide a little more short exposure to the portfolio for the short term.

Double Yawn

In breaking news today.....Greece defaulted.  
Yawn.

CCI thought either this event triggering credit default swaps and/or momentum money going to the sideline for the weekend might make today a good day to hedge the portfolio by adding a little of a  double short etf to the portfolio.

Hence,  this morning CCI bought the double short for the NASDAQ 100 (QID)
And......... yawn.  

I just went back and checked. From the point of purchase this morning until the end of the day the etf traded between down $.12 and up $.06.   That "huge" move is in a double leveraged etf.  
That is certainly a....double yawn

Near the end of the day, CCI got stopped out at break even. 
0-1-2 this year trading the double shorts.
Yawn

Not sure why all the market moves this year seem to be pre or post market, but this does provide a feeling of  complacency.  Who knows, but that is sometimes a per-courser to a market pullback.