LOL!'s Market Timing Newsletter

[NW-Bound]

Just logged into my wife's freshly minted IRA to see that the rollover check has been deposited. Now, I have money to go stock shopping. It's 30% of total portfolio.

What do I buy, and when do I buy it? Hey, that sounds familiar to a phrase I heard before.

 

[LOL!]

Well, when you find something decent to buy please let us know.

I have a ton of cash from selling last week and have not found anything encouraging to make me want to spend that money just yet. Normally, it would go into bond funds pretty quickly, but I just cannot force myself to buy even bond ETFs after their recent run-up.

 

[NW-Bound]

It turns out that her account shows a balance but the fund has not cleared, so I cannot place any order.

I like to stay quite diversified. So, I will reload the account by playing it by ear and buy first the sector on sale du jour. Some sectors have been beaten down so bad that I may not bother waiting for favorable short-term fluctuations.

 

[LOL!]

Well, when you find something decent to buy please let us know.

I have a ton of cash from selling last week and have not found anything encouraging to make me want to spend that money just yet. Normally, it would go into bond funds pretty quickly, but I just cannot force myself to buy even bond ETFs after their recent run-up.

Bond funds have dropped more than 0.5% from their highs of last week, so I am using my cash to buy AGG (total bond index). That usually means they will go down further.

Since the quoted post, markets have gone up a few percent and made my portfolio overweighted in equities again. The bad news is that I don't want to sell anything and I don't want to buy anything and I don't want to sit on my hands. I guess I'll just go fishing.

 

[LOL!]

OK, I decided to make a pure speculative market timing move to improve my portfolio a little bit. I think that small-cap foreign will retrace some of its gains in the past few days, so I am going to sell some shares and buy them back in a short time from now in a different account. The portfolio improvement is changing from a traditional IRA to a Roth IRA, so one can argue whether that is an improvement or not.

I have submitted a limit order to sell VSS shares. Volume is non-existent right now, so this trade may not execute.

Update: Someone else's trades executed at my limit price, but not mine, so no executions today. Portfolio will be at all-time high (even higher than May 21, 2015) today.

 

[NW-Bound]

Check again today, and my wife's rollover check still has not cleared. What the heck is that? I recall another poster having a similar long delay with her rollover.

It's not that I am anxious to buy something. And if I buy something, it will be spread out anyway.

With the market surge, I am glad that I compensated for the money out of the market by using some cash on hand to goose the portfolio with high-beta stocks. It works to reduce the pain of sitting on cash the last few trading days.

For example, on Fri 7/08/2015, the S&P went up 1.5%, and my portfolio went up 1.04%. On yesterday, Monday 7/11/2015, the S&P went up 0.03%, I was up 0.37%. It's OK for someone who's been maintaining an AA of 60% stock.

Right now, as of this writing, the S&P is up 0.72%, my stocks are up 1.37%. The entire portfolio is up only 0.62% currently, due to all that cash and also MFs that will not report for a few more hours.

I am still missing out a bit compared to having my wife's 401k invested in its usual AA. However, goosing the rest to compensate does help. Of course, had the market tanked, I would be kicking myself for not letting all that cash be in cash.

Greed. Fear. Then Greed. Then Fear. It's the basic thing that any investor must recognize.

 

[LOL!]

I think that small-cap foreign will retrace some of its gains in the past few days, so I am going to sell some shares and buy them back in a short time from now in a different account. [...]

So I did not sell any VSS yet, but I see that I can try to accomplish the same idea another way: Buy first, then sell.

Once again, I want to "move" VSS from a traditional IRA to a Roth IRA that has some cash in it. I will use the cash in the Roth IRA to buy VSS, but the timing is what I am working on.

I can sell VSS in the tIRA and after VSS drops, then I can buy VSS in the Roth.
--or--
I can buy VSS in th Roth and after VSS goes up, then I call sell VSS in the tIRA.

The risk management is slightly different in the two scenarios. In the second one, I would be doubled-up on VSS while waiting. In the first one I would out of VSS while waiting.

Or I could just make the sell and buy nearly simultaneously and not try to tweak another extra out of deal.

Today looks to be hinting that it is going to be decent up day.

 

[LOL!]

I see now that VSS just does not have enough trading going on to make it easy to get executions with favorable spreads, so I ditched the idea of selling/buying VSS.

So instead, I see now that it has been 31 days since the previous purchase of VEU in another account, so I sold VEU and will buy VEU in the Roth IRA instead. These two trades fulfill the same purpose that I wanted to achieve with VSS, but the spread of VEU is 1 cent and trading is active.

Limit orders submitted to sell higher and buy lower. I'll report back later to see if trades executed.

Update: Orders did execute, so sold VEU a few cents higher than I repurchased VEU.

 

[LOL!]

Well, the last trades didn't quite work out so well. I should have waited at least a day after selling in order to re-buy in the other account.

Also, bonds continue their march downwards, so I should have waited to buy them as well.

 

[Sunset]

I tried again to sell off my BRK options, since they are deep in the money ones, there is not a lot of action and it's hard to figure out the price they should trade at.

Some sites have no update and show old prices.

So I tried one at $67.50 and the other at $66
These are Jan 19, 2018 options at $85
My rationale on price was (145.75 stock price − 85 strike price) = 60.75 + (time value) = ??
So I valued time of 1.4 years at $6.75 and $5.25 , the time value of 2018 option at $145 is $14.xx

Not sure if its the thin trading, or just the time value that I have wrong. Worse case is I keep them and exercise them in 2018.

Thoughts ??

 

[NW-Bound]

You made me look. The bid on your 85 Jan 18 BRK.B call option is $61.50, and the ask is $66 (is that your order?).

Compared to the current price of $146, it looks like buyers do not value the option that much because $85+$61.50 = $146.50 being only 50 cents above the present value. At the same time, they are willing to pay $13.85 for the option to buy it at $145.

It looks like speculators do not like "deep in the money" options, and prefer the ones with strike prices closer to the current price. I think it provides them with more leverage. If the share price varies up/down by $15 and in the direction that they bet, they will double their money. On the other hand, "deep in the money" options do not give them such percentage gains.

It still does not seem right to me. However, if there's a flaw in the option prices across different strike prices, I am sure someone would find a way to arbitrage and make money out of it.

Someone more trained in trading can explain this, but I am scratching my head too.

 

[Sunset]

Yes, that $66 does seem to be my order, in fact I put in the higher one second as I wondered if it simply showed the last order or the lowest order. It stayed at the $66 and was a touch higher than that prior to my order.

Right now, it seems to me that a person can buy these deep in the money options instead of the actual stock, risking less per stock, holding more for same dollar investment ie leverage.

 

[NW-Bound]

So, 6 of my options expired last Friday 7/15. They included 5 call contracts that got in the money and got exercised. The rest are 3 put contracts that expired worthless.

The call contracts were sold in March, April, and June. If I did not sell the contracts and just outright sold the stocks on last Friday, I would have made more money. But of course back then, it was not easy to think of the market being at the current level.

Of the put options, I would also have made more money if I just bought the stocks 5 weeks ago. Of course, it was also not easy to see the market rising like this past month. But not being greedy, I looked at the gain from the put options as a 7.4% gain on the cash locked up for 5 weeks to secure the options. It's way better than CDs (of course at a much higher risk).

 

[LOL!]

Somehow equities have gone up while I was out fishing, so I have to continue selling. My equity allocation needs to be reduced by 3% to 4%.

Sold some VSS (small-cap foreign) when it was up this morning. Other international ETFs are trading down today.

The small-cap value fund I bought on the Monday after Brexit is up 10%, so I intend to sell that in the next day or so.

 

[Sunset]

Everyone recalls the CAT stock that I sold a call option on, which at the time was a good thing, but in the past 2 months now looks underpriced.

I had more CATs so I sold them today at $81.33 , as the run up in CAT has been fantastic as of late.
Since they are spending all their profit on the dividend, have a lot of debt, and sales are down, it just seems priced pretty high right now.

If I'm really lucky the price will fall $3 in the next month, otherwise my option will be called.

 

[LOL!]

I looked at my asset allocation and decided I needed to unload foreign equities instead of US equities, so today I submitted an order to exchange all the VTIAX (total international index) I bought after Brexit into the short-term corporate bond index fund VSCSX.

The VTIAX purchase was noted in this post: http://www.early-retirement.org/forums/f44/lol-s-market-timing-newsletter-57042-62.html#post1748710

I chose the short-term corporate bond fund mostly because I think the total US bond index fund has done too stellar a job this year with a 5.7% total return so far.

 

[LOL!]

An update a few days after selling: As is typical, the things I sold (VSS, VTIAX) are now trading higher than when I sold them.

But no matter, my asset allocation is sitting now right where I want it to be. Also, portfolio performance has gained on its benchmark and is even more ahead than before. So its time to sit back and go to the beach for a while.

 

[LOL!]

And I was totally wrong about the FOMC raising of rates. Intermediate-term bond funds were up about 2% in June. With the market recovery here in the past few days, is a rate hike back on the table for July?

And the answer is: No, of course not.

 

[NW-Bound]

So, I owned Gilead for a few months now, after my put option on it became in-the-money, as described earlier. It was bouncing around, then crashed 8% a day earlier in the week.

It happened after they released earnings. Their wonder drug that cures Hepatitis C works so well, it does not help them like some other companies' drugs for cancer that are more costly but only prolong life. Here, for something like $50K, a much reduced amount from earlier, a terminal patient gets a new lease on life without going through much more expensive and painful liver transplant.

Well, life is never fair. I don't know whether I should keep the stock at this point. But it's good thing I only have a bit of it (<1% of portfolio).

 

[Fermion]

Keep it (Gilead). Consider they have a PE of around 6.9 while the greater market is more like 18 to 20. Even if they lose every dollar of HCV revenue they still make $6 a share on their HIV drugs where they are the undisputed leader. At $79 a share that is a PE of around 13, still lower than the rest of the market. They also pay $2 a year in dividends and make $12 a year in profit. A easy payout ratio for years to come.

I bought 900 shares today after selling 1000 before earnings at $88. It ALWAYS drops after earnings, even if they beat. I have 2000 shares right now. I will buy some more if we get an overall market slump.

 

[NW-Bound]

I dunno. Analysts are still busy revising the earning forecast downward. I will wait for all that negativity to die down before I buy more.

Or I can lowball with another put option.

 

[COcheesehead]

An update a few days after selling: As is typical, the things I sold (VSS, VTIAX) are now trading higher than when I sold them.

But no matter, my asset allocation is sitting now right where I want it to be. Also, portfolio performance has gained on its benchmark and is even more ahead than before. So its time to sit back and go to the beach for a while.

The world is starting to have negative rates. US bonds look awesome in relation. I bet before the end of the year our rates move closer to what is happening in the rest of the world. Treasuries rise, rates drop.

 

[harley]

Keep it (Gilead). Consider they have a PE of around 6.9 while the greater market is more like 18 to 20. Even if they lose every dollar of HCV revenue they still make $6 a share on their HIV drugs where they are the undisputed leader. At $79 a share that is a PE of around 13, still lower than the rest of the market. They also pay $2 a year in dividends and make $12 a year in profit. A easy payout ratio for years to come.

I bought 900 shares today after selling 1000 before earnings at $88. It ALWAYS drops after earnings, even if they beat. I have 2000 shares right now. I will buy some more if we get an overall market slump.

I've still got a fair number of shares at a just under $100. I've been thinking of loading up to drop my basis, then selling if I ever get into positive territory again. I haven't been paying much attention to it, just keeping an eye on it in case of a big change. I'm not ready yet to buy more, but it's getting close.

 

[NW-Bound]

As described earlier, my wife's 401k had to be rolled out to an IRA in cash, so that boosted up my cash AA quite a bit.

I have not found much to buy, so much of her IRA is still in cash. Earlier this week, I sold off some equities, both US and international, from other accounts to raise the cash level further. I am now about half stock and half cash, with less than 3% in bonds.

Whichever way the market moves at this point is fine with me. I will sit around to see what transpires. May sell some covered calls, or cash-secured puts just for fun (and for a bit of profits).

 

[Sunset]

You made me look. The bid on your 85 Jan 18 BRK.B call option is $61.50, and the ask is $66 (is that your order?).

Compared to the current price of $146, it looks like buyers do not value the option that much because $85+$61.50 = $146.50 being only 50 cents above the present value. At the same time, they are willing to pay $13.85 for the option to buy it at $145.

It looks like speculators do not like "deep in the money" options, and prefer the ones with strike prices closer to the current price. I think it provides them with more leverage. If the share price varies up/down by $15 and in the direction that they bet, they will double their money. On the other hand, "deep in the money" options do not give them such percentage gains.

It still does not seem right to me. However, if there's a flaw in the option prices across different strike prices, I am sure someone would find a way to arbitrage and make money out of it.

Someone more trained in trading can explain this, but I am scratching my head too.

I finally sold my BRK.B deep in the money options.
I was refusing to sell them without any time factor value.

So I sold them for $66.80 (time value was $3.12) for a profit of about $2,940 or 28% return in 7 months