LOL!'s Market Timing Newsletter

[LOL!]

It looks like several call options on my stocks will get assigned tomorrow Feb 15. It will reduce my stock AA from 77% to 67%.

For our readers, does that not mean you get paid for shares called away from you at a lower price than they are currently trading at now? That is, you might have made some money, but not as much as somebody who had not written the call options.

 

[NW-Bound]

For our readers, does that not mean you get paid for shares called away from you at a lower price than they are currently trading at now? That is, you might have made some money, but not as much as somebody who had not written the call options.

That's correct.

But at the time that I sold the options, the strike prices looked awfully high. I bought some at the low of December, and already make good money on the shares at the strike prices, plus the option premium. The volatile sectors/stocks always overshoot the total market, and this is a way to force myself to sell high.

And I need to lower my stock AA to have room to buy some when they fall again. And I suspect that they will. It's all about market timing.

PS. By the way, at last option expiry, some chap holding a contract bought the shares from me at about $1 above the Friday closing price. I was quite OK with that, because the option premium I got was more than that $1.

On Monday, even before the trade was settled, the shares dropped $2. So, I bought back the shares immediately for less than what I just sold. I made money on the shares, and the premium too. Nice, but of course not all trades work out like that.

 

[NW-Bound]

OK. The market surged some more today, and as anticipated for a while many of my call options are in-the-money, forcing me to sell quite a few shares below the current market price. I did a bit of accounting for myself to see what all this active option writing gets me. Below are some numbers.

The shares that will be assigned amount to 8.1% of portfolio. It will drive my stock AA from 76.8% down to 68.7%.

As I have to sell them below market price, the question asked is how much did I leave on the table? What if I did no option trading, and just hold? This takes some more calculations.

At this point, after all the option assignments, my performance YTD is 11.65%.

If I did no option trading, I would have all the shares, but would miss out on the option premium, not just on the shares that will be assigned but also counting all the options that expired worthless YTD and I kept the cash. My gain YTD would have been another 0.24% higher, or 11.89%.

So, my "opportunity loss" in this short-term bull market is not so bad. And it has forced me to reduce my stock AA which at its future value of 68.7% is not really that low.

What will be of interest for me is that in the days ahead, will I miss these hot stocks that I just sold? Will the market drop, so that I will be able to buy them back cheaper, or will they soar out-of-sight?

Note that I still have some of these hot stocks left. I never do a "sell-all", but these are the hot stocks that gave me the almost 12% return YTD. I love them, but do not want to be too greedy.

 

[revhappy]

OK. The market surged some more today, and as anticipated for a while many of my call options are in-the-money, forcing me to sell quite a few shares below the current market price. I did a bit of accounting for myself to see what all this active option writing gets me. Below are some numbers.

The shares that will be assigned amount to 8.1% of portfolio. It will drive my stock AA from 76.8% down to 68.7%.

As I have to sell them below market price, the question asked is how much did I leave on the table? What if I did no option trading, and just hold? This takes some more calculations.

At this point, after all the option assignments, my performance YTD is 11.65%.

If I did no option trading, I would have all the shares, but would miss out on the option premium, not just on the shares that will be assigned but also counting all the options that expired worthless YTD and I kept the cash. My gain YTD would have been another 0.24% higher, or 11.89%.

So, my "opportunity loss" in this short-term bull market is not so bad. And it has forced me to reduce my stock AA which at its future 68.7% is not really that low.

What will be of interest for me is that in the days ahead, will I miss these hot stocks that I just sold? Will the market drop for me to be able to buy them back cheaper, or will they soar out-of-sight?

Note that I still have some of these hot stocks left. I never do a "sell-all", but these are the hot stocks that gave me the almost 12% return YTD. I love them, but do not want to be too greedy.

Nice! Keep us updated if and when you decide to buy again. I sold another chunk of my stocks and now I am 33% in equities Vs 50% just a week ago.

The December plunge has affected my psyche I guess, I can't believe I am getting back the prices I invested at, before the plunge.

 

[NW-Bound]

Instead of buying, I think I will sell below-the-money put options instead. My stock AA is still high, and in the days ahead companies are not likely to enjoy the earning increases they have had.

Even for put options, I should learn to be patient to wait for a market decline. Buying shares or selling cash-covered put options too early, and you run out of ammo when you could be shooting indiscriminately with a shotgun and still win. We just saw that again last December.

 

[revhappy]

Instead of buying, I think I will sell below-the-money put options instead. My stock AA is still high, and in the days ahead companies are not likely to enjoy the earning increases they have had.

Even for put options, I should learn to be patient to wait for a market decline. Buying shares or selling cash-covered put options too early, and you run out of ammo when you could be shooting indiscriminately with a shotgun and still win. We just saw that again last December.

I agree, in calm markets, when volatility is very low, the premium in PUT options too are very low. There is a Greek term for that, Vega or something. When markets are declining the PUT premiums shoot up exponentially.

 

[LOL!]

[...]
At this point, after all the option assignments, my performance YTD is 11.65%.

If I did no option trading, I would have all the shares, but would miss out on the option premium, not just on the shares that will be assigned but also counting all the options that expired worthless YTD and I kept the cash. My gain YTD would have been another 0.24% higher, or 11.89%.

Thanks for the calculations. Can I conclude then that with options trading there ain't no such thing as a free lunch?

 

[revhappy]

Thanks for the calculations. Can I conclude then that with options trading there ain't no such thing as a free lunch?

No, what is his alternative, to just sell the stocks and he would have received no premium. So selling CALL options is better than just selling the stocks.

 

[NW-Bound]

Thanks for the calculations. Can I conclude then that with options trading there ain't no such thing as a free lunch?

No free lunch.

But it does force me to sell high, so that I have money to buy low when it's time.

And if the market just treads water or goes down, the premium is enough for me to live on.

 

[NW-Bound]

No, what is his alternative, to just sell the stocks and he would have received no premium. So selling CALL options is better than just selling the stocks.

I find it difficult to sell stocks when they are going up without using options.

Let's say a stock is going like crazy, from $100 to $120 in a matter of a week. If I don't think it is worth that much, do I sell it at $120, or sell a call option at $125 a month from now, pocketing an additional $2 right now? That is effectively selling it at $127.

I choose the 2nd. And if the stock goes up to $130 in a month and I have to sell at $125, I remind myself that I could have sold it at $120 earlier, and had even less gain.

 

[Sunset]

....
Note that I still have some of these hot stocks left. I never do a "sell-all", but these are the hot stocks that gave me the almost 12% return YTD. I love them, but do not want to be too greedy.

I must have missed the name(s) of these hot stocks ?

 

[NW-Bound]

I have often said that I have been overweight the semiconductor sector, but did not name any stock specifically. My holdings include AMAT, TXN, MU, KLAC, and the ETFs SMH and XSD, and a few other small-cap names. I used to have a few more names, but "lost" them through option assignment in 2018.

They contributed to my 20% overall gain in 2017, but petered out in 2018 and contributed to the total portfolio loss of more than 10% last year.

The sector stock price has recovered somewhat, but the earning increase will not be as stellar as in 2017, if not stalled.

PS. At this point, I still have more in this sector than its percentage in the S&P.

 

[LOL!]

At this point, after all the option assignments, my performance YTD is 11.65%.
[...]
Note that I still have some of these hot stocks left. I never do a "sell-all", but these are the hot stocks that gave me the almost 12% return YTD. I love them, but do not want to be too greedy.

For comparison, the YTD returns of a couple of simple index funds:
10.68% VTSAX Vanguard Total US Stock Market Index fund
14.14% VSIAX Vanguard Small-cap value index fund

and a couple simple ETFs
17.25% IJS iShares S&P small-cap 600 value
17.19% SPSM SPDR portfolio small-cap ETF

So "hot stocks" means "average stocks" in reality.

 

[NW-Bound]

I thought an almost 12% YTD return on a 70-75% stock AA was pretty good. But it turns out I could have the same by putting it all on small-cap ETFs.

The above semi names are no small caps however. They are all part of the S&P 500, and have been the "hotter" ones in the large-cap world since the market bottom in late December.


PS. Some of the large caps that rebounded strongly YTD include Facebook, Netflix, and even Boeing. I do not own these shares, however.

PPS. If I got a higher-than-market return from small-cap ETFs, I think I would also trim down my AA there, and book some of the gains.

 

[LOL!]

I've decided to increase the average duration of our bond funds going forward. It may be a little late to do that, but better late than never.

To that end, I am selling BIL (1-3 month Treasury ETF) and buying a Total US Bond index ETF and perhaps a short-term corporate bond index ETF. These latter two funds are up so far YTD by more than 1% over BIL, so I've missed out on that extra 1% gain with the BIL money. I already own lots of these non-BIL ETFs, so I am just adding to them. 251

 

[NW-Bound]

Now that many call options have been assigned and I am sitting on more cash, I feel itchy to do something with that cash.

Against my earlier promise to wait for a market pull-back, I just sold some put options to buy back some of my beloved semiconductor stocks at the price I just sold them.

Pocketed a bit more than $1K with the premium, but have to commit a high 5-figure cash amount to cover these options. If I have to buy the shares back, it's OK. If the shares stay where they are, the return on the committed cash is 1.5% for 23 days, or 30%/yr compounded. That's OK too.

Still have a lot of cash to play this game, but I never shoot all my ammo at once.

 

[NW-Bound]

Yesterday, the market showed signs of weakening, but my beloved semi stocks were holding strong. Today, they are going down along with the market.

So, I sold a few hundred shares. Then, sold put options to buy them back at about 3% below current prices, expiry March 15.

If the market surges, I will miss out and only have the put premium for consolation (they are worth about 1.5% of the stock values). This is a "risk" that I am willing to take, considering that these stocks have outrun the broad market recently. And this "risk" is not of one that will bankrupt me.

 

[LOL!]

So you are saying that if the things you sold today go up more than 1.5% in the next few weeks, it would have been better to hold them?


In other news, ....

Yesterday, I started my changes to longer duration bonds. And the bond ETFs that I wanted to buy dropped this morning. That's the bad news. The good news is that most of my limit orders from yesterday did not execute, so I got a second chance today to buy at a slightly lower price. And I used that chance and now have finished my desired changes.

Of course, the portfolio is lower today than it was yesterday, so there is no joy in that.

 

[NW-Bound]

So you are saying that if the things you sold today go up more than 1.5% in the next few weeks, it would have been better to hold them?

Exactly right.

However, I think the chance of that is smaller than that of them going down, hence the trades I made.

 

[NW-Bound]

Wow, the market surged today, and the shares I sold yesterday collectively go up about that 1.5% already. Hah!

If the market keeps on climbing up from here, I will be leaving too much money on the table. Well, I will have to wait to see what happens next week.

On the other hand, I still have a stock AA of 68.9% as of this writing. And even after selling so much of the "hot stocks" via option assignment and deliberate selling, my portfolio still has such a high beta that my stocks together go up 1.28% today, vs. 0.64% for the S&P, 0.70% for the Dow, and 0.91% for the NASDAQ. Imagine how much more the increase would be today, if I still had the few $100K of the hot stocks I just sold.

When I feel greed coming on strong within myself, I have to remind myself that when the market drops my portfolio goes down more holding these shares.

Besides semiconductor stocks, some other names that I own also do well today, such as industrial mining companies, and biotechs.

PS. Berkshire shares go down due to the holding of Kraft-Heinz. KHC dropped -27.5% today. Yikes! I used to have shares of Kraft, but sold after the merger, back in 2014. Lucky me.

But I own Berkshire. So, just sold March 15 call option at 205 to get $3.3/share to alleviate the pain. Closing price today is 202.

 

[ckelly78z]

My T Rowe price large cap growth (including today's uptick) is just shy of 15% YTD. I can't, and won't complain about that. I ended up about 10% total last year after the late year fiasco, and 20% in 2017.....Not planning on selling anytime soon, but I do keep an eye out for trouble, I would rather not repeat last years spiral.

 

[revhappy]

So finally we close lower than where we opened on the session and futures are negative.

 

[pb4uski]

I've decided to increase the average duration of our bond funds going forward. It may be a little late to do that, but better late than never.

To that end, I am selling BIL (1-3 month Treasury ETF) and buying a Total US Bond index ETF and perhaps a short-term corporate bond index ETF. These latter two funds are up so far YTD by more than 1% over BIL, so I've missed out on that extra 1% gain with the BIL money. I already own lots of these non-BIL ETFs, so I am just adding to them. 251

You made me look. Back in early June 2018 I sold all my 2020 and 2022 target maturity bond funds (BSCK, BSCJ, IBDC) and parked the proceeds in VMMXX. Through Jan 2019, the value of VMMXX is 99.5% of what the target maturity bond funds would be had I kept them... in both cases with dividends reinvested. Through Dec 2018 it was 99.9%.

 

[NW-Bound]

... Berkshire shares go down due to the holding of Kraft-Heinz. KHC dropped -27.5% today. Yikes! I used to have shares of Kraft, but sold after the merger, back in 2014. Lucky me.

But I own Berkshire. So, just sold March 15 call option at 205 to get $3.3/share to alleviate the pain. Closing price today is 202.

The market moves up today, reversing the trend a couple of days ago.

I closed out some call options, and kept about 1/2 of the premium I got for selling them. A few other contracts on other stocks along with the BRK option above got me more than $500, after opening the trades just a few days ago.

These little trades made on the margins of the long-term holdings are fun to make, and whatever they bring is a plus.

 

[NW-Bound]

Hey, where are all the market timers and swing traders of the forum? Y'all go indexing and doing buy-and-hold or what?

With the market dropping several days in a row, I have more covered call options becoming worthless. I decided to buy back to close out a few April options, and paid only 1/4 of what I got as the premium. At this point, I have made $19,343 YTD on selling covered call and put options.

Next Friday, several contracts will expire and I will realize another $4,900 on option trading. I did not bother to buy back these March 15 options because they look impossible to be worth anything, while the April ones may just turn around. You never know with this crazy market.

I am about even with my goal of making a certain amount of money off the option trading. But am I happy with the result? Yes, and no. It is something that I can live off, but when the market stagnates or drops, the money lost on the stocks is a lot more than what I gain with options.

But reducing loss is still good. Oui? I will just carry on with this trading.