LOL!'s Market Timing Newsletter

[NW-Bound]

The market went crazy today, but in the reverse direction of yesterday. Most stocks are up today, and only a few of mines are down.

Fine with me. I have sold enough out-of-the-money covered calls today to net $1188 in premium. I may sell more later today.

Thought I would get more out of this option call writing this year compared to last, but year-to-date, I have done just about at the same pace as last year.

 

[NW-Bound]

I've never been a really successful stock picker. Usually after a stock runs up, then I see the value I missed out on. Besides the preferred stocks I have, which are fun to research and play, I just have a few issues like GM, FCX, NUE, OFC, and EPD that I hold or sell options on (not EPD for options though). I also have a load of shares SCHB with Schwab which is practically equal to VTI that I add or subtract to in order to stay 30% in equities. The rest is cash, Muni bond fund, CDs, etc.

I'm not an aggressive investor, as I don't have the guts for it. I hate to lose and that's why I have never been a gambler (grew up poor, had nothing until I got out on my own).

I am admittedly more aggressive, but I don't think of myself as a gambler. I do not buy lottery tickets, do not go to LV to gamble, and in fact never play any card game.

There's risk in the market, but I try to do things to improve my chances by being somewhat contrarian with short-term trades. For long-term holdings, I buy stocks with good fundamentals, and look for an economic backdrop that helps them. I have never bought any IPO. And I stay away from high P/E stocks.

I look at this as an intellectual game, not one entirely driven by randomness. So far so good.

 

[audreyh1]

Why don’t you guys start your own options thread?

 

[NW-Bound]

My option trading is a form of market timing.

When the market goes up, I sell calls. When it goes down, I sell puts.

 

[aja8888]

Why don’t you guys start your own options thread?

I'm pretty sure a thread was started on option trading a while back but it didn't generate much interest from this crowd.

 

[audreyh1]

My option trading is a form of market timing.

When the market goes up, I sell calls. When it goes down, I sell puts.

Yeah, but this is LOL’s newsletter.

 

[NW-Bound]

Even this thread on market timing does not have much participation, except for the recent exchange between aja8888 and myself.

There are many Boggleheads here.

 

[NW-Bound]

Yeah, but this is LOL’s newsletter.

Oops! I thought LOL would want some exchange of ideas, instead of his thread being a soliloquy.

OK, I will stop posting here now. Sorry for trying to revive the thread.

 

[audreyh1]

Your (both of you) posts are interesting. They are just buried in this thread.

 

[tulak]

I agree with Audrey, it’s a shame to have the options discussion hidden in LOL’s thread. I’ve dabbled in selling covered calls this year and should do more, but I’ve been lazy.

Now I’m inspired. Once I’m home next week, it’s time to sell some contracts. It’ll pale in comparison to NW, but every dollar counts.

 

[NW-Bound]

Your (both of you) posts are interesting. They are just buried in this thread.

I agree with Audrey, it’s a shame to have the options discussion hidden in LOL’s thread. I’ve dabbled in selling covered calls this year and should do more, but I’ve been lazy.

Now I’m inspired. Once I’m home next week, it’s time to sell some contracts. It’ll pale in comparison to NW, but every dollar counts.

Thank you for the interest, but I do not think I have enough material to make a thread, even though I sell options nearly every trading day.

The method is simple, as I explained just a few posts earlier. It's all about execution, and I am still learning by doing it myself. Additionally, options on individual stocks or sector ETFs fetch a higher premium because they are more volatile than the entire market, and other posters do not have the same holdings that I do.

And the above is the main reason I do not own the total market even though I try to stay diversified. You don't see the internal turmoil and sector rotation when you own a broad index. I want to see the sector churning for my contrarian plays.

That's all.

 

[LOL!]

Oops! I thought LOL would want some exchange of ideas, instead of his thread being a soliloquy.

OK, I will stop posting here now. Sorry for trying to revive the thread.

Posting in this thread is perfectly OK with me and welcome.

I made some profitable trades recently, but didn't post them. But I like to post things as they happen, so I feel I cannot say more than that. However, the portfolio did get reduced in value because I bought my wife a new car for Mother's Day.

 

[NW-Bound]

My energy stocks have been doing well, and carry the portfolio. I have been tempted to sell some and book the gain, but decided against it. Crude price has gone back to 2018 level, but these stocks are nowhere near their level back then. I think these stocks may have some room to run, as summer travel season is just now starting, and oil consumption will go up more.

Meanwhile, my semiconductor shares are threading water, despite the continuing news about chip shortage, and the announcement by TSMC that it plans to spend $100 billion to build more fabs. That's a huge cap ex, compared to the few billions that Tesla spent to build car factories.

And so, I don't do much trading, other than looking to make a few $K here and there by selling OTM covered calls, but this is getting harder. I do not want to write calls on energy stocks, for fear of having to sell them too soon. I have loads of semiconductor shares, but people are not bidding them up to crazy levels as they did back in Feb for me to sell calls for juicy premiums. My semi stocks have quite decent P/E, not at all outrageous.

Oh well, I will not be able to beat my own record of gains made from option selling last year, but I am still making good money. Perhaps I should turn to a more conservative stance to convert these gains into cold cash, meaning to start selling stocks. Stock AA is up to near 80% now, and I have a lot of high-beta stocks. Something bad has always found a way to fall out of the blue.

 

[aja8888]

My energy stocks have been doing well, and carry the portfolio. I have been tempted to sell some and book the gain, but decided against it. Crude price has gone back to 2018 level, but these stocks are nowhere near their level back then. I think these stocks may have some room to run, as summer travel season is just now starting, and oil consumption will go up more.

Meanwhile, my semiconductor shares are threading water, despite the continuing news about chip shortage, and the announcement by TSMC that it plans to spend $100 billion to build more fabs. That's a huge cap ex, compared to the few billions that Tesla spent to build car factories.

And so, I don't do much trading, other than looking to make a few $K here and there by selling OTM covered calls, but this is getting harder. I do not want to write calls on energy stocks, for fear of having to sell them too soon. I have loads of semiconductor shares, but people are not bidding them up to crazy levels as they did back in Feb for me to sell calls for juicy premiums. My semi stocks have quite decent P/E, not at all outrageous.

Oh well, I will not be able to beat my own record of gains made from option selling last year, but I am still making good money. Perhaps I should turn to a more conservative stance to convert these gains into cold cash, meaning to start selling stocks. Stock AA is up to near 80% now, and I have a lot of high-beta stocks. Something bad has always found a way to fall out of the blue.

Sell cash covered puts on the energy and commodity stocks. That's what I have been doing and it has been pretty good. If you have to take some on a drop, sell a covered call immediately. My feeling is energy stocks and other commodities have a way to go with things opening up.

 

[NW-Bound]

I am already at my self-imposed upper limit of 80% stock AA. I am a bit leery now of having to buy more stocks.

Plus, I like to sell puts on a bad day, and there have not been too many bad days for these stocks.

 

[aja8888]

I am already at my self-imposed upper limit of 80% stock AA. I am a bit leery now of having to buy more stocks.

Plus, I like to sell puts on a bad day, and there have not been too many bad days for these stocks.

I sell puts when stocks look like they won't pull back. That way, the odds are they will expire and I won't have to take the stock. I've done this many times with AT&T (T) since it trades in a pretty defined range. Just a way to make some easy cash. My objective with options is to not give or take the stocks.

 

[NW-Bound]

I sell puts when stocks look like they won't pull back. That way, the odds are they will expire and I won't have to take the stock. I've done this many times with AT&T (T) since it trades in a pretty defined range. Just a way to make some easy cash. My objective with options is to not give or take the stocks.

Well, we have the same idea, but different styles of execution.

I wait for a few bad days in a row, and sell puts when it looks like the stock has reached bottom, and is turning around. The put premium is higher when the mood is bearish, and if I have to buy, I get to buy it cheap.

One may say, "Wait! If you think the stock will turn around, then why not buy it outright?"

Yes, I do that sometimes, when I have a strong conviction. But usually, I already have some shares held for long term, and do not want to be too highly concentrated in the stock.

On the other hand, if a stock has been climbing several days in a row, it often pulls back when short-term traders decide to take profit and sell. In this case, I will want to sell covered calls instead, because it is more likely I will not have to sell my shares which I hold for long term.


PS. Last year, I made around $200K on covered calls, and about $100K on cash-covered puts. About 1 in 10 options I sold got assigned, meaning the other 90% expired worthless.

 

[aja8888]

Well, we have the same idea, but different styles of execution.

I wait for a few bad days in a row, and sell puts when it looks like the stock has reached bottom, and is turning around. The put premium is higher when the mood is bearish, and if I have to buy, I get to buy it cheap.

One may say, "Wait! If you think the stock will turn around, then why not buy it outright?"

Yes, I do that sometimes, when I have a strong conviction. But usually, I already have some shares held for long term, and do not want to be too highly concentrated in the stock.

On the other hand, if a stock has been climbing several days in a row, it often pulls back when short-term traders decide to take profit and sell. In this case, I will want to sell covered calls instead.

I see, a lot of ways to skin this animal. I'm keeping an eye on the auto stocks as GM and Ford have had big runs on their EV marketing (and cars!). I bought some GM and have sold covered calls a few times and got taken once, then bought it back on a pull back. My goal with the options is to try to make as much as I have to pull out to cover RMD's each year. I trade options only in the IRA.

 

[NW-Bound]

... I trade options only in the IRA.

The above, I do.

I sell a few thousand contracts a year. It's about 5 to 10 contracts each trading day. If done in a taxable account, I don't know how I would do the tax reporting.

It would be nicer to do this active trading in Roth accounts, but at this point our Roths are just 1/10 the size of our IRAs, which are rollover from 401k.

 

[Sunset]

I got an email from the brokerage saying I had a naked put option in my account and needed to fix it right away as that was not permitted.

Talk about a shocking email, as I'm opposed to naked puts, it's indecent

Of course I was nervous, did I make an error last week, or did someone hack my account
So I logged in and all looked ok.
Then I phoned the brokerage and talked to a trader, who confirmed my puts were covered (in a Roth), and that they wouldn't allow a naked put in that account anyhow.

He said he would send a note, as I'm not the only person it has happened to, their system cannot seem to count the cash against the put sometimes.

 

[LOL!]

I made a transaction today. Since the Total US Bond Index was up 0.4% today, I sold a bunch of shares because this fund doesn't usually go up that much without falling back down in days after. 0.4% is more than many savings accounts will earn for the entire year. But I didn't want to have the money from the sale sit in cash earning nothing, so I bought shares of short-term corporate bond index fund which also rose today about 0.11%. Those shares went up another penny after I bought them.

My plan is for Total US Bond Index to drop about 0.4% next week and buy it back. 747 I also expect the shares of the STCorp bond index to fall back, but not as much.

If I look at the total return of my fixed income assets so far YTD, they are doing overall about 0.5% better than the total return of the Total US Bond Index fund. That's about all I can expect from these kinds of in-and-out trades. At least I am not losing more money than not market timing.

 

[LOL!]

So far those previous bond ETF trades have not turned out like I predicted. Total US Bond Index has continued to go up more than Short-term corporate bond index has gone up. There goes my lunch money for today. 006

 

[NW-Bound]

I am slowly getting my mojo back on option selling.

Last year, I made a bit more than $300k with collecting option premium on the contracts that I sold. I only realized it being that much when looking at the year end summary. The year before, it was only $100K.

Last year, that's on the average $1500 for each trading day. Perhaps market volatility was high last year, and the option premiums were higher, but this year I have not collected as much.

Still, today I managed to sell 8 contracts on stocks I own, pocketing $1250 in option premium. It takes some effort to do this day in/day out, even though it takes only a couple of hours each day. It's almost like work, but not as tiring.

 

[LOL!]

With Total US Stock Market Index slightly up for the day and AVUV (small-cap value) down more than 3% today, I think it makes sense to buy AVUV and sella little VTI, so I did. 862

I expect AVUV to go back up in a few days and I will try to sell it if it goes up. If it goes down, then I will just hold it forever.

An update on my last trade of bond ETFs: short-term corporate bond index ETF have dropped slightly from where I bought them and total US Bond Index has gone up slightly, so I would have been better off not making that trade. Oh, well.

 

[street]

I am slowly getting my mojo back on option selling.

Last year, I made a bit more than $300k with collecting option premium on the contracts that I sold. I only realized it being that much when looking at the year end summary. The year before, it was only $100K.

Last year, that's on the average $1500 for each trading day. Perhaps market volatility was high last year, and the option premiums were higher, but this year I have not collected as much.

Still, today I managed to sell 8 contracts on stocks I own, pocketing $1250 in option premium. It takes some effort to do this day in/day out, even though it takes only a couple of hours each day. It's almost like work, but not as tiring.

Very interesting NW. You have done well!!