LOL!'s Market Timing Newsletter

[NW-Bound]

Up, up, and away...

My stocks are up 2.88% today. Diluted out by MFs and cash, the stash is still up 1.87% total. Way too good compared to the S&P at 1.55%. Can this last?

This reminds me of last year, when I was up 7.4% for the month of January before it all came tumbling down because of the VIX fund meltdown. Do people here remember that fiasco?

[NW-Bound]

The market is going crazy again. Having sold a few shares due to covered calls getting assigned on Jan 18, my stock AA is getting down to 65%. I have sold several out-of-the-money puts to buy them back, and because the share prices keep climbing the option premiums are mine to keep.

With more options expiring on Feb 15, I will have more shares taken away from me. My stock AA will drop lower. Greed is taking over, so I just bought shares of some companies that I did not own. They have already risen up quite a bit since the low in December, and although their earnings and prospects look good, the share price rises may take a breather in the immediate future.

So, right after buying the shares, I sold slightly out-of-the-money covered calls on them. If the options get assigned on Feb 15, which is just 2 weeks away, I will have made a 3% profit. That's the same as the interest for an entire year in CD, had I kept the money in cash.

Of course, the shares may just drop, and I lose money on these deals despite pocketing the option premium. It will also drive my stock AA back up to 70%, which is OK.

[LOL!]

Yes, things are a little bit too active for me. With the gains this week, my asset allocation is perfect and I have to resist making any trades. I guess I got used to making lots more money than my benchmarks, so now that I am back to tracking the gains/losses of the benchmarks, I am bored. Please knock some sense into me. Thanks!

I read that January will be one of the best months since 2015.

[Jeffman52]

Things are still rocking. 401K Up 10% right now. Hopefully a China deal is will be closed and we will see a "banner" year in the market.

[NW-Bound]

The market takes a downturn today. I already purchased back most of the out-of-the-money Feb 15 put options, and the few contracts left have strike prices quite a bit below current market prices. I let the latter be, expecting them to expire worthless, but weird things could happen (and force me to have to buy more stocks).

The covered calls are cushioning the fall today. Many were sold early, so got in-the-money, and if the market holds I will have to sell quite a bit of shares on Feb 15.

Whether the options are assigned or not is fine with me. I already made money on both the shares and options, hence have no right to complain. Or if the market drops and the options become out-of-the-money again, well, how do I complain for the additional $10K+ I get each month from these options?

[NW-Bound]

Another crazy day today.

The market opened down. At the start, all of my stocks were in the red. The ones that I wrote covered calls on, many were way below the strike prices of the options. They may just expire worthless next week, but as I could buy them back for 1/10 of what I sold them for, I decided to go ahead to do that. With the market being crazy as it is, I would rather book the short-term profit when I could, instead of waiting another week to potentially gain another 20c/share and risk losing $2/share.

So, I closed out 20 option contracts on various stocks, netting $3,500 for these options I sold from 1 month ago to just last week. Then, the market turned around near the end. I made a good move.

Still have more than 40 contracts outstanding, many expiring next Friday. I may let them expire. Some will be worthless, some will be in-the-money making me selling some stocks. It's all OK.

Gain from option trading is $9912.55 YTD, net after all trading costs.

[revhappy]

I sold 5% of my networth in Stocks yesterday. I felt markets had bounced back a lot and even if a deal comes through, the earnings are going to be hit and the slowdown in the world will hit US companies sooner or later and SPY is like very close to its highs.

Is my action justified? I am now considering selling SPY 250 Dec 2019 PUTs. What do you guys think?

[LOL!]

@revhappy, I cannot say for sure if justified. If your equities were a few percent more than described in your desired asset allocation plan, then Yes, it is justified.

I see that retail sales for December had a sharp, unexpected decline of 1.2%.
https://www.reuters.com/article/us-u...-idUSKCN1Q31YZ

Perhaps that was because of the fear generated by the stock market drop through Christmas Day and the government shutdown that last 10 days of December?

There are at least 2 big issues still to be resolved:
1. China trade talks and tariffs.
2. Brexit

Both could go either way in that they could cause stock markets to either tank or pop. We just don't know and cannot predict. 413

[LOL!]

In the past week, I have been simplifying and cleaning up the portfolio. The impetus was the Vanguard's introduction of VFSAX which is the Admiral share class of VFSVX and VSS -- both of which we own in Vanguard IRAs.

So I have decided to put one single fund in each of our Vanguard accounts and turn them into set-and-forget modes. I already had a couple accounts that way, but now they will all be that way. This involves converting VFSVX to VFSAX which is trivial and selling VSS and buy VFSAX.

Also, I will move one Roth IRA into another Roth IRA and reduce the number of accounts by 1. The two Roths were from separate tIRA to Roth conversions back when recharacterizing was allowed.

In other news, my portfolio performance is well ahead of a benchmark that has both US & foreign equities, but since foreign equities are now lagging US equities for 2018 YTD, my portfolio now lags a 60/40 benchmark with no foreign equities. I'm going to have to do some market timing to catch up.

[NW-Bound]

Quote:

Originally Posted by revhappy I sold 5% of my networth in Stocks yesterday. I felt markets had bounced back a lot and even if a deal comes through, the earnings are going to be hit and the slowdown in the world will hit US companies sooner or later and SPY is like very close to its highs. Is my action justified? I am now considering selling SPY 250 Dec 2019 PUTs. What do you guys think?

A reasonable thing to do.

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%.

My next move will be selling puts to buy them back at lower prices, but do not know when I will pull the trigger.

[LOL!]

Quote:

Originally Posted by NW-Bound 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]

Quote:

Originally Posted by LOL! 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]

Quote:

Originally Posted by 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 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]

Quote:

Originally Posted by 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.

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!]

Quote:

Originally Posted by NW-Bound [...] 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]

Quote:

Originally Posted by LOL! 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]

Quote:

Originally Posted by LOL! 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]

Quote:

Originally Posted by revhappy 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.