LOL!'s Market Timing Newsletter

[NW-Bound]

Wrote a bunch of out-of-the-money covered call options yesterday.

Last year, I made an extra 1% return doing that, and only on a few selected stocks+ETFs. So far this year, I have made 0.5%. It was more than enough to pay for my travel.

I am looking to do more call writing, now that the market appears to top out. Yes, I am a market timer, a chicken one though because an audacious timer would sell stocks and not do the chicken-feed covered call writing.

 

[LOL!]

I used to do covered calls ages ago when I owned some individual stocks. I can say that my last for calls expired worthless, so I made money.

Have you written calls on ETFs? I only own ETFs now in my brokerage accounts, so I would have to explore how that would work. I expect the volatility would be less than a stock, so the premium would probably not be worth it.

 

[NW-Bound]

I write calls on ETFs all the time. Yes, the premium is lower on ETFs, so I tend to do that only on sectors like bio, semiconductor, EM, etc..., which are more volatile and the premium is correspondingly higher.

 

[NW-Bound]

I have been writing more out-of-the-money covered calls. Got about $6K worth of premium. If the market just treads water for the next two months, that's my money to keep, and I still have my stocks too. Not getting rich off this, but that helps pay for food (and electric bills!).

I may keep writing more calls. Have a lot more stocks to do this with.

 

[LOL!]

I could use a little bit of that $6K premium now.

I wanted to do a little post-mortem on my last transactions while it looks like the outcome is now not as bad as it was a few days ago.

First, I would have been better off not selling IWN on 6/27 and not buying VTI and BIV with the proceeds.

Second, I would have been better off selling IWN on 7/3 after it rose 2% since I sold it.

Third, IWN (taking into account its dividend, too) has now dropped below where I sold it, so that's some consolation, but VTI and BIV have dropped even more from where I bought them.

The portfolio performance was ahead of all its benchmarks before these last trades and would still be ahead if they had not been made, but now it trails the top performing benchmark by about 0.15% and remains above all the others. The portfolio has less intermediate-term bonds and more short-term bonds than the benchmarks, so about the only way to get ahead is for bond funds to keep dropping.

This post is mostly to remind myself not to tinker and to be patient.
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[NW-Bound]

With the market crazy as it has been, there's a chance it may surge up so that my options become in-the-money in a couple of months. I am right now at 70% equity, and that will help reduce my AA.

Or the market stays stagnant, and I will repeat the option writing to get more money for food (and booze too!).

 

[NW-Bound]

Having sold a lot of call options, I now sell puts. Just sold a put on a highly volatile ETF with strike price of 2% below current market. The premium is 8.4% of the cash used to cover this put. The expiry is in 39 days, so if the option becomes worthless, my annualized return is a wonderful 79%/yr. If the ETF drops more than 10.4% in 39 days, I lose money.

High risk? Yes, definitely, hence I committed less than $10K of cash. May do more if the market bounces like yo yo and I think I can time it. Heh heh heh...

What else can a guy do for entertainment when he is stuck indoors to stay out of 110F weather?

PS. I forgot to deduct the premium received against the cash held to cover the put. So, it is 9.2% instead of 8.4%, and in 38 days rather than 39. So, the annualized return if the ETF holds up is 88%/yr (non-compounding).

 

[LOL!]

This should probably go in another thread, but I saw this posted at bogleheads:

Anton Kreil, 2 hour youtube.com on how you are being ripped off when trading:

I like the 90/90/90 rule: 90% of traders lose 90% of their money in 90 days.

This is well worth the 2 hour time to watch, but maybe split it up.
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[NW-Bound]

Two hours is a lot, so I have not committed although I have bookmarked it to come back later. But is this not a seminar by a trading school itself? Never heard of Anton Kreil (I do not know nor follow any such guru in the stock market), but found on the Web that he offers $3000 classes.

Anyway, love the market action today right at the open. Many if not most of my covered calls will result in the stocks being "stolen" from me. Darn, selling high is just as tough as buying low. Fear, then greed, then fear... Now I have to sell more puts.

 

[NW-Bound]

This should probably go in another thread, but I saw this posted at bogleheads:

I like the 90/90/90 rule: 90% of traders lose 90% of their money in 90 days.

This is well worth the 2 hour time to watch, but maybe split it up.
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With some time on hand, I watched this today. The same info could have been conveyed in 1/2 hours, and saved watchers time.

Basically, this guy at Institute of Trading and Portfolio Management shows how retail investors lose money in trading by being goaded by "educators", brokers, and other scam operators, and that the money lost was transferred to the "smart money" institutional traders like Goldman Sachs.

At the end, he promised that people signing up with his organization would get to learn to trade, or rather invest with a real portfolio instead of day trading, under the mentoring of past professional traders who used to work at the big financial institutions.

I did learn a few things about the association of the "educators" and the brokers who provide the platform for trading. I never attended any of these seminars, so did not know how they operated.

Thought I would provide a synopsis for what it is worth...

PS. About the alarming statistics of 90% of people losing 90% of their money in 90 days, it applies to active trader's accounts from people who expect to leverage $10K-20K of cash into $100K or $M.

Of course people who expect to get rich that quick would lose their shirt in a hurry.

 

[Sunset]

With some time on hand, I watched this today. The same info could have been conveyed in 1/2 hours, and saved watchers time.

Basically, this guy at Institute of Trading and Portfolio Management shows how retail investors lose money in trading by being goaded by "educators", brokers, and other scam operators, and that the money lost was transferred to the "smart money" institutional traders like Goldman Sachs.

At the end, he promised that people signing up with his organization would get to learn to trade, or rather invest with a real portfolio instead of day trading, under the mentoring of past professional traders who used to work at the big financial institutions.

I did learn a few things about the association of the "educators" and the brokers who provide the platform for trading. I never attended any of these seminars, so did not know how they operated.

Thought I would provide a synopsis for what it is worth...

PS. About the alarming statistics of 90% of people losing 90% of their money in 90 days, it applies to active trader's accounts from people who expect to leverage $10K-20K of cash into $100K or $M.

Of course people who expect to get rich that quick would lose their shirt in a hurry.

Thanks for saving 2 hours of my life

 

[NW-Bound]

From the video, I did learn about a scary trading thing called CFD, which is the cause of the 90/90/90 rule.

In my previous life, CFD stands for "Computational Fluid Dynamics". Here it is "Contract for Difference". Read about it, and you can see why it is the same as buying lottery tickets; you have a small, very small chance of making a lot of money.

Anyway, I wrote more out-of-the-money covered call options.

1) If my shares advance so that they all exceed their strike price, people buy them at a few % higher than where they are now, in addition to the $8K cash in premium I already collected. That also reduces my stock AA from 70% down to 60%, maybe 55% (need to double check). I can live with that. It's better than selling the stocks now at a lower price.

2) If these shares just bounce around, I keep my shares and my AA stays at 70%, but I have that $8K in my pocket for food and booze, and repeat this chore in less than 2 months. And I can live with this too.

 

[NW-Bound]

Forgot to add this 3rd scenario:

3) Stocks crashed. I still have my stocks, which I will wish I have sold them now instead of writing options. The $8K premium helps buy some XO cognac for me to cry into, so it's still better than doing nothing. But most likely, I will cut back and buy the cheaper American brandy (which will get me drunk just the same or more as it is cheaper to knock down) and to save that money to buy food.

 

[Blue Collar Guy]

Forgot to add this 3rd scenario:

3) Stocks crashed. I still have my stocks, which I will wish I have sold them now instead of writing options. The $8K premium helps buy some XO cognac for me to cry into, so it's still better than doing nothing. But most likely, I will cut back and buy the cheaper American brandy (which will get me drunk just the same or more as it is cheaper to knock down) and to save that money to buy food.

Nice to see some one else spends his money on nice cognac. Enjoy !

 

[LOL!]

i've been away on vacation to parts unknown. Now that I am back, I see markets are up quite nicely -- especially foreign markets (relative to US dollar) up about 3.5% to 4% off the July lows. Since my equities are about 50:50 US:foreign the portfolio gained on most of its benchmarks while I was gone and reached a new all-time high.

So no news is good news.
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[NW-Bound]

Good to know you have been on vacation. Been wondering if you have reformed and become a buy-and-holder or something.

Been selling more covered calls myself, most with expiry in August 11 and 18, and a few in Sep. At this point, I am reluctant to sell more, because I am afraid that if the market surges, the options may get called and I find myself with too much cash (is that really a problem? ).

I always do out-of-the-money, because it is my intention to keep the stocks and to pocket the premiums. The ones I did earlier went in-the-money, but have now ebbed and quite a few go back to looking destined to be worthless. But the situation may change day-to-day, so I cannot be sure. It is so fluid and interesting to watch.

 

[NW-Bound]

I got many covered call options expiring worthless today. As of last week, quite a few were barely in the money, but the events of the last few days knocked the air out of them. Good. Saves me the trouble of looking to buy back the stocks. Next week, I will look to do the rinse-and-repeat.

So far this year, I netted 0.75% extra return from these covered calls, compared to 1% for last year. However, there's still a few months left to make a bit more money.

 

[LOL!]

^But you really have to remind the audience that you still own the underlying shares which lost lots more than what you made with the option premiums. You would have been better off selling the shares before they dropped.

There's still a few months left to lose a bit more money.

My last transactions (except dividend re-investing) were at the end of June. The bond ETF shares are up plus they paid the June and July dividends. The IWN I sold is now down about 4% from the sell price.

I am the lightest on equities that I have been all this year which is weird to me since international equities are way up and I haven't sold any. I guess I must've spent the money from the 2nd quarter stock fund dividends instead of buying more shares.
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[NW-Bound]

^But you really have to remind the audience that you still own the underlying shares which lost lots more than what you made with the option premiums...

Not always. I always sell out-of-the-money calls, and many are now barely below the strike price. This means they are now higher than when I sold the calls 1 month or 2 ago, even though they are off their peak.

...You would have been better off selling the shares before they dropped.

Yes, they all dropped below their recent peak, a few even below the price when I sold the options (I would be better selling these shares). I would do best to sell them all at their peaks, then buy them all back at their bottoms, but have not found a reliable crystal ball.

There's still a few months left to lose a bit more money.

If the market drops, I will lose money. But with option writing, I lose less.

The stocks are what I want to hold long-term anyway. Covered call writing is the way I squeeze a bit more "dividend" out of them.

I find challenge in setting the strike price high enough that the options will expire worthless, but not so high that the premium is puny.

 

[LOL!]

Time for some predictions of the next month or so ....

I don't see much on the calendar to create any positive news, so I don't think there is going to be anything to make the markets go up.

No FOMC meeting until Sept 19-20, so they won't have any effect.

There is the extension of the debt limit that has to be figured out before the end of September, but I predict brinkmanship will not allow anything to change until after the next 5 weeks.

I usually get all my bills for my summer vacations around this time and a college tuition bill, so my money is going into expenses and not into investments.

Wake me up if something happens that I need to know about. Thanks!

 

[LOL!]

OK, something seems to have happened.

With Gulf Coast refineries and chemical plants shut down, I think the price of oil will go up, the dollar will weaken, and foreign/emerging markets stocks will go up.

Yes, the gov will release strategic reserves, but no matter.

I intend to exchange shares of VTI (total US) into VEU and/or VSS this week.
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[CoolChange]

Strike Price

...
I find challenge in setting the strike price high enough that the options will expire worthless, but not so high that the premium is puny.

I am starting to research this kind of strategy for myself and wondering if you use some kind of systematic approach to this or if your approach is more gut feel. I would appreciate anything you would be willing to share.

 

[LOL!]

Since bonds are up, I sold some BIV and bought VEU. I intend to sell some VTI and buy back some bond fund shares in the near term, so the double trade will net VTI to VEU.

I hope before the 2nd trade that
1. Bonds don't go up much more.
2. VTI goes up more.
3. VEU doesn't go down.

 

[NW-Bound]

I am starting to research this kind of strategy for myself and wondering if you use some kind of systematic approach to this or if your approach is more gut feel. I would appreciate anything you would be willing to share.

I usually write covered calls on more volatile stocks and ETFs such as biotechs, semiconductors, emerging markets, etc... I compare their price with that of the broader market and write covered calls after a period of climb and the gain looks extended. Yes, there's a lot of gut feel involved, when I believe a stock is good, but not that good.

I have lost "good stocks" before, when I was forced to sell them and they kept on climbing. I am now willing to buy back at a slightly higher price (but still not bad considering the option premium I pocketed earlier), but most likely will write another out-of-the-money option right away to hedge.

I usually do short-term options only 1 or 2 months out. This allows me to repeat the process more often to collect "dividends". If you annualize the option premium, you will see that longer-term options have less return than shorter ones.

 

[LOL!]

Darn those North Koreans.