Misc updates and use of PUTs

I am back after 3 months of low key activity on the market.

For Wall Street, summer is time to sell and go away. For me, summer is to activate protection on my positions so that it can survive with minimum market monitoring.

The key is not how much I can make but how much I can lose.

So, this leads me to the idea of using puts.

Practically, I collared most of my stock positions before I left for my long trips. If it is not collared, it is an ITM covered call. I even had some reversed collars. Interestingly, I made money on most of my reversed collars. Today's decline amplified the profits on my bearish trades. I had put calender on F, short positions on GCI, GE, STX, BP and AMD. (covered by short puts - reversed of covered calls). All the positions are making money.

I survived the May flash crash followed by another 6 weeks of market downturn. At the beginning of July, I was back for a brief 1 week, I initiated a series of ITM covered calls for August. Looks like 100% of them will do well giving me from 5-7% monthly returns. After today's decline, Some positions moves from ITM to ATM. If the market stays stagnant or slightly bearish over the next 10 days into expiration, I should be making money too.

Overall, my portfolio is slightly above the time I left and the market has gone down about 8%. Actually, this vindicates the power of using options instruments properly in my trades.

Gold and Silver continues to perform strongly. Because of my trips, I collared my positions and thus lost some money on my puts.

Gold exhibits resilience. Long term trend definitely up. Sounds arrogant but this is one few areas I am sure. But traders may bring it down to 1160 before going to record high before the end of this year. The price action is actually not impressive pointing to a short term correction before going up. With all the bullish news of India and China relaxing their gold trading policies and Feb pumping more money into treasuries (which is totally ridiculous and criminal ), the rise in gold price has been anemic. Maintain your gold position but make sure you have a OTM SC. If go down, be prepared to add with SP or more shares.

A key learning here is that if you are collared on a bullish position, make sure that you know when you remove the puts or reduce the time decay via another short put below the strike of the long put. In another word, convert the put to a calendar.

I did not do that and thus time decay ate my profits. Overall, I made money from my stock positions and short calls. But I could have made a lot more. Always consider a diagonal calendar for your puts position when appropriate and get out the long put at the right time. Put is a money losing asset over time if the stock stays stagnant or up.

In normal active market monitoring conditions, I would not have added puts on positions with bullish bias. I will be just rolling the calls down and out to protect my stock unless the whole position turns clearly negative. To be clearly negative, it has to violate the support and the channel plus clear indications from fundamentals and my other shorter term momentum signals. A put, in another word is a weapon of last resort. But it is a necessary weapon and you must be ready to use it when needed or you may not survive.

In other cases, I buy puts when there are much complacency and stocks are hitting resistance. Puts are cheap protection. I will buy an OTM put before earnings, a major resistance or market complacency. If the market continues to shoot up, it is just a piece of insurance I am buying. I will close the put. I lose some money for protection but make money on the overall trade. Normally, I will sell the put once the uncertainty is over. Example: the market breaks out after a good earnings announcement or positive reception to a new product or model or overcome a major resistance.

The double diagonal on WMT continues to work. It is a risk free trade now. I have recovered all the extrinsic values of my LEAP strangle. However, it is not as easy as I thought. Today, my SC on WMT was exercised by someone. I had to cover my shorts and open another OTM short call. I lose some of my profits on this trade. It is a lesson to be learned. Never allowed a SC to be too deep ITM.

Allow never allow the shorts to go ITM before expiration. Ideally roll it just before options expiration. But in the case of my SC being exercised today, it is better to roll if it gets a little too deep in the money. In June my SP went ITM and the market turns around and I end up make some money. If my SC is not exercised today, I would have the same situation. Unfortunately, someone decides to take the obligations on my shorts such that I cannot maximize my time decay. It is a great lesson to learn.

I am still holding to my position for Sprint (S). I got out and took profit. After 2 weeks, I initiated another covered call again. Sprint is doing well. If it goes to $4, I will add shares. Similarly, I did for TQNT. I took profit on my covered call and initiated a new OTM CC when it went down. It should work fine and gives me another >10% over the next 2 months.

I will initiate detail new positions on the blog. Watch out for new trades over the next 2 weeks.