PRU

Daily Trading 4/1/21

Daily Trades

It was a strong end to the short trading week as several more positions took profits. Remember, Good Friday is tomorrow and the markets are closed. I think this probably influenced a lot of the trading the last two days with many of the active traders probably taking an even shorter week, or the week off entirely. Didn’t seem like there was a ton of selling pressure, which allowed the prices on most stocks to climb a bit.

Our closed positions today included Nike (NKE), Prudential (PRU), Qualcomm (QCOM), Disney (DIS), and Western Digital (WDC). All of those trades except Prudential had been on less than a week.

An interesting thing happened this morning with our current position on Sony. As a matter of course, I always put a buy-to-close order on all the puts we sell right after they get filled. This is so I don’t need to close out winners, they close themselves. That’s why I use the phrase “took profits” all the time, because these trades take profits and close themselves at our target returns. I highly recommend employing this practice yourself as it saves a lot of time and can actually lead to you making sure to book winners before they slip away (for time in force use “GTC” or good till canceled for these buyback orders).

This morning I logged on to find our brokerage had canceled our running buyback on Sony, which hadn’t taken profits yet. There was an error about a company reorganization and the option position was gone from trading platform. A few hours later a new option appears for Sony that was suddenly with an open loss, while this trade was profitable before vaporizing. It appears that yesterday Sony changed their ticker symbol from SNE to SONY and our option had to be re-issued. Since it was a brand new option under a new ticker, the brokerage wasn’t counting the credit we originally received when opening the trade on the old ticker (SNE), and since we have to buy the option to close it out, it was inaccurately stating that the position was down $100 when it was really up about $50 or so. I figured I’d bring this up because it’s a rare occurrence but it’s not impossible you might run into something like it. Don’t be afraid to reach out to your broker if you see things you don’t understand in your account. In this case it was pretty clear to me what happened as the ticker was different, but if I didn’t understand I’d certainly call it in and make them earn that commission money holding my hand.

Our biggest problem at the moment is allocation, we are dipping below 20% with today’s closures (and having put on no new positions). I am expecting that after the holiday the selling will come back into the market and we will find some opportunities to deploy capital. On the plus side we will finally be in a place to start trading May expirations next week so it will be a very exciting time to be alive.

Communitea Trade Update: The run-up of the last two days has been very kind to our beleaguered SUMO trade. It has gone from a $100 or so paper loss to slightly in the green in the course of a week. This is why it’s often best to just put these trades on and walk away from them until they get closer to expiration. Riding the ups and downs can be unnecessarily stressful. I do believe SUMO will retreat next week (like many if not most stocks), but hopefully not return to our strike before expiration on 4/16. As we’re closing in on the last two weeks of the contract we will be insulated a bit from volatility’s impact on the ticker and price will be the main driver of our position. If SUMO can be at or above $18.50 by next Friday we can probably take this off, but stay tuned.

Daily Trading 3/31/21

Daily Trades

Happy vaccination day to me! I didn’t get filled on the Moderna (MRNA) order I had at open, but I did get the actual thing so I’ll take it. The rest of the day also made up for it as a decent number of positions took profits.

These include AbbVie (ABBV), AMD, Tesla (TSLA), PayPal (PYPL), and Apple (AAPL).

I want to focus on those last two trades as I think they represent something I’m trying to incorporate more in our trading. We have some in-the-money puts on both PYPL and AAPL (the $240 and $127.50 strikes respectively), but as they slid I sold a second put well below them ($215 and $115 respectively). This allows me to grab a little more premium out of these tickers we were wrong about on entry, as volatility is increasing as they slide, but also get a head start on dollar cost averaging the position if things go really wrong and we’re bag-holding the stock.

The two positions that took profits were these averaging-down positions. You may remember we just put on that $115 put of Apple yesterday for $135 premium and today we bought it back when it was trading for $55–that’s a .68% return in one day which is an annualized return of nearly 250%. The PayPal was no slouch as it netted .59% in two days for an annualized return of 108%. Obviously trades won’t always be this quick or successful, but being able to turn around some money on these tickers that have positions under water is a great consolation prize while you fix those positions with paper losses.

A lot of people like to double down at the original strike, which I am inclined to do if volatility is expanding but the price isn’t going super against us. If the price is flirting with our strike (or certainly if it’s past the strike) I prefer to stagger down to lower strikes.

By taking profits on these today our allocation has slipped below 30% which is certainly far from ideal. Nike (NKE) and Prudential (PRU) could take profits at any point and Yeti (YETI) and US Steel (X) are way past our normal profit-taking point (hovering over 80% of max profit), I’m just riding those to expiration to suck out as much premium as possible. With today’s mini-rally I don’t see a lot of the tickers we follow that are particularly tradable at the moment.

The plus side is we’re getting to the place where we can start selling May contracts. The downside is that it puts us back in earnings season so we’ll have that to dodge as we try to reallocate (but not reach) in the coming days.

Communitea Trade Update: Our community trade, Sumo Logic (SUMO) jumped up past its strike yesterday to around $17.80 and today climbed up to around $18.80 at present. We have the $17.50 strike expiring on 4/16. The up-move that brought it out of the money and away from our strike a bit has wiped all the paper losses off and the position is roughly flat. If we can trade in this range another week or so we would be made in the shade. This is why we don’t panic and don’t roll too quickly, this thing recovered on its own. It has been oversold for a few days and it was likely it could catch a little support, which this rally day in the market accelerated.

Daily Trading 3/19/21

Daily Trades

The lack of decent premium in quality companies continues, and there’s no point in reaching on anything with the up-and-down choppiness in the last few weeks.

Abbott Labs (ABT) took profits today. I picked up Prudential (PRU) at the $85 strike. It’s a little early to have sold a put on it, but I really don’t mind bag-holding it and/or doubling down the position later. We’re always just trying to bat singles and I’d call it a bunt.

A couple buddies of mine in our investment club always sell the same put contract each month so we have a common trade to discuss and track together. Last month it was US Steel (X), which made us anywhere from $40 to $75 off the $17 strike based on entry point. Those contacts all took profits last week so we had to find a new opportunity. We went with a riskier pick in Sumo Logic (SUMO) at the $17.50 strike and picked up around $63. It’s definitely not a sleep-well pick, but it’s more a learning exercise for the group and a way to potentially make outsized premium on cheaper tickers.

It was a welcome sight to see financial tickers slipping today, but these are still coming off highs, so patience is a must. There’s some concern with bank stocks that the relaxed capital requirements are going to expire at the end of the month. I don’t think it will drag them down enough for us to make many moves, but something to watch.

What’s likely is that big banks will dump treasury notes and yields could increase further. We’re not overly-exposed to growth (just PYPL and PTON), which will stand to lose more ground if this happens, but the couple positions we have hanging around are already under heat so we’re mainly focusing on other sectors until things shake out a bit further on growth. If I get some time and energy this weekend I might write a longer piece on my hubris with the Peleton (PTON) trade.

One more thing for you March Madness viewers—Go Orange!