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Daily Trading 4/13/21

Daily Trades

No home runs today but a lot of things slowly trending in the right direction. Positions burning some theta, another day getting us closer to being on the other side of earnings. Most positions are in the green, the only two that aren’t are DraftKings (DKNG) and WD40 (WDFC). DraftKings has, at least for the moment, caught that support at $58 so it’s only slightly down due to some near-term Vega and inexact timing on our entry.

On the other hand, we seemed to have caught a bit of a falling knife with WD40. I still like the $240 strike, but should have waited another day to enter the position. Between the stock price coming against our position a bit and the slippage in the chain (they’re not very liquid options, which is incredibly ironic for WD40), we are in a place where we have to sit through some heartburn but can’t adjust yet. My two first adjustments when the price falls quickly against an option we put on are:

  1. If there is still decent buffer on price and I’m still confident in the strike I will sell a second contract at the same strike to average up the total premium received.
  2. If the original strike is looking dicey I will explore what I call a “staggered” second contract, where I sell a second a few strikes below the first for the same or more premium.

In the last week I’ve actually done one of each of these adjustments. I performed adjustment #1 on DraftKings yesterday, which at the moment seems to have been the correct move. On Friday I performed adjustment #2 on Alibaba (BABA), which in hindsight was definitely a decent move.’

The issue with WD40 at the moment is, due to the price of the underlying (around $256 per share at the time of writing), we can only really allocate one second contract to the position. Since the timing of the first one was off, we don’t want to spend our only “double down” move too early as well. Though it’s approaching oversold territory, there’s nothing to suggest it can’t keep falling for the time being, so doubling down the $240 strike is not advisable. Yet it hasn’t fallen enough in price to justify staggering to a second lower strike. So patience is the key for the next few trading days. We can be more aggressive in sizing into cheaper tickers, but the next move here has to be a prudent one.

Today we closed a contract at US Steel (X) that was expiring Friday as it had dwindled down to $2. I try to buy back expiring winners rather than letting them expire as a best practice. There is no point in time exposure for $2, just give me my capital back. We have another position in X still on for a later expiry anyway.

I opened a “get your beak wet” contract on Micron (MU) today at the $82.50 strike. I don’t normally like to trade tickers fighting against highs, but it’s one of the few technology tickers we follow that’s past earnings. The 1.5% potential return on capital is way better than we’ve been getting on “real” companies lately, and the ticker is inexpensive enough that we could do both of the adjustments we’ve outlined above and not sweat allocation.

Speaking of allocation, it’s only up to around 18%. I can see some opportunities starting to come to the surface, but our WDFC trade shows not to scrounge too much.

Communitea Trade Update: Our first Communitea trade (Sumo Logic $17.50 4/16 expiry) took profits today. I bought it back for $11. After commissions this trade netted us $50.70 on $1750 of capital in 26 days with a 2.9% net return. This return and duration equates to just shy of an 82% annual rate of return.

We still have our second Communitea trade on, the Fisker (FSR) $12.50 strike expiring 5/21. This trade is currently is about flat at this time. The price of FSR keeps slipping, but the position isn’t in any trouble yet. If you wanted to get in on this trade you still could get the $80 premium we got for it, maybe even a buck or two more.

Daily Trading 4/8/21

Daily Trades

If you want to see hubris, just look at yesterday’s post. In our modern world everything moves fast, and proof of that is it took less than 24 hours for me to be proven wrong. I was sure that Peleton (PTON) was not going to clear $120 and I was so proud of myself for lowering the strike price and today it cranked up $7 per share to $122 or so. If I had stood pat with the original $120 strike we’d probably be closing the position tomorrow. That’s not to say we are in trouble at our current position, it’s just that we are potentially stuck in it longer. This one is definitely an interesting one to watch. It also shows why I don’t sell naked calls or call spreads very often, because you can be very wrong when betting against the upside–at least our put is positive delta.

Our garbage-picking for premium has reached a “mid-winter hobo” level. I’m getting to the point where I’d sell a contract on an empty beer can–hey it has 5 cents of intrinsic for the deposit! I did open positions on Disney (DIS) at $175 and Constellation Brands (STZ) at $210, bringing in about 1% on both. I’m definitely not in love with those strike prices or how meager that premium is, but at least they’re decent companies. I opened a new position on US Steel (X) at $37 and Viacom (VIAC) at $18.5 as straight volatility plays. Both end at the end of the month so they’re redeeming quality is the short duration.

Every day is a new day and perhaps there will be better selling opportunities tomorrow.

Communitea Trade Update: Our Fisker (FSR) trade for the $12.50 strike at the 5/21 expiration couldn’t pull in $80 today so it still hasn’t filled. We’ll keep trying the next few trading days before reevaluating options. The existing SUMO position gained about $10 today and is around 60% of max profit so it’s closable if you haven’t already. I’m planning to run it a bit more into the ground and maybe buy it back when it’s worth $8 or so. We’ll see.

Daily Trading 4/7/21

Daily Trades

Today we had a whole lot of rolling going on as the problem child trades came up just enough to manage. Apple (AAPL) poked above $127.50 today and we were able to close that trade at a profit. I had forgotten I had set a $200 buyback on that option so I was surprised to hear the ding of it closing. If I had revisited that running order I would have probably been a bit more greedy and knocked it down to $100 or even $50, but it’s good to be out of the position I suppose.

With Budweiser (BUD) slipping a bit today I was able to kick a $64 strike covered call out to the end of the month and up to $65 for a small net credit. This contract had been the definition of over-trading a position and I will have a full write-up on this BUD saga once I am finally rid of the long stock. It’s a great case study in why over-trading not only causes you grief, but can cause inferior returns.

The only remaining problem child has been Peleton (PTON). This was trading in the ballpark of $145 per share (after a healthy slide) when we entered the $120 strike. It had fallen through that and more and we’ve been rolling the $120 strike week by week for the better part of a month. The rule is to keep the original strike when rolling out if you are bullish the stock will cross it again. This was a sensible move with Apple, which it clearly crossed $127.50 today, but I am not confident that Peleton will cross $120 in the immediate term. Today it reached $115 and I was able to roll it out to next week and down to the $118 strike for a net credit of $17 or so. This puts our cost basis on PTON at just shy of $114, so if it is still trading north of $114 by next Friday (4/16) I will take on the stock and start writing the $114 calls which should pay upwards of $700 for the May contract. We’ve pretty much gotten this ticker to a manageable place without losing money, my only concern is if we take on the stock and the thing craps the bed again on earnings. We’ll have to revisit this next week, suffice to say we were able to manage this position to a better place today.

Allocation is around 17%, which is actually misleadingly high as I have an Amazon (AMZN) spread and contracts on Ford (F), US Steel (X), and Yeti (YETI) that could all close at any point now, I’ve just been milking them for lack of better prospects. If all those close, we’ll be approaching 90% unallocated capital, which should basically be a crime. The problem is volatility on the stocks we track is low and earnings is looming for most companies. I’ve taken to dumpster diving for trades on a daily basis. Today I opened a position on Novavax (NVAX) with a 5/7 expiry at the $120 strike. Due to the slippage in that weekly chain I can’t tell how bad the heartburn on that is at the moment, but good trades are so lacking I’d entertain sizing that up if it goes against us.

Communitea Trade Update: We are in a place where we can be taking profits in SUMO (it’s hit about half of our $63 premium), but I’m going to wait a few more trading days most likely. We have decided on the next trade–if we can get $80 premium out of the $12.50 strike of Fisker (FSR) on the 5/21 expiration. So if you’d like to make the trade with us, get that order in for tomorrow. Remember, these aren’t meant to be blue chip companies, it’s meant to be a learning experience we are all in together that offers out-sized premium for inexpensive tickers. These tickers have out-sized premium because they carry more risk.

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 3/23/21

Daily Trades

There’s a cliche in trading that goes “It’s a market of stocks, not a stock market”. I couldn’t help but think of that today as I scrounged around and found some tickers we track that had started to falter.

This afternoon we opened trades on Western Digital (WDC), Ford (F), CVS (CVS), Ligand (LGND), and old trusty US Steel (X). These were “wet your beak” trades that we may size up if they go against us (except CVS which is an experimental trade I’ll share more about later). And that rationale came in handy as they all went against us this afternoon. There’s still plenty of capital to throw at some of these so I’m not crying in my beer just yet.

One thing I used to do is ask for more premium than the mid point. I used to get more than “asking” by having orders sit all day. I got out of the habit and started putting in orders asking for the mid because I wasn’t getting filled on some decent trades. I may go back to that on some tickers and take a “meant to be” approach.

I should have closed out Walmart (WMT) when it was at 55% max profit at mid-day. Instead I tried to scrape a few more dollars out and then it slipped away. This is called being greedy and breaking one of the 10 Rules of Easy Trading (which I’ll post on this site soon).

So the moral of today is it may be okay to demand a few more dollars on open, but don’t be too stingy on close if you’ve already hit your target.

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!