Why do I still have so many open positions?
I set stops on Friday when I left (noonish) figuring I would let the chips fall where they may and take me out of this mess of a week but hardly anything moved enough to take me out…
There are still 75 open positions with a 42% average gain on 19 average days open. That's half the gains of last week! Part of this was the result of opening 22 new positions and part of it was the result of buying out 21 callers and putter which raised the basis considerably as we haven't really sold any February contracts yet.
Nonetheless, less is less and we would have been better off taking the money and running last Friday rather than give back half our gains just to keep playing in what we knew was going to be a very rough week.
As I said last week, without our reduced premium positions on Apple, RIMM and SPF, we were only sitting on 23% with our open positions and buying back our callers cost us dearly on those. That is the price you play for playing it safe!
Amazingly, we managed to take 32 positions off the table this week for an 85% average gain on 15 average days held. This is well below last week's 119% but still a respectable 15 day return in the grand scheme of things. Our winners continued to be dominated by oil puts and it was the oils we left on the table that caused the bulk of the damage in our remaining open positions as doubles turned into halves on the last day of trading.
Unlike last week, where we had just one losing trade to close (Ebay!), this week's expiration forced us to confront the harsh reality of 6 wipeouts: MOT Jan $20s, OII Jan $37.50 (roll), QQQQ Jan $45.63, TXN Jan $30s, VLO Jan $47.50 puts and WCI Jan $20 puts. It's really hard to do well when 6 of your position lose over 85%.
Luckily we had 10 positions that more than doubled and only 2 other losers (Mer Jan $95 puts, down 16% and PLCE Feb $60s, down 24%) to drag down the rest of the bunch.
Our 10 big winners were only half oil, so we are getting a little more diversification as last week it was 66%!
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1/2 of our Dow Mar $45 calls (11/20, plus adjustments) were taken off the table at .30 (up 900%).
- We didn't want to risk them but they closed yesterday at .60!
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GNW Mar $35 calls (12/11) stopped out Tuesday at $1.50 (up 100%).
- A great example of protecting profits with stops!
- I like these for a reentry as I think they were pinned.
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1/2 of our INTC Feb $22.50s (1/4) were wisely taken off the table ahead of earnings at .60 (up 100%)
- We may end up even on this if the other half don't recover!
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LAMR Feb $70 puts (1/11) made plenty at $4 (up 186%).
- Thank you Cramer!
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MW Feb $40s (1/4) also stopped out at $3.40 (up 152%) and also looked pinned.
- We still have JOSB Apr $35s so I see no need to reenter the MWs
- OII Apr $40 puts (12/18) came off in 2 halves averaging $3.80 (up 245% avg).
- PTR Feb $130 puts (12.26, 12/29) came out at an average of $7.40 (up 229% avg).
- XOM Feb $72.50 puts (1/4 with sales adjustments) were wisely stopped out at $2 (up 186%).
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XOM Feb $75 puts (12.27) came off a tad early at $4.50 (up 165%) on Tuesday
- WAY better safe than sorry with these!
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YRCW Jan $40s (1/4) came off way too early at $1.10 (up 120%)
- We still have the Feb $40s and Apr $45s as this was a heavy position!
Effectively, halfway through the month, we have closed out 90 winners so far with a 100% average gain and we are left with the losers! Let's see if the markets will let us spin straw into gold next week…
Our long-term plays are behaving themselves quite nicely for their first month! Now up to 32 positions that have held 43% gains, even after buying out callers on 19 of the positions. That gain will improve dramatically as we again reduce the basis on next weeks sales but we are in a great position of being very far ahead and able to hold off a bit, in hopes of gaining some additional ground before selling again.
I will have the full virtual portfolio up on the members site tonight. Please pay close attention to the week's closed positions as some stopped out after I left on Friday and are not noted in the mid-day update!
On the whole it was a very interesting week which went pretty much according to plan. Had I known I was going to be so right (end of week oil and real estate pump with options pinning down the rest) I would have taken the week off but I never know how smart I am until after the fact:
We started the week of with a bang when I decided to hold all oil puts and add no covers (in fact we DD'd a few) when I said on Friday, 1/12: "I’m not even going to pay attention to the move this afternoon as it was pure pump but the oil sector certainly acted like they won a prize and came roaring back allowing us to take a few new put positions"
Last Saturday I reiterated my standing call for cash ahead of a rough week saying: "Cash out early, cash out often – cash is good!" and Charles Jones weighed in with the very timely advice: "The man who begins to speculate in stocks with the intention of making a fortune usually goes broke, whereas the man who trades with a view of getting good interest on his money sometimes gets rich."
Monday was a nice day off and Dr. King told us: "The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy." I know a few people who had a rough week and need to keep this in mind (as well as what Chuck Jones said!).
I predicted on Monday that energy traders were going to have a lot of rotten lemons to sell in the week ahead and an amazing 130M barrels were dumped in just 4 days this week from the NYMEX February contracts!
I also predicted that Sharp spending $2.5Bn to ramp up production of LCD TVs would be good for TXN and GLW – not my best call so far but I still believe they do make those things out of chips and glass! We'll get more insight into that with TXN's Monday earnings followed on Wednesday by GLW.
CTX projected a loss on Tuesday and LEN had awful earnings but the CEO of Lennar said wealthy Martians might decide to colonize Florida and Californa in Q2 (or something equally unlikely) and there was a little more building activity due to warm weather so the entire builder segment went nuts on "improved" outlook! Nuts being the operative word!
At least I seem to have gotten my negative call on MA right – don't forget we are waiting to buy in on AXP. We are also waiting on this prediction: "The dollar is consolidating for a move over 85.5 which, if executed will throw oil into the $40s for the first time in over 2 years."
By Tuesday night Intel had wrecked the markets and I decided it was time to try the transports. YRCW is going well but the jury is still out on FDX.
Intel's co-conspirators in the assassination of the Nasdaq included SYMC, RACK, the SOX, IBM and Apple, who let us all down with a 48% gain in profits (I know it makes no sense, I'm just trying to go with the flow at this point!).
Emporer T Boone made an appearance after a long time in his spider hole and predicted $50 would be the bottom for oil. When a guy who made $1.2Bn trading energy in 2006 calls a bottom – you do need to pay a little attention! My downside targets were $50.79 and $40.50, both of which were hit anyway so I can't even say I can argue with the guy this time! On Tuesday I said our upside for the week was $52.10 and we finished the week just 11 cents shy of it – so that's a total of .17 cents off in the last two weeks worth of targets (pat, pat).
Wednesday I said about the market's action: "I did not like that!" and the Valero Rule gave us a very clear signal to pack up our oil puts and take a break. My exact words were: "Really, really this is a good time to take oil off the table!!!!"
As we discussed further in comments, we are not holding any oil positions that we aren’t ready to either double down on at half or roll into a longer contract as NYMEX trading still has 3 days left and they have now reduced the open February contracts to just 121,000. My guess is 80K should be about right for February delivery but I don’t think there’s going to be too much pressure reaching that target.
Our man Zman was in agreement and his new section has been priceless this week for those who took the time to read up on his in-depth oil analysis (as opposed to the opinionated nonsense I spout off!).
Wednesday night Cramer went off the deep end after reading my Nasdaq commentary and told his minions to SELLSELLSELL tech! I told him he was overreacting but he didn't listen to me about LAMR and he just doesn't seem in the mood to start acting rational now. As the "Cramer Effect" had taken hold of the SOX and the Nasdaq, I actually decided to ride out a lot of tech calls that I may have sold had he not said anything. This is not because I seek to be a contrarian to Cramer – just that if that was all the damage he could cause on an already week chart, I suddenly thought the underlying strength might have been greater than I thought.
Thursday was indeed an ugly day but, as I said in the wrap-up, only from a short-term perspective. I still think we are consolidating and rotating. The fact that BK, whose earnings were up 300%, could only gain 2% on Thursday's action made me think that Cramer's hedge fund pals were up to something and I decided not to let them shake me out of my calls.
Also on Thursday, the crude inventories logged the largest weekly build in 4 years and, using homebuilder logic, the oil sector "rallied" on Friday. How much oil is too much? Well it looks like they're going to be producing about 90Mbd next year whether we want it or not and global demand trends say not!
Stock market physics suggested that we may have been rounding the aphelion of our orbit and heading back for another pass at 11,500 but we continued to hold steady, almost weightless one might say, as Cramer and his pals tried to pull the ground out from under us!
As I said a couple of months ago, there's always going to be plenty of people standing on the ground, watching the market break orbit when it finally happens and they will shout "It'll never fly!" louder and louder until you simply can't hear them anymore. It would be a shame if old man Cramer has become one of those people just as it would be a shame if we became the idiots who put on a silly suit and try to jump a motorcycle over a canyon (hey, I jumped 12 cars – I must be ready to go 7,000 feet!).
There's nothing wrong with being a daredevil as long as you understand the risks but there is plenty wrong with being reckless as a good motorcycle is a terrible thing to waste!
So let's go into next week with our eyes wide open, we took a risk this week leaving positions open on the assumption that the big boys are playing games – causing oil and real estate, which nobody wants, to go up while causing IPods and Flat Panel TVs (which everybody wants) to go down in some kind of Alice in Wonderland version of market reality.
It's OK to play in Wonderland if you think you have a handle on the logic but always remember the Red Queen Market Maker is very powerful and if you misplay your shot, it'll be off with your head!
Have a great weekend,
– Phil
