Thank goodness for ISRG!
That turned out to be our bright spot of the day as we bought out our callers and added more shares on one of our favorite positions and then, after the market closed, they got added to the S&P 500! Oddly they are replacing BSC so this is a surprising move that will catch many fund managers off guard, who were expecting another financial firm to come in but S&Ps logic is BSC is really included in JPM now and they'd rather add a strong growth candidate like ISRG.
Other that that, our day was fairly uneventful, we took a shot buying out AAPL. BIDU and GOOG callers, rolling down our positions and holding them naked overnight – just slightly encouraged by the pullback in oil to $130 but, ahead of the holiday weekend, we're not getting our hopes up too far. Our pals at FSLR continued to fall off a cliff but we even bought out that caller, expecting at least some kind of bounce.
Thank goodness we finally got a sell-off on our oil puts with XOM, CVX, SU, USO and HES all giving us a chance to lighten back up better than even on positions we've had to double down and roll during the week. A very important part of our strategy of following these puts higher by rolling up and adding to the positions is cutting back our position size when the opportunity presents itself. That way we have money to roll and double down if they head back up. Although you always want to think that "this is the big one," 3 out of 4 times it isn't so the odds favor a more conservative play.
Solars took a beating and I'm liking CY again as a side play to SPWR but let's not go jumping on things until we make it through the weekend. Our index puts are also doing fantastically well this week with DIA puts going from down 15% last Friday to up 15% on the Sept $132 puts and up 35% on the July $133 puts (rolled from June $132 puts) in just 4 days. The DIA puts are a perfect example of our very simple system of rolling up staying tight to a position, setting up for very nice profits on a pullback. The DIA puts have generally been a loser for us since March but following our very basic rules, they become a winner that offsets all the other losses in our virtual portfolio this week!
I mentioned using mattress plays this morning and the key to the mattress play strategy is to always have your protective puts in place. Members should refer to the K1 project for deeper discussion of this as it is essential for good virtual portfolio management and having protective puts (or calls if you are bearish) can keep you in the game when the market turns against you as they become a ready source of cash when the market turns.
Since the market could go up or down violently next week and since the VIX is fairly low at the moment (18) I am liking the strangle of the DIA Sept $129 puts at $6.92 and the Sept $124 calls at $6.92. Since there is a $5 gap between them, your total risk is $9 and that can be covered by selling calls and puts against them. Our exercise will be following this play and taking rolls when we can so let's take very small positions that we can play with. If you are generally bullish in your virtual portfolio, buy more puts than calls. If your virtual portfolio is already bearish, take more calls than puts. I'm going to run this in Complex Spreads, starting with 10 of each.
I'm not ready to go all bearish just yet. We had some rotten earnings this evening from ALKS, CA and DDS but this week we've had good reports from LOW, DRYS, CSUN, HD (beat but bad guidance), MDT (yay!), TGT, UNFI, HPQ, INTU, PVH, BJ, SOLF, TNP, CSC, GYMB, HOTT, LTD, LDG, NTES, NTAP, PERY, PETM, CRM, SNPS, ANN, PLCE, GME, HRL, STP, TTC, ARO, GPS and ZUMZ – hardly the look of a collapsing economy!
So let's not throw in the towel just yet, the market is trading down on a single issue – oil, and evidence is certainly mounting that it is nothing but a mad, speculative bubble that is destined to become a "house of pain" for the $1Tn worth of speculative money that has poured into the market over the past 5 years (about the same time and same amount that went into housing before it popped!).
Financial Sense has a great article called More on the real reason behind high oil prices: Part II but I can't find part one and there is another excellent article by the same author that indicates perhaps 60% of the price of oil is speculative, something I have been saying for quite some time as the fundamental price of oil should be about $70, not $130!
Thanks to MJ for providing this link and please members, share these with us as I'm getting burned out discussing oil and finally other people are taking up the cause to it's very nice for me to be able to just reference other people once in a while!
