As a final post of my abbreviated/substitute Kingship, I’d like to wish everybody here and back in the old country a very Happy and Prosperous New Year!
As is the tradition, we play the national anthem right on the stroke of midnight. So here’s a nice version that someone posted on YouTube last year, complete with some beautiful shots of Hungary. And yes, it is a gloomy “song,” but that’s how we roll in the Country of Pessimism.
As I’ve mentioned a few times before, with the market lulling everyone to sleep, there’s no time like the present to put on some long volatility plays. Buoyed by the early success of my AAPL strangle (up 5% in 2 days) and the decent start of the PM straddle (up about a percent today), I’m ready to proceed with several others.
The goal is to have at least a quarter, if not half of my portfolio in such longer term plays. By keeping my usual directional call/put trades low risk (1%), I usually have a large percentage of the account just standing still. This does collect some nominal interest, but not enough to counter inflation. So, really, I’m just losing “value.”
The candidates for straddles/strangles fall under 2 categories. The first, like AAPL, are stocks that have been on a tear and thus have become quite “overbought.” Shorting them outright would be madness (since who knows how long the run can go on), but straigth up buying may not be the best idea either. So in comes a straddle, which can “bank coin” in either direction (especially if the IV% & ATR are low). The only way it wouldn’t be profitable is if the stock enters a longer period of consolidation.
An obvious choice here is The Fly-special GMCR, up 30% this month.
Play: Jun’10 90./85. strangle (5% risk) – 20% in 6 months; b/e @ Jun. expiration: $66 & $109
Another one is X, up over 50% in 2 months.
Play: Jul’10 55. straddle (5% risk) – 25% in 200 days; b/e @ Jul. expiration: $40 & $70
The second category encompasses stocks that, like PM, are in consolidation right now. Strangles/straddles in this case are betting on a sharp/big move in both stock price and/or volatility. A couple plays here as well, with the first obvious choice being the market itself via SPY.
The second one is the usually quite volatile FSLR, stuck in a flat line for most of December.
Play: Jun’10 135./120. strangle (3% risk) – 25% in 6 months; b/e @ Jun. expiration: $90 & $165
So all that combined with AAPL (10% risk) and PM (2%) makes me 35% invested in long(er) term straddles/strangles. I think that’ll do, for now…
Thu Dec 31, 2009 10:00am ESTComments Off on DP Buy: PM Mar’10 48. Straddle
PM, back trading at its original spin-off price of a year and a half ago is my next long(er) term hold as we enter 2010. Not because I have any vested interest in tobacco or anything…it’s purely a technical trade, while following some “smart(?)” money.
The “smart(?)” money popped up yesterday in the Mar’10 48. call straddle, purchasing a bundle of 2500 (so 5k total contracts) at about ($2.50 + $1.7/1.75) each – so about a million greenbacks invested in a 10% move in the next 2.5 months. Breakevens at March expiration are $43.79 and $52.20.
And seeing as how PM’s been consolidating nicely in a picture-perfect triangle over November/December, I’d say that a breakout, either way, is imminent. The absolutely flat IV% of the past week, the rock-bottom that the ATR(5) is hitting, and the mellow Stoch’s that have been hugging the 50 for a month are all absolutely ripe for some “action.”
Just like the $CPCI (detailed earlier), the rest of my portfolio is also setting up for an early 2010 selloff.
Of course, I did the same at the end of November/beginning of December…to mostly terrible results (December has kicked my ass to the tune of -7%…more on that tomorrow). Here’s hoping that this time, it will indeed be different:
For my last potential new trades of 2009, I have the following lined up:
Thu Dec 31, 2009 3:08am ESTComments Off on Sell the New Year! + $CPCI Performance Review
As you may know, I’ve been trading a simple, contrarian system based off the CBOE’s index put:call ratio ($CPCI) since spring/early summer. While its performance hasn’t been earth-shattering (especially in a year when the S&P was up 20%+), it has most definitely satisfied my expectations… In fact, considering the ultimate simplicity of it, I’m quite pleased.
Essentially, whenever the day’s reading (published after the market’s close) is more than 1 standard deviation away from the 6mo. moving average, I either go long or short SPY (via calls/puts) at the next open. The contrarian part is where I go long if the reading is too bearish (1+ std.dev. above the put:call ratio) and short if the reading is too bullish (1+ std.dev. below the put:call ratio).
Simple, easy, effective.
Its latest trade, and the first one for 2010 (since it always books the trade on the 2nd day) will be to short the SPY via Feb’10 112. puts. The entry signal was today’s reading of 0.99, which is just below the lower “threshold” (6mo. sma – std.dev.) of 1.08 (1.34 – 0.26).
The system performed amazingly well over the summer (16 straight wins); “just ok” since then. It ended the year with back-to-back losses, which hopefully won’t carry over into 2010.
Overall, for 2009, we have a net ROI of 6.91% with 33 wins and 12 losses.
A hypothetical $100k account trading it at 2% risk would’ve had shown a gain of 6.32%. Not too bad, especially if you increase the position sizing. Hypothetical returns at 4% risk (with options, I always take the entire position to be the total risk) would’ve been 13.32%, while at a still reasonable 10% (since it would literally take a black swan for an ATM SPY call/put position to get completely wiped out in 2 days) your returns would be an impressive 34.65%.
Trade detail:
All the Trades Taken by the $CPCI-SystemComments »
After 2 years, 3 months, and 21 days of faithful service, the very first iPhone I have ever bought/owned has bit the dust. To be specific, the lower third of its touchscreen died…but since that part contains the “Slide to Unlock” zone, the whole device has been crippled.
Mind you, I had moved on the 3GS earlier this year and the original became a hand-me-down to the wife to be used as a glorified iPod Touch. She found it highly useful as a day-planner (with iCal and then, just recently, 2Do), portable gaming device, and occasional mp3 player. In fact, after the initial skepticism, she has become so dependent on it that now she’s balking at the idea of going back to her previously standard Franklin-Covey planner.
While the pressing question of what to do now (buy a “real” iPod Touch ($100+)? upgrade her RAZR to an actual iPhone ($50+data plan)? wait until new iPhone comes out this summer?) is occupying her, feelings of slight dissatisfaction are growing in me.
I mean, seriously…I am really expected to be satisfied with a useful life of a little over 2 years for a device that cost several hundred dollars?? My 10-year-old Siemens and LG phones still work like a charm, and I’d assume my beloved Sony-Ericsson is still a loyal servant to the hoodlum who stole it from its rightful owner in Portland, OR (damn hippies!). The more I think about it, the more unacceptable this is. And yeah, it could be repaired…at the cost of a brand new iPod Touch of iPhone 3GS. Thanks, but no thanks.
Sour grapes? Maybe. Perhaps more so if I was the one still using it. Regardless, I’m shorting AAPL, out of spite, via puts @ 208.72 (if it gets there; a penny below yesterday’s low). Will this add insult to injury? Stay tuned!
And since we’re on AAPL…this is as good a time as any to start putting on some longer options plays in honor of the new year. Say…20% move in 200 days (Jul’10 220./200. calls)?
Risk Profile for AAPL Jul'10 Strangle
You might think that putting a strangle on at the end of such a monster move as AAPL has had these last few month may not be the best idea…and you might be right as consolidation in a specific range could very well occur. But, first and foremost, a long strangle/straddle is a volatility play…and AAPL‘s IV% has been stuck in the low 30’s for quite some time, while historically it likes to be up closer to 50.
And with increased competition from MOT and GOOG, Apple cannot just rest on its laurels. Perhaps the iTablet will become a reality and a big hit. Or perhaps Steve Jobs will have another medical emergency. Regardless, a 20% move, either way (in the first half of the year), is easy to envision.
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PORTFOLIO UPDATE:
WEDNESDAY’S PICKS – more puts:
puts: AAPL (@208.72; as mentioned above), ACI (@22.88), AMGN (@56.89), APA (@104.), CAM (@41.41), CHK (@26.26), CREE (@54.50), NUE (@45.50), PCX (@15.50), SBUX (@23.35), TBT (@49.94), X (@54.)
