Recap for the week ended July 15, 2016
Wrong, But Maybe Not for long
We remain written against all of our long call positions in AA and HL as this has reduced our costs and therefore our risk.
We had minor losses but some big gains this week finishing with a YTD gain of just under 70% on the $10,000/unit Options Only account.
I’d like to take the time to explain why you will sometimes see me text stock trades. Since this letter is devoted primarily to options, the Weekly Strategies letter that comes out on Sunday evening is based on a $100,000 per unit that deals with both stocks and options.
As an example, today I wanted to “fade the rally” but although I could buy the SPXU in the “big” account, the options have a lot less liquidity. This made me have to go to the QQQ puts which are quite liquid for both accounts. 200 SPXU wasn’t enough of a hedge against an overbought and extended market so I did those in the big account also. I hope this clears up any questions.
Now, as to the headline, the news from Turkey came out right near the close, and although the SPXU had closed with a minor gain @ $23.95, it actually closed the late (until 8:00PM) @ $24.32. The QQQs closed at $111.80 and $111.09 respectively. Based on these closes and the news over the weekend, Monday may be a pretty tough day.
I still stand by the rationale that I posted Thursday:
The basis for these positions are the following statistics; 60% of the S&P500 are yielding more than the 10yr US Treasuries (a point at which we generally see a reversal, and 82% of those same stocks are above their 50 day moving averages, also in historic high ground. These 2 statistics and the fact that we have come well over 1300 Dow points and over 150 S&P500 points makes me think we have a tradable pullback. For that reason I’ve taken a few profits and completed the spreads noted above and am looking not for specific “point” moves, but rather I am going to issue sell stops for reversals.
The whole fundamental picture does not generally change as quickly as market psychology, but the fastest way to stop the market in its tracks is geopolitical problems. Everyone knew that Turkey was in trouble and in a troubled area, but nobody knew when it would erupt. So, not exactly a “Black Swan” event…maybe a little dark grey…
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