Covering High return Balanced Investing Strategies To
Make Money In Up Or Down Markets
A Publication of Princeton Research, Inc. (www.PrincetonResearch.com)
Contributing Staff: Michael King, Charles Moskowitz
July 10, 2016
Charles Moskowitz Discussion
Well, the second half started out pretty darn well, all things considered. I didn't want to be particularly heavy in the market and although I was right on the money in the midweek note on the bonds I had yet another loss in the TBT calls. Sometimes you can have the facts and the numbers right and still manage to lose money in options.
The loss for the week was only $180, bringing YTD gains back to $6337. However, the open positions don't look too bad. We own 10 AA 7/9 calls at $ .73 (closed $ .89) and we now have a covered write in the HL 9/3.50 calls and the 9/6.00 calls. The strategy may escape some, so I'll explain the reasoning.
We owned 6 of the HL 9/3.50 calls @ $ .85 when the stock was $3.85 for a cost of $510. We sold the first half of the position last week @ $1.99 and took $597 out of the trade, so no matter what, we have no risk in the balance. The problem when a trade goes so far in the money it becomes a proxy for the stock; For example; when the stock hit $5.60 the options were only $2.10 bid...no premium...So, in order to protect the trade I sold the 9/6 calls and got paid $ .52 and took in an additional $156 meaning we now have a net profit of $753 from a cost of $510. We now have a spread from our long @ $3.50 to the calls sold @ $6.00. On the remaining position, a $2.50 spread that costs NOTHING and at the close Friday was worth about $3 / spread to us, or an additional $750.
The A.A.I.I. numbers in the market lab still show some serious ambivalence. Bull numbers were up, but still show us 20% below average, bear numbers are 10% below average while neutral show us well over average by 33%. The argument can be a bit confounding since we are just under new all-time highs, and usually the public is overly bullish. Not so this time, which argues for more rally to suck "everyone" in from the sidelines.
Conversely, Mike makes the point later in the letter that mid- July generally starts the "worst 4 months for the market.." Another twist to add is that some of the more defensive issues, stocks that people with concerns about the market on the way down, that pay good dividends and make "things" that all consumers still need to buy, General Mills (GIS), Johnson & Johnson (JNJ), Church & Dwight (a big pick of Mikes much lower..(CHD), and Walmart (WMT) are all at new all-time highs already. These are running ahead of the topping action that we see at reversals. So, what's an investor to do? We are staying lightly invested, probably missing out on some of the more volatile names like AAPL, GOOG, NFLX that seem to be struggling anyway, and making trades that have a higher degree of certainty and better risk/reward profiles...CAM
All trades were based on your participation in the texting service to receive updates. Previous closed out trades not listed here may be seen in previous market letters.
New trades $ 10,000 account...In Texting we have a limited amount of words. In the interest of brevity: OPTIONS ONLY: 1 January , 2 February. The Quantity and Strike Price for each trade is specific. Trading is hypothetical. We may trade weekly options and they are noted: SPY 1/25 147 for SPY Jan 25th 147 Calls or Puts.For questions please call 702 650 3000. Closed out positions are found in previous letters dating back five years: July 4th;June 27th;20th;13th:6th; May30th; 23rd;16th;9th;2nd; April 25th;18th;11th;4th; March 28th;21st;14th;7th; Feb 29th22nd; 15th; 8th; 1st;Jan 25th; 18th; 11th; 4th
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