Master Income Update -
Friday, 30 October 2009
Good morning,
After a little reprieve yesterday – stocks are selling off like mad today.
Again, theres a pretty consistent theme of what I do when the grim reaper is
unleashed cutting down stocks to size, and its this:
Sell a portion of shares (buying back the correct corresponding number of call
contracts –the furthest ones out of the money) – and not touching any of the puts.
What this does is leaves you with an overweight number of puts in relation to
your trade. And the remaining stock and calls are more defensive.
In addition, I often will roll down on the current calls I have. For example if
the stock drops from 63 to 56 and I have some calls I sold at the $65 strike
price – I will consider rolling these down to say, the $55 strike – and keep it
still in the same month of expiration.
However doing the above depends greatly on where you originally bought the
stock…which usually depends on how long youve been in that particular
trade.
I also will decide to roll down based on a significant happening with the stock.
If it is breaking down below 50 or 100 or 200 day moving averages on big time
volume – this is probably a crack the stock is not going to recover from for a
while.
Heres some of the moves Im making, like this, today:
Ive been in CMI for many, many months – on 100% of my position, I am buying
back the Nov 47 calls and selling Nov 43 calls.
On RS, on half my position I have buying back Nov 40 calls and selling December
35 calls.
On WFT, on 100% of my position I am buying back Nov 20 calls and selling
Nov 17.50 calls.
No new trades for today.
Over and out,
–P
Master Income Update –
Thursday, 29 October 2009
Hello!
I’m just now pulling out of the flu death spiral I was in. I caught
the you-know-what flu – over last weekend. I handled it as it socked
me one good. But I do have to say I’ve never had the flu where it
felt like my head was in a vice (not to mention how loopey I’ve been
thrown in the past few days coming out of it).
It’s a crazy deal – swerving all over the road when trying to drive,
and not being able to remember a conversation I was having with my
wife only minutes before.
Today – I am finally feeling mostly all the way back to normal.
The past few days have had some crazy action on some of the MIT
trades I’m doing. BIDU and CME are most notable as they both had
huge reactions because of earnings.
The bottom line is – this is why we get protected up in the positions
we take – for exact reactions and moments in time like this.
But it IS tricky to communicate every single “where-to” and “why for” -
especially when it comes to portfolio margin and how that plays into
things.
Suffice it to say that a growing account and growing buyer power had
me adding to several positions, especially during the past month.
Over the past few days I have had to lighten up (sell back) part of
what I bought to get my ratios back in order –
And in doing so, I’ve left the puts the same so I am a tad bit
overweight on the put side …all this because of the correction the
market may be entering into.
To be sure, there are a lot of moving pieces right about now – it’s
a time where I wish we could be together in a live seminar setting
where things can be put out on the table and seen and heard together!
For example….
A stock that you have an MIT trade makes a drastic 10% down move –
And even though you have written two sets of calls, and over time the
stock kept rising (making both call strikes now in the money) -
And even if you’ve been rolling up and out with your put strikes and
are fully one to one protected…
Now follow me…
Even though you have all this in place – the fact is the immediate
behavior of options can be sort of baffling if you’re new to this.
Let’s take the calls.
Just because they were once in the money and are now both out-
of-the-money, their value doesn’t just go down to zero with the sock
tanking 10%. Why?
Because there are still 3 weeks left until November expiration! And
with the volatility and unpredictability because of this 10% drop in
the stock – there is going to be some unknown “fear” premium priced
in.
That these calls don’t flatten completely to zero, doesn’t help our
math in our account (because the stock has moved down, but we
haven’t yet reaped the full reward on the call side.
And on the put side -if puts are $30 out of the money before the move,
then the stock all of the sudden trades right near your put strike
price – you didn’t get a $1 for $1 move on the downside. Yes, the
puts have moved up in value – but they are there for disaster
protection.
My point is – the stock movement is true and not fudged. But it
takes time over on the options side for the pricing to workout fully
in your favor.
And with portfolio margin, all this is magnified and turned up several
notches. So when things like this happen, there’s some adjustments
that have to be made.
But my challenge is I don’t want to confuse the living hell out of
you because of all these moving pieces!!
Beside these I have decided to cash in my VECO calls. I have
decided to ditch and get out of completely ASCA (tired of it).
ASIA just hit with killer earnings and forecast (it doesn’t hurt
having a day where the DOW is up 150 points or so either) – so I’m
definitely staying with these ASIA calls.
That’s it for now -
–P
Master Income Update -
Tuesday, 27 October 2009
Hello there,
This is one of those later-day updates.
First thing to mention is how much more the accumulation/distribution
is breaking down for the S&P 500 and Nasdaq (the two best market
indices to pay attention to as proxy for “the market” hands down).
There has now been a move down of 2 letter grades (from the A’s to
the C’s) in both. Match this up with still 91% of stocks trading
above their 200 day moving averages – and we could finally be seeing
a market that FEELS over-extended ACTUALLY over-extended.
Perhaps that crack or schizm is taking hold – where some profit taking
is bound to happen??
BIDU getting nailed because of it’s revenue and guidance shortfall
is an upclose look at a crack. Granted it gave investors reasons
to sell it off (unlike Apple and Amazon recently).
I’m saying all this because it pays to be on your toes and paying
attention to changes in the market cycle.
I’ve been saying this for weeks now.
A new challenging market cycle (meaning a turn down in the market
cycle) is a market you can trade in — but adjustments have to be
made!
For one “in the money calls” need to be sold. For another, one to one
put protection is an absolute essential. Put overweighting is also
very appropriate.
If you’re following each update on what I’m doing for each trade –
you will see some of this take shape – if indeed – the market cycle
starts on the down from here.
I’ve got no new trades today.
But BIDU is one I’m dealing with. Here’s a stock getting nailed 13-
15% to the downside.
I have full put protection here and the 4 call strikes I have sold
had all moved to be in the money before this hit to the stock.
What I’m doing here on BIDU today is a lesson in how to deal with a
stock that gets hit with a sledge-hammer.
For one, it’s unlikely it’s just going to snap right back from this
kind of news, price-action and volume. BIDU has gashed through it’s
50 day moving average today on 5 times normal volume.
Given this kind of damage – here’s what I’m doing.
30% of my BIDU position had Nov 420 calls sold against it. I bought
these back (after most of the premium had been flattened from it) and
sold Dec 370 calls.
20% of my BIDU position had Nov 410 calls sold against it. I bought
these back and sold Dec 380 calls.
(half the position has been dealt with so far).
I then sold 30% of my BIDU stock (I had to buy back Nov 390 calls
and Nov 400 calls that were sold against this stock).
I kept in place the 20% of my BIDU position that had Nov 390 calls
sold against it.
So here’s the result of it:
I’m now overweighted in puts (30% more puts than needed).
I have sold rich premium for both the Dec 370 and Dec 380 calls.
I have kept the Nov 390 covered calls.
I wanted to focus on this trade because it was the biggest one to
deal with today, by far.
Since the time is winding down – I’m going to zing this off your way
right now.
There’s more I did today – but nothing involved a new trade to tell
you about – fyi.
–Pirate
Traders Edge Network, LLC, 8869 S 60 East, Sandy, UT 84070
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Master Income Update -
Monday, 26 October 2009
Hello there,
I’d say “Good Morning” – but that’s now faded into the ether.
I am a few clicks slow physically today as I’ve been flat on my back
all weekend with the you-know-what flu. And it has sucked.
I’m still not fully 100% – but at least I had the energy to take a
shower. And I also can focus for longer than 5 minutes and not
get exhausted – which is an improvement!
I watched, like you, the market open strong and seem off to a
good start. Then all the sudden it reversed course rather violently.
Anyway – I want to tell you about a new find that I find compelling
enough to trade.
I’m trading it in my own accounts.
It’s on MOS (Mosiac).
Why?
This morning, I saw news that MOS was declaring and paying a special
one-time dividend. It’s going to be $1.30 payout per share. These
always perk me up and get my attention.
When I dug a little further – the company said that they also re-
affirmed their outlook as far as earnings guidance is concerned.
Knowing about this stock already (mostly because I’ve traded it
several times) – I know the volume to be fat – which goes the same
over on the options side. (fat= active, which means attractive
bid-ask spreads for the options).
Anyway- the date you need to be an owner of the stock (the “record
date”) is November 12th. The payout date is December 3rd.
Mosiac, by the way, is a gigantic firm that sells fertilizers and
other things to speed the growth of crops. Probably a business
that’s not going under anytime soon! (by the way, they are sitting
on several billion dollars in cash and this dividend will represent
about a half billion dollar payout).
The way I see it is this:
With an MIT trade, the math works out great. Hell, without the
dividend, the numbers are still good. The dividend will just be a
bonus/sweetner.
It looks like with this special dividend announcement – the stock was
going to adjust down commensurate with the payout (it’s tough to
say for sure because a bunch of stuff is trading down out there today).
Also – MOS does not announce earnings again until January 2010.
Another thing – with this kind of payout – it likely buoys the stock
a little…after all…who’s in the mood to sell shares with a big
time, special dividend payout coming around the bend?
Anyway – coming back full circle here. With an MIT trade set-up,
all we want is volatility and movement! This makes the calls
pricey (and palatable to sell) – and then we are going over on the
put side and buying 4-6 months out for our disaster insurance.
Here’s what I’m doing today on MOS:
Buying MOS stock –
Selling Nov 50 calls
Buying March 40 puts
I would have bought 42.50 puts if they were available, but they are
not.
So here’s why they are so out of the money:
1) this is a starter trade of relatively small value compared to my
overall account. This is a trade I hope to add to in the next week
or two. If this is the case, I will buy March 45 puts for that next
trade -effectively making my new puts “42.50 puts” (if the trade is
doubled and Mar 45 puts are purchased…in effect my position now
has March 42.50 puts).
2) I look at a special dividend like this as putting a kind of down-
side cushion on this trade (for the time being). If the stock sells
off, there’s likely going to be ready and willing buyers coming for
the shares so they can be entitled to this cash payout! I also like
that the company re-iterated it’s earnings guidance.
When all’s told. I’m not terribly bullish, and not freaked out
bearish on MOS. I want to get paid the dividend. And I want to get
into a trade I can sell income on for many, many more months.
Selling at-the-money call premium for November gives me extra income
and cushion from the start.
I hope all this explanation helps you with getting into my head and
see how I think about some of these MIT opportunities!
So that’s a new trade I’m getting into this morning:
As for some other moves:
I am rolling up 100% of my SBUX puts. I had Jan 14 puts. I am
selling all of these and buying Apr 17 puts. This SBUX trade has
really been a winner – and I can’t wait to stay with it and keep
selling call premiums every month!
UNG:
On two-thirds of my UNG trade I’m rolling the calls down.
I am buying back UNG Nov 12 calls and selling UNG Nov 10 calls.
With the stock under pressure, the result of this roll is now a
position that looks like this: I own UNG stock, and I have covered
calls at the Nov 11 and Nov 10 strike prices.
I call this “laddering” …and I do it on the upside as well as on
the downside.
GS:
I am rolling down on 100% of my GS trade. Buying back the Nov
195 calls and selling the GS Dec 185 calls.
I find myself in a “can’t lose” position now with GS. I own GS
April 175 puts which I’m nicely profitable on. I have a nice
profit in the stock which is at $180 now. So basically from here
on out – I can’t lose. The Nov 195 calls were way out of the money,
so instead of just waiting clear ’til November to do anything, I
decided to buy them back and sell Dec 185 calls for $6 or so. This
gives me $5 of upside captial gains if the stock wants to move up.
But if it’s done moving, time will work on my side and my downside
is set in stone.
Okay – that’s all I got for now.
Good grief – I actually have more energy than I thought…maybe I’ve
got this damn virus out of my system???
Over and out,
–P
Master Income Update -
Friday, 23 October 2009
Good morning,
Wow! The market cycle looks like it is really feeling the weight
of selling pressure (on Wednesday, the S&P 500 and Nasdaq hit
“C” ratings on their accumulation/distribution – which hasn’t
happened since July) -
Yet…
AMZN is white hot with big brash earnings numbers because of their
“Kindle” electronic reader and other stuff. BIDU is smashing up
through the ceiling (because of earnings). And CME is still on a
nice ride.
But on this same day, the DOW is down 100 points.
Amazon’s move this morning is stunning. Volume is already at
39 million shares. The daily average is 6.6 million by comparison.
The stock is up $23+ at $116 and change to a new 52-week high!
And you should see the option volume – it is off the hook across
many strike prices and many months!
So here it is at $116 and on fire. This is an extremely nice MIT
set-up here. The math checks out. The compelling factor is there.
And the “it” factor is there.
Someone might be asking “but what about the market cycle? and what
if this move is a headfake and AMZN tanks?”
Those are both great questions – and also big-time concerns if we
were trying to buy low and sell high. Not only where the stock goes
but also if you were buying options and seeing the time value wear
off the options.
But when you turn this around into an MIT – these concerns melt away.
For one – the buying conviction coming for AMZN is stunning. AMZN
is also not tired and extended – which means it’s more likely to
have some legs.
But, we can be choosey and go with slightly in-the-money calls in case
the stock wants to drift sideways for a while.
And in a worst case scenario – there’s put options underneath every
single MIT trade.
So here’s what I’m doing this morning (yes, a bunch more buying
power opened up for me since just yesterday).
I’m doing a new MIT trade on Amazon (AMZN). Buying the stock.
Selling Nov 115 calls and buying April 100 puts.
In other adjusting:
I rolled up some puts on ISRG on one-third my position:
Selling the Jan 220 puts and buying the April 230 puts.
I also have a smaller position left in SNDA. And what I’m doing on
100% of it is buying back the Nov 50 calls and selling the Dec 45
calls. This is further out than I normally sell calls.
–P
Master Income Update -
Thursday, 22 October 2009
Good morning!
I found a very compelling MIT trade/set-up out there this morning and
I want to share it with you.
First thing’s first.
I am not getting into this trade today. Why? Because I’m in a ton
of MIT’ers — the fact is, each one of us has so much capital and
so many things they can trade.
But I get asked this ALL the time…
“Why would you mention a stock/set-up, etc on here if you’re not
doing it yourself?”
I guess I can’t explain it in any plainer English than this:
I mention it because it is compelling and a trade I WOULD DO! But
the fact is, I’ve got a full boat of MIT trades right at the moment.
What I can’t figure out (at times) is why someone wouldn’t want to
have a compelling trade or set-up shown to them – even if I wasn’t
doing that particular one?
Anyway – I don’t want to get upset or pissed (I’ve been close to that
edge already today and don’t want to get any more inflamed!!)
So with all that said – I will proceed:
The ticker of the compelling MIT trade set-up is:
FFIV.
FFIV has tremendous volume and price action today. It happened to
be caused by a compelling pre-announcement for future better
earnings, etc. (they also announced earnings for the last quarter)
Anyway – here’s how it set-up:
FFIV trades right now for $48 (up $6 and change) -
The ideal MIT trade I would take is to sell half the Nov 45 calls
(going for $3.80 X $4.00) – and half the Nov 50 calls (going for
$1.20 X $1.30 as of this update time).
Then a purchase of April $40 puts (going for $1.95 X $2.05).
What are you doing here?
Well the calls chime in to be $2.50 of premium (essentially selling
half the 45 calls and half the 50 calls makes this a 47.50 call).
When you run the math this is a 5% cash-on-cash return on what it
costs for the stock.
Then there’s the cost of the puts…
But remember this KEY thing. The first month of an MIT trade is
called the “construction period” – it’s called that for a reason.
With the edge we have of the set-up, we’re trying to get past the
first month with our ship intact so as to sell premium into that
second month.
Once we’re there we really get in the driver’s seat – and when you
can sell premium month after month after month – that’s when the
wealth stacking can really add up and be exciting.
Anyway – I really like this trade here for FFIV. The reason why I’m
not trading it is (see above).
I am not doing any rolling out on any of my positions so far today.
Over and out for now!
–P
Master Income Update -
Wednesday, 21 October 2009
Good morning,
If you’ve been with me for many years – in the “directional days”,
this will hit home.
But I wanted to share a little thing on “Pre-announcements” as I’m
finding more and more of them.
And it’s this:
Yes, they are aplenty. And I’m seeing very compelling volume and
price action to many of them.
But if were trading them directionally (meaning, buying straight out
call options then sitting on my thumbs) – a lot of the stocks are
looking over-extended…meaning you chasing them more than being on
top of the situation.
Look at these two that are freshy-fresh “Pre’s” this morning:
SNDK and TUP.
They both aren’t exactly just coming out of a base!
Does doing MIT trades on them change things? Yes it does…because
you are entering into more of a neutral situation, but with an edge.
But even still with an MIT trade I would wait for some profit taking
before climbing aboard.
A further reason this feels like “chasing” is cause the accumulation/
distribution of the S&P 500 and Nasdaq is slipping a tad while all
these “Dow 10,000″ headlines are springing up everywhere.
An over-extended look to a lot of “pre’s” and stocks, combined with
this throws up a caution flag is all. And I want to make clear I
am saying this more for the directional trading side of things.
Take it for what it’s worth.
Nuskin (NUS) is another one that got HUGE love yesterday (they announce
their earnings on Oct 29th still) – but the story there, again, is
an over-extended set-up.
Here’s what I’m doing with my current MIT’s:
For CRM:
I am rolling up one-third of my calls:
Buying back the Nov 55 calls and selling the Nov 65 calls
For CME:
I am upping my put protection on half my position:
Selling the March 260 puts and Buying the March 290 puts.
For ICE:
I am upping my put protection on one-quarter of my position:
Selling the March 80 puts and buying the March 90 puts
&
Rolling out of the Nov 95 calls (buying them back) and selling
the Nov 105 calls on one-tenth my position.
For MA:
I am upping my put protection on half my position:
selling the April 195 puts and buying the Apr 210 puts
&
Rolling out of the Nov 210 calls (buying them back) and selling the
Nov 230 calls on half my position.
That’s what I’m doing so far today.
Over and out –
–P
Master Income Update -
Tuesday, 20 October 2009
Good morning,
This is one of those days I could be by the computer all day and it
would seem like 5 minutes went by.
(not that I WOULD do that – especially looking out the window on a
very beautiful San Diego morning and day).
The game last night was electric and off the hook cool. Never seen
anything like it!
Now to this: I have to be running out because we all have to get
back home – I’m going to fly in one of those bitchin Cirrus turbos -
you should google it and watch the video where it deploys its
parachute -
There are tons of pre-announcements that look juicy. There are trades
to add to that keep proving themselves over and over again.
Here’s what I am doing right this minute (then again, I have to hit
the road, which will make this update/day short today).
I am adding to ICE and CME.
CME is having rumors fly all around that they are going to buy the
C.B.O.E. CME is active, volatile and also pays a dividend (around
1.5% I believe) -
Here’s the extent of how much I’m adding: I’m making my current CME
MIT trade 25% bigger.
Here’s the new strikes for this addition:
I am selling CME Nov 320 calls
I am buying CME March 280 puts
For ICE – I am making this trade 10% bigger:
Here’s what the strikes I’m working with:
selling the ICE Nov 105 calls
Buying the ICE March 90 puts
On GMCR – I am rolling up my protective puts on half my position (the
other half of the puts are in good shape).
I am selling the March 55 puts and buying GMCR March 65 puts.
GMCR is really bubbling up there – even more so today.
Okay – like I said – this one is shortened. By the way, I really like
how MHP is acting. Same with MRK for that matter (MRK announces earnings
in 2 days by the way).
Both of these are current MIT trades and are worthy of making them
bigger.
That’s it from me.
Over and out -
–P
Master Income Update -
Monday, 19 October 2009
Good morning,
I’m in a little slice of heaven this morning – here in San Diego.
Tonight I’m headed out to my first live Monday Night Football game
(Chargers/Broncos) – and it should be a madhouse and a good one!!
There is a new, compelling pre-announcement this morning. It’s a big
name company. And the reaction to the pre-announcement is exactly
what I like to see (big price action and volume to match)
The set-up is just what I like to see. It has a 3.3%
dividend yield — it’s all systems go until I looked at the options
part.
The options are actively traded and have decent bid/ask spreads –
no problem there. However, the premiums just didn’t work -as in-
they are just not big enough.
The ticker is: ETN (Eaton). Again, it’s everything I like to see -
but I also want to have ALL the pieces of the pie to justify pulling
the trigger and committing capital to it.
I’ll show ya. ETN is at $64.77, up $4.35. The Nov 65 calls trade
for $1.80 x $1.90. These contracts are lively and actively traded,
but I’d want to see close to $3 for these calls.
ETN would work for a directional trade – (buying 3-4 month out calls
and profiting if the stock keeps going higher) – so that’s the main
reason I mention it.
As for the market –
The path of least resistance right now is for stocks to move higher.
The Dow is again over 100 points! Apple announces after the close -
and we are smack-dab in the middle of earnings season.
That means stock price swings – and it has me staying pretty much
put in what I have going right now.
Here’s some moves I’m making in the ‘ol account:
I am adjusting GMCR:
On one-fourth my position, I am selling Jan 60 puts and I am buying
March 65 puts.
On YHOO:
I am selling Nov 17 calls on half my position (half my calls expired
worthless last Friday).
On CME:
I am rolling out on one-third my position:
Buying back the Nov 290 calls and selling Nov 310 calls
On VECO:
I have a “calendar spread” going which is just a funky way of saying
I’m doing an MIT trade but with Jan 17.50 calls in place of the stock.
Anyway – this has grown now past a double in price – so this morning
I’m buying Nov 22.50 puts (one to one with my calls) to help protect/
cushion any kind of crazines as it travels over its earnings
announcement.
Right now, VECO is trading at: $25.92.
That’s all for now!
Over and out,
–Pirate
Master Income Update -
Friday, 16 October 2009
Good morning and good day!
First of all, let me explain what that subject line means:
O.E.F. stands for “Options Expiration Friday”
If you’ve never heard of the term “O.E.F.” – that’s okay, you’re
normal – I just made it up!
(the OEF part that is) -
Anyway, as I’ve already rolled most every single thing into November,
there’s a couple things for today.
First of all – my largest position (which is a full quarter of the
account balance) is in ICE. 3rd to 4th largest is my position in
CME.
Both of these are jumping out of the gym today. Why? It’s because
of some Capitol Hill rumblings about reforms in the derivative markets,
mostly about the demand that trades are transparent.
viola…that’s how you trade derivatives transparently: on the ICE
and CME exchanges.
Don’t know how long this ride lasts – after all these stocks got
pummeled when hearings were announced several months ago.
Talk about volatility – and if that ain’t enough – both of these are
staring an earnings announcement in the face (ICE: Nov 3…CME: Oct 29)
But sudden action like this can lead to eventual profit taking -
ala AMED yesterday (which is why yours truly rolled this out into
the November 40 call when we rolled it a while ago) -
1/9th of my sold calls on ICE were Nov 90 calls. This morning I am
rolling out of those (buying them back) and selling the ICE Nov 105
calls.
On CME, I’m taking the liberty of this geyser-like day to roll out of
40% of my puts:
Selling CME Jan 270 puts and buying CME Mar 280 puts.
The only remaining Oct calls I have are on 1/2 my YHOO position where
I’m just going to let them expire worthless (these are Oct 17 calls).
I also have a small amount of RST Oct 22.50 calls – that I’ll let
expire today.
Other than that – everything is all systems go over this weekend and
on into the next expiration month of November.
Over and out for now -
–Pirate
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