Well, the past two weeks have been incredibly busy and it feels like I am doing all I can to keep my head above water, but it feels like it isn’t working. Last week, I put in 75 hours and work. This week, I was out of town yesterday and today and was very busy during the day with minimal internet access. Now, it is 11 pm in the hotel so I will be making this short so that I can get some sleep.
Options Expired Today
Today was options expiration which will end up being a good thing for me since I have some puts that will be exercised. The most important one for me is the ONXX $46 strike puts which I purchased a few weeks back when ONXX was making a spike in price (back when the DOW was over 13,000). I did this because I could lock in a profit compared to my basis.
Well, ONXX closed today at $41.82 so I will be selling those shares for $46! Yippee! Now I plan on picking up some Nucor shares next week since that is part of my dividend plan. I will still have a few ONXX shares left so I purchased some additional June $38 puts today. I will have to let you know what the new basis becomes, but it will likely be close to $42 per share. Then I could sell the June $42 calls and end up with a profit if called.
I will also sell some DRYS and SLW shares as well when their puts get exercised. I will be replacing those shares at a cheaper price so will be able to profit by the price differential. This is what the summer will likely be about. Hopefully, it won’t be a repeat of 2008, but you just never know so it helps to have a plan.
Here are some carnivals that have featured my three blogs:
Plus a few more:
In my last post, I updated many of the changes that had occurred in my positions due to options expiration last Friday. Well because of those changes, it has been a busy week and I have had a lot of additional adjustments happening so I thought I would make a few comments.
As you know, my position in Silver Wheaton (SLW) was sold due to the exercise of the April $30 put options. I bought back one-third of that position at $28.50 plus a few more shares at $28 snagging a significant discount. Now I went ahead and sold some May $29 calls for $1.25 per share meaning that I will have made the $1.50 discount on the repurchase, $1.25 on the premium, but lost $1 for selling at a lower strike. However, the net will be $1.75 per share profit provided that the stock gets called away.
Yesterday, I was able to buy back the next third for $29.90. I still have the stock uncommitted so I could sell some additional calls. Gold and silver are up a little this morning. I suspect the weak GDP number means that traders are thinking the Fed might have to get more active in trying to stimulate the economy and inflation expectations down the road have been heightened. Who really knows? I will keep trading my system month to month. Right now, I am working on decreasing the basis in SLW so any shares that I add will do just that.
Do to the discount that I got in the repurchase and cash from selling calls, I think I might be able to add some shares to be ready for the next upswing. As I work out my position in AKS over the next few months, I want to use those funds as well to add additional shares of SDRL and SLW.
This has been a big week in Onyx Pharmaceuticals (ONXX). Buyout rumors caused the stock to pop over 8% on Wednesday. I ended up buying back some May $40 calls that I had sold as well as some May $42 calls. I then sold some May $45 calls and plan on selling some $47 calls when I can. Unfortunately, yesterday was sideways and today is looking somewhat weak to start out. I may just buy some put options to protect some of the gains and see what happens. I would hate to not be able to take advantage of a nice little spike, but if the rumors dissipate then the stock will languish for sure.
Other Calls That Were Sold on Strength
I also managed to sell some SDRL May $38 calls, STX May $30 calls, and INTC May $28 calls on strength yesterday. I had simply placed some good-til-cancelled (GTC) limit orders earlier in the week and they happened to all hit yesterday. It was definitely a good thing with STX since it looks to drop about 8% today. Let me tell you, volatility can be crazy sometimes which is why I have many protective puts since it is impossible to know how the market will react.
There has been a lot of volatility, fear and uncertainty in the stock market recently. Personally, I don’t think that there will be any changes in the near future and that the volatility will continue. I am still suspecting another recession in the next 12 months and a return of the Dow to 4 digits. Of course, I could be wrong but why take any chances? I will keep using protective puts on my retirement accounts. After all, they just saved me 9 percent of my portfolio. I am down about 4% since the downgrade.
Today is option expiration so those stocks that closed below the level of my puts yesterday will automatically be sold. I haven’t cared much that Akamai (AKAM) traded below $21 per share since I have puts that will be exercised at $27. They will sell today at $27 and I will have $6 per share extra in cash when I buy back on Monday. I will likely just sit on my current positions and wait for the carnage to end and a trend to re-establish. Then I can buy more shares with the cash that I have.
Avoiding Big Losses
I have become convinced that the best way to make money is to not lose big. Swinging for the fences makes for good stories, but winning is often times more about not making any forced errors. It is avoiding turnovers and protecting the ball. It is about controlling the game and not giving up a big play.
The same holds true for investing. I don’t want to lose 50% because it takes a 100% gain just to get back to even. I would much prefer to lose only 10% even if I have to give up a little bit of upside during bull markets. That is why I started using protective puts in 2007.
The timing couldn’t have been better since when the market was down big, I lost only 18%. It didn’t take long for me to get back to where I was before. You don’t necessarily have to use options to control your risk, but you should have a plan when investing whether it is “sell in May and go away” or dollar cost averaging or asset allocation.
For me, put options make the most sense. I have been trading options for over 10 years and have a good sense of how to use them. I have been sharing my trades on two of my stocks, SLW and ONXX, over at OptionsDude.com to give readers an idea of how I have been trading in my retirement. I actually thought my put options for both of these stocks would be exercised, but was surprised over the past week. The price of silver soared on Friday (and Silver Wheaton stock with it) such that I actually had one ray of sunshine in my portfolio.
This is a little shorter post than usual, but I wanted to share a little about how I am dealing with the volatility in the stock market especially now that options have expired, and results are in. I have been able to sit back and watch what is happening rather than worry too much about it.
Readers: What are your thoughts on recent market volatility? How have you been handling it? What are your plans going into the rest of the year?