Daily Trading 4/16/21

Daily Trades

In all of my complaining yesterday about the dearth of decent trading opportunities, I apparently overlooked that two trades took profits–Sony (SONY) and Constellation Brands (STZ). I won’t complain about that.

Today we opened up positions on Splunk (SPLK) and Roku (ROKU). I am not in love with either of these trades (particularly not the Roku one), but money on the sidelines makes no money. They’re both trades with expirations selected to sneak in right before earnings, hoping there will be a stabilization of the stocks (or price appreciation) prior to earnings.

In our eternal battle with Peleton (PTON), it has lived to fight another day. I was going to stand pat and take on the stock today, but when it slid to around $116 in the late afternoon I changed my mind on that and rolled it out another week at the $118 strike to pick up another $240 in premium. This lowers our cost basis to $111.20 per share and gives us another week for PTON to maybe close above $118. The reason I waffled was because, though the at-the-money covered call would have brought in around $800, it would had us holding long stock during earnings. If I went to weekly covered calls to try to get the stock called away before then, those were only paying around $220 a week. If we are going to make similar premium with rolling the put a week compared to taking on the stock and selling a covered call, I’ll stick with the put for now, particularly because I am not bullish on PTON.

We should have 100 shares of BUD being called away today. There was no good reason to roll out that in-the-money covered call as we still have 100 shares with a covered call expiring 4/30. We can find another home for that capital if volatility returns after earnings. I’ll have to do a breakdown video on this BUD saga once the second lot is gone. It’s a great lesson in how sometimes taking on the stock can be more profitable (when done infrequently and on the right tickers), but also how over-trading can make you less profitable than being patient.

Communitea Trade Update: Oh Lordy Fisker (FSR) is sinking. It’s down to around $13 per share and we’re holding the $12.50 strike. This is why I don’t like EV stocks, but this is a great example for a learning exercise as a Communitea trade. You may remember our last Communitea trade ($17.50 put on SUMO) did take on heat as well before recovering and making us a nice profit. Will Fisker do the same? Who knows, but we will be patient for now and adjust if we must. I will admit I did double up on the position this afternoon when I could get $120 premium for a second contract, which brings up my average premium per contract to $100 and lowers my cost basis to an even $11.50 per share. If it keeps sinking I may look at selling a contract or two at the $10 strike, but we are nowhere near that territory yet. For now we’ll just calmly wait on this one.

Daily Trading 4/15/21

Daily Trades

Happy Tax Day to all of you who have procrastinated. If you’re trading options like we are, you may want to consider having the government keep the refund as there’s no way to garnish our trades for taxes. Therefore we tend to owe money at the end of the year and forfeiting your return to pay towards that is one way to avoid that bill. Normally it wouldn’t matter, but if you owe too much my understanding is the IRS makes you file taxes quarterly. I’d personally like to avoid that. Now there are some great ways to make money trading options and shelter the proceeds from taxation, but that’s a whole other aspect of our trade strategy that I’m ultimately going to make a course on.

Had a long chat with Tim today about our new favorite topic–how there’s next to nothing worth trading. To put it in perspective on how bad it is, I had two orders out today: one for the $140 strike of JP Morgan Chase (JPM), and one on freaking Nio (NIO). I was only asking for $120 for the $140 strike of JPM but never got filled. Nio is one of my least favorite stocks in the world, but I shouldn’t gripe because the $28 strike paid $81.

I had read an article about how the last several months there has been consistent selling off leading to the day of monthly options expiration. That day is tomorrow and disappointingly I didn’t see any significant selling off. How long will the volatility gods make us wait?

Speaking of tomorrow being the expiration for the April monthly options, it will be an interesting day of note. It’s looking almost certain that 100 shares of our Budweiser (BUD) stock will get called away at the $65 strike (it’s trading over $67 all of a sudden).

More intriguing is how we have come down to the wire on Peleton (PTON). We are at the $118 strike and it’s currently around $119. If PTON stays north of $118 we’ll keep our premium and finally be free of this position. If it sinks below $118, but above $113.64, we’ll gladly take on the stock above our cost basis. If it looks like it will fall below $113.64, we’ll be rolling it again. With so little tradable tickers, at least we have something to look forward to.

Communitea Trade Update: Fisker is down in the ballpark of $13.50, which is only a buck above our strike price. Since it’s such a cheap ticker I may size up this position tomorrow, as the second contract would bring in something like $105 dollars, averaging my premium on this trade to $92.50 per contract and lowering my break-even point a tinge. Not exactly sure where FSR plans to find support, but we’ll be finding out.

Daily Trading 4/14/21

Daily Trades

Today was all about the Health related stocks. Our Moderna (MRNA) and Novavax (NVAX) positions took profits. I don’t know if it was related to the big news on the Johnson & Johnson (JNJ) vaccine being halted or if it was just a coincidence.

Obviously my next move was to see if JNJ was tradable. It had a down day, but nothing nearly down enough to make the premium work. Earnings are in just a few days and even with that variable in the mix I just couldn’t find a good strike or expiry to go after JNJ.

So instead I settled for a contract on Atlassian (TEAM) at the $200 strike. Still sitting on a lot of dry powder waiting for volatility to return.

Communitea Trade Update: The Fisker (FSR) position is sliding in price. We’re in the $14 and change range with our strike and $12.50. For now we just hang on and do nothing.

Daily Trading 4/13/21

Daily Trades

No home runs today but a lot of things slowly trending in the right direction. Positions burning some theta, another day getting us closer to being on the other side of earnings. Most positions are in the green, the only two that aren’t are DraftKings (DKNG) and WD40 (WDFC). DraftKings has, at least for the moment, caught that support at $58 so it’s only slightly down due to some near-term Vega and inexact timing on our entry.

On the other hand, we seemed to have caught a bit of a falling knife with WD40. I still like the $240 strike, but should have waited another day to enter the position. Between the stock price coming against our position a bit and the slippage in the chain (they’re not very liquid options, which is incredibly ironic for WD40), we are in a place where we have to sit through some heartburn but can’t adjust yet. My two first adjustments when the price falls quickly against an option we put on are:

  1. If there is still decent buffer on price and I’m still confident in the strike I will sell a second contract at the same strike to average up the total premium received.
  2. If the original strike is looking dicey I will explore what I call a “staggered” second contract, where I sell a second a few strikes below the first for the same or more premium.

In the last week I’ve actually done one of each of these adjustments. I performed adjustment #1 on DraftKings yesterday, which at the moment seems to have been the correct move. On Friday I performed adjustment #2 on Alibaba (BABA), which in hindsight was definitely a decent move.’

The issue with WD40 at the moment is, due to the price of the underlying (around $256 per share at the time of writing), we can only really allocate one second contract to the position. Since the timing of the first one was off, we don’t want to spend our only “double down” move too early as well. Though it’s approaching oversold territory, there’s nothing to suggest it can’t keep falling for the time being, so doubling down the $240 strike is not advisable. Yet it hasn’t fallen enough in price to justify staggering to a second lower strike. So patience is the key for the next few trading days. We can be more aggressive in sizing into cheaper tickers, but the next move here has to be a prudent one.

Today we closed a contract at US Steel (X) that was expiring Friday as it had dwindled down to $2. I try to buy back expiring winners rather than letting them expire as a best practice. There is no point in time exposure for $2, just give me my capital back. We have another position in X still on for a later expiry anyway.

I opened a “get your beak wet” contract on Micron (MU) today at the $82.50 strike. I don’t normally like to trade tickers fighting against highs, but it’s one of the few technology tickers we follow that’s past earnings. The 1.5% potential return on capital is way better than we’ve been getting on “real” companies lately, and the ticker is inexpensive enough that we could do both of the adjustments we’ve outlined above and not sweat allocation.

Speaking of allocation, it’s only up to around 18%. I can see some opportunities starting to come to the surface, but our WDFC trade shows not to scrounge too much.

Communitea Trade Update: Our first Communitea trade (Sumo Logic $17.50 4/16 expiry) took profits today. I bought it back for $11. After commissions this trade netted us $50.70 on $1750 of capital in 26 days with a 2.9% net return. This return and duration equates to just shy of an 82% annual rate of return.

We still have our second Communitea trade on, the Fisker (FSR) $12.50 strike expiring 5/21. This trade is currently is about flat at this time. The price of FSR keeps slipping, but the position isn’t in any trouble yet. If you wanted to get in on this trade you still could get the $80 premium we got for it, maybe even a buck or two more.

Daily Trading 4/12/21

Daily Trades

I have been pretty bored trading lately, but the boredom is ending. We had trades on DraftKings (DKNG), Moderna (MRNA), and Palantir (PLTR) queued up for opening bell and all got filled rather quickly. I am not a fan of opening bell trades but I’m also sick of having so few trades on. The DKNG trade started going against us pretty soundly so I sold a second contract at the original strike ($55) to average up our premium. It looks like it could catch support here at $58, if it doesn’t it should be heading for $54 which is just above our cost basis.

About a minute after opening I noticed our original Alibaba (BABA) trade took profits. That’s right, we live in a world where being fined $3 billion dollars can be good news. Mainly because the market had priced in a much worse fate for Alibaba. Even the staggered trade we put on Friday came off the board, so we are BABA-less at the moment.

We also took profits on two Ford (F) contracts that have just been kicking around.

I ended the day by opening a position on WD40 (WDFC), which has been getting hammered the last couple days after earnings. We were able to get 1% premium out of the $240 strike, so I’m interested to see how this one goes as we’ve never traded that ticker before. There seems to be slippage but I like boring companies in sectors I don’t trade as much.

Speaking of which the diversification breakdown is radically better than Friday, and I envision it improving throughout this week:

The overall allocation is still very minimal at 17.53% allocated, which is why you see me stretching a bit on some of these trades by messing with less reliable tickers and pulling in more modest premium per trade. I believe earnings will knock quite a few stocks off their game and will introduce better entry points for many, if not most, tickers.

Communitea Trade Update: Sumo Logic (SUMO) is close to being off the board. If it stays stable in price my buy-back order at $11 may even kick in tomorrow. Fisker (FSR) continues to slip a bit on us. If it visits $14 proper I will possibly add a second contract at the $12.50 strike. Patience is the name of the game with these two positions at the time.

Daily Trading 4/9/21

Daily Trades

Make a plan and trade the plan. That’s what it’s all about. Two days ago I felt the course of action was rolling down Peleton (PTON) from the $120 strike to the $118 and was quite proud of the trade. Yesterday I felt like a dolt for it as PTON climbed to $122. Today on what would have been expiration of the $120 contract, it fell back down to $118. So the plan still stands.

Still not much worth trading today. We took profits on an Amazon (AMZN) spread we’ve had on as well as old trusty Yeti (YETI). We staggered into a second lower contract of Alibaba (BABA) as that was the only position going against us.

At one point today this was our sector allocation:

Looking at this pie chart one could make a compelling case that I’m not doing my job terribly well. It’s still making money though and is a fixable problem.

Communitea Trade Update: We got filled for $80 on the Fisker (FSR) 5/21 $12.50 put. If you can get similar premium feel free to join us!

The Sumo Logic (SUMO) put has made about $43 of the $63 premium so is certainly within our range of closing. I have an order out to buy it back for $11 so I can clear a net of $50 after commission.

Daily Trading 4/8/21

Daily Trades

If you want to see hubris, just look at yesterday’s post. In our modern world everything moves fast, and proof of that is it took less than 24 hours for me to be proven wrong. I was sure that Peleton (PTON) was not going to clear $120 and I was so proud of myself for lowering the strike price and today it cranked up $7 per share to $122 or so. If I had stood pat with the original $120 strike we’d probably be closing the position tomorrow. That’s not to say we are in trouble at our current position, it’s just that we are potentially stuck in it longer. This one is definitely an interesting one to watch. It also shows why I don’t sell naked calls or call spreads very often, because you can be very wrong when betting against the upside–at least our put is positive delta.

Our garbage-picking for premium has reached a “mid-winter hobo” level. I’m getting to the point where I’d sell a contract on an empty beer can–hey it has 5 cents of intrinsic for the deposit! I did open positions on Disney (DIS) at $175 and Constellation Brands (STZ) at $210, bringing in about 1% on both. I’m definitely not in love with those strike prices or how meager that premium is, but at least they’re decent companies. I opened a new position on US Steel (X) at $37 and Viacom (VIAC) at $18.5 as straight volatility plays. Both end at the end of the month so they’re redeeming quality is the short duration.

Every day is a new day and perhaps there will be better selling opportunities tomorrow.

Communitea Trade Update: Our Fisker (FSR) trade for the $12.50 strike at the 5/21 expiration couldn’t pull in $80 today so it still hasn’t filled. We’ll keep trying the next few trading days before reevaluating options. The existing SUMO position gained about $10 today and is around 60% of max profit so it’s closable if you haven’t already. I’m planning to run it a bit more into the ground and maybe buy it back when it’s worth $8 or so. We’ll see.

Daily Trading 4/7/21

Daily Trades

Today we had a whole lot of rolling going on as the problem child trades came up just enough to manage. Apple (AAPL) poked above $127.50 today and we were able to close that trade at a profit. I had forgotten I had set a $200 buyback on that option so I was surprised to hear the ding of it closing. If I had revisited that running order I would have probably been a bit more greedy and knocked it down to $100 or even $50, but it’s good to be out of the position I suppose.

With Budweiser (BUD) slipping a bit today I was able to kick a $64 strike covered call out to the end of the month and up to $65 for a small net credit. This contract had been the definition of over-trading a position and I will have a full write-up on this BUD saga once I am finally rid of the long stock. It’s a great case study in why over-trading not only causes you grief, but can cause inferior returns.

The only remaining problem child has been Peleton (PTON). This was trading in the ballpark of $145 per share (after a healthy slide) when we entered the $120 strike. It had fallen through that and more and we’ve been rolling the $120 strike week by week for the better part of a month. The rule is to keep the original strike when rolling out if you are bullish the stock will cross it again. This was a sensible move with Apple, which it clearly crossed $127.50 today, but I am not confident that Peleton will cross $120 in the immediate term. Today it reached $115 and I was able to roll it out to next week and down to the $118 strike for a net credit of $17 or so. This puts our cost basis on PTON at just shy of $114, so if it is still trading north of $114 by next Friday (4/16) I will take on the stock and start writing the $114 calls which should pay upwards of $700 for the May contract. We’ve pretty much gotten this ticker to a manageable place without losing money, my only concern is if we take on the stock and the thing craps the bed again on earnings. We’ll have to revisit this next week, suffice to say we were able to manage this position to a better place today.

Allocation is around 17%, which is actually misleadingly high as I have an Amazon (AMZN) spread and contracts on Ford (F), US Steel (X), and Yeti (YETI) that could all close at any point now, I’ve just been milking them for lack of better prospects. If all those close, we’ll be approaching 90% unallocated capital, which should basically be a crime. The problem is volatility on the stocks we track is low and earnings is looming for most companies. I’ve taken to dumpster diving for trades on a daily basis. Today I opened a position on Novavax (NVAX) with a 5/7 expiry at the $120 strike. Due to the slippage in that weekly chain I can’t tell how bad the heartburn on that is at the moment, but good trades are so lacking I’d entertain sizing that up if it goes against us.

Communitea Trade Update: We are in a place where we can be taking profits in SUMO (it’s hit about half of our $63 premium), but I’m going to wait a few more trading days most likely. We have decided on the next trade–if we can get $80 premium out of the $12.50 strike of Fisker (FSR) on the 5/21 expiration. So if you’d like to make the trade with us, get that order in for tomorrow. Remember, these aren’t meant to be blue chip companies, it’s meant to be a learning experience we are all in together that offers out-sized premium for inexpensive tickers. These tickers have out-sized premium because they carry more risk.

Daily Trading 4/6/21

Daily Trades

It’s good to be back on the saddle. I took the day off yesterday, which I probably should have announced ahead of time, but here we are. Even without working, we still closed our Ligand (LGND) position thanks to the power of Good Till Canceled buyback orders.

Days like today feel like dumpster diving in the equities market. None of the stocks we track were worth opening positions on due to either low volatility and/or high price. Even a few I’d consider a “get your beak wet” trade on all had earnings mid-contract.

I tried to sell the Paychex (PAYX) post-earnings slide, but couldn’t get 1% premium so bailed on that. I did open a position on Ubiquiti (UI) which actually popped up nicely at the end of the day.

Today I had a long chat with my business partner Tim regarding how lousy the prospects are for selling premium on any decent company. The reality is we’re going to have to expand our criteria to stay trading if this rally continues upward. Or it could just be that come Friday we’ll have forgotten all about this and will be 25 contracts deep again.

Comminitea Trade Update: SUMO has hung in there above $19 so we are hovering near 50% of max profit. One of the guys had hit 56% of max profit and closed out today. I’m still hanging in there to eke out a bit more of the premium, particularly as I have no better prospects at the moment. I will revisit whether to close this towards the end of the week.

Daily Trading 4/1/21

Daily Trades

It was a strong end to the short trading week as several more positions took profits. Remember, Good Friday is tomorrow and the markets are closed. I think this probably influenced a lot of the trading the last two days with many of the active traders probably taking an even shorter week, or the week off entirely. Didn’t seem like there was a ton of selling pressure, which allowed the prices on most stocks to climb a bit.

Our closed positions today included Nike (NKE), Prudential (PRU), Qualcomm (QCOM), Disney (DIS), and Western Digital (WDC). All of those trades except Prudential had been on less than a week.

An interesting thing happened this morning with our current position on Sony. As a matter of course, I always put a buy-to-close order on all the puts we sell right after they get filled. This is so I don’t need to close out winners, they close themselves. That’s why I use the phrase “took profits” all the time, because these trades take profits and close themselves at our target returns. I highly recommend employing this practice yourself as it saves a lot of time and can actually lead to you making sure to book winners before they slip away (for time in force use “GTC” or good till canceled for these buyback orders).

This morning I logged on to find our brokerage had canceled our running buyback on Sony, which hadn’t taken profits yet. There was an error about a company reorganization and the option position was gone from trading platform. A few hours later a new option appears for Sony that was suddenly with an open loss, while this trade was profitable before vaporizing. It appears that yesterday Sony changed their ticker symbol from SNE to SONY and our option had to be re-issued. Since it was a brand new option under a new ticker, the brokerage wasn’t counting the credit we originally received when opening the trade on the old ticker (SNE), and since we have to buy the option to close it out, it was inaccurately stating that the position was down $100 when it was really up about $50 or so. I figured I’d bring this up because it’s a rare occurrence but it’s not impossible you might run into something like it. Don’t be afraid to reach out to your broker if you see things you don’t understand in your account. In this case it was pretty clear to me what happened as the ticker was different, but if I didn’t understand I’d certainly call it in and make them earn that commission money holding my hand.

Our biggest problem at the moment is allocation, we are dipping below 20% with today’s closures (and having put on no new positions). I am expecting that after the holiday the selling will come back into the market and we will find some opportunities to deploy capital. On the plus side we will finally be in a place to start trading May expirations next week so it will be a very exciting time to be alive.

Communitea Trade Update: The run-up of the last two days has been very kind to our beleaguered SUMO trade. It has gone from a $100 or so paper loss to slightly in the green in the course of a week. This is why it’s often best to just put these trades on and walk away from them until they get closer to expiration. Riding the ups and downs can be unnecessarily stressful. I do believe SUMO will retreat next week (like many if not most stocks), but hopefully not return to our strike before expiration on 4/16. As we’re closing in on the last two weeks of the contract we will be insulated a bit from volatility’s impact on the ticker and price will be the main driver of our position. If SUMO can be at or above $18.50 by next Friday we can probably take this off, but stay tuned.