Waiting: Sarge on Discipline

             I sat in my car last night. I was waiting outside of a Seven-Eleven convenience store. The most beautiful woman that I had ever seen was inside the store buying what she likes to call “coffee stuff”. I was thinking about the day’s trade… thinking deeply. Yesterday, we all saw the Dow Jones Industrials move rather robustly to the upside, while the S&P 500 for the most part remained flat and the Nasdaq Composite was simply taken out to the woodshed. Within the Industrials, it was the Transports that really took off. Within the Discretionaries, it was the multi-line retailers, and within the Financials, it was the banks. Shazam.
            On the other side of the coin, it got ugly… real ugly. Big-cap tech names. particularly the semi-conductors were rejected… in size… by the masses. Dare I even bring up what happened to the FAANG names? I took some profits earlier in the day in some of my semi-conductor names when I saw support levels failing. I also did some bargain hunting (We’ll see how that works out) when certain stocks that I do like at certain prices were clearly trading in a technically oversold state.
I Marveled
            I sat in that car, and marveled. I had the idea in my head that I had suffered a brutal beat-down on the session simply because I had focused on the stocks that had hurt my P/L. I scrolled through my numbers, and suddenly realized that because I was well-diversified, I had not suffered a beating at all. Much like the S&P 500, I was very close to flat for the day. I held enough shares in the retailers, in the banks, in the transports, and let’s not forget the energy shares to counteract the ugly performance turned in by some of my favorite 2017 stocks. Wow.
           Another case of time-honored, well-worn disciplines actually saving me from myself on a dangerous day. Thank goodness I shipped out to Parris Island when I was 17. Outstanding. The story continues. The crowd (also in my head) cheered.
           My wife returns to the car with her “coffee stuff”, and we head for home. It is now late, perhaps around 9pm. She goes her way. I head for my office. I have long since missed “Mad Money” on CNBC, but fortunately I DVR that show because I consider it essential preparation for the next day’s trading. That’s whether you make a living in this field professionally or not. Where did Jim Cramer go in his opening monologue last night? That’s right. Diversification. Man, was it nice to hear Jim zero in on precisely what I had been thinking about just minutes earlier.
           I often stand upon my soapbox, preaching the virtues of discipline in one’s approach to investing. I tell almost everyone who will listen. Usually though, I stress the importance of having an idea of what you are investing in, and what you are trying to accomplish. I often speak on price targets, and panic points. I speak on when you are allowed to change those levels, and how important it it to obey the levels to the exclusion of all emotion.
          I do not speak often enough on the value of diversification, though it is clearly just as important a discipline to be strictly followed as any other. Diversification prevents one from having too many eggs, or too much dough in any one basket…. and diversification saved my tail yesterday.


Good Evening,

The Gate Keeper

                        Kind of a tricky day, gang. Seemingly quiet. Seemingly. The action across equities markets was almost sort of dull outside of the energy space. That sector backed up more than one percent broadly, while major indices and most of the other sectors stayed fairly close to home. I could talk about Amazon. maybe I’ll leave that for tomorrow’s Recon.
                        The problem today was weaker WTI Crude. The commodity settled at 58.11, down 1.4% on the day. The positive take-away would be that the $58 level, which is one of those swinging gates that I often speak of had held. Unfortunately, the level has been pierced in after-hours trading. The next swinging gate to the downside is $54 in my opinion. Some smart folks see it as $55.
So, What’s The Problem?
                        Coming off of the holiday week, most in the business felt that an announced extension to the OPEC/non-OPEC deal would be forthcoming from Vienna this Thursday. Russia is supposedly on board with an extension. Supposedly. Reuters is reporting a planned significant increase in production from Russia’s Sakhalin-1 project come January. On top of that, analysts at Barclay’s  today warned that even if an extension were to be announced on Thursday, that the levels of production may not be agreed upon until much later. What the ?? That’s an uncertainty that caught quite a few traders by surprise. Oh, did I mention that the domestic rig count is screaming? Uh oh.
Defending Myself
                    What’s the kid to do? You know he already said he liked energy on national TV. Now, he’s got to figure it out. Three long positions in the space. One highly profitable … VLO. Bought that one is response to the hurricanes. That one had to be sacrificed to pay for the rest. Sold to you. Take badge 986.
                    Deep in the hole … SLB. Down small …. APA. Have been in the green on that one… twice. Sold some. Like the name a bit too much to sell it all. Need a cold winter so Natty Gas can do some of the lifting. Otherwise….
                    Doubled down SLB. Rounded out APA. Gonna need some love. Got an idea better than love. We’re going to have to sell (write) some options against these trouble-makers. Just to sort of diffuse the bomb.
Hate Risk?
                     You can knock off almost $1.30 off of your net average price by writing SLB March 65 calls. You can also sell APA April 45 calls for nearly 1.60. That’s some serious food for thought kids. Don’t mind taking on some more risk?  SLB December 15 60 puts are going for 75 cents, and similar APA December 15 38.50 puts are dragging in a rough 65 cents. Get paid to worry about buying stocks you already like at a discount. Life could be worse.
                     My preference when writing puts is to keep expiration dates close. I don’t mind throwing the long ball when selling calls. The only risk associated there is lost profit, but a put exercised against you can pour on the hurt. No promises, but I’m leaning toward selling some calls shortly after tomorrow’s opening bell. I may get crazy though. We shall see. Rock and roll.

Playing Ball, or Earnings… Safely.

Good Afternoon,
                          Just an idea, gang. Use it now. Use it elsewhere. Really, this is simply an effort to educate the folks who do something else for a living. Many of my home-gamer pals have indicated to me that they are not comfortable using or trading option. We’ll occasionally do stuff like this, until you are comfortable, my friends.

When You Don’t Have A Position

                Who doesn’t love video games? Well, recently … investors, that’s who. I am going to assume that you’ve seen the action in Activision Blizzard (ATVI) since that firm beat expectations last week for both Earnings per share, and revenue. The stock is a mere 9% off of the pre-earnings high. How about Electronic Arts (EA)? That stock remains almost 7% below the highs of late October. The difference there is that EA did not even bother to beat projected revenue, and guided weakly into their third quarter…. aka the holiday season.
                 You’ve heard of Take-Two Interactive. Rock Star Games? 2K? These are their labels. The end products? Grand Theft Auto, Max Payne, Midnight Club and Red Dead just to name a few. We could get into the fundamentals of this corporation, but that is not what this is about. This is about the cold-hearted mercenary that lives inside each and every one of us fighting the good fight with two fists, and trying to turn a buck in a risk controlled environment.
But, Still Want To Play Ball
                 TTWO reports after today’s close. There are twenty analysts that follow the name. They are looking for EPS of $0.74 on revenue of $510 to $512 million. Guess what? We don’t give a rat’s tail. We just want the stock to react. So, if the stock were to react by 5% to 9% overnight, that would imply a stock move of somewhere between 5.25 to 9.45, or a move down to a range of 96 to 99, or up to 110 to 114. A little hopeful? I get it, but how do we manage the risk while exposing ourselves to the potential of an overnight move?
Bear Call Spread
                 If you don’t like the stock, you could lay out the 3.60 for a 105 put that expires this Friday evening, or….what if you could expose yourself to some benefit in the case of the stock moving lower, while minimizing the downside risk inherent in the trade. Sounds good, right kids. Let’s illustrate.
Going into the close:
TTWO November 10 105 Calls are quoted around 3.40
TTWO November 10 103 Calls are trading around 4.40
      If one were to sell (write) the 103’s at 4.40, and purchase the 105’s at 3.40, that trader would:
1) Pocket a credit of $1.00 on the premiums paid.
2) Have to buy the stock at 103 if TTWO remained above that price.
3) Be able to buy the stock at 105 if if TTWO went even higher. In other words, the risk is limited to two bucks, but you already netted a dollar, so the risk is really just that single buck. The most you can profit or lose on this trade is a buck. The edge is that in this case, I suspect that the stock will go lower. The trade works similarly in the other direction if you feel differently.
      This is not the strategy of a home run hitter, gang. This is a singles hitters’ trick that does not allow you to get your face ripped off while regularly producing some revenue. Use only when you think you have an edge.