Options Trader: Weekly Wrapup

by: Philip Davis

Every position I had was green on Saturday. Even Accredited Home Lenders Holding Co. (LEND) calls. I have never seen that since I started investing in 2000. And in no small way, some thanks is in order to PSW… ;)

Thanks BDC! What a great way to end a great week in the markets!

We finally got the beginnings of the correction we’ve been planning for and all those investment in the "wrong" direction have finally paid off. We stand now at the tip of a major inflection point in the markets and, as I’m taking a vacation, I’ve left the 25% of non-cash positions very well hedged (I hope) with a remaining downside bias.

Paranoia really paid off this week as we very simply nailed the market movements on the head. As many of you know, Happy Trading and ZMan are "going pro" this month and this is going to be a great thing. If I weren’t going away (and already in trouble for not packing yet!) I could write the most amazing essay about how we (Happy, Zman, Sage and I) arrived at these conclusions but I will just say it was a great team effort.

Anyway, so the PSW team was in full swing this past week. Actually, why be modest? This whole month has been incredible, but the quick highlights of the week were:

• Thurs, 7/26: "That’s right, we have trades for every market direction, sometimes all in the same day the way things have been going lately!"
Friday, 7/27: "I was just laying out my Diamonds Trust, Series 1 (NYSEARCA:DIA) puts and calls and my PowerShares QQQ Trust, Series 1 (QQQQ) calls in member chat and I realize that those positions clearly indicate that l have absolutely no idea what’s going on."
• "The dollar already pulled back off Paulson’s pump while gold is expected to retest the dreaded $666 mark this morning. Dollar down and gold up = bad economy as will rising rates in a down market. So there’s lot’s to look out for as we head into the weekend very much in cash!"
Sat, 7/28: "It’s been a very bearish two weeks for me and the last few days in particular I started to get the feeling the party was over, at least for the short haul, as I didn’t like the look of the last leg of our rally to 14,000 and I especially did not like the look of the first few days of this week. As I said on Monday: "That was the least exciting 90 points we ever gained."

Cramer

My comment about Cramer from last week’s wrap up was, "It’s very easy to jump up and down and say BUYBUYBUY or SELLSELLSELL like a chimpanzee on crystal meth." It could not have been more apropos than Friday when Cramer lost it on CNBC. You can see how working for this guy’s hedge fund may have been a little stressful on a down day! Perhaps someone should send Jimbo a membership - we actually had a very nice day Friday!

Obviously Cramer didn’t read my close last Saturday, when I said:

To summarize, there’s nothing wrong with a nice, healthy dip IF YOU PLAN AHEAD and are ready for it - it may even be the best part of the trip, as it was for us this week. Of course, only a fool goes downriver without a life preserver and headgear and that’s exactly what we try to teach over at PSW - riding the rapids of the markets can be the most exciting thing we do in our lives - but you need be able to look out for obstacles ahead and have the team ready to change course at a moment’s notice, no matter how well you think you know the waters.

Unfortunately, watching that video, I fear it may be too late for headgear to help poor Jim, it seems a lot of brain damage has already been done!

Mon, 7/30: I posted my favorite video of the Month and said, "So the BOTTOM LINE is that the thrill is gone and without someone to show us the money, either in blockbuster earnings or on the M&A front, this is no time to be diving back into the market. If you are ahead then this is a good time to count cash, watch sectors for signs of strength and select a second half strategy (see this week’s newsletter for our first sector pick). If you are behind, it’s a good time to be thankful for what cash you have, reviewing the behavior that got you here and looking over your losers for possible hidden gems."
Mon, wrap: "My underlying concern remains the same as it was in the morning as this rally was sparked by low expectations from GMAC (GMAC) as well as Citadel Investments decision to buy the failing assets of Sowood Capital Management, which lost 50% in two of the firm’s hedge funds. We’ve seen this movie before as The Bear Stearns Co's (NYSE:BSC) and Goldman Sachs Group, Inc. (NYSE:GS) came in to calm the markets when New Century Financial was imploding - that proved to be a very short-term fix, so let’s continue to be a little wary of "great" news about the financials bailing each other out."
Tues 7/31: I titled that one "Tempting Tuesday Morning" and said, "The hardest thing we have to do as investors is to be patient, but we have plenty of bullish plays in place (I mentioned on Friday that we had three times more calls than puts), so we can afford to wait before jumping back on the bandwagon . . . I find the pre-market movement (we opened up about 100) very surprising ahead of what is going to be a very heavy data week. Next Tuesday at 2:15 we have the FOMC statement and investors are now betting heavily on a softening which I don’t believe is possible, especially if this week’s data comes in heavy."

End is Near

Tues wrap: "The energy sector continued to collapse despite a new record high at the NYMEX where the crooks have jacked up the price by pretending they are going to have 360M barrels delivered to Cushing OK in September. But they will, of course, cancel all but 30M barrels by the 22nd, as they have for the past three months in a row so their compadres on CNBC can then tell you how there is a shortage of oil in Cushing."

Wed 8/1: "That’s why I’ve been moving us to cash for the past couple of weeks, it’s a lot easier to have an analytical view of the market when your portfolio isn’t hemorrhaging money. However, our very profitable puts and covers put us in another kind of dangerous state - complacency!… "Whether you are a bull or a bear, please be careful out there!"
Wed wrap: OK - the reason I started writing a blog was to track my own thoughts on the market so I could remember what I was thinking as I made my trades. I will not be modest and I will tell you that this particular wrapup is the best example ever of going into things with your eyes wide open! It is really great to read it now, when you have the week’s chart to look back on.
Thur 8/2: "Woo-hoo - party on, Garth . . . I think I’m going to officially move the clock forward and declare us to now be partying like it’s 1999.5! Congrats to all you late-night revelers as we share the last, flat, warm dregs of the keg and have a few stale jello shots before we jump in the car and drive home. Irresponsible? Hell, no - it’s a party and don’t you dare say otherwise! This week has indeed offered us a REALLY good chance to see how our various holdings perform under pressure and, thanks to our index puts, we were able to hold onto them as they recovered. I am skeptically hopeful or hopefully skeptical, I can’t decide which but it will be another interesting day to watch (and not play!) the markets! "
Thurs wrap: "While this all does make for a pretty chart, I have often said charts can be forced and two consecutive days where 100% of our gains came after 3pm in one giant spike may move a chart but do not move me to move my money back into the markets."
Friday 8/3: "I’ve been talking about fundamentals all week, possibly looking a little like Chicken Little as I’m telling people the sky is falling while the market rallies. I’m not here to win a popularity contest, though, so I’m really pushing the "better safe than sorry" school of investing this month as my best case scenario for the next couple of weeks is that we consolidate around 13,600 and my worst-case scenario is downright depressing! Some people have said that these levels are unfair and I’ve set the targets too high, but they served us very well in the last rally and the fact of the matter is, very simply that we FAILED to reach our goals so - deal with it!"

Really and truly I do not like to be a bear, but I like even less to be an ostrich because we are investing real money in these markets and kidding ourselves is a very expensive game! PSW is as much about money management as it is about picking stocks - it doesn’t do you much good to have 7 out of 10 winners if you blow half your portfolio on pick number eight!

Speaking of portfolios - it was a truly amazing week, as we got to cash in on both sides with a gain of 250 points off Monday’s open followed by a 300-point drop between Tuesday and Wednesday mornings and then another 350-point gain from Wednesday to Thursday afternoon. This was followed by another 300+-point drop into the close. In Wednesday’s wrapup I repeated what I said in member chat on Tuesday:

Our goal is to "strangle" the Dow, keeping tight puts and calls on both sides to protect our balanced (and well tested) portfolio from suffering from a huge move in either direction and, also, to take advantage of a big move with another index win. That means we buy puts on the way up and calls on the way down until we find ourselves overhedged and then, through rolling, we tighten, tighten, tighten until a 300 point Dow move in either direction gives us a better than 50% gain.

Needless to say, that was quite the winning strategy this week and the Short-Term Portfolio (where we make our index plays across all portfolios since they need constant watching) added 51% in the week, finishing up 444% and close to 80% cash. The 50 remaining positions have an average gain of just 15% and are hedged to the hilt as we moved the portfolio into Sage’s "Vacation-Proof" mode.

The Long-Term Portfolio has 37 open positions and it is pointless to talk about average gains there as we apply profits to reduce the basis for tracking purposes. The overall portfolio, however, is now up 173% for the year, as our poor callers had a very rough end to the week while the volatility kept our leaps in good standing but the downside hedging in the STP is what’s keeping us in those leaps!

The $10,000 Portfolio is now $9,016 in cash and I couldn’t be more relived. There is $3,965 tied up in eight remaining positions (up 30%) and I should have cashed out GlaxoSmithKline plc (NYSE:GSK) on Friday, but I missed it until it was too late so that’s my call for Monday - either cash or cover while we still have a good gain there.

Our Complex Spreads Portfolio has 18 open positions with an average gain of 35%. The overall portfolio is up 167% and is close to 80% cash and well hedged, so we have little worries there…

The Stocks Portfolio took a mild hit as our six open positions dropped to a 7% average gain, leaving the folder up 31% for the year, a 1% drop on the week so I’m still pretty happy with our remaining positions.

Although barely touched, the Free Picks Portfolio still managed to gain 44% for the week, now up 424% since the 4/30 start date. I’m not usually superstitious, but this thing is leading a charmed life so I’m not so anxious to close it out anymore! We are 75% cash there and I will consider redeploying that when I get back, if only to prove to myself that a portfolio can’t be "lucky."

We closed 83 positions for a 59% average gain this week. However, it was the large size of the DIA positions, not the percentages, that put us over the top. Another huge winner was, of course, the Exxon Mobil (NYSE:XOM) Jan ‘09 $80 puts that we have rolled and doubled down since April 24th and was, at one time, our single largest loser! Those 100 puts were rolled into 50 Jan $75 puts, just so I wouldn’t feel silly if XOM goes to $60 - I’m the one that predicted its downfall in the first place!

I leave you all in the very capable hands of Options Sage, ZMan and Happy Trading for the next two weeks. Of course, I will check in (can you imagine me NOT talking about the markets for two weeks?). But I couldn’t ask for better backup - especially as we roll into some very choppy waters in August!

Have a great weekend,

- Phil



Description

  Basis

Open

 Sale Price

Sold

 Gain/Loss

%

20 OCT 135.00 AAPL CALL [APVJG] 19,750.00 8/1 25,990.00 8/2 6,240.00 32%
15 AUG 140.00 AAPL CALL [APVHH] 2,635.00 7/25 2,990.00 8/1 355 14%
5 AUG 145.00 AAPL CALL [APVHI] 560 7/26 990 8/1 430 77%
20 AUG 150.00 AAPL CALL [APVHJ] 2,710.00 7/20 12,990.00 7/31 10,280.00 379%
40 OCT 30.00 ABX CALL [ABXJF] 5,820.00 5/18 16,590.00 8/3 10,770.00 185%
20 AUG 85.00 AMZN CALL [ZQNHQ] 1,210.00 7/25 11,990.00 8/2 10,780.00 891%
48 AUG 12.50 AUY CALL [AUYHV] 490 7/24 710 7/31 220 45%
10 OCT 60.00 AXP CALL [AXPJL] 3,310.00 7/27 4,490.00 7/31 1,180.00 36%
120 AUG 52.50 C CALL [CHX] 3,850.00 7/12 590 8/1 -3,260.00 -85%
240 AUG 47.50 C CALL [CHW] 16,810.00 7/31 28,790.00 8/1 11,980.00 71%
40 AUG 45.00 CCJ CALL [CCJHI] 1,410.00 7/23 2,990.00 7/30 1,580.00 112%
20 OCT 32.50 CHK CALL [CHKJZ] 6,410.00 8/2 8,190.00 8/3 1,780.00 28%
10 AUG 550.00 CME PUT [CNMTJ] 9,510.00 8/1 14,990.00 8/1 5,480.00 58%
20 AUG 80.00 COF CALL [COFHP] 210 7/20 590 8/1 380 181%
40 AUG 85.00 COP CALL [COPHQ] 4,410.00 7/25 5,590.00 7/31 1,180.00 27%
20 SEP 50.00 CROX CALL [CQJIJ] 7,810.00 7/11 22,990.00 8/2 15,180.00 194%
20 AUG 85.00 CVX CALL [CVXHQ] 2,870.00 8/2 1,990.00 8/3 -880 -31%
150 AUG 133.00 DIA CALL [DAWHC] 32,410.00 8/1 38,990.00 8/3 6,580.00 20%
100 SEP 135.00 DIA PUT [DAWUE] 32,010.00 7/31 44,990.00 8/3 12,980.00 41%
60 SEP 133.00 DIA PUT [DAWUC] 18,010.00 7/31 19,190.00 8/2 1,180.00 7%
150 AUG 134.00 DIA PUT [DAWTD] 30,610.00 7/27 29,990.00 8/2 -620 -2%
125 SEP 138.00 DIA PUT [DAZUH] 38,155.00 7/19 86,240.00 8/1 48,085.00 126%
150 AUG 135.00 DIA PUT [DAWTE] 32,870.00 7/26 61,490.00 8/1 28,620.00 87%
150 AUG 133.00 DIA CALL [DAWHC] 32,410.00 8/1 35,990.00 8/1 3,580.00 11%
150 AUG 134.00 DIA PUT [DAWTD] 30,610.00 7/27 43,040.00 8/1 12,430.00 41%
300 AUG 134.00 DIA CALL [DAWHD] 96,910.00 7/26 77,990.00 7/31 -18,920.00 -20%
150 AUG 135.00 DIA PUT [DAWTE] 32,870.00 7/26 56,990.00 7/31 24,120.00 73%
10 AUG 60.00 EDU CALL [EDUHL] 360 7/23 190 8/1 -170 -47%
10 JAN 32.50 GM PUT [GMMZ] 1,410.00 6/19 4,190.00 8/3 2,780.00 197%
15 SEP 540.00 GOOG CALL [GOPIX] 4,510.00 6/27 17,240.00 7/31 12,730.00 282%
10 AUG 52.50 GSK CALL [GSKHX] 460 7/20 540 7/31 80 17%
10 AUG 75.00 HOC PUT [HOCTO]  2,410.00 7/19 10,340.00 8/1 7,930.00 329%
24 AUG 110.00 IBM CALL [IBMHB] 6,490.00 7/16 10,790.00 8/3 4,300.00 66%
12 AUG 115.00 IBM CALL [IBMHC] 1,090.00 7/16 2,990.00 8/1 1,900.00 174%
5 DEC 45.00 IBN CALL [IBNLI] 260 5/1 2,515.00 8/2 2,255.00 867%
5 AUG 50.00 IBN CALL [IBNHJ] 110 6/7 240 8/1 130 118%
60 SEP 25.00 IMB CALL [IMBIE] 7,510.00 7/31 15,590.00 7/31 8,080.00 108%
30 AUG 30.00 IMB CALL [IMBHF] 3,910.00 7/16 590 7/31 -3,320.00 -85%
40 AUG 30.00 IMB CALL [IMBHF] 2,810.00 7/16 790 7/31 -2,020.00 -72%
80 SEP 25.00 INTC CALL [INQIE] 5,530.00 7/18 5,990.00 8/2 460 8%
50 AUG 27.50 INTC CALL [INQHY] 110 7/17 3,240.00 7/31 3,130.00 2846%
5 AUG 25.00 IOC CALL [IOCHE] 635 7/9 2,090.00 7/31 1,455.00 229%
5 AUG 22.50 IOC PUT [IOCTX] 1,710.00 7/9 1,740.00 7/31 30 2%
9 JAN 45.00 ISE CALL [ISEAI]  5,500.00 6/1 20,690.00 8/2 15,190.00 276%
10 OCT 55.00 JWN CALL [JWNJK] 310 5/21 1,040.00 8/3 730 236%
30 AUG 85.00 LVS PUT [LVSTQ] 2,710.00 7/23 13,190.00 8/2 10,480.00 387%
30 JAN 80.00 LVS PUT [LVSMP] 160 2/2 14,390.00 8/2 14,230.00 8894%
10 AUG 155.00 MA PUT [MALTK] 6,810.00 7/10 15,490.00 8/1 8,680.00 128%
20 AUG 130.00 NMX CALL [NMXHF] 5,610.00 7/31 10,490.00 8/1 4,880.00 87%
20 AUG 185.00 OIH CALL [ODLHQ] 1,510.00 7/31 6,990.00 8/2 5,480.00 363%
10 AUG 185.00 OIH CALL [ODLHQ] 2,310.00 7/30 3,340.00 7/31 1,030.00 45%
10 AUG 185.00 OIH CALL [ODLHQ] 2,310.00 7/30 3,090.00 7/30 780 34%
10 AUG 70.00 PCLN CALL [PUZHN] 1,110.00 7/6 1,690.00 8/2 580 52%
20 AUG 150.00 PTR PUT [PTRTJ] 5,510.00 7/25 14,690.00 8/1 9,180.00 167%
10 AUG 230.00 RIMM CALL [RFYHF] 3,510.00 7/24 9,990.00 8/2 6,480.00 185%
10 AUG 270.00 RTP PUT [RTPTU] 4,010.00 7/31 11,990.00 8/3 7,980.00 199%
5 AUG 280.00 RTP PUT [RTPTV] 5,010.00 7/10 1,840.00 8/1 -3,170.00 -63%
50 AUG 30.00 SBUX CALL [SQXHF] 510 7/20 2,490.00 8/2 1,980.00 388%
40 JAN 27.50 SBUX CALL [SQXAY] 6,410.00 5/15 9,790.00 8/1 3,380.00 53%
20 AUG 150.00 SHLD CALL [KTQHU] 1,010.00 7/23 10,990.00 8/1 9,980.00 988%
10 AUG 150.00 SHLD CALL [KTQHU] 610 7/25 990 7/31 380 62%
50 AUG 147.00 SPY CALL [SFBHQ] 9,010.00 8/1 11,990.00 8/3 2,980.00 33%
50 SEP 150.00 SPY CALL [SYHIT] 11,010.00 7/30 17,990.00 7/31 6,980.00 63%
20 SEP 85.00 SU PUT [SUUQ] 3,550.00 7/31 4,590.00 8/2 1,040.00 29%
20 AUG 90.00 SU PUT [SUTR] 3,310.00 7/31 6,990.00 8/1 3,680.00 111%
20 AUG 85.00 SU PUT [SUTQ] 2,710.00 7/30 2,190.00 8/1 -520 -19%
10 AUG 95.00 SU PUT [SUTS] 2,560.00 7/20 4,490.00 7/31 1,930.00 75%
40 AUG 42.50 T CALL [THV] 410 7/23 1,790.00 8/2 1,380.00 337%
50 AUG 15.00 TASR CALL [QURHC] 2,260.00 8/2 3,990.00 8/2 1,730.00 77%
50 AUG 15.00 TASR CALL [QURHC] 2,260.00 8/1 3,990.00 8/2 1,730.00 77%
50 AUG 17.50 TASR CALL [QURHW] 1,260.00 7/23 4,490.00 8/1 3,230.00 256%
50 AUG 17.50 TASR CALL [QURHW] 2,010.00 7/19 3,840.00 7/31 1,830.00 91%
30 AUG 120.00 TM CALL [TMHD] 4,810.00 7/23 5,990.00 8/2 1,180.00 25%
10 OCT 125.00 TM CALL [TMJE] 2,310.00 4/24 3,190.00 8/1 880 38%
20 SEP 70.00 VLO CALL [ZPYIN] 7,810.00 7/27 7,990.00 7/31 180 2%
15 AUG 72.00 XLE PUT [XBTTT]  2,035.00 7/25 6,290.00 8/1 4,255.00 209%
15 AUG 72.00 XLE PUT [XBTTT]  2,035.00 7/25 6,440.00 7/30 4,405.00 217%
100 JAN 80.00 XOM PUT [ODUMP] 49,010.00 4/27 87,990.00 8/3 38,980.00 80%
200 SEP 95.00 XOM CALL [XOMIS] 22,010.00 7/26 17,990.00 8/2 -4,020.00 -18%
200 AUG 90.00 XOM CALL [XOMHR] 10,410.00 7/27 9,990.00 8/2 -420 -4%
25 SEP 90.00 XOM PUT [XOMUR]  8,760.00 7/26 16,990.00 7/30 8,230.00 94%
40 SEP 85.00 XOM PUT [XOMUQ] 4,490.00 7/27 14,790.00 7/30 10,300.00 229%
20 OCT 30.00 YHOO CALL [YHQJF] 110 5/25 690 8/2 580 527%
Click to enlarge