Greg Buhrow

Greg Buhrow
Contributor since: 2011
Company: Gregory L. Buhrow, CPA, PC
Investor psychology is actually not that hard to predict, especially for those who have children.
The first step is to determine what investors want, which is typically lack of uncertainty.
The second (and last) step is to picture a three-year old in the middle of the room: they get what they want, all is well, they do not get what they want or perceive they want, they throw a tantrum.
Investor psychology in a nutshell. And it's being seen everyday of late.
Have you ever flown Aeroflot?
Granted, it has been some time ago but I have flown domestic Russian flights (not the ones that leave from Sheremetyevo to US) within Russia.
Couldn't get the engines started so here comes a mechanic with tool box and they start banging on the engine. First officer has a wrench in his pocket working on a valve in the passenger cabin. He couldn't get the door to the valve closed so he hit it, door fell off and he left it on the floor.
My wife said "We're gonna die".
Obviously we made it from Rostov-na-Donu to Moscow.
Maybe their fleet that goes outside Russia is younger but the intra-country flights are flown with planes that are at least 20-25 years old.
I think I would stick with US carriers ... just a thought.
This comment may be in the category of "the king has no clothes" or it could reveal that I just don't know what I'm talking about, but ...
When oil prices were high there was great fear since petroleum products are the raw materials for virtually everything.
Now, oil prices are low and those raw material costs are correspondingly low.
Did the purchasers of petroleum hedge themselves into a no-win situation by contracting for a price that is now above the market price, ie, airlines?
Why are both high oil prices and low oil prices a harbinger of bad things to come?
Are we saying the most efficient price of oil is $70-$75 / bbl?
I think you are spot on!!
The unfortunate thing is that the "market" is so emotional. I believe the S&P was down around 10 before the retail sales data and about 23+/- after.
As a short-term trader, I agree with your logic but my wallet feels the results of the "irrational panic" currently present.
I don't know how gratuitous and/or nurturing Mr Woodman is to his shareholders and employees but do we really know how many shares the insiders are planning to sell? I guess we'll know soon enough.
A cursory reading of the initial Prospectus and the S-1 shows that Woodman either individually or through a Family Trust sold 3.6 million shares.
If one assumes he has virtually zero basis in those shares he is looking at a tax bill, ignoring the NIIT, of over $17 million. So if he sells in 2014 - the day the lock-up ends - to pay his taxes, he will owe on that as well, which could bring his tax liability to almost $21 million, just from a Federal standpoint, not including any state franchise tax on the trust and state individual income tax in CA.
To generate that kind of money he would need to sell 275k shares at $75/sh.
I live in Dallas and they are actually considering the declaration of the county as a disaster area!!
Last year we had two people on our street contract West Nile virus and all they did was spray in our neighborhood.
I do believe this is slightly overblown ...
Anybody who has children can easily understand the mentality and temperament of an analyst ... if they get want they want they are happy and content, if not, they throw a tantrum, ergo, SNDK after earnings.
Analyst: Now SNDK, you have been getting B+/A- grades lately, I want an A+ now.
SNDK: Look, I got an A!!!
Analyst: You're grounded for six weeks until you bring those grades up!
Enjoyed, read and re-read your article but actually come away with different conclusions as follows:
"For clarity, I have drawn green and red lines to indicate buy and sell signals, respectively." So what I did was buy 100 shares at every "Buy" signal and sell all at each "Sell" signal. If I had no shares I would short 100 at each "Sell" signal then "Buy to Cover" all at each "Buy" signal.
I ended up with three significant losses and one substantial gain. So with a buy-and-hold strategy I'm not sure this would be a profitable strategy.
Perhaps if you either bought or sold at the signals then set a tolerance level of 5% and exited the position at that level you would preserve trading capital or eke out a small gain over time.
I'd be interested in your take on my take ...
PS: my son-in-law is getting his PhD in biochemistry and I'm trying to get him involved in trading options but without much success ...
What about the opposite? Sell some 520 puts.
If AAPL goes down below 520 you get more shares, if it goes up or stays the same or even drops 20 points you keep the money and move on.
And I too am addicted to this underlying ... trade it every week.
To keep Christmas consumers from purchasing Microsoft products?
"You reduced your loss from 20% to maybe 15%."
Actually, you don't have a loss - you have simply reduced your basis in the entire trade (not your cost basis on the stock) by netting an $18 gain on the sale of the call.
And as jemmelt comments below, the next covered call should not be at the next strike or you would lock in your loss - as your chart illustrates.
You hit it spot on!
Don't sell calls against an owned stock at less than your cost basis on the stock purchased.
If there is no premium, ie, lower priced underlyings, sell at maybe 1 standard deviation above the current price.
It is certainly true that 147k jobs were created for Nov but Sep & Oct job creation dropped by 43k. So, net job creation was 103k so we're still below your forecasted number necessary maintain labor force growth.
I also note that 350k dropped out of the labor force, obviously accounting for the drop in the rate. Most economists interviewed on Friday said they wanted top-line growth more than denominator decline.
The report tables also state that the number of employed dropped by 122k, ie, short-term employment, retirement, etc.
At first blush, a decent employment report but, as they say, the devil is in the details.
The CBOE even has a product called, interestingly enough, Apple VIX whose symbol is VXAPL.
Actually, unbeknownst at your writing, it was mentioned just today in another AAPL article on why AAPL should be selling at $700. The author makes a number of cogent points as have you ... great minds? ...
Maybe I simply look through the world with "tax-colored glasses" since that is my profession, I believe the gyrations of AAPL are tax-motivated and ultimately the response of political indecision.
For instance, yesterday AAPL dropped $37 on political inaction. In order to be taxed at long-term capital gains rates, one has to hold the stock more than one year. So, let's say AAPL was purchased on 12/2/2011 at the average of the high-low or $391.11.
For many investors, a 500 share purchase cost $195k. The tax savings on that by selling yesterday versus in Jan 2013 is roughly $6,500. For well-heeled investors, a 5000 share purchase will net them a $65,000 tax savings, enough to buy a kid a pretty nice car for Christmas.
For the above purpose, the tax savings is essentially the difference in the tax rates of 20% vs 15% (currently) plus the 3.8% surcharge, ignoring commissions and the potential AMT.
One more point I would like to suggest, and this should/could be verified by someone more familiar with it than me.
Governmental accounting is not the same as corporate (GAAP) accounting. As I recall - more or less - from gov acctg in college (1 chapter of Advanced Accounting class a long time ago) that even long-term debt is considered "current" in that all expenditures must be paid for somehow and however they are financed - long-term or short-term debt - they are reflected in the current budget, and as such, exacerbate the deficit.
There is a lot more nuance to this but there is a difference. The readers on SA are familiar with for-profit company's balance sheets with current and long-term debt reflected appropriately. Suffice it to say, the accounting is different when it is a governement entity.
Jason, quite frankly I don't, primarily because of the two party leaders digging their heels in on their respective positions.
The tax code is a hodge-podge of competing goals versus public policy, disguised as tax administration by IRS. For instance: earned income credit is a welfare program, mortgage intereset is a housing and real estate benefit, charitable contributions could be called state "supported" religion. I don't do a lot of estate planning but at one point I believe there were provisions for unborn children which seems counter-intuitive in light of Roe v Wade. And now IRS will have a great deal of influence on health care administration.
Maybe I just ponder this too much driving to and from my office instead of listening to ESPN and the Dallas Mavericks. But based on the above, and many, many others, I cannot see true tax reform in the near future.
One more point, the flat tax, in my opinion is just a tax rate. The trick is to determine the taxable income upon which the rate should apply ... so we're back to the tax code - what's in and what's out.
As with all of Jason's articles, this represents a well-gorunded slap of reality without political banter.
It seems that articles like this tend to bring out reader's political bias and then degrade into name calling. Hopefully that won't occur.
We are all facing the "fiscal cliff" regardless of your political persuasion. Therefore, how do we trade it? Jason, sounds like you are sticking with S&P100 staple companies. I think I agree with that and will probably start targeting more of them.
My issue is term. My belief is that we will enter the year with no solution and any bi-partisan agreement will be retroactive to Jan 1 - great for CPA's ... we'll have a couple weeks to complete all those returns.
But either way, once the shock has worn off how should we trade in the post-fiscal cliff environment. Again, I believe Jason to be spot on with the consumer staples and cost-saving stocks, ie, WMT, TGT. In fact, my daughter is getting married in Jan and she is registered, among other places, at TGT ... practical girl!!
One rabbit-trail comment to make.
I am in the market to replace my Dell XP-based Office Pro 2003 laptop and really don't like Office 2010 that I use at client offices on their machines.
Also, half the time in my office I cannot get consistent internet, wired from the wall jack into my docking station! If my data and/or apps were in the cloud I would never work.
Good point. However, in my limited dealings with the SEC, they take a broad-brush approach to investor protection and disclosure. You see "discrete non-competing chipset product lines" and the SEC sees "semiconductors."
Seems like a good trade, commissions intense, but can make money because of the spread of the wings and the decrease in volatility. Some of the mid-500 puts yesterday afternoon were at 100% IV!!
For the option novices you may want to change your maximum risk formula to both ((545-540) [lower spread] x 100 [# of shares per contract]) - 88 [credit received] -OR- for the upper spread
((705-700) x 100) - 88, just they can follow your math.
Well, there's a man with a gun over there, telling me I got to beware ...
It seems that the market didn't quite believe the BLS numbers either, which can certainly be volatile. When "QE3" was announced the market erupted. One would think the same if the unemployment dropped to 7.8%, or did it ... I'll heed the advice of the man with the gun.
Beta is a measure of the relative historical volatility of an underlying versus the "market" - typically the S&P 500. For instance, SPX up by 1%, INTC, based on your beta prices noted, would increase by 1.07% whereas SYY would increase by 0.73%.
Implied volatility of an option essentially measures the market's expectation for the price fluctuation over the next X period of time. The larger the implied volatility, the more the potential movement - in either direction - volatility is simply movement.
The easiest/quickest method of determining the potential movement is by taking the square root of days to expiration divided by either number of days in the year or trading days and then multiply that times the average implied volatility of the options around the at the money strike price as reflected on an option chain times the price of the underlying. The result is the 1 standard deviation expected move - either way - of the underlying over the days to expiration time period. In this formula, if implied volatility changes, expected movement will change as well.
However, in reality, option prices are determined by market forces, supply and demand. Implied volatility is simply the "plug" number to explain the option price given all the other known variables of that price such as days to expiration, price of underlying, strike price, etc.
Low or high implied volatility is relative to historically observed implied volatilities, such as an increase before an earnings announcement or unemployment report.
The trick to being able to understand this is if you can explain it to your wife before she runs out the door to the mall ...
If one is looking to invest in gold for the longer term I would agree. But if the outlook is shorter term, month(s), then a bullish trade in GLD may be profitable.
I recently took the opposite position - bear calls on GLD - thinking a meltup in the S&P would hurt gold. Closed the trade last week at a $190 loss.
However, overall, I agree with your thesis #2, that banks should begin lending. But as a CPA with clients who want to borrow but thinly capitalized or flipping real estate, banks are reluctant to lend to these "deal makers."
So now we're back lending to the most creditworthy of borrowers so as not to get burned as in 2008 ... but wait, they don't need to borrow, so the banks keep the money in Fed reserves ... solid as Gibraltar.
Depends on how you play your AAPL spread.
If your short put (I'm assuming a bull put) is close to the money then you could get pretty nervous if AAPL drops 15 points (which is only 2% - a corresponding INTC drop would be 50 cents). Do you have the cash to take assignment? If so ... great.
I also trade AAPL but my bull puts are 50-60 OTM ... smaller premium but higher probability of success.
However, we're talking about INTC, not a comparison of alternative investments and that is simply the way I trade INTC - in and out using naked puts and covered calls.
I agree with BO'B above. For a number of years INTC moved in a relatively predictable 18-24 range. Now it has moved above that.
However, for option traders, INTC is a cash cow. Using a combination of cash-secured put sales and covered calls, if you specifically sell the put at one strike below current price for the next expiration cycle and, if assigned, sell the call one strike above assignment price, you could do pretty well.
On several occasions you would have been early exercised on the short calls in order for the call holder to receive the dividend, but as a monthly income strategy it would have been boringly profitable.
Note to non-option traders: Cash-secured put sales are selling "naked" puts with the cash to purchase the security if the underlying security drops below the strike sold in your brokerage account. Further, covered calls is the sale of a call option at a strike above the current price (in this strategy) and your stock is taken from you if the underlying closes above the call strike at expiration.
The most important takeaway from this article is Eric's statement that "balance sheet expanding monetary stimulus is not necessarily a complete panacea for all of challenges facing the stock market today. Thus, exercising a degree of caution amid the euphoria is more than a prudent approach."
Quite frankly, by reading other authors, most notably Paulo Santos, there is a market euphoria over QE3 because the market is similar to a three-year old sitting in the middle of the kitchen ... give him what he wants and he is happy, withhold what he wants and watch out.
Once the euphoria wears off, where do we go from there ... up, down, sideways, down a lot ... I almost pulled the trigger on some trades Th and Fr but resisted ... just seemed like a upward spiraling maelstrom
My grandfather stated once that if one begins lifting a newborn calf everyday when the calf is full grown you will now be able to lift a cow.
I latched on to that as a child and asked my dad why that wouldn't work.
Dad said, "Because one day you will go out there and not be able to lift it." - my dad was a man of few words but poignant thought.
The Fed's move is similar, it works for the market now and is questionable for the economy but one day the printing of money simply won't work and fundamentals will need to be the focus instead of monetary shenanigans ... but I will trade this market until I can't lift that cow anymore ...
Never thought I'd see an Aggie quote Voltaire ...
I think it takes courage to put a trade out there and then let people try to tear it apart. Took a look at your website and your approach is similar to mine in trading options.
My question to you: Why did you place your short put ITM at the outset? You may be forced to roll but underlying MUST move in your scenario to stay OTM, keep the premium and move to next short leg. What about the Oct 12 190, higher implied volatility and probability of being ITM but more premium and you are OTM from the get-go?
I am not a great bull put calendar trader because that pesky long put can lose lots of value in a bullish trend - delta is very impactful to these when initially placed OTM. I typically trade straight bull puts with a set net premium on a monthly basis so I don't have to worry about the long put too much.
I also like your additional focus on risk profiles since a picture is worth a thousand words. (Also, for option novices, ITM=in the money, OTM=out of the money)
I'd be interested to see how your trade works out.
Pretty expensive but you have a couple good things working for you: (1) One side will probably win big by both moving ITM and with the volatility increase, and (2) the losing side will not lose as much as volatility increases, since IV affects both options.
What is your exit strategy? Once the big move is made to sell the winning side and use weekly shorts to mitigate the loss on the losing side maybe?