Every Thursday I will give my trading update, of what I find hot....and what I think is not.
WEEKLY OPTION SHORTING
I have been following several education stocks recently as they are oversold and at excellent support levels. For several days APOL appeared to be pinning the 20 price so on Tues, 2/5, I sold 20 strike APOL puts that expire Friday, 2/8, for 67 cents, that were 23 cents in the money when sold. On Wedn, 2/6 I went long the stock at 20.14 and sold 20 strike calls expiring Friday for 37 cents. The short straddle position makes money anywhere between 19 and 21 and allows me protection to buy the shares. The shares protect the calls because I don't want to end up short the stock if we rally. The protection was needed when all education stocks got a lift after the close, based on another education stock's positive earnings. It looks like we will close on Friday above 20 and the stock will be called away and a nice profit overall. I just wish I had played it bigger than I did.
I wrote an article about Herbalife, saying you can catch falling knives. This is a high beta, heavily shorted stock. I was long from 35 when the week started. In the pre-market Monday we hit a low of 29.25 and I was not a bit worried. I bought more shares and sold them out on a pop above 32. I shorted in a different account from 32 down to 31, but when it would not move lower, I covered and predicted a washout low and positive close for Monday. I got it. Last couple days I'm not impressed with the follow through but I have done well scalping from the long side this week. For protection, I have been selling 37.50 calls on strength so I keep a small covered call position on overnight.
SWING TRADING STOCKS
You might want to read my article on Apple calls. DeMark pointed out on CNBC last Friday that Apple had never closed down more than 3 days in a row, since it topped out at 705. He predicted an up close for Monday, but it closed down instead, for the 4th down day in a row. I figured we would not get 5 days down in a row so I bought a Jan 2014 490 call and added with every 4-5 dollar dip. On Monday's close I held 4 calls priced from 29.75 down to 26.60. Tuesday was a nice up day as expected and I legged out of all 4 calls on strength. On Wedn, 2/6, I bought a Jan 2014 490 call for 31.00 just minutes before a rumor hit that popped the stock from 453 to 465. I sold the call a bit too quick, at 34.65 for a $360 profit in about 40 minutes. At 465, I had a sell order hit on some shares purchased last week at 464.50. I am more bullish Apple by the day. I agree with Pete Najarian on CNBC that we need some 465 and higher closes to show a bottom is in.
I day trade Molycorp from the long side, adding a few extra shares on dips and sell out on rallies. I have been selling monthly calls expiring Sat. 2/16 against my position and made a lot of money with the stock basically going nowhere. The stock has traded back and forth from 7.30 to 7.77 this week and I am short 7.50 and 8.00 calls. With every ten cent drop in the stock, I add shares, and with every ten cent pop I sell some shares.
COMMODITY OPTION SELLING
If gold would ever trade down to 1600 to 1585 then I would sell some puts about $100 out of the money. While waiting for that, I began selling June live cattle puts at the 118 strike level with June LC trading in the 127s. I am only getting 50 to 60 cents ($200 to $240) in the bank hopefully. If we get some rain this year and we don't get a repeat of the drought, cattlemen will rebuild their herds which will reduce slaughter numbers. On feed numbers are already the lowest they have ever been in my lifetime. Live Cattle will have a big rally.....but don't know if it is this year yet, or next.
I respect the timing calls of Doug Kass over any other timer out there. When he turned bearish this week, it made me pause. He is usually about 3 days early on his calls so I hope we hold in this week at least and I will do research over the weekend on how I will play the short side. I wrote an article on getting short Amazon and I may choose that as my shorting vehicle, to go against my long Apple calls and long stock shares.
I have several stocks on my radar screen. PBR made new contract lows this week following bad earnings, but I don't like the way this stock gaps. To buy here would still be premature. I would like it much more closer to 13.50 rather than 16.50, but it may not go that low. It has not met my parameters so I wait and watch. Now that GMCR sold off a bit on earnings after the close on 2/6, I may lightly scalp this stock again from the long side.