WHAT WE DO? WE SELL OPTIONS FOR INCOME. WE USE THAT INCOME TO BUY DIVIDEND GROWTH STOCKS!
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Posted by Martin March 07, 2018
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Stock market rebounded after large futures selloff in the morning


Another nice and interesting ride today in the stock market. After resignation of Gary Cohn from Trump’s administration which was announced yesterday at 5:30 ET the futures at S&P and Dow dropped 32.25 points and 400 points respectively.

S&P 500 was losing 1.41% and all our trades looked very gloomy.

Although I kept saying to myself that Trump’s ongoing tariff threats are just over reaction and only a short term bearish factor for the stock, it is difficult to stay calm when you are facing trades with expiration round the corner and deep in the money.

As a dividend investor it is easy to stay calm. Of course, you must train your mind set to be like that. It take training, it takes patience, maybe even guidance by someone experienced, and it takes a lot of guts to stay calm. I can proclaim that I am already there and these volatile days do not derail me a bit. I actually welcome these days as they allow me to add more great dividend aristocrats to our portfolio. And we can buy cheap!

Two great investors and billionaires Warren Buffett and Ray Dalio came out with a great advice for long term investors. Something you have probably heard many times:

But for the average person, shifts in the market, even ones as dramatic as the ones we’ve seen this year, shouldn’t be cause for panic. During times of volatility, seasoned investors Warren Buffett and Ray Dalio agree that it’s best to stay calm and stick to the basics.

“Don’t watch the market closely,” Buffett told CNBC in 2016 amid wild market fluctuations. “If they’re trying to buy and sell stocks, and worry when they go down a little bit … and think they should maybe sell them when they go up, they’re not going to have very good results.” (Source USA Today)

You may say, “it is easy to say than to do”. True, sort of. But that’s when training comes handy. I trained my mind the similar way as Ben Graham says in his book Intelligent Investor:

Look at the prices of the stock when they go down as that they are on sale. Imagine, that a CNBC commentator or talking head exclaims “Stocks on Sale! AAPL is now 4% cheaper! Never before at this price! And we hope that this promotional sale will continue tomorrow and we get the stocks even cheaper tomorrow! Great stock liquidation prices!”

How many times we go shopping and look for lower prices; comparing prices on internet who sells goods cheaper?

And why we do not do the same when purchasing stocks?

Warren Buffett says that “If [you] buy good companies, buy them over time, they’re going to do fine 10, 20, 30 years from now.”

And that is exactly how I look at them. I do not buy dividend aristocrats to trade the, I buy them to hold them. And hold them means forever. There is only one exception to this rule when I decide to sell. And that is when the dividend aristocrat cuts the dividend.

However, I also trade!

And if you trade, your mindset needs to be a bit different than that one of a long term dividend investor. You cannot open a trade and walk away. Those trades need constant watch (or at least a watch when you are nearing to a decision point of that trade, so it also depends, what you trade and what is your time horizon).

When I approached stock market for the very first time in 1996 I wanted to learn trading to generate cash which can be invested.

Sad thing is, it took me so long to learn it. True, I lost money, lost interest in stock market and quit. I got back in 2006 and decided to learn again. Another 10 years of a college and doctorate of investing before I can say, I finally learned the topic and now make enough money trading to spend 50% of all my proceeds to invest into dividend aristocrats.

Yet, there is still a lot to learn – consistency. But I am getting there!

 

 · Trading activity today

 

Before the trading ended today, the market recovered all losses from the morning. It was something I didn’t imagine nor envision. I was ready and prepared for another catastrophic selling. What was surprising though that the market seemed very lazy the entire morning. First the futures recovered from the lows and the market opened down only approx. 15 – 20 points and moved nowhere the entire morning. It was the time when I lost faith in this market and decided to roll my SPX puts into the next expiration to avoid troubles should the market suddenly collapse.

Then, rumors about possible tariffs exemptions came up and the market shot up and at one moment it was in green. We closed only 1.32 points down!

This indicates that we are really in a bull market and Trump’s economic extempore has no long term impact on the bull. I am expecting the market to be in its bullish mode for the next year or two but there are some so called experts who predict this bull to last for the next 20 years! I wonder what kind of crystal ball are they looking at.

Out of nervousness that the market may crash by the end of the trading day I decided to do some adjustments on my existing trades:

 
A summary of opening and closing trades.
(balance + $375.00)

 
0307trading
 

Today, I also purchased OHI stock which is not included in the balance (income/expense) report above.

 

 · Dividend stocks to buy

 

Out of our watch list of 36 dividend stocks the following ones are a good buy at today’s prices (03/07/2018):
 

AGNC
AWK
CVX
HD
KMB
MCD
OXY
PG
XOM
 


Disclaimer: The list above is based on calculated fair value and 52wk high offset valuation. The values are subjective to our calculations and opinion and may differ from your own. If you decide to trade or buy these stocks, do so on your own risk and do your own homework. The list is not our recommendation to you.




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Posted by Martin March 06, 2018
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Cohn resigned futures crapped


Once confident investors pushing this market higher are now spooked by anything and everything. Trump once boasted about the stock market, talking heads were praising him, investors had bright future in front of them and the bull was unstoppable.

It all changed suddenly on a dime.

They are now all spooked by the same man and same policies of the praised economic guru who is no longer seen as one. An economic adviser in Trump’s administration Gary Cahn, considered by some as a reasonable guy in the entire Trump’s crazy cabinet (I do not know Cahn so I can’t comment on this) resigned from Trump’s government. They announced it at 5:30 pm today and futures crashed 1.41%

 
SPX futures
 

Although we recovered a bit from the lows, the market looks gloomy. It is still too early to say where the markets opens tomorrow morning but it seems that investors are spooked. They believe that once Cahn was the one who kept Trump leashed so he won’t go amok in regards to his “hitleric” shouting about tariffs. Like we haven’t seen this before on any different matters.

Well, we can expect bumpy trading tomorrow. It is hard to say, what would be the best approach to trade this market. So we have to wait and see.

We have a few trades with tomorrow expiration against SPX and Friday expiration against AMZN.

 
SPX futures
SPX futures
 

If we open where the futures are now, our puts will be in a danger. The hard part will be what would be the best thing to do – convert to calls or just roll? With futures this deep it is hard to say whether we will go lower or we the reason will return to the market and we recover. Rolling puts only would help should we recover or kill us should we not. Converting to calls should help should this market continue down but kill us should we recover. Now I wish to have the crystal ball.

 

 · Trading activity today

 

Today, I did a few trades for which I kick myself now. I rolled my old calls into puts which cost me some buying power and now it seems it was a mistake. But, when I was doing it, who knew?

Let’s see how tomorrow goes and how I will be, or will not be, able to navigate this mess, again.

This starts making me tired and I think I need break. I know I said that several times but I need to stop trading and take a break. So I will be sitting this through and managing the existing trades only and not opening any new ones.
 

A summary of opening and closing trades.
(balance + $1490.00)

 
Trading Results

 

 · Dividend stocks to buy

 

Out of our watch list of 35 dividend stocks the following ones are a good buy at today’s prices (03/06/2018):
 

AGNC
AWK
CVX
HD
KMB
MCD
OXY
PG
XOM
 


Disclaimer: The list above is based on calculated fair value and 52wk high offset valuation. The values are subjective to our calculations and opinion and may differ from your own. If you decide to trade or buy these stocks, do so on your own risk and do your own homework. The list is not our recommendation to you.




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Posted by Martin March 05, 2018
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Fear is gone, or is it?


Trump’s tariffs were an overreaction, probably better to say an excuse for selling. Today, Trump and his administration eased up on their rhetoric and conditioned any tariffs upon renegotiating NAFTA treaty which caused the market rally hard again.

Will this last or are we going to find some other reason for getting the market slammed again? No one knows.

All we could do today is just monitor our trades and adjust if and as necessary. I still believe we have about one or two years left in this bull market so my goal is to lighten on my positions and close as many as possible to be ready for a potential bear market (should it actually happen).

 

 · Trading activity today

 

A summary of opening and closing trades.
(balance + $420.00)

 
Trading Results

Collected another nice $420 dollars today. If the rally continues in the next 4 days we have some call spreads which will need attention.

 

 · Dividend stocks to buy

 

Out of our watch list of 35 dividend stocks the following ones are a good buy at today’s prices (03/05/2018):
 

AGNC
AWK
CVX
HD
KMB
MCD
OXY
PG
XOM
 


Disclaimer: The list above is based on calculated fair value and 52wk high offset valuation. The values are subjective to our calculations and opinion and may differ from your own. If you decide to trade or buy these stocks, do so on your own risk and do your own homework. The list is not our recommendation to you.




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Posted by Martin March 02, 2018
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February 2018 trading, investing, results


February is over and it was a very wild month. Very volatile, dramatic, and to some scary month. At the beginning of the month the market corrected more than 10%, then we recovered some but Powell first then Trump with his tariffs sank the markets again.

No matter how scary these moves are, I actually like them because that is how I can make money. Lately I was able to ride this market down as well as up and bring in way over $6,000 dollars in revenue in February and in just two days of March 2018 way over $4,000 dollars revenue.

 
Trading Results
 

As the table above shows, we had a great income in February, most of it in IRA account as ROTH and TD are too small to trade more frequently.

But if you look at our net liquidation values (net-liq) we are down. It is because we still have many open positions which are now losing value. These positions are still well out of the money (OTM) except two or three trades which are in the money (ITM) and will need adjustment in the near future. As the market starts recovering from the mess, these trades will once again become better. And our net-liq will start going up again. And if not, we will adjust those trade to improve.

 

 · Trading activity today

 

As I mentioned above our trading activity today was another great endeavor. When the market tanked in the morning I could ride it down, mostly Amazon (AMZN). When everything changed suddenly (and I do not know why and do not even care why the market reversed) and started going back up, I rode it up too.

A summary of opening and closing trades.
(balance + $2,059.00)

Another beautiful day in the stock market. While others are panicking, we are making money. We brought in another nice $2,059 dollars today.

 
Trading Results
Trading Results

 

 · Dividend stock investing

 

I trade options to generate income which can be used to buy dividend stocks. That was always my goal and dream as well. Make enough income which can be invested. Then I can keep my job income for supporting my family. I use 50% of my options income to buy dividend growth stocks.

Here is a review of all accounts stock purchases made in February:

 
Traditional IRA
Trading Results
 

ROTH IRA
Trading Results
 

TD account
TBD
 

In February we purchased the following shares:

 
Dividend growth stocks

 

 · Dividend Income

 

ROTH IRA dividend income
Trading Results
 

IRA dividend income
Trading Results

 

 · Market outlook

 

I am still bullish but I think the bull market is getting closer to its end. My estimate is end of 2018 or first half of 2019. I believe it will be partially due to Trump’s incompetent and protectionist policy which would kill tax cut benefits and lead to the economy slowdown. But before all this ever happens I believe we will see yet one more all time high and then we may see troubles unfolding. But I may be wrong. I am usually always wrong in predicting the market.

I want to trade the market no matter what it does. That’s my ultimate goal – to learn how to trade the market up or down. Make money no matter what the direction is.

That however requires a few things:

1) Discipline and not over trade. Always have enough money in your account to sustain drops like this one in February and be able to manage your trades, adjust them, and escape bad trades. If you have a small account, trade only one trade at a time, or save more money before you trade.

2) Stay calm. Do not panic. If you are in a trouble, roll your trades away to buy time and then when all is calm, adjust.

3) Do not sell your stocks when they go down. Wait until all is over. Remember why you bought the stocks in the first place. I bought mine for dividends. Then I don’t care what the price is doing. I am not selling for capital appreciation. I am a dividend investor. At the end of any panic or bear market there will be a start of a new bull. If you invested before 2008, sit through 2008 selloff, reinvested dividends, and even bought more shares, your account is not way higher than before 2007 end.

4) If you want to be a bit active investor and trader, learn and study the markets. There is always a lot to learn. Play with your trading positions, simulate your options and way how to roll them, fix them, or adjust them even if you do not do it. But the trading platform will show you what you can do and if you see that your situation is hopeless, learn what else you can do to adjust a trade. For example, you have a deep in the money put spread. That is impossible to fix on its own. You play with the trades and find out that you can roll into calls for a small debit and sell new OTM put spread to offset the debit.

5) If everything goes your way DO NOT BE GREEDY!!! Boy how may times I was guilty of being greedy and opening more trades because everything was great and all trades were winning just to see getting myself in trouble the very next day when the market changed direction.

There are many possibilities to trade. Learn them and find those which work best to you and if you stay calm and never panic, be greedy, base your trades on expectations rather than trading what you see, you will prosper and be consistent.
 




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Posted by Martin March 02, 2018
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Which stock to buy?


Dwarf As I mentioned many times before and it is a part of my strategy, I use 50% of my options trading proceeds and buy dividend growth stocks; dividend aristocrats to be exact.

As Warren Buffett said that he considers diving stocks an investing blessing, every investors who buys stocks to hold them for a long haul must be very happy with current prices of the stock market.

I am really happy about this sell off. Although the portfolio is losing on paper (since the existing holdings are losing value) it is just a temporary state which doesn’t concern me at all.

In fact, my current holdings are still in a positive territory and I am still about 2.5% up for the year. Most of my net-liq drop is caused by my open options positions and since, except about two trades, all are out of the money, I have no troubles with shrank net liq at all.

Now I have a different paradox to solve.

Before, when the stocks were reaching all time highs, investors and I were constantly asking (complaining) which stocks to buy since they were all overvalued (I disagreed with the valuation part). It was hard to choose a stock and buy at a good price.

Now we have an opposite situation.

Almost all stocks except few in my watch list are in a correction mode and thus a good candidate to buy. I made nice money yesterday riding the stock market down to its abyss but not enough to buy all stocks in the watch list.

 
Now, I have to choose.
 

Watch list
 

As of now I am looking at JNJ, OHI, AGNC, and CVX.
 

What do you think? Which of the stocks from the watch list would YOU buy?
 




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Posted by Martin March 01, 2018
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Trump sinks the stocks this time on his tariffs announcement


If it wasn’t Powell, it is now Trump and his tariffs announcement. However, it is all just excuse for large investors and trades to unload and possibly buy back again cheaper as small guys start running in panic.

On this blog I try to advocate having clear head and stay calm. Listen to big investors like Warren Buffett who says days like this when stocks go down it is good news!

And boy it was a great day today!

I actually like days like this… fast selling or steep buying… both great for trading. I could ride this market down, make money doing so, and close some trades (most at gains, some at a loss but well offset by other gains) raise cash, and make tons of money.

All it takes is to have a strategy, plans for every situation and execute that plan.

However, today, I was proven wrong with my expectation of a market being on a trajectory of recovery to new all time highs. Now, it seems that we are going to re-test the 200 DMA before going higher again. However, I am slowly being convinced that this bull market is going to an end by the end of 2018 or first half of 2019. That means I am going to raise cash this year as much as possible to get ready for a wild ride.
 

As a dividend investor I will still keep holding my dividend growth stocks. My selling strategy is only when the stock is removed from the David Fish CCC list (which happens when the company cuts its dividend or fails to raise it). However, I will keep more cash on hand to be ready for more stock buying as they will fall.
 

As a trader I will attempt riding the market swings and its fall but I will attempt to raise cash and ride the slump with less trades than I have now.

 

 · Trading activity today

 

A summary of opening and closing trades.
(balance + $2,844.00)
 

What a day today! At some point I love days like this as you can make tons of money.
 

030118 trades
030118 trades
030118 trades
030118 trades
 

What is your expectation of the market?

Are you prepared for the possibility of a bear market?

How do you feel after days like today?

Was today trading bad for you and your portfolio? Or do you accept this as a great opportunity to buy more shares?

Share you thoughts with us! We will post them for all investors and traders to learn from it!
 




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Posted by Martin February 28, 2018
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Good news is bad news


How many times have you seen that revising GDP down (which means economy is slowing) is a good news for the market (as stocks climbed higher upon this GDP revision)?

I know many will argue that it will mean “danger to economy” and thus less interest hikes. But it is all bullshit. Our interest rates were below average normal for a decade. Is returning rates to normal a bad thing?

The market acts like a drug addict. FED gave it a medicine of cheap money and now, taking it away, the market sees signs of delirium, a hangover. And it fights back for more drugs.

and how quickly everything can change. One day everything is great and bright, the very next moment everything is gloomy.

How do you feel about this market?

This is the exact market action I remember in 2015 and before in 2014… and in 2012… and it didn’t make me comfortable and I was losing money back then. I am now seeing the same old mental mindset returning.

What does it mean?

I think it is time to stop trading actively, reduce exposure and wait this out a bit until we see some better direction.

I feel tired and weary about this market. I feel it is time to slow down and stop opening new trades; just managing the old ones.

What do you think about this market?

How do you manage volatility?

How do you trade a market when any trade you place turns out wrong? Do you stop or try to navigate through? Do you trade or do you turn the computer off and stop paying attention to the market until it calms down? In normal volatility days it seems that if you do so, you may stay aside for a very long time. So there must be a way to trade even a volatile market!

Most of our trades are still good but there are a few which are turning sour. And it doesn’t make me happy at all.

My market outlook is still bullish despite the current weakness. How about you? Do you believe that this market is just another overblown overreaction or a bear market starting unprecedentedly into a growing economy?

You may ask: “If you are bullish why this nervousness and bad mood?” and I would agree with you that I am also just overreacting and become scared because I still have a lot of money in the game and I do not like it. and now when the markets are in this mess, it is difficult to unload.

 

 · Trading activity today

 

I only took a few trades today. I felt like Amazon (AMZN) was a good play for Friday’s expiration as tech stocks were the only sector going up today. I hope this will not turn bad tomorrow. If we go sideways or even slightly down my AMZN positions are still in good shape to get closed for profit tomorrow or worse on Friday. Unless AMZN tanks 50 to 100 points in a day the trades should be OK.

I am a bit itchy saying “the trades are in good shape and if it won’t tank in a day…” because last time when I said that, the market turned down and tanked more than I liked it. But I do not take it personally :-)
 

Here are today’s opening and closing trades.
(balance + $5.00)
 

trades
 

Let me know what do you think about the market, what is your outlook? How are you trading during days like today? post either in comments below or just send me your email I will post your reply (if you approve) for all of us to learn from you!




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Posted by Martin February 27, 2018
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Looking for evidence of a bias


I advocate not to predict the market and its move. I advocate not to get into looking for evidence to confirm your own bias. I must admit that I am now guilty of doing so.

It is difficult to stay unbiased when a trader has certain positions and you wish the market would do what you wish for in order to turn those positions in winning ones.

I admit, I am doing exactly that in a desperate searching for justifying my trades. I am guilty of looking for evidence that my expectation of continuous bullish trend is correct.

However, I keep telling myself to prevent myself being attached too much to the analysis and results I just searched for. No matter what I find about the market I must stay free from overly expecting its next move and be disappointed if it doesn’t happen. Empty your thoughts, your head and trade what you see; not what you believe or what you expect to happen!
 

A recent port by Forbes contributor John Kosar there is another way to look at the market to determine the next direction of the market.

Semiconductors.

It is said that semiconductors usually lead the way to the upside as well to the downside. Per John, “Semis tend to be the “tip of the spear,” leading the way in both stock market uptrends and downtrends. This is because they are the “fast horse” that investors want to be on to capture some relative outperformance versus the overall market during stock market advances, and are typically the first horse they jump off of when the market weakens, often in favor of more stodgy blue chip stocks.”

Semiconductors struggled to make new highs recently as they were bound in a range:
 

SOXX
(Source: Forbes)
 

Semiconductors (Nasdaq GIDS: SOX) broke a major resistance at 1362 lately and that makes the resistance a support should the new support hold, of course.

If you check the chart by the end of the day it actually retreated from the new highs which makes the move questionable. But, it also makes it hopeful.

With a low volume pullback today I can expect that this is again in favor of just a small pullback and not a reversal of the trend.

 
SOXX
 

However, next few days will show where are we going. Heading down to re-test previous lows (<50% chance) or bounce off of the 50 DMA and continue creating new highs as I expected before.
 




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Posted by Martin February 27, 2018
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Powell tanked the market but on a very low volume


Powell testified in front of the Congress and tanked the market. But did he?

Maybe he sparked this selling but it was expected. We recovered most of the correction in a fast pace. This recent correction was fast and in one wave and we recovered in the same fast pace… and in one wave.

However, the selling happened in a very light volume:

 
SP500
 

A low volume pullback is a technical correction toward an area of support that occurs on lower-than-average volume. Since the move occurs on low volume, traders often attribute the pullback to weak longs locking in profits rather than a reversal. (Investopedia.com)

If this definition is correct and we are really in a “technical pullback” then this is a profit taking event, healthy for the market, and the uptrend should resume (and since I have a few bullish trades I wish it is what will be happening in the next few days).

Yesterday, I posted “We may see a small pullback to 50 DMA but we most likely continue higher as per my previous estimate…” and it seems that this is exactly what has happened today. In fact, I think it is something what was supposed to happen despite Powell’s testimony.

However, this selling derailed me and I made a few trades out of discomfort. Yes, I collected more premiums but, as I stated, I wasn’t much happy with those trades.

I had to close my trading platform to not get sucked in more trading.

 

 · Trading activity today

 

Although, we collected nice premiums trading today, I am not much happy with it. The trades were driven by emotions and not by calm trading. Followers of our trading and this blog may remember that I strive to trade without emotions and without panicking. I strive to control myself and always be in a “comfort zone”.
 

I must admit, I failed today.
 

Here is a summary of opening and closing trades.
(balance + $435.00)
 

SP500
SP500
 

Let’s see what next few days bring. I assume we may see some downward pressure to continue but more buyers will for sure step in and continue buying. The odds of larger pullback though are very low.
 




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Posted by Martin February 27, 2018
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Powell speaks, market craps


Although he said nothing spectacular, nothing everybody already knew (except maybe that everybody expected three interest hikes while he mentioned four) and market went on a selling frenzy again.

At some point this freaked me out a bit as my recently rolled SPX calls into puts got into trouble and I rolled them back into calls. But then I realized that it was all over-reaction. There still is absolutely no catalyst for a bear market out there. So I rolled it back into puts.

I increased risk a bit doing so, but now decided to sit still and do nothing until this crappy market moves calm down.

Today’s morning action and my trading reminded me of staying away from these market moves and reacting to them. It is difficult to do when your trade position is being attacked (in my case puts getting touched or in the money) but if the overall outlook is bullish, converting puts into calls is wrong just because the market is only freaking out.

So, I moved my trade back to what it was (happily collecting more credit) and now I need to sit tight and wait.

 

 · What investors missed – again?

 

First of all, the Wall Street reaction was based only on an assumptions of the same ones. Powell actually hasn’t said anything that he would increase the rates. He once again stressed data dependency and although we see economic prosperity and growth, according to Powell, it doesn’t pose an increased risk yet.

So his remarks can be seen positively and not negatively. The entire testimony pointed to lack of need to raise the rates! There was no urgency to do so. It was clear that FED would go forward and raise the rates only, if inflation starts moving in a faster and stronger pace. And that is not yet happening. Moreover, our inflation rate is still below historical average so any inflation growth will be returning to normal. Once the pendulum swings above the average we may see the need for FED to react.
 
 




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