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Posted by Martin May 27, 2014
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New Trade: BUY AUG14 CALLS on GLW 1 AUG14 22 $.57

New Trade: BUY AUG14 CALLS on GLW 1 AUG14 22 $.57

I once traded advanced option strategies which involved all sorts of spreads as well as buying options. At first, I was successful and doubled my account.

But also I wasn’t very comfortable with those trades. Many of them were directional trades and I was unable to make money. When the trade went against me, it was very expensive to repair it or get out, when the trade was directionally correct, the magnitude of the move was so slow that time value decay destroyed my trade and I ended up empty handed.

So soon I lost all the money.

This experience took me out of advanced trading or buying options and I rather started selling premiums, which are a safe bet compared to buying options for example.

Although my account is growing rapidly, currently my put selling strategy is up almost 24% for the year, my dividend income up 2.9% so far (up to date, the year-end income should be 10.54%), and my account is up 74.95% up to date, I am realizing that it can grow even faster.

There are directional options strategies which can grow my account a lot faster, exponentially faster. The key, however, is to find stocks, which show a setup for such a trade. But how to find them?

I am not going to reveal how I am finding those trades yet, but GLW is one of those stocks providing such probability.

 

Max Profit unlimited There is no max profit on calls. In theory, the stock could keep going up forever. But remember, your profit is limited to the move the stock can make before the call option expires. Profit occurs anywhere above 22.57. With 1 contracts, you will profit $100 per point GLW is over 22.57.
Max Loss $57 A call option gives you the right to buy the stock at the strike price. If the stock is below the strike price on expiration day, it will be worthless. So, max loss occurs if GLW is $22 or less on expiration day, which is August 15 for this option.

 

With this trade I have a potential to double my money or even triple my money, if the stock moves up as expected. The key is to find the momentum. Is this stock going to have such momentum? All I can see now, that the stock is in a relatively long squeeze (since the end of April) with a very strong upside potential. I can see that there really is a very high probability that the stock shoots up.

But am I right? I do not know. I am taking a few more trades in my paper money account, but also decided to take a very small trade with real money to test the waters. If my new strategy ends up as correct, I may be returning to advanced options strategies once again.

Trade Detail

Tomorrow morning I should open a test trade as follows:

BTO 1 GLW AUG14 22 CALL @ $0.57

Of course, the profit is unlimited, but if the stock moves fast up above 22.57 I should double my money.
 
 

 
 

 
 

And of course, once this test trade is done, I will report its result.

Happy Trading!

 




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Posted by Martin May 26, 2014
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Memorial Day


Caen

Today, I would like to take the opportunity to express how grateful I am for all our men and women who served this country and paid the highest price for it. I am old enough to remember how Americans treated their soldiers in 70’s and it was sad. I also remember how this attitude changed and Americans realized how precious those people willing to die for their country are.

WWII

I am also seeing how is this attitude changing again. Not just towards soldiers, but overall. Are we really forgetting? Do we need a thread to value our way of life? Do we really need Hitlers, Hussains, Al-Qaedas, Stalins, or other tyrants around the world to constantly remind us that, unfortunately, peace on Earth is still fragile?

Flag

Let’s remember all those who fought in all wars and died, so we can be sitting behind the computer and trade stocks without fear or worries. God bless their souls.

US Navy
 




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Posted by Martin May 23, 2014
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The best trade ever

The best trade ever

My yesterday’s trade finished today with full profit. I managed to keep the entire premium I collected and the option against GameStop (GME) expired worthless.

Although there were many doubts out there whether GME is a good stock to own or not I trusted my sense and expectations when opening the trade. Of course, I was afraid. There still was a small “what if” back in my head but I tried to believe my intuition as well as my strategy and homework I did before opening the trade.

GME is a dividend stock. It is not a champion, it started paying dividends in 2012 and has only 1 year record of raising it, but still, this gives me a confidence when trading options.

One rule I have is: sell options against stocks you are OK to own and the second rule sell options against dividend paying stocks, which you are OK to own.

GME is one of such stocks. My expectations were correct and I made $109 dollars cash overnight (3.08% overnight gain) selling put contract against this stock. I know, in an absolute numbers, $109 doesn’t look too much, but I didn’t have more available cash to open more contracts (and now I am kind of beating myself for not trusting myself more), and opening more contracts would lower my free cash lower, below my level of confidence. If the stock behaved differently, it could get me in a trouble.

This trade can be marked as my most profitable, prosperous and best trade I ever made and I wish I will be able to spot more similar opportunities in the future.

What about you? What was your best trade ever, which still makes you proud? Comment below or send me an email and I will publish it in a separate article.

Regards and Happy Trading!
 
 




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Posted by Martin May 22, 2014
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New Trade: SELL MAY4 14 PUTS on GME (weeklys)

New Trade: SELL MAY4 14 PUTS on GME (weeklys)

This morning I entered another trade against GameStop (GME). It was a bit speculative trade and a source of either a quick profit or a big burn.

Today after market close GME reported 1Q results and I took a risk of being burnt if the company reported disappointing results.

This trade will expire tomorrow, so it was just a one day trade, but the premiums and volatility were very appealing and literally screaming for taking this trade.

Check the options chain:

GameStop premiums

Note those juicy premiums and the volatility way over 100%. And even now those are the most current numbers indicating how nervous investors were about this stock.

The company reported somewhat better than expected results. Apparently, the results were good enough to make the stock rally after hours (by 5% at first, then it slowed down to 3%).

Will it survive? If so and the stock ends above my strike tomorrow, it will be my most profitable trade ever.

Trade detail

STO 1 GME MAY4 14 36.5 put @ 1.09

The trade has a low BP (buying power) or maintenance requirements, expected ROI 3.08%, expected ROM 13.58%, and a safety factor at 1.40%. The trade opened in the morning and if all is good it should expire tomorrow.

That is a whooping 6,436,545.721% annualized return!

Okay, to be fair, it didn’t happen yet and tomorrow everything can be different and I may lose this trade. If the stock starts falling tomorrow, I still am ready to roll it over and away in time to preserve my money.

 

Max Profit $109 When selling puts, the hope is that they will expire worthless, so the max profit is equal to your execution price. Max profit occurs if GME is above $36.50 on expiration day, which is May 23 for this option.
Max Loss $3541 In theory, GME could keep going down all the way to zero, and since you are giving someone else the right to sell it at 36.50, your max loss is very high. However, remember that this trade has a time limit on it. On expiration day, May 23 for this option, if GME is below 36.50 you will either need to buy back (cover) the put, roll it, or you will be assigned -100 shares of GME as a long position, with an entry of 36.50.

 
 

 
 
If the premiums stay elevated tomorrow and it will become obvious that the stock remains above the current strike or will have a strong momentum upwards, I may open another put selling trade against this stock as this is a great opportunity to make money.

Happy Trading!
 
 




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Posted by Martin May 22, 2014
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Is the US heading to another recession?

Is the US heading to another recession?

It looks like some analysts and investors are slowly turning bearish on the market. Is this the end of our spectacular and long bull trend?

We haven’t experienced too many corrections or significant correction lately and it looks like the market had a spectacular and uninterrupted run up.

Take a look at SPY 5 year chart:

SPY 5 year trend

With a small drop in November – December 2012, the market had uninterrupted run up with only a few dips.

Is this trend going to halt and reverse? And if so, what are you going to do to protect your positions? Or are you just going to ride it down and buy more shares?
 




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Posted by Martin May 20, 2014
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Inflation or risk of deflation? No, hyperinflation, but hidden.

Inflation or risk of deflation? No, hyperinflation, but hidden.

Our government is telling us that deflation (price decline) is bad thing and dangerous to economy. The FED wants inflation. They want at least 2% inflation.

They want all Americans to pay more.

They want all American’s savings to be destroyed faster.

They want all Americans to stop saving and start borrowing more money and spending it.

That’s their policy behind it.

Who wants to pay more in a grocery store? Who wants to pay more in housing costs? Who wants to pay more for living necessities? Do you? I don’t!

So how come that it is a good thing to have all prices rising?

Watch Peter Schiff’s latest video and tell me, whether it makes sense or not.

 

 

I think we already have a hyperinflation. The reason is the methodology of calculation how the today’s CPI index is constructed vs. how it was calculated originally back in 80’s. Thus the official US inflation is depressed for political gain of our government: “Look how low inflation we have! We need a higher inflation! That is our goal.”

But have you been shopping recently yourself? Poultry is up by 23%, ground beef by 43%, lettuce and apples up by 11.1%, pork up by 60% gasoline up by 25%, wheat 74%, Medicare up 74%, etc. The entire food inflation for 2014 is at staggering 19% (Source: Zero Hedge)

Inflation, Zero Hedge

No matter what politicians and economists are trying to tell us, how great inflation is, how greatly it adds up to economic growth, I agree with Peter Schiff, that higher prices are bad for everybody but government.

In order to overcome such inflation, we have to strive more in our investing, so our capital gains, dividends, or options premium received not only has to make enough gain to cover our retirement living, but must overcome inflation no matter how big it is. So if any today’s politician or economist tells you how great higher costs of everything are, please ask him, how that helps you to save enough for your retirement. I am curious too.
 
 




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Posted by Martin May 19, 2014
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New Trade: SELL NOV14 PUTS on GLW

New Trade: SELL NOV14 PUTS on GLW

My account grew a bit once again and I decided to open another trade – a new put selling trade against Corning Inc (GLW). The company in a nutshell manufactures glass (if you can call it that way) which is used in iPhones, smart phones and tablets. That gives the company a great advantage as the mobile market is growing. The display technology is not the only segment this company operates. It is also involved in Telecommunications, Environmental Technologies, Specialty Materials and Life Sciences.

In 2011 Corning launched Corning Lotus Glass, an environmentally friendly, display glass developed to enable technologies, including organic light-emitting diode (OLED) displays and next generation liquid crystal displays (LCD). Corning Lotus Glass helps support the demanding manufacturing processes of both OLED and liquid crystal displays for portable devices, such as smart phones, tablets, and notebook computers. In March 2011, the Company acquired all outstanding shares from the shareholders of MobileAccess. In December 2011, it acquired Mediatech, Inc. In May 2013, the Company acquired Bargoa SA. Effective January 15, 2014, Corning Inc acquired the remaining 50.6% interest in Samsung Corning Precision Materials Co Ltd.

Thus I decided to take a long trade to give the company to grow (and thus make sure it expires worthless) and I could collect a nice premium as well.

Trade Detail

STO 1 GLW NOV14 21 put @ 1.40

The trade has a low BP (buying power) or maintenance requirements, expected ROI 7.14%, expected ROM 33.40%, and a safety factor at 0.57%. I entered the trade for tomorrow morning. If all is good it should execute.

 

Max Profit $140 When selling puts, the hope is that they will expire worthless, so the max profit is equal to your execution price. Max profit occurs if GLW is above $21.00 on expiration day, which is November 21 for this option.
Max Loss $1960 In theory, GLW could keep going down all the way to zero, and since you are giving someone else the right to sell it at 21, your max loss is very high. However, remember that this trade has a time limit on it. On expiration day, November 21 for this option, if GLW is below 21 you will either need to buy back (cover) the put or you will be assigned -100 shares of GLW as a long position, with an entry of 21.

 
 

 
 
 
 

 
 

I will report tomorrow if the trade executes or I had to make an adjustment to it. You can use My Trade page to copy the trade to your ThinkorSwimm platform.

Happy Trading!
 




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Posted by Martin May 11, 2014
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“Timing the market” with dividend stocks


Passive incomeThere are two types of investors. One type chooses an easy way of investing, the second type is more adventurous. Both approaches are legit and investors choose them according to their style, personality and time they are willing to dedicate to their portfolio.
 
 
 

Passive approach

The first type of investors contribute to their account regularly and invest on a regular basis without checking where their stocks are and what the stocks are doing. They cost average their investments. When the stocks are higher, they purchase less shares and when the stocks are lower they purchase more shares.

It is a similar approach to most investors do in their 401k accounts.

And it is a valid approach if you do not have time or do not want to commit more time to watch your stocks. It is also the most passive approach of investing on your own into individual stocks. It goes very well with dividend growth stocks as they also provide you with a bare bone passive income. What an excellent strategy it is! You have a passive investing style generating you a passive income. You do not have to move a finger to collect income in form of dividends and you do not have to move a finger to contribute new cash to your account (assuming you set up an automatic money transfer from your checking account to your broker account).

And add to it DRIPping and you have an ultimate money machine!

Timing the stock

The second approach generates a passive income too, but its creation is not as passive as the first type. It is for investors who choose to be adventurous, have enough time to dedicate to their portfolio and actually like it and want to be as active as possible.

I belong to this category of investors as I love to watch my stocks and positions on daily basis and I like to time the market.

Did I say time the market? Yes, I did. Many investors and passive investors will tell you that timing the market is suckers game. Hello Suckers! It doesn’t have to be, if you do it the proper way.

So how do you time the market so you do not lose money?

I actually do not time the market, but time the stock itself. And as a dividend investor I do not time it the way most people out there understand it. I do not time the stock to buy low and sell high.

I time the stock to get the best entry price possible.

Recently on Seeking Alpha I read a post about Realty Income (O). A few investors or contributors posted their comment that they are actively trading this stock. They buy it when it corrects to its 30ies, and short it when it hits a 45-ish level and some posted that this is a sucker’s game.

And that made me think that I actually have a similar approach. But there are differences to it. As a dividend investor, I never sell my dividend stocks (except there is a reason for it such as a dividend cut).Timing the market

But I time the stock, when I want to buy it. I contribute money into my account and wait for the stock to go down in price. If all my stocks are growing I do nothing and raise the cash. Once a stock (any of the dividend stocks I watch) starts falling I check first why (dividend cut or a market frenzy?) and if it is due to overreaction or any short term nonsense, I start watching such stock closely. When it falls well enough I place a trailing limit order, or contingency order which trails the price of the stock down.

As long as the stock falls, the trailing order trails the price down. As soon as the stock reverses and it hits the trigger price it activates a limit order. Once the limit is met, I buy the stock.

So, I time the market this way. I get the best price ever, although it is not a 100% sure thing. Sometimes the stock reverses hit my limit, an order gets executed, and then the stock turns back down and continues in its downfall.

If that happens I have a second set of cash ready for more shares to buy (that’s why I never use everything I have in my account, but try to split the cash in three thirds and use the thirds only.

When the markets and stocks I bought this way start rising and continue rising, I just sit tight contribute more cash, and collect dividends.

Which approach do you personally favor?

Image courtesy of photostock / FreeDigitalPhotos.net
Image courtesy of bplanet / FreeDigitalPhotos.net
 
 




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Posted by Martin May 11, 2014
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Last week trading wasn’t as bad as it looked


Last week trading in my account wasn’t as bad as it originally looked like. Today, I reviewed my account, calculated all numbers and waited for my “Personal Capital” numbers to come in.

I let Personal Capital to watch all my accounts. It tracks all my trades and balances. Although my investing or trading style doesn’t fit into a predefined investing style Personal Capital uses for a typical investor, it tracks my balances well and compares them to the market. When I try to perform an investing checkup, it returns a message that my portfolio is leveraged from using margin and their analysis does not apply to leveraged portfolios.

Nevertheless, it still at least provides a comparison of how my accounts perform compared to markets.

I like to have an outsourced source analysis my portfolio performance for a view out of my own bias. Personal capital does this for me at some point.

Every Sunday, I receive an email reviewing my ending balances for the week:

Personal Capital

I use this information in my “Weekly Monitor” chart at the top of the blog to show, how my accounts performed for the last week. And, it is unbiased information from a third party and not my own calculations, which could be tweaked to make my accounts look better than they are.

But that is not my intent. I want to show my road to retirement and wealth in a true and correct way. Show to all my readers that it is possible to start with small money and build your account into a large source of your retirement. And that you can build it quickly if you want.

All you need to do is to have a plan and execute it.

From the charts in section “My Holdings” you can see, that I started rebuilding my portfolio in 2012 after I almost depleted it with a reckless trading. Since then I successfully raised cash by contributing and options trading and invested in into dividend paying stocks, which further contribute to my portfolio growth.

And every investor can do the same and use the exact same investing vehicles to multiple your account balance and income. By a diligent saving and investing I multiplied my dividend income (check the Dividend & Options Income” table at My Trades page).

Last week was a bit difficult to me as I am not only a dividend growth investor, but also an option trader as I believe that options can help adding more cash to my account which can be used for more dividend stock purchases later.

Yet, the week was difficult, it didn’t end as bad as it looked at the first glance. A put selling strategy may be scary for many investors and a lot of brokers will probably tell you the same, but if you learn and have a plan for every single trade, you will prevail.

As of this writing the premarket data indicate a slightly positive opening tomorrow morning. Will the markets continue on a positive note next week? If so, we will see another round of profits.

I wish you good luck next week and happy trading!
 




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Posted by Martin May 09, 2014
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Disaster continued, but navigated my account well thru the storm


Mr.MarketLast week loses mounted in my account. At first I started panicking, but then took a deep breath and told to myself: “Hey, calm down, you have a plan!”

Sharply falling stocks are an arch enemy of a put selling strategy. If stocks decline smoothly, slowly and not too fast, you can navigate the trades well and roll them. On the other hand, stock falling like a rock can kill your effort.

That’s what TASR positions did to me. The stock lost another 8% on Tuesday and it was too much for me. My cash reserves evaporated and my account hit a margin call. I had to act.

If you read my previous post, you remember what my plan for this situation was.

I didn’t want to touch my dividend growth stocks as they are my precious diamond in my account. They are my golden eggs laying goose. Although I was thinking about an option of selling some positions and later buy it back. But I completely dismissed this option.

The next step was to close my winning trades. Why selling winning trades and leaving losing trades on? There were two reasons:
 

  1. I preserved the gains I already had. There was a risk that those winning trades may still turn bad and I could leave money on the table.
  2. I raised much needed cash to satisfy a margin call and also have enough cash to consolidate the losing trades and make them winning trades.

 
So I bought back the trades, raised cash, preserved the gains, and rolled losing trades, so at the time of this writing they are no longer losing trades.

If you follow my blog and my account, you may know that I had $17,035 account value before this selling started. During last week, my account dropped down to $14,890. At first I was shocked and pissed off, but that is the part of the game and you always have to stay calm and have you head clear.

For almost two years (since June 2012) I had only winning trades. I haven’t lost a penny and all my trades turned or ended as winning trades. This week’s drop was a remainder from Mr. Market, that I have to stay humble and calm, and that he is still the master in the pit. It was a gentle, friendly nudge from Mr. Market and I hope it will stay like that.

By consolidating my account I was able to recover majority of my previous loses. I actually didn’t take any physical loss. I only closed the winning trades and have trades which are showing loss, but recovering. I believe, before they expire, they will turn positive and end as a winning trade.

I recovered my account back to $16,280 as of today and if the market stays calm or it can even slightly lose next week, I should be able to recover everything by the end of the next week.

Here are the trades I decided to close:

Realty Income (O) put selling trade

This trade was a winning trade. It was supposed to expire in June 2014 and I decided to close it earlier and take 2.17% gain.

Coca Cola (KO) put selling trade

This trade was a winning trade. It was supposed to expire in August 2014 and I decided to close it earlier and take 2.83% gain. I only paid $16 to buy the trade back.

AT&T (T) put selling trade

This trade was a winning trade. It was supposed to expire in October 2014 and I decided to close it earlier and take 3.48% gain.

Teva Pharmaceutical Industries (TEVA) put selling trade

This trade was a break even trade or a small loss. I still had to take it to raise enough cash. It was supposed to expire in June 2014 and I decided to close it earlier and take a small -0.08% loss.

Now, I am well positioned in the market, so, hopefully it will turn into gains.

Happy trading!
 
 




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