Posted by Martin January 11, 2019
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Boeing raises dividends by 20.18%


Boeing (NYSE: BA) has an impressive dividend growth rate of 27.50% (5 year annual average). And in January 2019 it increased the dividend by 20.18% from $6.84 annual dividend (1.710 quarterly rate) to $8.22 (2.055 quarterly) dividend rate payable in March 1st, 2019.

Boeing is a dividend challenger with 8 years of consecutive dividend increases and in our watch list it is currently listed as a buy at the current price of $352.61 a share.

Our calculated fair value is $391.36 a share, average 5 year dividend yield is 2.28 a share (current yield 2.06%), and annual sales at $98.15 B.




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Posted by Martin January 10, 2019
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Abbott Labs raises dividends by 14.29%


Abbott Laboratories (NYSE: ABT) raised their dividend by 14.29% to $0.320 a share with ex-date on January 14th, 2019 and pay date on February 15th, 2019 from previous $0.280 a share dividend rate.

This makes ABT a dividend challenger with a track record of 7 consecutive years of dividend increases. However, in our watch list, the stock is still not a buy despite the recent market correction. The stock still seems overvalued at the current price of $69.08 a share.

Our calculated fair value is $30.30 a share, average 5 year dividend yield 2.05%, there fore we rank this stock as a hold.




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Posted by Martin January 10, 2019
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Johnson & Johnson boosts prices on top-selling drugs


  • Joining a number of other drugmakers this month, Johnson & Johnson (NYSE:JNJ) raised prices on about two dozen prescription drugs today, including top sellers Stelara (for psoriasis), Zytiga (for prostate cancer) and blood thinner Xarelto.
  • Most increases were in the 6-7% range, Reuters notes.

  • The company says average list price increase on its drugs will be 4.2% this year, but it expects net price it receives to drop after rebates and discounts. It says it doesn’t plan to raise prices on any more drugs this year.

  • Shares are down 0.4% after hours.

Source: Seeking Alpha




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Posted by Martin January 02, 2019
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Hedging credit spreads


Recently, well, in 2018, I started using hedges for my credit spreads. I wasn’t using hedging much in the past because I wasn’t sure how to use them properly and how to manage them. So I avoided them.

Thus 2018 year was somewhat revolutionary to my trading as I learned using them. So the old options wolves will be probably laughing at me right now sharing something what was very obvious to them… but not always to me.

And apparently, not all traders are able or know how to use hedging.

To me, as I mentioned in my previous post, I was afraid that by opening a hedge, which is a debit trade, I can lose money in a decaying instrument such as options and it cannot be repaired. I was wrong.

 

 · A recently discovered beauty of debit spread hedges

 

One reason I am no longer afraid of debit spreads is my recently discovered way how to salvage a trade. I briefly mentioned it in my previous post but I think I need to ad some visual explanation.

Let’s say I have a credit put spread open and I see the market tanking and I am afraid that the credit spread can get in the money. I decide to place a hedge. The hedge can either be below the current put spread or at the money. Recently I used at the money or near the money spreads. Adding a spread would then look like this:
 

Placing a hedge trade
 

As you can see, this hedge would cost me $2.25 debit.

If I am correct and my existing credit spread (not shown on the above example) really gets in the money, then I will be able to close the new debit spread for approx. $4.50 credit making a nice profit of $2.25 dollars. On the other hand, the credit spread will also be in the money but due to a time value still left in the spread I can close such spread for around $3.00 a contract. In this case, my loss is only $0.75 per contract instead of a full $3.00 loss. I would gladly take $75 dollars loss over $300 dollar loss.

But when I see the market really falling I usually open more than one debit trade so my collected credit is larger and offsets more losses.

Of course, the point here is not to wait until the existing credit spread is in full loss (which would happen at expiration).
 

But what if I am wrong and the market starts rallying again?
 

And here is what I like with those debit spreads. If I am wrong and the market reverses and starts rallying, I can convert the debit spread into a credit spread. Of course, this adds risk to the account and it consumes buying power, so you need money to be able to trade this. But I like it and I like to play it this way.

Reversing the debit spread into a credit spread provides two ways:
 

1) rolling the short strike
2) rolling the long strike
 

If the market starts moving up fast and strong, I roll the short strike. If however, rolling a short strike would result rolling it into money, then I decide to roll the long strike. This depends on how confident I am with the market move, how much time is left, etc.

And here is a picture of such a roll:
 

Placing a hedge trade
 

In the above example, let’s say the market goes up and shows strength and I do not have too much time to expiration. So I decided to roll the long strike down by selling the existing 2510 long strike and buying a cheaper lower 2500 long strike. In the example I would collect about $4.00 credit making it already a profitable trade. Of course in the real life this would result possibly in a lesser credit, possibly around $3.80-ish level. So for the sake of this example, let’s use $3.80 credit.

In this example, the overall trade balance would be $1.55 credit. Risk would be $3.45 which would also be your buying power requirement.

This would be the resulting trade:
 

Placing a hedge trade
 

If I am right with this adjustment, then I can close the trade for 0.10 or 0.05 debit and be out with a profit. So no matter what, if played well, these adjustments can help minimize losses or make a profit. It is almost a win-win situation.

 

 · Butterflies

 

September results But, what if I am wrong again? And in today’s market it is quite often. Let’s say I convert a debit trade into a credit trade and the market starts falling again (like today). Then I use a butterfly to protect the new trade.

In this case I place back the original debit spread. Now I would have 1 lower long put contract, 2 short put contracts and 1 higher long put contract.
 

Now I will have the following trade:

+1 SPX 2500 put
-2 SPX 2505 put
+1 SPX 2510 put
 

Here is an example of a butterfly on my existing call spread which I added today when the market started rallying. It was originally a debit call spread as I thought the market would rally (finally after the end of year carnage). Well, the market turned down and the debit spread started losing, so I reversed it into a credit spread. Unfortunately, the market reversed again and rallied (and tomorrow it will probably fall again thanks to APPL slump). So I converted the trade into a butterfly:
 

Placing a hedge trade
 

Now the trade is neutral. I can let it go and do nothing. If we use the math of our put trade example this is what the balance would look like:
 

1) we opened an original debit put spread for -2.25 (debit)
2) we converted the debit put into a credit put spread for +3.80 (credit)
3) we converted the credit trade into a butterfly for -2.25 (debit)

Overall loss would be -1.50 debit if we do nothing. Still better than a full loss of $425 dollars if we let the original credit trade end in the money at expiration.

I usually wait for this to play out and if I see the market keep falling then I most often close the debit part of the trade for larger credit, for example $4.50 credit and open a new one lower than the original credit trade. That would cost +/- $2.20 debit again but if the market keeps falling than I would be able to close it again for a profit and the collected credit would allow me to roll the old credit into the next expiration and convert into call spread or roll into put spread and lower (and I usually add a credit call spread converting into Iron Condor.

As of now I am able to liquidate bad trades with minimal loss or even with profit but I am still playing with these adjustments to see how else I can improve those adjustments to preserve capital more and eliminate bad trades without a big damage I endured in January 2018 when I decided to close my bad trades at TD account because I didn’t know how else I could salvage those trades. Now I kinda know.

Of course, I do these trades in short expiration trades only and as a hedge trades. I do not use them as a main mean of profit as I do not feel very comfortable to trade it for a profit and I do not want to keep opening trades and reversing them back and forth. But that may change too in the near future. So far, I am happy with the results. Instead of rolling bad trades into future, I can keep closing them for minimal to no loss.

 

 · Trading SPX in lieu of stocks

 

Some of my followers told me in the recent past that I have deviated from my strategy of trading puts and calls using stocks as underlying security and that I now trade SPX only, which is not why they followed me in the first place.

Yes, I must admit that lately (pretty much the entire 2018 year) I was trading SPX exclusively. But that was not because I abandoned stocks. The reason was a more pragmatic one. When the market slumped in January – February 2018 some of my stock positions got immediately assigned and I collected a full loss on those positions.

Even today, I got assigned to a stock position which had expiration 172 days from now (!!!) that is almost six months from now! And yet I got assigned. Who in their right mind would ever assign a stock with so long expiration away? If long DTE cannot protect me from early assignments, then I do not want to be in American style options for now.

To avoid early assignments I decided to convert those trades into SPX trades. That means I closed in the money stock trades and opened equal SPX trades. They were equal in the buying power requirement, expiration, and collected credit completely offset the debit needed to close those stock option trades. So it was literally a one to one swap. Now I can sit on those trade until the last 5 minutes to the expiration without being worried of early assignment and I have a plenty of time to decide what to do next. And with the new debit spreads strategy it seems I can be unwinding those trades without big losses. Once the market calms down and decides on a direction it wants to go, I will most likely return back to trading stocks again. But it is too risky as of today.
 
 




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Posted by Martin January 01, 2019
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33% draw down in 2018


New Year
 

2018 year turned out to be volatile and as I expected all our accounts saw a quite large draw down.

But I am not grumpy about it nor regret anything I have done and the way I traded, except on my TD account. I now regret closing bad trades in January 2018 and collecting a large loss instead of managing those trades. Managing those trades I believe, our TD account would be in a lot better shape.

2018 brought a great opportunity. Increased volatility allowed us to create great premiums income. I can’t believe, we earned over $72,000 dollars in 2018 in options premiums. So a draw down is insignificant compared to the income. As long as I can keep those trades open and manage them, there is no worry about a temporary net-liq loss. It will recover as quickly as the market.

And one more thing I learned this year – hedging. I still do not feel very comfortable about hedging as I still see it as possibly losing money but lately, I do it very often and it seems I can preserve the capital. Thus there are two outcomes – make money or preserve existing funds but no loss (or very minimal).

For every put spread or call spread of an Iron Condor I have open I use debit spreads as a hedge.

If I see the market going down (or up) I buy a debit spread for the existing credit spread converting the trade into a butterfly or just add higher debit put spread (or lower debit put spread, depending on the market). These additions then allow me to close an entire busted credit spread and debit spread for a small credit and thus profitable or just allow me to roll the busted credit spread lower using proceeds of the hedge to help offset the cost.

In this whipsaw market I use the debit spreads as hedge only. I tried to use it as money making tool but too often I ended up with a wash or a small loss, many times converting the debit spread into a credit spread.

And that is another benefit of debit spreads. If you are wrong, you can always salvage the trade converting it into a credit spread by reversing either a higher long put into a lower long put or lower short put into a higher short put:

1) original debit put spread:

-1 SPX 2470 put
+1 SPX 2475 put

Converting the short put up into a credit spread:

close -1 SPX 2470 put
leave +1 SPX 2475 put
open -1 SPX 2480 put

Or converting long put into a credit spread:

leave -1 SPX 2470 put
close +1 SPX 2475 put
open +1 SPX 2465 put

All above mentioned strategies add risk as normal credit spread and they will require buying power. So in order to do this, you must be sure that your assessment of a market direction is correct. In a whipsaw market this can be tricky.

But debit spreads can add a significant value to the portfolio. Therefore in 2019, I plan using them a bit more often.
 

What’s next in 2019?
 

My strategy for 2019 will be same as in 2018 with a few modifications.

I will keep actively trading in IRA account and use 50% of all options trading proceeds to buy a high quality dividend growth stocks. And if we see the market selling more in 2019 (and I expect the next 6 months of more selling) it will be a great opportunity to buy more cheap dividend growth stocks.

In our TD account I will not be trading as of now. Only managing open trades. I will be saving as much as possible to raise capital. Or account equity is over $27,000 but it is low. It is not enough to trade successfully. It is my opinion and experience. Trading such small account is stressful and I do not have a luxury of being stressful. Thus the entire 2019 year I plan on saving money and I start trading again once free buying power increases above $3,000, then I will be opening one credit spread (with hedging) and max. risk of $500 per trade for every $1,000 of free buying power above $3,000. Majority of our assets are in stocks or open trades. I do not plan on liquidating the stock positions to free BP nor closing open options trades as these would result in a loss. Thus saving more is the only option and plan here.

The similar situation is in our ROTH account. This account is also significantly under-capitalized. I will do the same strategy as for TD account and will be saving first.

In my next posts, I will write a review of December 2018 and overall 2018 year review. This is just a quick review.
 

Stock market 2019?
 

I am still not convinced that we are heading into a recession. The economy is still very good and solid – low unemployment, low inflation, still all time high consumer confidence (although slowing), all time high earnings, retail sales, manufacturing orders and production. Markets do not fail in this economy. The economy must show signs of troubles as it did many times before.

But this doesn’t mean that it cannot change. Trump’s trade wars, ignorance, dilettantism, an no economic policy can damage this economy (and we are already witnessing this to be happening). However, until we see the economy showing signs of trouble, we need to be open to a possibility that this market is just driven down by fear and needed correction.

 

 

This market is somewhat similar to 1962, 1987, 1990, 1998, 2002, 2011, and 2015 market. If this observation is correct and history repeats itself (in a similar manner) then we may expect additional up to 6 more months of selling before this market settles, bottoms, and starts rising again.

But time will show, as always. Until then, manage the trades to keep them open and close them as winners.

Happy New Year!




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Posted by Martin December 22, 2018
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AT -13.98% WORST DECEMBER SINCE 1930





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Posted by Martin December 20, 2018
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PURCHASING APPLE (AAPL)


AAPL keeps sliding as investors keep being irrational and looking only behind the corner. Same insanity and short sight I have seen before. JNJ is yet another example. But everyone gets what they ask for. AAPL is not going anywhere, although doomers are already embracing its bankruptcy and closure, and I am buying this opportunity.

 

 

Just a few months ago I thought I would never be able to buy Apple. And now I was given this great gift buying one of the best companies in history.
 

Apple has an extraordinary consumer franchise. I see how strong that ecosystem is, to an extraordinary degree. … You are very, very, very locked in, at least psychologically and mentally, to the product you are using. [IPhone] is a very sticky product.”
Warren Buffett.

 

Warren Buffett
 

No matter what you think or believe, this is a great opportunity!




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Posted by Martin December 20, 2018
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2018 Will Be A Very Bad Year


This year will end badly in all our accounts. But it is just a matter of a perspective. I do not feel bad or regrettable. I am actually enlighten about performance and ability to manage the trades in our portfolios despite losses of their values.
 

 

 · What am I looking at then?

 

First, I must admit that I refused to believe that our government would destroy the stock market. And yes I believe Trump administration really did it with his trade wars and later on Powell, the FED’s chairman, with his aggressive monetary policy.

I think, the market could eventually survive the tightening but in conjunction with Trump’s trade war we probably tipped over the edge and investors decided to run for exits. Today, we touched 17% correction from the market’s ATH and we are near the arbitrary 20% level where a bear market is supposed to start:
 


S&P corrections

 

We collected over $66,000 dollars in premiums this year! Not bad, giving how bad this year was!

A 50% of that cash was re-invested back to great, high quality dividend growth stocks!

And I am very happy about that mainly when seeing tons of the great stocks on sale today!
 

So while others are panicking and selling, I am adding more shares to my portfolio. And I plan on doing so next year too. As long as my options trading keeps generating more cash, I will be buying stocks I deem undervalued (and I do not care what you think about their value, I have my methods and they work well for me).

However, our accounts’ net liquidation value is down about 40% as of today. But this doesn’t bother me. Trading options can be scary to many people, it is volatile, and the draw downs can be large.
 

You can't scare me
 

But, I am not scared. I am actually delighted about what I have learned this year despite the draw down. During the entire market selling off I was able to roll all the trades and manage them to keep them all alive.

True, I admit, I believed in this market. All possible data pointed to a breakout in 2016 and a bright future in front of us. And I was opening bullish trades. And I opened too many bullish trades so when the market started tanking, these trades started to hurt.

But I learned how to manage them. I was rolling them away, down, adding hedges and making money, collecting more premium.

And that is why I am not afraid of my net liq loss. I keep trades up and our cash is up too. Roughly by additional 35%! And as time goes by the adjusted trades are expiring or being closed for profit. Soon, this will have impact on our net-liq, buying power, cash growth. Even today, we were able to close a large chunk of originally bad trades for a profit. Our buying power jumped up significantly allowing us opening new trades and generating more cash which can be invested into great dividend stocks.

 

 · What’s next?

 

I will keep what I am doing now. Rolling bad trades down, eventually, converting them into an opposite spread (e.g. put spreads into call spreads), adding hedges, generating cash, and buying undervalued stocks (no matter what you think about valuation, I consider them undervalued, and I have my own method which works for me well).

I also learned the significance of having enough capital. For years, I tried to convince myself that you can trade options successfully with a small capital. You can’t. If you can, and it works for you and you can turn $2,000 dollars into several thousands of dollars worth account, great, you are great and I am happy for you. But, I must admit, it doesn’t work for me, so my next plan is to save money to be able to trade in my smaller accounts.
 

And the market? I believe, we are now doomed to reach that magical but arbitrary 20% bear market level. We will reach it. We may even go a bit lower and stay there for some time but then we bottom out and start a path to recovery. It will be a long recovery which may take 6 months or even the entire 2019 year. But I am OK with and do not care where the market goes. I am not afraid of it. And you shouldn’t be either. Embrace this sell off and be buying more shares in smaller installments. And let it run higher!
 
 




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Posted by Martin December 18, 2018
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PURCHASING MASTERCARD (MA)





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Posted by Martin December 01, 2018
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November 2018 trading and investing results


S&P 500  2,760.17 +22.41(+0.82%)  Dow 30  25,538.46 +199.62(+0.79%)  Nasdaq  7,330.54 +7.88(+0.52%)
 

September results

2018 is going to an end and it is turning out to be a bad year for us. the entire year was volatile and we saw two wild corrections, one in January and the second in October. Both had a significant impact on our accounts.

And both corrections once again proved the significance of “staying small”. And I violated that rule again. In all accounts.

Too much optimism on the bullish side and believe the US economy is doing so well that nothing bad can happen and that I can overcome any pullbacks. I kept opening more and more trades. And now I am in trouble.

I am not losing money extremely (not yet, but it still may happen) as I am still able to manage the trades, roll them, and adjust them. But I can see a danger of being overextended. My smaller accounts such as trading account and ROTH are showing a distress. I have trades deep in the money but no means to roll them as I am overextended. And that forces me to close the trades for a loss.

So, it is time to adjust my strategy on money management. I pretty much stopped trading these two accounts and will be saving more money until I reach a level when trading is easy and comfortable. On the IRA account I need to stick to my rules harder and keep eliminating over trading.
 

What I will be doing from now on?
 

In the IRA account:
 

1) We open only one weekly trade at a time with Friday expiration. A new trade can be opened only when the old trade closes. If the old trade is rolled into the next expiration and not closed a new trade will not be opened. You can follow the trades in our Facebook page.

2) We open up to two 45 DTE trades but with different time to expiration. We will be creating a ladder. This was our old theory we started doing a few years ago but abandoned and never finished. This means, we will open a 45 DTE expiration trade one week and then a second 45 DTE next week.

3) After a trade is open we immediately place a closing GTC (good till cancelled) trade for 50% profit.

4) We open a new 45 DTE trade only when the old trade is closed. If an old trade is rolled or otherwise kept open no new trade can be opened.

5) A new additional 45 DTE (above 2 contracts mentioned above) trade can be added only when BP is higher than the cash management limit allowed.

6) We will keep managing old open trades already in the account to close them successfully as winners.

 

In the ROTH account:
 

1) There will be no new trading in this account. Only managing old open trades. and saving more cash for trading.

 

In the TD account:
 

1) There will be no new trading in this account. Only managing old open trades. and saving more cash for trading.
 

It is really time to stop the madness and reckless trading I did sometimes in my accounts and bring it back to boring strategy and discipline.
 

The stock market has been volatile as it was sending a message to FED to ease the rates amid global economy (and the US among it) slowdown. and Powell seemed to deliver that message last week. The market rallied and broke the downtrend.

It created a double bottom also. That provided the needed boost to break the pessimism:

 
Trading Results
 

But we are heading toward a strong resistance at 2800 – 2820 level. We are not there yet so we may see some more buying conviction pushing this market up – unless Trump destroys it all at the G20 meeting with the Chinese President. If Trump escalates his trade war which is already damaging the US economy – farmers, automakers and others as exports to China dropped significantly when Chinese decided to stop buying from the US and looking at another sources such as Canada, India, Russia, or South American countries.
 

There is more to all this mess Trump has created and many decided to either ignore it or even foolishly defend it. But let’s see how all this ends.

A positive note can be that history shows that whenever FED stopped raising interest rates, the market rallied. Let’s hope it will play that way too this time despite a lot of damage from Trump.
 

In November, we were mostly adjusting our trades to make sure majority of them would be positioned well for their upcoming expiration. We had many Iron Condors on SPX with puts deep in the money. Thus we rolled those Condors lower to be not too deep in the money. We are still bullish, so we didn’t want to roll those Condors too low to avoid calls being in trouble once the market really rebounds and start rallying.

We also had many spreads and Iron Condors using stocks as underlying but in this volatile market with a lot of whipsaw price action we needed to avoid getting our stock positions in the money and have them early assigned. We had SPY early assigned last week and lost money. We didn’t want that to happen to all of our stock options trades.

In November our income was however small, smaller than expected, as we mostly waited and didn’t trade too much. We expect this trend to continue in December trading only a few trades and managing the old ones. a large portion of income was also consumed by closing the old trades earlier than what we normally do.

 
Trading Results
 

in November 2018 we lost $502.89 and our Net-liq of all accounts dropped by $2,044.05.

We post our trades on our Facebook page.

 
 

Here are the entire 2018 year trading results:

 
Trading Results
 

 

 · Dividend stock investing

 

Dividend investing is doing great on both accounts – ROTH and IRA. We keep using 50% of all options income and buy dividend stocks. IRA account keeps growing fast with new stocks being purchased every month. ROTH is more or less stagnant.

 

Here is a review of our accounts stock holdings:

 
Traditional IRA
Trading Results
 

ROTH IRA
Trading Results
 

TD account
Trading Results
 

In August we purchased the following shares:

 
IRA purchases:
Dividend growth stocks
 

We haven’t purchase any shares in ROTH or TD this month.
 

We keep spending 50% of our options trading proceeds to buy good dividend growth stocks using our screener to get a better entry into the stocks. Although capital appreciation is not our goal but a secondary target, timing the entry creates good results as our positions are mostly up. However, do not be too excited, any large selloff can temporarily send those stocks down again. It is a dividend income what matters to our portfolios, not the portfolio value and capital appreciation. It seems to be evident that using options to grow the portfolio is the right way to do.

 

 · Dividend Income

 

IRA dividend income
Trading Results
 

ROTH IRA dividend income
Trading Results

 




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