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Posted by Martin August 24, 2015
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China stocks plunge but other Asian markets hold on


 

(CNN Money) The benchmark Shanghai Composite was about 5% lower in morning trading. Losses were sharper on China’s smaller Shenzhen Composite, which shed 6%.

The Shanghai Composite has now declined 42% from its June 12 peak, erasing all gains year to date.

Markets were faring better elsewhere in Asia. After starting the day in the red, Japan’s Nikkei, Australia’s ASX All Ordinaries and Seoul’s KOSPI Composite were all in positive territory.

Turbulence in Asia comes after a very rough Monday for U.S. stocks. Following an unprecedented 1,000-point decline at the open on Monday, the Dow closed with a loss of nearly 600 points.

Three factors continue to weigh on markets:

1. Concerns that China’s economy is slowing faster than analysts had anticipated.

2. Uncertainty over when the U.S. Federal Reserve will raise its benchmark interest rate.

3. The effect of exceedingly cheap oil — crude is now trading below $40, its lowest point in more than six years.

The focus on China has increased in recent days, especially after a key manufacturing index hit a 77-month low.

But many economists say global investors are overreacting to China’s economic risks.

“The collapse of the equity bubble tells us next to nothing about the state of China’s economy,” said Mark Williams, chief Asia economist at Capital Economics. “In fact, recent data have been more positive than the headlines might suggest, with large parts of the economy still looking strong.”




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Posted by Martin August 24, 2015
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Remember your objective, your goal, your plan, and hold tight


As expected markets were even worse on Monday than on Friday. It was scary, but there is no need to panic. Ignore all bears who are coming out of all directions screaming that this is it, this is the end, and this is the beginning of an even bigger crash! It is not.

I can make a bet with you that 6 months from now nobody will remember this crash anymore.

A bear market looks different than this. If you want to see a bear market, take the current chart from 2009 up to today and turn it upside down.

SPX

That is the bear market! What we have just experienced is not a bear market. It is just a panic overreaction and robots trading bad news providing huge selloffs without any fundamental and technical reasons.

We saw a bad news coming from China and algos (robots) started selling sparking more selling from institutions and retail investors freaking out full of fear and panic.

But, you should not panic. Ride this down, buy more shares and sit tight. Unless you see a chart like the one above, you do not have to worry. Soon you will ride this back up.

Just remember your objective and your plan. Remember your time horizon. Are you investing for a few days, months or for the next 20 years?

If you are in the market for the next 20 years, this sell off is just a blip and ignore it. But moreover, buy more shares!

SPX

I know, it is difficult to be buying when everyone around you is scared, selling, screaming, and predicting more doom. But remember your time horizon.

Do you remember 2008 year? The markets erased 50% of its value. It is said that 401k plans lost 60% those days!

And year later the markets were already creating new highs.

We are down only 14.5% from all-time highs. I bet you that in the next 6 months all this frenzy will be forgotten.

So, sit tight, buy more shares and ride this panic.

And if you are a trader? If you are a good trader, you were probably out last week.

Don’t panic, be happy!
 




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Posted by Martin August 23, 2015
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Rout set to continue on Monday but do not panic


I have two news for you, one bad and one good. The selloff is going to continue on Monday as futures are already down another 2.5% as of now; yes it may change by the end of the night and we may open higher and see a V shape recovery, but as of now, it doesn’t look much like that’s would be the case.

The good news is that this creates a great opportunity for buying more stocks for cheap.
Just do not panic!

SPX selloff

See the third large red candle? That’s tonight futures! Nasty right?

Is this the time of the end of the world?

I do not think so, but if you are scared, go ahead and sell your stocks. I am holding tight and wait for this rout to end. Then I will start adding more shares to my dividend positions.

But what about options positions?

Well, this is unfortunate and we have to close a few. These moves are very wild, huge steep, and fast. Unfortunately I do not have an effective defense for such moves and the best thing to do is to close all endangered positions and move on.

The good news here is that routs like this typically do not last long and even this week, we may see a recovery (at least partial one).

If you put this move into a perspective of previous sell offs, you will see how extraordinary this one is:

2008

It took the market almost 2 months to lose the first 10% of value (from 10/08/2007 to 11/19/2008 when market dropped from 1582 all-time high to 1420; 162 points)

It took the market 6 months to lose the first 20% of value (from 10/08/2007 to 3/17/2008 when market dropped from 1582 all-time high to 1260, 322 points)

Of course after a few bounces the market went all the way down to $660 level

2010

It took the market 2 months to lose 10% of value (from 04/19/2010 to 06/28/2010 when market dropped from 1220 to 1008; 212 points)

2011

It took the market 2 months to lose 25% of value (from 07/11/2011 to 09/28/2010 when market dropped from 1354 to 1003, 351 points)

2012

It took the market 2 and a half months to lose 10% of value (from 03/26/2012 to 06/04/2012 when market dropped from 1418 to 1268, 152 points)

2014

It took the market 1 month to lose 10% of value (from 09/15/2014 to 10/13/2014 when market dropped from 2018 to 1819, 199 points)

And what do we have today?

Today, the market lost a whopping 185 points (8.80%) in 5 days.

Let me repeat it – 185 points or 8.80% in F I V E days!

Can you see what fear and panic this is? And how irrational it is? I see it that all this China mess is an overreaction and maybe an excuse for a correction everybody was waiting for. But is it a justified sell off? As a trader named Jani put it, I believe, it is not:

To be perfectly honest, the US economy is extraordinarily self-absorbed. Seventy percent of our GDP is service based and we run a gigantic trade deficit. Does that sound like an economy dependent on global growth? Lower energy and commodity prices, cheaper junk at Walmart; what does that mean for our economy? It means consumers will have more money left to spend on massages, vacations, and bathroom remodels. Should we be worried about our economy? Not really.

Obviously the China story will affect companies like AAPL and TSLA that have huge Chinese growth premiums built into their stock price. But these are the exception in the S&P500, not the rule. While the pessimists are concerned about plunging energy sector profits, we know American consumers are lousy savers and without a doubt the dollars saved on energy will find their way into other sectors of the economy. That’s bad for energy shareholders, but it is a net neutral for our economy since one loss is offset by another gain. Jani, The Cracked Market

Pullbacks happen. It is inevitable. You will see many bears now coming out and telling you “we told you so”. Many will predict even worse outcome and more selling and more disaster and the end of the stock market.

If you are scared, I have yet another perspective for you.

US-China

I borrowed the picture from Roadmap2retire investor who published it on his blog. If you look at the market capitalization of China who wants us to believe that crashing Chinese market could crash the US market? This is exactly what Jani said about the US market above.

So, if you are scared and plan on dumping your stocks, funds, options, do not do it. It is not worth it. The only exception is with options if you have expiration near and want to protect yourself, then yes, close the trade, or if your retirement starts next week and you will need money next week. Otherwise, it is not worth it either.

And there is one more thing I have for you to think we are probably at the end of the party.

The SPX futures are down 2.5% at 1925 as of this writing. If the market opens down at 1925 on Monday morning, it will be a big gap down opening. I think the market will have the tendency to close that gap, so although Monday will still be a down day, we may actually see a green candle or the beginning of a new rally. Will it last? I do not know. Will it even happen? I do not know either. But it gives me a hope that this rout may be finally over and I will not be required to close more trades with losses and the new trades offset those I already have to close.

So good luck and pick up that treasure in the market now, there is a plenty of stocks for great price and plenty of volatility to sell!
 
 




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Posted by Martin August 17, 2015
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Investing for A Good Cause: Breast Biopsy Space


If the thought of contributing to a meaningful cause through an investment, and profiting from that move appeals to you, consider one of these medical device publicly-traded companies.

Striving to make strides in the area of breast biopsies, these companies have shown an intense goal of addressing one of the world’s most deadliest cancers – breast cancer. Their research and development efforts have led to advanced medical devices that are used at the most crucial stage of addressing breast cancer – the biopsy.

In this piece, we will look at three of the medical device companies that have made devices that contributing to the early detection of breast cancer through biopsies. They are Becton, Dickinson and Company (NYSE: BDX), C.R. Bard (NYSE: BCR) and Hologic. (NASDAQ: HOLX).

 · Breast biopsy market

Markets and Markets last month published a research report in which it found that the breast biopsy market could reach almost $730 million by 2020. This year, 2015, the market is estimated to be roughly $436 million. That kind of growth translates to a compound average growth rate of 10.8% from 2015 to 2020. The report, “Breast Biopsy Market by Product (Table, Needle, Localization wire, Guidance System), by Type (Open Biopsy- Excisional, Incisional, Needle- Core Needle Aspiration, Vacuum Assisted) & by Guidance system (Ultrasound, Stereotactic, MRI) – Forecast to 2020.”

Anyone, female or male, with a suspicious breast growth, abnormality detected on imaging study, or other symptoms of breast cancer should undergo a biopsy, notes Medicinenet.com.

 · Becton, Dickinson and Company

This medical device company makes the needles used in breast biopsies. It dibbles in many other areas, which leads to its roughly $31 billion market cap. Of the three medical device companies featured in this piece, its market cap is the largest.

Barron’s describes Becton Dickinson as a prize for investors because of its stable, predictable financial results. It has enjoyed at least 40 straight years of increasing its dividend, which is currently $2.40, yielding 1.6%.

Closing at $148.27 on Monday, Becton, Dickinson is within reach of its 52-week high of $154.98.

 · C.R. Bard

C.R. Bard boasts several breast biopsy products. They include a system aimed at delivering quality samples-even in the most difficult locations within the breast. Another of its systems is deemed the only self-contained, vacuum-assisted, single insertion, multiple sample, ultrasound-guided, breast biopsy system that aids in the utmost control of the biopsy.

When it reported its earnings for the second quarter of this year, officials highlighted that its biopsy family of products grew 11%, driven by more than 40% growth in emerging markets.

 

 

“Biopsy is one of our more global product lines in the portfolio, with approximately 60% of our sales coming from outside the United States,” said John Weiland, the company’s president and chief operating officer.

On Monday, the stock closed just shy of $200, and it is closing in on its 52-week high of $202.47, which it hit during the first week of August.

With a market cap of $14 billion and gross margins of roughly 62%, the stock is a strong investment opportunity.

 · Hologic

Hologic specializes in providing medical devices to women in the U.S. and internationally. It operates in four segments, with one of those being breast health. The Breast Health segment provides breast imaging and related products and accessories, including digital and film-based mammography systems; computer-aided detection (CAD) for mammography; invasive breast biopsy devices; breast biopsy site markers; breast biopsy guidance systems; and breast brachytherapy products. This segment also offers Dimensions platform, a mammography gantry for 2D and 3D image acquisition and display; C-View that provides a 2D image; breast MRI coils and workstations; and photoconductor coatings.

Hologic has a market cap of about $12 billion. It also just broke its 52-week high, closing on Monday at $42.99. Part of the reason its stock has been on a tear stems from its 3D mammography systems. Called Genious 3D, the system replaces traditional 2D systems. The company sees multiple growth opportunities – not to mention multibillions of dollars in revenues – for its 3D system. It says that it’s only penetrated about 20% of the market, leaving 80% of it to be converted over into its 3D system.

 · In summary

The very important area of breast cancer research and development projects demands companies like those featured in this piece. As noted, the biopsy is credited with being key in detecting breast cancer early, and increasing survival rates. Watch the companies in this post closely, especially since they are approaching their 52-week highs. I see them continuing on their positive runs, and there is room for them to continue to move higher as they penetrate the breast biopsy market.




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Posted by Martin August 12, 2015
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Equity vs. Debt in Real Estate Crowdfunding Investments


Few would question that investing in real estate can be very lucrative. Look no further than Donald Trump who has been running away with news headlines since he announced plans to run for president of the United States. The real estate mogul boasts funding his campaign with money he earned through his real estate holdings.

You may not become as rich as Trump through real estate investing, but new doors have been opened to so-called average investors that can help you tap into this profitable market. An act that became effective in 2013 provides for crowdfunding, and it paved the way for developers to raise investment capital from what had been an untouchable market – average, unaccredited investors.

If it interests you, it is imperative that you first understand the offerings the developer has available for you to get in on the project. The offerings are usually equity or debt.

 

 

In this piece, we will examine these two types of strategies, looking at the pros and cons of each. Also, we will provide you with the basics of how to get into this area of investment.

 · Some history

Before we get into equity versus debt offerings as they relate to real estate crowdfunding, let’s look at some of the history. As part of the 2012 JOBS Act (Jumpstart Our Business Startup), Congress created an exemption to permit securities-based crowdfunding. The intent was to help alleviate the funding gap and accompanying regulatory concerns faced by startups and small businesses in connection with raising capital in relatively low dollar amounts, according to the Securities and Exchange Commission.

From the 2012 JOBS Act came many measures aimed at loosening the reigns that had kept non-accredited investors from investing in areas like real estate.

Chance Barnett, the chief executive officer for Crowdfunder, was one of plenty of supporters for the measures spawn from the JOBS Act. His company connects startups that need funding with investors. He told VentureBeat that for the past 80 years, startups and small businesses in the U.S. had been prohibited by law to solicit the public for investment capital.

 · Risk Tolerance vs. Investment Goals

By their very nature, debt instruments offer less risk than equity investments because there isn’t as much volatility as there is with stocks. This means that the typical debt obligation is more stable than a stock. Debt obligations usually consist of stable issuers, such as mortgage companies, and those investments are secured by real estate collateral. Research shows that the bond and mortgage market have historically experienced fewer price changes than stocks.

As with most investment decisions, investors must determine how much risk they are willing to tolerate before deciding between equity and debt crowdfunding for real estate projects. If the thought of the project facing major hurdles, such as clearances to be built, make you anxious, this kind of investing may not be right for you.

Zacks goes a step further and points out that just as important in deciding between debt instruments and equity investments are your investment goals:

Your investing targets may favor equity investments if you’re seeking striking growth or profit potential. Conversely, you might focus on debt instruments when you prefer consistent income and less risk. Tailor your investment actions to match your objectives and risk tolerance.

Equity investments typically carry high risks, thus the potential return on investing in them is high. On that same note, borrowing, or investing in debt instruments typically carry low risks, and the return on that investment is low. The type of offering (debt or equity) dictates the position you would hold as an investor.

 · Real estate opportunities created

The onus is on the real estate developer, or sponsor, to determine how to fund a project. When it comes to crowdfunding, the decision boils down to selling securities in the project through a debt or equity offering, notes EarlyShares, an online real estate crowdfunding portal.

Depending on their needs and the specifics of a given project, a real estate developer or sponsor may “crowdfund” a portion of the capital stack by selling securities in the project to investors through a debt or equity offering.

 · Use of Crowdfunding Portals

Also thanks to the JOBS Act of 2012, investors are able to browse online real estate crowdfunding portals to find investment opportunities This is the first time investors can take advantage of this kind of service, which includes being able to compare properties, and make “return driven investments, notes EarlyShares, which hosts one of the many online portals. According to its website, interested parties can make investments for as little as $5,000, without relying on their networks for referrals or paying high fees to intermediaries.

PeerRealty is another example of an online portal that is making it easier for individuals to get into real estate crowdfunding. By using its real estate crowdfunding portals (or others that are similar), the company says accredited investors can buy shares in, or lend money to, private real estate projects and properties via real estate crowdfunding portals like PeerRealty. Debt crowdfunding will appeal to investors desiring fixed returns and reduced risk. Those who prefer equity crowdfunding seek the possibility of higher returns, albeit with greater risk. With a minimum investment of $5,000 for some deals on the PeerRealty platform, crowdfunding investors don’t have to be real estate moguls to invest like them.

 · With all that being said…

Traditional investors who had been unable to invest in real estate because they lacked the investor savvy or wealth, found themselves locked out of what is a lucrative market. Now they can play the real estate market like Donald Trump, and other moguls.

 
 




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Posted by Martin August 11, 2015
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A Stunned Wall Street Reacts To China’s Currency Devaluation


WS Tyler Durden: There is much stunned confusion among Wall Street’s “best and brightest” following China’s historic Yuan devaluation overnight which was predicted by exactly zero of said best and brightest, just like nobody expected the SNB to give up its own peg to the EUR in January.

 
yuan
 

The problem as the WSJ puts it, is that a devaluation for China is both good, and very bad. Good because it will help the struggling export sector, which has stalled amid weak global demand. Exports in July, for example, sank more than 8% and they were down nearly 1% for the first seven months of the year.

At the same time, it was essential for the People’s Bank of China not to alarm domestic and foreign investors to avoid triggering a wave of capital outflows. Investors tend to dump a weakening currency and move their assets into other currencies. Thus, the PBOC said the move was a one-time reform effort to bring the yuan more in line with the markets.

That, of course, is a lie: the Fed’s first QE was a “one-time” abnormal monetary intervention which has since become the de facto standard of every single central bank.

Finally, the central bank may also have had the International Monetary Fund in its sights. The yuan is up for possible inclusion in international agency’s Special Drawing Rights, a basket of currencies that serves as a global reserve. Too big a move might have damaged Beijing’s case that the yuan is a suitable candidate for addition to that basket of currencies, analysts said.

To show the many different and often opposing views, here is a summary of sellside views compiled by Zero Hedge and the WSJ:

 
 

The PBOC adjusted the CNY fixing mechanism, which prompted a step weakening in today’s fixing. From now on, FX market makers are asked to base their contribution to CNY fixing on: i) the closing FX rate in the previous day, ii) CNY supply-demand conditions, and iii) the movements of other major currencies. While public comments suggest this could be a one-off move, in our view it increases the uncertainty around the future path of the CNY, especially if closing FX rate significantly deviates from the fixing. In our view, the market’s previous expectations for a fairly stable CNY have seemingly been de-anchored by the surprising move today. Although information at this stage is limited, our current expectation is that the PBOC will likely use open market FX operations to try to reduce sharp volatilities and avoid further destabilizing the market’s CNY expectations in coming days. – MK Tang, Goldman Sachs

 
 

The People’s Bank of China shocked the market today by weakening the yuan reference rate in the largest single-day depreciation since the central bank’s exchange rate reform on July 21, 2005. The PBOC statement interprets the depreciation as a one-off adjustment to fix the persistent discrepancy between the reference rate and the actual spot rate in the market. Since June, the yuan/dollar spot has been consistently about 1.5% higher than the daily fixing. The PBOC statement said that today’s adjustment will fix the discrepancy, and going forward daily fixing will align more closely with the closing spot rate on the previous day. The strong appreciation of the yuan has put a lot of pressure on China’s exports. It is unlikely that China will achieve the 6% trade growth target set for this year. Today’s announcement is also a response to weakening currencies around the Asian region.- Haibin Zhu, JPMorgan

 
 

The PBOC was hitting two birds with one stone: The PBOC’s move will lead to a weaker yuan, lending support to export growth. It will also make the yuan exchange rate more market-determined, which could help China at the upcoming Special Drawing Rights review in November. In the past, one major problem with the yuan exchange rate setting was too much emphasis on its stability against the U.S. dollar while neglecting [trends in] other currencies. In the past 12 months, the yuan appreciated by 23% against the euro and 17% against the yen. As a result, so far this year, China’s exports to the EU and Japan are down 4% and 11% year on year. Today’s change should mitigate the problem. –Larry Hu, Macquarie Securities

We believe the unexpected devaluation today is more about the Special Drawing Rights bid rather than an intention to support exports. Tomorrow’s fixing will be the key to test whether this devaluation of fixing is one-off event or a start of new fixing system. Our best guess is that it may be a one-off adjustment. Should it prove to be a one-off event, we think a combination of a widening of the yuan’s daily trading band and a cut in the bank reserve requirement ratio is likely to be the next policy option to increase the yuan’s flexibility. In the near term,
we may see more volatility ahead.

 
 

Read more >>
 
 




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Posted by Martin August 10, 2015
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Stock Splits: How You Can Benefit As An Investor


With awe, I’ve watched stocks soar to highs that were once deemed impossible by some market players. Companies whose share prices are well over $500 are those that may be considered ripe to split their stocks.

Stock splits can be advantageous to investors, as well as to companies.

In this piece, I will discuss these advantages, in terms of the pros and cons of stock splits. I’ll also provide you with five companies that I think should consider splitting their stocks.

 · Stock splits explained

Before we get into the nitty gritty details of profiting from stock splits, let’s make sure we clearly understand what stock splits entail. Simply put, stock splits entail a company’s board of directors voting to increase a company’s float, or outstanding shares, by issuing more of them to current shareholders. The shareholders may also vote to approve a stock split.

 

 

Investopedia gives this spot on example:

In a 2:1 stock split, every shareholder with one stock is given an additional share. So, if a company had 10 million shares outstanding before the split, it will have 20 million shares outstanding after a 2:1 split. (Investopedia.com)

The ratios can be of any structure, although the most common are 2:1, and 3:1. So in a 2:1 or 3:1 split, the shareholder will have two or three shares, respectively, for every share held earlier.

Back in 2010, the world’s most expensive stock, Berkshire Hathaway (NYSE: BRK-B), had a 50:1 stock split for its Class B shares. Back then, it was trading around $3,500. Those who got in on Warren Buffet’s company after the split were able to buy in for around $70 a share.

To put that in perspective, consider this. They were able to buy a share in the world’s most expensive stock to own for the same price as buying a share in Panera Bread (NYSE: PNRA) back then!

 · The makings of a good stock split

The most important thing you must look at if you are considering whether to buy in to a stock split is the company’s stock price. Companies whose stock prices have soared so high that they are out of reach for the normal investor, like the four-digit per share Berkshire Hathaway, splits are ideal.

When Netflix (NASDAQ: NFLX) split earlier this summer, it said in regulatory filings that by issuing new stock it would have better flexibility for dividends, equity financing, and acquisitions. So companies following this strategy should make for good choices.

 · What’s in a stock split for you

Just as the stock split will decrease the stock’s price, it can also boost the price. That’s due to investors who had not been able to afford the stock before the split anteing up for a piece of the pie. Observers also note that an increase may have been already anticipated by investors because a company’s share price has already been on a tear. The demand to own the stock may increase as believers cling to the notion that the price will continue to rise.

 

 

Because stock splits create a larger number of shareholders, there is a theory that a company could be protected from government regulations.

Also keep in mind that an increase in the size of the float could create more liquidity for the stock. Many observers believe this could ease trading and even cause thee bid-ask spread to narrow.

 · Stock split cons

Stock splits can be disappointing to say the least if the value of the company falls. If a company splits its stock and then the value of the company itself falls, the shares may fall below this requirement and be delisted from NASDAQ or the New York Stock Exchange.

Also, remember that a stock split does not directly affect the company’s value.

 · Stocks that should split

Now that we’ve gotten those nitty, gritty details out of the way, let’s look at five of the companies I think are ripe for splitting – their stocks.

 

Company Name Price p/share as of 8/7/15
AutoZone (NYSE: AZO) $704
NVR (NYSE: NVR) $1472
Chipotle (NYSE: CMG) $749
Priceline (NYSE: PCLN) $1317
Intuitive Surgical (NYSE: ISRG) $533

 

As one of the largest aftermarket, auto parts retailers, AutoZone has more than 5,000 retail stores. In 2010, the stock was trading at just about $47 a share. Now, five years later, it trades at $700, with few dips as it climbed.

NVR Inc. managed to survive the housing collapse of 2008, and continue to break new highs. In addition to building homes, the company also provides mortgages. NVR boasts building almost 365,000 houses in the U.S., and it shows no sign of slowing down.

I remain completely in awe of Chipotle. Who would have thought that a Mexican fast-food restaurant chain would demand a share price way above that of consumer household name McDonald! McDonald’s trades around $98 a share.

Naysayers of Chipotle say that it is extremely overvalued. That makes for one of the cases for why it should split its stock.

Priceline also baffles me. It remained a strong choice among investors even when consumers traveled less during the economic slowdown. The “Priceline negotiator” seems to truly be paying off for the company.

Intuitive Surgical makes robotic surgical systems, and has seen its share price soar since it IPO’d in 2000. According to Zacks, over the course of July, the stock moved higher by almost 13%. It’s also moved above its 20-day single moving average. The stock is seen continuing to its run for a little longer by Zacks, which states, “this isn’t the top for the in-focus company.”

 




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Posted by Martin August 08, 2015
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How you can start trading SPX Iron Condors


I started trading my new strategy some time ago and my options ladder is already fully developed (meaning that now I have expiration every week and widening my spreads). If you’ve just subscribed to my newsletter, considering mirroring this strategy, and start trading it, this post is meant to help you as the newsletter may differ from what you can afford to trade.

This post will be about money and trade management to allow you jumping in our moving money making train or even jump ahead of us.

In this post I will show you how to find out how wide spread you can trade and how to adjust the trade idea from our newsletter.

 · First, determine how wide spread you can trade

This is quite easy. Take the total amount you can or you want to trade, divide it by seven, then divide the result by 100 to find out how wide spread you can trade.

For example, you have $5,000 available to trade. Divide 5000 by 7. The result is 714.28. Divide it by 100 and the result is 7.14. That means that you can trade 7 dollar wide spread. But SPX doesn’t have such width. SPX trades in 5 dollar increments. So the nearest available spread is 5 dollar wide spreads.

 

 

If you have $30,000 available, you proceed the same way. Divide 30,000 by 7 = 4285 then continue dividing by 100 = 42 dollar wide spread. The nearest available will be $40 wide spread you can afford to trade.

 · How to adjust Iron Condor strikes

As of this writing we are trading 10 dollar wide spreads going towards 15 dollar spreads. Our goal is to widen the spreads to 40 dollars, then we will start adding contracts. If, for example, we put our 10 dollar wide spread, but you can afford 40 dollar spread, the diagram below show how to proceed.

Basically, you use our short strikes as in the newsletter, but adjust the long strikes to yours by adding calls 40 dollar higher and puts 40 dollars lower than ours:

Adjusting IC

Now you know how adjust your trade both directions – narrowing the strikes or widening them.

 · Start building the ladder

Now that you know how much you can trade and how to adjust the strikes, start building up the ladder. What does it mean? The ladder’s purpose is to create expiration every week. We want weekly income. We want trading weekly, but we want as high probability of profit (POP) as possible.

In the past I used to trade weekly options against SPX with 4 to 7 DTE (days to expiration). The risk was high and never I was sure how the trade ends up. Trading 45 DTE increased my probability of profit to 80% – 92%.

Every Monday evening you will receive a newsletter with our trade idea. Start selling one Iron Condor per week. Do not invest all money at the same time. Use only one trade. Every week you will be opening a new trade and at seventh week you will be opening a trade #7 while on Friday, your trade #1 will be expiring. From then you will have expiration every week. Your trading will now simulate weekly trading. You will have weekly income money making machine on and running.

 · Widening your strikes

Let’s say you have been trading for some time and cash is piling up in your account. It is a good opportunity to start widening your spreads. This takes some ahead planning. You do not want to widen your spread in one week and then have no money the next week to open a new trade.

Here is a procedure how to determine if you can widen a spread or not yet.

Look at your money available to trade for options (options buying power). Let’s assume we are trading 10 dollar wide spreads and thinking to widen them to 15 dollar. To find out check to following.

For example, your latest options BP (buying power) shows $773 and you will have a Friday expiration the next day. On Saturday, your BP jumps to $2248.

If we open 15 dollar wide spread next Tuesday, will we have money for the subsequent trades? Let’s do some math.

Starting BP week #1 $2248
Minus $15 wide spread in week #2 – $1355 (assuming we collected
$145 premium, thus
$1500 – $145 = $1355
Remaining BP in week #2 $893
Friday expiration in week #2 + $1000
New BP for the week #3 $1893

This shows that if we open a new trade with 15 dollar wide wings, we will have enough money for the next week trade. Thus it is doable to widen your spreads. You can continue counting this every week to see whether you should stay with your current width or widen it.

 · Adding new contracts

My goal is to reach 40 dollar wide Condor wings after which I plan on start adding contracts. This goal may change, I may later on adjust to 50 dollar or 100 dollar wide wings if it makes sense. I do not know where the cut off of feasibility is, but once I find out, I will let you know. If it won’t make sense to trade 50 dollar spread because of credit will be same as with 40 dollar spread but risk larger, then it will be better add contracts instead of widening the spreads.

In this case, we will start opening new trades on Tuesday and Wednesday. We will open one contract on Tuesday and one new contract on Wednesday. So if you still have more money than us allowing you trading more contracts than us, you can go ahead and open more contracts.

For example, let’s say you have $150,000 available to trade. Using math as mentioned above you will find out:

$150,000 ÷ 7 = $21428
$21428 ÷ 100 = $214 wide spreads

But, you want to trade only 40 dollar wide spread and not 210 wide spreads:

$210 ÷ 40 = 5 contracts

Per this math, you can trade five $40 wide spreads. This will allow you opening two contracts on Tuesday and one contract on Wednesday and one contract on Thursday. Still all trades will have 45 DTE on Friday, but now you will be trading every day (we will not trade on Mondays and Fridays).

 · Why avoiding Mondays and Fridays?

I do not have this empirically verified and only go with what I read other traders commented on this. It is said that on Mondays and Fridays the value of options decays the fastest and on Fridays, there is very little to no extrinsic value in options, so you are literally leaving money on the table.

As I said, I do not have my own experience on this, but I have seen many experienced traders advocating and opening new trades on Tuesdays or Wednesdays and sometimes on Thursdays.

Because of that, I do the same, but do not ask me for a reason. Once I find out, I will let you know.

 · The case for wide spreads

The last thing I want to mention is the reason for trading wide spreads and one contract rather than narrow ones with more contracts. There are two large benefits to this:

  1. It is cheaper.
  2. The probability of a full loss is lower with wider spreads.

It is cheaper
Yes, it is cheaper to trade wider spread than narrow one with more contracts. Try it for yourself. If you open for example a 15 dollar wide spread and three 5 dollar spreads, you will pay commissions for 15 dollar spread for one contract. It could be let’s say $11.00.

For three contracts of 5 dollar spread you will pay more, let’s say 21 dollars.

The probability of loss is lower with wider spreads than narrower.

This is the best and strongest argument for wider spreads. You need to understand how spreads work and when they bring the full loss.

You will experience a full loss when the underlying price slices through both of your strikes. What is your probability of full loss then?

Check the picture below then:

Spread width

As you can see from the picture above, wider spread is actually protecting you from a full loss. While your 5 dollar spread is already losing everything, your 25 dollar spread may still be above your breakeven price and thus no loss. If you also move your calls down (converting to Iron Clad), you can offset any potential loss from this trade whatsoever.

The last benefit is that if you decide rolling the trade, it will be easier to roll the 25 dollar wide spread for a credit than the 5 dollar spread.

 · Rinse and repeat

In this post I tried to show you how you can start trading Iron Condors I provide in my newsletter when you start late or have different money available for trading. I presented you with money management, how many contracts to trade, how wide spreads and why.

If you decide to give it a shot and trade, just follow the rules and be consistent. Do this every week and your account will grow fast and fat. And if you need to gain some experience first and see how the strategy works, then just paper trade it. Paper trade it as long as you see how it works, how the strategy makes money, loses money, and how you can defend it. Nevertheless, I give you a hand and help you if you want. But the decision is yours.

Happy trading!
 
 




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Posted by Martin August 05, 2015
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Earnings Season Can Be Bountiful With Options Trading


Earnings season is in full swing, with a third of S&P stocks scheduled to report this week. If the S&P 500 is any indicator of how companies performed during the first half of the year, stock investing continues to be one of the best ways to line your financial coffers.

That being said, there are plenty of ways to play the market during earnings season, and one of those is through buying options. For this blog, I’ll keep it simple. I won’t go in to the various, complicated strategies that very experienced traders, and those with high tolerances for risks will use.

Instead, I’ll lay out the basics of options trading so you can decide if earnings season is a good time to play the options market.

 · What Options Entail

Before tackling how to play the market during earnings season using option strategies, let’s be clear on what they entail.

As defined by Nasdaq.com, options are contracts through which a seller gives a buyer the right, but not the obligation, to buy or sell a specified number of shares at a predetermined price within a set time period. Because they are considered to be derivative products, their value comes from the value of an underlying investment, which usually is the stock of the company.

Here are some main terms you’ll hear when talking about options: call and put contracts, strike prices, expiration dates.

While call options allow the buyer to purchase a stock at a set price on or before a determined date, put options allow the buyer to sell a stock on or before a later date. That determined date is referred to as the expiration date. It is typically the Saturday following the third Friday of the expiration month. Expiration dates can also fall at the end of the quarter.

Exercising the option means you buy or sell the stock via the option contract. The strike price refers to the price at which the options contract can be executed. In the case of call options, the strike price is the amount the option can be bought any day leading to the expiration date. For put contracts, the strike price is the price it can be sold.

The last day to trade options before they expire is the Friday before expiration, or the third Friday of the month. This is also generally the last day an investor may notify his brokerage firm of his intent to exercise an expiring equity call or put, notes Investor Place. The website also notes that brokerage firms, can set earlier deadlines for notification of an option buyer’s intention to exercise. “Therefore, you should check with your brokerage firm about its procedures and deadlines for instruction to exercise any equity options. If Friday is a holiday, the last trading day will be the preceding Thursday,” states Investor Place.

 · Show Me the Money

A key element of options trading deals with the strike price, which can help you determine the best time to buy or sell an option.

When the strike price is the same as, or is close to, the price of the underlying stock, it is considered to be at the money. If that strike price is less than the price of the underlying stock, it is in the money. And if it is above the price of the underlying stock, it is out of the money.

 · Open Interest

During earnings season, one of the ways I look at options is to gauge where other investors and traders think a stock will move. That may entail the stock climbing as it’s believed the company will beat analysts’ estimates. It could also entail the stock moving lower if it’s believed the company will miss its earning’s estimates.

More open interest is better because it tends to mean there is more liquidity for the call option you are trading, according to BornToSell.com. It notes that more liquidity means smaller spreads between the bid and ask , which is good for the trader if they need to close out a position before the expiration date.

To get an idea of what direction investors think a stock will move, I look at the amount of open interest there is in that company’s options. It is imperative the option traders understand open interest; doing so can help you to see how much liquidity there is in an option. You want that option to be liquid so that you can essentially sell it if the trade goes against you. Options that have no open interest als have no secondary market. On that same note, options that have a lot of open interest means just that – there are many interested sellers and buyers. Furthermore, there is likelihood that orders for that option will reap good prices! That will make it easier to trade the option, with a spread between the bid and ask that you may be able live with.

 · Ideas

Let’s look at some of the companies that have reported, and who are reported earnings this week. More specifically, we’ll look at those that have option expirations this week, too.

Tesla (NASDAQ: TSLA) on Wednesday reported earnings on Wednesday. Although it reported that its losses triple during the second quarter, and cut the number of deliveries for the rest of the year, options activity indicated traders and investors have some faith in the auto/battery maker.

Specifically, its $300 call contract that expires on Friday, Aug. 7 had open interest of more than 5,000, This is the most open interest than any of its other call contracts. This means that many watching the stock think it may trade up to $300 a share from roughly $270 a share where it closed Wednesday.

As far as puts, its put contract with a strike price of $235, and also expires Friday had open interest of about 2,100. The thought is that Tesla could sink this low as of Friday.

For equity options expiring prior to Feb. 15, 2015, the expiration date is the Saturday immediately following the third Friday of the expiration month.

For equity options expiring on or after Feb. 15, 2015, the expiration date is the third Friday of the expiration month. The day expiring equity options last trade is the Friday before expiration, or the third Friday of the month. This is also generally the last day an investor may notify his brokerage firm of his intent to exercise an expiring equity call or put. Brokerage firms, however, may set an earlier deadline for notification of an option buyer’s intention to exercise. Check with your brokerage firm about its procedures and deadlines for instruction to exercise any equity options. If Friday is a holiday, the last trading day will be the preceding Thursday.

 · Conclusion

How much you will profit on the transaction depends on whether you’re right. On that same note, how much you will lose depends on how wrong you are. Anything can move a stock price, but it is the near certainty that the price will move during the days following the release of earnings is what makes buying the around this time appealing to many traders.

Some rules of thumb: buying a call typically means you are bullish on the stock; and buying a put means that you are bearish. Open Interest

If you see a lot of call activity, it usually means that traders think the price of a stock will go up by the time the contract expires. On that same note, if you see a lot of activity in put options, it may mean that traders are betting that the stock will trade lower by the time the contract expires.

 




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Posted by Martin July 31, 2015
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July 2015 trading, investing, and dividends results


July 2015 is over and it is time to review my trading, investing, and dividends results for the month.

A month ago I adopted a new trading strategy, which works perfectly so far. It is however too early to judge. Also, the market is relatively calm (except a few sell offs) and I would like to see how would the strategy perform in a tumorous days.

Nevertheless, we still can see markets bouncing within a range for the rest of the year with large swings either way, and what’s perfect with my options strategy is that it is immune to those swings. Unlike my previous trading, I now do not have to worry about those moves anymore.

 

 
You may be interested in:
 
Too Thin?! By Bryan with Income Surfer
 
Looking for Gold By Roadmap2Retire
 
STOCKS GO NOWHERE: Here’s what you need to know By Akin Oyedele with Business insider via Yahoo Finance
 
Are Investors Really Panicking In A Historically Boring Market? By Ryan Detrick with Tumblr
 
Greece crisis escalates as IMF withholds support for a new bail-out deal By Mehreen Khan with The Telegraph

 

Yet this month, I realized some losses as I decided to get rid of my stock trades and hold them no more. I expect this to be happening in August 2015 too. However, after August is over, I should only have my SPX spreads traded according to my new rules and start showing profits and growth only.

 · July 2015 trading results

My July 2015 trading shows a loss. All my trades under the new SPX strategy were however, positive and profitable. All trades ended with average 12% gain. Compared to the entire account value I am making nice 1% weekly! It was the old and closing trades sending my account down.

 

With 1% weekly gains I should end the year 20% higher than what I have today. For the entire next year I should see at least 52% gain (compounding excluded).

This is an excellent outlook and a great hope that I finally found a working strategy which will allow me making money now and not 20 years later.

Although my new strategy works, I realized a loss this month because I was reducing exposure to oil companies. I had (and still have) a few trades against OXY, ESV, AGU, SDLP, and LGCY companies, which are showing mixed results. Since I decided no longer trade options against individual stocks and focus solely on SPX, I closed trades against SDLP (with a small loss), and OXY (with a larger loss).

In my opinion, it was a good move to start fresh.

 

 
You may be interested in:
 
Options Expiration – July 2015 By Alex Fotopoulos with My Trader’s Journal
 
Daily Scan for Thursday, July 30th, 2015 By Options Guru
 
Standard & Poor’s 500 Stock Index Outlook By Financial Forecast Center
 
Buying oil stocks at these prices is just spilling money By Jeff Reeves with Market Watch

 

I also closed a spread against LGCY with a small gain and moved naked puts against LGCY lower to improve the trade. After some time I plan to close this trade entirely.

Here is my trading result for the month:

 

July 2015 options trading income: -$344.38 (-2.94%)
2015 portfolio Net-Liq: $8,657.95 (-6.72%)
2015 portfolio Cash Value: 12,927.95 (-0.13%)
2015 overall trading account result: -26.04%

 

Here are the results of my options trading:

Options Income
(Click to enlarge)

As I mentioned, this month and the next one will be losing months as I decided no longer holding positions against some stocks and focus on SPX only. I am also getting rid of one old SPX trade which is already a losing trade. However, September 2015 should be already a fresh start month with 45 DTE SPX options trades.

 
Here is the entire account value from the beginning of tracking it up to today:

TD Account Value
 

 · July 2015 dividend investing results

I like my new trading strategy so I decided to use it in my ROTH IRA account. I plan to use proceeds from options trading to buy dividend stocks. I no longer use my non-transaction fee strategy saving money in RWX ETF. Instead, I use the money to trade options to generate income along with dividends I receive.

Once I make at least $2,000 per month, I will use 50% of that money to buy a dividend growth stock. I will reinvest the remaining cash back to options trading to make sure my account is growing faster and generates more money to invest.

Since I started trading options in my ROTH IRA account later, my results are still small. Actually, this month I had my first expiration this Friday. So, I can only report $60 dollar income this month. But in August, the account is set to make $150 from options. That’s twice as much as I make with dividends in weak months and about 50% more in stronger months.

It doesn’t mean that I want to stop investing in dividend stocks. No, read my strategy where I speak about the reasons, why I will continue investing into dividend stocks, but the major reason is, that now I like trading options, it brings me excitement I want from trading and it brings income. But it is not a passive income and one day I want to stop trading too. I may not even be able to trade anymore. And dividends should substitute that income.

So I trade options for income now and have dividends for income in 20 years from now.

 

 
You may be interested in:
New Purchase – Whole Foods Market (WFM) By All About Interest
 
August 2015 Stock Considerations By DivHut
 
Recent Buy – IBM By DividendDiplomats
 
Dividend Growth Stocks Protect Investors from Inflation By Dividend Growth Investor
 
Five Reasons Why Florida Might Be The Best State To Seek Out And Achieve Early Retirement By Jason Fieber with Dividend Mantra
 
Market Cycles: How to Build Wealth Quickly By FI Fighter

 

This month, I only traded options against SPX and I had no new stock addition or removal from my portfolio. The portfolio is down because of some oil exposed companies I added in the previous months. I still will be accumulating oil and energy companies to my portfolio if my money management rules allow it and as long as those companies will be depressed.

 

Dividend stocks added or removed from portfolio:

 

July 2015 dividend stock buys: none
July 2015 dividend stock sells: none

 

Here are my ROTH IRA trading/investing results:

 

July 2015 dividend income: $84.52
July 2015 options income: $60.00
2015 portfolio value: $17,835.69 (3.48%)
2015 overall dividend account result: 2.21%

 

Here is the entire account value from the beginning of tracking it up to today:

ROTH IRA account value

Below is my dividend income review for the entire year:

Dividend Income
My ROTH IRA dividend income breakdown per month and per company.
 
 

 · All accounts

Besides trading and dividend accounts I also have 401k account, emergency savings account, etc., which I do not report in detail. You can review those accounts in my “All Accounts Value” table at the bottom of My Trades & Income page.

My accounts dropped from previous month, but are still up 2.96% for the year. Considering how bad the market was this month I think, this is not a bad result.

What do you think?

How about your investing or trading result?
 
 




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