$SPX more and more the market tries new highs it is sold off – distribution phase. Big boys selling off to retails. Bearish
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Making 45% Annually Trading Options Against Dividend Growth Stocks
$SPX selling another rally attempt today!
Increasing my contribution to 401k by 1%
If you follow my blog you may know that I own a few accounts and each account has its own purpose and investing strategy. Just to review then and put them into perspective:
TD Account – This is my corporate (business) account. I use this account for trading options and proceeds are used to purchase dividend growth stocks as reserves. I treat this trading as a business and I am now in an accumulation phase. I expect to become a full time trader in 5 years.
ROTH IRA account – This account is obviously my retirement account. I originally started this account to compete with my employer 401k account (due to my negligence, I must admit I wasn’t able to beat my 401k account’s results). I use this account for investing only and I invest into dividend growth stocks. No trading whatsoever.
Scottrade account – I love their FRIP program so much that I decided to apply it and use it. I invested a small amount of money and use FRIP only to reinvest dividends into a different stock to build a portfolio. It is a test of a snowball which I plan to use as evidence that accumulation works.
401k account – This is a must if you have an employer sponsored 401k account. Of course, you still want to have good investment choices in the plan, otherwise it doesn’t make much sense to invest. I started my 401k, but our plan was terrible, so I used it only for the employer’s match. This was also a reason why I started my own IRA account and deposited money in there rather than here. Now we have a Vanguard plan and that’s totally different story.
Increasing contributions to 401k by 1%
When our company switched plans I decided to catch up on my plan and contribute more. I increased my contributions from 3% to 6% last year.
This year I am increasing my contribution by 1% to 7% and I plan increasing my contributions by 1% every year. Thus next year, I will increase it again by 1% to a total 8% and so on.
What do you think? Is it worth doing it or invest in a different account?
Happy investing!
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Is $SPX finally going higher or is more volatility coming?
Last couple of months it was really difficult to say what the market wants to do. It went up a few days, then reversed and fell hard next few days just to reverse again. Trading in this environment was extremely difficult for me.
But at least it was a great opportunity for me to look for shaping my chart reading and improve it in such way that I would feel more comfortable predicting the market move.
What is a typical prediction accuracy? It is 50%. You have 50% chance to be right and 50% chance to be wrong.
What if there is a way to increase a chance to be 70% correct and 30% wrong? Wouldn’t that be awesome?
I still do not have a crystal ball to predict the market, but still working on it. That means that I still do not know for sure whether the market really would do what I am about to predict or not.
For Monday April 13th I expect the market to move up. The reason is that the candles are green and above 21 day MA. Also MACD is pointing up. Of course, tomorrow we may see a red day and that would mean a reversal of this trend. However, earnings season and economic data may be a catalyst for upward move. We are in an environment where “bad news is good news”. Weak economic data assume postponing interest rates hike from FED and that’s what may push the markets higher.
So I expect an up day. If the day ends up down, then on Tuesday I will open a bearish trade. Monday and Tuesday trading will show the direction for the entire week.
Happy trading!
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New purchase in ROTH IRA – ConocoPhillips (COP) for 4.60% dividend yield
UPDATE: (04/14/2015) Yesterday, ConocoPhillips price dropped a bit. That allowed me to lower my limit price lower to $67.55. Today, the trigger order fired and executed my limit order. I bought 16 shares of COP today!
In my ROTH IRA account I use a commission free ETF to save money for my next purchase. Because of free purchases of the ETF I can buy one share and sell one share and pay nothing. This allows me to save all dividends and my small contributions into the ETF and once I have saved enough I sell the shares in ETF and buy a dividend paying stock.
Last Friday, I saved my minimum amount for purchasing a stock – $1,000 so I could sell the ETF (without paying any commission or trade fee) with 4% profit, release the cash, and now I am placing a purchase order for Monday to buy ConnocoPhillips (COP) stock.
Conditional order
On Monday I will initiate my first position in COP. But I will use my trigger order strategy to buy this stock. That means, that I will place a conditional order to purchase this stock only if it moves higher. If it starts moving down from the current levels, I will not buy and my limit order will be lowered to a lower price. That means that I will be able to track the price down and buy into a position only when the stock reverses (or continues higher from the current price.
See the white board below:
As you can see, I place my initial limit order slightly above the current price (P1). It is a conditional order, basically saying “if the price is equal or greater than P1 then enter a limit order to buy at P1 price.“.
So if the price of the stock goes higher, hits the P1 limit, the conditional order gets hit and it activates a limit buy order. The stock gets purchased.
If however, the stock goes lower, I will lower my limit price to P2, and then to P3, and P4, etc. If at the bottom the stock reverses and hits my target (P5), the stock gets purchased and I will ride it up.
Of course, this is not a 100% bulletproof strategy, but works most of the time to capture a better price.
Sometimes you will get filled and short after the fill the stock reverses back down and continues in a selloff. That’s a reality of the market. It happens and you cannot do much about it. But at least we tried to get the best price, right?
To eliminate a negative impact of this, I never use an all-in purchase but buy a small portion of the entire position. So if the stock reverses and continues lower I can repeat the process to add to my position.
Trade detail
On Monday, I will have the following conditional order out:
If COP last is equal or greater than 67.71 then
Buy 16 COP at 67.71 LIMIT GTC
| Total shares holding after the purchase: | 16 |
| Estimated annual dividend: | $46.72 |
| Consecutive Dividend Increase: | 2 years |
| Dividend yield today: | 4.60% |
| Dividend 5yr Growth: | 8.45% |
| Dividend paid since: | 1934 |
This stock may also provide a nice capital appreciation when oil price returns back up. This stock may also move back up to ~$80 level and make a nice ~$12.30 capital gain per share. In the meantime, I will be collecting a nice dividend, which I will be saving into a commission free ETF, saving money for my next purchase.
What do you think? Would you agree with COP stock or do you prefer a different energy stock?
Happy trading and investing!
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Selling Seadrill (SDLP) & LGCY puts to add stock into my portfolio amid all negative sentiment
It is hard to be buying when everybody is negative on a stock, predicting its further collapse or struggle. These days we see oil exploring companies out of favor. Many had to cut on employment, investment and even vut the dividends.
When reading what other investors think about oil companies, you get scary stories, gloomy predictions, and stay away outlook.
I admit, that take a trade and buy a stock in such review and expectations needs a lot of courage. It is a gut wrenching approach sometimes to be a contrarian.
I recently took a position in Legacy (LGCY) for this same reason. Everybody was busting this stock and predicting its gloom and doom. I believe, this stock offers a great opportunity and it is worth to dedicate some cash to it. Lately I even opened a bull put spread against this stock expecting profits when oil goes up and the stock with it.
Today, I plan on taking yet another gut wrenching opportunity and initiate a position against Seadrill (SDLP) stock. It is another oil involved company making money shore drilling. Recently the stock tanked as many others in this industry and investor have only a scary stories and expectations. Only a few of them out there are posting articles having something nice to say. And whe they do, they are immediatelly attacked by others who invested in the stock when it was at $30 a share and now they are at a huge loss.
But with companies like this, you need to define an investing style (or strategy) you want to apply:
1) Either hold and collect dividends and go thru the thin or thick of the stock.
2) Or trade the stock and when there is a sell off coming, sell it and buy back at the bottom (well, if you are good at market timing).
If you decide to hold on and go thru bad times, you can do a few things – hold the stock, collect dividends, and sell puts or put spreads. That’s exactly what I am doing with LGCY stock while waiting for it to go up. I collect the dividend and I collect premiums from options.
So I am going to do the same with Seadrill (SDLP) and LGCY (adding to my existing LGCY position). I will sell put options against these stocks to collect premium if the stock goes up and stays above the put strike price. If not, I am OK to accept the stock, actually I will be happy to buy those stocks at those prices.
There will be two outcomes:
1) the stock stays above the strike price, the option expires worthless and I will keep the premium
2) the stock drops below the strike price and stays there at expiration, then I will be assigned the stock and buy it at the strike price plus I will keep the premium.
Since the price of the stocks are so low I am very comfortable to buy stocks at those level.
If you want to see these trades details, strikes and expiration I am going to take, you need to become a subscriber to my free newsletter where I publish my trades.
Good luck and happy trading!
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Running a zig-zag trade: my worst trade ever ended relatively well
My dream is to trade SPX weekly options and generate weekly income, which I can invest into dividend paying stocks. I believe and hope that with dividends and options income I can boost my portfolio and grow it faster than when just investing into dividend stocks only. I believe, that it is actually my only chance to get up to speed with my retirement savings.
But to trade options, one must do it right. And this is proving to be the hard part of option trading.
Last year was very good although the end of the year ended as a disaster to me, this year seems to be worse. Not in terms of losses, because I, fortunately, created no losses so far, but from the volatility perspective.
Yes, 2015 proved to be the most volatile year to me. For experienced traders this is a great environment for trading. At least this is what traders claim. They say that this falling and rising market is the best for them.
I admire it at one hand, but struggle to follow it up. How they deal with those sudden reversals like we saw a few days ago? I have a hard time to believe it. But the reason of this post is not to expose those traders, dishonest them or envy them. I just say this to say that I admire it and I wish to get there. “There”, meaning to a state of trading that I will be able to see those changes coming on time and react to it properly.
The purpose of this post is to share a trade I recently took against SPX and what SPX did to me and how I reacted. Now, at the time of retrospective I can see my mistakes. But when the trade was happening I didn’t see those mistakes coming.
What is most important however, is that no matter how terrible the trade was, it actually ended well. I didn’t make any money, but I didn’t lose as well. In other words, I was able to turn a sure loss into a break even trade.
What happened?
On March 3rd I did my market review and I got a bearish outlook. I expected the market to fall further down. But on Monday, the next day, the market rallied strong up and I saw this as trend continuation. I saw the first green large candle as an invalidation of my previous bearish outlook. So I opened a bullish trade against SPX – a bull put spread with the following strikes: 2080/2085. If the market remained above 2085, it would expire worthless for a sure profit. At 2116 level, this wasn’t a problem. Below you can see what I was doing:
As you can see, my thinking was proved to be wrong. On Tuesday the market continued falling. I was thinking that this was just a temporary pullback and that we will bounce off of the 2093 level. Unfortunately it didn’t happen and on Friday, the market basically crashed. And that forced me to react.
Should I have taken a loss by closing the trade or do something to salvage it?
Defending the trade
I decided to salvage the trade and roll it away in time. I still believed in the trend. I expected the market to shake this selling off, reverse and continue back up. So I moved those options away by two weeks from March 6 expiration into a March 27th expiration. I decided to keep the strikes same as I was bullish:
The chart above shows where I took action and moved the expiration into a further away time. But the market continued heavily in selling the next week. Monday was green again, but Tuesday hit us again with heavy selling.
I must say, I became nervous. Should I have acted or left the trade alone? If I have left it alone and the market continued in more selling, I would not be able to save this trade at all and it would be a sure loss. I thought that I needed a cushion. I needed to move the trade in case more selling was coming. Now I see this as panicking and being dragged into action by the market and not by a rational thinking.
Stay calm, everything is OK, panic!
After another set of heavy selling I decided to reverse the trade into a bear call spread with the same expiration of March 27th and the 2025/2030 strikes. If the market fell lower and remained below 2025 at expiration, the trade would expire for a nice profit, see the chart below:
The market continued in heavy selling that day and the following day. But the selling in the following day became weak and stopped at 2040 support created by a lower Bollinger Band and a trend line. I started smelling trouble again. Then the market rallied hard and although after that there was selling again, it started to become apparent, that selling was over.
Is it right this time?
I decided to reverse the trade again from a bear call spread into a bull put spread with 2095/2100 strikes. This time the market had to grow up above 2100 and stay there by expiration. See the chart below:
I must admit, that at this point I was totally driven by the market and trades were already based on emotions. Although the entire trade was still profitable, I had big doubts whether it could ever end up with a profit. But what was worse was that I was running out of margin buying power. The worst enemy of the trader. Once you get extended on margin, it can kill you without hesitation. I was risking $1,500 to make $285 and that was beyond my comfort zone.
But the trade was still showing a loss. Should I have ended it or continue the struggle? I felt like a hare running zig-zag in front of a wolf trying to save his life.
Soon the market grew above 2100 and was about to stay there. It even started attacking its previous all-time high at 2119 level. I now felt good about the trade that I was able to manage it even at a high cost of margin power. I was completely unaware of what was coming at me.
The market reached 2115 level and started reversing again into a big selling which was coming. Fortunately this time I was able to spot this on time and decided to act once again. I couldn’t roll the trade anymore as I had no margin buying power to do that, but I decided to try reversing the trade into a bear put spread. It is a debit spread and I knew that by doing so, I would lose all gains I made so far, but I would lose nothing.
No matter what I did it was wrong
To reverse the trade I did the following swap. I had a long 2095 put and a short 2100 put. I decided to buy back the 2100 put and sell a new 2090 put. So the original 2095/2100 credit put spread became a 2090/2095 debit spread. For this transaction I paid $5.20 or $520 per contract. This was a losing trade from the beginning because with a debit spread all you can ever make is the spread width, or $500 per contract. I paid more for it than I could ever make. But I had previous credits collected!
My reaction proved to be correct and right on spot at the right time. I am grateful for this because this saved my trade. As you can see, that same day when I reversed the trade and the very following day the market crashed again.
This could set our trade to expire in-the-money next week. It could end the trade with a nice profit at about 11%, but because I will be traveling next week and I will not be able to watch any of my trades until Wednesday next week, I decided to close the trade earlier. It could be still profitable trade, we actually made $60 on this trade, but commissions ate it all up, se we ended with a small loss of $17.50 (-1.22%). Better than a full loss, right?
Below see a screen shot of my trade book recording to see the entire trade and all steps I just tried to describe above.
It was a difficult trade full of emotions. I admit that. But I am glad I was able to manage it to end it with a small loss rather than a big one. It was also a very stressful trade but I learned a new strategy on salvaging a trade. Hope I will be able to use it correctly in the future to make money instead of losing them. It also proved one important thing – when trading options, you must stay small, do not overtrade. Once you overtrade and run out of available cash you are doomed to losses. You will be forced to close a trade in the worst time with a loss.
SPX is a canibal ready to eat you alive
SPX is a nice vehicle to trade, but it can be a very dangerous, evil savage, who can eat you alive. Don’t let it happen to you and don’t let it fool you like I got fooled before. This lesson ended well with a very little loss, but it could turn into a huge loss. With a knowledge of how to trade options and how to eliminate risk involved in them, you can win this battle even when it turns against you.
What was my lesson from this trade?
So once again – learn a lot about options, learn a lot about technical analysis, be patient and stay small to succeed. I say this again not just to be bossy, I say this again mainly for myself. It is the most important rule ever.
I wish you a great trading next week and I’ll see you the following one.
Happy trading!
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Stocks to buy in April 2015
March 2015 was a month which brought in losses. If you bought stocks I selected as a buy in March, you would be losing -5.32% for the month.
The reason for losses is energy stocks as mostly they continued in a sell off during the month. However, I expect these stocks to go up at some point as they continue underperforming the market greatly. Remember, when others are in fear, be greedy and when other are greedy be fearful. Now, energy stocks still belong into this category of stocks dumped by investors of fear over their exposure to oil.
But many of those stocks are old dividend paying stocks being around for many years. They survived oil crisis in 2008 as well as in 1987. I believe, these stocks will survive this oil crisis too.
So it is time to rebalance my Motif Investing portfolio, remove good performing stocks, add new, or leave those still in my list. Here is the selection for April 2015:
I purchased this motif myself to show confidents in my stock selection. You can open your account too and if you start investing, you will receive a $150 bonus from Motif Investing.
I will be rebalancing this motif every month. Let’s see, how well this portfolio will do at the end of the year.
Good luck to all of you!
Previous selection:
Stocks to buy in January 2015
Stocks to buy in February 2015
Stocks to buy in March 2015
Stocks to buy in May 2015
Stocks to buy in June 2015
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Market 3% off of the top. Is more selling coming?
The stock market fell by 3% since all-time high in February. Is more selling coming or are we going up again? Unfortunately, I think the uptrend is broken already and we will see more selling. Although tomorrow we may see a bounce from the oversold territory it looks like that the bounce will be sold off again.
This is a typical behavior of a market phase called distribution. And we should be careful about this because it means that the big players are selling their positions. Retail investors typically unaware of this phase are buying stocks while the big players are selling to them. The distribution phase may take a long time. In 2007 – 2008 this distribution phase took almost the whole year before the market crashed while everybody was optimistic and happy about the market and economy.
Although these days nobody seems to be happy about the economy it doesn’t mean that we are still safe and in an uptrend and that we haven’t already entered into a distribution phase. We may already be in one and yet not knowing about it. A good way to find whether we are in a distribution phase is to realize that the market struggles to make new highs and if it does it, it is heavily sold off immediately.
Sounds familiar? If you look at the market in the recent months, we have moved basically nowhere and all new highs were heavily sold off. A few days ago, we didn’t even make a new high and yet that spike was sold off too. If this continues, we are clearly in the topping pattern and thus we should expect more selling or even a major correction.
If we see a correction of 10% or even 15% then it will actually be a good thing for this bull market and we may see a continuation in the trend. If a deeper than 15% correction is about to hit us, then a bear market will come. But that is still too early to say where we are and what will happen.
What is my expectation for tomorrow?
Yesterday, I expected a bounce. But it didn’t happen and the market continued in selling. Later in the afternoon, we saw a small recovery when the market recovered from 2045 up to 2067. By the end of the session we dropped back and closed at 2056.
I think this weakness will continue tomorrow and in coming days. Since the market is oversold we may see a bounce tomorrow. I expect it to go all the way up to 2070. But then I expect it to be sold off again. If however we will see the market breaking up thru the 2070 level, we may actually go up to 2115 level. Which I believe will be sold off too.
This potential bounce is better seen from the following chart:
As you can see we broke below the trend and other supports (again) and the potential bounce would have two possible outcomes:
1) We bounce up to 2070
2) Or we break thru it back into the channel, which may be a good thing for this market.
Given the weakness of the market, I do not expect it to break up into the channel and if so, it will be sold off.
Two days ago I received a sell signal. That helped to reverse all our trades into bearish ones. If we get a bounce tomorrow, I do not expect a buy signal to occur yet. Thus I think that such bounce will be only a small bump up before a renewed selling comes back. If however a buy signal fires up, we will know that the market is bound for more upside.
Tomorrow, a GDP report comes out. There are two possible outcomes of it:
1) The report will be good – and investors will panic again out of a fear that FED may change its mind and raise rates earlier.
2) The report will be bad – and investors will panic too out of a fear that our economy is bad.
I would be surprised if the clowns on Wall Street would react positively, but it may happen.
We do not have any trades (except one of my bear call spread) expiring tomorrow and since next week I will be traveling, I will be taking off from my trading for the next week.
So be alert and happy trading!
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Market weak but a bounce may happen tomorrow
The stock market is weak and every move higher is immediately sold. Today we created a lower high which is a significant signal of a trend reversal.
Tomorrow we may see a bounce up higher – I expect the market to bounce up to 2107 level, but then we may see a renewed selling pressure. The market may then fall all the way down to 2050 level before it bounces up again. The renewed selling may happen on Thursday and Friday or next week.
If we bounce tomorrow up, I will take this as an opportunity to unload some of my bullish trades which are currently endangered by the market selling.
Here is my expectation for tomorrow:
As you can see today, the market smashed through all supports and stopped at the lower support of the channel. This put the market into an oversold territory and we may bounce back up to the previous day high which was at 2107 level.
If that happens, then we will be unloading our short term bullish trades, mainly our bull put spread against SPX 2095/2100 even though it will be at a loss.
What if the market won’t bounce tomorrow and will continue in a downtrend?
In that case I will be reversing the trend into a bearish debit spread. This reversal will most likely be a losing trade. But it will be a lot smaller loss than if we just plainly closed the trade now.
Or another option would be reversing the trade into a call spread. This will all depend on tomorrow’s price action.
What is the short term outlook? Here is a chart showing that the market clearly lost the momentum and is once again in a selling mode which will most likely continue:
As you can see, I asked a question whether we bounce or continue higher. Yesterday, it still was unlikely that we would bounce. Today it is clear that we did. This is a potentially dangerous game changer. If we continue lower, then we created a lower high and that may cause the market changing into a distribution phase.
Here is yet another view on the short term trend showing a first alert of a short term trend reversal. Note that this is a short term trend (1 year, daily market). Long term, this bull market is still intact.
We will be watching this trend very carefully and send a newsletter to our subscribers what we are going to do with our open trades tomorrow or in coming days.
Happy Trading!
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SPX trend expectation for the next week
Last week trading was within my expectations. Thursday trading was a small pullback based on the previous strong rally. That small pullback had a small impact on my trades, but nothing too dramatic and nothing hard to handle, although my profits weren’t as expected thanks to necessary adjustment.
In my quest to assess where the market would go next I am posting my expectation for the next week.
The market is still in a full swing up to higher levels. No matter what zig-zag we may see during the week, the trend is still intact and strong up.
The chart below indicates my overall view for the next week to the next month:
The last candle indicate a strong push up. We may see a small retreat again tomorrow, but overall the trend is still up approaching 2120 resistance. Will we break that resistance or will it push the market lower? Although we may see some choppiness around this level, overall I believe the market will be able to break this level and at least in the next two weeks we will see a strong rally up.
Why I think this rally will continue up? Look at the chart below. This clearly indicates that we are in the middle of an upswing. Both the price chart is uninterrupted in an upswing and MACD just performed a bullish crossover. Even if the crossover and move of the MACD will be miniscule it will still provide a few days of strong move up before we may see a reversal.
Unless something fundamental changes the market, such as very bad data from the technical perspective, there is nothing what would change this trend. Fundamentally, we have a few events being reported next week such as CPI index, jobless claims, and GDP report which may move the market. However, last reports didn’t move markets that much and even if the reports come out weak, the investors will most likely see it as affirmation of FED not raising the rates and that would move the markets up even more (if we assume the same ridicule behavior of last when bad news are good news).
Below is my expectation for Monday. I left my Friday projection on to see how accurate it was. Well, I expected the market to go higher, yet my expectation of the move was totally off. We rallied premarket very strong and then the entire trending was sideways with a small sell off at the end. We still finished Friday up.
For tomorrow I expect the markets to be somewhat weak (based on MACD expected move) and at the end of the day we may rally again. Also we may see the entire Monday down a bit and resumed rally on Tuesday. It depends on how the MACD swing would look like. Most likely we will return back to the trend line, but may stay in its upper portion.
Let’s see how accurate this would be.
Happy trading!
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