Posted by Martin July 29, 2016
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$WYNN beat estimates yet gave me a headache

Today, I feel bitter about my WYNN trade.

Last week I decided to take a few trades against WYNN and stretch my account a bit because I was confident that I would be out of those trades before earnings. It was a great opportunity trade!

Brokers were listing that WYNN was going to report earnings on August 3rd. Put premiums were juicy and all set to expire this Friday. I would collect nice premium before earnings.

So I opened three trades and sold 3 put contracts per each trade (total 9 contracts):

-3 WYNN Sep2 87 put
-3 WYNN Jul29 96 put
-3 WYNN Jul29 97.5 put

Suddenly the company announced that they would report on July 28 end of the trading day. Ouch! Suddenly I was holding trades thru earnings!

Spooked Trader

I knew (expected) that WYNN would report great results but I wasn’t sure how would market react. Today, the market is driven by a crowd of morons. Crowd is stupid and primitive. It can get spooked by falling leaves from the tree in autumn and stampede for exit.

And sure enough. WYNN sold off after hours. It fell from 104 a share to 96 a share. I had a problem.

I had to manage those trades, but since I expected them to expire without being jeopardized by earnings I stretched my account and I was running low on cash. My account ran out of buying power at some point and that meant I couldn’t roll the trades. All I could do was close trades. And closing trades meant closing at a loss!

I had to day-trade and use market fluctuations to adjust the trades. I was successful doing it and I could close majority of the trades and roll two contracts into next week.

Although I closed those trades with profits, moved the last two contracts away in time into the next week I still have a “bad taste in my mouth”.

Below is my journal indicating all trades I made this week and today with WYNN to maneuver it out of a problem:

WYNN trading journal
Click to enlarge

This month, I was able to exceed all my expectation about my trading revenue.

Last month, I made $2,331.00 in collected premiums. I haven’t expected exceeding this number. I hoped for $3,000 revenue at best or at least matching June, mainly when for the first 10 days of July all I made was $2 dollars. Yes, two dollars.

I was thinking that this could be a blow to my plans trading for a living one day. I can’t live off of 2 bucks!

Yet, in July 2016, I made $5,734.00 dollars in collected premiums. This is more that what I make at my 9-5 job working 45 hours a week and having to deal with my boss and unreasonable clients!

But if WYNN ended as planned before they announced earnings reporting in July instead of August 3rd, I would end with premiums way over $6,000 dollars for the month. Maybe this is why I feel horrible.

And that’s wrong. This is emotions. Greed. Emotionally greedy. The best way to lose it all. I think I need to slow down. Yes the revenue for this month is gorgeous, but I stretched my account beyond all my rules. I acted like an idiot. Preach water, drink wine.

Now I will focus more on managing open trades and slow down in opening new trades to only one or two trades per week and considering all rolls as a new trade for that week. I also need someone to slap my hands when I get itchy trying to open a new trade because of an “irresistible one time opportunity right now” feeling. No way grasshopper, there will always be opportunities in Wall Street, no need to rush to all of them.

And the lesson? Even if a trade looks to be the safest trade on the planet, it doesn’t warrant breaking the rules.

Good luck guys and have an excellent weekend!

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How Billionth iPhone Sale May Not Be That Great for Apple

As Apple (NASDAQ: AAPL)reported its financial results for the third quarter of its fiscal 2016, it was also celebrating hitting a key milestone with its flagship iPhone. Its sales topped one billion this month.

While it celebrated that monumental news, the market was digesting something that was unheard of when it comes to Apple – a downgrade. The reason for the downgrade explains many of the concerns some market players are increasingly griping about more.

Before we get into the reasons behind that downgrade, let’s start with the good news first. That news stems from Apple’s earnings report that it released and discussed this week.

Apple posted quarterly revenue of $42.4 billion and quarterly net income of $7.8 billion. That equated to $1.42 per share. These results compare to revenue of $49.6 billion and net income of $10.7 billion, or $1.85 per share in the same quarter of fiscal 2015.

Its gross margin weakened a bit to 38% from 39.7% in the second quarter of fiscal 2015. Of note are Apple’s international sales, which accounted for 63% of the quarter’s revenue.

Apple’s services business segment grew 19% year over year. Its revenue from its app store also grew. In fact, it was the highest it has ever been.

 · Shareholder value

Apple has been notorious for sitting on piles of cash, as it raked in even more of it from record sales of its iPhone and iPad. Shareholders grew increasingly frustrated with that. In what could be seen as the extension of an olive branch, Apple began paying shareholders dividends in 2012. That put to an end a drought of Apple dividend payouts that reached back to 1995.

Apple has also stepped up its share buyback program over the past few years. However, not all are positive on these repurchases. Earlier this year, Fortune said the company had wasted billions of dollars in buying back its stock.

Fortune found that Apple had paid a 21% premium over the value investors were paying for its stock when it was trading around $95. It closed Wednesday, the day of Apple’s third quarter release, around $104.

BGC Partners, the firm that downgraded Apple, found that Apple’s share repurchases over the last six quarters have all occurred at higher average prices than where the stock is currently trading. The stock has lost approximately $235 billion in value while repurchasing $117 billion is shares, according to BGC.

No matter, Apple’s CFO told investors this week that the company returned more than $13 billion to investors through share repurchases and dividends.

Furthermore, he said the company has completed almost $177 billion of its $250 billion capital return program.

Apple provided the following guidance for its fiscal 2016 fourth quarter:
• revenue between $45.5 billion and $47.5 billion
• gross margin between 37.5% and 38%
• operating expenses between $6.05 billion and $6.15 billion

The $.57 dividend declared by the company is payable on August 11.

 · The downgrade

BGC downgraded Apple ahead of its earnings report release. The firm cut its rating to “sell” from “hold.” It also cut its price target to $85 from $110.
The reason for the downgrade stemmed concerns that the upcoming iPhone 7 won’t sale as well as the current iPhone SE model in the market now.

The whole “cool factor” thing that propelled iPhone sales in the past may not be “cool” to investors anymore. Yes, it’s great that the new generation phone may have new features that outshine previous models. However, it won’t have those infamous subsidies that made the previous phones attractive, AND affordable.

You may recall the wireless carriers constantly promoting free phones, or heavily discounted phones to attract customers to sign lengthy contracts with them. That practice began to go by the wayside as consumers began to opt for pay-as-you go plans. Many wireless carriers did away with the subsidies, and the like. This meant customers have had to absorb the full price of the phone.

In the minds of many consumers, it is ridiculous and economically foolish, to
shell out $600 on a new phone every few years.

So while Apple pats itself on the back for selling one billion of the phones, it is highly unlikely that it will reach that number within the same time frame in the future.

To BGC’s point, I too believe that Apple must step up its acquisitions. Its buy of a karaoke company of sorts drew laughs among market players this week. That announcement came on the heels of Soft Bank’s revealing that it is acquiring ARM Holdings for $32 billion.
This should have been a company Apple should have gone after to buy.

According to BGC’s note:
Apple acquiring ARM could make so much sense, it’s a high margin business with future growth, plus there is a national security interest benefit. It positions Apple for the growing IoT (Internet of Things) market. So disappointing! Perhaps management was focused on how to remove headphone jacks.

Clearly, all is not loss for Apple. Its resilience is fascinating. Just look at its high revenues despite the drop in its iPhone sales.

The key for the company stock moving forward does not just hinge on iPhone sales. The company must move big in acquiring something Big. While share buybacks generate some investor satisfaction, the programs don’t cause a stock to move higher.

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Posted by Martin July 25, 2016
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Hotels: Occupancy Rate on Track to be 2nd Best Year

From STR: US hotel results for week ending 16 July

The U.S. hotel industry reported mixed results in the three key performance metrics during the week of 10-16 July 2016, according to data from STR.

In year-over-year comparisons, the industry’s occupancy decreased 1.4% to 77.5%. However, average daily rate was up 3.4% to US$128.12, and revenue per available room increased 1.9% to US$99.33. Emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Hotels July

The red line is for 2016, dashed orange is 2015, blue is the median, and black is for 2009 – the worst year since the Great Depression for hotels.

2015 was the best year on record for hotels.

So far 2016 is tracking just behind 2015, and well ahead of the median rate.

Also 2016 is tracking just ahead of 2000 (the previous 2nd best year).

The 4-week average occupancy rate should remain above 70% during the Summer travel period.

This post was originally published at Calculated Risk Blog.


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Posted by TwillyD July 24, 2016
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All Eyes on Verizon, Yahoo! Next Week; $5 billion deal on tap

All Eyes on Verizon, Yahoo! Next Week; $5 billion deal on tap

Just over a year after buying AOL, Verizon Verizon (NYSE: VZ) seems poised to buy the last of the remaining Internet providers – Yahoo!.

Word on the street is that the wireless service provider could announce its acquisition of Yahoo! next week. The price being bandied about is roughly $5 billion.

The wireless giant has long been considered the favorite to buy Yahoo’s Internet assets. The point is to combine those assets with those of AOL, which Verizon bought last year form $4.4 billion.

 · Reasons for this deal

Why would the number one wireless carrier want to add another relic of the early days of the Internet to its portfolio? To compete with Facebook (NASDAQ: FB)and Google and carve out space in the lucrative online advertising space. (Google is now Alphabet, but still trades on the NASDAQ under the GOOGL ticker).

 · Yahoo draws many suitors

Redcode reported Friday that Verizon had raised the price it was willing to pay in its most recent offer for Yahoo. While it was rumored that Yahoo’s board members barked at Verizon’s offer as being too low, it would be wise for Yahoo to accept it.

 · Bad, costly choices

That’s because Yahoo’s operations are in a mess. There are a countless number of reasons that led to the mess. This includes the high frequency of CEO turnovers, and a slew of costly acquisitions that proved to be worthless.

Gizmodo took the time to highlight 53 acquisitions that took place under current CEO Marissa Mayer’s watch. Gizmodo tallied the acquisitions to be $2.3 billion. Given that many of them are out of business, the $5 billion from Verizon should seem reasonable.

With AOL and Yahoo in its portfolio, Verizon would have two large Internet companies at its disposal. That would bolster its effort to secure market share in digital ad spending, which is currently dominated by Facebook and Google.

Verizon believes that it can use quality consumer targeting to attract advertisers.

Missteps include not selling to Microsoft several years ago.

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Posted by TwillyD July 23, 2016
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Relypsa Just Made a Move That Could Give AstraZeneca Pause

Last month we told you about Relypsa (NASDAQ: RLYP) a biopharmaceutical company that was enjoying being the sole provider of a drug used to treat hyperkalemia, a condition that causes life-threatening levels of potassium in a person’s blood.

At the time we first reported Relypsa, we noted that the company’s stock was up and had even more room to run.

Well, that has proven to be an understatement.

Last week the company announced that the Swiss-based Galenica Group bought it in an all-cash deal, which sent Relypsa’s stock higher by almost 60%. On that day, Thursday, the company’s stock closed at $31.95, which was just shy of the $32 per share offered by the Galencia Group. That amounts to $1.53 billion.

Through this acquisition, Relypsa’s hyperkalemia drug is better positioned to impending competition, especially in the U.S. Specifically the deal is touted as helping Relypsa strengthen its presence in the U.S. cardio-renal market, which is a key area of focus.

It has been benefitting from being the only supplier of a hyperkalemia treatment drug. Its drug, called Veltassa, had been the only FDA-approved drug in the market used to treat the condition.

 · Staving off Big Pharma AstraZeneca

The Galencia acquisition seems right on time. There was some dustup earlier this year when it appeared that a drug from Big Pharma company AstraZeneca (NASDAQ: AZN) was trying to get its hyperkalemia drug approved by the Food and Drug Administration. Its approval by the FDA was thought to be a slam dunk, and observers thought Relypsa’s days of being the sole treatment provider would be over once AstraZeneca’s ZS-9 was approved. While it was delayed, there’s little doubt among observers that AstraZeneca’s drug will be approved. It’s just a matter of when.

 · Long-term growth strategy

In the statement announcing the acquisition, officials say the transaction is in line with the Galenica strategy of growth through in-licensing and acquisitions.

Relypsa has developed an extensive specialist commercial organization in the United States targeting nephrologists and cardiologists and focused on developing market access and awareness. The market size of those affected by hyperkalemia totals roughly three million people, which includes people with stage 3 or stage 4 chronic kidney disease (CKD) and/or heart failure.

Offer Recommended by Relypsa Board of Directors
Under the terms of the merger agreement, Galenica will commence a tender offer to acquire all of the issued and outstanding common stock of Relypsa.

The Boards of Directors of both Relypsa and Galenica have approved the terms of the merger agreement, and the Board of Directors of Relypsa has resolved to recommend that shareholders accept the offer, once it is commenced.

The acquisition is structured as an all-cash tender offer for all outstanding issued common stock of Relypsa followed by a merger in which remaining shares of Relypsa would be converted into the same U.S. dollar per share consideration as in the tender offer. The transaction is not subject to a financing condition. All this according to the company statement released about the acquisition.

 · Not all analysts happy

On the news of the acquisition, there were mixed reactions from analysts. Brean Capital and H.C. Wainwright downgraded Relypsa from buy to hold and neutral, respectively. However, Morgan Stanley upgrades the company from underweight to equal-weight.

Prior to these actions, there were other moves by analysts. Wedbush had restated its outperform rating, while Stifel Nicolaus restated its buy rating. BTIG Research restated its buy rating with a huge $35 price target.

Relypsa is expected to be delisted from the NASDAQ and integrated into Vifor Pharma, which is a unit of Galenica. The transaction is expected to close during the third quarter of 2016.

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McKesson Juggling Series of Transactions as 1Q 2016 Earnings on Tap

McKesson Corp. (NYSE: MCK) is in the midst of key transactions that are intended to better position it to remain a leader in the healthcare services industry.

While its efforts are admirable, concerns have been raised about one of them.

Last week McKesson’s health solutions unit announced that it has expanded its
portfolio to include ClarityQx by acquiring HealthQX. ClarityQx offers a value-based payment technology.

Health plans use ClarityQx for analytics and for automation of retrospective bundled payment models. They also use McKesson’s Episode Management to support automation of prospective bundled payment, according to McKesson.
The collaboration is intended to enhance McKesson’s ability to help customers transition to value-based care by automating and scaling complex payment models.

 · Change Healthcare

The ClarityQx announcement came on the heels of the company announcing a complex deal to exit its IT business. Specifically, it said it was exploring strategic alternatives for its Enterprise Information Solutions (EIS) business, which provides core hospital information systems. EIS is reported as part of our McKesson Technology Solutions segment.

McKesson announced last month that it was forming a healthcare information technology company with Change Healthcare Holdings Inc. that will include the majority of the McKesson Technology Solutions businesses.

Change Healthcare is a healthcare software company owned by Blackstone and Hellman and Friedman. McKesson’s EIS business serves hospitals and health systems with software solutions, managed services, and infrastructure and hosting services.

These services help hospitals perform in the new healthcare reform environment.
The head of the EIS business said that while the company evaluates the best options, the overall priorities for EIS remain unchanged.

The concern over the EIS plan is that it could reduce McKesson’s financial flexibility. According to Moody’s Investors Service, the EIS development is credit negative because it will reduce McKesson’s diversification profile and its profitability.

While it did not change its rating for McKesson, Moody’s chimed in with its concerns. Diana Lee, a senior credit officer for Moody’s, stated in a recent ratings report:

“Moody’s estimates that McKesson’s pro-forma debt/EBITDA, excluding profits that will be contributed to the [joint venture], will be around 2.5 times.”
McKesson’s debt/EBITDA as of March 31 was about 2x, according to Moody’s.

 · Closing Rexall deal

The ratings agency, which affirmed its ratings for McKesson’s senior unsecured debt also pointed out some headwinds McKesson may have to confront.

Specifically, in the coming months, McKesson is closing its $2.2 billion deal to buy Rexall Pharmacy deal. Moody’s notes the deal is likely to result in additional borrowings.

 · Loss of Rite Aid

Moody’s also noted the possibility that McKesson will lose its Rite Aid contract if Walgreens Boots Alliance completes its merger with Rite Aid. However, McKesson has about $4 billion of cash and strong cash flow, which it could use to reduce its debt levels. In addition, the joint venture will dividend about $1.25 billion to McKesson at close, Moody’s noted.

 · Earnings on tap

Investors should get a better idea about how all of these transactions will affect McKesson next week. It is set to report its first quarter earnings for fiscal 2016 on July 27. The consensus estimate calls for it to report earnings per share of $3.39 on about $50 billion of revenue.

McKesson’s shares up roughly 9% over the past month, and about 14% over the past three months. It is also trading above its 50-day and 200-day moving averages by 8.62% and 12.07%, respectively. It has a relative strength index of 68.52, which indicates that it is not overbought.

At the end of June, McKesson announced that it was raising its previous guidance range of $13.30 to $13.80 per diluted share to a new range of $13.43 to $13.93 per diluted share. This updated outlook is driven by the early adoption of Accounting Standards Update 2016-09 as released by the Financial Accounting Standards Board.

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Calls to Break Up Big Banks Again Uncalled For

As Republicans gather for their National Convention this week, there is a brouhaha going on over the party considering resurrecting the infamous Glass-Steagall Act.

The thought of the conservative party bandying about this liberal idea has many perplexed.

Many are chalking up the Glass-Steagall Act talk as political fodder during this intensely charged election year.

No matter, this particular fodder puts banks, particularly big banks, back in the lime light. So let’s look at how they’ve fared since Glass-Steagall was put to bed years ago. We have to look no further than the earnings reports from banks for the second quarter. They began reporting them last week.

 · What is Glass-Steagall?

In 1933, the Glass-Steagall Act was signed in to law as an emergency response to the thousands of banks that were failing during the Great Recession. Specifically, the act broke up the banks’ businesses, separating the commercial and investments sides.

The law was eventually repealed in 1999 as part of a bill signed by then-President Bill Clinton. Taking its place was the Gramm-Leach-Bliley Act, which requires financial institutions that offer consumers financial products or services like loans, financial or investment advice, or insurance to explain their information-sharing practices to their customers and to safeguard sensitive data.

The thought of Glass-Steagall making a comeback does not sit well with banks. They dislike anything that seeks to break up their businesses because of the impact on their top and bottom lines. Glass-Steagall’s restrictions are seen by banking observers as having an overall negative effect on not only the banks, but also the economy.

 · The Big Banks

While lawmakers may think they know what’s best for the big banks, the leaders of these institutions think otherwise. Furthermore, their vast improvements from their financial lows of 2008 seem to be behind them.

Take their earnings reports that have been released so far this year. For the second quarter, Bank of America (NYSE: BAC) Citigroup (NYSE: C) and JPMorgan Chase (NYSE: JPM) have all posted better-than-expected results.

That does not mean they are out of the woods, as there are many overhangs that remain as concerns. There are concerns about growth in the global economy, especially in light of Brexit. There is also the question of when or if the Federal Reserve will raise interest rates. Oil price volatility only aggravates the situation.

Banks must also deal with mortgage banking fees that are not expected to improve marginally due to low mortgage rates.

 · Well positioned to deal with another crisis

We told you last month about how the big banks could withstand a financial crisis like the one that slammed the industry in 2008.

Specifically, we noted a scenario entailing global recession in which the unemployment rate soared five percentage points, and there was a heightened period of financial stress, and negative yields for short-term U.S. Treasury securities. Even in such a calamity, the big banks survive.

This was determined by the Federal Reserve through the 2016 bank stress tests. The Fed noted that the above “severely adverse” scenario projected that loan losses at the 33 participating bank holding companies would total $385 billion during the nine quarters tested, and that would be sustainable.

The tests marked the sixth round of stress tests led by the Federal Reserve since 2009 and the fourth round required by the Dodd-Frank Act.

The act, and its facets such as the stress tests, is sufficient enough to monitor banks’ management of their finances.

Banks may continue to be challenged by the current operating environment, but they have proven their resilience. Their improved finance controls help to mitigate the need to break them up.

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Just When We Thought Ackman, Herbalife Tango Was Over

If you are still scratching your head as to whether or not Herbalife (NYSE: HLF) is a pyramid scheme, join the club.

The Federal Trade Commission seemed to have reached a conclusion on the matter last Friday when Herbalife agreed to ante up $200 million as part of a settlement agreement with the agency.

However, now that the speed reading through the FTC’s report on Herbalife has waned, slower, more comprehensive reading of the report reveals that there are still issues that remain for Herbalife to resolve.

As the details of these revelations were exposed, the short-interest in the nutritional supplement’s stock picked up. Investors seemed to be questioning whether billionaire hedge fund manager Bill Ackman was correct in his multi-year long allegation that Herbalife is a pyramid scheme.

In fact, S3 Partners, which is a financial analytics, technology and services firm, found that the short-selling of the stock that slowed ahead of the report, has picked up again.

 · So what gives?

As rumors spread last Friday that the FTC would be releasing a statement that it found Herbalife to not be a pyramid scheme, the company’s stock began to soar. That stopped when the commission of the FTC stated:

“[Herbalife was] not determined not to have been a pyramid.”

Confused? Yes, we all were by that odd statement, including renowned hedge fund manager Carl Icahn who released his own statement that same morning saying the FTC settlement’s concluded that Herbalife is not a pyramid scheme.

 · Not so fast

The FTC quieted everyone that Friday morning with its official statement Herbalife “rewards recruiting at the expense of retail sales,” which is problematic for Herbalife and the entire direct selling industry.

Upon that news, Herbalife’s stock slid almost $6 from its opening price spike, closing at $64.26, notes to Howard Sugarman, a managing director for S3 Partners.

The question became, “Is this going to make this business model an issue for other direct sellers?” The model is also referred to as multilevel marketing. Other companies that have similar business models include Avon (NYSE: AVP), Nu Skin (NYSE: NUS) and USANA Health Sciences (NYSE: USNA).

Unsure what to make of the FTC’s news, many joined Ackman and began shorting Herbalife. However, they did not short it to the tune of Ackman’s $1 billion gander that Herbalife’s stock would fall to $0.

Herbalife’s amount of float that has been shorted is the highest among these three, at roughly 26%. Avon’s is just 6.4%, while USANA’s is 17.9%.

The increase in Herbalife’s short float is interesting. Sugarman found that short interest in Herbalife, which had dipped below $1 billion in the first quarter for the first time since January 2015, had been climbing in anticipation of the FTC declaring that Herbalife was primarily a pyramid scheme.

Since its mid-February lows, Herbalife’s short interest had raised almost $300 million, or 30%, even as its stock price rose 31% over that same time period, according to Sugarman.

 · Who’ll have the last laugh?

As noted above, Ackman has a $1 billion short position in Herbalife. Furthermore, despite the $200 million settlement, and the determination that Herbalife is not a pyramid scheme, Ackman won’t back down.

In fact, the manager of the Pershing Square Capital Management is “maintaining his bet against, according to Bloomberg Markets.

“Ackman plans to maintain it and will push regulators outside of the U.S. to investigate the company,” according to Bloomberg Markets.

Tired of defending itself, Herbalife released the following statement Wednesday:

“After more than two years of working with the FTC, I think we understand the terms of the settlement agreement very well. We would not have settled unless we had the greatest confidence in our ability to comply with the agreement and grow our business and we believe this will be proven out over time.”

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Selling naked puts and calls – managing an ugly trade into a winner

Predicting the stock market
This is a chart a user named KubaW created and posted on StockTwits. I asked him based on what he believed that what he drew would rally happen and that his drawing was just a coloring book for kids and had no predictive value. My comment sparked rage from him and his ass-lickers who typically patted him on his shoulder what a nice chart he created.He called me an uneducated ignorant loser and never provided an answer.

Recently, I encountered a fiery discussion on StockTwits website with a few market predictors and weather casters (as I call them). If you follow me on this blog or in our trading Facebook group you know that I no longer try to predict the market or stock movement as I consider it foolish and ineffective.

You can read my opinion about market forecasting in a Strategy section. No matter what the market or your stock did in the past will not guarantee nor predict what it will do in the future. All those predictors do is just guessing. And they always have only 50% chance of being right. So why bother with an extensive charting analysis to just achieve 50% chance of being, right?


Let me share a story with you:

The semiretired chairman of the board of the brokerage firm was a long time trader with nearly 40 years of experience in the grain pits of the Chicago Board of Trade. He didn’t know much about technical analysis, because he never needed it to make money on the floor. But he no longer traded on the floor and found the transition to trading from a screen difficult and somewhat mysterious. So he asked the firm’s newly acquired star technical analyst to sit with him during the trading day and teach him technical trading. The new hire jumped at the opportunity to show off his abilities to such an experienced and successful trader.

The analyst was using a method called “point and line” developed by Charlie Drummond. (Among other things, point and line can accurately define support and resistance.) One day, as the two of them were watching the soybean market together, the analyst had projected major support and resistance points and the market happened to be trading between these two points. As the technical analyst was explaining to the chairman the significance of these two points, he stated in very emphatic, almost absolute terms that if the market goes up to resistance, it will stop and reverse; and if the market goes down to support, it will stop and reverse. Then he explained that if the market went down to the price level he calculated as support, his calculations indicated that would also be the low of the day.

As they sat there, the bean market was slowly trending down to the price the analyst said would be the support, or low of the day. When it finally got there, the chairman looked over to the analyst and said, “This is where the market is supposed to stop and go higher, right?” The analyst responded, “Absolutely! This is the low of the day.” “That’s bullshit!” the chairman retorted. “Watch this.” He picked up the phone, called one of the clerks handling orders for the soybean pit, and said, “Sell two million beans (bushels) at the market.” Within thirty seconds after he placed the order, the soybean market dropped ten cents a bushel. The chairman turned to look at the horrified expression on the analyst’s face. Calmly, he asked, “Now, where did you say the market was going to stop?…

Trading in the zone: Master the market with confidence, Mark Douglas, p. 76 – 77


The goal is not to predict where the market will go or what your stock will do, but always know what you will do.

And that was the deal with a few predictors on StockTwits when I told them that all they were doing with all their charting was just creating comic books.

Whining Baby And this caused them to steam like an old locomotive, calling me names, calling me ignorant, stupid, and of course blocking me. There was even one user with a username @Nickvee14 who went into a rage of hysteria, calling me a fraud and liar when he saw my trading results.

This guy has in his profile that he was a: “Former Owner of a Stock Brokerage firm 17 years on Wall St Managed High Net worth clients primarily . Now just trading for myself my comments are not advice , it is just my opinions”.

Read his description again. He reveals who he really was. He just managed wealthy clients. So all he did he was just a seller of lukewarm water. But being an owner or manger of a brokerage firm will not make you a good trader. And his rage confirms it.

Here is how he reacted to my trading results which you can see in My Trades & Income section of this blog.

Yes, all the trades on that page in the table are winners, all show green and positive outcome. And that caused our so called “former broker” going on a rage that I was a fraud and liar. Here is his raging:

Nickvee Raging
Click to enlarge and enjoy a furious reading.

Honestly, I have never seen such anger, rage, and hysteria so far and it was surprising to me.

What this person evidently failed to understand is that what you see in my results table is the result of my trade management. My goal with every trade is to manage every losing trade into a winner. This person was boasting about his trading, being a CEO, and predicting skills, but he was also revealing that he wasn’t a good, consistent trader at all.

Does it mean that since I had 100% winners shown in that table that I have always picked winners?

Far from true!

Many of the trades actually turned into losers right after I opened them! Many of those trades gave me a hard time and headache.

But as I said at the beginning of this post, it is not important to know what your stock will do, but what you will do when the stock goes against you. I no longer have to spend hours creating predictions, beautiful charts, constructing reasons, or forecasting next move, to trade successfully.

Successful traders know this. Losers spend hours convincing themselves about the next stock or market move.

When I was learning trading options, my mentor, a successful trader, taught me that it was important to make money even when you had a losing trade and everybody around you was losing money and panicking.

So how do you turn a loser into a winner?

I would like to share with you a history of one of my trades which went bust the next day and that there are strategies how you can play with your position to turn it into a winner. I used Seagate Technology (STX) as my underlying and it all started as a simple put selling trade. Was I predicting the next move of the stock? Absolutely not! It would have been worthless anyway as the stock later moved the way no one would had predicted unless you knew before hand what the company would report.


 · Initial trade – sell naked put


In April I sold a naked put with 33 strike. It looks all good and great. The stock was at the support and about to kick up again. Look at the chart at the time of opening the trade:

STX 01

However, the next day the stock plummeted to 27.11 a share. Ouch. What a blow.

STX 02

What do you do when something like that happens to you?


 · Trade repair #1 – collecting more premiums by selling naked calls


First of all, stay calm. This is not the end of the world. Unless the company is going out of the business, which STX didn’t, there is no need to panic. When your position plummets, you want to start collecting more premiums to offset your paper loss so you can get out eventually with a smaller loss.

But you can do this only if you have enough cash in your account so you do not get hit by a margin call when rolling more trades. So your next steps must take into account your size, risk level where you feel comfortable.

I immediately sold a naked call with 30 strike.

People, brokers, investors, and even some brokers will tell you that naked calls are extremely dangerous and risky. Don’t believe them. The have no clue what they are talking about. A naked call is dangerous only to an amateur trader or broker who is just selling some product to his clients and have no clue how they can be played safely. It is the same as claiming that the guns are extremely dangerous. Yes they are. They are dangerous in hands of idiots. Same goes with naked calls.

Why: This allowed me to collect more premium in case the stock stayed lower for longer time. I was now playing a downside of the stock.


 · Trade repair #2 – roll busted puts


At the same time when I was selling my naked calls I rolled my exiting 33 strike put down to 32 strike. It was simple. I bought back my old 33 strike put and sold a new 32 strike with longer expiration day. And it doing so, I collected another nice premium (it was another 0.80 cents or $80 dollars on top of the premium I collected on my original trade).

Why: By rolling I was lowering my strike so now the stock doesn’t have to recover all the way up to 33 a share but only to 32 a share. Today, as of this writing, we are almost there. We almost recovered. But if we do not recover, I am prepared to roll again when times come. I have a plenty of time and I can wait. The new trade has expiration in December 2016 and if we do not recover by December I will roll down and away in time again. I may roll down to 31 or even 30 strike. We will see.

The next benefit of this move was that I collected another premium to offset any potential losses. But there will not be any losses at the end.

You may ask why I was rolling into December blocking my margin for so long. Well when the stock plummets like this you want to avoid early assignment. Moving your trade 250 days away will do the job as no one sane would early assign such long trade unless they know something such as company going to bankruptcy for example.


 · Trade repair #3 – protect your naked calls


Unfortunately, the stock started recovering from the fall. It went up from $25.59 a share all the way up to $27.34. This started to be dangerous to my naked call with 30 strike. So, I was thinking what are my options. I could let it run and roll the calls higher and away in time, or buy 100 shares covering my calls and making it a covered call trade.

I decided to buy 100 shares at 27.29 a share.

Why: At the time it seemed as a good move. The stock was recovering very fast and if it managed to expire in the money I would collect a very nice profit on the stock and on the calls.

Yet the market had different plans.


 · Trade repair #4 – collect more premiums


As the stock was recovering I sold another naked put at 26 strike to collect even more premium.

Why: I wanted to reach a position when you can play this trade with house money if it went even worse. But it went great, the stock was recovering and I had all my trades covered.

But then an earnings report came out and the stock plummeted again. This time from $27.40 down to $20 and a few days later to $18.42. That wasn’t great. But again I wasn’t panicking or freaking out. I take these trades as another opportunity although it blocks your money and slows down your future earnings. But I take this game that I want to be a consistent winner and not a racer. If it happens and I have to wait for my money 200 days instead of 19 days I am fine with it. It happens.

STX 03


 · Trade repair #5 – grab profits, short more, and collect more premiums


As the stock plummeted more, I could close my 30 strike calls for 50% credit and immediately sold new calls at 28 strike. These new calls expired the very next day for a full profit.

Since the new calls expired the very next day (I was in this trade for only 1 day, 469.29% annualized return), on Monday I could sell a new covered call at 23 strike. At the very same time I rolled my 26 strike put down to 24 strike and collect more premiums.

When the stock reached $18.40 a share and started reversing I sold a new naked put with 18 strike. The $18.42 seemed to be the bottom and the stock continued marching higher again.

This allowed me to close my 18 strike puts for 50% credit profit and open a new naked put trade with 19 strike to collect more premiums. I could close 19 strike puts later for 50% credit.

As of now I collected $1,763.00 dollars in premiums and had the following open trades:

– (1) short naked put 32 strike (the rollover of the original 33 strike put) and still ITM
– (1) short naked put 24 strike (the rollover of the original 26 strike put) and still ITM
– (100) shares of STX at $27.29 a share and still in a loss
– (1) covered call at 23 strike


 · Trade repair #6 – manage your calls when under water


When you get assigned to a stock and you start selling covered calls against it when your stock is deep under, like in my trade when I bought shares at $27.29 and stock was trading at 20 or 21, you will not be able to sell a call at 28 strike for example to get out of your shares with profit. So you have to sell closer to the money (as I did and sold 23 strike).

But doing so, you are taking a risk that if you get your calls assigned you will be selling your stock at 23 a share while you have bought it at $27.29 a share. That would be a huge loss which you do not want.

When you are in a such situation you have to manage actively your calls to avoid it. It may happen if you get assigned early (that’s why you want to be selling longer term calls so assignment is unlikely), and it would be unfortunate if it happened, but that’s the part of the game.

So when the stock started approaching my 23 strike and it even exceeded it in some days, I rolled my 23 strike calls higher to 25 strike. This got me higher to my original stock purchase price and I was ready to do it again as long as I got the strike price above $27, ideally to 28 strike at which level I would let my stock be called away.


 · Trade repair #7 – rolling and new trades to improve the trade


Mr. Market had a different opinion and didn’t want to give in so easy. These days the company issued a preliminary earnings results which exceeded Wall Street’s expectations. The stock jumped 13% overnight and finished almost 20% by the end of the next trading session. It had a few positives and one negative.

My 24 strike naked put was no longer in the money.

But my 25 strike covered call was in the money and at the level I didn’t want assignment.

I took a look at the option chain to again evaluate my options to fix this. Obviously I didn’t have to do anything with my puts, but I needed to do something with my calls. I didn’t want assignment at 25 a share while I bought the stock at $27.29 a share although I collected more than $2,000 dollars in premiums so I could afford taking a loss on the stock. But why taking a loss when you do not have to.


 · Trade repair #8 – converting calls into puts and selling more calls


In situation like this when you get your calls ITM it is sometimes helpful to convert them into puts than keep rolling them higher. I reviewed what could have been done and I saw I could convert my 25 strike ITM calls into 32 strike puts and I moved them far away in time to collect better premiums and also get more time. I simply didn’t want to deal with those puts now, so I literally put them aside for later time to either roll them lower or let them expire if the stock moves higher by expiration.

Once I converted my calls into put I immediately sold already ITM 28 strike calls. These calls were above my stock purchase price of 27.29 a share so I could let them get assigned and close my trade for a profit.

My calls were assigned this weekend and I could sell my 100 shares for profit as well as profit on the covered calls.

During this time I managed my trades to finish as winners. Overtime I collected $2,615 dollars in premiums and I also collected $63 in dividends while waiting for assignment.

I ended up with the following positions:

– (1) short naked put 32 strike (the rollover of the original 33 strike put) and still ITM
– (1) short naked put 24 strike (the rollover of the original 26 strike put) now OTM and possibly set to expire worthless or be bought back for 50% credit profit
– (1) short naked put 32 strike (the conversion of the original 25 strike call) and ITM

So there are still trades which need my attention but I am confident that before they end I will be able to manage them into a winning trade. Lately, I also opened more new trades against STX and collected even more premiums and no matter what happens with the stock, I will manage it into a winning trade.

As you can see, I do not have to predict what the stock or the market will do. I do not have to be creating comic books of nice technical analysis charts and forecast the next move and misleading myself by false expectations and predictions which may not happen.

All I do is a simplistic method of determining a trend and then trading that trend. And if the trend changes use all tools available to respond to a new situation. It is a beauty of options that you have that flexibility that you can be rolling or reversing your trades to make it work. It is all about knowing what you would do instead of knowing what your stock or market would do.

And yes, there will be people out there who would be calling you names and spit their envy and anger on you when you tell them that what they do is futile and that you can do better without it like that whiny poor trader I showed you above.

Of course, you may doubt all I wrote above about the trade and my steps to fix it. But all my trades are posted live in our trading Facebook group and joining the group is free. You can follow my trades in the group and see for yourself that it really is possible to be a consistently winning trader. There are other traders too, posting their trades and you can follow them too.

“Truth is like poetry.
…and most people hate poetry.”
unknown author, somewhere in a Washington D.C. bar

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Interest Rate Hike Still Not Expected Any Time Soon

Last week’s jobs report for June was unexpectedly high, leading to record highs for some stocks. While the economic indicator is important in measuring, investors should not bank on it being the sole reason to invest as a bear or bull, for that matter.

There are particular sectors that could make for solid investments, including retail, health care and food services. These sectors have added jobs on a month-over-month, and year-over-year basis, which bodes well for them being considered as long-terms investment plays.

However, in the short-term, investors should be pragmatic in making their investment decisions.

 · Consumer confidence

Many investors took solace in the report as being an indicator that the economy is thriving and expanding. Furthermore, some market observers think it would be foolish to not see the strong jobs report as a reason to invest.

Erik Davidson, chief investment officer at Wells Fargo Private Bank, believes this is a golden age to be a consumer in the U.S., and he notes the jobs report as showing solid jobs growth. The relatively strong dollar and low interest rates that make borrowing cheap, as reasons investors should consider investing in the consumer discretionary and technology sectors.

 · Making lemonade of lemons

Friday’s stock market rally was expected, and many investors hailed it as being a reason the Federal Reserve Board would increase interest rates this year.

When it is raised, the general effect is a lessening of the amount of money in circulation, which works to keep inflation low. It also makes borrowing money more expensive, which affects how consumers and businesses spend their money; this increases expenses for companies, lowering earnings somewhat for those with debt to pay. Finally, it tends to make the stock market a slightly less attractive place to investment.

This put back at the forefront the main headwind investors must keep in mind about the stock market – when and if the Federal Reserve will raise interest rates.

 · No foreseeable interest rate hike

As investors search for reasons to invest in the stock market, the low interest rate environment continues to give many pause and angst.

The importance of strong job growth is part of the Federal Reserve’s analysis process in determining if they should raise interest rates from their historic lows.

Investors had been exuberant prior to the release of the May jobs report over the real possibility of the Federal Reserve raising interest rates last month. Those hopes were dashed when those May numbers came in surprisingly, and terribly low at under 40,000. When Federal Reserve chair Janet spoke to members of Congress in June, she noted those weak numbers as reasons as to why the fed would continue to watch job growth numbers before raising rates.

Investors should be clear in understanding that the better-than-expected numbers posted in June will not likely be the catalyst for the reserve board to raise rates in the foreseeable future. What is needed are increasing month-over-month job growth numbers, or at least steady numbers.

This type of thought is further bolstered by the thought that the Federal Reserve isn’t going to raise rates in the immediate future, such as July, when the board meets again.

Investors are searching for reasons to believe that the economy is on path for continuing improvement. The jobs report provided some solace; we’ll get a better idea of how the Fed may move in regards to the interest rate through the second half of the year.

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