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

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

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

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

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

Check the options chain:

GameStop premiums

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

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

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

Trade detail

STO 1 GME MAY4 14 36.5 put @ 1.09

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

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

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

 

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

 
 

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

Happy Trading!
 
 




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Is the US heading to another recession?

Is the US heading to another recession?

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

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

Take a look at SPY 5 year chart:

SPY 5 year trend

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

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




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

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

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

They want all Americans to pay more.

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

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

That’s their policy behind it.

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

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

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

 

 

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

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

Inflation, Zero Hedge

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

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




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New Trade: SELL NOV14 PUTS on GLW

New Trade: SELL NOV14 PUTS on GLW

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

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

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

Trade Detail

STO 1 GLW NOV14 21 put @ 1.40

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

 

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

 
 

 
 
 
 

 
 

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

Happy Trading!
 




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“Timing the market” with dividend stocks


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

Passive approach

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

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

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

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

Timing the stock

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

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

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

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

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

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

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

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

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

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

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

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

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

Which approach do you personally favor?

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

 
 




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Last week trading wasn’t as bad as it looked


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

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

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

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

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

Personal Capital

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

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

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

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

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

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

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

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

I wish you good luck next week and happy trading!
 




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Disaster continued, but navigated my account well thru the storm


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

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

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

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

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

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

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

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

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

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

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

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

Here are the trades I decided to close:

Realty Income (O) put selling trade

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

Coca Cola (KO) put selling trade

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

AT&T (T) put selling trade

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

Teva Pharmaceutical Industries (TEVA) put selling trade

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

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

Happy trading!
 
 




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Posted by Martin May 06, 2014
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Today it was a massacre in my account

Today it was a massacre in my account

Wow, today’s broad sell off was a blood bath in my account. Everything was losing – dividend stocks as well as options trades. My account lost a whopping 5% today. Mostly thanks to one stock – TASR.

Although I was able roll TASR down and collect premium by doing so, I am dangerously running low on reserves. It is because many of my options positions were gaining in IV (implied volatility) and that put higher requirements on margin maintenance.

Since all my positions are still safely OTM (yet), I can consider this blood bath a temporary drop of my portfolio value. If however this sell off continues at such magnitude I may be in trouble and will have to liquidate some positions.

The plan is to close all winning positions. I have four contracts deep OTM making 90% of gains, which can be closed for profit to raise cash. If that doesn’t help and I still will need more cash I will have to transfer cash reserves from savings account and if even that won’t help I will be forced to start closing some positions with a loss.

I hope this will not be the case.

Tomorrow, we will see if we get some relief.

Happy trading and good luck!

 




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April 2014 review

April 2014 review

Another month has ended and I must admit it was a successful month although it started miserably. At the end my account ended up by whooping 7.74% (adjusted for contributions).

Again, I had nice income made of dividends and collected options premiums. Once again, this month I focused primarily on increasing account value, meaning contributing enough cash so I had enough available funds for trading. I realized in the past, that trading options is a great tool for me and with enough cash in my account I will have a space for errors and my options trading will improve.

If you remember my strategy, I decided to invest into options (put selling strategy) to generate enough cash, which at the end of the year I take and invest into dividend paying stocks. Because I love dividends and I love the way they bring you money without working for it.

I trade options for adrenalin and satisfaction of my nature having some risk and excitement, but I consider my dividend stocks in all my portfolios as a core investment. It is something like an untouchable reserves, or base I will never touch. But because my accounts are still relatively small I needed a tool, which would help me growing it faster than dividends themselves. Options satisfy this demand. I generate enough cash which I can add to my regular contributions and buy dividend stocks. Stocks, I will never sell, unless they stop paying dividends.

In fact, I realized, that I might be able to retire a lot faster if investing into options. Currently my options trading delivered 19.73% in profits as of this writing. That is 59.53% annual return!

With 59.53% annual return, my account will double every 1.26 years, roughly in a year and two months. With my current balance of 17,000 dollars, I will be able to build enough cash for retirement in 4 years. My expectations of retiring in 5 years are far more realistic than ever before.

Of course, I am taking a higher risk, must be more active with my money (be trading) and I may lose money compared to a pure dividend investing style, which is more like a buy & hold strategy. Such trading is not for everybody and if you decide to take that journey, you must learn how to trade options and understand the risk associated with it. If you know the risk, you know how to mitigate it, you will win this game.

Attached is a chart of my account vs. S&P 500:

As I mentioned, April 2014 was a great month. Will May 2014 be the same? I do not know. So far May started off badly, even worse than April. It may change as April changed, but I am cautious and will be increasing cash.

Here are new results for April 2014 (TD account only):

 

January 2014 premiums: $156.10 (1.55%)
February 2014 premiums: $139.26 (1.38%)
March 2014 premiums: $746.62 (7.41%)
April 2014 premiums: $421.63 (4.19%)
   
January 2014 dividends: $25.87 (0.26%)
February 2014 dividends: $167.02 (1.66%)
March 2014 dividends: $68.77 (0.68%)
April 2014 dividends: $25.91 (0.26%)
   
Total 2014 income: $1,751.18 (17.51%)
2014 unrealized premiums: $1,523.00 (15.12%)
   
Account balance: $17,032.25 (38.87%)

What about you? How was your April 2014 and the entire year so far? Post a link to your website or write down your results to encourage other investors!

Have a great May in the markets!
 
 




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Posted by Martin May 02, 2014
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TASER (TASR) sell off put the stock to oversold territory

TASER (TASR) sell off put the stock to oversold territory

The maker of electronic control devices (ECD) Taser Int. (TASR) has been punished by investors these last two days. If you are invested in this company, should you be worried, dump your stocks and run away or is this a great opportunity to add more shares?

Taser existed as a company even when I was a kid and had no clue that such company even existed, but I knew a word “taser” or “to be tased” (not sure if I am spelling it the right way). The brand name itself became a word for action of self-defense (in 70s and 80s) using equipment different from guns. In countries with very strict anti-gun policies, Taser equipment (or guns) were the only allowed means of defense. The name Taser has evolved the same way as Google and “google it” is evolving today.

If you check Taser’s competitors, you won’t find many. You actually won’t find any competitor in Aerospace & defense industry which would directly compete with Taser. Some listed competitors are National Presto Industries (NPK), Smith & Wesson Holding Corporation (SWHC), and Sturm, Ruger & Company, Inc. (RGR). If you find any others, let me know. But look at what those listed competitors produce. All is guns or ammunition. No one is in the same branch as Taser. In areas where people and enforcement prefer non-gun equipment, Taser seems to be the only solution.

And here is the part, which baffles me the most – 1st quarter results. Taser reported quite up beating results with a strong outlook for the year and yet the stock tanked by 13% within last two days. What point am I missing here? Is a slight miss in EBIDTA this quarter a justification for such punishment? I am not convinced and think all this is just a craziness of Wall Street.

In short, Taser reported 0.06 EPS vs. estimated 0.04, revenue came in $36.2M vs. $34.03M and sales were up by 19%. Shouldn’t this be a reason for celebration and not a sell off? I listened to a earnings conference call and I couldn’t find any disturbing items justifying such sell off.

Warren Buffett always says that an investor should be fearful when others are greedy and greedy when others are fearful. Is this the case with Taser? I remember when Taser was trading at $9 a share. I actually opened a covered call against this stock that day. You can check my Taser trades in this archive. Then the stock plummeted to below $6 a share. I bought more shares and sold another covered call trade against this stock. I made 11.81 and 13.47% gain those days.

Is it time to repeat this move? Is Taser again providing with a buy opportunity? I believe so. I would however wait with opening a new position or adding more shares for this frenzy selling to end. It still may continue down and we do not want to lock our precious cash in a falling stock.

TASR

As you can see, selling gained a momentum and that may trigger more selling as stop loses get hit. So it would be wise to wait for a reversal. It may happen early next week, at its end or later. I am definitely ready for selling more puts against this stock should the reversal happen.

I also have a few existing contracts against this stock. To keep up with the market I rolled them down. I bought back my 4 old contracts and sold 10 more new contracts to offset the buyback. I sold with a lower strike, but same month. Time will show what would happen next, but I remain positive.

Happy trading!
 




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