Finance, Food, Fun & Other Stuff: July 2012

Monday, July 23, 2012

Results for the week of July 20, 2012

Hi guys!

We are through the earnings season for the most part and doing well. The trade we put on was a success and the paper trade and the covered calls we put out all were successful. All in all a good week.

Eldest daughter is halfway through basic training and appears to be doing ok. Is anybody headed to San Antone? – It looks like me to paraphrase the old Charlie Rich song. This is an interesting time for me. This is the longest I have gone without talking to her or seeing her or texting or emailing or something.

Boy is almost done with driver training. One week to go, then the BIG test! He is doing much better on the road, but turning through intersections is still a little hairy!

Youngest daughter is gearing up for swimming lessons and another go round of camp. One of her friends is on a swim team and YD wants that as well. So I bet she will work really hard in lessons this week.

I am through 3 weeks of the MAX10 program and things are going very well. I haven’t lost much weight, but there is a definite reshaping of my body. I had some XXL shirts that are now looking big on me. The physical part is doing ok, I need to work more in the nutrition part.

Now we move to the options part of the blog:

ANALYSIS

Google Chart for last week

Here is the trade we put on last week:

GOOG 530 Put $1.82

GOOG 520 Put ($1.15) This gave a $0.67 Credit for a 6.70% ROI

Now let us delve into why this trade was made:

1. The overall market trend was up until Friday when there was a big sell off. This led to the inclination to do a Put Spread.

2. This was an earnings reporting week. All of the equities or indexes that I use to trade in were going to be impacted by the announcements each day. So the kicker was to find something on our trading list that would not be affected as much nor had the distance from the strike to be successful.

3. Of all the choices – RUT, SPX, NDX on the indexes and GOOG, PCLN, AMZN, APPL on the equities only GOOG gave a good return and looked safe. The GOOG chart shows a brown vertical line indicating when I made the trade and the two white lines showing the boundaries of our spread.

4. As you can see we had a large measure of safety built in with the Std Deviation. Std Dev = 2.1 at time of trade and got metter as the week went along.

5. We achieved a ROI of 6.7%, much better than the 3.5% floor with this trade.

6. GOOG kept getting better as the week went along largely helped by other tech stocks that were reporting this week. When Intel (INTC) reported better EPS despite lower revenue (In the business this in known as a bad top line but good bottomline). The interesting thing for INTC is that after reporting there was a bump, but then the stock took back that gain to only end up fractionally for the week starting @ $25.23 and ending at $25.57 but reaching a high of $26.42 just after earnings were announced.

7. There were hints for a week before the earnings announcement that GOOG would be coming in very well. Leaks came out about future acquisitions and joint venture opportunities. So when GOOG cam out and beat the street estimates the stick just kept going higher.

PAPER TRADE

Sold: VVUS 34 Call $0.63

Bought: VVUS 36 Call ($.32) 15.5% ROI is successful

This was the paper trade for the week. We were trying to see if we could profit on the upcoming FDA approval notice for the Qnexa weight loss drug by Vivus.

Our paper trade last week was a very speculative one. Vivus Inc. (VVUS) is a pharmaceutical company that was waiting to hear on FDA approval for a weight loss drug it has been working on for years. In fact in 2010 this same drug was not approved, which sent a shock through the pharma community as just about everybody thought the approval was a foregone conclusion. The stock tanked in 2010 and only rebounded when institutional investors that missed Arena (ARNA) and its big jump took to buying VVUS. Well, the drug was approved this time, but this news was already pretty much baked into the price so the price dropped a little on the news. This made our paper trade a big success.

COVERED CALLS

Here are the covered call trades put on last week:

Symbol Company Stock Option Option Initial Annualized

Ask Bid Outlay Return

VVUS Vivus 27.11 July 34 .35 2,676.00 14.2%

MCD McDonalds 92.40 July 92.5 .66 9,174.00 7.85%

We were successful on both of these trades as:

Ending price Friday for VVUS = $24.15

Ending price Friday for MCD = $91.58

So now we need to put on more covered calls for these stocks. VVUS is the easy one. VVUS does not have weekly options. Sunday afternoon as I am writing this there are two August options that look good. The Aug 28 and the Aug 29 call both look good. I have a preference for the Aug 29 call, but wither one will fit the bill.

The Aug 28 call will give a one month ROI of 2.76% or an annualized yield of 33.15%. If successful the Aug 28 call will give a 2 month return in our VVUs position of 4.06%. The premium for the Aug 28 call is $75 per contract.

The Aug 29 call will give a one month ROI of 2.10% or an annualized yield of 25.23% If successful the Aug 29 call will give us a 2 month return in our VVUS position of 3.39%. The premium for the Aug 29 call is $57 per contract.

MCD is a little more complicated since MCD does have weekly options. My preference is to go for the weekly option. That way I can have 4 expirys and I can control the option strike price 4-5 times a month. Either way is ok, it is just a matter of personal preference.

The MCD Weekly July 27 95 Call is giving $23 dollars in premium. This would give a .2% weekly premium. This would go to .8% for a month and 9.6% annualized.

The MCD Aug 95 Call is giving $49 in premium. This would give a monthly ROI of .5% annualized this gives 6.42%

As you can see with both VVUS and MCD we set the strike price just above what we paid for the stock. So if we get called, we will make money on the option premium as well as price appreciation of the stock. Ya gotta like multiple streams of income from one trade.

Other Stuff

I am working on more questions that have come in during the last few weeks. I will put these up toward the middle of the week.

Keep those questions coming. I love to see them and get the info out to you guys.

The next couple of weeks will be very turbulent IMHO. The signs are here for a big short term pull back in the markets so be very cautious and tread lightly. Europe has several countries with debt auctions and if they don’t go well that could ripple over to us. Also McDonald’s, Caterpillar, Apple and UPS are the biggies that report this week. If any of these companies give bad reports that could send a short term shock to the markets.

See you in the middle of the week!

Happy Trading!

DISCLAIMER: Hashley Capital Management, LLC; as well as I are not giving any trading advice. All data is historical in nature and is intended for use as an educational tool. Trading in options is risky and can result in loss of capital. There is no attempt to sell any brokerage services or act as a broker or dealer by Hashley Capital Management, LLC. Any forward looking comments on this blog are not attempts to solicit business for Hashley Capital Management, LLC and are the opinion of Hashley Capital Management only. If you choose to follow the same path and invest in the strategies and trades used by Hashley Capital Management, LLC after doing your own due diligence, that is your decision and yours alone.

Reach me @:

Email: hashleycm@yahoo.com

Twitter: @awagel01

Stocktwits: awagel01

Or leave a comment on the blog

TTFN

Ash

Sunday, July 15, 2012

Results for week ending July 13, 2012

Good Day Traders!

Well we have started off the second half of the year with a two week winning streak. The market as a whole was down for the week and it showed in the premiums that were out there.

Later in the blog I am going to premiere a new item that was spawned from you the readers. I received a literal ton of requests for this so I am obliging.

The paper trade this week is a very speculative trade that has a possibility or going either way meaning that it could be worth lots or there could be a bloodbath.

Eldest daughter is through three weeks in basic training. She is almost halfway through. I am starting to make plans to get to San Antonio for her graduation. What I thought was going to be a pretty easy trip is getting more complicated be the day. Getting all the info for the background check from different relatives and finding points where we can join up to travel together are interesting challenges. Boy is doing well in his driving for Driver’s Ed, gaining confidence behind the wheel and getting much needed experience. And youngest daughter is enjoying her summer with friends and chasing butterflies – literally!!

I have started a 10 week fitness program called MAX10. If you have done P90X is it similar, but in a group setting. I have done P90X and I really liked it, but I was alone in the basement sweating my tail off. The gym I go to had a Living Social coupon for ½ off the MAX10 class so I took the coupon and signed up. So now I am sweating my tail off with 30 other people in the gym. I can tell in the 2 weeks just completed my fitness level has improved. I do have to do some modifications due to some arthritis, but I do as much as possible and have really seen some results. For those of you like my in the mid-40s and wanting to get back into shape programs like MAX10 or P90X or any of these new cardio/weight training mix classes with limited breaks really work, but it does take a commitment.

OK let us get on with the analysis:

ANALYSIS

Here is the trade put on this past week:

Sold: PCLN 660 Call $0.89

Bought: PCLN 670 Call ($0.40) This gave a Net Credit of $0.49 or 4.90% ROI

Let us look at this trade through the lens of the system:

1. Find the direction of the market. The market overall was flat to just slightly negative depending upon which measure you used. The SPX was down until Friday when a BIG push up sent the index to just barely into positive territory. The RUT was negative for the week, but again just barely. The DJX (the Dow Jones 30 divided by 100 index) was just barely up at the end of the week after a BIG push on Friday. For our purposes I treated the market as negative since that was the way it was until the huge push Friday.

2. If the market direction is upward, use a put credit spread, if the market direction is downward use a call credit spread. Since we the market as downward we used a call credit spread.

3. Make sure there is no standard news event that will be coming out during the week that could affect your trade. There was nothing on this horizon, but the beginning of earning season for the second quarter started this week, which can lead to some volatility.

4. Choose among the following indexes - RUT, NDX, and SPX; use these equities – GOOG, PCLN, AMZN, and APPL. This week after going through the list the PCLN options were the way to go.

5. Find a spread of at least 1.5 Standard Deviations away from the strike price with at least a 3.5% weekly ROI. The trade we found after looking at all the indexes and equities we regularly use the PCLN was the one that fit the best. PCLN was 1.75 Std Dev away and had an ROI of 4.9%

6. Use your online broker’s probability calculator to get at least an 85% probability of success on your trade. This trade had an 88.3% probability Thursday morning when we put on the trade. This higher level of probable success is one of those places where we put some safety margin in for the jobs report impact.

7. If possible use the indexes of RUT or NDX where the settlement is Friday morning instead of the others that settle at Friday Close. In this case we could not use the RUT or NDX as the ROI was not there on these this week.

8. If your trade drops so that you are losing ½ of the money you expected to gain on the trade, then it is time to sell. This was not an issue this week.

9. If the market drops to within 1 strike price of your spread and stays there for more than 5 minutes it is time to sell. This was not in play either.

10. Monitor your trades, but don’t obsess on them. This was much easier this week as we had a large cushion Friday going into trading.

PAPER TRADE

This paper trade as I said is a more speculative trade, but the option premium was just so outrageous that I thought it would be interesting to see how it would play out.

Sold: VVUS 34 Call $0.63

Bought: VVUS 36 Call ($0.32) This gives a $0.31 Net Credit for a 15.5% ROI

Background:

VVUS = Vivus Inc., a pharmaceutical company that is currently banking on a weight loss drug – Qnexa – which will get final FDA approval (or not) on July 17^th. The general consensus is that the drug will be approved, but it is far from a sure thing. VVUS got a HUGE bump back in late February after its rival Arena Pharmaceuticals had a weight loss drug approved by FDA and Arena was largely ignored by the market. Arena soared and put egg on the face of most of the Pharma analysts. Probably as a CYA move a lot of money moved into VVUS more than doubling the share price. VVUS has slowly climbed higher with the approach of the FDA ruling this week.

Why I made this trade:

1. The premium is just outrageous

2. Although the FDA is expected to approve Qnexa, there will likely be some restrictions on it. Depending on whom you read these restrictions could be minor – such as a label warning, to major – Qnexa not allowed to be marketed to certain groups of people, like pregnant women and people with young children in the house. The general point is Qnexa will most likely not be available to all obese people. Arena’s drug is available to much more of the populace. This doesn’t bode well for VVUS.

3. The stock will have to move 26% in three days for me to get hurt on this trade.

4. I went the call side because the consensus of analysts on VVUS is that if the drug is approved there won’t be a large price move, but if the drug is not approved there will be a huge downside move.

Why I am leery of this trade:

1. This trade uses traditional monthly options. VVUS doesn’t have a weekly market in options

2. The option premium is keeping up with time decay, and sometimes premium is being added. In technical talk negative Theta on a call option is not the norm. The overall consensus is that Qnexa will be approved as I said above, but it is far from a foregone conclusion.

3. There is a BIG news event coming out before the option expiration. The FDA decision will make or break this trade

Currently I am negative in this trade. The option premium has been keeping par with time decay, and this makes it hard to make money the way I am used to making it. The success of this trade depends on me believing the analysts in that if the drug is approved there will not be a large upward move in the share price. I am not at one of my loss sell triggers, but I am monitoring the trade.

BIG NEWS!!!!!

Ok – due to OVERWHELMING DEMAND I am going to add a new segment here. I am going to add some stocks where you can use a covered call and/or cash secured put strategy. I will primarily focus on covered calls, but from time to time give up some cash secured put ideas.

Now some important things to keep in mind with this:

1. A covered call strategy is NOT a short term income producing strategy.

2. Covered call selling is a long term strategy. That is my opinion. There are websites out there that will tell you that you can make big bucks using a covered call strategy. They use stocks that are more speculative than I like to get.

3. I will put stocks out here that you can hold for a long time – several months to years. Part of the strategy is to also capture dividend returns to compliment the option premium.

4. Some will have weekly options, some won’t.

5. The capital requirements will be higher for this strategy than my normal credit spread strategy. To use a covered call strategy, you must own 100 shares of stock for every call option contract you want to sell

6. The return will be lower using this strategy than the normal strategy I use.

OK – here are the current covered call picks:

Symbol Company Stock Option Option Initial Annualized

Ask Bid Outlay Return

VVUS Vivus 27.11 July 34 .35 2,676.00 14.2%

MCD McDonalds 92.40 July 92.5 .66 9,174.00 7.85%

Notice that to do these two ideas you would need $11,850 for two options contracts. For this outlay a total of $101 is yours. This would give a .85% ROI over the next week, and this comes to a 9.37% annualized blended ROI. VVUS is more speculative while MCD is a stock that I have owned for years in my child’s UGMA account. Neither of these have weekly options at this time.

VVUS Chart

MCD Chart

Reach me @:

Email: hashleycm@yahoo.com

Twitter: @awagel01

Stocktwits: awagel01

Or leave a comment on the blog

TTFN

Ash

Tuesday, July 10, 2012

Answering Your Questions Part 1

Hey all!

This is a mid-week post because I have been literally flooded with questions. Many of them were similar and I have grouped them accordingly.

Thanks for all the questions and queries. I like to see that you guys are active in your learning if investments and trading.

Ok – on to the questions:

1. I have a hard time pulling the trigger on trades. I always have this feeling in the pit of my stomach that I am doing something wrong.

Fear is a hard thing to overcome, but it is a must if you are to be an effective trader. Here is a quote that I like that helps when I get that feeling:

"It is not failure itself that holds you back; it is the fear of failure that paralyzes you." - Brian Tracy

So our challenge is to stand up to that challenge. I you go through the analysis step by step and use the indices or stocks that are part of the system, then you have done all you can do. Take comfort in that and place the trade you found. Make that bold step. Then use the last step – Monitor, but don’t obsess. The more you are successful with the trades, the more that fear will ebb away. It never fully disappears – I always have a little nip in the tummy when I place a trade. But the utter euphoria I get when a trade is successful is an even better feeling. Get a few successful trades under your belt and you will crave this feeling of success.

2. I follow the system, but sometimes my trades start to go against me. I have a hard time deciding when to get out of a trade. I have an overall good winning percentage, but am breaking even for the year so far trading. How do I avoid the few REALLY big losses?

This is one of the biggest challenges in all of trading – figuring out when to pull out of a trade. Part of this the system takes care of for you. By trading in weekly options we know the expiration date will be on Friday always (Yes even for NDX & RUT. They stop trading on Thursday at end of trading but the settlement price is determined at the opening Friday).

This past week I put in some more rules into the system to further help with the issue of getting out of trades that are not successful. Here are those new rules:

A. If your trade drops so that you are losing ½ of the money you expected to gain on the trade, then it is time to sell.

B. If the market drops to within 1 strike price of your spread and stays there for more than 5 minutes it is time to sell.

I actually got this from a webinar I attended a few weeks ago. I liked it because I got caught in a loss situation because I too have a hard time getting out of trades. After all I have put a lot of work in the research and analysis and I am a smart person so I couldn’t have made a mistake right? Well, we all make mistakes, and sometimes we can do all the analysis in the world and the market will still come up with a way to thwart you. My last losing trade came a couple of weeks ago when both the Spanish Finance Minister announced that Spain would need 2x the money he said Spain would need only a week earlier, then Moody’s downgraded a bunch of Banks. If either one of those situations had occurred 24 hours later I would have been golden. The Spanish thing was particularly maddening since only a week earlier the Minister gave assurance after assurance that the numbers were good and that he was fully confident that Spain would be ok with a small infusion of cash.

Now I haven’t had to actually employ these new rules yet, but last Friday I came close. But if I do have to use them I will let it out here on the blog and I bet I will avoid a huge loss when I do employ the new rules.

3. You don’t talk of other strategies like covered calls, or cash protected puts, or strangles or straddles or many others. Why is that?

Simply put I don’t talk about them because I don’t use many of them. I don’t have many stock positions.

There are TONS of ways to trade in the options and/or stock market. I use one particular method – credit spreads. That doesn’t mean that the other methods are not good, on the contrary people around the world are making lots of money using many other strategies. I just don’t know those strategies so I don’t talk of them.

The one strategy you mentioned that I do use is the covered call/cash protected put. I do use this on occasion, but haven’t talked about it on the blog. I am considering changing this because the most asked question of all this go around was a variant of “How do I use a covered call/cash protected put strategy? (I put them together because they are really the same strategy just on opposite sides of the option chain.) I help manage part of my relatives assets. As part of this I do use a covered call/ cash protected put strategy. It is good is you have stocks that you already own (covered call) or wouldn’t mind owning (cash protected put) and don’t mind holding these for a long time.

I use the system I do because I put in many hours trying to find a way where I could make a sustainable living wage on a reliable basis.

Well, that is all for now. There are more but I will parse them out so you don’t have a “War and Peace” size document.

Keep the comments and questions coming; I will put more up later in the week.

Thanks for your interest!

L8r,

Ash

Reach me @:

Email: hashleycm@yahoo.com

Twitter: @awagel01

Stocktwits: awagel01

Or leave a comment on the blog

Sunday, July 8, 2012

Results for week ending 07 06 2012

Hey all you options traders out there!

Another successful trade is in the books. At the end of the first half of the year we had 2 losing weeks out of 26 weeks for a 92.8% winning percentage. I’ll take that percentage any day of the week.

Also our paper trade was successful for a three week run on this new idea!!

Now both trades were some cause for nervousness. Friday when the market took a swoon I was a little nervous, but I trusted my system and I walked away with another winning week.

Eldest daughter is through two weeks in basic training and doing well I hope (this is a case where no news is good news!!). Boy is doing well in his driving for Driver’s Ed, and youngest daughter is now back from camp and enjoying her summer in her friend’s pool.

We had my fiancée’s parents here over the 4^th of July holiday. Some fireworks and many cookouts and crafts later we all had a great time. They are now on their way to other relatives. A nice visit that had some interesting items that can apply to us here as traders, more on that in a little bit down the page.

OK let us get on with the analysis:

ANALYSIS

Here is the trade put on this past week:

SPX 1345 Put $1.30

SPX 1345 Put ($0.78) This gave a Net Credit of $0.52 or 5.20% ROI

Let us look at this trade through the lens of the system:

1. Find the direction of the market. Through all the week up till Friday the general direction of the market was upward. Slightly upward but upward nonetheless. This slight upward trend made us look to the put side for our trade. Look at the graph. The price stayed above the 50 Day SMA until Friday and the 20 Day SMA was broken only briefly Thursday, but rose right back up until the drop Friday.

2. If the market direction is upward, use a put credit spread, if the market direction is downward use a call credit spread. We determined the direction as slightly upward in step #1 so we will go with the put credit spread.

3. Make sure there is no standard news event that will be coming out during the week that could affect your trade. In this case there was a piece of news that was due out at the end of the week. The June monthly jobs report. This report always comes out a week after the close of the month. Friday, July 6 was the date for the June report; this was also our expiration day. We had to take it into account as we made our trade. We will discuss this below.

4. Choose among the following indexes - RUT, NDX, and SPX; use these equities – GOOG, PCLN, AMZN, and APPL. After looking for the best return in the above, the SPX was the one this week that gave the best return. Well above our floor of 3.5%

5. Find a spread of at least 1.5 Standard Deviations away from the strike price with at least a 3.5% weekly ROI. The trade we found after looking at all the indexes and equities we regularly use the SPX was the one that fit the best. SPX was 2.5 Std Dev away and had an ROI of 5.2%

6. Use your online broker’s probability calculator to get at least an 85% probability of success on your trade. This trade had a 91.03% probability Wednesday afternoon when we put on the trade. This higher level of probable success is one of those places where we put some safety margin in for the jobs report impact.

8. If your trade drops so that you are losing ½ of the money you expected to gain on the trade, then it is time to sell. We never got to that point, but it was close.

9. If the market drops to within 1 strike price of your spread and stays there for more than 5 minutes it is time to sell. We came close here, and briefly did breach the 1 strike but never did it for more than the 5 minutes.

10. Monitor your trades, but don’t obsess on them. This was hard to do Friday. The market dropped significantly. The drop kept pushing some sell triggers I had set up. I set up warnings at 2 strikes away from the spread. This was another “safety margin” thing I had set up this week. The triggers would get pushed then reset, then pushed then reset. This pattern happened throughout the afternoon and didn’t let up until the last hour of trading. Then we were out of danger. So I spent Friday from noon until 3:00PM keeping an eye on the price of SPX. How to monitor these close calls and look to set up potential trades will be a topic covered in a soon to be released blog.

PAPER TRADE

Here is the paper trade we did last Thursday when the latest batch of weekly options came out:

RUT 800 Call $7.45

RUT 810 Call ($4.95) This was to give a Net Credit of $2.50 or 25.0% ROI

On Monday afternoon we bought this back for a Net Debit of $1.25 as the trend we thought would develop didn’t. We still made money, here is the breakdown:

$2.50 – Credit received at inception of trade

($1.25) – Debit we paid to buy spread back

$1.25 - Net Credit left at end of transaction

We still made money, though not as much as we had hoped. But I will take a 12.5% ROI any day of the week! If this had been a real trade we would have freed up capital to go into another trade or we could have rolled this trade into a put credit spread. Since this was a paper trade I wanted to keep the process “pure” so I didn’t roll this into another trade.

Big takeaway from the paper trade is that we followed the system – especially where the selling is concerned. This allowed us to still keep some of the money we had gained on the trade. We used the trigger of when the price came within 1 strike we consider selling. We did sell and were able to make a good profit on this trade.

Remember Rules #1 - WE WANT TO KEEP THE MONEY WE MAKE INVESTING!

I have received some questions over the past week and am working on the answers. I will post them sometime this week. Keep a look out on Stocktwits and Facebook for when I post up the next blog.

Reach me @:

Email: hashleycm@yahoo.com

Twitter: @awagel01

Stocktwits: awagel01

Or leave a comment on the blog

TTFN

Ash