Quiet Days
The market was down across all three indexes. I ended up doing little in the way of trading. I tried to sell over fifteen contracts but only sold six - bought back two contracts and sold four. I could have closed more but today was a bit of a wait and see day. The market is still very high and since Bitcoin topped $100,000 today it feels a little more speculative than I am comfortable with. Plus tomorrow morning at 8:30 the jobs number will come out - economic news like this could shake the market.
The Fed is expected to cut interest rates later this month. If the jobs number is strong it may decide to hold off. Reducing interest rates in a strong economy may lead to overheating. This is not considered a good thing as overheating can lead to more inflation, asset bubbles (Bitcoin?), labor shortages, and unsustainable growth. It usually ends in sharp market corrections and recessions. But not doing what the market is expecting, the Fed risks upsetting the market and that may lead to a market drop.
It is likely the number will be slightly off consensus, but given that last month’s figures were apparently impacted by the hurricanes in Florida and the Carolinas, this months could be off as well. So today it was all about wait and see.
I am cautious and will trade more tomorrow. I did not waste the day as I spent time looking for new companies to potentially invest in or trade options on. I listened to traders on CNBC and ready some articles and came up with the following list: JCI, FERG, NET, MAR,KMB,DAL, NTRA, EQIX, RCL, VISA, META, WMB and KMI. Tomorrow I will look at all of them more closely, checking for interest (how frequently they are getting mentioned), momentum (driven by interest), volume of trades and the premiums they command. I will let you know if any of them make my list of good investments or option trades. (3.3)
Option Accounting
The market hit record highs today. The strong showing of Salesforce (CRM) and Marvel (MRVL) helped push all the averages up and tech stocks in particular soared.
It was gratifying to get my MRVL bonus, the premium on the put I wrote yesterday dropped from $11.00 to $6.50, so I closed it at a profit of $4.50 per share. I also able to close 4 other tech puts in the first few minutes of the market open. By the end of day, I had closed another 3. I did not write any new contracts (other than reopening a put I had closed on Ulta Beauty (ULTA)). I already have too many calls that are very negative and I do not write puts when the market is up.
Accounting is one of the frustrations of trading options. The market can be up as it was today, but that can result in your account having a lot of red in it, particularly if you have calls. Calls become more negative as the market rises because the premiums you sold an option contract for get richer as the underlying stock price rises. The price you got paid when you sold a call contract is now greater, so it appears as a loss in your account, even if the stock has not yet reached the contract’s strike price. It can be confusing for people new to option trading.
The way is works is that when an option contract is sold, the cash appears immediately in your account. The contract, however, represents a liability and it appears in as a negative in your holdings. For example, if you sell a contract agreeing to buy 100 shares of Marvel at a strike price of $90 in Sept of 2025 (as I did yesterday) and get paid a premium of $11.50 for it, $1,150 appears in your account (remember, each contract represents 100 shares). Satisfying. The contract then appears under the ‘options and futures’ section of your account. The value of that contract is recorded as a negative (-$1,150). If the option premium stays at $11.50, the gain/loss shown on the contact is $0 but its value is still recorded as a negative. The cash you got for selling it offsets this negative so the overall value of your account stays the same as long as the premium price stays the same.
Option contract premiums, however, to not generally stay at the value you sold them at. They change due to three things: 1) the value of the underlying security changes, 2) the volatility of the market changes (the greater the volatility, the higher premiums go) and 3) time decay (as the option gets closer to expiration the value may rise or fall based on the probability the option will be exercised.) So, on any given day, if the premium I paid for a stock goes up, it will show as a loss in my account under the gain/loss column. For example, I was paid $11.50 for my Marvel put. If the premium had gone to $12.50, my account would have shown a loss of $100. If the premium dropped to $10.50, it would have shown a gain of $100.
Today the premium on MRVL opened around $7, fell to $6 as the stock climbed higher in trading, then went back up to $7 as the stock stuttered a little bit. When the premium was trading at $7 at market open, I saw a profit of $400 appear in my account under that option line. The profit rose to $500 as the stock began to climb and the premium dropped to $6. The contract seemed to want to trade in a range of $6-7 dollars, so I decided to close it at $6.50.
I could have, and perhaps should have, put in a limit order to buy back the contract to close it at $6. As I have said though, I am a bird-in-the-hand type of person and so I went with $6.50. It closed shortly after I entered the order, and I collected a profit of $450 for each contract I had sold. By the end of the day, the premium was down to $5, so I would have made another $150 per contract if I had waited to close it. I didn’t wait because I have seen an earnings bump disappear before the day is out and I already had a nice profit. Not being greedy seems to work for me. I would rather take a gain and hope I get a chance to re-write the contract again that same day or the following days. Still burns a little to have left money on the table though.
I have a good many option contracts appearing in my account as losses. The calls get very negative if the market jumps like it did today. Most of these calls, while negative, have strikes well above where the stock is trading so I am unlikely to get called on them. They look like a loss, but chances are the stock will not reach the option strike price, and they will just expire. I will keep the premium was paid, the contract vanishes from my account and the profit I made (the premium I collected when I sold it) shows up in my realized gain section as a profit. I usually write calls at a price at least 20% above where a stock is trading.
It is not always so easy; I have some calls that I will have losses on. I wrote them to match contracts on stocks that looked like I would be put, only to have the stock soar beyond the put price. Now I must either buy the stock when the call expires and be called out at a loss (the contract strike price is less than the stock is currently trading at) or hope that the market or the underlying stock drops enough that I can get out at a profit before the expiration date. Surprisingly this does happen about a third of the time.
If you are trading options, try and get your head around the accounting and do not panic when the market is up, and you see a lot of red in your option account. It makes you feel better if you get a good pullback and all those negative calls go positive. Something to look forward to if the market corrects. Meanwhile, be patient.
Opportunities In Earnings
The market was mixed again today, Slow to get moving. By the end of the day the Dow Jones was down, and the S&P and Nasdaq were up a little. As I said yesterday, I was hoping we would have a bit of a bounce back and we did. I was able to close the Snowflake (SNOW) and Nvidia (NVDA) puts I wrote but it did little else. There was just not enough movement to do much else. And given that I had written so many contracts yesterday, I had to hold back and not write too much. Again, I worry about how high the market has gotten lately - we are due a pullback.
Since there was not a lot going on in terms of economic news, no stock specific gossip to play on, I looked at the earnings calendar put out by the Nasdaq (www.nasdaq.com/market-activity/earnings). Earnings season, the couple weeks when companies report their quarterly results, is almost over so there was not a lot to play with here either. Two companies that would be reporting after the close today caught my eye: Salesforce (CRM) and Marvel (MRVL).
I was called out of my CRM position on November 18th at a loss. As a result, I can’t write a put without potentially triggering a wash sale violation which would erase the CRM tax loss I need to help offset this year’s gains. A wash sale is a trade in which an investor sells a security at a loss and then repurchases the same or a substantially identical security within 30 days before or after the sale. A put option is like purchasing the share so the IRS explicitly includes options in wash sale rules. This is a pity because I was pretty sure CRM would have a good quarter. The CEO was going to be on CNBC’s Mad Money tonight and CEOs generally prefer to go on when earnings are good. Plus, they had a couple rocky quarters recently and it seemed it was likely this would be a rebound quarter. I like to sell put options on stocks I think will have good earnings. The sudden jump up the following day can be very profitable.
MRVL however is different story. It is a stock on my shopping list. It is a smaller semiconductor company which trades much cheaper than the larger players in the market and given the positive results of many peers this quarter, I anticipate it might do well. It trades at $95 a share; I had to go out to September of 2025 to find a premium above $10. I sold a put contract for a $90 dollar strike in Sept of 2025 for $11 per share. If I get put, I will own MRVL at $79 a share - more than 20% below where it is currently trading. This is a typical contract for me as I almost always set put contracts at levels that are 20% below current trading levels.
I doubt, however, that I will hold onto this MRVL put contract that long. I hope to close it tomorrow. If the company reports bad numbers, I may get stuck holding onto this contract for a while. Mind you, I would be happy to own MRVL at $79 per share. Generally, I do not go out that far into the future (I generally write contracts 3 to 4 months out). I needed to go out that far to get the $11 premium (the longer you go out in terms of time, the higher the option premiums). I wanted a premium of over $11 because if earnings are strong, and the stock price jumps, future premiums drop steeply as the likelihood that the company’s share price reaches the put strike price lessens.
In my experience, a jump in the share price of 5% or more based on strong earnings drops future option premiums over 50%. So given I sold a put on MRVL for a premium of 11 dollars, I stand to make unto $5.50 a share tomorrow on good earnings from MRVL. I have made less, and made more, so I like these types of earnings trades a lot. I think the odds are in my favor.
Follow-up: Happily, MRVL reported strong earnings driven by AI-related demand. The company reported better-than-expected revenue and provided an optimistic forecast for future growth in its AI segment, which is becoming a key revenue driver. There is broad market enthusiasm for companies investing in AI and related infrastructure. The stock popped over 10% after hours. Now I have something to look forward to tomorrow morning. Furthermore, CRM reported strong earnings and so did other companies reporting after hours so the pre-market looks strong. I may get out of a lot of the puts I wrote on Monday. I hope to get my $5 a share on MRVL. It is nice to have something to look forward to at market open tomorrow.
As a rule, I close strong gains on an earnings pop like this almost immediately after market opens. Enthusiasm can wane throughout the day and the stock price falls back and the premiums rise back up. I am a bird in hand girl. I have kicked myself on many occasions as the stock has raced higher throughout the day, particularly if the market is up all day. Let’s see what tomorrow brings. (5.5)
Trading in a Mixed Market
Mixed day on the market but the chatter is that we will continue to rise into year end. The Dow was down, the S&P 500 barely up but the Nasdaq shined. I am somewhat leery of the forecasts that we will end the year higher. While statistics are in favor of having the traditional ‘Santa Claus Rally’ it just seems like election euphoria is getting stale. I am taking my usual conservative stance.
When the market is mixed, so is my option trading. I closed four put and three call contracts, which is about normal for me. Most of my focus involved writing contracts to set up my week. I wrote puts on stocks I want to own but don’t (SNOW, BX, VST), puts to fill out existing positions I already own (NVDA, CMG, VIK) and puts to fill naked calls that I have created when I closed its matching put (ORCL). All these stocks were down today, I only write puts when a stock is down. I expect a few will bounce back a little tomorrow and I will probably close half of the contacts I wrote today. It only takes a 1-2% drop in a stock to potentially make it a good put candidate. The following day, it generally recovers that 1-2%, making the option profitable and closable.
I also wrote calls on stocks that were up. I wrote covered calls on ZTS and AMD, both positions I would like to keep longer term but use writing calls to add to my income stream. Then I wrote calls to match puts I have already written that now looks as if I may be put (ALB, MU). All these stocks, I have written calls on many times before and routinely close them the next day. In any given week I will write a call contract on my AMD position and close it maybe three or four times. If it is a week when the market gyrates a bit, moving up and down day to day and intraday, I get a lot of chances to do this.
I made the most today on a put contact on General Electric Vernova (GEV) which I had written last Wednesday. I would like to own GEV but it is up a lot this year. It has a current P/E of 79 and a PEG ration of well over 2 (where 1 is considered a stock at fair value) it is too expensive now for a value investor like me. I would like to buy it at least 20% below where it is currently trading (about $340 - so I would like to get in at $270). I can get there by writing a $300 put with a premium of $30, but I must go out to June of next year to get a premium this high. Fortunately, it is a ‘hot’ stock (momentum traders seem to like it) so there are plenty of buyers and sellers of puts even that far out as people want insurance as GEV has run up over 180% year to date. It is a bit risky but, again, as it is a popular stock with a lot of interest, I can get in and out of any contract I write for it relatively quickly.
I kick myself for not investing in GEV when I had the chance in January. It has a reasonable P/E and was getting a lot of good press - I would have made a lot more than what I have made trading options on it for the year. I have earned less than 20% of what I would have earned owning the stock itself. If you believe in a stock and can afford to, buy it. I didn’t because it would have tied up too much of thecash I need to keep aside for writing puts like I do. Selling puts will earns money, but the profits in the market come from picking a good stock and riding it up. Invest, don’t trade, when you can.
Covered Calls
It was a shortened day on Wall Street. The market closed at 1pm EST. Despite the short day, it was trading as usual. Closed a few puts on market open as the market was up. The two CRWD puts I could have closed yesterday (there was a small profit on both) were bought back today for less than I would have paid yesterday. I made more of a profit by being patient and waiting a day. Yesterday those puts had gone positive because CRWD had become less negative. Today they were even more positive because CRWD opened up. I also closed Reddit (RDDT), Vistra (VST), Oracle (ORCL) and Palo Alto (PANW) puts as well.
As the market was up, there were not a lot of stocks trading down, which meant there were not any real opportunities for puts. I did sell a call on Advanced Micro Devices (AMD) as it was up for a change. I own a fair bit of AMD and have for a while. I consider it a core holding, one that is always in my portfolio. It does, however, get called away on occasion. Currently I have a full position, so I regularly sell calls against it to make sure it is adding to my income rather than simply sitting in my portfolio doing nothing.
Today I wrote a call for AMD around 10am when it was up about 2%. I noticed the call going positive over the next hour. AMD was still positive but slipping lower as the day progressed. At 11am I wrote a ‘buy to close’ order that, if it was triggered, would make me a nice profit. I sold the call at $9.25, and by 12pm had bought it back at $8.80. For a single call contract (representing 100 shares of stock) the profit would have been $45 dollars. I had a more than one contract. Since I have completely closed out of that trade, I will try and write the same call again tomorrow if it is up again. This one way of ‘trading around a core position.’
Although $45 dollars may not seem like it was worth closing the contract the same day, I make money because I can trade more than one contract per stock. When I began, I was excited when I built up to 100 shares of a single stock so I could trade one option contract. I gladly took my $45 dollars in profit (although less because of trading fees) and hoped to do it again the next day. Eventually I owned over 30 different stocks and any given day I could write call options against at least half of them Years later, I have built up my positions, so I am making more money because I own hundreds of shares in some stocks and have more than 30 stocks in my portfolio. The returns from writing covered calls (so called because if I am called, I own the shares to be called away) on the positions I own can be impressive.
So, try and build up your stock positions to lots of 100 so you can write covered calls. Stocks I want in my portfolio long term I always hold in lots of 100 so I can trade options against the position. I always buy stocks in roughly thirds; if I like a stock and it drops suddenly, I will buy a third of the total amount I want to eventually own. Given my desire to own 100 shares of stock, I modify this rule somewhat and buy 40, 30, 30. I try and buy 40 shares initially and it drops more, I buy another 30 and the final 30 if drops again. It can take months to get a ‘full’ position (i.e. the total amount of shares I want to own). I rinse and repeat for the next 100 shares I buy. (P:11.3)
Holiday Trading
It is always quiet the day before Thanksgiving and the Friday half day - trading volumes are lower as traders are out for the holiday. This is not to say that there is no trading to do.
There is always business news around holidays, just fewer people to act on it. This year inflation data came out Wednesday. The reading was as expected which brought the market down a little. The concern is that if the economy seems to be performing well, there is less of a rush for the Federal Reserve (the Fed) to reduce the Federal Funds rate. The federal funds rate is the rate banks use to lend to each other overnight. It impacts the interest rates on the consumer (esp. mortgage, credit cards and car loans) and business loans. It also impacts bond yields, exchange rates and the expectation of businesses about their investment returns. Since inflation news was neutral and the economy is strong, the expectation that the Fed will lower interest rates after their December meeting came down a little, thus the market slip. Higher rates for longer could slow the economy overall, so less homes sold, less cars and goods bought, less businesses ramping up and investing in their future.
For me, market slips muffle returns but gives me an opportunity to ‘re-stock’ my options. After almost 20 years of trading options my trading platform (Merrill Edge) allows me to have 560 uncovered option contracts. [Note: I started with permission for less than 5.] Since I closed over 170 contracts yesterday, I wrote 160 new ones today. (Puts on CRWD, VST, SNOW, PANW, GEV, APP, NFLX)
I did buy back the Amgen (AMGN) put contract I wrote yesterday at the close. AMGN was pretty much flat but since it did not fall further meant the option premium fell and I could close the put contract I sold at a nice profit. I closed the AppLovin (APP), Snowflake (SNOW) and the Netflix (NFLX) puts I wrote after the inflation data slip this morning before the close of day as well. Nice trades.
There are also small profits on CRWD and PANW and some of my other positions. as well. Since I have already reached my daily option trading goal, I will leave them until Friday morning in the hope that the market opens after a down day today. (I just checked and pre-market is up so I might be right). The market does vacillate like this when things are just chugging along, a down day is followed by an up one, at least initially. Need to be careful about this though. When the market’s mood is too euphoric or pessimistic, that is a up or down over a week or two it is often followed by a sudden strong reversal. The strong reversal can be dangerous if someone gets too cocky. For my trading, I find the ideal is a gentle couple days in one direction, followed by change in the other.
I did do some investing today which I do infrequently. I bought shares of AES Corporation (AES). It is a utility, a diversified power company using various fuels and technologies to generate electricity, including coal, gas, hydro, wind, solar, and biomass, as well as renewables comprising energy storage and landfill gas. It sells direct and wholesale. It is headquartered in Virginia.
I heard a trader talking about it today on CNBC (which I watch all day while I trade). It is common knowledge that the US needs to upgrade our power grid. Data centers in particular are going to pull unheard of megawatts out of our system. I like AES because at its current stock price (about $13) it has a P/E of 9, a target price of just over $20 and a dividend yield of 5.3%. It has a solid free cash flow (although a negative levered cash flow which is common in utilities which have to invest heavily in their infrastructure.) and 8% profit margin. These are things I always check before I invest (these statistics are readily available on Google Finance). My portfolios are light on utilities so it was a good add today as a diversification play. A 5.3% dividend yield is a solid return, and any appreciation I get is a bonus.
I also always look at option premiums on investments to see if I can add to the dividend income with option income by writing covered calls. Call premiums are very small on AES, but that is to be expected as the stock trades at $13. It would be a good place for beginners in option trading to start though. Since you need 100 shares of something to trade option contracts, 100 shares of AES would only cost $1,300. You will only make pennies on covered calls, maybe just covering the cost of the trade, but it might be a good place to start if you can get a couple hundred shares. You would have a small dividend income in the meantime. Remember, I don’t believe in getting rich quick but getting rich over time. Be patient and build. (P: 13.2)
Making the most of Headlines
Making the most of investments involves keeping an eye on things. It is not just set and forget. If you are serious about having enough money later in life to live as you want to, then you must pay attention to your money. If you really want to juice your returns though, then you must spend some extra time to focus attention on the business news.
The market has settled down since the election. People have made a lot of money on expectations of a wildly positive business environment. The Vix’s range has settled down to between 13-15, enough to still allow profitable option trading. I trade my daily ‘tried and trues”. These are options on stocks that consistently allow me to write, and close, puts and calls on them. Most are ones I want to own or already do. But every day there are one or two stocks that rise or fall on something in the news. The reaction to a headline is often a quick rise or fall in the stock price. Frequently it is an over-reaction either way. Over-reactions mean money in my pocket.
Today was a case in point. Lilly (LLY) rose over 4% on news that 1: the Federal government may allow weight loss drugs onto its Medicare/caid platforms and 2: Amgen (AMGN), a LLY competitor dropped over 6% as it had a Phase II trial on its weight loss drug that did not meet Wall Street’s exceptions (more on this later). Based on this news, I wrote a naked call on LLY as soon as the market opened and closed it in less than a half hour later. The market gyrations in LLY over the news meant its stock price ranged from up 2% to 4.5%. That quick first trade was easy money. I re-wrote the same option again after I closed it, selling it at a higher price than I originally did and hope that tomorrow it will bring me a little more cash when I buy it back. Enthusiasm for a particular headline usually fades the next day.
This trade was a “naked call” (i.e. a call on stock I do not own). I avoid and strongly advise beginners against naked calls. They can be costly and are responsible for some of my biggest losses. I did own LLY but was called away ages ago (at a nice profit). When I was called away, I immediately wrote a put contract on LLY at $850 with a premium of about $75 for January of 2025. Given LLY’s current price is $790, it is very likely I will be put LLY, which is why I was willing to write a ‘naked’ call. This call expires on the same day as the put, making this what I call a ‘pair’ trade. I will be put the shares and then use them to fill the call. I may very well close and open either the LLY call or LLY put closer to the expiration in January, as trades, and then repeatedly re-write them. I will let you know if I close the LLY call tomorrow (and if I write it again). The ideal outcome for me is to sell and buy back lots of LLY calls between now and expiration in January and hang onto the put so I can get LLY back in my portfolio.
Amgen (AMGN) was another story. Given its drop, and the fact that the trial did not seem as bad as the financial analysts were making out, I wrote a put immediately. I set the strike price at a level 10% below where the stock had already dropped to. Before the day was out the stock had recovered, and I closed the put for a nice profit. I re-wrote the put on the market close and expect I will make money tomorrow as well.
All up I closed 13 trades today - 6 were puts on stocks I don’t own but would like to (I would not mind being put them). The rest were calls on stocks I own or repeats of trades as I often open and close the same option contract on a given day. Stocks I traded today included: APP, NFLX, ALB, CRWD, LLY, AMD, ZTS, VST, SNOW, QCOM and GEV. Total profit: $23.9
Taxes Deferred
Growing up in a family where both parents earned a living, and there was no spare cash for ‘investments’ (other than our home). Taxes were simply the cut the government took out of every paycheck. Sure, there was sales tax, but it was just part of every thing’s purchase price. My first experience with ‘tax avoidance’ was when I arrived in Massachusetts for college and I found out that there was no sales tax on clothing. It was a revelation. I bought for all my family. States had different tax policies? What else was hiding in the tax codes I didn’t know about?
Fast forward to my working years, I was quick to grasp the concept of employer sponsored, tax deferred retirement accounts. By moving money into my 401k, I could defer paying tax on the money and let it grow and compound yearly. I scrimped to put as much money as I was allowed into it. Of course there were other tax deferred accounts I could have contributed to (IRAs), but I was young and didn’t see the need - I just assumed the 401k would take care of everything.
Of course, life happens. I quit work to help raise our family and left the 401k contributions to my husband. I ran my own company and began, haphazardly to contribute to an IRA, but it seemed like too little too late. One thing led to another and suddenly I was in my late 40s. And I was learning to manage our savings.
We had finally had accumulated enough cash to invest. Almost immediately, I was frustrated to realize that our investment returns were going to be taxed, again. We had already paid tax on the money prior to investing it - having to pay again was simply double taxation. All short term trading profits (capital gains), particularly the option trading I taught myself and is taxed as if it is regular income. What is frustrating it that the state of Massachusetts piles on an additional surcharge of 12% on short term capital gains. It makes no sense for traders like me to live in Massachusetts.
What I now appreciate is that trading in my and my spouse’s smaller IRA accounts is done tax free. We will only have to pay tax when I take the money out. Every quarter, when I write checks to the Federal and state government to pay the tax due on my investment accounts I regret not having built up my tax free accounts when I was younger. If I had, I would have lots of capital to trade and could avoid the quarterly depletion the capital every month to pay the tax man.
While the current $6000 dollar annual limit on a self directed IRAs may seem like a lot when you are starting out, the benefit of building your IRA up as quickly as possible is huge. Time is your friend here. Simply putting the money into an index fund, assuming the the stock market averages a minimal annual return of 6%, that will give you about one million dollars in 40 years time - better still it will give you at least $60,000 a year in tax free income. An 8% return could mean that you get to that million dollar mark in about 35 years. The beauty is, you can open a Roth IRA as soon as you start to earn income, even if you are a teenager. Baby sitting or helping someone clean out a garage, that money can go in. Imagine, you would be 50, with a tax free income of $60,000. Putting money into tax free accounts is critical if you plan making your money work for you at any time in your life. Otherwise, you will alway be giving up a large chunk of what you earn to the tax man.
Remember: Taxes eat into your returns on any regular investment account. My advice is to start as young as possible and build your self-directed IRA. Better still, make it a ROTH IRA and you will not have to pay any tax on withdrawals when you are over 59 1/2. This is a huge benefit. Do it for yourself and then help any young people in your life start their accounts as soon as possible. Their future selves will thank you.
Market Today: Some days the market soars and you have to sit it out, or worse, watch in dismay as a single stock pulls you down. Every year, it seems like one stock hurts bad. It happens. Just have to remember the objective is the portfolio’s return and know when cut losses. Not sure if it is that time yet. Today it was mostly calls being closed, particularly ones that softened the blow for a major slump in a favorite. Glad I write covered calls. 41.3
Don’t fight the Fed
The expression ‘Don’t fight the Fed” means that your investment choices should be aligned with the Fed’s policy. When rates are low or being lowered, invest aggressively. When rates are high or going higher, select more conservative investments. Today the Fed announced it would be easing its bond buying, This is a first step in pulling back its support of the economy. It means it is likely there will be one, or perhaps two, interest rate increases next year. The market was relieved, it slid up to record closes and everyone just moved on to the next shiny object.
Do we have to worry about interest rates then? Not yet. The Fed usually increases interest rates at a rate of .25%. This means that if we have two increases next year, we will still be below 1%. This means stocks will continue to be an attractive investment into next year, and probably beyond. Like they say, There is No Alternative (TINA).
That said, it is not the time to go all in to the market. Prices are very high, particularly on tech and other perceived growth stocks. Traders like to say, “Its a stock picker’s market,” but that is not true. Index funds are still beating stock pickers by a solid margin, and mostly because the stock selector’s fees eat into returns. Paying someone to manage your money when the stock market is returning 8% is fine, they can have their 1-2% and you still have 6-7%. But if returns are closer to 4%, you lose half your returns to fees. Since investing well relies on compounding, you also have less capital to compound so you lose twice over. So it is time to be smart about what to invest in.
Stocks with high P/Es tend to be stocks that are assumed to have great growth prospects. This could be because they have been growing well in the past, and/or promise to do well in the future. Be careful of these stocks. When the market is at a high like it is, and the Fed has given the ‘all clear’ for the foreseeable future, it is tempting to look to the stocks that have performed well to hope to ride that momentum higher. This is a sound strategy and it has worked for many years now in our low interest environment. But as interest rates begin to rise next year, there will be a market re-set and these high growth, popular stocks may be in for some flat years ahead. Better to look for stocks that may have been overlooked in the growth frenzy of the last few years. Lower P/E stocks, with strong financials and cash flow, and better still with solid dividends, may offer better returns as the market climate begins to chill.
Market Today: Market was up with the Fed treading the needle perfectly. Closed mostly puts. Wrote mostly calls. Four ‘day trades’ - that is opened and closed the contract today. United Rentals (URI) continues to work, as does Shopify (SHOP) and Upstart (UPST). Although the latter should be handled carefully and you need to pay attention - it is risky. It is not a set and forget like Crowdstrike (CRWD) which paid again today. 10.4
Short Sale versus Fed Policy
So today, while the market closed at record highs, most of the talk was all about Avis (CAR). It had fabulous earnings but that alone did not explain it soaring from $173 at the open to $545 only to fall back to a mere $357 at the close, a 108% gain. It was probably a short squeeze, that is some professional investors had borrowed the stock expecting to return it to the owners at lower price (pocketing the difference). If there is a sudden rise in the price, they will have to hurriedly buy the stock to limit their losses. If the people who own the stock, do not sell, (HODL or Hold on for Dear Life) then the price gets driven up in a frenzy as professionals try and but enough stock to meet their obligations. We saw it with GameStop and now with Avis and after hours today with Bed Bath and Beyond (BBBY).
Squeezes are interesting to watch and temp a lot of traders. It is like a game of musical chairs and it is great to play until you are left without a seat (or your cash). Credit to the Reddit traders that seem to be cracking this nut, but something about it feels off. Maybe its just jealousy on my part but I tend ignore the hoopla and look instead to the real world. For example, Avis had a great quarter because there are no cars to buy (chip shortage as you may have heard). People that have left the city need to get around and Uber Black is a tough ask in the suburbs. So there is a lot of demand, few cars and any rental car agency is going to do exceedingly well - something that will not last. Avis will fall back to earth. Will I short it then? No. I don’t play high risk games.
What I do pay attention to is that tomorrow the Fed will discuss the outcome of their meeting and the market seems to be holding its breath. Conventional wisdom says the market has already discounted the Fed’s likely announcement that it will be decreasing its bond purchases. This represents a reduction in the historic levels of support the Fed has given the economy. This planned reduction has been very well telegraphed to the market. If things go well, the market will simply accept the change as a positive indication that the economy is strong enough shape to handle the reduction. If not, today could mark the highs for the year.
Mind you, the Fed is only going to be reducing the bond purchases. One tool in their toolbox. The real issue is interest rates, specifically the Federal funds rate, and they are unlikely to announce any changes there for months, if not years. These macro trends are not as exciting as short squeezes but will probably have more of an impact on your portfolio than the latest meme stock. Keep the big picture in mind when investing, and don’t get caught up in a fad.
Market Today: So today, while the market closed at record highs. It was driven by materials, real estate and IT. Healthcare struggled as did energy (do not give up on these) There were less trades than yesterday, did not close many of the calls I wrote yesterday as the market was up. Should be able to close some tomorrow as the market usually takes a breather after a record high. My Roku (ROKU) call worked as did my Moderna (MRNA) but otherwise a dull day. Did add Enphase (ENPH) to my trading option list and wrote energy puts (CVX and FSLR). 8.1
Choppy Markets
Some days the market can’t seem to make up its mind. Unusually, the market has one or two segments that are strong during the day, others that are weak, and that trend stays pretty constant throughout the day. Choppy days are when the same market segments are up and down throughout the day, but the overall market does not really change that much. There is no clear direction or trend. This kind of chop can generate some nice trades but you have to pay attention and trade fast.
When you have had a long upward trend like we have had, expect chop. Markets can not go up forever and when the market chops around it is actually a good sign. It means there is hesitation by market participants, not brainless euphoria. Euphoria should worry anyone.
How do you use chop? Assuming you have a list of stocks you want to own (or own already) use the direction to sell options: when there is an upswing, sell calls. Use the downward swings to sell puts. When the stocks reverse reverses during the day, buy back your calls and puts. Do not be greedy on choppy days. You will be better off, selling and then re-selling rather than waiting for a big score. I sold three ROKU calls today, bought back two of them and left the third for tomorrow as I assume ROKU will sell off (it generally has large swings. alternating days up then down).
I generally do not buy stocks for investment purposes on choppy days. I always prefer my investment purchases to be on big down days or when a stock sells off on temporary bad news. Buying on choppy days will almost always make you grumpy as you are likely to see the price fall below what you paid at some point in the day. If you must buy, use a limit order and put it at the very bottom of the bid/ask range, or even below. That way if you are filled, you will feel lucky.
Chop lets me sell some additional calls and puts which, with luck, will reverse tomorrow. It is a good day to set yourself up for the next day. Since we closed at a record high today, it is very likely we will start the day down tomorrow and I will quickly close whatever contracts I can.
Market Today: Record highs to start November. Energy was at the top of market segments that up (only IT and Healthcare were down). Lots of potential market catalysts this week. Over 964 potential catalysts, mostly company earnings reports. But we also have a big report on Oct job numbers on Friday and of course the Fed meeting on Wednesday. Could shake things up. Stay sharp. 11.7
Why are some stocks so expensive?
A common complaint newcomers have to the stock market is that the stocks they know best and want to buy are hundreds, even thousands, of dollars per share. It makes them appear out of reach for most investors because who wants to own only one share of Amazon? (About $1350 per share at this writing). Once upon a time, as stocks became more expensive, companies would ‘split’ their stocks, that turn a single share trading at say $100 into 10 shares worth $10 each. They would split shares in half, into fifths or whatever else made sense for them. This made shares accessible to everyday people. It was accepted that a company that regularly split it’s stock was confident that it would continue growing, and most firms avoided their shares going over $100 per share (ok, I am showing my age here).
Somewhere along the way, companies began to equate a having a high stock price as a measure of prestige. Some people attribute this world view to Warren Buffet, who suggested that by keeping his share price high, he attracted a ‘better’ class of investor (i.e. a wealthy one who would not trade in and out of his stock at a whim).
Today, with fractional shares so accessible, keeping a share price high is less of an issue. You can buy a fraction of an Amazon share. Or you can buy a mutual fund or ETF which has Amazon in it, effectively buying a fractional share. But humans are human and it is gratifying to say you own 100 shares of something. So most people would rather buy 100 shares of a stock that trades at $20 rather than buy a single share of some company that trades at $2000 . Either one can go up 10%, and you will make $200 either way, but most people would prefer to own 100 or something rather than one, math be damned.
This explains why companies that do split their stocks tend to see their share price rise, regardless of the fact it effectively changes nothing mathematically. More people look to buy the shares when they are cheaper, thus sending up the price. I like to see stock splits because it opens up safer option trading to more people. It takes a 100 shares to write a single covered call contract and covered calls are the safest way to begin learning about options. Options on shares that trade in the $1000s involves more risk, not something a beginner should not be playing around with. So Amazon, do everyone a favor and split already.
Market Today: The market finished off the month today making record highs, making October the best month since November of 2020. This is despite poor earnings from Apple and Amazon. In general, everyone is citing supply and inflation issues but still 80% of the companies that have reported so far (about half) have beat Wall Street estimates and cited strong demand. I closed a lot of tech puts.
When good stocks go bad
Both Amazon and Apple reported today after market close and both, surprisingly, disappointed. They both dropped about 3-4% in after-hours trade and will probably take the market down tomorrow, just on the math alone a they represent a huge hunk of indices. A single quarter’s bad results should not unduly alarm anyone. Particularly as these behemoths are getting so large that it is virtually impossible for them to continue to put up growth numbers like they historically have just because they are so large now. The law of large numbers tells any sensible person that.
Generally, a drop in price in blue chip stocks like these can be a good buying opportunity. Or at least an opportunity to sell a put, with the hope of getting in at an even better price if it drops more. A 3-4% drop generally does not interest me in terms of stock purchase, I prefer a sell-off of 5-10% for that, but I will probably write puts for them as I do not own either currently and would like to get back in.
If a stock has a poor earnings quarter it is useful to listen to the earnings call. You can do this by going to the investor relations section on company’s website. A lot of the trading platforms let you listen in on the actual call (public access is mandatory for publicly traded companies) which can be interesting and at time amusing (Tesla calls anyone?). These calls will let you know why the earnings disappointed; was it a one-off or a major problem that the company has to deal with longer term. This can help you decide if you still want to own the company. (Apple and Amazon both had labor and supply issues that should resolve soon - not a long term issue)
If you do want to own a stock with a poor quarter, wait a bit. It sometimes takes up to three days for a stock to settle after a bad quarter. If you feel like you have to get in, buy a little and wait to buy more. Do not be surprised if the drop in the after-hours is not carried through the following day. The market can be fickle, good reports and the stock sells off the next day (Thus the term “Sell the news”). Bad reports and people that have missed out on owning the stock may rush in to buy. There is frequently an over reaction on either side and then, throughout the day, a reversal. This is why it is important to have a discipline: Before earnings determine a price you are willing to pay, and then act accordingly. Do not get swept up in the emotion of the earnings move. Buy a little if it reaches your price, but hold off it doesn’t. You generally always get another chance to get in.
Market Today: Positive day. Tech stocks did well based on tech earnings from the after-hours report of the day before. The rest of the market moved up on solid earnings, hopes of finalizing the infrastructure deal (still being held up by people who are holding the rest of us hostage to their ideology), some positive economic indicators and moderating interest rates. Made money on Service Now (NOW), Shopify (SHOP), Albemarle (ALB) and Roblox (RBLX). Made a quick unexpected profit on put on Facebook’s due to its name change to Meta, although how that benefits the company is not clear to me.
Stacking returns
A Random Walk Down Wall Street is a classic investment book written by Burton Gordon Malkiel. It was first written in 1973, but been updated over the last 12 editions. It is a good background book, but probably a bit academic for most beginners. His basic thesis though is one I share: most investment advisors are no better than a monkey at a dart board when it comes to picking stocks. Most of us can do better managing our own money, with a little bit of work. He is a huge fan of index funds and has the stats to support his view.
In his latest addition, he acknowledges that investment returns in the current environment of low interest rates leaves investors with little choice but to look at the stock market as the only game in town (i.e. TINA - there is no alternative). In his more recent editions, he suggests that using leverage is one one way to increase risk, and thus returns, to a portfolio. He suggests that this leverage should be in bond futures - not options which he seems to dismiss as beyond the capability of the average investor. He suggests that investors instead buy futures contracts on U.S. Treasurys - which is a low risk form of leverage. This option is not something most investors have direct access to, although there are funds that mix equities with these futures, like the WisdomTree US Efficient Core Fund (NTSX), and its returns seem to have beaten the market in the three years since it was started. The stacked return principle is sound but for most investors the thought of buying future contracts on U.S. Treasurys probably makes one’s head spin.
I ‘stack’ returns using options directly, either writing calls on stocks already owned or by writing puts on stocks you would like to own. Adding option premiums to the dividends you earn is the best way to earn money to re-invest in the market and compound your returns. Options are, however, risky. You may be called out on a stock that appreciates well beyond your call strike price (which is why you should not write calls too far out into the future). Or you may be put a stock that suddenly falls out of bed because of a bad earnings report, an analyst downgrade or Chinese government intervention. But if you set your call premium at at price that was more than 10% of what you paid for the stock you still make a gain. If you set a put on a solid stock you want to own well below (10-20%) where the stock is currently trading, you get the stock on sale and can start writing calls to recoup the drop. I think adding this type of risk to a portfolio is a sensible way to improve your overall returns. It takes practice to get comfortable with it, start slow and build up your experience base, but you will be pretty happy with the additional cash you can earn.
WARNING: I do not trade options (except a few covered calls) in our retirement accounts. I have a core of assets that have been put aside for retirement and these are kept separate from my trading account. The only time I used put options in a retirement account was when I converted a 401k into an IRA, and had a lump of cash I was looking to put to work. Now that I have a portfolio of stocks and bonds in the retirement accounts - I do not write puts there, unless a bond is called and I find myself with a hunk of cash. Make sure that you wall off your core retirement account from your trading activities. It is depressing to watch the boring, bond equivalent stocks, in your retirement accounts lag behind the overall market returns but very satisfying to see green in those accounts on days when the market is all red. Trading is to earn money, investing is part of saving regime. Remember this.
Market Today: Market was down today due to rising interest rates and poor earnings from tech firms. I closed equal amounts of both calls and puts. I wrote puts on Facebook (FB) which was down again today. It is not a company I really want to own but all the traders on CNBC grudgingly admit they are looking to buy it here, which suggests a trading opportunity. I sold one put in the morning that went quickly very negative, another one later in the day when the stock seemed to have bottomed. I got out of the second put before the market closed. If we are up Monday, I will probably be able to get out of the first one I wrote. Also wrote on Shopify (SHOP) and Square (SQ), but need interest rates to fall back to get out of these quickly. Trades.
Speculation
The jobs number today left the market range bound, slipping between slightly positive and negative. The only real movers were the current favorites in the market, financials and energy stocks. Tech stalled and the market was generally dull. It is pretty clear we will be in this range until earnings start coming in. If earnings are better than expected, we will probably go higher. Lower, and it could be very bumpy. Bitcoin, however, ended the day over $54,000 per coin. It’s gains (and losses) this year have been spectacular. The other big movers were the hard hit Chinese stocks, another speculative area of the market just now. Hard not to be tempted though, particularly in a market where you do not see a potential for any strong positive movement any time soon.
Mark Twain said, “There are two times in a man's life when he should not speculate: when he can't afford it and when he can.” This is good advice. Cramer thinks you need a little speculation to keep you interested in the market, the game of it. I disagree. Money lost is opportunity lost. For every speculative stock you consider, there will be a far less speculative one that will probably get you a good, even great, return without the risk of losing money. Yes, you will not get a huge win, but this is the stock market not a slot machine. To pick a winning biotech, your chances are about 1 in 12. I am not sure about the stats on tech firms, but they are probably about the same. Bitcoin could work out, and it is cool to say you own some, but you could also lose a lot and chances are you will pay pretty high transactions fees just to own it. It may work out, but it is not really investment grade. Yet.
I have not practiced what I preach, but the few speculative stocks I have owned have pretty much all been losers. I simply do not do them anymore. I have a close friend in the biotech industry, very knowledgeable and he told me about a company that I lost half my investment in. I had told myself never again, then took the advice of a young gamer on a sure thing. I lost again. So now I really, really mean it.
If you are young and have been lucky enough to have funded a emergency savings account, are regularly contributing to an employee sponsored retirement plan and have maxed out both your IRA and HSA, then you have permission to invest a small percentage of your extra money into Bitcoin or a ‘sure thing’ someone told you about. Invest, lose money and get it out of your system. Classic case of ‘your first loss is your best loss’. Then save your speculation for that trip to Vegas.
Market Today: Quiet day, only about three trades. Market was range bound and waiting for earnings next week. Jobs number disappointed and confused people. I think part of the low numbers of people filling jobs is: 1) people found they could make do with a lot less during the pandemic (and have savings aside to cushion themselves) 2) women found that being at home helped family life - especially around the issue of childcare 3) there is a lack of immigrants to take the low wage jobs 4) people want jobs that give them flexibility - and not enough jobs do so people are sitting out returning to work.
Market Bottoms
It is frustrating to hear talk of market bottoms. Today that was the topic du jour, as in, “Are we at a market bottom in terms of the September drop?” and “Is it safe to start buying yet? The answer is: In the long run it does not matter. It is great to get a stock on sale, and you should always try to buy stocks you like when the market is down. Just be sensible and don’t buy a full position all at once. Buy a little and see how things go, buy more if it falls more, and then a little more if it falls even more. The market may not be at a bottom, it may go down more, but it is now down enough to be an attractive entry point. Take advantage of it.
In the long run, just be in the market and stay there. If you sell in a down turn, you will never get a perfect signal that you have reached the bottom. Chances are good, you could misread the cues and hesitate getting back in so long that you miss the swing back up (like we have started to have). You will be worse off. Trying to time the market is a fool’s game. The market goes up over time, a nice neat line from left to right trending upward at a rate of 8-10% per year. But if you zoom in on that line you will see that it swings up and down, sometimes a lot, while it is getting there. Statistically, if you miss the upswings from down turns (say the top ten up days of the year) you will gut your overall performance.
We have had a 5-15% pull back in a lot of good stocks. A 15% drop in a solid stock with a sound balance sheet, good earnings, a reasonable growth plan and, ideally, a nice dividend will always attract my interest. And my dollars, regardless of whether it will fall more. Independent of whether we are at a bottom. Sure, I would like to get in at a lower price. But 15% down is generally enough to get me started buying. The drop should be tweaking your interest too if you have cash you can put to work.
Market Today: Up day so mostly selling calls and closing a few puts. Tomorrow we have a jobs report so we could be anywhere - good numbers could spook the market (Fed worries), bad numbers could spook the market (economic slowdown?). No way to know. Given the interest in riskier stocks today, I began some tax loss harvesting in some weaker defensive stocks I own (they were down). I bought stocks that were roughly equivalent to stocks I have losses in (for example, I bought Verizon (VZ) to cover losses in AT&T (T)). If T is up tomorrow I will sell it and take the loss. Since T and VZ trade in tandem, if the telecoms go up, I will have VZ to cover the rise. Meanwhile I can harvest my loss in T. I waited to do this until today as it was the ex-dividend day for T, this way I know I will get my quarterly dividend. T is not my favorite stock for a number of reasons, but I own it for its dividend. It is a bond equivalent for me. Like Chevron (CVX), Kinder Morgan (KMI), and Medical Properties (MPW), etc. There are stocks I own to trade options, and others that quietly sit back and earn dividends. Best to have a mix.
Turnaround Tuesday?
Mondays are often tough days on Wall Street. The weekend may bring bad news and investors panic and exit on Monday. If the market has been weak, and it has, larger investors may have cashed up on Friday (selling into a Friday close is common when the market is misbehaving). These larger investors will hold off buying on Monday, just to see where the market is going. Funds managers may also close out positions on Friday, so they have cash available for investors who decide they want to exit over the weekend. When you have a weak market you do not even need really bad news, just a few weak market indicators. Just an absence of good news, really, and Mondays can continue the slide.
On Tuesdays, however, investors may start to get back in to try and lock in Mondays lower prices. Tuesday is statistically the strongest day of the week. The question is, will we get one tomorrow? And if we do, will it hold? Are we at a bottom yet? No way to tell.
Personally, this downturn does not feel done. There is still a lot of overvalued stocks and Washington’s bad behavior is depressing (and confounding) any sane business person. There is no leadership or plan so business is flying blind. The politicians have lost the plot, the fact they are playing chicken with the debt limit just shows they are less concerned about what is good for America than they are with their own petty bickering. Both parties, particularly their extremist wings, are undermining the businesses that have made America what it is.
If we get a Tuesday turnaround, do not rush in. The market just does not feel done yet. It is not scientific, or even logical, but caution in the byword for now.
Market Today: Not selling puts. Closing calls, the few that I have left. I did all of three trades today rather than my normal 10-20. I do write calls whenever there is bump up (if Turnaround Tuesday is true to its name I will be selling calls), Options are especially good to write now as the market’s volatility has pushed the premiums on options higher. I am looking to buy some of the big cap tech stocks, like AAPL and MSFT but want them down at least 15-20%; they are not quite there. Yet. I have a shopping list and once we hit 15% down I will start b.
Is it different this time?
Another tough day for most market participants. September ends as the worst month in the past seven and the indexes have all dropped about 5% in this month alone, although the Nasdaq listed stocks have fared even worse. It is all the same worries, rising interest rates, inflation, China, supply bottlenecks and various economic indicators that came in weaker than expected. This grim litany was made worse by the general perception that the Fed may be less accommodating in the future. The mood is subdued at best.
Since most of the dips in the past few years have been buyable opportunities, many are wondering if this decline should be bought. Others think, the Fed pulling back will make this time different. But then again, “this time it will be different” has been the battle cry thought many other market down turns and yet here we are, higher than we were ten years ago. Yes, it may be different. It may take a little longer to pull out of this malaise, but you should still be thinking about buying the stock of good companies here. My rule of thumb is that if a stock you want is down 10%, buy a little. Buy more if it continues down.
Just make sure the company has a product or service with solid demand. That it makes money and its balance sheet is strong (not highly levered). Preferably stick to a company whose product you use or understand. Ideally one that is growing, either by adding more customers or more locations. If you use the product it makes it easier to keep track of it. Go for the company with the best reputation among its competitors, who has management who are recognized as capable and good leaders. You can’t go wrong buying these types of companies when there is a downturn, even if the downturn is ‘different’. And while all downturns are uniquely different, they all eventually end. Just suck it up and remember you are in it for the long term. Set backs and downturns are a natural part of life.
Market Today: While the market opened up, it gave up the ghost and then it was down, down, down into the close. Nasdaq tried to stay positive but it too fell into the close. Not much to do but sit on the sidelines. Looking at buying tomorrow as Fridays tend to sell off into the weekend. But then again, it is a new month so who knows. We may be surprised with an upturn in the morning. If we do, I may use it to trim some winners.
Buying your first stock
I remember buying my first stock, McDonalds, in 1994. I think I paid about $8 dollars for it, bought about 100 shares, and sold within the year for just over $10. I was using E*Trade to buy stocks then (which was a fairly new company) and paid a large commission when I both bought and sold my shares. Being able to trade shares on-line was new then, most people relied on brokers who they called on the phone to buy and sell stocks on their behalf. I thought I was pretty tech savvy, so I happily opened an on-line account to make my first trade. My parents thought I was nuts, trusting the internet. I sold those shares within a year because I was moving overseas and did not think I would have access to it. After that purchase, I did not buy stocks again until almost 20 years later. I married and family commitments and life just got in the way. Now McDonald’s trades at over $230 a share, so I lost a chance to have made $22,000 over those 26 years. I should have just left the stock until I returned to the US and simply let it ride. Better still, I should have bought a lot more than just $800 worth of McDonalds. I was single and had limited expenses. Instead I spent money on a lot of things I can’t even remember now. If I had invested $8000 and kept my shares, I would have had $220,000.
To buy a stock today, you simply have to open a brokerage account. Your best bet will probably be your current bank, most of which will have a brokerage arm. Ask them to help you. Alternatively, go with one of the big, name brand firms like Charles Schwab, Interactive Brokers, or TDAmeritrade. Takes a few minutes to open an account on-line. You can fund it with an on-line transfer or even a send in a check. Most charge little or no fees for stock trades. (Options still carry commissions) These established brokerages have great research and training tools to help you learn how to trade. Avoid the newer apps like Robinhood or other slick new trading platforms. Their customer service is weak (if you have a problem and you almost always will) and their training materials are in their infancy.
Once you have the account, buy yourself your equivalent to the McDonalds I bought in 1995, but hang onto it. That is the crux of investing. Select a sound company, with good growth prospects and even if you only can afford to buy a little, do it and hang on. It will take time but if you do it when you are young, and let the years do the work, you will not have the regrets I have 25 years later.
Market Today: Again another soft day. Opened up and then sold off, as we are all still waiting on Washington to do something. I sold calls on positions I own and bought them back before the end of the day, make some nice money. Did not sell puts, too much chance of a further decline. Heard about a new dividend stock I am researching to maybe add to my IRA account. Going to buy some more Chevron (CVX) or Exxon (XOM) if they fall again. Good dividends.
Things to do while on the sidelines
The market dropped today, about 2% overall which is a large drop. It is part of the slide that started last Monday and it is likely to continue as there are no clear positives coming anytime soon. Earnings season will begin again in two weeks, and if the logistics and inflation issues continue, earnings for most companies will be dampened, which may make the slide continue. The next two weeks is anyone’s guess, unless the government resolves the dept ceiling, government funding and infrastructure issues.
While the market trends down, it is interesting to see that whenever we hit a particular benchmark, say the ten year interest rate rises above 1.5% or we breach the 50 or 200 day moving averages, the market fall seems to accelerates. If there is an announcement about a particular economic indicator, say an increase in inventory levels, there may be a clear positive or negative reaction. Suspicious. This looks like machines may be trading, those which have been programed to look for particular anchor points. Ironically, as long as there is no major benchmark breech, this makes me less worried about market spills. It seems like the machines are doing the damage and when people wake up and see that things are not that bad, there should be a rebound.
I saw in an article on CNBC that Jim Cramer agreed with me tonight about patience. He says stay on the sidelines. I do too. It is a good time to look instead at your whole financial picture. Where is your 401k upto? Are you happy with the allocations there or should you change them (or the amount you contribute) to take advantage of a stock sale? Have you made your contribution to your Health Savings Account for the year? Better investment than the market at this juncture. How is your spending going? Are you keeping to your budget (assuming you have one). There is plenty to do in terms of keeping your financial house in order while waiting for the market to bottom and strike a direction. Use the market lull to pull back and look at your entire financial picture. Staying too focused on the market alone when it is in a downturn, can lead to panic selling. Find a way to reassure yourself the market alone does not dictate your financial health.
Market Today: Rough for pretty much everyone. Looking to buy some blue chip tech, so wrote puts for Apple, Microsoft and Nvidia, at levels 30% below where they are trading. (I was called out on all three earlier this year so I need to restock.) Unlikely to get in at the prices I set these puts at, but if there was a sale that large, I will be forced to buy even if I feel panicked at that time. Because the VIX jumped up 24% today, the option premiums were high, so much the better.