The-Strangle.com - Blog
Review Time - how did we do?
25.6.2020 - Time flies. I have the feeling we started "The Strangle" just some weeks ago but we are already 10 months into the game. So why not look back and check where we are - and look forward, where we might be going? Yep, let's do that.
Within these 10 months we closed 64 trades. The win-loss ratio is 53 to 11 which equals 82% to 18 %. This is much much better than expected. We were hoping to achieve a ratio of 55% to 45 %.
Result per trade
On average we achieved a profit of 48 % per trade. As we open each strangle with around 2.000 $ this equals to a profit of 960 $ per trade. Some members might have achieved way more profit as they invest 5 K or 10 K or even more into each trade. We have to stick with 2.000 $ so we can compare all the trades over time.
All trades together netted us a profit before taxes of over 65.000 $ !
Whats next ? Compounding !
But the profit could have been much higher. How's that? If we compound by using profits to increase the trade size. We started with 30.000 $ capital which we deployed in max. 15 trades each for 2.000 $. As soon as the profits sum up to the amount of 10 trades, then we increase the amount for each trade. Let me show you how it works:
Capital 30.000 $ => Trade size = 30.000 / 15 => 2.000 $
Profits 20.000 $
divide by 15 ~ 3.300 $ => New trades will be done with 3.300 $.
And then you start the process again. In our case we would now have a capital of 150.000 $ and invest 10.000 $ in each trade. By compounding our capital would have grown by factor 5. The normal way (always invest the same lump sum of 2.000 $ resulted in 65.000 $ which means we doubled our capital). With compounding a Quintupel (5x) was possible.
Let's hope that the next 10 months will be as nice to us as the past. But keep in mind: Losses are inevitable and we never had a bad cluster where loss after loss came in. Statistically we are ripe for desaster.
Can’t stand the heat ?
31.5.2020 - Ups, 200 % loss on our current open strangles. What is happening, have we lost touch? Long story short: If you expect huge wins you have to accept losses, We did not have a loser for quite some time so it is normal that the pedal swings back and carma hits us. Read on to understand these temporary paper losses.
First of all - investing and speculating is risky! As the popular saying goes "No risk no fun" or better "No pain no gain". And if you tangle with options as we do, you can lose everything you invest. That is part of the game.
To minimize risk, we never put all eggs in one nest. We always invest in up to 15 different strangles and put the same lump sum on each of those. Nevertheless it could happen (cross fingers it never will) that ALL of our chosen strangles expires worthless and we lose all invested money.
Maybe The-Strangle is NOT for you
If you can't stand the heat maybe The-Strangle concept is not ment for you.Better by bonds or ETFs or just put the cash under the matress. There is nothing wrong with this. But if you want to earn an interest on your money you have to take on risks. You could also buy stocks, but those cold go to Zero - do we have to mention Hertz as an example.
Damn if I think about Hertz I am getting depressed, as Hertz shows exactly the potential of our approach. If you would have invested in the stock beginning of 2020 your 20 $ per share are now donw over 90%. If we wold have opened a strangle on Hertz we would be sitting on several hundreds percent of gain. Well you can't have'em all.
Day is not over till it is over
Anyway, so we are sitting on 200% minus currently. What to do?
First of all - we have been here before. Sometimes stocks don't move and both, the Call as well as the Put, lose time value. We know that and we have to live with it. Not every stock we pick starts to move huge in one direction.
Second - that's why we decided some months ago for longer expiration dates. Very often in the past we have picked the right stock but the wrong time. Our strangle expired worthless and just a month later we would have made a killing but were left standing on the sideline. Thats why we now alwasy pick long lasting strangles which gives us more time.
Third - 180 degree changes are always possible. Take a look on our strangle for PS. We sold the Put long time ago in March with a nice profit but the Calll was lying down on Zero. Then the market turned and rallied and so our worthless Calls came back to live and we could sell'em end of May for a break even. Big moves are always around the corner.
Fourth - we are sitting on huge profits. We closed 59 trades so far with an average gain of 45%. So even if we would lose 200% which equals just the amount of 2 strangles, in our case 4.000 $, so what?
Stangle ahead !
Where have you been?
29.5.2020 - It is ages that we heard from you? If that is what you are thinking then you are 100 % correct. But we are still here alive & kicking. And never stopped working on The-Strangle and we also added new trades from time to time. But then why the silence?
The answer is very simple - the Crash and the Recovery.
When the stock market tanked in March the volatility skyrocket and when Vola goes up the premium on options get sky high. So even if we pick a great stock and decide for a strangle AND the stock makes big moves -> we still can end up losing money because we paid way to high premium when we opened the strangle.
We tried anyway but we got a bloddy nose. There are 3 strangles which we opened end of March - they are on SLV, BAC and AMD and so far they are all losers. We knew it was wrong to invest when the VIX is above 40 or even worse if it is above 60 but we tried anyway.
But times are changing. The VIX now is nearly back to normal waters and we are back to open new strangles. New positions which we opened are on HSBC (a former winner), TWTR (let's see what Trump is planning with them), BA (Boeing might fly again or crater) and the S&P500 (SPY has to go to new highs or retest the March lows).
Looking backward - 9 months 2.700 % Profit
The-Strangle.com now exists for nearly nine months. Mid August last year we opened our first strangle with AMD (what a great start that was with 101% profit). So far we have closed 59 trades with an average profit of 45% per trade. That means if you would have invested approx. 2.000 $ in each trade -> on average you made 900$ per trade before commissions and of course taxes. That would have added up to 56.000$ without any stress. No sleepless nights because of the crash.
Looking forward again - can we deliver?
So what about the future? Can we repeat this success? We have no idea. Options are risky, you can and will lose money as not every trade will be a winner. You might even lose 100% on a single trade (we did too). And in the worst case you can lose ALL your invested money on all trades.
BUT (and this is a big but) 59 trades over the span of 9 months with an average profit of 45% - that's at least a sign that we might not only been lucky but also knew a little bit what we were doing. Will we know in the future? No idea, let's see. Bookmark our result and portfolio pages and check them regularly. And maybe one day you decide to subscribe. For now our service is free. So enjoy.
Never forget: Read our risk disclaimer.
Use of this website is for educational, informational and entertainment purposes ONLY.
You are so boring
12.3.2020 - This is how my best friend commented my portfolio after looking at the current positions. Especially the number of titles that are currently in my portfolio made him despair. And somehow I can understand him.
I understand him because he is a daytrader, so he trades every day with an infinite number of shares. Compared to that my portfolio is really boring, especially at the moment where there is no movement. But boredom has something for itself.
Everything but boring - Pandemic Election OPEC
The stock market is anything right now but not boring. "Pandemic Election OPEC" this is what's happening right now as Barrons has written today (see article here). I do not want to trade places with investors who currently own any of the following shares: Boeing, Occidental Petroleum, HSBC Bank, Royal Caribbean Cruise or nearly any stock. Whoever owns shares today is not bored at all. There is more action than a normal investor would like to. A stock increasing x-fold like Tesla some weeks ago is always wellcome but a market tanking 2% or 5% and repeating that again and again - that is pain in an investors portfolio.
I am not making fun of it and I feel pity for all the people who currently own shares and are deeply in the red. Compared to this The-Strangle is very very boring. But you can see how good a boring approach can be sometimes.
Boredom sometimes is good
At The-Strangle we only hold options and always Calls & Puts in a 50/50 relationship. This way we speculate on falling or rising prices and as as long as there is action in the market (prices rising or falling, volatility rising) we have a good chance to benefit. In hectic times like these, it is virtually a guarantee of profits.
This trading approach gives me peace. I can get up in the morning, have breakfast, read the morning news and look forward to the day, Because good news and especially bad news like todays travel ban for Europeans to the USA cause volatility and volatility usually means rising prices for options.
Although I have to admit that even I am am bored a little bit. The drastic movements in the market led to huge Implied Volatility and to even bigger Premium on the options. This means that it is very hard to find attractive new options with a good price-potential ratio. This is why I currently find ...
... nothing to invest
I would have loved to buy Boeing options some time ago and I was always thinking about it. But the premiums were simply too high for me. In retrospect of course a huge mistake ;-( the fownfall would had easily generated huge profits.
And high premium is a problem with almost all stocks at the moment. The underlying instruments have simply moved too much and in too short a time. And the premiums for options have gone up into infinity. This makes it virtually impossible to open new attractive positions. This is a bit boring for me too, because until recently up to 20 positions were in the portfolio at the same time.
I sit on the money and don't know what to buy. But the excitement will eventually subside, the volatility will decrease and the premiums will be lower. And then there will be a lot of stocks that have halved or maybe even lost 75%. And this might open very lucartive chances for opening new positions.
So I'm using the current boredom to build a long watchlist. It might take a long time until new positions can be opened, because it is quite possible that the stock market will fall another 20, 30 or even 50%. But the day will come when there is "blod on the streets" and all hope is gone and newspapers once again scream "Never ever again stocks". Then the low is reached and we can start to build new positions. And from time to time we might find sth. to invest in like the new position on silver we just opned some days ago.
Who am I to complain about boredom
If I take a look into all the recently opend (and in most cases already closed positions) - who am I to complain about boredom? HSBC profit 126 %, USO profit 62 %, SPY profit 106 % - these were the bext days since the start of The-Strangle. If boredom means profit like this I can survuive discussions with my daytrading buddy 😉
Strangle let's go
Update 9.3. - Closed these positions
9.3.2020 - I normally do not give updates within the blog. But today is a special day as it does not happen very often that we see a circuit breaker on the SPY. We were able to make some strange trades and we could close a lot of open positions which looked lost just some days ago.
Getting rid of lost positions
As mentioned in our blog "Sell-Off ahead" we tried to get rid of open positions in KBR and EPRT. They were worthless last week and would expire soon. With todays volatility and the falling market we could sell them for great prices so that both strangles ended with an overall profit. We also sold our LYFT call. Although this one was running until January we wanted to close this strangle and move forward.
If Calls & Puts gain the same day
I have to admit that it is ages ago that I experienced a day were both sides of a strangle gain in price. Today was such a day. We went to LEAPs to get calmer and not sell too fast, but sometimes you have to jump over your shadow and act against your strategy. Against all odds we closed two LEAPs which we just opened last Friday. XOM & SPY were just too tempting. SPY was running until 2022 and XOM until 2021 but with a profit of 106% and 92% I just had to close these positions where BOTH the call and the put were in profit.
I might re-open strangles on both at market close or tomorrow or during this week when the smoke has settled and the prices are more reasonable.
Fast trade with VXX
Friday I opened a May strangle on VXX and the volatility jumped huge today. With a gain of 47% I am very happy as I am not sure if the volatility will further increase that's why I went out.
Selling half position on HSBC
A new angle for myself is the idea to sell only half a position when the option is huge in the money but the expiration is way into the future. I did this today for the first time with HSBC. I sold half of the puts This alone propelled this strangle into the profit zone. The rest will be watched.
OK that's it for today - I need a beer now ;-)
9.3.2020 - I did not intend to blog every other day. But waking up this morning I just have to. “Market crash ahead” is the headline today as Oil dropped 30% over night and circuit breakers had to be used to stop the fall of the SPY pre market. And I can’t wait for the markets to open to see how the portfolio is doing as volatility is The-Strangle’s best friend.
As written before, not owning stocks gives me peace of mind. With The-Strangle approach I am not suffering from random bad stock events. There are so many things that can hurt a stock like bad earnings, the CEO getting fired, pending law suits, a market melt down, the list is endless. As we only have strangles in our portfolio we are looking for big moves in both ways. Up or down, we do not care.
What will we do today
Well first of all we loaded up during the last week (see current portfolio) and we also unloaded some trades (some way too early). So we will sit back and watch very relaxed how our positions are doing.
All new entries will move this week: VXX (volatility just has to); banks like HSBC and Bank of America, USO (huge move expected) and the SPY for sure. But we might not sell any of our puts - instead we might sit tight and watch out of the window. As we switched to LEAPs recently we will stay calm as this might be just the beginning of the storm. In the past we sold too early to often because of looming expiration dates and scarcity. Do I have to mention Beyond Meat, the Volatility VXX or Exxon Mobile? They still break my investment heart. We sold all these for a good reasond and with a nice and sometime shefty profit - but way too early.
As all new positions are LEAPs (the VXX is the exception of the rule) we have way more time so we can relax a little. And we also plan to use another trick in the future. If a position is sitting on a huge profit like 200%, we will sell but we will only sell half of it. This way we lock in a nice profit just in case that the wind will turn against us. On the other side we leave the door open for further profits.
Chance to escape a loss
The current development might give us the chance to close a Put which would expire worthless otherwise. KBR - we sold the Calls quite a while ago with a nice profit but the Puts are wortless and will expire in March. So far the position is under water with 7 % but we might be able to sell the Puts this week and make an overall profit on that position.
We also hold a worthless put on EPRT expiring in April. This one might go this week as well. The strangle on EPRT shows a profit of 33% which will increase if we can get some Cents on the put now.
Oil - we have been there
I just loaded up on USO on Friday when Oil was dropping like a hot knife on butter. Why did I do that? Well normally the options on USO do not move a lot and you will lose everything over time. But the huge drop on Friday and the fight between OPEC and Russia reminded me on a similar development in 2009.
I have seen USO coming down from 120 $ to 22 $ in 2009 and it might drop huge again (btw I did not play USO way back then. I was just stunned by the move and the move burnt into my memory). We opened a LEAP which gives us enough time to make a profit if Oil drops to 20 $ or otherwise enough time to exit with a minimal loss (yes, many strangles lose money - this can not be avoided).
If Oil really reaches 20 $ than we will have a closer look on NBL and NOV. These two stocks might survive a crash but might get punished huge. So why don't we load on these now? Simple answer they are way too expensive now. Same is true for Boing. There are many stocks out there where we believe they get crushed or they might go to the sky. But unfortunately the prices have very high premiums and even if the stock makes huge moves we still might lose money. And losing money ist not our primary goal.
This will be a volatile day/week - one of the biggest in a long time.
Strangle - let's go!
Selling too soon !
8.3.2020 - We sold our XOM puts for a profit of around 196 % BUT we could have made over 800 % if we had waited just 2 more weeks. DAMN that hurts. This is the same mistake we made with AAPL and BYND some months ago. How to avoid this?
We said it before in our blog on January 22nd "nothing hurst more than selling a profitable trade too early. And this happend to us again. And my feeling is it will happen to us again and again."
Well I normlly wish that my predictions come true. But sometimes I would prefer to be 100% wrong. What I feared has come to true - unfortunately, once again. I identify a stock that could move, then I open a Strangle and oh wonder, the whole thing develops wonderfully. The stock goes up like a rocket or falls like a stone (what exactly is unimportant, because with a strangle it is only important that one side makes more profit than the other). I close one side of the strangle with a huge profit (maybe I even close the whole strangle) and enjoy a beer celebrating a huge win. And then ...
This is what happened
I had Exxon Mobile on my radar for a long time. The reason was that it moved relatively reliable within a huge channel where it made 10-15 $ moves on a regular asis. From mid 2016 until December last year it went up and down 9 times and I never was invested. So I finally said to myself "next time it touches the channel" I will go for it. And that's what I did.
On February 14th I opened a Strangle with expiration September 2020. XOM had fallen below the channel and was trading around 61 $. Energy stocks had been weak the whole past quarter and I thought the Coronavirus would hurt them further. So I bought Calls 70 $ and Puts 47,50 $. And then the floor fell through the stock market and within days XOM was down to 54 $. So on Februar 25th I sold the Puts with a profit of 169 % ! I kept the calls as I thought the market might recover which it did not and sold the calls last Friday for a loss of 57 %. Overall the XOM strangle made a profit of 69 % in less than a month.
And compared to people owning stocks I was not even sweating. I was sitting relaxed on the sidelines and hoped the market would fluctuate wild enough to bring my stragles into the profit zone. Times like now are the best for strangles. When the whole world is in panic we enjoy thevolatility and the big moves.
And then the market tanked further and XOM was hit even harder. Last Friday it closed down at around 48 $. I know I should not check options which I have sold (but I am just human and I was curious how the Put did). I bought the Puts for 64 Cents and sold'em for 1,90 $ and now they are trading for 6 $ ! ! ! !
Are we not greedy enough?
May be. On the other hand I also know the feeling of not selling with a profit and then watching the profits disapper. The feelinfg when you could have sold for 100% profit and the watch as the profit disapperas and sometime transforms into a loss is not a good one either.
So how can we lock in profits and still benefit from further rising prices? As far as I see there are 2 possible solutions.
A) Closing only 50% of the position: Let's say you hold 1.000 shares of a company and it climbs and you are 60 % in profit. I woudld not sell the whole position instead I would sell 250 shares and let the rest run with a mental "Sell Stop" and another mental "Take Profit". I should and will do the same with great runing options in the future. As we only hold a limited number of options I will sell half when I am in profit very quick and let the rest run.
B) Re-Open a similar position: If I believe the stock can recover from its huge move or fall further I will re-open a strangle on the same stock. Maybe as a leap as the recovery might take longer than the fall. This is what I did Friday. I opened a strangle on XOM expiring in January 2021.
Will this work out for me? Can I balance greed and fear? We will see.
In this sense - Strangle ahead!
Why we switch to LEAPS
6.3.2020 - If you check out our latest strangles then you might have realized, that most options we chose now are expiring January 2021. We would like to explain why we switched from 6 months to 10 months and why we might even consider chosing 2022 expiration in the future.
What are LEAPS?
LEAPS (Long-Term Equity Anticipation Security) are options with an expiration date fare out into the future. A very good definition can be found at Investopedia here.
Typical options run between 1 and nine months. In most cases in the past we had strangles with a lifetime of 6 months. LEAPS instead run 1 year or even 2 years. They are not available for every underlying but if they are then in moste cases they currently expire in January 2021 or January 2022.
Why are we considering LEAPS?
Did we not do well with shorter running strangles? Yes we did well.
BUT – in our private account we recently held an AAL strangle which expired worthless in February – and now in March the puts would have been a 7-bagger, as AAL dropped from 25 $ down to 17 $. We had the right idea but time was running out.
With a Leap we would have made a huge profit. And if AAl would not have moved we could have rescued some money because if the expiration is some months into the future the call and put will have some time-value (even if they are both way out of the money). For example we could sell the strangle 3 or even 6 months before expiration and switch into a longer lasting Leap. A move like this is nearly impossible with short running options as they have nearly no time value and will be worthless if the underlying did not move into the right direction.
By the way, we similar bad situations like with American Airlines in the past. Right idea but timimg did not work. Off course this can happen with a Leap as well, but here we have much more time to consider our next move.
The advantages of LEAPS
Because there is more time for the predicted stock move to play out, LEAPS suffer less from time decay.
This results in a higher potential for the option to prove profitable.
The “time value” – the value attached to the option due to the time left to become profitable before expiring – of LEAPS erodes more slowly than is the case with traditional options.
However, the added time value also makes LEAPS more expensive than shorter-term options with the same strike.
Enjoy life - don't waste it studying option prices
Another huge advatage of Leaps is -> we will have more time to consider selling. Sometimes the window of opportunity is only one day or even a single hour to get out with a profit. But life should not be spend in front of a monitor (that's our believe).
Does this mean we will ONLY trade Leaps from now on? No! we just opened and closed a strangle on VXX within 24 hours (with success). But very often we have an idea or believe in a story but these ideads might tkae longer than thought before they become a reality. And we would like to have this time.
This being said -> Strangle ahead !
FED cuts rate - Freaking out ?
4.3.2020 - The FED just cut the rate by half a point (amazing that we are still above Zero) and the market is freaking out. Everybody wanted a rate cut, then they got it, then the DOW jumped and then it fell on it knees. What does TheStrangle make of all of this?
It is juts crazy times. Looks like we are close to zero interest rates as the market demands another quarter point cut and Donald Trump is pushing them in same direction. But what's left if we hit 0% interest rate? 0% interest rates (read the great article by Caroline Baum on MarketWatch "If the economy is in ‘a good place,’ then why are interest rates so low?"
We would not be surprised to see one of these things coming
Negative interest rates !
Helicopter Money - giving away free money to buy stocks and gods.
The FED buying stocks
Does all of this make sense? Is the only purpose of the FED to make sure that stock market never plunges again (the "Plunge Protection team" could give a hint - what a name). Is there no free market anymore? We have no clue but we have seen amazing stuff during the last crisis from 2007 until 2009 and from there on. Who knows what is best? We don't.
Crazy times. DOW down 1.000 points - DOW up 1.000 points. Coronavirus around the corner. Leverage everywhere sky high (just ask Deutsche Bank and their derivatives managers). Housing prices up like crazy. Average Joe under water with debt for credit cards, student loans, car finances, mortgages - you name it.
If we would hold stocks now, we could not sleep and would be sitting here nail biting. If we would have bought stocks on margin we would be sitting on the window sill.
But we are NOT freaking out !
In times like these you see the advantage of TheStrangle approach. We do not know the stock markets next move. It can go up like crazy or it can fall like a knife. We sleep like a baby because with a strangle we have both sides covered. We have Calls and Puts and we always invest the same amount on both sides. If the basis instrument craters, we sell our Puts (hopefully with a profit) and keep the Calls just in case the underlying stock recovers. And if the stock moons we do the opposite.
Does this mean we always make profit? NO. We very often lose the whole investment because the stock does not move enough within the given time frame. Never forget that an option expires sometimes and it might do so worthless. But even then, we only lose around 2.000 $ as we never invest more. All our strangles are similar. We invest around 1K on the Call-side and 1K $ on the Put-Side.
So far we have done very well with this approach. From August 2019 until now we achieved a profit of 26.000 $ (see results here). And our current portfolio does not look to bad either - we are deep in the black (look here).
The only problem we currently have is that the premiums on options are sky high. We would love to buy more stuff now as we assume the market will either crash or go boom and then bust. But everything is very expensive now. But yesterday we found one candidate - Bank of America. If the plunge can be avoided they might benefit a lot and if the market crashes they might crash with the market. Remember, they traded for 3 $ during the last crisis.
As often said - we have no clue. Or as the great Peter Leeds says "I am wrong 100% percent of the time" (check out his videos on YouTube here). That's why we use TheStrangle approach where we invest in both sides of the story.
In that sense - Strangle ahead !
What a difference a day makes
24.2.2020 - One day you complain, next day you are happy. Today is one of the most turbulent days on the market within the past 12 months. We use the high volatility to close 4 strangles.
Just a quick note (more info later). The volatility is super high today and this creates high premium for option prices. This gives us a chance to unload strangles for a good price. Another reason for the unloading is the expiration in July. Over time, we have developed a taste for long-running options. So we are closing where it makes sense and will take the liquidity to invest in longer running strangeles. But first of all the dust has to settle.
We closed today strangles on:
SPY - with a profit of 10 % / the position was justopened on February 14th but it was a bad decision, as our calculations showed that we normally will never get in a profitable territory. So today is our lucky day because the high premium allow us to sell with a profit.
TWOU - this position was opened in January and was already in green territory but today we can close the whole strangle for a profit of 50%.
WORK - also just opened recently in January but sitting in out portfolio with a hefty profit of 62%. We guess we will reopen a position in WORK soon.
HPQ - this strangle wasn't looking too good and today we escaped a loss and closedit for a zero sum game.
To bail or what?
20.2.2020 - We just opened a Strangle on HSBC. Banks are lagging the market so they might catch up. On the other hand, HSBC has exposure to China and is laying of 30.000 employees. Besides that it is at the bottom of its trading channel. Kind of a no-brainer for us.
Looks like every technology stock is up up way up. But everything else is up as well - take Tesla or even Dominos Pizza which jumped today to over 370 $ (in words: Three hundred seventy US dollars). What can normal investors buy that is not way over the top? Good question. But we do not care. We are TheStrangle and we are just looking for stocks that might go further up (boom) or fall like a stone (bust).
And we might have found a new one with the bank HSBC.
a) They are trading in a range between 39 $ and 36 $ for hald a year. Before that they were trading in a range between 46 $ and 40 $. So even if we ignore all the bad news surrounding them it might be a good time to buy a strangle cause they hit the bottom of their current range.
b) But Banking in general is way behind the current market trend. Stocks like Shopify, Nvidia, Tesla, Microsoft, Apple, ... the list goes on forever, are reaching prices we would not have dreamt of 3 years ago. The only two big sectors that are not participating in the current mega BULL run are Energy and Banking (btw - we might open a strangle on coal very soon). So this is another argument for looking at a bank strangle.
c) And then there is bad news around HSBC all over the place. Last year in October they announced to lay off 10.000 people. And now after a profit miss they plan to layoff 35.000 people in 2020. Operating expenses jumped 22.2% to $42.35 billion. MarketWatch writes "HSBC Holdings profit plunges 53%, will suspend buybacks amid revamp". A well running engine sounds different to us. BUT to make matters worse: Most of their business comes from China and China is suffering huge from the Corona Virus. Check this great video from George Gammon "Banks Are Failing: You're Going To Bail Them Out"
OK we have no clue how all of this will play out for HSBC, but it sounds like an environment where the stock could fall like a stone. On the other hand the stock might rise cause all bad news is already baked in (just consider that today the stock just lost 0,14%).
Long story short - > we decided for a HSBC strangle. Check out the details in our portfolio.
In that sense - Strangle ahead !
Crazy times = great for Strangles
17.2.2020 - What do Coronovirus, Trump, DOW record high and election year have in common? The add up to crazy times. And crazy times are great times for TheStrangle cause in these times stocks go crazy. They skyrocket like Tesla or they tank like Exxon Mobile. But let's take a closer look on these 4 events and see how they could influence the stock market.
Black swan - Coronovirus
Many people died, way too many ;-(
But now the number of new coronavirus cases reported in China and worldwide are slowly declining. And many countries have no new cases at all (see the great overview by WorldOmeter here). But what about the economy and the stock markets? Is it really over or are we just watching an overture?
We believe that the Medium article from Faisal Khan sums it up best "This Black Swan event is going to have global economic consequences". The pandemie might be over but the ripple effects will be seen much later. There will be an economic impact and when these numbers arrive, the market will react. It might be a relief-rally because the effect is less than feared or it might be the drop in the bucket which kills the ever lasting rally.
The corona virus was a black swan event and those events can come any day. So if you are investing or speculating on the stock market - you better have a staretegy that can cope with events likes these. TheStrangle is an approach, that can live very well with events like these. Read more here.
Election and then?
"The stock market is starting to worry about Bernie Sanders" - this is what CNBC told their readers on January 27th. And MarketWatch was kind of telling the same story. In an article from late January they wrote, that the stock market will ‘breathe a sigh of relief’ if President Trump is re-elected.
So are we doomed if Bernie wins and are we saved if Trump wins? Who knows, we don't. But at least the media expect heaven or hell if either one of them wins. Our take -> we do not care who wins. If Trump gets relected then maybe the market goes up and a Bernie-relief-rally starts. This will be great for our Calls. If Bernie or some other Democrat wins, the market might tank - great for our Puts.
You know, we just call for big moves to push TheStrangle.
Trump & the FED & the stock market
Election year equals propaganda and pushing the economy (or at least the stock market) to get re-elected. Trum is not better or worse than any other president befor ehim. If you are president you want to have a booming economy and a rising stock market. If things are OK on these fronts than you have a good basis for your next term.
This is why we can expect further pressure on the FED to open the money-floodgates and issue new dollars day by day. And this might push the market higher until the election (good for Calls). What happens if Trump gets re-elected (buy the rumour sell the fact) we do not know. But we have the feeling that stormy times are ahead (Up or down - no idea). But it might become windy which will be great for TheStrangle.
For more about this topic we suggest the great New York Times article "The Election Year Economy Is Everything Trump Could Hope For" by Neil Irwin.
New High everywhere
It looks like 2019 was the best year in the market since 2009 and only rosy times are ahead of us. Will it be rosy times? Hmmmm - many analysts are predicting a stock market crash or at least a recession for 2020. But what do they know? At the end of 2018 economists were predicting a market crash and a recession for 2019 as well. Hell nobody knows anything. If they would they all would be rich and retired. They are just guessing. Of course they are doing their best but the world is a complex place. Only some things are sure (at least for now - as everything can change quickly). In most years, the stock market goes up. But when you least expect it, it plunges.
And now - what is the conclusion?
The four topics are just four out of many. Every second we can have a new Black Swan event. Any day the market can turn around. Any week a war could start or end. The world is an interesting place where nobody knows the tomorrow.
But at least we kind of know that the market can NOT go up forever not go down forever and not go sideways forever. And the four topics alone suggest that 2020 might be a whoppy year. Bubble times end in higher bubbles (great for options) and finally end in popping bubbles (great for options).
In that sense - Strangle ahead !
Update - Week 5
24.1.2020 - CRAZY - everyone is crazy. The market is pumping higher and higher. People are willing to pay obscene prices for stocks. No wonder in times where banks pay negative interest rates. But OK for us. As long as our underlying stocks MOVE we are happy. So let's have a closer look .
Portfolio - currently up 450 %
So far 2020 is a good year for us. Last year we booked profits of 623 %. We calculate in percent as each trader has a different budget. We play the market with 2K for each strangle. Some of you might bet 5K, some 10K and some wealthy might invest 50K and more into each strangle. That's why we do not specify dollar amounts but percentages.
But that is the past (a nice past I have to say) - the present and future is expressed by our portfolio - and this currently sits on unrealized gains of 450 % (that can change any day as all these are open positions which fluctuate with the market). Main driver of the results are APPL, INTC and SBUX. Kind of interesting to see, that the FANG stocks are driving the strangle portfolio. In the past we avoided high priced stocks but if I look on the moves they make I guess we have to change that. In good times these stocks pump the hardest and most reliable. And the day the recession hits, they will drop the most.
OK, let's have a detailled look on some of our strangles.
This Friday INTC rocked the cradle and we can't complain. November 5th we opened a strangle on Intel with a total price of 2,16 $ (1,14 for the Call and 1,02 for the Put). As of Friday noon the Call alone costs over 5 $ which brings us to over 100 % profit. Are we closing the position? No way!
The market is crazy, the people are crazy and Intel marks a new all time high. Yes, it might come back for some days, but now we are greedy. We want to see 80 $ and more before we consider to sell our calls.
Evening note: We changed our mind 180 degree - market can corret any time soon so we sold Inzel and Apple Calls shortly before market closed
Our APPL position is 285% in profit but if Tesla (TSLA) can run way beyond imagination - the electric-car maker's market value topped $100 billion and overtook Volkswagen AG as the world's No. 2 most valuable auto maker - why can't Apple run to 400 $ per share?
We have no clue. As said, the market is crazy. But let's enjoy the party. We will wait and see what happens. The Appple strangle has time till June like the Intel strangle.
Evening note: We changed our mind 180 degree - market can corret any time soon so we sold Inzel and Apple Calls shortly before market closed
We initiated a lot of new positions. Our new buddies are PS, UPWK (already dropping which is nice), AMAT and WORK. All these positions are running until mid July. Let's wait and see how they perform.
Yes we have many rotten apples in our portfolio. These are NOT stocks that dropped like a dead cat, because than our Puts would deliver nice profits. These are the boring stocks that drift sideways which results in deteriorating prices for our options.
Among these current losers are MXIM KBR HPQ WLL to name a few. But hope dies last and we have many weeks time in which these stocks can jump or stumble (let's hope for the best).
Beyond Meat - what was I thinking?
Wednesday 22.1. - They say, that missing a good trade hurts more than a loss. Well well that might be true. But I'd say, nothing hurst more than selling a profitable trade too early. And this happend to us again. And my feeling is it will happen to us again and again.
But lets start at the beginning. I stopped eating meat a long time ago (4 years to be specific) and beacuase of this I was eagerly awaiting the IPO of Beyond Meat (BYND) last year. stock opened high and I said to myself "too expensive to jump on this train". Boy was I wrong. I told everybody about the story before it IPO'ed and then I was the only one standing in the station watching the red lights of the train when it travelled to 240 $ (in words three hundred). After that I was sleepless for some nights.
TheLazyTrader (a website I really like) said it much better than I could do: "It’s that awful moment when you sit there watching a trade that you just “knew” was “perfect” head in the desired direction without you on board."
That experience in mind I was following BYND the whole way to see if there will be a Strangle chance some day. And then in late November it developed. BYND was lying flat in bed. Coming all the way down from 240 $ to a meager 80 $.
From past experience I kind of knew that it can't sit there flat forever. The stock market is pumping from High to High. The lockup period is behind us. Many people are watching this fresh IPO as I do. So within the next months it can fall to 40 $ on any bad news or it can kick ass and kill all shorts by running up to 150 $ again.
November 26th we opened a Strangle ( Calls 100/May for 6,- $ / Puts 65/May for 6,25 $ ) and then we started waiting. And then in January it screamed up to 136 $ but closed the session below 120 $. We sold the whole position that day ( Calls for 25 $ / Puts for 2,- $ ) for a profit of 120 %.
AND NOW yesterday - premarket already 111 $ and I kind of felt, this might go up. And boy it did - all the way to 132 $ aftermarket. The Calls are trading over 32 $ and we sold them for 25 $ and I am afraid, that BYND might climb to +200 $ territory soon.
BUT - forget all that moaning.
TheStrangle principle is to identify Strangle opportunities, jump on the bandwaggon and leave the train when in profit (or when it runs against us, leave with a loss before it expires). As most of our lossed are between 20-40 % we have to take big winners to compensate for them to make the whole idea profitable. And as we had +100 % at our hands and BYND was not holding the highs - closing the stranle was what we did.
Who can complain about 120% profit within 2 months? I can't and so "buff one's mouth" and on to the next trades ;-)
In that sense - Strangle ahead !
Are the markets crashing - starting today?
Tuesday 21.1. - Since a few days more and more media are dealing with the new epidemic from China. But it's not just the media that have taken up this topic, the stock markets have also started to do so. This morning, we could see that in Asia the markets have collapsed by up to two percent. What now, is the big correction on the stock markets coming?
You know what, I couldn't care less. Off course I care about the new desease and hope it will be stopped! But I do not care if the market collapses ;-) The great thing about TheStrangle's approach is that we don't care which way the stock market goes. The main thing is that it moves. The bigger the market or an individual stock (where we have a Strangle working) moves -> the better. Because we always have both a certain number of Calls and a corresponding number of Puts on each stock, we are perfectly positioned to profit from fluctuations.
In this sense I can enjoy my breakfast every day. As long as there is news and the markets move, the better for us. Of course, the biggest swings come when there is negative news, such as when earnings of a share have collapsed, the CFO leaves the company, a takeover is cancelled, or whatever else there is that can push down a share price.
In general, however, I am someone who is happy about positive news and rising share prices. And there are enough events that can push a share price upwards. Better earnings than expected, a new CEO who has proven that he can move companies forward, a takeover of a company, to name but a few.
The most important thing for us is that there is no boredom. Boredom means stagnant share prices that move sideways. However, with most options, we have six months before we have to see a result. But the sooner a jump up or collapse down happens, the better for our approach.
Should there be longer periods of boredom, then of course the prices for both the Calls and Puts will decrease significantly. In such a case, which is not so rare, we have to put the brakes on at some point and sell. This sale will then take place with a corresponding loss, which happens in up to thirty percent of all cases. You see, our approach is not bullet proff. Quite the opposite! TheStrangle approach produces losing trades like any other trading strategy and sometimes it can be many - even many in a row. But these losses will hopefully be absorbed by the profits of our other investment. At least this is working so far as you can see here in our results.
In this sense I wish you a pleasant week combined with the wish that the disease in China will be conquered fast.
Strangle ahead !
Sunday 19.1. - This was supposed to be a very relaxed weekend and now I am sitting here and don't know what to do. The reason is Apple Inc. Our AAPL Strangle has reached a profit of over 250%! A reason to celebrate, right? Correct but I do not know what to do. Sell now and regret later? Or wait and regret later?
Apple Profit > 250% what now?
In principle, it is quite simple, commen sense dictates that with such a profit at least part of the position should be sold . On the other hand there's this hope that Apple could go much further and our position could grow way beyond our wildest dreams and reach 500% or even more. I guess just another 20 bucks upwards and the Calls might reach a price of over 23 $ which would then bring the whole strangle into +500% territory.
Luckily the stock market will be closed tomorrow, thanks to Martin Luther King. But a day off does not make it any easier. We have opened the position only recently and are currently over 250% up. We bought the APPL Calls 340/June on November the 29th for 1,86 $ and now they are trading for over 12,50 $. The AAPL chart below shows where we entered and how fast it happened. What now, what to do?
Chart produced with TC2000 from Worden Brothers, Inc.
I've been thinking about it for a while, but I don't know what we will do on Tuesday. My advice to you, sell half of the Calls and let the rest run. The risk-takers might keep everything and let the future decide. There is a good chance that AAPL will move on in the current direction (the only way is up as it looks like & never fight a trend). On the other hand any stock can experience a strong reset every day, you never know what the stock market is up to. In this case you should set a mental stop loss and then liquidate the position.
There are such and such problems, this definitely belongs to the category of nice problems.
In that sense - Strangle ahead !
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