Put a Condom on your Portfolio

Nobody ever got giddy over practicing caution.

The other day I was looking through a "new feature" being offered by E*Trade, their "Online Advisor". It''s not terribly different from the myriad of other such tools in that essentially the same questions are asked, particularly with regard to your tolerance for risk, the number of years until retirement and other seemingly important questions.

When it's all said and done, there's nothing more exciting than having "Fixed Income" recommended for your stage in life.

You know the stage. Respirators, catheters and orderlies that don't know how to use any of them.

Caution is pretty boring and I really don't want to be reminded that I'm at that stage of life.

I may be ready for Depends, but  I'll fight until the end to avoid those Fixed Income investments.

I had a friend in college who always thought that he was the desire of every woman's dreams. He used to proudly show me the condom that he kept in his wallet, as he always needed to carry "protection."

After a while, I recognized the crease in the foil of that condom and realized that for years he was showing off the very same one. he was taking the exercise of caution to an extreme that really wasn't terribly appealing, but he was behaving otherwise.

He had a business card that read something to this effect:

"My name is Harold. I want to sleep with you. If you want to do the same, please call my number. If not, please return the card, as I'm running low".

He also used to talk about how he was going to go to the "free clinic to get "tested." It seemed that he needed to be tested everyweek. Whenever I would hint that I might want to go with him to get tested, he would always come up with a reason why he wasn't able to go at that paricular time.

Somehow, I don't think he was quite as accomplished as he had been inferring. I don't think he really needed much protection, except perhaps from reality.

I made no such pretense and was never a big fan of "protection".

To be clear, I'm still talking about FIxed Income investments. I like protection in most other aspects of life.

Although I've never been a big fan of reckless behavior, especially when it comes to investments, I'm not a big believer in caution, either.

The problem is that when giddiness does set in, caution is thrown to the wind.

Certainly there has to be a graph somewhere that shows the association between alcohol and unwanted pregnancy, just as their has to be a graph someplace showing the association between a rapid rise in the stock market and stupid decisions.

Unless you were in FIxed Incomes or in cash, which are essentially the same, you've been very happy the past couple of weeks.

So happy, that you probably think that everything is just going to keep going unchecked in the same direction. One of these days, the "this time it's going to be different" feeling is going to come true, but that's not likely to happen this time or the next.

And then, along come days like today.

After a couple of weeks when grasping at rumors of good news was all that it took to drive the market higher, today was the day that Germany's pessimism on an EU solution came back to haunt.

Pissing in the wind, punching a whole in a condom and buying high are all wreckless behaviors. Pinning your hopes on a promise to resolve a crisis is probably not a good strategy.

But from my perspective, not having downside protection is every bit as wreckless, especially when the market goes up and down in completely unexpected spasms.

Sure, I was saddened to see Halliburton drop $3 after announcing earnings before Monday's opening, but the $38 call options that I sold on Friday for $1.02, that happen to expire this coming Friday soften the pain.

Of course, the downside is pointed out by those that believe that stocks are all poised to make spectacular climbs at any given moment in time.

There's no shortage of examples where that's happened.

This year, I can look back at shares of Green Mountain Coffee Roasters and VIsa among others, that I'd lost to assignment after unexpected run-ups.

Those are easy to remember and hard to forget.

But I'll also remember that last week I didn't bank any option income on my downbeaten shares of Mosaic because there were rumors of a buy-out and I didn't want to get caught flat-footed.

I've thought of alternatives to selling covered calls, but that would require picking better stocks and making their purchase and sale at just the right time.

That solution would require effort and skill, so that makes it a "no go". Although I'd be willing to use insider information to help arrive at the same end point, I don't appear to yet have those kind of connections.

The reality is that there are very few surprise break-outs of a stock's price. For every Visa that gaps from $80 to $90, or very Green Mountain that goes form $45 to $60, there are a couple of thousand each day that don't.

Today, El Paso did, but space doesn't allow me the opportunity to list those that didn't.

The fear of missing out on one of those great moves is unfounded. They just don't happen that often.

What does happen often is that stocks go up, they go down and they go up again, right before going down and then up again.

After that has all happened, you can reliably predict that cycle will repeat itself.

On Monday, I started the day with cash coming from the assignment of British Petroleim, Freeport McMoRan and Alcoa and was looking for a quick bang for my investment buck. For the day, at least, I got it by picking up additional shares of Riverbed Technology, DuPont, Sallie Mae and ProShares UltraShort Silver ETF.

I immediately sold in the money calls on all three of those purchases. After all, when do you put protection on? After the proverbial horse has left the barn?

For my trouble of selling near the money and in the money calls expiring on this Friday, if assigned, I'll net a 3.4% return on the options income alone

Sometimes the protection is worth more than the asset it's protecting.

I'm not exactly certain how that same analogy can be applied to condoms, but at least in my world of investing, it seems to be true.

For the shares that I picked up today, I don't have very many high hopes of an El Paso like surge.

Whatever surge there may be will be restrained by the protection, but enjoyable nonetheless.

As the markets have been evolving I'm looking forward to even more variety in the protection available.

As we begin selling derivatives on derivatives, such as options on the VIX or short options on the VIX, I'm looking forward to the inevitable appearance of some of those UltraSheer options to help make the experience that much more enjoyable.

And what investor wouldn't want to be long in UltraSheers? 

Invest like TheAcsMan

Option to Profit is available as either an eBook or 300+ paperback. Take a humorous look at a serious topic and learn how to make your portfolio finally go to work for you in bull and bear market environments.

See a sneak preview of Chapter 1.  hoco blogs

More about the book and purchase options. Scroll down and read the Szelhamos Rules blog, updated every weekday.

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Groundhog Day Revisited

Groundhog Day, the Bill Murray movie, is reportedly the most played movie on television and basic cable. I know that I've done my fair share of viewing that movie over the years, first starting with it's original theatrical release and then seeing it ad nauseum during that bizarre commuting phase of my life, spent in many a hotel room.

Given the movie's storyline, it's only appropriate that the movie keeps getting repeated.

If you're one of those very few people that hasn't seen the movie, or just doesn't know the story, you've likely spent the greater part of your life in Slovakia, focusing on far more important things than light romantic comedies taking place in obscure Pennsylvania towns, starring a now obscure actress.

You certainly wouldn't understand the connection between Groundhog Day and unending repeating, or as I like to call it; "Life".

Personally, I don't understand thow I could have two consecutive days when a Pennsylvania city is mentioned in my blog.

Some things just are out of your control.

I can't really tell you how the Groundhog Day movie ends. It's not that I don't wanty to spoil it for you, it's just that I don't remember, but I do remember all of the intervening details.

In the movie the predictabilty of reliving each day first proves to be maddening, almost driving the Bill Murray character to the brink of suicide, until he realizes that he can step out of the pre-deteremined actions of his character.

Ah, now it's coming back to me.

Only when he realizes that he can capitalize on the mundane and predictable, does he realize the key to his happiness. To top it off, he brings out the best in those around him, as well. As soon as he starts behaving in a manner that conflicts with the expected reality, he changes everyone's reality.

For some people, in the market's after hours, today was as if the movie featured Google.

Talk about a replay.

Google came out with great earnings after the closing bell and shot up about 9%. That's not much of a surprise. They always come out with great earnings and then fall prey to the spin.

Google has a habit of making big moves on its earnings reports that in absolute dollars are magnified by its $500 per share price. It did precisely the same last quarter, making its move to $600, before heading down back below $500 just a short 2 weeks ago.

Unfortunately, you just can't predict in which directions those moves are going to be. Although I don't currently hold any shares, I have in the past and have been blown away by some of the downdrafts in price, even after great earnings reports. Hedges helped soften the falls, but dampened the rises.

It goes both ways.

On the other hand, even though you can't predict direction, you sure can predict that there will be movement.

Today I felt as if I were in my own personal Groundhog Day scene.

It was just another day that happened to have JP Morgan report its earnings as part of the ordinary landscape.

I've owned JP Morgan on and off for about 2 years and have especially been going through my own personal Groundhog Day with the shares ever since the weekly options became available.

On Monday I added onto my position and sold $32 calls, for nearly a 3% premium.

As it just seems to do on a predictable basis it went up and then down. They don't need to report earnings to make significant price movements. The only difference was that today at least there was something going on that could be called a reason for the move.

Everyone was expecting disappointing numbers, which of course is why share price went up admirably from Monday through Wednesday.

Of course?

As luck would have it, it went down sharply today and is now below the strike price, with expiration on Friday. Why ot went down when everyone was expecting bad news and why it first went up in advance of the expected bad news earnings?

Yeah, as if that scene's never been played out before.

You just have to get used to it and go with it.

I could do these kind of weekly trades every week.

In fact, I do.

On the other hand, the ProShares UltraShort Silver doesn't come with a weekly ETF, but it really doesn't matter. Silver goes up big on one day and goes down big the next.

I sell the call options, buy them back, sell them again, buy them back again.

You get the idea.

The share price of the ETF is virtually unchanged from where I bought it, but that volatility brings a great premium. Actually, whereas I usually sell near the money options, the volatility and resultant premiums for this ETF were so nice, that I've been selling well out of the money options, balanced with some at the money options, so that I could benefit from the stock's capital gains, receive options premiums with less risk of being assigned and also receive heightened premiums that are very responsive to the stocks moves.

Huh?

Today, for example, with silver falling and the ETF share price rising, when it hit $14, I sold $16 calls expiring next Friday for $0.34 per share net. That's on top of the $0.62 and $0.57 per share netted the past 2 weeks on those same shares.

But I also sold some $14 calls on Monday, when the share price was $14 for a $1.19 premium.

The last month's options cycle was the same.

And the one before that?

The same.

I guess that's why some people like annuities. They're so predictable, just like groundhogs.

As an investment, I'd rather not have an annuity, but I don't mind if my shares throw off predictable options income and start annuitizing themselves.

Now if life really was like portrayed in Groundhog Day, I would certainly banish my lack of nerve that popped up yesterday and I would have sold calls on Sallie Mae and Mosaic.

As it turned out, Sallie Mae gave up most of the gain that it made on Wednesday.

Mosaic on the othre hand went up a bit more, but each day that no new rumors pop up is just another day of lost opportunities to bank some premiums.

But, the one thing I know is that the opportunity will return and I'll never tire of doing the same thing over and over.

As opposed to the personal hell that Bill Murray found himself in until he found the key to navigating through hell, I feel as if I'm in heaven.

What may be going on is that the market represents the inverse of the Groundhog Day experience.

While everything changes around you, the best way to thrive is to keep doing the same thing.

Inertia is a terrible thing to waste.

 

Invest like TheAcsMan

Option to Profit is available as either an eBook or 300+ paperback. Take a humorous look at a serious topic and learn how to make your portfolio finally go to work for you in bull and bear market environments.

See a sneak preview of Chapter 1.  hoco blogs

More about the book and purchase options. Scroll down and read the Szelhamos Rules blog, updated every weekday.

Find  OTP Book at Amazon, B&N or now you can also Order direct  from publisher. Use 10% Discount Code P4S2ZD8H

 

  

We're Number One !!

Here's something that we don't see very often.

A U.S. city, state capitol, no less, declaring bankruptcy.

That's almost as unheard of, as say, Athens declaring bankruptcy, except that the buildings in Harrisburg are in a greater date of disrepair.

That decision to do the inthinkable can't inspire too much confidence in municipal bonds, even though the city comptroller has indicated that they are still current on the General Obligation notes.

The cynic in me believes that the decision to declare bankruptcy isn't entirely coincidental.

With all of the world's attention focused on Greece and the EU, we're starting to feel a bit left out on this side of the pond, and if there's anything that we need, almost as much as oxygen itself, it's the spotlight.

I think that Harrisburg is looking toward Florida for its inspiration and wants that Andy Warhol moment in the sun.

Florida, as well as some other states, is challenging New Hampshire's hold on being the nation's first Presidential Primary state.

For some reason, it seems important for a state to be the first, probably because that's where the big campaign money goes, as serious candidates need to get their toehold early or fall into the abyss.

And that spending blitz isn't just restricted to media campaigns.

Take for example the tremendous boost just given to the New Hampshire hospitality industry as Mitt Romney, in return for an early endorsement, agreed to provide Governor Chrisite with an unlimited supply of McRIb sandwiches when it is re-introduced onto New Hampshire's McDonalds' menus.

FIrst out of the box has its benefits in most every competitive arena.

No doubt that Harrisburg didn't want Greece or Italy going first. You just know that when that first one goes, the rest will just domino.

Harrisburg simply didn't want to get left in the dust or ash heap that their $300 million trash incinerator bond had them headed.

Sure, those are quasi-nations within the framework of the European Union, but in an "America FIrst" sense of indignation, Harrisburg did what so many other municipalities around the countyr just didn't have the nerve to do.

No one strives to be #4.

Besides, how else does a relatively sleepy backwater state capitol get its share of attention and maybe eco-tourism, which is not to be confused with eco-tourism. Instead, think "Keynes to the City" as being an eco-tourists most favorite guided tour through bankrupt Harrisburg.

There's no special formula or way to predict who will demonstrate the nerve to take on the unknown. It obviously takes a crisp understanding of risk and reward ratios.

I'm sure that every X-Games participant goes through an extensively elaborate algorithm to determine the appropriateness of their next humanly implausible action.

Sometimes "nerve" can be a funny thing.

There was a time that I had the kind of nerve that didn't mind letting it all ride on a single horse race or spin of the roulette wheel. But during that same period of time, I would break out in tremors at the idea of executing a stock trade on my own, much less look at the paper losses.

But then something happened. I don't have any clue just what it was, but it all changed.

The entire risk-reward perspective had become turned on its head.

These days, I can't stomach the idea of losing even a quarter in a slot machine, but am not really moved by a six figure paper loss in a single day.

I've been functioning like that for quite a while, but today I seemed to take a step backward.

With the market continuing to climb for no real reason, here it was, mid-week, the time that I usually like to grab some remaining pennies on the table.

This time, despite the fact that there were a number of opportunities that i would have normally taken, I found myself selling only Goldman Sachs and Time-Warner calls.

I struggled with the decision to sell calls on Sallie Mae and Mosaic.

I mentioned Mosaic yesterday as it was the target of a potential takeover rumor.

Sallie Mae, on the other hand, has just showed some nice strength going into earnings next week.

Yet, I couldn't find it within me to make the sales..

I'm rarely undecided, but the "FOMO" hit again.

Fear of missing out. I was worried that I might mis a quick upside move in either and leave a lot on the table.

The other day I read a nice piece by Pjhil Pearlman, the resident staff psychologist at StockTwits.

His blog title, NetFlix is on Tilt, examined the tendency to overcompensate for stock losses, using a poker players' analogy.

Admittedly, I know knothing about poker, but I liked his take on "Tilt".

For me, avoiding fear, greed and envy were always primary requirements for keeping your head above water. I always looked at those as raw human emotions, but "Tilt" didn't quite fit that category, but it was also worth avoiding.

The tendency to do stupid things in order to erase other stupid actions isn't an emotion, it's just part of human DNA.

In my case, I had nothing stupid in my near past that needed to be compensated for, but I felt that if I went on with my usual modus operandi and sold the calls, I was going to be left out of the game. There's nothing worse than watching that big shiny ball roll down the playing surface and not being able to do anything to get back into play.

I understand that kind of "tilt", but I also get Pearlman's kind, as well.

Neither is good for long term survival.

By the time the market closed on Wednesday, half of the index gains were gone, and in hindsight, I should have made the sales.

Is "regret" an emotion? It's also just another one of our traits, but it is related to envy. Envious of what could have been or just regretful for what never was.

In the meantime, word came across that Slovakia pulled it together and its Parliament endorsed its role in the expansion of the rescue fund.

For aanother few days, Greece is spared from what everyone believes is the inevitable.

Biyt it doesn't matter.

Thanks to Harrisburg, American pride is restored.

From a grateful nation, thank you for taking on an unnecessary municipal project, passing the blame onto a previous city administration's cronyism and faulting pressure applied from the State House for making the ill-fated decision.

Can you say "tilt"?

A real leader would have blamed it on the Greeks.

But at times like this, a grateful nation will take any winner as it own.

Here's to Harrisburg.

First in our defaults and first in our hearts.

Invest like TheAcsMan

Option to Profit is available as either an eBook or 300+ paperback. Take a humorous look at a serious topic and learn how to make your portfolio finally go to work for you in bull and bear market environments.

See a sneak preview of Chapter 1.  hoco blogs

More about the book and purchase options. Scroll down and read the Szelhamos Rules blog, updated every weekday.

Find  OTP Book at Amazon, B&N or now you can also Order direct  from publisher. Use 10% Discount Code P4S2ZD8H

 

  

Do You Know Where Slovakia Is?

 

About 5 years ago Sugar Momma and I, together with our kids were travelling on a sleeper train from Venice to Budapest.

What seemed like every 20 minutes through the night, there was a loud knock on the door of our berth.

Border patrol guards.

The one nice thing that you could say about Marshall Tito, the now long dead ruler of Yugoslavia, is that while he was a live, there really wasn't need for all of these border guards that came into being after Yugoslavia got split up into its forced component pieces.

I'll always remember one specific guard who responded to Sugar Momma's dreary eyed question, "Where are we?", with the answer, "Slovakia. You're in Slovakia. Have you ever heard of Slovakia?'.

He didn't look pleased when she told him that she'd never heard of his country. He then said something in Slovak to his compatriot.

Then he laughed and returned our passports. At least he didn't point his rifle in our faces.

Now before you start getting on my back, I know that Slovakia was never part of Yugoslavia, but for purposes of the above illustration, let's just assume that it was.

Fast forward those same 5 years and all of a sudden Slovakia is as big a deal as Malta had been last week.

On Tuesday, all the remained for the Euro rescue to go forward was final approval from the Slovakian Parliament of the plan to expand the Euro Rescue Fund.

Whereas the likes of Malta and others didn't take the opportunity to flex its muscles, Slovakia jumped at the chance, befitting its role as home to Zdena Nazarejova, winner of numerous Women's European Bodybuilding and Fitness Championships.

Only in a world defined by the oddities routinely found in the "Twilight Zone" would you have seen a Reuters headline that read "Latin American stocks little changed before Slovak vote".

As it turned out, today was a very eventful day.

For starters, after the market's close, word came out that the Slovakian Parliament failed to approve their nation's participation in the EU fund expansion. As the poorest of all the EU nations, they probably felt they had less to give and besides, they had already gone through years of fiscal resposnibility and austerity just to gain EU entrance.

So while we await formation of a new Slovakian government in the aftermath of this rebuke to its leadership, there was opportunity to see what else was going on in the world.

The fact that there seems to be significant movement on the release of Gilad Shalit, the Israeli soldier held for more than 5 years by Hamas was noteworthy.

Myanmar releasing 3000 political dissidents? Wow.

The arrest of an Iranian-American for conspiring to asasinate the Saudi Ambassador to the US and then bomb the Saudi and Israeli embassies? Get me the screenplay.

Ukraine sentencing its previous Prime Minister to 7 years of prison after having been found guilty of negotiating with Russia over natural gas prices? Same old. Same old.

Herb Greenberg making a triumphant appearance on Jim Cramer's MadMoney after a much too long absence.

Now that's newsworthy.

But with all of this going on, all the market was thinking about was the start of earning's season, as Alcoa was poised to announce after the closing bell.

It was so bizarre to have essentially no trading range through the day.

I did purchase shares of Alcoa on Monday and promptly sold calls. I don't usually buy shares right before earnings are announced, especially if there's already been a 20% run-up in price.

But given the fact that Alcoa had been serially projecting earnings downward, my thought was that we should have been prepared for bad news.

Which in fact came after the close.

Did I forget to mention that I also sold some Alcoa weekly puts right before the close?

In the after hours, Alcoa slid to $9.79 after having closed at $10.30.

I also purchased some more shares of Mosaic, using some of the options premium proceeds from the past couple of days.

By the time I logged the purchase into the Portfolio Holdings and Recent Transactions page of the site, Mosaic had jumped up about $2, apparently over some buyout rumors.

I like capital gains as much as the next guy, but I hope the rumors aren't true. Mosaic has been one of my most reliable stocks in terms of generating great options premiums. At first it was month after month and now, life is even better as its week after week.

I look at Mosaic as my annuity plan. I'd hate to see it disappear from my screen.

But for me, the big news continued to be Greenberg's return to Mad Money.

At one time as an addicted viewer to Mad Money, my favorite segment was the East vs. West, when Cramer would take on Greenberg via satellite from San Diego. They would discuss their differing opinions on the merits of stocks in the news.

Probably by coincidence, Greenberg's audio feed would always seem to get abruptly cut off, giving him the next to last word. The look on his face upon realizing that he was silenced was priceless.

What are you going to do?

But what really made this event so special was that my Sugar Momma gave me a special dispensation to watch Cramer's Mad Money in our family room.

Cramer had been banned many years ago, because she complained that he gave her a headache.

Sigh. The things you'll give up for love.

But this time she allowed it.

She came back downstairs near the end of the segment and asked who the "other person" was.

"He's kinda cute. But is he always that hyper?"

After having seen the movie "Contagion" a few weeks ago, I would have thought she would have realized that this was more a case of environment exerting its predominance

For some reason her question reminded me again of the Slovak border guard incident, but at least Greenberg was neither there to hear the comments, and as far as I know, he doesn't carry a rifle.

But in the event that he does, I won't comment about what appeared to be matching shirts.

Muted Plum, I think.

That's a color that never would have existed in Tito's Yugoslavia or in any of the former Soviet satellites, but it's an entirely new world.

To welcome in that world, I'm going to see if I can get away with catching tomorrow's Mad Money episode.

If I get a rifle pointed to my face, I'll know that my Parliamentary body has chosen to flex her muscles.

 

Invest like TheAcsMan

Option to Profit is available as either an eBook or 300+ paperback. Take a humorous look at a serious topic and learn how to make your portfolio finally go to work for you in bull and bear market environments.

See a sneak preview of Chapter 1.  hoco blogs

More about the book and purchase options. Scroll down and read the Szelhamos Rules blog, updated every weekday.

Find  OTP Book at Amazon, B&N or now you can also Order direct  from publisher. Use 10% Discount Code P4S2ZD8H

 

  

Really, the Recession is Over?

HEADER

What's in the Szelhamos Portfolio?

Invest like TheAcsMan

Option to Profit is available as either an eBook or 300+ paperback. Take a humorous look at a serious topic and learn how to make your portfolio finally go to work for you in bull and bear market environments.

See a sneak preview of Chapter 1.  hoco blogs

More about the book and purchase options. Scroll down and read the Szelhamos Rules blog, updated every weekday.

Find  OTP Book at Amazon, B&N or now you can also Order direct  from publisher. Use 10% Discount Code P4S2ZD8H