Results Week Ending 5/14/21
As per my last email these are the results of my Grasshopper Trades of the week. So far 100 subscribers have read that email. If you haven’t seen it yet please read it now at Changes to MS beats WS.
I would like to thank everyone for the notes and comments I received via email. Knowing I’m getting to so many of you is my driving force.
I know many of you are confused by this market, and so am I. We just went through 3 or 4 years where many of our life savings tripled and quadrupled. The market has been great for investors and traders. For me, what made it such a great environment as a trader is the market was predictable. Picking direction is the toughest thing to do while investing. And the last 3 or 4 years the market, and individual stocks, were very predictable. It was easy to pick the direction the stocks were going to move in.
Today, with the new administration, not only can’t we pick the direction of a stock, we can’t even pick the direction the administration wants the country to go in. Any financially responsible person knows the printing of money cannot be unlimited. All countries have to print money to handle certain problems. But, it must be done responsibly and with a plan that is supported by all branches of government. The amount of money the U.S. government is printing and handing out is not being done in a responsible manner. What is going on makes me think, where does this administration want our country to go?
I received an email from a loyal reader, Scot. He asked me this question:
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What’s your take on what’s happening these days? I will be holding several stocks that are falling.
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I did not address his problem of falling stocks. This is all part of a market that is unpredictable. I did address the first part of his email.
I wrote:
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I think it will be a wild ride for a while. The amount of money this government is giving away and spending is crazy. The loss of funds in the U.S. treasury will cause other actions by the Fed. The way this spending will affect inflation, jobs, interest rates, consumer confidence, consumer spending etc, etc, and ultimately the economy and the stock market is still to be seen. I feel this administration is gambling with the people’s savings and the economic health of the country. It’s very hard to pick stocks or sectors because different ones are going up or down every day. It’s very hard to pick stocks to do Covered Calls with and it’s very dangerous to sell Naked Calls.
This is only a very short paragraph of what is going on in my head.
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When it comes to the country, I believe, we could be entering a very special time. We were in a very strong economy which was interrupted by a pandemic. The country is ready to boom again! And I feel this administration is blowing it! As a country we need to help the people who were destroyed by the pandemic. We do not need to send money to people who don’t need help. I know young kids who received a check who are still in school, or supported by their parents. There are millions collecting unemployment while we have a shortage of workers. There are plenty of jobs! They’re not only getting the unemployment insurance, which they paid into, but the government is throwing in more. I know we all have different views on how the country should take care of it’s people, and that’s fine. But I feel the way it’s being done will hurt the economy and can hurt people like us who want to take care of ourselves.
As I mentioned in my response to Scot’s email, all of this spending is causing a lot of questions on how it will affect the health of the economy. I believe these questions are causing the market to be unpredictable. An unpredictable market makes it very difficult to pick direction. If we cannot make an educated prediction on the direction a stock will move it will be very difficult to make money.
As new traders, was it better to learn to trade during the past 3 or 4 years, or better to learn now in today’s environment? It was much better to make money the last 3 or 4 years, but I feel this is a great time to learn the potential pain the stock market can cause. You never want to believe the market and your account only moves up. This is a great time to learn albeit sometimes painfully. During any time the bottom can fall out. You must learn to handle the market swings and learn to make adjustment trades.
I would like to hear from some of you on your opinion of the moves this administration is taking.
As some of you read in my post Changes to MS beats WS, today will start a new weekly results format where I’ll only be giving the results of my “Grasshopper Trades.” I also mentioned in that post I will have a transition period where I will be covering some of my larger trades.
U.S. Steel
U.S. Steel is a perfect example of what I’ve been talking about. The steel sector entered the week as a favorite and it’s been moving for a few weeks. All of a sudden these stocks stopped moving up and started down. The fundamentals haven’t changed but the government’s handling of the money and the infrastructure bill has.
This trade is not a legit Grasshopper Trades. The size is but the way I entered it is not.
On Monday the stock shot up to $30. I did not think the level would hold so I didn’t want to do a Covered Call at the $30 area. The stock started down and with the stock at $29 I sold a $28 Call. I did not own the stock. It was a Naked Call. But I felt the stock would drop even further and go below $28. If my prognosis was correct I would buy the stock when it falls below $28 and now I would have a Covered Call. The benefit I would have from selling the $28 Call with the stock at $29 is the much higher premium because it was an In-the-Money Call. This is a dangerous move and it’s not for Grasshoppers. If the stock does not fall below the $28 I’ll be left in with an In-the-Money Naked Call.
My prediction came true and the stock dropped to $28. At this time I bought the 200 shares to cover my Naked Call. The problem is the stock continued down and closed on Friday at $25.50 and I was not assigned. Let’s hope with this wild market the stock moves back up and I get another Call sold this week.
5/10/21 – Sell to Open 2 X 5/14/21 $28.00 C @ $1.60 (+$320)
5/14/21 – Expired 2 X 5/14/21 $28.00 C
Profit +$320
NIO
NIO is way down from my buy-in price of $63.75. With the stock in the low 30’s I sold a $36 Call. When you do this you take a chance of getting assigned on your stock and taking a loss on the stock sale. I don’t like to sit idle on positions that are down so I wanted to bring in some premium. I didn’t get assigned and I keep the premium of $55. Because of the high buy-in price it’s only a 0.86% return. Hey, if I do this every week the annual return will be over 40%. It’s a way of making a bad situation a little palatable.
5/11/21 – Sell to Open 1 NIO 5/14/21 $36.00 C @ 55¢ (+$55)
5/14/21 – Expired 1 NIO 5/14/21 $36.00 C
Profit +$55
MOMO
This was a Covered Call I was not assigned on. I bought this stock at $15.25 and this was a return of 2.3%. This is a nice return but not as nice as it looks. This was a 3 week trade. The stock dropped below my buy-in price and this was the best I could do. I’ll take it!
Do not get confused by the different looking Strike Price, it’s $15.38. Strike Prices normally end in .00¢ or.50¢. This one is .38¢. When I saw this I called my broker. They told me this is as a result of a special dividend. It’s a long explanation and I don’t completely understand. I never saw it before and will probably never again so we’ll just look at it for a while lol.
4/21/21 – Sell to Open 4 MOMO 5/14/21 $15.38 C @ 35¢ (+$140)
5/14/21 – Expired 4 MOMO 5/14/21 $15.38 C
Profit +$140
Total Weekly Gain +$515
Of course this is only the Grasshopper Trades and the U. S. Steel trade isn’t even a Grasshopper Trade. The trade numbers will start to rise. I’ll be doing more as learning tools. As you saw above my total weekly gain is $7219.
I received an email from another loyal reader, Jack. I’m bringing it up because I get the question a lot, and I’m in the situation myself. His question involves buying a stock and the bottom falls out. When being an option seller, how do I handle this dilemma?
This is very important and I’ll be writing about it in a few days. The loyal readers know I’m in a number of these positions right now.
Jack, thank you for the question. I know there are a bunch of readers in this same boat. I’ll be getting the post out very soon.
Successful trading,
Steve
The Options Coach