Jon,
Appreciated your post.
Quite a change to what sounds like regular trading. But I can appreciate, with the macro backdrop, that it is harder to be an investor right now vs playing bounces in either direction.
I have been more in cash preservation mode, and so haven’t let my trading get too wild, or at least it is restricted to more mild/boring indexes vs wild swings of individual stocks.
It would be just my luck to go long when market finally crashes/capitulates for good, which is always in back of my mind. So I bide my time.
Being up 50%+ is pretty amazing. Would be great to have you share trade ideas on this board, as all approaches are welcome.
I do have one question: Why selling puts vs just buying calls?
Dreamer
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Dreamer: “I do have one question: Why selling puts vs just buying calls?”
Based on my own tactics with puts and calls (which results are somewhat tarnished), I would say that jonwayne is a) in trading mode, and b) still has an affinity to SaaS stocks but would own only at a lower price. He doesn’t mention the duration of the puts. I am a weekly sort of guy. If jonwayne is selling further out like 6 months or leaps, then he could get both seriously lower strike price and decent premium. Buying calls would be more defensive hedge against Empire Stikes Back up move in SaaS which would be a psychological blow if stocks rally versus bail out price he sold at.
For what it is worth, I echo Dreamer’s welcome to this board.
KC, who (has it been just 2 trading days this week???) has already been buffeted by 10 and 20% moves, netting just over net-zero.
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Caveat: I am no option expert. I never traded options until Feb of this year.
My rationale is about earnings season. I do want to trade earnings but in a less perceived risky manner. I’m choosing expiry of earnings release week if I am not confident of the company. For example TWLO. I thought it was cheap and decent prospect of rising post earnings report- but I was not confident in the company. So I sold OTM puts at $44 strike the Friday of their report. What happened to TWLO? Well they plummeted -15% the next day. But, I still gained max profit, as I was far OTM enough and I was protected by the implied volatility crush of the passing “event”.
Similarly- TTD. I was confident of the company beating and raising- but NOT confident of its valuation. I sold $50 and then rolled to $55 short puts when the share price ran upward pre-earnings release week. When they reported, they cratered -7% the next day. But, again, that was fine. I was OTM enough and the implies volatility crush + rapid time decay protected my position and I still reaped maximum profit.
Had I went long calls, I would have been in a loss situation both times.
Otherwise if I am very confident of the company AND find it undervalued (MNDY couple weeks before their report this week, for example), then I will choose to go long shares plus short puts. Going big sized on long calls is just a personal style I am not too comfortable with.
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I recognize that by posting my updated YTD returns, it is probably a sign of my portfolio top for 2023 and it will only go downhill from here. Nevertheless, I am quite excited because it means I have completely erased all of 2022 losses and recovered/restored my portfolio back to 2021.
I am now up +114% YTD.
What I thought was a hole that would take several years to dig out from, in actuality took only 3 months of a completely new investing mindset (which is very active trading short term focused trading, and totally discarding the old buy-and-intend-to-hold-for-the-long-term-mentality-but-actually-sell-for-loss-when-the-stock-crashes-twenty-percent-after-disappointing-earnings strategy).
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My current portfolio holdings snapshot isn’t much use as I churn constantly but here it is:
I plan to exit ELF (very brief purchase) as I think its overvalued and just an inflationary play
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JonWayne,
Thanks for sharing your new approach. I started using Options for the first time ever in February. I became frustrated with the lack of SAAS recovery and was looking for a way that I can have more control of my results.
Are you looking at an earnings play on ZS, CRWD or Sentinel? After PANW, I think they should beat earning, just not totally confident enough to load up on it.
Thanks
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I do have short puts on ZS and CRWD. Not willing to risk long shares directly at this point through their earnings. I don’t plan on any position for S.
If S did have weekly options, I might be selling puts expiring next Friday- but since they don’t, I am feeling too risky for June 16 expiry play unless I want to go far OTM. But then that’s becoming a balance of opportunity cost of margin use- could I be making more money using that margin on another play. Because the more OTM you go the less profit of course.
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impressive YTD results for sure.
not being contrarian for sake of it, but market been fairly generous YTD, so whether you think of it as an extended BMR or a bull market, either way you may wonder if your strategy only works when market goes up.
But, hey, FOMO and MOMO are back in play. Big 7 leading the market and never ever ever falling again.
I am sure it will all be fine.
Dreamer
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@jonwayne235 Congrats on your YTD results. Very impressive and happy for you.
Lock in gains as you go along.
Document what is working and what is not working so that you can refine your system.
Take some time to celebrate.
Cheers!
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i think may be this is not time to sell and celebrate . looks currently some areas hot and some areas cold. may be switching money diff places and wait for movement to buy working very well. it looks we are about to start new cycle today or with in next 3 months so keeping cash might not work at this movement.
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Venumadi
I think you are right on target there…Absolutely seeing it happening live…Just look at what has happened to defensives and commodities in the last 1 month or so!! The rotation is/ has been happening, while the CNBC talking heads keep saying otherwise…But for sure, Dreamer is also right…When the rug pull comes, who knows!!! But the problem is…What is going to happen between now, and the rug pull???
Just look at what happened in May 2021 to Sept 2021…
If you are nimble, you might be able to do well…
I am neither nimble nor have the dough now (not unless I sell the BS i am bag holding).
But definitely enjoy seeing the positive vibe for a change!!
When Dreamer or Wendy or Arindam etc…jump in…You know you need to buy with every penny u have!!!
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Jon,
Congrats…You know, I initally did have a ton of doubts on SMCI…So, much so that I even put up a chart when it was only in $130s questioning it…But wow…
I just did some digging, and see what you and XMF Rob were raving about
What can I say, except…CONGRATS!!!
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Most stocks that go parabolic have an equally quick descent. If I owned any stock whose chart looked like that, I would get defensive, perhaps selling a deep in the money call 9 to 12 months out for at least half the position.
Jk
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Thanks @LifeOfDreamer
Indeed I would argue my returns and portfolio is constructed in a high beta fashion. I doubt there is significant true alpha going on. I do believe luck played a huge role. I was fortunate for example to have sold massive amounts of put premium while volatility was so elevated with the March bank collapse.
FYI, I respect your opinion in the market as I browse through your board here. 100% wish I listened to you guys last year
@BeachMan2115 thank you for your kind words! Always appreciate coming across your insights on the boards here.
@VENUMADI yes it does seem staying all cash may be unwise in the short term as the big institutions on the sideline experiencing FOMO and starting to chase more. Interesting market has brushed aside inflation report today and the whole debt limit thing.
@Inspired2learn thanks! i certainly wish I knew of SMCI back when it was <$130
I have NTNX and PSTG vibes when it comes to SMCI.
Although PANW has proved me otherwise, I have yet to find it profitable long-term (2-3+ years) to invest in a hardware infrastructure stock.
Think HPE, Cisco, NTAP, EMC/DELL…not sure if Lenovo trades publicly or not, but they are essentially the legacy IBM servers and laptop businesses.
SuperMicro might be currently playing up the AI/GPU-infused server angle, and apparently quite well, to the credit of their stock price. But SuperMicro is also known as the ultra-cheap white-box server. They are what companies buy when they don’t see inherent value in paying for the HPE or Dell “brand” and just think of servers as commoditized hardware. Which they are. Apparently SMCI was a supplier for many of the server OEMs and then started producing their own full systems (competing against their customers, so to speak). Being partly their own supply chain, they could roll out cheaper price tags on servers.
This is literally in the wheelhouse of my career in the IT channel, so I know what I am talking about.
Again - SMCI likely did a good job reinventing themselves and if the GPUs and secret sauce for AI/ML and HPC solutions in general had less to do with any software or added-value provided by the big server OEMs like Dell or HPE, then it makes sense to just use cheaper servers stuffed with NVIDIA GPUs like SuperMicro.
So I see this as a bit of a picks and shovels motion. Unlike NVDA though, which is really the most important part of the AI secret sauce (at least on hardware side of things), any hardware that the GPUs run on, whether in cloud or on-prem, are essentially a commodity.
I don’t see SMCI parabolic run ending well.
JNPR called…said it was told things were different back in 2000, too.
Dreamer
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Hi Jk,
Completely agree - I am a living example of that, although I never even knew the stocks that were “recommended” by the TMF were that category…
Anyways, the only issue is - If I were to buy these high fliers…If at all…Why do you take the risk of selling a deep itm call…especially if we feel that these can go all the way back to where they started?
If it is a solid stock, then sure by all means, makes a lot of sense to do that, if one has tax issues
But for any high flier/ momentum based investing -would you risk selling a long duration ITM call, however high the premiums are?
Wouldnt u be risking your prinicipal, although the premium certainly offsets the cost basis by a big amount
An example of a past trade. I bought ENPH a long time ago around six dollars a share, under prior management. It ran to over three hundred dollars per share. I sold a long dated call (Jan 23 @170) for one half of my position, and could buy it back for less than $170 today, having kept the entire premium as profit. This is one example of many when a stock you own rises very quickly, you can try to gain the premium in the inherent over valuation.
It obviously does not always work, but I was willing to lose one half of my position because it was so over valued.
Jk
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“And yet their valuation is higher by far than any of my other companies. Who needs that? I think I just have better places for my money.”
Never thought I’d read that out of Saul’s keyboard… yet still no discussion of valuation allowed on the forum.
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Hi Jk,
That’s awesome, congrats…In your case, it is a brilliant strategy as your cost basis was so low…and it had already made huge gains…and of course, it is likely going to be a winner going forward ( hopefully!).
If you felt it was very overpriced at $300, would it have made sense to sell at that high price, and wait for the dips to occur…Sure, you may have run the risk of the stock running away from you…but wouldn’t the same be true even when you sold a deep ITM covered call - if the stock suddenly ran away higher,
- you either have to let it go and buy another set, or
- BTC the call at a loss…or
- roll it to a higher price for a later date…
Option 1 and 2 are virtually no different to selling in the first place and waiting to buy back…
It is option 3 that I am not sure about - Is the ability to roll the main reason why you chose to sell the deep ITM covered call, even in case it ran away from you…
Thanks,
Charlie
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If the stock runs away higher, I am fine with that. The portion I sold was more than a fifty bagger in 7 or 8 years. The fact that I can buy it back for less than the called price is the critical piece of information. I kept all of the call premium as extra profit. It was a substantial amount. There are always alternatives to invest in that have better future prospects as well.
The key is moving capital from overvalued stocks to undervalued stocks, wait, rinse,
repeat. This generates increased returns over time. I really don’t like to sell, it is ,for me, the hardest skill to master of all. Much easier to identify companies I can understand and figure out approximately what they are worth than it is to sell.
Valuation matters!
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