Category Archives: Options

Our Top Names Versus The Market

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Each week since June 8th, we’ve been presenting the top 10 names in Portfolio Armor‘s daily ranking to subscribers of a service we run on another site. The performance of our top 10 names from June 8th and eight subsequent weekly cohorts exemplifies the alpha our security selection delivers, as we elaborate below.

How Our Security Selection Method Works

In a nutshell, here’s how our method works. First, we apply our 2 screens to avoid bad investments. Then, for the securities that pass both screens, we start with the assumption that securities will begin to revert to their long term average returns over the next several months, and then we use our gauge of option market sentiment as a “sanity check” on that to arrive at a potential return estimate. We then subtract the cost of hedging from each potential return, and rank every name by potential return, net of hedging cost. The top 10 names each week refer to the top 10 names on that ranking. (more…)

Methanex Trade

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Note from Tim: I got a nice email from a Sloper who thought the blog could use some trades more at the beginner level; he kindly included two of his own to get things started. Here is the second…….

The concept is to post a trading idea that starts a discussion about the trade. The post is for novices like me to learn from each other especially from the experienced Slopers. I have laid out the basics of the company, the trade idea and then the charts. As you can see, the charts are very basic and hopefully will become more sophisticated as experience and feedback occurs. Please join in the trading discussion:

  • Methanex Corp (MEOH) Produces and supplies methanol. EPS is projected to increase 2,436% mainly because of recovering from a loss in 2016.
  • IBD ranks them 12th in their group with an overall composite rating of 80, Zacks rating is a 2 (1 – 5 rating, 1 strong buy, 5 strong sell) and Thomson Reuters has an average of a buy rating from 13 analyst.
  • Stock has low liquidity
  • MACD showing down

(more…)

The Magnificent Seven

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I trade a couple of different portfolios, and today I thought I’d talk about the smaller one, in which I trade principally options. To be clear, I am not at all a sophisticated options trader. I simply buy puts that tend to have three characteristics: (a) in-the-money (b) plenty of time until expiration – – three, four, or five months out (c) are against securities that look well-positioned to fall and have also illustrated their ability in the past to fall hard.

Here are the seven positions in this portfolio – – first up is XOP, the S&P oil and gas producers, which as you can see from SlopeCharts has a history of forming tops and tumbling.

slopechart_XOP

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Kemet Trade

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Note from Tim: I got a nice email from a Sloper who thought the blog could use some trades more at the beginner level; he kindly included two of his own to get things started. Here is the first…….

This is the first post of hopefully many more. The concept is to post a trading idea that starts a discussion about the trade. The post is for novices like me to learn from each other especially from the experienced Slopers. I have laid out the basics of the company, the trade idea and then the charts. As you can see, the charts are very basic and hopefully will become more sophisticated as experience and feedback occurs. Please join in the trading discussion:

  • Kemet Corp (KEM) – Manufacturers capacitors for electronic OEMS. EPS is projected to increase 292% for 2017 and 4.4& in 2018.
  • IBD has a very high composite rating of 99 (out of 100) and ranks their industry group very high
  • Zacks rating is a 3 (1 – 5 rating, 1 strong buy, 5 strong sell), and average analyst rating of bullish (9 analyst).
  • Stock has fair liquidity, earnings release 11/7

(more…)

Testing The Hedged Portfolio Method In Real Time

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Fellow Slopers may recall I wrote about the hedged portfolio method a few years back. The basic idea was to find securities that had high expected returns over the next six months and were also relatively cheap to hedge, and then to buy and hedge a handful of those names every six months.

I backtested the approach a couple of years ago, and wrote it about here at the time (Does Hedged Investing Work?). You can also find interactive versions of those backtests on the Portfolio Armor website. Since April though, I’ve been tracking the performance of portfolios posted in real time. Out of the 6 portfolios created in late April / early May, 5 were beating the market as of Friday’s close. Here’s a look at the first one. (more…)

Oil’s Triangle

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Oil, as represented by the USO fund below, had been inside a symmetric triangle for many months. It had broken beneath it, but it’s managed to claw its way back up inside. The dividing line is at $10.70, which is just about the midline of the triangle. Breach that, and oil will gather even more strength. Fail to do so, and it’s at risk of slumping beneath this large pattern again. I remain bearish oil and short energy stocks. I also own January puts against XOP.

0929-USO

The General Premise

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Before I begin, I wanted to mention how long I’ve been looking forward to the start of October. I’ve been lining up engineering talent to revitalize Slope and also bring some serious strength to SlopeCharts, and that all starts happening Monday. As a person who has lived his life creating products, I couldn’t be more excited about this “new era” of Slope commencing.

As far as the market, I couldn’t be less excited. This is pretty much as bad as it gets for an ursine soul like myself………lifetime highs everywhere, a raging small caps market, and a VIX in the single digits. Absolutely soul-crushing.

I’m not the sort of give up (ummm……..obviously) and I have, in fact, put together five options positions based on one simple premise. I’ll get to the premise later.

For now, let me show you the five positions in question. They all have these elements in common: (1) I own puts against them (2) the puts are in-the-money (3) the options expiration is way out in January 19 2018 (at least), giving me tons of time. (more…)