Wednesday Wind Down for 2017
Not much is happening.
That doesn't stop us from making money in the markets, of course, but we have to be a bit selective in picking and choosing our spots. Yesterday morning, for example, a pipeline explosion in Libya sent oil rocketing up to test $60 and, as it was climbing, I put out the following note to our Members at 11:09 am:
Oil exploding higher, $59.55 and /RB $1.796 - even though there's no logic to that following oil higher because a pipeline explode in Libya so I like /RB short under the $1.80 line with tight stops above.
That's all good Fundamental Trading is: Read the news, think about what it means and play for or against the market reaction. In this case, it was an over-reaction so we went against the market. When oil hit $60 (/CL) we shorted that too as $60 is a tough line to cross and we expected at least some rejection there and, this morning, we just cashed in at $59.50 for a $500 per contract gainj already.
As to Gasoline (/RB), that was good for a quick $1,411.20 on two contracts into the close – not bad for a day trade, right? Even if you have a $500,000 portfolio that you parked in CASH!!! and it's sitting on the sidelines, making $1,000 per trading day is $200,000 a year – that's a 40% annual return with some simple Futures trades while you wait for some good opportunities to re-deploy your cash!
Futures trading is a very valuable tool to have in your trading toolbox but, like anything worthwhile, it takes a lot of practice and that's why we do a lot of Futures work in our weekly webinars. There will not be a Live Trading Webinar this week, however, as I'm on semi-vacation in Las Vegas, where I'm applying our "Be the House – NOT the Gambler" method to the poker tables.
Aside from the bluffing and luck aspects of the game, winning consistently at poker is just like good portfolio-building, we try to take a consistent series of positive risk/reward positions and manage our capital to take advantage of winners while limiting our losses on losers. Once you have that discipline established – all you have to do is PATIENTLY wait for a run of good luck and then have the discipline to realize that's a good time to cash in and walk away.
We had the good sense to realize, early in December, that it was a good time to cash in and walk away from a market that had given us better than 50% gains in our Member Portfolios as it was no longer prudent to risk 150% into a market we did not believe was likely to give us another 10% – the risk simply didn't balance with the reward anymore.
So, like a good poker player, we took our pile of cash off the table and, when we sit back down to play in 2018, we will have put the original 100% away and we'll come back to the table with 50%, or about 1/3 of what we cashed out. If the market is going to continue to rally, we can be aggressive and make 100% next year but, if it crashes and we lose half or more of our money – it won't kill us.
We also have to play the hands we're dealt and we have to understand the market conditions. Last night, for example, I was playing with one of those obnoxious chip bullies who keep going all in on hands to get people to fold. This happens a lot at cheap tables ($1/2 game) because the buy-in limit is $300 and a guy who can afford to throw $300 away can bully all the people who can't. Though I can afford it – I hate those guys and make it my mission to take them down.
So I PATIENTLY waited until I had a really good hand (2 kings) and waited for him to do what he usually does and then I called his bluff. He had a 10 and a 6 – I won and doubled my money while halving his. Given the conditions of the table, there was no point in playing unless I had cards that were worth going all in on so, rather than play 20 or 30 hands (an hour) in rough conditions (he was likely to go all in and I'd have to decide on weak cards whether to play) - I waited for the one hand that was worth playing.
I still might have lost – he could have had aces or he could have simply lucked out but, STATISTICALLY, it was the right play and statistics won out. My risk/reward was 50/50 but the conditions were that there was a person who seemed willing to risk his 50 on pretty much any hand he had so I waited until my cards had a statistical advantage.
We do this with our Options Opportunity plays as well. For instance, back in January, we decided to take a poke at Energous (WATT) as I liked their wireless charging system and here's how we followed it at key moments over the (rough) year:
Submitted on2017/01/30 at 3:04 pm
This is another one I would like to keep our eye on in the LTP and, since they are only a $14.59 stock and we can sell the WATT 2019 $12.50 puts for $5.50, let's sell 10 of those ($5,500) and see what happens.
Submitted on2017/04/27 at 12:14 pm
WATT/Learner – I think the rumors that the new iPhone will use wireless charging have been debunked (not that WATT was going to be the provider anyway). Speculators are bailing.
Submitted on2017/09/15 at 12:34 pm
WATT – Their system did NOT get used in the new IPhones so down they went. Still like them at net $7.40.
They played out a bit like a biotech company as they waited for FCC approval on their system and people got bored and lost faith but, this morning, the FCC certified their WattUp Mid Field Transmitter and the stock is doubling. By selling the $12.50 puts for $5.10 (we couldn't get $5.50 in the end), we had a conservative net entry of just $7.40 so we were able to ride out the dip and now, with the stock back around $17, the short puts should expire worthless and we'll make 100% on the puts ($5,500).
Our RISK was owning 1,000 shares of WATT at net $7.40 ($7,400) and our REWARD is $5,500 but, since we felt that, even if they were rejected, they would still be good for $5 or so as they try again, not only did we not feel we were risking more than $2,000 but even yesterday, the 2020 $7.50 calls could be sold for $4.50 so, even if we were assigned at $7.40 – we could have turned around and sold the calls and dropped our net to $2.90 ($2,900).
We had all year to make that play and, though we are now in CASH!!! (too much risk into the holidays), we have 40 stocks on our Watch List already that we'll be looking to play as we build all new portfolios starting on January 2nd. Until then – we can relax and enjoy the holidays.
That's what it's all about – keep your risk lower than your reward and try to make intelligent investing choices and you have a great chance of staying ahead of the markets in 2018.