Howdy Tackle Traders!

This last week was festival week for Rob and myself. So, every year in Budapest there is a little haunt organized called Sziget Music and Arts Festival, which is a freaking blast. I’d highly suggest it to anyone with a functioning pair of hips and a taste for the uncanny. Fortunately nobody was hurt and we escaped unscathed.

Beyond the festival, however, our week was mostly highlighted by nights out on the town, coffee in the mornings, option’s trading and instruction. I have a funny feeling Rob Kitty will be a fantastic investor and player of the options gambit—very fast learner that kid.

Regarding the market, I am sure you noticed, momentum is slowing and the Bears are beginning to come out of hibernation. This shift in direction was highlighted by Geo-political concerns, terrorism in Spain, Bad Korea, as well as political strife within the United States itself. Furthermore, President Trump has made it apparent America will be doubling down in Afghanistan. I personally am sick of endless war, however, I’ll consult my Military / Special Forces friends before I form any conclusions on the decision. Strange times we live in, folks.

I am not sure what the market reaction to this news will be but I would suggest a particular interview by Ray Dalio for clarification from a investor’s point of view.

As for Ray himself, he is one of my favorite investors and makes very good points on a consistent basis. And, if you want to be a successful investor yourself, you need to get to know his approach to the financial markets. Watch his video on “How The Economic Machine Works”—pay close attention to the section on Populism.

Interview: http://www.businessinsider.com/bridgewaters-ray-dalio-advice-to-individual-investors-2017-4

Robin Hoods:

Last weeks leader board contained AMD, X, USO & FCX—all of which, except FCX, were dragged down by the market’s change in direction.

AMD—Advanced Micro Dynamics

As mentioned this shift in market momentum has this one fluttering in and around support. A short strangle may be on the horizon early this week if any of you have Naked Puts issued. Long term, however, assuming the market doesn’t tank, I am still bullish on AMD.

X—United States Steel

 

Like AMD, the market has hampered it’s climb. X hasn’t broke down yet, but could very well do so this week. There is still a target of 25 issued on the stock, but we will have to see what happens this week. I still have Naked Puts issued on the stock, however, I am ready to Strangle the trade if need be. Stay frosty as X has a large A.T.R.

USO—United States Oil Fund

Crude oil is in a curious position at the moment. One day its moving north, the next day its breaking down. On a daily chart crude is completing a bullish-retracement. On a Weekly chart, however, its bearish. Unless you are Johnny on the spot with management I would suggest waiting for confirmation. If you are already in the trade, play that Short Strangle or consider realizing your gains.

FCX—Freeport McMorhan

Bullish… Metal(s) prices are on the rise, a target of $16 per share has been submitted, and volume has been maintained.

GDX—Vanneck Vectors Gold Miners E.T.F.

Well… I thought precious metal(s) last week were going to have a reverse—thus, we may have missed out. However, if the geo-political situation continues to worsen precious metal(s) ought to maintain direction. If you look at the 1 yr / Weekly Chart there is a nice squeeze forming, it could pop north if conditions are right.

Targeted Stocks:

FSLR—First Solar.

Well, she got beat up on Monday and looks to be in a good position for a covered call, potentially dropping to $43 and change.

SPWR—Sun Power.

Sun Power has a text book “head and shoulders” pattern forming. It very well could drop to $7.50 if momentum carries.

TSLA—Tesla Motors.

Realize gains if you haven’t already, Cover, or Strangle or simply and back-off this one for a minute. I can see it going down to $325 per share, potentially more over the short term. I can also see it hitting that $325 zone and bouncing north, rapidly. As Matt would say: “some of the most profitable trades where the ones I didn’t make.” When in doubt, just leave it be for the time being.

Environmental Hedging: Step One, Naked Put Revisited.

So a couple new practitioners reached out with a few basic questions: “What is a Naked Put?” and “Whats a Covered Call?” Mostly, what is a Naked Put, though.

Naturally, I went over the Naked Put trade at the beginning of this blog, but there were not very many of us following the blog at that time. I have no problem going back to the start, its called repetition ladies and germs.  

In essence when a trader writes a Naked Put they are partly acting as an insurance salesperson as well as telling the market that they are interested in ownership, but will only assume ownership if a series of conditions are met:

1. I would like the stock or E.T.F. at a discount—one which corresponds to the strike price sold.

2. I don’t necessarily want shares at this moment, maybe in 30 days. Although I reserve the right, I am not obligated to take assignment and you can always close the trade. Now, 80% of the time the strike price is not touched and unfettered cash-flow is received. That, and the naked put profits from neutral and bullish trends and there are three rules to the naked put:

 

There is a Delta rule, a Theta rule, and a Position-Size rule. These rules are to be followed without variation. This is very important, folks. Do not break the rules. The rules are designed the achieve a certain harmony between directional probability, premium, and time-decay. The rules not only keep you safe but also place you in the sweet spot for profit.

1. Delta Rule: Sell a Put Option(s) closest to .20 Delta.

2. Theta Rule: Sell a Put Option(s) closest to 30 days out from expiration. Do not do weekly options. Choose more time than less.
   

3. Position-Size Rule: Do not sell more than you can take ownership of. In other words, have the necessary collateral in your margin account to cover assignment if assignment takes place.  This happens if the contract that was sold

 

This is the trade implemented in the Robin Hood section of the blog and you simply rinse, wash, and repeat the Naked Put over and over when conditions are right. Also refer to the Naked put videos in Tackle Trading’s video archive(if you are entirely new to trading or this particular trade I would first suggest practicing them in a paper or virtual account before going live).

Then with the profits cleaved from Step 1, you compound those gains in Step 2—the Covered Call on environmentally friendly stocks; that, or use said profits to be more environmentally friendly—of which Ill go into greater detail next week: Stay Tuned!

Cheers,

Bob Shannon

The video is of Rob and I getting down and dirty at the Sziget Music Festival in Budapest, Hungary. Enjoy!

Next week we are off to Croatia and the Balkans.