Yellow Tackle Traders!
This week is “Van Week” and ladies and germs it was a fun week at that. Its good to be back in familiar territory for one, and even better to be out and about causing a ruckus with my good friends. We did a little of this and a little of that, highlighted by the “Slip n Slide” at the Utah Olympic Park, The Ultra Secret Gentleman’s Cook Club, a Starvation Lake fishing trip, and the Bonanza Music Festival in Heber City, Utah. We were threatened with a good time and we just ran with it.
Van, otherwise known by his Christian name, Josh “Van” Alstyne, is a superb specimen. He is a recently retired Green Beret from the Army Special Forces—a person who saw loads of combat in Afghanistan as a medic for 19th Group out of Salt Lake City, Utah.
Like most SF guys he is not a flashy guy, but seeping talent. That, and he most certainly has perspective that most of us will never have. And…he is a part of our trading community @ Tackle and a personal mentor student of Matt Justice. Basically, the best resume I’ve come across in years…
I brought him onboard this week to talk about his experiences abroad, his views on the wars, and how all of this relates to the environment. Believe it or not, it does…in very large way. And like any person from the warrior class there are certain principles which are upheld. I’m sure we have all heard the term: “silent professionals” once or twice? Well, that term is as much a term of modesty as it is a term of perpetual service to his nation and the ethos which guides it—“De Oppresso Liber”. (To Free the Oppressed).
To this day Van and some of his team mates from the Special Forces are silently making good on their promises and are in process of bringing their former Afghan interpreters to the United States. Since the federal government has been little help in this process they have taken it upon themselves to finish the job. They are here today largely because of those particular Afghans. We owe them a debt of gratitude.
Check out the full interview and please check out www.nooneleft.org.
Last Week’s Robin Hoods:
I am still riding high on X and added to my position. Ill do this from time to time and “ladder in” my position. Basically, this comes in two flavors: One, I may double my position as the trend picks up. Or two, Ill peel off profits and re-place naked puts at higher strike prices as resistance zones are broken—thus maintaining probability, position size, and an efficiency of money.
USO is making headwind and Ill will be out of the money in 40 cents more movement to the upside. I ought to make out nicely on that trade as well. Stay tuned.
FCX is starting to look salty and I anticipate issuing Naked Puts later this week if market conditions are maintained. Since were having a sell-off in the Tech-Sector, again, that $3.15 mark may take a day or two to be broken. Market is being a bit sluggish.
Environmental Hedging, Step 3—The Covered Call.
In Step 1 we identified net-negative corporations to “Robin Hood” capital from. In Step 2 we identified net-positive corporations to compound profits in via shares. And this week, in Step 3, we will go over how to cash-flow off of those positions using the Covered Call.
The Covered Call is, in essence, a rental agreement. Think of it this way: Let’s say you are purchasing a house for investment related purposes, of which, you do not plan on living in that house, whatsoever. You are just simply making the wager that in 20yrs it will be worth more in value than it is right now. If that is the case it would pure insanity to let that house sit vacant for 20yrs hoping it goes up in value, right? What you do is rent that sucker out to nice family that will cover your mortgage on a monthly basis until a good opportunity to sell is presented, right? The same goes for stock… Believe it or not you can rent out your stock.
This is fairly simple process, folks: Sell 1 call option per 100 shares owned, closest to .40 Delta, closest to 30 days from expiration. I would suggest reviewing the videos on Tackle pertaining to the Covered Call because there is a bit of fanes to this particular trade.
Specifics: The Covered Call is the antithesis of the Naked Put. In the naked put the trader owned nothing. In the covered call the trader has already assumed ownership of at least 100 shares of XYZ. The naked put is profitable in a neutral to bullish trend whereas the covered call profits from a bullish, neutral, and bearish tend. That said, it is important to note that it is the call option sold that covers the neutral and bearish zones of profit, not the bullish. The shares will, obviously, benefit from the bullish trend. So, if your shares are bullish, no need to have them covered. Wait until a retracement commences, then cover them. After the retracement has bottomed out and the shares are indicating a climb back up, collect your profits on the call and let the shares run, uncovered. Rinse, wash, and repeat this process, indefinitely.
Now, by way of selling call options against his or her shares, the trader is insuring a particular portion of value of his or her stock and renting out a particular amount of shares of his or her stock. But in doing so the trader also activates a contract that allows someone else in the market to take his or her shares if certain stipulations are met.
Yet, just like the naked put, the trader can manage Delta and Theta and avoid being called-out. In the covered call 60% of the time the trader cash-flows, the remaining 40% the trader may have to contemplate assignment. And just like in the naked put, assignment largely takes place at expiration, especially if the call(s) sold finish in the money.
So, let’s say assignment takes place and the call(s) sold netted a premium of $200, but the value of your shares in respect to the strike price sold is -100 dollars. Well, in this example, you will still make $100 cash-flow even if the shares are called-out. What you do next is rather simple, just re-buy shares at a lower price or they day after assignment—just depends on the trend and market conditions.
Now, compounding gains is the name of the game in Step 3, however. And since compounding is an art form in and of itself I am bringing on a special guest next week to explain the process. Stay tuned!
Compound Targets:
WFM—Whole Foods Market, Inc.
As mentioned last week I have owned WFM for several years now. If you are not an owner of WFM, however, I would have it on a watchlist until the Amazon deal comes to full fruition. I anticipate a neutral trend for now, unless of course, a bidding war begins. I do Covered Calls on this stock.
SPWR—Sun Power, Inc.
She is moving and moving hard. Had some amazing upside movement last week and a potential breakout on the horizon above $10. That said, the movement in and of itself was news-based—our toddler-in-chief made mention of using solar panels to help finance his great wall. This ignited solar prices, but be weary, this is not so indifferent to what happened with steel prices earlier this year, so no need to be putting the family farm on the line here. But if you have some Robin Hood money from X, this may not be such a bad place to compound—lots of upside potential. I do Covered Calls on this stock as well as swing trade my position when appropriate.
FSLR—First Solar, Inc.
Same goes for FSLR as with SPWR.
TSLA—Tesla Motors, Inc
Since there is a tech sell-off taking place this would be a great cash-flow opportunity for Covered Call. Since this is a high value stock, however, if you’re not an owner of the stock, Bull-Put Spreads would be an appropriate approach after it bottoms out. Ill go into greater detail next week as to my specific handling of Tesla.
Next week I will be coming to you from Heber City, Utah and Portland, Oregon. Also next week we have a bit of treat. The great Jake Pelley will do an expose on the art of compounding—which is essential to Step 3. Jake is a mentor student of Gino’s and is in the Legacy Hall of Fame. He is an incredibly accomplished trader / investor and legend has it he did somewhere upwards of 13,000 trades without a loss. Wow!
Until next week, folks!
Bob Shannon.
