How goes it Ladies and Germs!?

So last week we got a taste of Europe after the sun sets—that uncanny aspect to Travel. This week, however, were going to where the sun rises. We have been getting around in Rob’s Grimace Van which sleeps two and has 3 functional gears. Its hilarious and keeps us under the radar here in Eastern Europe. This next few weeks, however, I am going to give hitch-hiking a go.

So far Croatia has been my favorite. It reminds me a lot of the backside of the Cascade Mountains in Washington state mixed with Central Oregon and, well, Croatia…obviously, lol. Anyways its an incredible country chalk full of waterfalls, pine forests, mountains and the all so unique Croatian coast line. My next jump point will be Finland from where I will be making my way down through the Balkan states of Estonia, Lithuania, Belarus and Poland. I should have a montage video of my journeys come next week. Stay Tuned!

As far as trading goes last week we reviewed Step 1 of Environmental Hedging—the Naked Put. This week we will review Step 2 of Environmental Hedging—the Covered Call.

Now, keep in mind these trades were explained at the beginning portion of the blog, about 13 weeks ago and you can pull said articles from Tackle’s blog archives. That said, I have no problem going back over the trades themselves as they are an essential aspect of the overall system. I mean, to a large degree they are the system.

At the end of the day this system is really simple, folks. In Step 1 you do Naked Puts on the “Robin Hood” list. And then in Step 2 you take the profits cleaved from the Robin Hood list and roll that money into Covered Calls on the “Targeted Stock” list. Note: You also reserve the right to use your Robin Hood profits to buy environmentally sound products or subsidize personal infrastructure, like a garden or solar panels. It’s your choice.

Environmental Hedging: Step 2, Revisited.

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 and you do not plan on living in that house. You are just simply making the wager that in 20 years 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 20 years hoping it goes up in value, right? In that case 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.

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 after assignment—just depends on the trend and market conditions.

Robin Hoods, i.e. Naked Put Stocks / E.T.F.(s)

FCX—Freeport McMorhan

I would consider realizing gains on FCX and prepare for a bullish-retracement. On Monday there was a massive put purchase on the stock, potentially heralding a change in direction. You also reserve the right to Short Strangle your position if you so choose. Since I myself have sucked out about 75% of my premium I will be collecting profits, giving it a wait, and reissue Naked Puts after further bullish confirmation.

AMD—Advanced Micro Dynamics

As for AMD there was a massive call purchase on the stock… Like FCX this could be indicative of a shift in momentum. I have a healthy round of Naked Puts issued and hope to collect a decent profit sometime this week. Technically, the stock is still fluttering around support and could bounce north if market conditions do not worsen. Fundamentally, the stock is primed and ready to go. Keep an eye on it

USO—United States Oil Fund

Last week I submitted a neutral position for U.S.O. However, after hurricane Harvey I am going bearish on this one. Since the fund is based on American Oil Companies Im calling for an oversupply in the American market.

VLO—Valero Energy Corp

Hurricane Harvey and the flooding in Houston, Galveston, and Corpus-Cristi will have an affect on VLO. I am going to buy some puts on it sometime Monday. This is a speculation trade, however. I very well could be wrong, folks.

That said, someone also made the same wager and purchased about 6,000 put-options pre-market Monday. There is a lot of room for this stock to move south, especially since it is currently bouncing off a 5yr resistance point, it has not broke $70 per share in the last 12months, and is beginning to form a M-Formation…That and much of Valero’s refinery operations is in the Houston area. Indeed the stock could benefit from higher gas prices but I believe that will be overshadowed by a substantial slowdown in their refinery operations.

X—United States Steel

I still have Naked Puts issued on X but the stock ended the trading week in a curious position, technically. Its one of those preverbal “it could go both ways”. What the chart is representing is two things: 1) the already given analyst(s) target of $25 per share—which is where she resides as of Monday the 28th. And, 2): cheap steel being dumped dumped in the American markets. As of last week executives of many steel companies appealed directly to Ronald Trump to mend the issue. It it is effectively addressed steel prices could boom. If not, well, X could very well suck back to 22-24 dollars per share.

GDX—Vanneck Vectors Gold Miner’s E.T.F.

Gold prices broke that 1300 resistance mark and coupled with a bearish U.S. dollar we could see decent upside movement for Gold and Silver. I plan on issuing Naked Put late afternoon Monday.

Targeted Stocks, i.e. Covered Call Stocks

SPWR—Sunpower

I covered my position on SPWR on Monday… Im seeing a bit of a breakdown occurring and a good opportunity for cash-flow.

FSLR—First Solar

Same thing as SPWR. Im seeing a bit of a breakdown occurring and have my position covered. Bring on the cash-flow!

TSLA—Tesla Motors

As mentioned last week I am being very cautious with TSLA at the moment. This remains to be this week. Stay frosty!

Hope this helps, Tackle Traders!

Cheers,

Bob Shannon