Caio Tackle!

This week I’ve been joined by my old roommate from grad-school, Rob Young. In University Rob made a name for himself and true to his Hungarian roots he tends to not follow legal tradition. Since curiosity killed the cat he earned the nick-name “Kitty” in New Zealand where we were both philosophy / Econ majors. He is absolutely a riot and couldn’t be happier to have him on board.

Rob is also interested learning how to trade and I reckon you will see him in the clubhouse in due time. So far, he has taken to the basics quite well and has termed the art of derivatives backed trading as “A$$ Magic”. I have a funny feeling the kid will be great at this stuff—he has the necessary qualities in both emotionality and intellectual capacity. Very smart guy.

In other news, we called an audible on Naples and Tuscany and caught a ferry to the island of Sardinia to live in and out of a rental car, camp on the beach, and scuba dive as much as we possibly can. In short, this place rocks! It’s beautiful, the weather is great, “the beer flows like wine and the women flock like the salmon of Capistrano”. Evidently Sardinia is famous for its “year-round” Carnival and every Saturday is akin to Halloween in the United States. Great Success! … Next week I’ll have a video detailing the debauchery.

So last week a few of our positions had earnings, namely: X, FCX, FSLR, & SPWR. Personally, got out of X & FCX on Monday and wished I had not, lol. Both companies had positive earnings and I would have killed it. That said, I was taught a long time ago by Matt and Tim Justice not to play earnings with anything beyond a straddle—a lesson which I have stayed true to. I mean, as many times as I have seen positive earnings I have also seen companies get slaughtered. So, DO NOT be greedy and take your winners as they come. If you missed the ball on earnings and held your naked puts through the announcement, congrats! But, never do that again. You know who you are, lol.

As far as FSLR & SPWR goes earnings were hum hum. This is beneficial because we can hop back into them sooner than later and keep making money. Between the two of them, however, FSLR had a bit more upside action and held its own in the subsequent trading days.

Robin Hoods:

FCX—Freeport McMorhan

She had great earnings and moved upwards of 14%. Wow! We can rest assured this has much to do with the recent rise in copper prices as well as some major investments in the company made by the big boys. I plan on re-issuing naked puts come Monday or Tuesday.

X—United States Steel

United States Steel as well had positive earnings. However, its 7.5% jump to the upside was shy of the 8.5% market expectation and all upside gains were lost come Thurs-Fri. Its back in its original channel now and I am going to wait until Thurs-Fri to re-issue. I want to give it a few days and make sure there is not a reversal. There were some downgrades issued from buy to neutral, however, Moodys gave X a positive outlook late Friday night. Lets be patient on this one.

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

This one is pressed that breakout of 1240 mark and moved right pass it. 1300 on /GC is the next point of technical resistance. I will be throwing a light round of naked puts at it come Monday.

Targeted Stocks

SPWR—Sunpower.

Earnings for SPWR was on Friday was as expected and its business as usual with this one. Keep letting those shares run and take covered calls when they come. I am mostly uncovered on this stock.

FSLR—First Solar.

Earnings for FSLR was as well on Friday and gave the stock a nice little breakout above resistance. I look forward to seeing run. $60 per share is entirely possible. There may be a bit of resistance at $50, however. Which is close to where it will be opening come Monday morning.

TSLA—Tesla Motors.

Nothing new to report on Tesla. The stock is still fumbling that resistance point and earnings is right around the corner. I personally will not be touching it until post-earnings.

Environmental Hedging: System Philosophy Continued…

Last week we went over the notion of humility in the market, proper positioning sizing, and cautionary diversification. This week let’s talk about what I like to call “testicular fortitude.” Gino Poore taught me a lot about this tid-bit. Courage is important to being successful in the markets, sometimes you have to up the ante and must do so in the appropriate fashion. When you’re riding a freight train there is nothing wrong with taking advantage of the move. Just be extremely mindful that there is a balance involved on this one.

In fact, the balance between courage and humility is the ultimate of balances when it comes to trading. First and foremost, courage does not and should not mean a large position taken in a trade. I liken the definition more so to one’s ability to pull the trigger in the first place and not experience paralysis by analysis… Then if the correct price action is experienced, laddering in a larger stake, bit by bit. Furthermore, there is the question of the appropriate trade at the appropriate time. For example, when you sell something you can only make what the contract was sold for. As an owner, however, you technically could have infinite gains.

Even though most of my approach to the options market is as a “seller,” every once in awhile I will wind up and buy some options. Now don’t get me wrong, this is a rare occurrence but if a time arrives when you have three on base and no strikes it could be acceptable to swing for the fences, assuming your footing is solid. However, if that moment does arrive, be sure to refer to the notion of humility: “what is the appropriate position to take? Does this fit my portfolio? What is my contingency plan if the trade does not hit? Where can I hedge it if it goes against me? And what am I willing to lose?

Also, where does this freight train end? What is my target? Where will I ladder out gains and where will I completely close out my position? These are things that must be accounted for whenever you do something that is out of the ordinary. Going back to account structure and positions size there should only be a mere 5-10% of one’s portfolio that can account for speculation-like positions and / or directional trades. Do not go beyond that, folks. Just ask yourself the question: would you rather take 100k right now or would you rather be trading 30yrs down the road? A wise investor would choose the latter, always.

At the end of the day the difference between humility and courage in the financial markets is question of time and comes down one’s ability to recognize the appropriate time and place for each one. A novice trader should always be humble. Whereas an experienced trader has earned the right to be courageous, even though they will often be humble in their approach. When I was being taught how to trade I did precisely what the coaches at Tackle told me to do. I did so without variation and was unquestioning as to why. As I gained experience I also gained courage and very quickly realized that this stuff would eventually change my life and the lives of my friends and family for the better. Now I am sitting on a beach, boat drink in hand and could not be happier. Have the courage to do the same. Thank you, Matt, Tim, Noah, Gino, and Keith, for all that you have done me. Cheers!

Until next week Tackle Traders!!!

Bob Shannon.