Well, I survived the first blog, and even got a few nice comments from students and coaches, mission accomplished!!…just kidding, mission is not even close to be accomplished, we are just getting started with this. I’m excited to write again, especially considering all the things that had happened during the last three weeks: I took profits on the system and compounded in more gardening, got called-out on stocks I owned and had to sell them, re-issued naked-puts, took profits again…aaaaand my kales are growing healthy and fast. Pretty much full cycle in two weeks. But let’s kick it off from where we left last time as I promised a few things for this second blog. 

“Previously on Environmental Hedging…” I introduced myself and talked about how I got started with trading and with EH Trading Camp in SLC. I shared my perspective of early stages of trading this system, and emphasized the importance of compounding out of it in a few different ways, starting with a small account and little trading millage. That, and I promised to line up my goals for this year, so let’s get to it. 

2018 Goals from EH system 

As most of us do, every January 1st I define my goals for the entire new year. And this year for the first time, on top of the standard non-realistic wish list (work out/eat healthy/lose weight/get a raise) I actually talked to my mentor and defined specific trading goals. They are my anchor and keep me aligned and focus every time I hesitate about trading or whenever the market is crazy. So I figured we should also set some expectations for this blog and for the system as well, right? Here we go, these are my goals and commitments for the rest of the year. 

• Share every week some set-ups on the targeted trading tools through this blog, as Bob does, and through some opinions in how to best approach these plays with a small-ish account. So then each of you can pick your poison in what/how/when to trade them weekly, aligned with the system and following your own rules. 

• Share lessons learned from trading  the system. I will definitely have losing trades so it is my intention to learn from them and share with you the ones that did not work out due to some rule-breaking behavior, rather than price action. Maybe I can save you a few head-aches. 

• Monthly compound: If successful, I should be spending 50% of the blog around this topic. I am hoping to share through this blog and with the Tackle Trading community the monthly compounding in stocks, gardening and/or travelling…Your call. And I expect some feedback too!! 

• Go visit Bob (I had to put it here…otherwise he might not let me. Now is written, sorry Boss!) 

Now let’s talk trading: February strong retracement left us with some well-defined support levels, those type of levels below which I would feel confident selling puts at. However earnings coming up and extreme volatility are keeping me on the sidelines for a bit. I am mostly Iron-condorized this month, but below is what I see and what I’ve been doing lately with a very controlled position sizing. 

 

 

 

 

AMD (naked puts) 

There is a historic support level around $9.5 – $10, so I issued naked-puts below that a few weeks ago after showing some rebound behavior over that level. I took profits this week and used to buy some extra veggie seeds and gardening supplies, as you’ll see later in the blog. I will let this one settle next week post-earnings if it retraces back to 10ish I might sell puts with similar strike-prices below that level again. If ever assigned, just sell 0.40 calls until called-out.  

X (popcorn on the sidelines) 

I will be honest with you, I have suffered with this one during the last two weeks as it has tested my emotions and ability to stick to my rules (rule: avoid earnings unless you don’t mind getting assigned). Here’s why: it hanged around $35 for around two weeks. With a very strong support at $33 and exceptional premiums, I cannot count the number of times that I drafted a $30-$32 naked-put in TOS, getting around 19% ROI on a 0.15 delta and 30ish days out trade. But let’s step back for a second, chill out, have a drink and think through this one…We should ask ourselves, how is it possible to have such a great rate of return in a solid technical-based trade with very high probability? Isn’t it too good to be true? Well, the same thing that Eva should have asked herself when she saw that low-hanging-juicy apple. Here’s the hint: United States Steel had earnings announcements on April 26th, and although it’s been doing good lately, it’s not a super financially strong company. On top of that, US tariffs to steel and aluminum will be reviewed on May 1st and outcome is still uncertain. Riding a naked-put trade during earnings on this puppy would be way too much risk at least for my account. If you don’t know how dangerous earnings can be, then look at the next one on this list. 

FCX

Bye Felicia! 

 

 

 

 

 

 

SPWR (naked-puts and covered calls) 

I had part of my position covered, and three days before expiration with max profit of my covered calls, SPWR announced the acquisition of one of their competitors in the US to increase production of one of their main product lines, and also reduce the exposure on the aluminum and steel tariffs by producing now in the US as well…the stock jumped 17% in two days and I got called-out at $8.5. I locked in decent premium on the calls plus a 7% gain on the stock in two months, and I still own 100 shares so I don’t complain. The day it broke above $9.6 I issued naked puts. Unfortunately, one day after some stupid analyst downgraded the stock and it retraced. But I don’t really care since I want to buy it back. Today’s set-up actually looks even better to issue $7 or $7.5 naked-puts as long as you are also looking to buy the stock. If not, then wait until post-earnings. 

TSLA (popcorn on the sidelines) 

It’s OK that Elon moved back to the Gigafactory to rump-up Model 3 production, but I am not touching TSLA until the first or second week of May in which I will look for a combination of a good directional set-up plus some residual Implied Volatility to sell a spread. On top of earnings, the chart looks nasty right now and it broke a strong support, now resistance, at $300. Popcorn on the sidelines for me…  

FSLR (naked-puts and covered calls) 

I’m a little bit overexposed to solars with SPWR right now (shares, cov calls and naked-puts), so I am not playing this one. In any case, earnings is being announced as I write this blog so I will not touch it until at least next week. If it breaks above $79 I will definitely jump in with a bull-put or so. 

 

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COMPOUNDING: I’m all about that Kale, ‘bout that Kale…no treble. 

Trading wise, as I mentioned I will seek to re-buy SPWR shares with the profits from AMD and a few other trades next month. Now, let’s talk about what we all know I like the most…because as a proud daddy that talks about his kids and shows their pictures to absolutely everybody, I had to wait two long weeks to show y’all my babies. They say that a blooming rose bush catches the eye of admirers, but it grew from a seed buried in dirt…pretty much as my kales, if you don’t believe me look by yourself!! 

Now as Bob mentioned in his blog, the market is experiencing a fight between bulls and bears, that and Mr. Twitter is toughing gasoline into every little fire he sees, not to mention earnings season half way in. We are obviously not in a very trading-friendly environment right now. So how do we keep trading and control risk? We do it by being smarter at profit-taking, diversifying with bullish and bearish trades and trading with smaller-than-usual position size. For example, if my position size rule is let’s say six contracts, I might sell three contracts now and another three once the first ones are either half-way to expiration or half-profit locked in.  

See, since gardening is pretty much like trading, I can illustrate this idea with a real-life example. My Houstonian friends will agree if say that the weather in Texas around this time of the year is as volatile as the current market. We literally had a 90-degree afternoon this week, and a 40-degree morning last weekend. Since I am not willing to risk an entire generation of veggies at once and leave my wife kale-less during May, I place a kale and lettuce trade (aka planting) a month ago, then another round two weeks ago (with the first blow), and a third round of them this week. That way I have two benefits: avoiding loosing-it-all at once, and also ensuring a monthly veggie income, by planting more every time I am about to take profits (aka harvest) from the previous round. Comprende? If not, see it yourself. 

 

 

I hope you liked the analogy and that you are also finding ways to compound from this system as I am. Control your risk and take profits, so you can keep growing your garden and your account! 

 

Cheers,  

Franco.