The case for swing trading, options or stocks II

For Ray, excellent physician and stock market aficionado, also my nephew, Godson and think-alike

 

So let’s continue building our case with a real life example, now I’m sure CVX is an excellent company suffice is to say all my trading is based in technical considerations, with thousands of stocks trading, we retailers don’t have the time or manpower to nibble in fundamental analysis, also I personally, subject my trading for 2 or 3 days tops.

After I identified weakness in the oil industry at the time of my trading, I started looking for a weak stock with enough liquidity in the options chain, and choose CVX

 

On Nov 27 it made a kind of blow off top, it went for a gain of 1.3% in the day and ended -0.26% in the lower half of the range, that got my attention.

 

 

 

On December 2 at midday it was trading down so I open my put position, immediately after I bought my puts at 1.24 it reversed course, I ended the day with a 50% loss in my position

 

 

Certainly I don’t do intraday trading with stocks options, for that futures is better for me, my analysis was for 2 or 3 days, I also trade with a target using modeling for option prices, they are available over the web with the Black-Scholes calculation

By the way, those 2 guys together with Merton won a Nobel Prize for their option pricing modeling.

 

Continuing with my case

Next day although the stock ended down, my position ended losing money, I readjust my target for next day.

 

On 4 Dec, the stock dropped and my target is reached, I ended the day with a 20% profit in 2 days, in that period the stock went from around 160.35 to 158.40, had I shorted the stock instead of opening the puts my profit would be 1.2% in 2 days.

 

 

 

 

 

Writing this I checked the options chain, My puts ended today at 2.21 bid, a 78% profit, of course I sold 3 trading days ago and left big profits on the table, but I take comfort in, quoting from Linda Raschke’s rules:

 

“Except in unusual circumstances, get in the habit of taking your profit too soon. Don’t torment yourself if a trade continues winning without you. Chances are it won’t continue long. If it does, console yourself by thinking of all the times when liquidating early reserved gains that you would have otherwise lost.”

We’ll be on vacation until Dec 2, see you next year

Shalom all

 

The case for swing trading, options or stocks

 

As we said before, sectors and individual stocks, with thousands of companies to search for, with limited resources, it’s a bit of a problem

 

We follow 700 + companies with the following characteristics

Av Daily Volume > 1,000,000

Market Cap > 5 billion

Stock price > 10

So we like to measure different parameters

 

60% of those companies ended down 12/2, however the SP500 ended up

37% on nov 29

47% on nov 27

56% on nov 26

28% on nov 25

 

56% have negative momentum at close compared with 49% at Fridays close

Only 15% are trading at the close with negative slope

 

Let’s see the oil industry

85% ended down on 12/2

19% on 11/29

53% on 11/27

59% on 11/26

88% on 11/25

 

I ask myself, if this is a short term pattern for shorting stocks on that group, well most of the time all groups move in tandem so if the general market is not going down, its better to stay away from shorting, but, the oil industry is weaker than the general market, or is it the end of a short term down pattern for that group, if that’s the case the stronger stocks will be going up

 

Then you have the case for individual stocks, if it is a weak group, is better to short one or two stocks or the industry’s ETF. With a swing strategy for 2 or 3 days tops your benefits are limited unless you trade a lot of money.

 

For example, you short 100 shares of a 20 dollar stock, it is a 2,000 dollars trade,

case the stock goes down 1% in 2 days, 20 dollars profit

case the stock reverse and closed up 1% in two days, you lose 1% or 20 dollars

 

Now let’s make an hypothetical case with options

Let’s assume

20 exercise price

20 current stock price

18% implied volatility

4.27% risk free interest rate

Time to Expiration 16 days

The put option is trading at 28 cents, again this is all hypothetical using a option valuation model, reality can be like that or not, others factors go into option valuation, also you need a liquid contract

 

Two days later the stock is trading at 19.80

The model value for the put contract is 37 cents, that is 33% profit

 

To be continued………..

El Caso para el swing trading

 

Nosotros como retail investor, es decir trader o un inversionista que no dispone de recursos de investigación ilimitados como tienen los grandes mutual y hedge funds, preferimos el trade a corto plazo, las acciones de compañías están sujetas a múltiples posibilidades de cambio a lo largo del tiempo, imposibles de determinar para el trader común por ejemplo:

 

De la primera semana de enero de 2024 al cierre del viernes, 230 días de trade, el índice SP500 subió de 4697 a 6032, un 28% de retorno year to date

 

 Veamos el 2022 en el mismo periodo, inicios de enero a 2 de diciembre, el SP500 en ese lapso fue de 4677 a 4071, bajó un 13% en casi un año

 

 Y si tomamos 2022 y 2023 completos desde inicios de enero 2022 a diciembre 2023, 2 años enteros tenemos el SP500 desde 4677 hasta 4769, es un 1.97% en 2 años, mucho menos que el rendimiento de cualquier bono corporativo en ese tiempo.

 

Si volvemos a year to date hasta el cierre del viernes pasado, ese 28% de retorno del índice es impresionante, si hubiésemos comprado acciones del SPY en ese preciso time-span tendríamos ese retorno hoy,

Y que hubiera pasado si fueran compañías individuales:

Nosotros seguimos el comportamiento de 730 compañías publicas en el universo de capitalización de mercado mayor de 5,000 millones de dólares, mas de un millón de acciones negociadas diarias en promedio y precio mayor de 10, dentro de ese grupo están representadas todas las industrias, de ese grupo year to date, 435 tienen retorno positivo, un 60%.

Si compraste la acción apropiada a principios de año, por ejemplo, usando compañías cuyos productos y servicios son comunes a la mayoría de nosotros:

 

NVDA paso de 49.5 a 138.25, un excelente 180% de retorno,

 

 

 Royal Caribean, la línea de cruceros que seguro muchos de nosotros han sido sus clientes en algún momento, esa compañía subió desde 129 a 244, 89% de aumento del precio. 

 

 

Netflix, seguro todos somos sus usuarios, NFLX year to date tiene un retorno desde 486 hasta 886 el precio de una acción, 82% de retorno, por ahí todo bien.

 

 

Y si la compañía que compramos a inicios de 2024 para tenerla un año completo en nuestro portafolio no fuera la indicada, por ejemplo

 

Intel, casi todas nuestras computadoras han tenido Intel Inside, reyes del mercado del chip, en 2024 su precio ha ido desde 46.27 hasta el cierre del viernes pasado a 24.05, INTC perdió casi un 50% de su valor en 2024. 

 

 

 Y que tal ESTEE LAUDER, no hay un mall o tienda por departamentos que no tenga en sus sección de cosméticos sus productos, además está en operación de finales del 1940, una inversión segura pareciera y seguro lo es a muy largo plazo, sin embargo en 2024 su precio ha ido de 143 a inicios de enero a 72 al cierre del viernes, es decir este año el precio de las acciones de EL ha perdido un 50% de valor.

 

 

Les aseguro que abrir su portafolio y ver sus inversiones en rojo durante un año es una experiencia que no quisiera nadie tener.

 

Continuará…….