Early Retirement Extreme Forums

I wrote my first put option last week. I sold 8 GE $10.50 contracts with expiration on Nov. 23. Lets see if it holds up...

GE just cut their dividend to $0.01

FAANG continues their return trip from the stratosphere. It's clear that some market participants want them back up again. Lots of bounces and relief rallies. Almost every day, there has been an attempt. So far, no good.

Funny thing, if you're not [heavily weighted] in FAANG (either directly or via index funds), you're probably doing okay.

jacob wrote: ↑

Tue Oct 30, 2018 9:56 am

Funny thing, if you're not [heavily weighted] in FAANG (either directly or via index funds), you're probably doing okay.

Are you really though? Isn't like half of sp500 & nasdaq shares in bear market already?

I own precisely 0% FAANGS but recent times haven't exactly been great for the small portion of my portfolio in USA stocks.
P&G have done amazing
IBM, less so
GE, lol

I'm amazed by ibm by the way.
If they weren't a tech company I bet they would have a higher valuation. Sure, they seem to always go out of their own way to do idiotic things*, but they make a lot of money and they have an 8.something PE ratio with very stable earnings and overall good business.
Sure they have no growth, but in this environment I would take stable+making money any time.

Together with Tesla still being worth above $0, it proves how hard it is to predict stock moves with logic.

This is why I own 40%+ indexes

*in retrospect, I maybe should have considered this

If you are more weighted toward stable, value stocks you're likely doing better than the indexes, at least from my perspective. Until today, I was beating this pullback by around 50%. Now it's like 30-40%. Today the old paradigm of go go growth stocks has stepped back in because of the jobs/wage report. We'll see how long it lasts.

IBM scares me a bit but until they start a healthcare group and a capital group....I'll hold...

Lemur wrote: ↑

Sat Oct 27, 2018 7:26 pm

I wrote my first put option last week. I sold 8 GE $10.50 contracts with expiration on Nov. 23. Lets see if it holds up...

Well geez.

In any case....I think GE cutting their dividend is good news. They need money and paying out dividends just doesn't make sense imo. I also agree with the recent move in selling off unprofitable business projects and focusing on the businesses that are profitable. I doubt the stock will bounce back up to $10.50 by November 23 (technically I need it to be $10.28 to break even w/ premium) but we shall see.

The good news is ...perhaps I've just convinced myself but I think even if I get assigned the shares it won't be such a bad thing. GE should be poised to bounce back. Perhaps if I am patient the stock can get back into the $20s in about a year or two.

The reason why a company doesn't cut it entirely to zero even if they need all the money is the realization that many investors and funds will not buy a company if it doesn't pay a dividend or doesn't have a history of it. Many investors just check a box on their screens. Same behavior for ETFs. Another example is dividend growth ... where companies under pressure raise their dividend 1 cent or even half a cent at a time just so they can maintain their status as a dividend grower or aristocrat. Thus by paying $0.01, GE stays active in those ETFs and portfolios.

jacob wrote: ↑

Tue Nov 06, 2018 8:32 am

The reason why a company doesn't cut it entirely to zero even if they need all the money is the realization that many investors and funds will not buy a company if it doesn't pay a dividend or doesn't have a history of it. Many investors just check a box on their screens. Same behavior for ETFs. Another example is dividend growth ... where companies under pressure raise their dividend 1 cent or even half a cent at a time just so they can maintain their status as a dividend grower or aristocrat. Thus by paying $0.01, GE stays active in those ETFs and portfolios.

Did not know this. Thanks!

Edit: This actually violates Wash-Sale rules (buying a similar security) so I cancelled this order but left the post here. Initially, I thought this rule is bypassed for derivatives if you sell the option +30 days out. Turns out this is not the case. Looking into selling AMD puts now.

Sold my shares in General Electric for tax-loss harvesting purposes...took a big loss relatively speaking. That was a good 2% of my networth. I'm aiming to sell GE puts again; this time at $8 strike price $567.00 premium after fees. This puts my breakeven price at $7.19 per share. GE rallied a bit today but will have to fall tomorrow to get my order executed.

I chose an option that is more than 30 days away due to tax-loss harvesting requirements of the 30 day rule.

More details...

GE Current Stock Price: $7.74
Expiration: Jan 18, 2019
Strike Price: $8.00
Contracts: 7
Ask Price of Option: $0.83
Shares Represented: 700
Cash Required: $5,600.00
Premium (-fees): $567
Potential returns if GE is $8.00 or above: 10.13% (Premium - Fees / Cash Required).
Breakeven Shareprice: $7.19 (Cash Required - Premium - Fees / Shares Represented).

This gives me 3 outcomes in order of what I want to happen:

1.) GE rises above $8.00 or more. I keep the premium, avoid share assignment, and walk away with a 10.13% return within 51 days. Play the game again.
2.) GE does not reach $8.00 but stays above $7.19. I still keep the premium, but get assigned the shares; I can still sell the shares at a loss; however, due to the premium I will still come out profiting in the end. Play the game again.
3.) GE does not reach $8.00 and also drops below $7.19. I still keep the premium, but get assigned the shares; I would have to sell at a loss at this point or I could just hold on to GE in the long-term.

I may consider putting a much larger stake in GE for the long-term (and leave the sell put option game altogether) if evidence becomes clear that GE is truly turning around; but this may be a while considering debt problems.

With AMD up 6% today (rallying with the market), I am in good position to win this one. I bought this last Thursday.

Stock Symbol AMD
Expiration Date 1-Jan-19
Put $ $21.00
Contracts 2
Purchased @ $1.54
Shares Represented 200
Cash Required $4,200.00
Premium (- fees) $299.00

Potential Return 7.12%
Breakeven SharePrice $19.51

Dipped back into correction territory for the 3rd time since Oct 3rd today.

Besides being in correction,
- Negative for the calendar year
- Total return of VOO for the past year is now negative
- Also below 200 day SMA
- >80% of U.S. stocks are below their 200-day SMA
- New highs vs. new lows (highs and lows over past 52 weeks) is 97% vs. 3%

I'm now 100% cash since all of my chosen asset classes(global large cap, global small cap, local mid cap, EM equity, PM) are all below their 200 SMA. Boring but safe. Interesting to see when I'll get in again and where.

Those DOW & S&P 500 charts start to look really scary.

Looks like traders are beginning to sell quality issues to cover margin calls. Everything is down. No distribution patterns I see.

(Recently I went through all my stuff and sold almost everything with a high debt/capital ratio, the exception being T)

Should also keep in mind that technically the Fed is in charge of regulating the money supply to the economy (which has more than enough cheap cash available), not the price of the stock markets. It would be quite welcome if they would keep hiking.

Add: It's also been a while since I've heard anyone chanting things like "buy the dip" or "stocks are on sale" whenever the market declines by 2%.

jacob wrote: ↑

Mon Dec 17, 2018 3:24 pm

Looks like traders are beginning to sell quality issues to cover margin calls. Everything is down. No distribution patterns I see.

(Recently I went through all my stuff and sold almost everything with a high debt/capital ratio, the exception being T)

Should also keep in mind that technically the Fed is in charge of regulating the money supply to the economy (which has more than enough cheap cash available), not the price of the stock markets. It would be quite welcome if they would keep hiking.

A lot of technical traders probably had stop losses triggered. In Dow Theory a failure swing (in this case the official break of the uptrend on the 1 year chart) just got triggered. The level that signifies a downtrend in this case according to that was S&P 2575.49.

Considering the (abysmal) track record of investors and economists being able to foresee a recession, is it not revealing that headlines are now shouting “Recession in 2020?”

“Truly, the real black swan problem of stock market busts is not about a remote event that is considered unforeseeable; rather it is about a foreseeable event that is considered remote. The vast majority of market participants fail to expect what should be, in reality, perfectly expected events.”

Mark Spitznagel

Fed hikes from 2.00-2.25 to 2.25-2.50% as expected. However, further projected 2019 hikes cut from 3 to 2.

Even though the bond market expected this, the stock market apparently didn't. *Ding!*

Add: Not exactly an orderly reaction. More like risk-off than interest-up

Interesting interview with Stan Drunkenmiller. I like his comment @29:15 that one of his investing strengths was being open minded.