At least, it sure looks that way at the index level as the biggest of the big caps begin new legs higher.
Though, curiously, the two short positions I have on are also showing signs of working out for us.
With $VIX readings continuing to remain low, most bullish bets I’m looking at involve buying options premium since it is quite affordable in this environment.
In this week’s portfolio review, I fielded an important question: “What’s an appropriate account size for trading options?”
Of course, there is no one-size-fits-all for options accounts. But I get into a number of considerations to mull over to determine what is the right size for you.
OK, the title of this note is a little tongue-in-cheek.
But let me explain.
I’m a rules based trader. I’m nothing without my rules. Without rules, I’m just a trader pissing in the wind, driven in multiple directions by my volatility and ever-changing emotional reactions to my intraday PnL.
That’s no way to live.
Once I committed to being intentional about every trade I put on, my trading jumped to a new level. This process includes a thoughtful rationale for my thesis, position sizing, stop loss, and profit-taking levels.
So these days, whenever positions are moving either for or against me, I take comfort in knowing that I don’t need to make any new decisions – even as my emotions tug at me to do something! I already know what to do because I laid it out in my original trading plan.
And for me, that works 95% of the time.
Why not 100%?
Because nothing is perfect. Not the setup. Not me. Not the rules. Nothing.
Occasionally, I need to use a little discretion. Thankfully, not often. But when I do, I do it from a position of strength.
In what has become pretty well documented over the past two years or so, our Uncle Warren Buffett has been accumulating a very large position in Occidental Petroleum $OXY. He's been making his buys in the neighborhood of $55-60 per share. Like clockwork, every time $OXY has traded below $60 per share, we see new Form-4 filings disclosing another large purchase by Berkshire Hathaway.
We at All Star Charts were a little ahead of the crowd on this trade, having sold puts numerous times in $OXY over the past two years at these levels to take advantage of elevated options premiums and the "Buffett Support Zone."
I received a well-meaning question from one of our clients today regarding an open position.
This client missed getting into the trade a couple of months ago.
Paraphrasing her question, she asked, “Since the stock is still above your stop loss level, would it make sense to buy the dip here, and/or would you add to your position here?”
Again, it's a well-meaning question – one I’m sure we all often wrestle with.
The problem, however, is that the position isn’t acting well. It’s a longer-term trade for us and still has a ways to go until options expiration, but the stock is currently trading well below the level at which we first got in.
In the chart below, you can see where we entered at the purple circle:
We love our bottoms-up scans here at All Star Charts. We tend to get really creative when making new universes as we want to be sure they will deliver us the best opportunities the market has to offer.
However, when it comes to this one, it couldn't be any simpler!
With the goal of finding more bullish setups, we have decided to expand one of our favorite scans and broaden our regular coverage of the largest US stocks.
Welcome to The Junior Hall of Famers.
This scan is composed of the next 150 largest stocks by market cap, those that come after the top 150 and are thus covered by the Hall of Famers universe. Many of these names will someday graduate and join our original Hall Of Famers list. The idea here is to catch these big trends as early on as possible.
There is no need to overcomplicate things. Market cap is a quality filter at the end of the day. It only grows if price is rising. That's good enough for us.
[Note: We entered this trade on June 4th following the entry trigger. Details below]
On today's Flow Show, Steve Strazza brought the heat.
It appears Bitcoin is about to start another leg higher. It's showing all the signs: A tightening consolidation on the verge of an upside resolution. And with the 100,000 level on the watch list of every professional and amateur market speculator, it's hard to believe that the next bullish breakout does not include a run to and through this highly watched level.
Despite some messy action from the broader market in recent months, risk appetite remains elevated.
How do we know?
The stocks that investors are betting against the most are making big moves... to the upside.
And we know just what to do in these environments.
We look to our freshly squeezed universe and find the most heavily shorted stocks. We wait for momentum to come into these names, and we ride them higher while the shorts get squeezed.
We got new short data recently, so let's talk about how we're playing it.
Our scan is quite simple. It is designed to identify stocks with the most aggressive short positions. When a stock is shorted, it means incremental buyers are waiting in the wings to close out their bearish bets.
We love this, as new buyers are the one true catalyst for higher prices.
When shorts are proven wrong, they become buyers of the stock. In many cases, this happens as momentum flows into these names and fuels massive short-covering rallies.
If there's one thing Brian Lund learned about himself over the past 30 years in the markets, he must write. Without a doubt, without even thinking about it, he knows that to express himself and to complete his thoughts into productive trading, he needs to sit down and start writing.
And this makes sense. We hear this a lot from our smart friends.
Barry Ritholtz once wrote: "I write to find out what I'm thinking."
In this conversation with Brian, we get into the importance of sleep hygiene and how it's so important for us to be at our best. Not just in trading, but in living.
We dig into challenges Brian has overcome along the way, including an ADHD diagnosis, and morphing from an always-on entrepreneur who constants has problems to solve to a trader who must sit on his hands and wait for things to happen.
We also cover his hacks like therapy, meditation, and a CPAP machine to help him maintain his sharpness.
