By: Steve Smith
This week, I took to the woods of Tennessee, to spend some quality time with my father. Filial bonding aside, getting into nature has given me a new perspective on the stock market.
Recently, there’s been significant cross-currents of economic data, leading to daily/weekly rotation between a variety of sectors — making trading anything but easy. For the past two-plus months, the S&P 500’s been range-bound, up until last week that is, which is when the index broke out.
In lieu of it, I’m reminded of Edwin Lefèvre, author of the classic Reminiscences of a Stock Operator’s, credo, “It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets.”
This is why I’ve kept my trades tight and light. For example, in my Options360 service, we exited a Microsoft (MSFT) bullish trade once it crossed the spreads’ maximum profit of a 57% return above $255. MSFT proceeded to go up another $10 or 4%, but I can’t play the “woulda, shoulda” game, which happens to be a great options book title by Charles Cottle that I highly recommend.
Overall, I’ve maintained a bullish bias and the Options360 portfolio’s currently up 18% YTD. Not a number that sets off fireworks. But remember, I do everything in my power to avoid the stress that comes with wild swings in my trading portfolio and I’m very pleased with making 45% annual returns.
Keeping this in mind, in two current positions in the Options 360 portfolio, Sketchers (SKX) and Akamai (AKAM), I’ve employed an options strategy known as a ratio back spread. Neither SKX nor AKAM have done much since initiating those positions — two and three weeks ago. Yes, I’ve taken weekly rolls to reduce the cost basis. However, other than that, I’m following Lefèvre’s credo and sitting tight with my bullish stance.
Today we added a new position in the Options360 service: video game developer Electronic Arts (EA), which looks to be breaking out. I’ll be keeping a close eye on it, as the formation looks like we can target a new high above $150 within the next few weeks.