Xiphos Trading

Commit To Change

A couple of months ago I mentioned that I had adopted a few things to get more organized for a few projects I started working on this summer. Some techniques were old, some were new versions of older systems like the Pomodoro Technique.  I mentioned on Twitter that I would try to summarize the system for anyone that may be interested.  Warning: this post is probably not for 95% of my readers.  It’s very detailed, rather prescriptive, but i just jotted down some thoughts quickly tonight to trying to get this out to a few people that said they would like to see what I had adopted. 

The beginning is rather a collection of ideas and sort of philosophies I’ve come across. I’ve given links to most of the material. So when you read the information below, assume that its from one of the sources linked…sort of the cliff notes.  I figure even if it helps one or two people make a positive change in their life, it was worth the effort to put this blog post together. 

INNER DIALOGS

Traders often view the level of their worth by the performance of their trades.  Bad performance can lead to a feeling of worth-less. The self critic is always the harshest.  What you produce is not your complete ability.

Your mind is a thought machine, it is not awareness you are the awareness, by itself, it is just a machine. The mind is like four wild horses running free pulling a chariot and rider without reins.  You need to take the reins. Your inner dialog is NOT in control…your awareness is in control.

People tend to procrastinate to escape inner conflict and anxiety.  It reduces tension temporarily by removing us from something that we view as painful or threatening.  Fear of failure, perfectionism and fear of success can all contribute to this destructive habit.   Breaking these types of habits requires a strong commitment, conscience choices, full responsibility for the outcome and an accurate self-awareness. 

Keep a procrastination log for about a week or however long you find it useful (see “LOG” worksheet in Excel sheet link near the bottom).  I read about this suggestion in The Now Habit by Neil Fiore.  Identify the negative self talk or rationalizations that are stopping you from getting started.  Replace them with a focus on one small step:  25 minutes of uninterrupted work on that task. 

Start changing your inner dialog into positive, productive, clearly communicated choices.  When is it that you will start again? Eventually, you will likely realize the insane lengths that you went to in order to avoid the pain you associated with the particular task. 

You will continue to procrastinate (including working on low priority items) until you adopt a strategy that allows you to find full satisfaction in working on your highest priority tasks. 

PLAY HARD, WORK EFFICIENTLY

“Life is what happens to you while you’re busy making other plans.”  — John Lennon

Regularly set aside time to play/relax…this is a must. It may seem paradoxical, but looking forward to regularly planned personal downtime is an extremely motivational and a rewarding tool for getting your work done. Schedule time to exercise, vacation, read a book or the paper, go out to eat with friends, etc. 

Neil Fiore call’s this “your proudly earned guilt-free play.”  Stop putting off living due to procrastination; avoid the vicious cycle of your life being “on hold”.  You can manage your time better and have plenty left over to accomplish the things you really want to do.  Work will not deprive you of the enjoyment of life if you incorporate guilt-free, regular play.  Schedule these rewards first and then plan your work around it.

YOUR MISSION: DEVELOPING YOUR GOALS

“People with no goals are doomed forever to work for people who do.” — Brian Tracy (@BrianTracy)

“Dream big dreams; only big dreams have the power to move men’s souls.” — Marcus Aurelius

I think it’s important to have a clear set of goals.  Start with writing down the following and review/refine them once every few days (it only takes 10-15 min):

• Bucket List:  30 Things you want to BE before you die
• 30 Things you want to DO
• 30 Things you want to HAVE

Some goals will be small, but don’t be afraid to make big life long goals. What would you like your legacy to be — what people remember about you?  A goal without a burning desire or purpose, is just a potential reminder to nag you where you settled or dropped the ball yet again. 

Know your outcome and find the beliefs that support it before you take action.  What I’ve found useful is the visualization of goals in bright, larger-then-life, intricate detail.  The more often and clearly you can envision these goals, the more likely your chances of actually obtaining it. There are probably several books that discuss this; I have tried to adopt Anthony Robbins’ method which I read about years ago in Unlimited Power. 

Don’t become the hapless traveler carried along the stream of life with little direction or clear path. Nobody cares about your lot in life more then yourself.  Exercise choice, including the ability to say no to things you don’t have time or desire to do.  Goals are extremely important, but at the same time realize it’s a waste of energy to constantly focus on a particular (especially “vague”) goal: focus on the process, stay in the present.

It’s critical to break apart daunting projects/goals into manageable steps or tasks.  The more vague and overwhelming it is the more likely you are to avoid getting started.  Get started on the first step; have faith that the next, small steps will reveal themselves as you get more involved in the task at hand.  One small step at a time in due course. 

I could write several pages about perfectionism.  Suffice to say there is no “perfect” unless you believe in a higher being.  It’s perfectly human to make mistakes, you will never achieve “perfection” so get over it and move on. Perfection is ever changing, so abandon this idea of perfection…it’s a ghost you will never find. Criticizing your mistakes makes “failures” only more likely.  It’s human to be imperfect so try to be imperfect by unlearning.

COMMITMENT TO START - THE POWER OF CONSCIENCE CHOICE

“Things do not change; we change.” — Henry David Thoreau

Choosing to do something, rather than avoiding it or arguing about it is empowering. As my father likes to say: “There is only one, small letter separating bitter and better — yet a world of difference between these two choices.”

Replace “I must finish” with “When can I start (again)?” This leads to the importance of planning.

First schedule your high quality, guilt free play.  Also, make the periods of work shorter and the rewards (breaks) more frequent. Make sure you reward your milestones along the way, regardless of size. 

Stay in the process, stay in the present - the worry goes away. The past (analysis) cannot be changed and the future (anticipation) can only be changed by the present.  It’s amazing when you knock off something that’s been bugging/screaming at you from your “to do” list for months, maybe years…and it took less than 30 minutes of focused commitment to accomplish it.  It’s very empowering.

HOW MUCH CAN YOU GET DONE IN 25 MINUTES?

Spending over a decade as a consultant, I realized early the importance of project management and accurate tracking of billable hours / tasks performed.  Without some sort of documented history and clear, workable plan, the hours and days just melt into one another.

I’ve tried a lot of different systems over the years and by far the best I’ve found for time management is a technique called “The Pomodoro Technique”.   If you want to improve your productivity and time management I highly recommend downloading the free PDF book at the bottom of the page at the above link and putting it into practice for at least a month - every day.  I like to say it takes three months to make a habit.

It’s a great technique, you can get an overview by it by reading the cheat sheet.  If you need to get a lot “shit done” and have been struggling to get started, this system works well. 

You can buy a kitchen timer (i.e. the Pomodoro), but I found this free focus booster app works good for me.  While you are at it, download the free version of Rescue Time monitoring tool to see how much time you are currently wasting every day on your computer.

I use an Excel spreadsheet to track my daily schedule. You can download  it here:  July Schedule (File/Download) - Maybe you will find that it is of use to you; if not, figure out a way that works:

• Read the Pomodoro Technique for details on how to use/track
• Each day is a separate worksheet/schedule
• Copy the worksheet “Template” to create a new day, label it MMDD (e.g. 0704)
• At the end of each day copy completed tasks to the “Records” worksheet and remove the tasks also from you task inventory (MS Office Task Manager, Evernote, Google Tasks, Excel, etc)
• Each month is a new workbook
• Use the Tally Worksheet (Pivot Table) to summarize the “Records” information

SOME ADDITIONAL TOOLS THAT I USE

I use a combination of tools — the key is to find something that works for you.  Here are some tools that I found useful:

• An everyday, comfortable watch
• Regular exercise at least 30min a day; make it routine, plan for it.
• These simple breathing and mediation exercises help with relaxation and focus
• Microsoft Outlook’s Task Manager to inventory “To-do’s” (I synchronize this with my iPhone). Organize tasks by category types, put details of tasks in the body of the task. Record estimated and actual hours spent, prioritize tasks. Filter out tasks that are completed from your view, but save them for reference.
• Microsoft OneNote for more detail projects, for example a job search or a complex project
• Evernote is a great free app that can be used to record information and can be synchronized to your phone.  For example, I use this to keep track of my goals and other non-tasks.

The choice is yours, whether it’s a positive change or some other alternative.  If you have questions about the spreadsheet or have other similar strategies that work well, I’d love to hear about them.

Good Luck and remember that: this Mission is uniquely yours…

Rick

Real Estate REITs … A double dip will crush them

I made a list of the ones that look the best to me from the short side: all REITs

This is based on:

Large market cap (options available),

High forward price/earnings ratio; the higher the better, but over 30 min

Elevated debt/equity ratio, preferably > 1.25

Reasonable short float right now – I don’t want to short something that’s already heavily shorted (8% of short is my cutoff)

Charts that look questionable (either they are sky high in need of breather or they are breaking down)

 IYR - Real Estate ETF: IYR

These are the ones I think look the best from my scans:

1.       SPG – Simon Property (already short, commercial retail) $35.4B, forward P/E 41, Debt/Equity: 3.59; low cash; short float  4.5% (con: super strong though..great relative strength on the weekly chart, bearish rising wedge on daily chart)

2.       EQR – Equity Residential Props (residential) $18.6B, P/E 62; D/E: 1.83; short float 4.6% // good relative strength lately

3.       BXP – Boston Properties (office); $15.6B, P/E 48; D/E: 1.69; short float kind of high 7.4% // con: good relative strength on weekly

4.       ESS – Essex Property Trust (residential) $4.6B, P/E:95, D/E: 2.0, Short 6.8% // con: good relative strength on weekly

5.       HST – Host Hotels & Resorts (hotel) $11B, P/E: 396, D/E 0.89; Short float: 6.4% // weak relative strength

6.       CPT – Camden Property (residential) $4.7B, P/E: 80, D/E: 1.48, short 2.5% // new all time recent highs

7.       HR – Healthcare Realty (heatlh) $1.4B, P/E 89; D/E: 1.43, short 5.9% // serious dog

8.       OFC – Corporate Office Props (office) $2.2B, P/E: 36; D/E: 2.0, short 4.8% // rolling over, looks bad

9.       KRC – Kilroy Realty (office) $2.3B, P/E: 104, D/E: 1.36, short 7.4% // dog

10.   O – Realty Income (retail) $4.2B, P/E: 27, D/E: 0.76, short 6.7% // supper strong since crash, weak lately

Click on the hyperlinks above to see the chart. So maybe you have some feedback on these but these are the ones that look good to me – ordered by what looks most lucrative if the economy goes into a double dip.  My top #4 ideas are really strong on the weekly charts, which could be bad, but they are also considerably overbought right now. 

Interactive Brokers OX - It’s Just How the System Works

Today I was clipped approximately $30K between two equities which I was assigned large, in the money, call positions which I didn’t have the available cash on hand to cover the new positions. Close to $2,000,000 of stock was assigned to me which I was forced to liquidate both positions within 10 minutes of the open. I even called IBKR 30min prior to the open to make sure I was really in the Twilight Zone.  It’s hard for me to understand how an $880 market value option position at the close on Friday could be parlayed into $1,900,000 stock liability which I could not meet. This happened on EGO and you can see my 110K share position liquidated today at 11 min after the open. 

I wasn’t aware this could happen in a non-marginable account. I have been down this road with two other brokers [OX potential assignment] more than 50 times and such a scenario in their risk management systems would never be possible, but this is “just how the system works” according to Interactive Brokers representatives whom I spoke to today.  Other brokers would have forced the postions closed before OX on friday’s close and my account would have been credited for $880 in cash.

So, if this is “how the system works”, I’ve come up with a potential earnings play which, to the best of my knowledge, is totally possible that I would like to share for demonstration purposes with readers since this is just “how the system works.”

Lets take a stock that releases earnings Monday morning the first trading day after options expiration (OX). For example, Citi Trends (CTRN) reported earnings today and really popped: http://bit.ly/hsbgWK

For discussion purposes, let’s assume that CTRN was pinned near the 20 strike on OX last Friday.  Let’s also assume it closed, like my situation, just a few pennies in the money at the close on Friday at $20.04.

So, near the close last Friday, it’s theoretically possible that we could have bought many thousand CTRN 20 call options for just pennies. The following day on Saturday, the stock would have been assigned to me — even though my non-marginable account didn’t have enough cash on hand to cover this purchase.

So let’s assume we had $10,000 (all cash) in the account. We decided to buy 150 CTRN 20 Nov call options for sake of discussion near the close on Friday for an average cost of $0.10/share- this would cost of $1,500 for the 150 CTRN Nov 20 calls [$0.10 x 100 sh/contract x 150].  1 contract represents an option to purchase 100 shares of CTRN for $20/share.

Theoretically we could purchase 100,000 call options at this strike expiring Saturday with the $10K, but IB supposedly does have controls in place to make sure this doesn’t get totally out of hand. Specifically, your account deficit can not run more then 30x the liquidation value of the account ($10,000 x 30 = $300,000).  It doesn’t really matter if we had bought 150 calls or 100,000 - either way the leverage is mind boggling, but we’ll go with the 150 calls for $1,500.

After OX on Saturday we would be assigned 150 calls x 100 shares/contract = 15,000 shares of Citi for a cost of $20/share or $300,000 in our non-marginable account with available cash on hand of $8,500.  So the account would run a whopping margin deficit of $291,500!! [still under the 30x threshold & remember this is a non-margin account]

What this means is Interactive Brokers (IB) would force you to liquidate your new position within the first 10 mins on Monday.  Monday, CTRN reports earnings and blows it out!  The stock gaps up 12.5% to $22.50 from its closing price of $20.04 on Friday. We liquidate our position on the open and capture approximately $2.50/share or a nice $37,500 on our $1,500 position.  Not bad!

The flip side of this is what happens if the stock is totally illiquid and you are forced to liquidate into a vacuum of no buyers.  Or worse yet, CTRN blows it and the stock gaps down 10% on the open.  What happens then?  If CTRN had opened at $18/share (down 10%), the non-marginable account would have a loss of $30,000 on the $1,500 assigned call position.  So you would need to come up with another $20,000 to cover your losses.  This is how the system works as best as I can tell.  Bear in mind I am NOT writing options — I purchased calls and should be limited to my principle outlay for the calls - in other words, the most you should be able to lose is $1500.

The example of was done using an IB account with modest balance of $10K. If you’re playing with a larger pot — let’s say $1M and you’re caught up in situation like this, you could stand to lose or gain an enormous amount of money. It may even bankrupt you for not knowing the “functionality” of their system. Bottom line is that I think this is TOTAL BULLSHIT and I’m pissed that it cost me nearly $30K to figure out how this functionality “works” as per two IB representatives so I’m exposing it in hopes others won’t fall unknowingly into this trap which should have never been allowed to happen in the first place.

Xiphos

The Curiosity that is the Gold Stock Sector

For the past several years, the biggest mystery for followers of gold is and continues to be the abject performance of those companies that mine the metal. Mid-October 2010 sees gold at an all-time high and silver at a 30 year high. Yet, how many of the large and mid-tier precious metal miners are hitting record highs? Almost none!

So, this week we started making some calls to the miners themselves to search for explanations. The answers we received were useless. Investor relations personnel are not traders. They have no idea how the market trades today and that’s too bad. The share price is their currency and unless you’re a Central Banker, most CEOs want their share price higher. Nevertheless, we remained undeterred and started to search for answers.

Let’s go to analyst estimates:

Earnings Estimates Table (click on link)

As the table above shows, Wall St is no fan of this sector. There is simply no way that “analysts” can possibly be this stupid. The price of gold (POG) and the price of silver (POS) have had massive moves the past 90 days but the analysts have remained silent. This is undeniably deliberate on their part. Why?  I have no idea but if you look at FCX, which is now primarily copper, they have had a huge run up in estimates.

In discussing this with management of a few companies listed above, there is never a logical explanation given.  Also, why exactly have these companies remained silent during this quarter?  How about raising guidance?  I have begged them to do so but can find not a solitary example of a miner raising estimates this quarter.

What is happening here in this sector is completely unacceptable. One is left to wonder whose side management is on, that of the banks or their shareholders.

Sabregold

====================================================

Xiphos Note: I’m tired of this BULLSHIT. The CEOs of these companies are either some of the most incompetent rock heads or they are bought off.  I say CEOs should HALT THE TRADING in these stocks and examine who owns what and all the trades over the last 30 days made completely public for all to analyze. I will dig through this tape and tell you WTF is going on and I suspect several illegal manipulations are there begging for class action lawsuits.  Where do I sign up?  Hands down the most manipulated sector on the planet as we’ve said time and again. We need to organize something against these clowns. 

Google Earnings: Bagging the Big Trophy Buck [1040% Return]

Google reported blow out earnings after the bell Thursday.  This, coupled with Friday’s monthly options expiration, was the perfect catalyst for an explosion in Google’s call premiums expiring on Friday’s close.  No one has a crystal ball - myself included.  Lately, as you can imagine, I’ve received questions surrounding what compelled me to get long out of the money Google calls [GOOG 570 Oct strike] in front of earnings.

Twitter is a great community for finding like-minded individuals. We’ve made lots of friends in this new community based upon sharing and have had the opportunity to look over the shoulders of some excellent professional traders - learning from them.  Twitter is full of great trading ideas, opinions and also some pretty lousy or confusing ones too. What’s most important is who you follow - who you choose to listen to.  Often, less stream information, I find, is many degrees more useful.

I can’t take credit for hatching this Google trade.  It came to me via Robert Lang (http://twitter.com/aztecs99) who reached out to me privately Sunday to share this potential Google setup in front of earnings.  We discussed it at length and decided it had great potential (and great risk too).  Many props go to Bob for his repeated astute insight…these are the trades that, as an option trader, we dream about and relish years later.  Bob said it best in email last weekend:

“Ok, we know how legends are made, right?  Stepping out on the edge and making the call and putting $$$ on the line…getting it right.  Ok, I have had my share of these and many BAD calls, too.  However, when I find something very compelling I go for it.  I don’t know the future but I know when setups are there for a good payoff.  Thing is, the big payoffs need to be ‘prepared for’ you cannot get done if you’re late or hesitate.  So, I’m looking at Google this week.  Earnings on Thurs after the close, day before expiration.  I‘ll either hit it big or not…but I know precisely my risk”.

So the plan was ‘hatched’ and the hunt had begun.  What I hoped for was a big Google take down in front of earnings so that I could get long upside out of the money calls on weakness.  As I stalked Google all week, pullbacks were almost non-existent.  I could find this monster buck’s trail, but it remained elusive for days. I knew the NASDAQ 100 was close to taking out April’s highs and wanted in on the Google play.

I started off buying a few calls on weakness Tuesday to establish a position.  Then I waited patiently for more weakness.  It was not until Thursday afternoon that I started to add to the position [GOOG OCT 570 calls] on broad market weakness in front of Google’s earnings that afternoon. Time was running out and premiums were coming out of calls fast.

During the Thursday afternoon take down I posted that I was long the calls in front of earnings and provided its weekly chart:

http://twitter.com/Xiphos_Trading/status/27368646417 

I had shared this weekly chart with 3 trusted option professionals earlier in the week and oddly enough had received the same response from each one. Basically, I was asked why the Google weekly chart?  Who cares about it; what’s important with a few days left is how the daily chart looks.  Well, the daily chart was irrelevant to me. What mattered most was the bullish expanding wedge on the weekly chart and how we were parked just under this critical resistance.  I figured that if Google surprised to the upside, it would be just the catalyst to really pop the stock based upon the weekly technicals and OpEx on Friday.  The rest is history.

Below are the screen grabs for the 30 calls purchased in this particular account:

Tuesday’s initial position buy

Thursday’s buys into weakness

Of important note is the last purchase on Thursday with less then one minute until the close [see the Oct 14 13:59:11 time stamp]. You will see 5 calls were filled at 1.85/contract 50 seconds before close as Google was screaming much higher. I purposely put in low ball limit orders in 2 separate accounts just in case the big option fish decided to run the Google option stops right before the close to shake out the weak hands that use automated sell stops.  It worked perfectly for both of us!

So the total cash outlay for this 30 call position in this acount was $7,333 excluding trade commissions.  A considerable risk I took for a one day trade that could have easily gone completely bust. I could have just as easily lost the entire premium I had put up - but not more than that.  This was the risk that I was fully aware of.

So we know what happened, Google blew it out and opened gap up around 600 - a 60 point move up from the previous day’s close.  So, how did I decide to trade my position Friday? 

The first thing I attempted to do on the opening Friday morning was sell short an equal number of units of GOOG OCT 600 calls to take advantage of the premium spike (+1,500% when Google opened!) and lock in most of my profits. Unfortunately, I was prevented from doing this by my broker - Interactive Brokers - which rejected my market sell order 30 seconds after the open.  This happens more than you expect on trades like this and it cost me approximately 400% additional return, but that’s how the game is played.

Instead, I quickly realized that the only option I really had was to start liquidating my GOOG 570 call position.  When I started doing this manually around 07:32:43 (see below) the premiums were plummeting and I knew I had been had, but it was all good. After a few minutes of being shut out, IB mysteriously allowed me to begin selling the GOOG 590 call short to create a the other side of my call spread now that the premiums had dropped several hundred percent.  I started doing this to protect myself and try to lock in profits without having to liquidate the whole GOOG 570 position and possibly miss more upside later in the day.

You will see my trades were not close to perfect if you examine them below in detail. You’ll see me trading first out of some 570s, then into 590 hedge, then out of 590s as Google began to climb, then completely closed out the 570s before the bell.

Friday Google call trades are here.

Lastly there is the position squaring and P&L statement for all of the trades above that can be found here: GOOG 570 / 590 call spread profit.

So total capital outlay was $7,333 — total profit was $76,301 for a net return of 1,040% excluding trade commissions.  So this is the post mortem of how I - with the critical help of my close trading gang, bagged the big bucks.

We seldom provide this level of transparency into our trades. You will notice there were lots of trades made for these two option positions. Our book can and often does have 25-50 positional option trades at any one point in time (spreads, hedges, speculative positions, etc.). It’s simply not feasible to provide this level of transparency given the types of trades were are involved with. 

All the best to Everyone,

Xiphos Trading