Why I didn’t sell any of my downside hedges this week–and some thoughts on how to decide when to sell

Why I didn’t sell any of my downside hedges this week–and some thoughts on how to decide when to sell

On May 11, when the Standard & Poor’s 500 was headed for a 2.14% loss on the day, I took a long hard look at selling the downside hedges I own in my Volatility Portfolio. In that portfolio I own a September 17 Put Option on the iShares Russell 2000 ETF (IWM) and two Call Options on the CBOE S&P 500 Volatility Index (VIX) for July 21 and August 18. I came very close to pulling the Sell trigger on one of the VIX calls. (Because the VIX goes up as fear in the market rises (usually on a sell off or worries about an impending sell off, the Call Option on the VIX acts as a Put Option. It will become more valuable as the market falls.) I was in the black on the August 18 Call Option with a strike price of 22 because the Vix had climbed 26.33% on the day to a close of 27.59. I think the decision not to sell was a non-decision. And a mistake. I dithered over it for so long that the market had closed by the time I decided to sell. A sell would have resulted in a profit of 9.2% from my March 23 buy. Not huge but still money. I decided not to sell the iShares Russell September 17 put with a strike price of $215. The ETF would close that day at $218.96 and then drop to a close of $211.75 on May 12. A Sell would have resulted in a gain of 15.6% atom my March 24 buy. Unlike the failure to sell the VIX Call, I don’t think the decision not to sell the IWM Put was a mistake even if it meant foregoing a 15% profit (on a holding period of less than 2 months.) Let me explain.

These are the markets that try portfolio’s souls

These are the markets that try portfolio’s souls

I’d like to think that the volatility of last week is all over and a thing of the past. But I don’t think it is. This is a transitional market with sentiment moving toward value, cyclical, and post-vaccine stocks and away from technology momentum plays. And it’s also a market trying to figure out how to reprice all assets in light of a potential move to lower stimulus bond-buying and to raise interest rates at some point in the future. These kinds of transitions don’t occur smoothly and I think we can expect more volatility.

Disney drop in after-hours session after streaming subscriber number misses

Disney drop in after-hours session after streaming subscriber number misses

Disney (DIS) shares tumbled by 3.64% in after-hours trading after the company reported fiscal second quarter numbers that beat Wall Street estimates on earnings but missed projections on revenue and on subscribers to the company’s Disney+ streaming service. Adjusted earnings per share were 79 cents versus a projected 32 cents a share. (For the second quarter of 2020 the company reported earnings of $1.53 a share.) Revenue of $15.62 billion for the quarter was a bit shy of Wall Street projections of $15,85 billion. The big miss came in subscription growth for the company’s paid streaming service. Disney+ topped 100 million subscribers for the first time–just 16 months after the late 2019 launch of the service. (Competitor and streaming leading Netflix had 208 million global subscribers at the end of its most recently reported quarter.) The stock dropped on the news, however, since analysts had been looking for 110.3 million subscribers by the end of the quarter.

Now the markets are happy again (or at least less grumpy)–on lower new claims for unemployment

Now the markets are happy again (or at least less grumpy)–on lower new claims for unemployment

A day after the market plunged on worse than expected inflation numbers for April, today, May 12, stocks moved up to recover part of their drop on another decree in the weekly initial claims for unemployment numbers. For the week ending May 8, seasonally adjusted initial claims for unemployment in regular state programs was 473,000. That’s a decrease of 34,000 from the previous week’s revised level. And it’s the lowest level for new claims for unemployment since the week of March 14, 2020. (That’s before the pandemic recession really hit full speed.) For the week of March 14, 2020, initial claims for unemployment wee 256,000.

Today Stage 1 in the inflation rout: Sell Everything!!! the market says

Today Stage 1 in the inflation rout: Sell Everything!!! the market says

Today, May 13, investors and traders sold everything on the surprisingly strong April inflation report. This kind of sell everything reaction is typical of this first stage in a big market shift in sentiment. The question now is How long does this stage last? And When does the buying of winners in this new scenario kick in (along with continued but less violent selling of the losers?)

Two stock picks that are both growth and value to add to the Millennial Portfolio for long-term investors

Two stock picks that are both growth and value to add to the Millennial Portfolio for long-term investors

Sure looks like a market struggling with rotations between growth and value stocks. One day the growth stocks sell off on fears of higher interest rates and rising inflation or something–and because after such a strong rally in the style growth stocks are very expensive. And that same day value stocks move higher because increasing economic growth is a very, very good thing for a style that depends on a strong economy for much of its revenue gains. The next day the market’s preference reverses and growth again outperforms value. What’s a poor investor to do? Especially the long-term investors with very long time horizons that are the focus for my new “Millennial Portfolio (for investors with more time than money.)” How about a few stocks that offer both growth and value? I’ve got two stocks today that I’m going to add to the Millennial Portfolio: Deere (DE) and Southern Copper (SCCO)

VIX “fear index” spikes ahead of Wednesday’s CPI inflation report

VIX “fear index” spikes ahead of Wednesday’s CPI inflation report

Stocks are down across the markets today–with the Standard & Poor’s 500 lower by 0.87% at the close, the Dow down 1.36%, and the NASDAQ Composite off 0.09%–ahead of tomorrow’s report on the Consumer Price Index read on inflation. But the real action today is in the CBOE S&P 500 Volatility Index (VIX) as investors and traders look to buy protection against potential volatility in case inflation, expected to head higher tomorrow for April, really spikes higher.

Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…

Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…

This week Wall Street analysts and economists, professional money managers, and individual investors and traders will “re-calculate” their expectations about the economy for the remainder of 2021. Friday’s surprisingly small addition of 266,000 jobs to the U.S. economy–instead of the 1 million projected by economists–will lead to a revisions in assumptions about inflation, interest rates, and economic growth for the rest of 2021.

Trick or Trend: Today’s jobs report says the post-vaccine economy will take longer to arrive than projected

Trick or Trend: Today’s jobs report says the post-vaccine economy will take longer to arrive than projected

Just in case you need a reminder after a year when the economy slid and slid and the stock market soared and soared, the stock market isn’t the economy. And today’s weak jobs number raises some troubling questions about the speed of the post-vaccine economic recovery. I’d say that today’s jobs report raises three big questions about the economic recovery.