Careful what you Wish For

What’s in the Szelhamos Portfolio?

There was a time, not that long ago, that a curse would visit me once each month. Sometimes those months had 4 weeks and sometimes those months had 5 weeks.

No this isn’t that monthly curse that mothers must instruct their daughters upon, although many would call it a miracle, rather than a curse.

ishes and HopesBut in my case this was the curse of wishes and hopes.

Now, by my own choice, I’ve invited that one time monthly curse into my life every week.

The problem with selling call options is that you often find yourself wishing for stock movements that are inconsistent with human hopes and desires.

Unless you’re a short seller.

But most normal people want to see an unabated rise in the stock market.

Up, up and away.

Although I’m an inveterate believer in covered call strategies, I certainly understand the flip side, particularly since I’ve lived through the agony of losing a stock to assignment after an unexpectedly large run-up in price.

My wounds are still fresh from having lost Green Mountain Coffee Roasters at $45 when it shot up to $65.

Did I mention that it was about $80 now? Although the cynic in me believes that there’s still another accounting issue on the horizon and it’s a much steeper drop from $80, than it was from $35 when Herb Greenberg first caught our attention with the peculiarities of their numbering system.

So when the unthinkable happens, there’s only one thing that you can do, since ranting and breath holding isn’t very adult-like.

Instead, you wish and hope for the price to fall. That’s much more adult like.

Even though you don’t really think of it in such terms, what you are really doing is wishing for financial pain to be inflicted on others so that you don’t suffer the pain of missed opportunities.

To explain that in terms a child could understand, when you get to the window to order your ice cream cone and are told that they’re all out of your favorite flavor, you secretly hope that the person next to you who got the last scoop suddenly drops theirs to the ground below.

Granted, that puts you at odds with everyone else and if your the kind the craves human acceptance, you really don’t want to be lumped in with short sellers in the eyes of society, or the type of people that wish to see ice cream cones littering the floor.

Now that there are far more stocks that have weekly options available the wishing and hoping comes far more often and societal scorn just gets heaped on and on.

This week just so happens to be the end of the June options cycle, but these days, the third Friday of the month just doesn’t carry the same cache as it once did.

Remember when triple and quadruple witching hours threw the fear of God into even the most hardened of traders?

Those too are just yawners these days.

Lots of people still talk about unusual price swings near the close of trading on options expiration, but really they’re just rehashing memories of a time long ago. They can’t face the reality of what their high school sweet-heart looks like at the reunion, so instead they remember the good old days, when men were men, screaming buy and sell orders at one another as the seconds were ticking away toward the close of another month’s options cycle.

Those days are gone, too. There’s not that much screaming anymore. Someone probably wished that away too, tired of all the noise and chaos, and ultimately ushered in electronic trading and settlement.

On Tuesday, after that beautiful day of gains across the board, I looked at where my holdings were standing relative to  their options’ strike prices and I saw that I was now on track to lose many of them to assignment if they stayed at those levels.

Granted, I had purchased some of those stocks on Monday, with the express intention of holding the shares for just a few days. But now I had come to think of them as my own and really didn’t want to lose them.

I bought Home Depot for the next day dividend. I also bought shares of Transocean, Google and JP Morgan and sold in the money options after they rose beyond their initial purchase prices.

So I did what the god foresaken short sellers do.

I hoped and wished for the market to fall.

Why not just my stocks? Why the whole market?

Because I have a well diversified portfolio. Unfortuntely, as smart as I was to diversify the holdings, I wasn’t smart enough to foresee that I’d be at risk for losing most of my shares.

So I hoped for a nice little drop in prices. The key word here was “little”.

In my ideal world, prices would drop just to the point that all of the holdings closed just below their strike prices and then we’d do the same thing over again.

Well, I got what I had hoped for, except a whole lot more than hoped for.

I just wasn’t being careful.

Even poor Pandora suffered in it’s IPO. Imagine pricing $4 above the high end of the expected range and then going as high as 60% above the IPO price, only to end up the day about 9%.

All in all, most people would be happy with with a one day 9% gain, but I don’t think that was the case today.

I didn’t wish that on Pandora and all the poor folks that got suckered into buying at at pre-debacle prices. The newly issued shares changed hands nearly three times. There are probably some very happy people and lots of very unhappy people.

Since I didn’t hold shares in Pandora, I found today’s minute by minute trading chart amusing. The rapidity of its fall from $26 was impressive and it just deteriorated through the day.

When the dust settled the day was just a mirror image of Tuesday. This time, it was a sea of red for all of my positions, no different from everyone else out there. Of course, the options sales offset some of those losses, just as they cut some of the gains on Tuesday.

I did get off a single trade yesterday. The same one that I had tried to do on Tuesday. I finally found enough buyers for the Sirius – XM Satellite Radio January 2012 puts that I had wanted to sell.

Puts are another strange universe, again hoping for market setbacks.

Since I sold puts I was actually banking on Sirius’ stock price to rise between now and January. Wouldn’t you know it, but Sirius actually went up yesterday.

Finally a position that went in the right direction, if only for a day.

So today, I’m hoping for a market climb nearly equivalent to Wednesday’s loss.

And then as long as I’m hoping, Friday would just roll over and flatline.

Isn’t that an uplifting image? But that’s just part of the curse.

The power of hope is pretty amazing. I just wish I could make up my mind and know exactly what I should be wishing for. That would make me a better person, one much more in tune with society.

Nah. Maybe next month.


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