Sticking with BusinessWeek.
There were two articles that are from the year end issue that I just stumbled across during our power outage.
The first one was about getting extra yield with a section about Master Limited Partnerships (MLPs) being a way to achieve this. I wrote about these the other day (I swear this was a coincidence) and wondered if we are closer to the end than the beginning for these. A major media tout is also a sign of a top, along with the CEF I profiled the other day. The thing with some of these is they went up so much, more than I would have expected for two of the ones I used to own, that they could go down more than anyone expects. The one remaining MLP I have for clients is only up about 10% during this run so I don't believe I am taking extreme risk by holding on to it. For new readers, I don't often name names so to avoid the oh he's just talking his book comments. There is no shortage of low beta MLPs to choose from if this area of the market interests you.
This section in B-Week about MLPs was very lacking in detail and gave no what might go wrong words of caution. I say Blog Value Added because if you spend time reading the right blogs you will get much more insight than you will by relying solely on something like BusinessWeek or SmartMoney. I could be dead wrong about these topping out but the questions asked here and on other blogs can be very useful to investors. At least I hope so.
The other article from B-Week is about selling covered calls. I am a big believer in the strategy and have written it and covered call CEFs. I have also written that in the last few months, or longer, writing calls has not been that compelling due to low premiums. Premiums have been low, by historical standards, because of fairly low volatility (VIX) and to a lesser extent very low interest rates. Although I do not expect big things from US equities, and a low VIX corroborates this sentiment, at some point the market could very well have a big big rally that comes from nowhere. As a contrarian indicator VIX shows a complacency that could be undone with a huge upside rally. While I'm not making big bets on this I allow for the possibility.
Taking in small premiums these days runs the risk of missing a big move. Said another way the market is not rewarding call sellers the way it usually has. Again, I could be 100% wrong about the outcome but the article doesn't pay any heed to the message of the market about this not being a great environment for this trade.
There are many blogs the center around options trading that give much better insight to options than major media outlets. One major media exception is Steve Smith from The Street.com. If you care about options, Steve is worth a read.
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3 comments:
I am probably going to be snickered at for this one but what is your view on the idea that is proposed in a current article on CBS MarketWatch titled "Scraping the bottom of the barrel
'Stock Trader's Almanac' serves annual 'free lunch' (by Ciara Linnane)? The thrust of this article is that apparently year-end tax selling can drive certain issues down at the end of the year since they are at or near their yearly lows and can be expected, in general, to bounce back in the early part of the new year when the sellers buy them back into their portfolios, having already booked the loss for tax purposes. I am just curious to hear what (and how) a pro thinks concerning such proposals. I had read elsewhere that just being at a yearly low does not in any way obviate the possibility that such issues could go lower still. Thank you for any thoughts on this.
As an old guy who has learned over a lot of years how to make more money with his retirement than he looses, I have developed some strong opinions. These include keeping expenses down. Options, mutual funds, annuities and a lot of other financial services are loaded with fees. Over a lot of years, fees will make a major difference in your retirement life style. If you want funds, do ETF’s, Exchange Traded Funds. KIS, keep it simple, do not do what you do not understand. Therefore, buy and read investment books. And, stay away from stuff that you don’t really know, like options.
I personally do like the idea of options, but I like the idea of buying puts and buying calls instead of selling them. And, let me explain why. The average guy playing with his retirement money is at a disadvantage only because of his lack of market knowledge. He is at an even greater disadvantage with options than stocks. If options are something you have not yet learned to statistically analyze, I would recommend against using them. I personally would not sell a call because I do not want someone to take away my appreciation when I make a good pick. It breaks down too; do you have a statistical basis to determine if your stocks are going up or down? If you do, and you believe it is going down, sell your shares and buy a put. If your data shows it should go up, buy shares and maybe some calls.
If you haven’t done the research and developed an educated opinion, you are gambling against the house. No one can learn all aspects of market trading and be good at them all. So, I would recommend to someone, attempting to handle his or her retirement, to perfect just one way of analysis to do buy/sells.
Remember, professionals do have the models/formulas and they are on the other side of your trades. You need to have a tool like your own educated written formulas/rules or a piece of software that can analyze the possibilities of buys and sells of stocks and/or options. Stocks are kept fairly priced, to a degree, by Mr. Market. I believe that option buys/sells are not. Therefore, someone who really knows that venue can determine a major statistical advantage one way or the other. I personally believe that can make you that professional’s pigeon. Commodities work the same way. Good commodities traders make excellent money in both a rising environment and in a declining one. When he is making money someone else is losing money. I have watched a lot of good folks loose a lot of their financial security by following financial advice from a magazine, a friend or even a broker looking to make commissions. If you do not have a realistic grasp of the marketplace, buy ETF’s (MIDY, DIA, etc), or closed end funds.
In reference to the post by the "old guy who has learned over the years", I say Hear, Hear. Why is it that we know intuitively that such advice is inescapably true but need to constantly be reminded that gravity still rules? Just got to be hubris. To take on the pros and best them that one golden season ESPECIALLY since they have superior tools, breeding, and backup is a prospect too sweet to be resisted. I once bested the state table tennis champ (and he was taking the match seriously because a lot of people were watching). But just that once :) (Happy New Year)
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