11th day of $QQQ short term up-trend

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

66%

GMI remains at 6 (of 6).

10th day of $QQQ short term up-trend

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

67%

The GMI remains at 6 (of 6) and on a Buy signal.

9th day of $QQQ short term up-trend; $GLD turning up? Writing calls on $GLD; $GMCR, $QCOR, $IRBT green line break-outs

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

64%

I have told you that I have been writing weekly calls on my position in GLD. GLD is an ETF that owns gold.  I have been learning how to bring in a nice income by writing calls on GLD because gold seems to be turning up in a Stage 2 up-trend. Gold often reflects investor fears about the world situation in general and/or about currency inflation. It will be a while before we learn what is behind the apparent up-trend in gold.

Here is how I make money from my position in GLD.  GLD closed Friday at $127.58 per share. Weekly calls on GLD that expire next Friday, 2/28, with a strike price of 127.50 closed at 1.05 and with a  bid/ask spread of 1.01/1.05: Screen shot 2014-02-23 at 2.38.23 PM. For the purposes of this example, I can sell this call option, the right to buy 100 of my GLD shares from me at 127.50 per share for a price of about $1.01 per share.  In other words for every call I sell, some call buyer will pay me about $101 (call=100 shares x 1.01 per sh).  This a yield of 1.01/127.58= .79%, excluding commissions.  But wait, if I can repeat this each Friday, or 4 times in a month, that equals an expected return of 4 x .79= 3.17% for the month!  How would you like to make 3.17% each month on your investment?

So, what are the risks?  On the next Friday, I get to decide what to do based on GLD’s current price.  IF GLD is below 127.50 (the strike price of the calls I sold) the person who bought my calls will not use the call to buy my shares from me because he can go into the open market and buy GLD for less than 127.50. Thus the calls I sold expire worthless and I just pocket the money I earned from selling them.  As long as GLD does not fall a lot in the week, I do not care because I simply turn around and sell again a new call on my shares at a new strike price to earn more income.  If GLD were to plummet in one week, however, the premium or”rent” I took in will not cover the decline in price of my shares.  That is the main risk. On the other hand, I rely on my technical analysis skills to alert me to the possibility that GLD is turning down.

If , however, on next Friday, GLD is trading above 127.50, I can just buy back the calls I sold.  I do not mind paying more than I sold them  because on the last day of trading before their expiration, the price of my GLD goes up and converges with the price of the option.  Thus if GLD is trading at $130, the call to buy the stock at 127.50 will be trading close to $2.50 (130-127.5).  I still get to pocket the time premium from selling my original options and can repeat the entire process over again for the next week.  If GLD closes the week at $130, I turn around and sell new calls with a strike price of $130 or $130.50.   I know some of this is difficult to understand.  If you want to learn more about the process of selling covered calls, read Alan Ellman’s books listed to the right if this post.   You may also come to our joint AAII DC Metro workshop next July. Click here for Alan’s website.

If you can’t wait, I will attempt to explain this example mathematically.  I buy GLD at a current cost of $127.58. I sell the 127.50 weekly call option for 1.01 per share.  Time value of call= 1.01 – (the true value of the option if it were exercised today, 127.58-127.50=.08)  =  (1.01-.08)= .93.  Thus the most I can gain from this trade is the .93 per share time value. If, for example,  GLD were selling at $130 next Friday near expiration, the options I sold will be worth (130-127.5)= 2.50 per share.  So maybe I could buy them back around $2.52 per share.  Thus, I bought GLD shares at 127.58 and sold the call at 1.01 and bought each back at 2.52:  Net cost of my GLD shares= 127.58-1.01 + 2.52 = 129.09 per share.  My stock cost me a net of 129.09 but GLD is now selling at 130.00, so I have a profit of .91 per share, excluding commissions (the original time value of .93 – the extra .02 time value it cost me to buy back my calls). This trade would yield me $91 for each call sold or a weekly per share yield of .91/127.58= .71% or about 2.9% per month, excluding trading costs.

I do not sell covered calls on growth stocks because if the stock takes off, my gain is capped by the strike price of the calls I sold.  If the strike price is 150 and the stock goes to $200 I have to deliver my shares to the call buyer at $150 per share.  This is a reasonable risk for me to take for GLD but not for rocket stocks that can gap up huge. Let me know if you found this example useful……

Here is a weekly chart of GLD.  Looks like the beginning of a Stage 2 up-trend.

GLDweekly02232014

The GMI (see table below)  remains at 6 (of 6).  I am therefore looking at growth stocks. GMCR, a stock I first wrote about in 2009 when it broke to an all-time high, has just broken out of a new green line base to an all-time high. Check out its monthly chart.

GMCRMONTHLY02232014As has QCOR.  Check out this weekly chart.

QCORweekly02232014

IRBT, a stock Judy has been talking about for a long time, also broke out last week. Check out this weekly chart. I like the large volume spikes.

IRBTweekly02232014

Meanwhile, QQQ remains in a beautiful RWB rocket pattern. Tech stocks rock!!!!!

QQQGMMA02232014

This up-trend is reflected in the GMI stats:

GMI02212014

 

 

 

$PCYC–cup and handle break-out?

Chart of PCYC looks like a major break-out coming this morning. Judy has been talking about PCYC for some time.

PCYC02212014

8th day of $QQQ short term up-trend; $AWAY, $ICLR green line break-outs

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

63%

AWAY had a large volume green line break-out above its 2011 high on Thursday.  AWAY reported earnings on 2/19. See daily chart below.

AWAYgreenlioneAs did ICLR:

ICLRgreenline

7th day of QQQ short term up-trend; TSLA green line break-out surging

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

60%

TSLA, which had a green line break-out last week, rocketed higher Wednesday evening after it released earnings.  Check out this weekly chart.

TSLAweekly02192014

6th day of $QQQ short term up-trend; FB climbs after green line break-out–writing covered weekly calls on FB and GLD

GMI

6/6

GMI-2

8/8

What is the GMI?
 

WORDEN T2108

65%

All of my indicators remain positive.

Given the strong market up-trend, I am looking for some stocks in strong Stage 2 up-trends which have recently broken above their green line base. Facebook (FB) is a perfect example, as this weekly chart shows.

FBweekly02182014FB broke above its green line top (all-time high base of at least 3 months) in September, re-tested that line in November, and now is in a nice up-trend.  Also positive is that FB came public in the last 2 years and has  earnings that are increasing at triple digit rates. I bought some FB and sold weekly  out of the money calls on it.  I am content to collect time premiums for FB that equal  more than 1% each week.  Writing weekly covered calls on stocks and ETF’s appeals to me because the position lasts only a week and can deliver large time premium income. Every Friday I can  reassess whether I want to repeat the trade again.  Alan Ellman and I will be doing a  workshop on covered calls for the DC Metro AAII Chapter  in July. Alan’s books, listed on the lower right of this blog page, are a great way to teach oneself about covered calls.

I am also writing covered weekly  calls on the gold ETF, GLD.  Gold looks to me to be in the beginning of a  Stage 2 up-trend. Check out this weekly chart. GLD is now above its critical 30 week average. It will be in a full Stage 2 up-trend if the 30 week average (red line) curves up. Meanwhile, I am content to collect time premium income each week.

GLDweekly02182014Click here for a CBOE list of weekly options on stocks and ETFs.

Here is a short article about the technique.

Further Thoughts for DC Metro AAII; $QQQ remains in Stage 2 up-trend; $TSLA– green line break-out

GMI

6/6

GMI-2

8/8

What is the GMI?
 

WORDEN T2108

63%

I spent a wonderful morning Saturday presenting a workshop to the DC Metro AAII Chapter. The audience of primarily Boomers was very appreciative of my rather conservative presentation. I stressed the desirability of focusing more on ETF’s than individual stocks in order to lessen volatility and stress levels.

As always, I recalled some points I wish I had made.  First, all should investigate the use of U.S Government I-bonds for ultra safe money.  These are U.S. savings bonds that adjust every 6 months to the level of inflation. Thus they are very safe and their yield will rise if interest rates do.  They will not fall in value like regular bonds can when rates rise. Read all of the rules on I-bonds here. I believe they are better than CD’s or savings accounts. The current yield is 1.38%

I also wanted to tell new readers that they can have the GMI stats mailed to them every day by entering their email address in the box to the right of this post. I do not release your email address to others.  The box by which to subscribe looks like this:

Screen shot 2014-02-17 at 7.26.09 PMYou may also view my Houston TC2000 webinar from 2012 by clicking the link to the right side of this page.

As to this market,  all of the indicators in the GMI and GMI-2 are positive.  Furthermore, the GMI flashed a Buy Signal on 2/12.  Friday was also the 5th day of the new QQQ short term up-trend.  The longer term up-trend is very intact.  Look at the Stage 2 up-trend in the weekly chart of the QQQ.  The QQQ is nicely above it rising 30 week average (solid red line).

QQQweekly02142014Hopefully this nonsense about the Dow chart looking similar to its chart from 1929 has dissipated.  This market looks no way like the one in  1929 leading up the the great crash.  But the market climbs a “wall of worry” so bring on the whiners.  I will become concerned when the pundits start saying that the market has nowhere to go but up….

I have been talking about a bottom in gold (GLD ETF) for several weeks.  Last week GLD closed back above its 30 week average for the first time since January, 2013.  I think it is early, but we might be seeing the beginning of a Stage 2 up-tend. I have been buying GLD and writing weekly calls on the position. The return is about 3% per month on my investment. Check out this weekly chart of GLD. Note the double bottom around 114.50 and the flattening 30 week average.

GLDweekly02142014Finally, TSLA had a green line break-out last week.  It will be interesting to see if the stock surges after earnings are released this week.

TSLAweekly02142014

Here are the GMI stats: (click on to enlarge)

GMI02142014

 

4th day of new $QQQ short term up-trend

GMI

6/6

GMI-2

8/8

What is the GMI?
 

WORDEN T2108

60%

All of my indicators are positive.If QQQ holds on Friday, I will add to my position in TQQQ.

 

GMI: Buy; 3rd day of $QQQ short term up-trend; $NPSP breaks out

GMI

6/6

GMI-2

8/8

What is the GMI?
 

WORDEN T2108

56%

All of my GMI indicators are now positive. I believe NPSP had a cup and handle break-out on Wednesday.  Check out this weekly chart. NPSP reports earnings om February 18.

NPSP02122014

I hope to see you at my AAII workshop this Saturday.



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