Cody Kiss & Tell: Adages, Gaming Expiration, and much more

Here’s the transcript to this week’s Live Q&A chat. Join me next Wednesday at 2pm EST at http://tradingwithcody.com/chat or send me an email with your question at support@tradingwithcody.com.

Hello everybody, let’s do this! Ask me anything.

Q. Do you pay any attention to any of the adages? Sell Rosh Hashana buy Kippur or the LOW VIX reading now 13ish etc. as you start selling / trimming winners while the getting is good?

A. I once did a study that showed that if you’d sold every May and bought every October from 1920 to 2005, you’d have blown away the performance of the overall market. But for the last seven years, that’s not played out that way at all. Adages are interesting. I’ll stick with free-thinking and analyzing each place I am in when I’m in it.

Q. I was having lunch with someone today, and we were talking about 3D. He said “wouldn’t it be cool if a part in your dishwasher broke and you just downloaded the schematics and printed it out.” It was then that the revolutionary nature of that business hit me… We will literally print out things we “need”, not just trinkets, jewelry, science projects, etc. GE, Whirlpool, etc. will have 3D (CAD) schematics on their website that can be downloaded, printed, and installed in an afternoon. I live about 15 minutes from their headquarters, and I’m going to go for a tour soon.

A. You got it! In ten years from now, we’ll just download the schematics to our 3-D printer and then print so much of what we consume. And let us know when you visit 3D Systems what you learned!

Q. In your post today: “I’m bidding on some DDD calls dated out into February 2013 and/or later with strike prices starting from $40 to $45 or so.” I see NO options beyond Feb 2013. Am I missing something?

A. You guys are really on top of what I write! You are not missing something, I was bidding on the February 2013 calls when I wrote that and was thinking that there were also later expiration dates for DDD too. But I had my wires crossed. Sorry to almost confuse you!

Q. Hi Cody – I was wondering if you could take me through your thought process in deciding to sell those FIO Sept 22 calls with $28 and $30 strikes yesterday. I was holding them as well (and thought hard about selling them last week after the QE3 announcement) and was uncertain how close to the expiration to sell calls and what the chances were of another jump in price 2-3 days before they expired. Any best practices you can share when you are within two weeks of Calls expiring? Thanks very much.

A. I’ve heard, read and been taught by traders including James Cramer for years that the third week of the month can see stock prices get pinned and/or affected by the options expiring. I’ve never seen a single study that confirms such options-affected action with any kind of conviction and my own experience has been that trying to game what a stock will do the last few days before expiration is as random as any other time. I’ve been trying to slowly but surely let those FIO calls go and we’ve made a ton of money on the trade and I’m not going to kick myself for not having made every last possible dime on it. At least not too much.

Cody, you’ve picked the right stock. I know a lot of us have been skeptical on your FIO pick and have looked at OCZ. But now looking at the chart with the recent activity, FIO was definitely the better pick!

Q. Cody, made a horrible entry on FIO Dec 22 calls back in late April, just before the stock tanked 10 bucks. I held tight, though, finally today the trade is in the black. I am wondering after this huge run if I should close that trade out and buy March 13. FIO options are not terribly liquid and the spreads can be wide, so this is one I don’t like to trade in and out of. Thanks as always.

A. You are right about not wanting to try to trade in and out of something as illiquid as FIO calls are. Congrats on being patient enough on your trade to get back into the black — that’s wild. I would indeed look at selling those Dec $22s and moving out into March with some higher priced strikes to give yourself some more time. Or just sell the calls right now and stick with common in FIO instead.

Thanks, good advice. Thank you for your insights as well you have helped a lot of people make money when the odds are against us.

Q. Hi Cody, I seem to remember sometime earlier in the summer that you wrote of the possibility of AAPL hitting $800 by year end and $1,000 in 2013. With all the hype surrounding AAPL, with the sales data that is being reported and with the holiday season soon coming up I find it hard to imagine that this stock can sell off significantly unless the market completely tanks. My biggest concern is some Feb 2013 750 calls I own and when to sell them. I bought them when the stock sold off right before the intro date and sold 1/3 of the position last week with the stock at $696. I have looked at rolling up to a higher strike but the April options seem to be more additional money than is worth the additional time and the 2014s seem soooexpensive. You have repeatedly stated that sometimes no trade is the best trade. I don’t have enough options to give me much flexibility; I do have some common but I wanted to hold that for the long term. Do you have any suggestions for strategy?

A. You’re describing a somewhat similar set up and question of strategy as with the FIO set up and call options earlier. That is, I’d suggest doing what I’m doing: trimming down some of those calls with the nearest-dated strike prices and waiting/looking to build some longer-dated, high-priced strike call options over the next few days and weeks. Or you can sell some/all those calls right now while you have these huge profits in them and just starting trading some more common stock in addition to your core Apple position.

Q. Your trade alert and must read links included text stating you were selling more Apple here today. Did I read that correctly? Have you ordered the new iphone?

A. Yes, I didn’t finish selling the Apple calls I wanted to trim down yesterday and so I’m still working them out there today. No rush, but just easing off the Apple gas pedal while the getting’s good. I haven’t ordered the new iPhone because I can’t bring myself to deal with the pain of dealing with the first rush of iPhone-5-mania, but I’ll probably head into the local Verizon Wireless store early next week to order myself one and hopefully it’ll get here before Halloween.

Q. Two questions: (1) I was pleasantly surprised that AAPL breached $700 and has stayed there for a few days. Coming into the rumored Oct. iPad Mini, do you think AAPL consolidating this price as a new floor, or do you feel there will be a selloff to bring us back below $700? and (2) May we please have some thoughts on your short term outlook on BIDU? I have some $30 BIDU calls expiring in 1/13, and I would appreciate your thoughts. As you know (but may not recall), I am new to options trading, so I am trying to absorb all this stuff. Thanks, you’re the bomb.

A. (1) I don’t think there’s anything magical about the arbitrary $700 level for Apple’s stock price and that it might very well pull back 5%, 10% or even more if the markets crash or something, or even just because there’s too much complacency among the AAPL longs right now. I’m obviously still a big AAPL bull, as it remains my biggest position as it has for many years now, but I’m also selling my riskiest call options in AAPL right now to lock in profits. (2) If the bull market continues and if BIDU doesn’t blow itself up for something unforeseen, I think you could make money on those January 2013 BIDU $130 calls. That said, you’re asking an awful lot of the stock to rally nearly 20% between now and the time those calls expire in four short months and many a stock can stay down much longer than you can stay solvent trading its options like that. Careful with options trading and make sure you’re not risking more than you are comfortable losing 100% of on the options trades, because you can certainly lose 100% of your capital if your timing is off.

Q. Anything to make of the FB integration in the ios6 upgrade? Also, do you have any specifics on demographics of new users of FB? Need to see if any trends indicate their user base is getting older or younger…

A. I think the FB integration into the new Apple iPhone/iPad operating system further drives its place as the winner of the social networking wars. Anybody here use Google+, by the way? I’ve tried, but I hate it — too much to learn and I’m done with learning nuances of various social networks, personally. I’ll have a big new long-term analysis on FB’s future later today.

Q: Cody – Thank you for doing this weekly chat, and all of your insightful analysis. I really do appreciate it. Your picks have made me a bunch of money, and for that I am grateful to you. Cheers. I look forward to the FB analysis.

A: Thanks for the kind words. There’s been a tremendous outpouring of thank you’s the last few days. That said, do you guys all remember when there was a tremendous outpouring of angst and anger towards me a few months ago in these chats when stocks were trashed and I was buying into the panic despite being beaten up repeatedly by even my own paying subscribers? That’s yet another indicator that we probably need to be lightening up and locking in some of these profits that I helped you deliver for your portfolio.

Buy when you hate me. Sell when you love me.

Cody, your observation reminds me of Peter on Jesus’ last night. “I love you, I will never deny you.” Stocks are up: “We love you, we will never deny you!!!”

Stocks are down: “Who’s Cody? We don’t know him!!” LOL, actually I hope others on this board feel, as I do, that we are learning strategies and getting ideas from you. Those who choose to follow your moves (lockstep or not) should realize they are making their own decisions to do so, and be responsible for those. In all seriousness, you have already taught me a lot of extremely valuable information, and have given me some great ideas. I know they cannot all pan out, but I feel more confident, and that we are operating “with a plan.”

Q. Any thoughts on Corning GLW? I mean how can this company not make piles of cash selling gorilla glass for all of the iphones/ipads being sold.

A. Long-time subscribers to my service know that I first shorted GLW at about $18 a share back in 2001 and covered it at about $1.80 per share back in early 2003 or so. Long-time subscribers to my service also know that I road GLW back up from about $3 to about $12 a share from 2003 to 2005 or so. And long-time subs also know that I lost money trying to ride the Gorilla Glass movement a couple years ago as I bought GLW at like $18 and capitulated around $14 or so. I do think GLW at $13 right now is a probably a good entry point as their technology is quickly becoming a de facto standard for Touchglass.

Q. Any thoughts on MM?

A. My favorite M&M is almond. Oh wait, you mean Millennial Media, stock symbol MM. MM is trying to build an independent mobile ad system and if it pulls it off, it’ll could go up 10-fold from here. However, there’s only one winner in most areas of the Internet where critical mass drives further success, such as in: Search (Google), Tweeting (Twitter), Social Networking (Facebook), Shopping(Amazon). I don’t have enough faith in MM’s model or in its hype-ful management to make me want to buy it.

Hi Cody. Thanks for all your time, help, insights lessons, not only regarding investing but life as well! You are doing great job – definitely worth my subscription.

Okay guys, thanks for another great Live Q&A session. See you all back here at the same Bat Time on the same Bat Channel next week.