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The Investor’s Essential Summer Reading List

With July 4th upon us, and the potentially world-changing events being negotiated as the U.S's President Trump and China’s Xi pore though texts — both ancient and modern looking for the upper hand — now's a good time for us mere plebes to catch up on our own reading.  Here’s a list, of some old and new books that can help in trading and in life in general.  While I wouldn’t chop off an arm reaching for the latest Jack Reacher novel, or deny the deal-making put forth by Trump as someone who writes about and actively trades options, I belong to the camp believing that your time could be better spent learning how options, when properly utilized, can both boost returns and reduce risk. Instead, impress your neighbors, annoy your family and study yourself into a well-deserved siesta with some of the best books and resources on options. It may lack the drama of reading about Greece and central banks interventionist policies, but I promise the long-term benefit is better.     I’ll tee up a few topics and offer some reading suggestions for those that want to delve deeper and don’t mind being spotted on the beach thumbing or swiping through an options book or tablet. Operation Manual As with any tool, before using options, make sure you are familiar with the basic rules and guidelines that govern their behavior.  For starters, make sure you know the contract specifications of the product you are trading. Items such as margin requirements (pay special attention to leverage), the exercise and settlement procedures, and what strikes and expirations are currently listed for trading are important to know. For example, you should be aware that index options, such as for those on the S&P 500 or SPX, can only be exercised on expiration day and are cash settled; also note that SPX options actually cease trading on the third Thursday of the month, a day earlier than equity options, though they officially expire on the third Saturday.  By contrast, equity options, including those on the Spyder Trust (SPY), can be exercised at any time during the life of the contract. This is especially important when trading options on stocks that pay dividends.  This information and more can easily be found at exchange websites such as Chicage Board of Options Exchange  (CBOE) page   Another great source of education is the Options Industry Council  A terrific book that covers all the basic concepts and strategies is Options as a Strategic Investment by Lawrence McMillan.   The next level is Option Volatility and Pricing: Advanced Trading Strategies and Techniques by Shelton Natenberg.  Dealing in Dividends If you own in-the-money calls on Exxon (XOM) make sure you know when the ex-dividend date occurs -- you will need to exercise your calls if you want to qualify for the payment. Likewise, if you are short an in-the-money call on a dividend-paying stock, be prepared for assignment and being short the actual shares the day before it goes ex-dividend.  Most ETFs pay dividends. Some, like the Spyders pay out on a quarterly basis — and for some reason — the ex-dividend date often falls on the Thursday prior to a quarterly expiration.   Meaning, many people have failed to exercise an ITM call and lose out on the dividend, while others or are unwittingly assigned puts and forced to pay.  Others, like the Dow Jones Diamonds (DIA) make monthly distributions. The point is, knowing the basic rules by which the various vehicles operate will help you avoid surprises such as an early assignment on an in-the-money call.  Jargon Slashing Option traders, like other professionals, love to use industry jargon. Talking the lingo serves several purposes: It connotes a high level of knowledge and expertise in one's specific field, it accurately conveys complex concepts in a concise manner, and it just sounds so cool to say things like, "I'm long vol up the ying-yang and bleeding theta," which basically means one owns options that are suffering from time decay.  The downside of lingo is that sometimes it's used to purposely conceal the true level of understanding, or is simply a means for the speaker to bolster his self-esteem and get the upper hand in a conversation or negotiation.  This can be very off-putting to the layperson put in the position of deferring to the expert because he is reluctant to ask a "stupid question."   So, with that in mind, while it’s not important to know all the jargon it is imperative to understand the concepts so as not to make a needless costly error.   Or that scalping gamma is a fancy way of saying, "I'm trying to buy low volatility and sell higher volatility as the price of the underlying stock moves back and forth within a trading range."  Some basic concepts of option pricing models such as Black-Scholes and what the “the greeks”, especially, delta and theta, mean how they measure options’ value.  For deeper dives into it, there are plenty of good books out there.  One of my favorites on harnessing Vega and Gamma is Options Volatility Trading: Strategies for Profiting from Market Swings by Adam Warner.   A great site for finding and analyzing current and historical volatility, along with an amazing amount of free tools, is iVolatlity.com  One of the best option books I’ve ever read is by Charles Cottle — whom I’ve had the pleasure of sharing a panel with on several occasions — called Options Trading: The Hidden Reality. It blew my mind so much so on the first read that I had to go back and read it again. And I still only understand only half of what he was saying. That one will both enlighten and put you to sleep.  Enjoy the weekend 
ETF BASIC NEWS July 2, 2019 1:58pm

As Gold Prices Retreat, Is It Time to Sell?

gold bar closeup
This is one of those days where you feel like you know what is going to happen, and you wish your article submission deadline was 2 hours later.  In premarket today, gold has dropped below 1400 USD/oz on the tails of news of an apparent truce in the US-China trade war. Here's the 5-day chart of GLD including pre-market and after-market New York hours; it isn't hard to see the drop away from the peak. gld july 1 2019 chart               (credit Fidelity.com) Since gold is now below 1400, we have to consider 1400 as significant resistance overhead.  Yes, there are the optimists (read: perpetually gold-bullish) who will see this as a buying opportunity.  The trading reality, however, usually plays out that the first step down in a big market optimism change is just that - the first step.  Which is usually followed by second — and even third steps — down. Last week our trading advisory put a stop under our naked NUGT position.  We're going to leave that on, and it looks like we'll step out with a very healthy profit this morning at the open. If we're wrong and the gold sector recovers we can always buy back in once we see 1400 become support again, or when gold breaks its recent high. We might miss a little gain, but we might also miss a big loss. You might remember a month (and two, and three) ago when we were bemoaning the lack of action in the gold sector.  Well, that just turned out to be the setup for a nice blip up.  We bought a little during a low which will pay off nicely today.  Maybe we didn't buy enough to buy that nice new yacht, but we were at least in the game and will walk away with a very successful month. One thing is always certain when trading gold: There's either something happening or something set up to happen.  Stay tuned for whatever happens next! Signed, The Gold Enthusiast DISCLAIMER: The author is long the gold sector via small positions in NUGT, JNUG, a few junior miners, and a covered call on part of the NUGT position. He will likely get stopped out of some of the NUGT shares by the time you read this, as indicated in the article, but will have some shares left not under the covered call.  
ETF BASIC NEWS July 1, 2019 10:57am

Here are the main industries investing in marijuana

From Scott McGovern: Some of the biggest companies in the world are poised to profit from legalization. Meet the biggest non-weed companies investing in cannabis.
NYSE:MJ June 28, 2019 6:33pm

The market just had its best June in over eight decades

From Fred Imbert:
KEY POINTS
NYSE:VTI June 28, 2019 6:25pm

Oil prices drop amid cooling geopolitical tensions

From Reuters: Oil prices fell just before the settlement on Friday after the remaining parties to the Iran nuclear deal vowed to help normalize trade with the Middle Eastern nation.
NYSE:USO June 28, 2019 6:12pm

Financials surge after crushing the Feds stress test

fin sector
From Sanghamitra Saha:

U.S. banking biggies have cleared the key Stress Test conducted by the Federal Reserve, barring the U.S. division of Credit Suisse. Regulators allowed a majority of the 18 institutions to raise dividends and buy back shares.

NYSE:XLF June 28, 2019 1:56pm

Why this Energy ETF could be ready to soar

From Sweta Killa:

The Fidelity MSCI Energy Index ETF (FENY) was launched on 10/21/2013, and is a passively managed exchange traded fund designed to offer broad exposure to the Energy - Broad segment of the equity market.

NYSE:FENY June 28, 2019 1:54pm

Why this tech ETF could be a Buy heading into next month

From Andrea Kramer:

The U.S. stock market is set to wrap up a banner June, with the S&P 500 Index (SPX) fresh off all-time highs. What's more, several sectors could continue to shine in July, if recent history is any guide. In fact, the Technology Select Sector SPDR Fund (XLK) emerged as one of the best exchange-traded funds (ETFs) to own next month, having ended July higher 100% of the time in the past 10 years.

NYSE:XLK June 28, 2019 1:14pm

This marijuana ETF just announced it will begin issuing a quarterly dividend

maryleaf
From Business Wire:

MJ, The ETFMG Alternative Harvest ETF (NYSE Arca:MJ) has declared an approximate $6.5 million quarterly dividend which equates to $0.18 per share. The dividend will be paid July 3, 2019 to shareholders of record as of the close of business, July 1, 2019.

NYSE:MJ June 28, 2019 1:08pm

Markets gain as investors anticipate a positive meeting between Trump and Xi

From Shreyashi Sanyal: U.S. stocks rose on Friday as shares of big banks gained after clearing the Federal Reserve's stress test, with investors closely tracking the G20 summit where President Donald Trump and his Chinese counterpart, Xi Jinping, could lay the groundwork to resolve a trade dispute that has weighed on global growth.
NYSE:SPY June 28, 2019 11:20am

Why the CBD industry could be facing a steep uphill battle

CBD 2
From Sean Williams: You'd be hard-pressed right now to find a faster-growing industry than legal cannabis. Between 2018 and 2024, the newest report from Arcview Market Research and BDS Analytics, "State of the Legal Cannabis Markets," predicts a near quadrupling in worldwide licensed-store sales to north of $40 billion. This better than 24% compound annual growth rate through 2024 is a big reason behind the rapid rise in marijuana stocks in recent years.
NYSE:MJ June 28, 2019 11:15am

Why this expert expects gold prices are head higher

gold %dollars
From Daniela Cambone: Despite the pullback, the gold rally isn't over just yet, and one expert is forecasting that prices will rise to around $1,480 an ounce in the next two months.
NYSE:GLD June 28, 2019 11:05am

Oil prices edge slightly higher as investors await G-20 outcome

oilbarrell
From Reuters: Oil prices inched higher on Thursday, kept in check by worries about whether the G-20 summit will produce a breakthrough on trade that could boost crude demand.
NYSE:USO June 27, 2019 5:55pm

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