Thursday, September 22, 2016

21st Century NBA Basketball Prediction Program - Chance or Skill?

  After spending much of the summer in a fruitless attempt to get my chess game in shape for the tournaments in Duluth and Jackson I turned my attention to the upcoming professional basketball season and specifically my attempts to resuscitate my 30 year old basketball prediction program for the 21st century. I worked on this project last summer and thought I had a workable formula that predicted winners above the magical 52.4% break-even mark for the 2013-2014 and 2014-2015 seasons. After a promising start to the 2015-2016 season the formula stopped being successful and I finished the season making picks on my own and finished the season just short of the break-even line, losing $600 mythical dollars in the process.

  I started this year’s effort by creating a data table with different formulas combining the 16 variables I captured using the three seasons of NBA data I’ve assembled. I then created and ran a stored procedure to create the predictions for each season for each formula and save the results in my database. In addition to predicting winners, my software comes up with its own point spread which I compare to the published point spread. I summarize my results by how accurate my predictions are against the published line and how different my point spread is from the published spread. In a perfect world the bigger the difference between the two spreads the more correct my predictions will be.

  While running a query against my result summary I discovered that out of the hundreds of formulas, three gave me over 55% correct predictions on games with a 5 point difference between my spread and the published spread for each of the three seasons used. Better yet, when the point spread difference was 7 points or more the success rate jumped to over 60%. I have 6 weeks before the start of the 2016-17 season and decided to use the time to verify these new formulas. I loaded the 2012-13 scores into my database and am entering in the point spreads from freeplays.com. I have 700 of the 1229 games loaded into the database and so far the results are very promising. Over the next week or so I’ll enter the rest of the season and find out for sure if my 3 ‘success stories’ are for real.

  It seems absurd on face value that any computer program could beat the odds makers. In reality it makes perfect sense. Point spreads are not set in order to predict the actual score. They are set in order to guarantee that there is an equal amount of money bet on either side to allow the gambling facilitators to make money (on the 5-10% extra paid by the losing bettors) no matter who wins the contest. Any false assumption by the betting public (like betting blindly on the Warriors or Cavaliers) or any team with a fan base that always bets on or against then will cause the point spreads to be skewed to attract an equality of wagers on both teams.

  Real or not, I will soon be loading the 2016-2017 schedule into my database, I resolved this season to get an online gambling account on bovada.lv and make my predictions on my NBA point spread predictions blog with real and not mythical money. By using real money on an established gaming site I hope to print my predictions on my blog the day after the games using screen prints as verification and offer my predictions the day of the games on a subscription basis.

  I plan to start my Bovada account with $500 and bet $10 on each game. I’m not expecting to go 45 games under .500 at any point in the season (which would exhaust my funds) but I’ll deal with that situation if it happens. The hardest part of this exercise will be to have the discipline to stick with my formula and not make picks every day just to be making picks. There are going to be plenty of days where my formula doesn’t differ from the published point spreads and those are the days that will test my patience.

  I hope I manage to make some actual money picking NBA games this season because the thought is occurring to me that wagering on the outcome of sporting events is going the way of the dinosaur and I want to be successful before the practice goes extinct. The new way of gambling on sporting events is not betting on the winners and losers but by playing ‘Fantasy Sports’ where the gambler picks a roster of players and roots for his ‘squad’ to outscore the competing squads by having better statistics. Fantasy sports is at least 40 years old, having gotten its start as ‘Rotisserie Baseball’ and graduated to the big time as Fantasy Football. Originally these activities were done by small groups but have gone global with the arrival of Internet sites that allow players from all over the world to play in the same ‘leagues’ for huge amounts of money.

  The biggest companies in the fantasy sports business are ‘DraftKings.com’ and ‘FanDuel.com’. Both companies advertise heavily on sports broadcasts and podcasts and like most of the successful drug dealers I’ve known will give new customers a free taste of the action.

  While sports betting is only legal in Nevada (Delaware has state sponsored sports parlay betting), playing fantasy sports for money is allowed in over 35 of the 50 states. New York famously banned online fantasy sports in 2015 as gambling but did a turnaround after passing regulations that included taxing the gaming sites to the tune of 4 million dollars a year.

  It’s amusing to see fantasy sports and betting on the outcomes of sport events decried as gambling by the same entities that run multi-million dollar lotteries that only pay out 50% of the take. Is sports betting gambling? For the unskilled, absolutely! But for the skilled it is not gambling at all. The Wall Street Journal reported that 91% of the prize money in the 2015 baseball fantasy season was won by 1.3% of the participants. I don’t know if the same ratio holds true for picking against the point spread but if it does I hope I’m a one percenter.

Thursday, September 15, 2016

TV Review - The Last Ship Season 3

   WARNING : THE LAST SHIP SEASON 3 SPOILERS BELOW!!!

This season The Last Ship's usual superb action was intermingled with slow-moving political intruigue...

  For the last three months my Sunday nights have been spent watching TNT’s ‘The Last Ship’. This show is now in its third season and remains one of my favorite shows although I admit I had my doubts about the current season. In Season 1 Captain Tom Chandler and the crew of the Nathan James navigated their way from the North Pole to Baltimore to deliver a cure to a virus that has wiped out 90% of the worlds’ population only to discover that Baltimore was taken over by a group of government bureaucrats that were killing sick people in order to burn their corpses to power the city.

  In season 2 the crew overthrew the rulers of Baltimore and battled a group called ‘The Immunes’ who were naturally immune to the deadly virus and believed they were destined to rule the world. The Immunes had a nuclear powered submarine under their control and destroyed all the laboratories that were making the cure in order to ensure their rule. They also had among their numbers the highest surviving cabinet member, Jeffrey Michener, who was also immune and claimed to be the President of the United States by succession. Naturally the Nathan James defeated the submarine, turned Michener from siding with the Immunes to helping spread the cure across the entire world, established the new US Government in St. Louis, and even found a way to atomize the cure and make it contagious. The season ended on a note of triumph, marred only by the assassination of super scientist Dr. Rachel Scott at the very end of the season.

  In Season 3, Chandler is now the head of the armed forces and his right hand man, Mike Slattery is the captain of the Nathan James. While the James is in Asia delivering the cure, Chandler is sent to China to negotiate with President Peng, who has 3 battleships and is hoarding the cure instead of distributing it. Chandler survives an assassination attempt while negotiating with Peng and the leadership of the James is kidnapped by Japanese pirates led by the mysterious Takahaya who transfuses the crew's blood in order to ward off the effects of a possibly mutated virus. In order to rescue the crew and save himself, Chandler makes it back to the James to begin a season long fight against the pirates and President Peng.

  The ship based plot of season 3 was great but there was a considerable amount of political action in St. Louis that I found interminable. Every week Michener had to deal with his new cabinet (including Nathan James alumni Lt. Kara Foster as the liaison to the military) and the heads of the 4 territories that had sprung up during the virus crisis. Each week brings new angst to Michener as his plan to ration food and energy is met with riots fomented by the territory leaders until he eventually commits suicide. These scenes had no action and didn’t advance the plot lines in Asia, leaving me thinking I was watching a post-apocalyptic version of the West Wing instead of an action show.

  In a masterstroke, it was revealed that Michener didn’t commit suicide but was assassinated as part of a coup by the territory leaders and their inside person in the White House, Chief of Staff Allison Shaw (played by Elisabeth Röhm who could be a stand-in for a younger Hillary Clinton). Shaw is nominally in control of the government and was the one who arranged Chandler’s assassination attempt as well as giving the Peng information on the James whereabouts and plans in a global game of divide and conquer. Shaw has dissolved the military, murdered all who don’t go along with her plans, and even has new President Howard Oliver under her thumb by threatening his family. In the final episodes of the season the James is heading back to the U.S. to put an end to the coup and restore order to the United States.

  As artful as the screen writers were in knitting the government drama in St. Louis with Nathan James it seemed like filler to me. There was enough action, twists, and turns in the Far East that the goings on in St. Louis could have been omitted without being missed. My attraction for The Last Ship mostly stems from how much the plots remind me of the original Star Trek. Instead of merely commanding the ship, Captain Chandler is with the away team and in the thick of the action much like Captain James T. Kirk. Chandler’s right hand man Slattery is hardly a Vulcan like Spock but he and Chandler have much the same relationship as the Star Trek duo and communicate in an almost telepathic manner. I found many parallels to Star Trek when the crew encounters different civilizations and challenges. In order to get the kidnapped crew back, Chandler first heads to the lawless town of Shanzhai where he gains information while fighting off and elite Chinese fighting squad. When running down the pirates and their mysterious leader Takahaya, the James finds itself trapped in a unique mine field that requires all their (and their screen writers) wits to escape. On sea the James narrowly escapes an ambush that cripples the other 2 US destroyers in one episode and then takes on all three Chinese battleships using cunning as much as superior firepower.

  Once encountering and capturing Takahaya, the season’s plot takes the biggest turn as the Nathan James discovers the cure they have been delivering to Asia didn’t work in Japan because Peng has developed a gas that prevents the cure from working, causing Takahaya's turn towards piracy to protect his crew and family. Takahaya and Chandler then join forces to take down Peng with Takahaya getting the final killing honors. It was a great plot twist in the Star Trek vein of role reversals turning seeming enemies into allies and vice versa.

  I would have been happy if the season had ended with Peng’s demise but the twist of having Peng be aided by Shaw and the Territory leaders led the Nathan James back to America for the last 2 episodes of the season. One bright note was the late season return of Tex, the jack of all trade Guantanamo guard who joined the crew in the second episode of the first season. In the season’s penultimate episode, Chandler leads an expedition to kidnap Western territory leader Castillo and prevent a trainload of people from being shipped into the Texas territory even though most of the trainload is willing to head to Texas and work 16 hour days in return for a days’ worth of food.

  The season finale brings the final showdown between Chandler and Shaw on Shaw's getaway plane. Shaw arranges the showdown by killing Chandler's father and kidnapping his two children in order to get Chandler to give himself up in a hostage exchange. The final scenes were exceptionally tense and well done with Tex saving the day by stowing aboard the the plane and a final fight leaving Chandler holding Shaw at gunpoint. Tex tells Chandler that Shaw isn't worth shooting but then collapses, having been fatally shot in the rescue attempt. Shaw tells Chandler that instead of saving the world he has unleashed the worst of humanity and someone worse than her will eventually try to take over the world. This is too much for Chandler, who shoots Shaw leaving him questioning whether everything he has accomplished in the first 3 seasons was only to pave the way for would-be dictators to prey on the remaining survivors and whether he is any better since he killed Shaw in cold blood. As tense and exciting as the episode was it was also very rushed. Four strike teams undergo missions in New York, Texas, Iowa, and St. Louis to capture Shaw and the rest of the territory leaders but when Shaw captures Chandler’s children the strike teams get to St. Louis in the same amount of time that Chandler arrives from California which was no time at all. I couldn’t imagine Shaw waiting for Chandler to arrive when she has a plane fueled and ready to go and hostages in tow. It was the only inconsistency to a riveting season.

  The Last Ship has been renewed for the 2017 and 2018 seasons but with only 10 episodes each instead of the 13 episodes that this year’s season brought. This smells like a series finale to me even though the show’s ratings have remained respectable especially when on demand viewership is factored in. I really like this show and would hate to see it go but I am thrilled to have at least two more years to look forward to.

Thursday, September 8, 2016

FMF - A Change in Direction?

  Since I wrote about my further adventures in covered call options using my self-directed 401k I’ve been inundated with requests for financial advice. On Sunday the clerk at Casey’s General Store asked if I had anything smaller when I tried to pay for my coffee refill with a $5 bill and a few days before that one of the ‘Slappys’ I regularly see on my afternoon walks with Daisy and Baxter told me that he was drinking a giant can of ‘Steel Reserve’ beer because it was ‘f&@^ing cheap’ and asked what I thought about that. With that kind of feedback the thought crossed my mind that I should start my own financial services podcast but since I don’t have the time for that I decided I’d offer a 6 month update on the performance of my Found Money Fund (or FMF for short).

  The FMF was an outgrowth of my paying off my 2013 Chevrolet Spark in two years using extra money I occasionally get from giving chess lessons, helping users with the shoe store software I stopped writing almost a decade ago, collected spare change, tax returns, cash back rewards, mileage expenses from work, etc... Once my car was paid off I started using my found money to buy four stocks: Phillip Morris (PM), AT&T (T), Coca-Cola (KO), and mortgage real estate trust company American Capital Agency Corp. (AGNC). All four stocks pay dividends (which I reinvest into the stocks commission free) and except for AGNC have been profitable companies for many years. When I last wrote about the FMF in March it had just hit an all-time profit of $583 or (9.6%) and was providing $33 a month in dividends that I reinvested in the stocks commission-free. In the intervening 6 months I’ve made 7 buys of $500 and now receive $48 in dividends that I reinvest.

March 1, 2016Buy 11 KO @43.626416865.0879.75514.64
March 1, 2016Buy 27 AGNC @17.99516865.08-40.26514.64
March 1, 2016Buy 13 T @ 37.336416865.08211.47514.64
March 1, 2016Buy 5 PM @91.4116865.08263.68514.63
April 18, 2016Buy 5 PM @101.2418004.16502.241096.13
July 7, 2016Buy 11 T @42.817895.88555.141506.14
July 27, 2016Buy 11 KO @43.596518472.1787.681321.81

  The March 1st buys were mostly funded by my tax return and as you can see by the prices I paid in subsequent buys the stock market exploded in value and the prices of these stocks also exploded also. The FMF regularly hit new all-time profit highs with a peak of $1615 on July 6th (19.2%) before giving back 20% of those gains to sit at a $1347 profit on Labor Day. Why has the stock market in general and my stocks in particular exploded this year? There are lots of reasons but I think a main one is the massive amounts of money that have flooded the world economy to promote economic growth. Despite the best meaning efforts most of this money ends up with people who already have money and is creating investment bubbles of inflated prices in lots of places including the stock market. That is precisely why I chose long standing quality stocks for the FMF with the exception of AGNC who I will get to shortly. At some point the stock market bubble will burst like all bubbles do but that would only be a short term setback for top-quality companies like Phillip Morris, AT&T, and Coca-Cola who would be able to pick up market share and buy up competitors at discounts.

  On February 25th PM and T were the most profitable investments with KO chugging along and AGNC showing a loss despite providing the bulk of the dividends (mortgage real estate trusts like AGNC have to provide 90% of their profits as dividends to obtain a preferred tax status from the government). Six months later little has changed with PM, T, and KO but AGNC has surged past KO in profitability.

StockAverage
Purchase
Price
Price on
Labor Day
Purchased
Shares
Reinvested
Shares
DividendQuarterly
Dividend
PM83.935567.9300.3231.0230.93
KO42.862102.84571.3140.3520.41
AGNC19.639257.3410012.4120.1860.69
T36.360446.39673.3920.4833.79
Total
Quarterly
Dividends
145.82
Monthly
Dividends
48.60

  The reinvested dividends have accumulated an extra 12 shares of AGNC which makes its bottom line more susceptible to swings in price as far as the FMF is concerned. Right now AGNC is in an upswing because it spent $562 MILLION DOLLARS to purchase management company it had been paying $400 million dollars a year to in fees. The purchase was lauded and the price of AGNC skyrocketed. But then AGNC did something very curious – they lowered their dividend from 20 cents a share to 18 cents a share. This decision was also lauded and the stock went up again. When I first purchased AGNC in March of 2015 the dividend was 22 cents a share which was lowered to 20 cents in May 2015.

  This caused me to do a little digging into AGNC. I found that in addition to the common stock I own they also have a preferred stock (AGNCP) that gives a 50 cent quarterly dividend that hasn’t been cut in at least 4 years. The preferred stock apparently gets their dividend off the top and leaves the common stock with what’s left. AGNC is trading at 19.5 currently but I think that a lower dividend will have to lead to a lower stock price at some point. A price of $18 would make the dividend the customary 12% yield which seems to me what most people want from this type of investment.

  This leaves me in a quandary with one of the FMF pillars. I can see a downturn in AGNC and if past performance is predictive another dividend cut could be in the future next year. Covered call options on AGNC don’t sell for nearly the same prices as stocks like Intel and Exxon yet the stock is still profitable. I decided to take a ‘Solomon-like’ attitude and cut the baby in half. I put in a sell order for the 100 shares of AGNC stock I purchased at a trailing stop price of 50 cents, meaning that when the price of AGNC goes down 50 cents from the highest point after I placed the trailing stop order my sell order will be placed. This will guarantee me a reasonable profit which I will keep in the form of the 12 shares from the reinvested dividends. I’m not sure what I will do with the proceeds in the event I do sell the AGNC shares. I tend to think I will hold onto the cash to buy AGNC back at a lower price. The other option would be to throw the proceeds into a stock like Intel that I understand a lot better than AGNC. More annoying to me is that I thought I had picked my four stocks carefully enough that I could just let them run on auto-pilot but AGNC is now making me think which is not something I had in mind when I started this exercise 18 months ago.

Thursday, September 1, 2016

Options in Reverse

  In May 2015 I wrote about my adventures in selling covered call options from the self-directed Fidelity brokerage account that I transferred my 401k balances from past jobs into. Most of my stock activity concerns Intel (INTC) which I buy when the price goes down and sell when the price goes up enough to get my investment back and keep 5 shares of the stock as a bonus. In addition to accumulating shares in this piecemeal fashion I’ve had Fidelity use the Intel dividends (26 cents per share per quarter) I receive to buy more shares of the stock commission-free which is a nice bonus. In addition to owning the shares of Intel, I’ve been generating extra cash by selling options to purchase my ‘bonus shares’. The options I’ve sold are for a purchase price high enough to guarantee me a profit and far enough in the future (two to six months) to provide a nice ‘rental fee’. On most occasions, the option expires without being exercised and I keep the stock and the money also. A few times Intel’s price jumped before the option expiration date and I had to sell the shares at a considerable discount to the current price. Not making as much money as I could have with perfect timing has never been a concern for me and I’ve always been able to replace my ‘bonus shares’ at a lower price than I sold them for by being patient enough to let the stock market do it’s up and down thing.

  In my post from last year I wrote about my other two favorite option stocks – Emerson Electric (EMR) and Exxon (XOM). Exxon is a well-known company that has raised its dividend every year for over 30 years. I learned about Emerson when I was a consultant at their Fisher Controls division in Marshalltown. The bottom line is all important to Emerson. They close plants that aren’t making enough money and offer retirement packages to get long time employees off the payroll with the implied threat of being laid off with no package if the companies’ overtures are rebuffed too many times. Emerson has increased their dividend for 59 consecutive years although the increases are not as large as Exxon’s.

  Both Emerson and Exxon are sensitive to the price of oil. With the price of oil being so low I was unable to sell options in Exxon and Emerson at a high enough price to guarantee me a profit for the stock from June of last year to March of this year. It wasn’t a complete loss as both companies provided a dividend of over 3% (which I reinvested in their company’s stock commission free) while I waited for the prices to rebound which they did in March. Now that both stocks have rebounded somewhat I am back to selling covered call options but with a new twist that I learned last year – buying the options back.

  On 5/13/2015 I sold a covered call option to sell 100 shares of Emerson at $62.5 on 6/19/2015 and pocketed $57 ($65 less $8 commission). The stock was trading for $60 at the time. Between June 3rd and June 5th Emerson stock dropped from 60.30 to 58.50. The same option I sold for $65 was now selling for $15. I called Fidelity and found I could buy a covered call option and cancel the obligation I took on when I sold the option. I bought the covered call option for $22.99 ($15+$7.99 commission) and had the stock and $34 profit. I immediately sold another option to sell Emerson for $60 expiring July 17th and received another $107. By June 23rd the Emerson stock price was unchanged ($58.35) and I bought back my option at the reduced price of $32.99 including commission. This cleared me another $74 for a total of $108 or 1.76% on my investment in 40 days and I still owned the stock!

  Buying back options with Emerson was a real eye-opener. One thing I could have done better was perhaps not even buying the options back or waiting until the price of the options fell further. Last fall Fidelity made it easier to buy options back by making them commission free for a price of 10 cents or less which makes me want to wait until the option price goes to 10 cents before I buy them back.

  I would like to say my Emerson adventures have been a success but the truth is that even though I’ve collected $350 in options and $330 in dividends since December of 2014 I am still showing a loss for the 20 months I’ve owned this stock. I’m not especially concerned since I’m in for the long haul and collecting the occasional option boost in addition to the regular dividend continually lowers my beak even point so when the next wave of enthusiasm washes over Emerson I’ll collect a profit on the stock and keep the options and dividend cash as an extra bonus.
  
12/10/2014Buy 100 EMR @ 61.444-6152.35
12/18/2014Sell 1 EMR Option @62.5 (.95)
Expiring 1/27/2015 (not exercised)
+87.01
3/11/2015Dividend EMR (Payable 3/10/2015)+47.00
5/13/2015Dividend EMR (Payable 6/11/2015)+47.00
5/14/2015Sell 1 EMR Option @62.5 (.65)
Expiring 6/19/2015
+57.00
5/14/2015BUY EMR Option @62.5 (.15)
Expiring 6/5/2015
-22.99
6/5/2015Sell 1 EMR Option @60 (1.15)
Expiring 7/17/2015
+107.00
6/23/2015BUY EMR Option @60 (.25)
Expiring 7/17/2015
-32.99
8/11/2015Dividend EMR (Payable 9/10/2015) +47.00
11/10/2015Dividend EMR (Payable 12/10/2015)+47.50
2/10/2016Dividend EMR (Payable 3/12/2016)+47.50
3/17/2016Sell 1 EMR Option @60 (1.05)
Expiring 9/16/2016
+97.00
5/11/2016Dividend EMR (Payable 6/10/2016)+47.50
6/24/2016BUY EMR Option @60 (.10)
Expiring 7/17/2015
-10.04
8/10/2016Dividend EMR (Payable 9/9/2016)+47.50
8/17/2016Sell 1 EMR Option @60 (.75)
Expiring 1/20/2017
+67.00
Total-5472.36
Total if sold at 8/29 price of 53.73-104.33-1.70%
Total if 1/20/2017 option is exercised+551.56+8.97%


  I’ve had much better luck with Exxon. I dipped back into selling Exxon options in February when I made $76 on an option to sell 100 shares at $90 on July 21st. At that time the stock was $80.67. Exxon hovered around $90 in April and May and made a big move in July, reaching $95 a share in the week before my option was exercised. I felt a little stupid selling a $95 stock for $90 but I was following my plan of accumulating small gains at a low risk. All told my 21 month investment in Exxon netted me a 3% profit which worked out to be 1.6% annually which while not a great return certainly beats a loss.

  That would be an acceptable outcome but my Exxon story is still incomplete. Once my option was exercised on July 21st at the $90 price, Exxon plummeted and just 10 days later I was able to buy the same 100 shares for $87.46. I immediately sold another option to sell these 100 shares for $90 on October 21st which put $133 directly in my pocket and 10 days later XOM declared a dividend of .75 cents which will give me another $75. If the option is exercised in October my net Exxon investment will have a total 7.5% yield or 3.6% annually. Not a bad increase for 10 days after selling the stock at a reduced price.

  
9/24/2014Buy 100 XOM @ 95-9507.95
10/9/2014Sell 1 XOM Option @97 (.50)
Expiring 10/31/14 (not exercised)
+42.01
11/7/2014Sell 1 XOM Option @99 (.39)
Expiring 11/22/14 (not exercised)
+31.01
11/11/2014Dividend XOM (Payable 12/10/2014)+69.00
12/19/2014Sell 1 XOM Option @95 (1.25)
Expiring 1/17/2015 (not exercised)
+117.01
1/21/2015Sell 1 XOM Option @95 (.47)
Expiring 2/06/2015 (not exercised)
39.01
2/13/2015Sell 1 XOM Option @95 (.75)
Expiring 3/13/2015 (not exercised)
+67.00
3/10/2015Dividend XOM (Payable 3/11/2015)+69.00
5/10/2015Dividend XOM (Payable 6/10/2015)+73.00
8/10/2015Dividend XOM (Payable 9/10/2015)+73.00
11/10/2015Dividend XOM (Payable 12/10/2015)+73.00
2/3/2016Sell 1 XOM Option @90 (.84)
Expiring 7/15/2016
+76.00
2/9/2016Dividend XOM (Payable 3/10/2016)+73.00
7/21/2014Sell 100 XOM @90
Exercised Option
8991.85
8/1/2016Buy 100 XOM @87.465-8754.45
8/1/2016Sell 1 XOM Option @90 (1.33)
Expiring 10/21/2016
+125.00
8/10/2016Dividend XOM (Payable 9/9/2016)+75.00
Total-8268.51
Total if sold at 8/29 price of 87.84+499.49+5.25%
Total if 10/21/2016 option is exercised+715.49+7.53%

  When Exxon leaped to $95 in July I noticed something strange in the prices of the short term options. When the stock was priced between $91 and $92 the option to sell covered calls at $90 on July 21st was between $2.5 and $3 a share. This meant I could buy 100 shares at $91, collect $250 to sell the shares at $90, and if the price stayed above $90 for two weeks could collect around $125 in profit when the option was exercised ($250 option profit - $100 stock loss - $25 commissions). Normally I see short-term options for a stock at or over the current trading price trading very close to the difference between the two prices (an option to sell a stock trading at $90 for $91 in the future generally trades very close to $1). This large gap seems like an anomaly.

  I looked for this pattern in other stocks and while it is a rare occurrence it does occur. The only downside I could see is that if the price of the stock plummets the option wouldn’t be exercised and I’d be holding a loser stock. I didn’t consider that much of a downside as long as I did this with top quality stocks with a history of paying dividends so I would get some return on a dormant investment until a wave of enthusiasm lifts the stock price yet again.

  I had a chance to pull the trigger on this with Exxon but couldn’t bring myself to do it. I was kicking myself for leaving easy money on the table when I noticed an exceptionally high price on Apple (AAPL) options and decided to dip my toe in the water. On July 18th I bought 100 shares of Apple at $99.61 and immediately sold the option to sell the stock for $100 on August 19th. The option gave me $199 and I was counting on a $57 dividend that Apple was issuing on August 4th to further boost my return. A week later Apple’s stock price dropped to $96.82 but jumped to $104 the next day on Apple's announcement that their 'app' store had record revenue for the quarter. The stock stayed over $104 and on August 4th my option was exercised and I sold the shares for $100. The good news was that I collected $221 in 17 days for a 2.2% return (47% annual). The bad news was that the option was picked up early in order for the buyer to collect the dividend instead of me. But don’t cry for me – I’m happy to have picked up a reasonable profit with little to no risk.

  
7/18/2016Buy 100 AAPL @99.61-9969.45
7/18/2016Sell 1 AAPL Option @100 (2.08)
Expiring 8/19/2016
+199.25
8/4/2014Sell 100 AAPL @100
Exercised Option
9991.83
Total+221.63+2.22%

  I made a bolder excursion into options two weeks ago when I noticed this same pattern in my favorite stock, Intel. Intel has been trading at multiple year highs in the last two months, hovering between $33 and $35 a share and I’ve been doing very little with the stock except to sell shares I previously purchased and keeping ‘bonus shares’ as my profit. On August 19th I bought 200 shares of Intel for $35.07 and immediately sold an option to sell the shares on October 21st at $34 a share (a guaranteed $1.07 a share loss). Why would I offer to sell stock I just bought at a loss? Because I collected $1.89 a share to sell the options and selling the stock at a loss on October 21st would give me a profit of $137 or 2% of my total investment.

  To some, a perfect scenario would have the price of Intel drop to $33.99 on October 21st so my option won’t get exercised and I can sell another option. I’m hoping that the price in Intel will stay above $34 so the option will get exercised. I’m not looking to make huge killings with this ‘new toy’ I’ve found – I’m trying to grab a quick percentage point or two in as low-risk a way as possible. I've talked to a number of people about this strategy with the opinions ranging from brilliance to idiocy. I believe the truth is as always somewhere in between but we'll all have a more informed opinion on October 21st.

Thursday, August 25, 2016

2016 Jackson Open - Déjà vu

  “It's like Déjà vu all over again” - Yogi Berra

  I headed to Jackson, Minnesota last weekend to play in my friend Sam Smith’s Jackson Open for the 5th year in a row. The first two years I played in Jackson I was so tired after the first three rounds that I skipped the last round of the tournament. I managed to play all four rounds the next two years and accomplished one of my Jackson goals last year by tying for second place and collecting a cash prize. Now that I finished in second place I had one unfulfilled goal in Jackson which was to take first place, a lofty goal that would require a lot of good play and a lot of luck but not entirely out of the question.

  I had an excellent warm-up at the Twin Ports Open in Duluth two weeks ago and spent the time between tournaments doing tactics puzzles and reviewing my games from Duluth. As usual the Jackson tournament had one game on Friday night and three games Saturday, all at a time limit of 90 minutes per player with a five second delay instead of the 30 seconds added to each move like in Duluth. Not wanting to drop $131 at the EconoLodge like I did last year I booked a room at the Earth Inn Motel online. There was the possibility that Sam’s friend Joel was going to be sharing my room on Friday so I picked the ‘Queen Room’ which had a picture of 2 beds for the incredibly low rate of $49. I also asked in the special request section of my order to have 2 beds in the room.

  I left the house at 10am and started the 240 mile trek to Jackson. To the delight of my beagles I made a bologna sandwich to take with me as well as some excellent red grapes from the Wal-Mart which were underpriced because they inconveniently were not seedless. I stopped for gas at Albert Lea where gasoline cost $2.15 a gallon which was 6 cents more than Iowa on Friday but 4 cents less than Iowa’s tax inflated gas prices by Saturday afternoon.

Welcome to Albert Lea!

  I made good time and arrived at the Earth Inn Motel in Jackson around 2:30. The Earth Inn Motel isn’t the kind of place with a front desk so I rang the bell and was soon greeted by Joe Manger (who was wearing a shirt that said so). Joe Manager gave me a room key. I headed to the room and found there weren’t two beds in the room as I had requested so I headed back down the hall to talk to Joe Manager. Joe told me that I needed to have ordered a room with two double beds from the web site or better yet that I should have called the Inn directly because if I had called him he would have 'had control'. I didn’t want to discuss control issues with a guy whose shirt said ‘Joe Manager’ so I asked if I could switch rooms and Joe said that was fine as if I hadn’t ‘dirtied up’ my room. Joe Manager said I was lucky that he had one room with a double bed left and switched me for an extra 10 dollars. I thanked Joe and moved my bag over to the next room.

If you have a problem at the Earth Inn Motel in Jackson, Minnesota Joe Manager will take care of it!

  The Earth Inn Motel’s room was just fine. It had a little microwave and refrigerator, exceptional wireless internet, a big television, was spotless, and best of all cost only $64 after the taxes and all were figured in. I settled into the room and took a nap until around 6:00 and headed over to the church where the tournament was being held for the 7:00 first round.


Steve Heinisch
  The church was less than a mile away from the Earth Inn and the only two people there were Sam and his wife Ana. There were only six players signed up in advance for the tournament but 13 more players decided to travel to Jackson to play on the day of the tournament with six players taking a half point bye instead of playing on Friday night. Sam doesn’t charge extra for not registering in advance and while that practice encourages people to make a last minute decision to play it also encourages long distance travelers to wait until the last minute in case bad weather makes the trip impractical. One of the late arrivals was Joel so I knew I was going to have a roommate at the Earth Inn Motel.

  Some late signups and pairing problems caused the first round to start about 20 minutes late. When I arrived at Jackson I was the highest rated player but by the time the tournament started I was the fourth highest rated player and had the White pieces against Steve Heinisch. My more avid readers may find that name familiar and it should be because I played Steve in the same Friday night game of this same Jackson Open with the same White pieces in 2013. Three years ago I drew Steve despite being rated over 300 points higher than him and I was lucky to get the draw. As it happens I had reviewed our game in the week before the tournament and felt fairly prepared as we sat down to play.

pgn4web chessboards courtesy of pgn4web.casaschi.net
  A long game but not especially draining. Steve used all his time and never got up from the board even once. After losing the pawn on move 7 Steve hung tough with his two bishops but the less time he had on the clock the more inclined he was to trade down until he had no pieces left. I was pleased with my play but now I think I could have made things a lot easier on myself by keeping my two bishops and using my extra pawn as a battering ram instead of an endgame trump. All in all I was pleased to have beaten someone who outplayed me three years ago.

  My game was the second to last to finish and it was a little after 10 when Joel and I left the church. Two years ago Joel and I roomed together and headed to the SuperAmerica convenience store for a snack but Joel said he needed a meal this night. Joel’s legs don’t work so he gets around using stick braces that hook over his arms. This puts a lot of stress on Joel’s back and he had to undergo back surgery last year and is still on pain medication that has to be taken with a full meal. The problem I had was trying to find somewhere to eat in Jackson, Minnesota after 10pm. The only place still open was the Burger King drive thru so we ordered some food and ate it at one of the picnic tables outside the restaurant. At 11 even the drive thru closed and the Burger King staff turned out the outside lights. We finished our meal in the darkness and headed back to the Earth Inn Motel for a good night’s sleep to prepare for the next day’s three long games.

A late night dinner in Jackson...

  I woke up at 4am like normal but forced myself back to sleep until 7am since I had no beagles to walk at the Earth Inn Motel in Jackson, Minnesota. The low priced room at the Earth Inn Motel did not provide for a free breakfast so Joel and I checked out and headed to the Embers restaurant next door. Joel had this big breakfast of eggs, toast, and bacon. Eggs tend to get me sick so I decided to have a Reuben Sandwich with hash browns. For the uninitiated, a Reuben is a corn beef sandwich with swiss chess, sauerkraut and Russian dressing (which I skipped). I must have been pretty hungry since I devoured my sandwich and hash browns in record time and had a couple of cups of coffee and then it was back to the tournament for the second round.


Dan Voje
  I was the fourth seed out of 19 players but with six players taking a half point bye instead of playing the Friday night game I found myself having the black pieces against top seed Dan Voje in the second round game that started at 9am on Saturday morning. My more avid readers may find that name familiar and it should be because I played Dan on a Saturday game in this same Jackson Open with the same Black pieces in 2014. In that game I was getting crushed by Dan until his attack went wrong when I found myself a pawn ahead. Dan had less than a minute left on his clock but I made several substandard moves to cost myself the game and a chance at the championship. I got myself a big cup of cold water, squeezed a lemon into it, and sat down for my second round game.

  What a disgusting game. Two years ago I lost to Dan by making a bunch of substandard moves at the two and a half hour mark and two years later I cost myself a game against the same player at the same tournament with the same color pieces in the same opening by making the substandard moves at the same two and a half hour mark. If it wasn’t so similar to the game two years ago I would blame my play on the combination of my lemon water and the Reuben sandwich making me as sick as I’ve ever been at a chess tournament but I know better. Starting from when I took on b4 I never saw the board as an entire unit. Dan’s capture on a7 came as a complete surprise and I never even noticed that I was going to lose my bishop until he took it. This poor play will never get it done against a tough as nails type of player like Dan.

  After that game I was sick of my playing and sick to my stomach and sick that I had no chance to win the tournament. There was an odd number of players so I decided to call it a day and withdrew from the tournament and headed home around 1. I made the long defeated drive home with another gas stop in Albert Lea at which point my stomach started feeling a lot better and at 5:30 I was greeted by an enthusiastic pair of beagles that were delighted to see me and couldn’t care less about whether I lost to Dan Voje or beat Steve Heinisch or anything else unrelated to the refrigerator or an afternoon walk.

  I felt kind of crummy bailing out on Sam and the tournament but ultimately I go to any chess tournament to have a good time and if I’m not feeling good I’m not having a good time and if I’m not having a good time there’s no reason to stick around. In reviewing my games in Duluth and Jackson the two trends I noticed is that my play got noticeably weaker into the third hour and I used way less time than my opponents. There’s a good reason for using less time – I run out of things to think about. The poor play late in games is more worrisome, especially if I continue to play in these longer time control tournaments. If I’m not spending time thinking I should have more energy later in the game and I don't. These aren’t new problems – they’re as familiar as the people I played in Jackson last weekend and it is a little discouraging to see that I have made little to no progress in solving them. I don’t have any more tournaments on my schedule and after a decidedly lackluster 2016 I should have plenty of time to work on these problems.