Being a CFO and other topics

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Month: January 2016

Playing Dungeons and Dragons again – online this time

By

On January 28, 2016

In Gaming, RPG

I was a big war gamer when I was in my teens and when I was in college. Even when I started in the SCA I made time to play role playing games, driving down to the game that our group had every Sunday. I was even the president of the war games club in high school and CEGEP (community college in Quebec that is different than the USA in that it is required and part of the normal university track).

Other than the very first campaign I played in (my cousin Mark introduced me the his friends that were playing and I started with Advanced Dungeons & Dragons 1e), I almost always was the Dungeon Master. I played the classic modules, wrote my own modules and even made the trek to Lake Geneva to go to GenCon. I moved my group to Runequest and Champions, but we still played D&D every once and a while. The NJ gaming group also played D&D and I introduced Champions to them.

The influence of my very early days playing D&D still can be seen on my today as the first paladin I played was called Myrdin the Just (old Andre Norton book that had Myrddin in it and I thought two d’s was a waste and dropped one. Yes, I now know that it is for the th sound in Welsh and that character was Merlin but I did not know that then and Google did not exist). So if you know me in the SCA as Sir Myrdin the Just or online games as Myrdin Potter, you can still see the name that I used to play D&D when I was 13 or 14.

Once I left New Jersey for California and then onwards and outwards, I stopped playing D&D. The closest I got was Magic the Gathering and playing Eve Online. I bought the base rulebooks each edition as it came out and always hoped to find a gaming group, but there never seemed to be time. I still was in touch with my old college gaming group and that grew even stronger once we were all on Facebook. I had been tracking the different online tools to play D&D in the background and had bought the 5e books in the hope of getting a group together but it never seemed to work. My daughter Sarah had played 3.5e with classmates when she was in school in Connecticut and was game to join in but I had no other local friends that were interested and my time split between the USA and China made it difficult.

Then I saw a notice that Fantasy Grounds, one of the two main virtual tabletop programs had managed to get an official license to use 5e D&D. I had been looking a little more at Roll20 as an option as it is web-based, but having the official license and materials for 5e D&D swung me over to Fantasy Grounds (www.fantasygrounds.com and www.roll20.net ).

A few basic things to know for Fantasy Grounds:

1) Native Windows only. It works on Macs via WINE but a little more finicky
2) There is a potentially steep upfront cost. There is a free demo, but that only works for all the players if the game master buys the Ultimate License which is $150 (discounted sometimes) otherwise each player needs a full license which is $40 each or Steam has a 4 for the cost of 3 price. They have a subscription option as well and the ultimate license is $10 a month so you could try it for $10.
3) Other than a recent (and large) holiday sale, the official WoTC content is at list price and there are no discounts if you already own the physical books. The new open gaming license for 5e will make this a lot better as almost all will be included for free, but the modules will still cost the GM the list price. If you want the complete Players Handbook, then you need to buy it at list price.
4) It uses a client server approach so you often need to be able to forward ports for your router or use a VPN to allow players to connect if you happen to be in a hotel room. This is for the GM only and the game passes graphics over to the players so if you have limited bandwidth to upload it could go slowly.
5) The user interface is really bad. It works and as you learn it more and more it gets better but there is no real demo or user manual so be prepared to watch YouTube videos or join and learn from experienced players.
6) Windows are bounded by the master game window, so you are restricted to one screen. There is a way to sign on twice as the GM and as a player so you can have one screen display what the players see and another for your GM screen, but be prepared to always be moving things around to find what you need.

With all the caveats above, it really does a great job of allowing online play. A few other things to remember. It is a virtual table top program. Many things are automated but it does not have an AI built in. So the Adam is going to be moving tokens around and handling combat choices.

Here is what Fantasy Grounds does well:

1) Excellent character creation. With the PHB bought, you can drag and drop a lot of the content into your character sheet. It is not dynamic in that you cannot toggle things off and on and you need to pay attention the the bonuses ultimately set, but once the character sheet is set up properly it is very interactive
2) There is a combat tracker sheet that is very useful for running encounters. It tracks hit points and the dice rolling is smart enough that if you target a creature it will calculate if the creature is hit or not and even does critical damage for you. Initiatives are automatically calculated.
3) Spell effects are well handled and again pretty much drag and drop. There is no graphical effect (no fireball exploding) on the screen but the combat tracker is updated with the correct effect that automatically apply. For example, if a character is Blessed, then attack rolls include the additional d4 automatically
4) There is a party sheet that handles treasure and XP awards quite easily
5) The WoTC modules that you can buy all have player and DM maps. The player maps have “fog of war” via a mask mode which lets you slowly reveal (manually) what the players explore.
6) The pre-made modules I bought all have nicely hyperlinked pins in each room and within the actual text for the modules. Text that is in a box which traditionally to be read out loud can also easily be clicked and appear in the chat window
7) The chat window allows you to type in the different game languages. Characters that can read that language see it in English while everyone else sees it in the language script. You can also type private messages to players

Fantasy Grounds does not come with a voice or video option. You need to use a third party application for that. You could just type everything into the chat window, but that is much less interesting than using voice. I do not find that video is needed but some people find it makes a huge difference.

The basic choices are Skype or Google Hangouts which support multiple video and audio chats, Teamspeak, Ventrillo, and Mumble for audio only (you could even do a conference call into a free conference call system). I decided to use Teamspeak as I could run a free server that supported up to 32 people on my NAS (most of the NAS systems out there that have a decent processor and run Linux can run Teamspeak. Not easy but not super hard to set up). There is a Fantasy Grounds Teamspeak server that many players use as well in case you do not want to set something up yourself. There is a Windows and Mac version of the server if you want to do that. Fantasy Grounds is not terribly intensive to run on your computer, but you might as well put the Teamspeak server on a different computer if you can.

I was able to round up 5 players for my new campaign. Three were from my original gaming group when I grew up in Montreal. One I had met in California via Magic the Gathering. Plus my daughter. I paid for the Ultimate license (was on sale) to minimize the out of pocket spending by the others, but all but my daughter ended up buying the full license anyways. I am planning on running one of the more advanced campaigns that Wizards has released (all have been converted to Fantasy Grounds format). For the very first adventure, I decided to go with the Lost Mine of Phandelver. This is the adventure that comes with the introductory rules and I thought it was best because I have not ran a game in decades and most of my players were pretty rusty as well without 5e experience.

We went through a pretty steep learning curve. I tried to connect with everyone before we played our first session so they could roll up their characters and the process was very slow. Took quite a while to figure out how to enter the scores we rolled properly into the attribute box and we did not realize that the character sheets were not fully dynamic so if you changed races you needed to double check the ability scores as it does not seem to cleanly add and remove ability score modifiers once the first one has been applied. Otherwise the process is very drag and drop from the Player’s Handbook. Drag and drop your race, chosen class, background, equipment etc. and the character sheet is populated. The character sheet calculates all the modifiers from your ability scores and displays it in an easy manner. The final result is automatically used by the program in combat or when saving throws or other checks are being made.

I have included some screenshots of Fantasy Grounds to give a flavor of what it looks like, but to be honest once we started to understand more and more how it worked, the mechanics of it faded into the background and gaming took over. Other than the occasional reminder to target before attacking and the need to retread spells and check rules occasionally, it is what it is supposed to be, a table top. Tokens replace miniatures but otherwise the game plays very much like pencil and paper role playing does.

With Teamspeak and the table top set, we have been gaming. That means creating new stories and laughing and worrying together. Spectacular bad luck in rolling fumbles and near party death situations to the players pulling off a cunning plan and mowing down the monsters like grass with the players a turbo charged lawn mower. Lost Mines is a classic style adventure with a fleshed out town with an immediate threat plus rumors and adventure hooks. You can have multiple rooms in Teamspeak so I can either use the chat window in Fantasy Grounds or grab the player and drag into a new room when I need to to to only them.

So now I am DMing again and playing with friends I rarely get to see in person. My daughter is getting to play in an experienced group. Distance playing actually removes barriers of age and sex that sometimes crop up in live games. So even easier to play in a group. And now she is part of the stories my friends can tell. Like the rogue (really want to say thief but they changed the name for 5e) starting that gaming session twice in a row with a fumble resulting in him tumbling through a door and falling flat on his face in front of the enemy. The over confident Fighter playing on a big screen in front of his kids, managing to get himself surrounded and cut-off by bugbears and almost killed while the Ranger rolls so many 1’s in a row to confound all sense of probability.

We even have the fun of the Cleric who just happens to be a PhD in Chemistry quickly sourcing a picture of the particular flask mentioned in the adventure so we can all see what it would look like (and correcting my pronunciation at the same time). The 5e rules even added many of the house rules that became popular during AD&D to make up for the fact that low level Wizards get so few spells and are so weak in combat that they do not have so much to do. Not that the extra cantrips and such make a difference as our Wizard likes to fire his whole arsenal at the first Kobold that shows up which makes the boss fights much harder. To be fair, I am just teasing a little because it actually has worked out fine as killing the early encounters quickly means many less alarms were sounded. It just is another example of how seamless the experience has been, normal teasing and joking comes naturally.

Overall, I would say that it has been a success. My gaming group is up and running again and we get about 3 hours of gaming in every week. We are getting better and better at using the software which automates some of the game mechanics, but enough detail is shown on the screen such that we can follow the flow of what happens which either reminds us of the rules or teaches us the rules. Which is the last point that I will bring up, Fantasy Ground does not teach you how to play D&D. There is no tutorial built in for D&D. You need to learn the same was as someone playing with pencil and paper – read the rules and hopefully find experienced players. Fantasy Grounds helps in two ways. The first is that it automates a lot of the dice rolls and spell resolutions. The second is that the community forums do give you a chance to find game master who is looking for players or where you can list yourself as new and looking to learn how to play and hopefully someone will contact you. A lot easier than asking around in your high school like I had to ages ago. It is even easier and less expensive to play because WoTC just made the 5e an OGL product so Fantasy Grounds released a new version with most of the content you had to pay for before for free as part of the two paid licenses.

I will also make a comment on the 5e rules. This is a little dangerous because D&D has what are often called “edition” wars and the biggest of these was the move from 3 (and 3.5) to 4. WoTC had decided to make an open gaming license for 3e (and 3.5e which essentially was a tweak and fix on some issues with the original 3e rules). There was a pretty big change from 1e (which I learned) and 2e to 3e. For example, the whole way that armor class is determined changed (AC is how hard something is to hit). In the AD&D I learned, -10 was the best AC you could have and 10 was the worst and there were tables that told you the number you needed to roll on a d20 (20 sided die) and that was simplified into a concept of To Hit AC 0 or THAC0. 3e did away with that and instead the higher the AC was, the harder it was to hit with no maximum. AC became the raw number, before any modifiers, you needed to roll on a d20. The move from 1e to 3e also changed the focus from killing monsters to a more story and character based approach. Finally WoTC (owned by Hasbro, btw) also introduced an Open Gaming License which allowed outsiders to freely use the 3e rules.

The short summary of the edition wars which went from older gamers grumping at newer gamers about how much better the old style games were to a complete fracturing of the market as 3e then 3.5e and the 4e which did not have an open license. A company called Paizo created a 3.5e “clone” called Pathfinder and that game actually surpassed D&D in market share and mind share for almost 7 years. It was another version of D&D but not being released by WoTC (or TSR who WoTC bought and which was the original D&D owner). These edition wars were raging right when Warcraft Online and similar games were setting the standards for the industry and pencil and paper games were fading in relevance. I missed the full brunt of the edition wars because I was not playing D&D at that time, but it was all over the gaming websites I kept up with. The edition wars really fractured the marketplace and made it much harder to find a gaming group to play in. Plus gamers can get really, really attached to the rules they favor and refuse to play anything else.

I would say I am more of an “old school” D&D player because of how I started. After a while DMing 5e, I can say that I like it a lot so far. I had not liked all the sub rules which referred to sub rules for 3.5e because it just looked like an arms race where the goal was to find the best rules to sprinkle into your character. 5e has a fair amount of customization of the different character classes, but at least that is well contained so far. Wizards of the Coast just released an updated open gaming license for 5e so I expect that other VTT can provide much better support than they have been previously.

I will do more posts over time on both Fantasy Grounds and D&D, but I think this is enough for now. If you are hankering to relive your old RPG days, the newer online tools let you do what was impossible not too long ago. Look for posts on my long time foray into online roleplaying via Eve Online and discussions on Runequest and Champions.

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Update – The friendly developers at Fantasy Grounds say that their 30 day trial membership is the best way to try out their program and that the recent release of the 5e rules as an Open License has allowed them to add even more functionality without the need to buy the source materials (I still recommend the Players Handbook).  I have been using PureVPN with a dedicated ip option to GM from hotel rooms.

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Character sheet – views of a few of the tabs

character sheet - main and equipment character sheet - main and equipment

Combat tracker and example map

combat tracker Map Example

Example monster from the monster manual and party sheet

MM example - Abominable Yeti party sheet

If you are looking for the new rule books, here they are:

Player’s Handbook (Dungeons & Dragons)

Dungeon Master’s Guide (D&D Core Rulebook)

Monster Manual (D&D Core Rulebook)

Who to blame for the 2008 financial crisis?

By

On January 26, 2016

In CFO, Finance

Hamilton was good enough that I did a review just on it alone, but I recently saw The Big Short as well and decided to write something on both of them.

My background is accounting and finance and I like history a lot. When I moved from Canada to the USA, I decided I had to read up and study American history to get a better understanding of it. Simplistically, I was not really against the British in the American Revolution (Canada certainly is Loyalist) and the Civil War was just the good guys who were anti-slavery against the bad guys who were slavers. I delved somewhat into the Founding Fathers and the Constitution and tried to understand the first few Presidents and how their terms effected the USA. However, that was 20+ years ago.

When the financial crisis bloomed in 2008 (it had been growing for a while before that), many of my friends either were personally hurt by it or people close to them were hurt by it. When people are hurt they usually get angry or scared or both. People who are angry or scared tend not to think well, and they want to react. They need to blame and attack something. Bankers make a good target.

The Big Short and Hamilton both share the same great strength. They take what can be very dry history and they make it very interesting. By the time you finish watching The Big Short you have learned the tools that were used to both make the small problem into a catastrophe and to profit off of it. Hamilton has the battles and such of the Revolution there, but through song and comedy it really shows us the power of ideas and what happens when great men with powerful ideas are at a fulcrum point in history.

So, I bet even before you watched The Big Short, you knew that the bankers were at fault based on politics and news for the past decade or so. They were corrupt. They were greedy. They were liars. And the movie reinforced it. So funny and witty to see the heroes of the movie realize the illusion that everyone was living in. The stripper with all the houses and loans and the real estate agent talking about a gully when there actually was a cliff. The bankers laughing and smirking at our heroes as they made money and tried to pretend that the bets they made were not bad even when there was no denying that they were.

All a consistent message that those banks were the ones to blame and of course where there are banks there are bankers.

Personally, I find it funny that heroes worked for 3 hedge funds. Normally hedge funds are villains too in popular press and politics. In the story, they were smart and right and made a fortune, they took a noble stand and stuck to their beliefs even when others around them doubted them and scorned them. It made for a great film, but I hope everyone knows that hedge funds often are the main financing source for movies and that they just might have a small reason why they would fund and fill up a movie with A-list stars that just so happens to show the hedge funds were the only heroes in a time of greed and evil. It also ignored all the hedge funds that lost a fortune then.

I am going to write some posts in the CFO/Finance Tuesday posts on some of the tools used and I am also going to discuss corporate governance. Discussing tools and basic corporate governance is not really worth the effort without a basic criteria being met. You cannot use tools and make decisions without critical judgment and the ability and desire to do a little research on the item you are making a decision or judgment on.

You may be shocked to learn this, but it was not the bankers and their CDO that caused the crisis. It was you and me. We wanted to own our own houses. We have wanted to have our very own place to own and live since before the country even came into existence. We have voted in people that would facilitate that for generations. All those bankers and government people, they are us. Our neighbors. People we do business with and who probably have helped us all our lives (credit cards are a banking innovation).

The base laws that were changed and pushed us over the edge were passed by Bill Clinton with a Republican Congress. He repealed the Glass-Steagall Act that kept different banking functions separated and controlled the size of banks (which at the time was viewed as making American banks less competitive on the world stage). He also signed the Community Reinvestment Act that placed additional pressure on lending into low income areas. He signed a law that removed federal regulation on some credit swaps that became important leverage tools that later blew up.

Clinton and the Republican congress are not solely to blame, of course. There are whole books on this but essentially laws were passed that made possible to have the Federal government guarantee mortgages. Mortgages that have tax deductible interest which is really just a way to increase how much you can borrow and make buying a house easier. If you happen to sell a house and make a gain, well, that is no problem too. If you buy another house for more then no taxes are due on the gain.

We’re the people that elected and lauded the government that made all those changes. The changes even do not make sense. Cheaper mortgages just mean that you can afford to pay more for the same house so housing values rise. That means you need to borrow more, so you pay more interest than you might with no interest deduction. All these laws are meant to make it easier for the poor and middle class buy houses, but I am sure that you know that rich people pay higher percentages of their income as taxes so they get more from this law than the poorer people do. Many small mortgages do not even have enough interest to mean that you use anything but the standard deduction. Richer people also can afford more expensive houses so they get more tax relief on capital gains.

More mortgages led to bundling them together and making the mortgage bonds. This was all backed by the rating agencies which just happen to enjoy special laws and protection. Those bonds were made even safer via government guarantees. Bonds that did not have the government guarantee needed other guarantees and private insurance was created and more exotic credit swaps sprang into existence. We all wanted homes and we wanted our local bank to lend to us and that bank needed money from somewhere. Global investors wanted safety and higher yield.

Leverage, leverage, leverage and it all rested back on the faith and confidence of the United States.

Where did that confidence come from? The faith in the credit of the United States?

It came from one brilliant man. One of the founding fathers. The first Treasury Secretary.

Alexander Hamilton created it.

He gave us the fulcrum right when the country started.

We made the lever that rocked the markets and brought them all tumbling down.

Luckily Hamilton and the other Founding Fathers also left us a system of government that has worked so well for so long that with just a few words and promises, they were able to lift it up again enough to hopefully give us time to sort it all out. But if you need to blame someone and don’t want to point fingers at yourself, blame Hamilton.

Obviously that is somewhat tongue in cheek. The real point is to do a little research before making a snap judgment. Assume that others have agendas that make them want to make motives and who gains and loses as obscure as possible. Tax deductible interest makes for larger loans and more interest which helps the banks and they certainly do not want that to go away. Easy enough to lobby on the supposed benefit to the little people when it really just helps the fat cats.

My Tuesday posts will all have critical thinking as an assumption. The above is an example. Don’t take my word for it. Use your favorite search tool and spend a few hours doing some reading. In your finance and leadership career be informed. Don’t read only things that make you comfortable.

And blame Hamilton for getting himself shot before he could get the rest of his work done.

The Big Short: Inside the Doomsday Machine

The Big Short [Blu-ray]

Hamilton – My Review

By

On January 21, 2016

In General, Musicals

I was in NYC recently, traveling to attend an investor relations conference. My 18 year old daughter had one more week of winter break left so I took her along with me. She likes Broadway musicals and I was pretty sure she would want to go to at least one while we were there (I also took her to see a hockey game). I asked her what was the show she wanted to see the most and she told me Hamilton.

Everyone has blind spots. I am not that into musicals and plays, and I had not heard of it before. She explained that it was a hip-hop musical about Hamilton the Founding Father. I don’t get to spend as much time with my kids as I would like to and I could tell that she really wanted to go. She told me that it was sold out for months and that she would understand if we couldn’t go.

I checked with the hotel concierge and she confirmed that the show was truly special and that tickets were available from brokers. They would be expensive but she probably could get me one. (as an aside, they were also available via Stubhub and I am sure on other ticket platforms). The tickets were expensive but I decided that it would be a special birthday present for Sarah and I bought them.

So I went to the show with her and did not spend any time other than a quick read on the creator of the show (Lin-Manual Miranda). I was completely unprepared for what I was about to see.

The stage is plain. Bricks in the background. Simple wood beams making a loft in the background. The staging is simple through the whole show. Nothing more than chairs and tables to suggest the various rooms the musical is set in. There is one battlefield scene and several duels and the simple and open stage is well used to put you into each scene.

The opening number – Alexander Hamilton – introduces you to both the musical style of the show and to some of the main characters. No hiding the ending, Aaron Burr introduces himself as the one who shot Hamilton and there is more than one woman that introduces herself as loving him. The story is also clear – Hamilton rises from nothing and changes the world.

Two other things are also made clear. The first is that calling it a “hip-hop” musical is not really correct. The show starts off with rapping but even the opening number is a mixture of rap and traditional Broadway “big show” singing. There are a variety of musical styles in the show. I am nowhere near an expert and typically not even a huge fan of Broadway musicals, but I have been to enough to easily detect the foundation on which the music is based on. There certainly is a fair amount or rap, in particular “bragging” rap where different founding fathers claim superiority. Even the hip-hop ranges in years and there is older and newer styling for the songs.

The second is that the casting is completely color-blind. With the heavy leaning towards hip-hop, many of the cast are black but it is mixed. It actually helps to breakdown the traditional views of the Founding Fathers and helps immerse you in the musical. Even if you have better than average knowledge of the history of the time, no one looks that any real historical character (except maybe King George) which I found helped me concentrate on and enjoy the show.

The show itself is an unabashed love affair for both America and NYC and the opportunity you get while here. The very first line of the very first song makes it clear.

[Burr]
“How does a bastard, orphan, son of a whore and a Scotsman,
dropped in the middle of a forgotten spot in the Caribbean by providence
impoverished, in squalor
Grow up to be a hero and a scholar?”

There are references to Hamilton’s very humble upbringing throughout the show and that is historically accurate. Not so much was written about him because he died comparably young and his enemies outlived him. I knew the very basics (hard not to know who Hamilton was and what he did if your career is finance) and a little more from the John Adams mini-series, but the musical was actually quite historically informative.

The entire show is singing. I can’t recall that many if any truly spoken lines.

The lyrics for all the songs, with annotations and the creator’s blessing can be found here:

http://genius.com/albums/Lin-manuel-miranda/Hamilton-original-broadway-cast-recording

The songs in the show vary in tone with most characters getting their own special style. Washington sounds very different than Hamilton and Burr. Jefferson also has a distinctive style. Of course, King George has his very own and completely different musical style. As befits the British monarch, British invasion pop and he sings a song as if he is a jilted lover. There is even a few good rap battles between Jefferson and Hamilton in the cabinet meetings.

The musical is both inspirational and absolutely heartbreaking. Hamilton had several tragedies in his life and most were self inflicted. He pushed too hard on people and that comes through in the songs and events in the musical. Hamilton is the most directly insulting to others in his lyrics and his youth and brashness really comes through in the first act.

The choreography and costuming is spot on. The dancing is simple and energetic. The character in focus is the one that stands out in each scene. I have seen other musicals that get very carried away with overly intricate dancing that distracts from the story. Hamilton has good dancing but it blends seamlessly into the story and does not look like it is forced there because someone wanted a big dance number.

The costumes also are straightforward and invoke the period. As Hamilton becomes more successful his dress improves but it is easy to see that he is more brash and unsure of himself when you compare his dress to the older and more experienced characters.

The musical is mainly set in NYC (with a scene in Yorktown and a couple of duels just across the water in New Jersey). Many people forget that NYC was the original capital and Hamilton is a good reminder. There are quite a few nods to NYC being the place where immigrants arrive and make things happen. There is a reminder of how much Revolutionary USA owed to the French and France.

I want to pause a moment here and reflect on the fact that I am writing a review about a smash Broadway hit and I am discussing history in the review. The show is such a genius production that it actually presents a pretty accurate version of important history in a way that you are captivated and drawn in. Many of the basic questions that were argued then are there in the musical. Mercantile North vs. agrarian South. Centralizing credit and currency in a Federal Union vs. every state for themselves. Slavery (Hamilton was opposed to slavery and he calls out Jefferson on his status as a slaver). The fact that writing and getting the Constitution ratified and the USA actually established was not a forgone conclusion after the Revolution.

I was very impressed when they had a song where Washington had Hamilton write his fair well speech. For all that he did as the General that won the war and the early days as the first President, perhaps his greatest legacy is that he gave up power and let someone else get voted into power by the people. There could have been a new line of “Kings” established, but each of the original Presidents followed his lead and let the voters decide (term limits did not actually come into existence for a long time afterwards).

So if you American history is rusty or weak, you can justify going to see a Broadway musical as a history refresher.

I also enjoyed the nods to the banking system and the placement of New York City into the heart of it. Hamilton trades away NYC being the capital in order to get his first and foundation bill passed. In fact, “The Room Where it Happens” is one of my favorite songs in the show.

Again, a song about political deals being cut behind closed doors is one of the show stopper tunes in the musical. It fits right in. It is sophisticated – Burr laments the closed door approach but also shows that he is not just worried about the way it happened but also he does not like not being one of the people in the room making it happen. It also shows Hamilton’s genius. He trades something of small value to him (and probably actually of small value) in order to get what he really thought was important done. By giving up the location of the capital to the leaders of the Southern block that had stalled his Treasury bill out, he gains the actual bill and the power to mold the future economic strength of the country the way he sees fit. All in the form of a very engaging song. The song is even mainly sung by Burr who was not there and the people that were there only have bit parts.

The staging of “The Room Where it Happens” shows how deep and strong the production actually is. The happenings are presented by Burr and the three in question are in the background “behind closed doors”. The other actors are there and sing a few parts of the song, but they are in the background. The words that he is singing make it appear that he is complaining about the lack of openness and transparency but the inflection and timing of the words make it obvious that his real complaint is that he is not in the room.

“BURR
The immigrant emerges with unprecedented financial power
A system he can shape however he wants
The Virginians emerge with the nation’s capital”

My knowledge Broadway musicals is limited (I did catch the reference when Washington was introduced as a Modern Major General) and I like some hip-hop and rap but it certainly was not the music I grew up listening to. If you want to see some of the references and influences for each of the songs, the link I posted is a great source.

I also am not an expert on dancing, but I can tell when the motion is well choreographed. The stage is well used and the characters do not just stand there and sing, they move and the others in the cast also move. The movement is not overdone and distracting, it is movement of focussed energy.

I certainly highly recommend that you see the show. The Richard Rogers theatre is pretty small and as long as you on not on the very sides, even the seats pretty far back are good. It is very hard to get tickets now, so you probably will have to rely on ticket brokers or websites like Stubhub or Ticketmaster resale. I thought it was well worth the exaggerated price.

The stars were also very gracious about signing autographs and posing for pictures despite the huge crowd waiting at the stage door.

Hamilton (Original Broadway Cast Recording)(Explicit)(2CD)

Alexander Hamilton

When would I do a pre-release/preannouncement?

By

On January 19, 2016

In CFO, Investor Relations

Earnings pre-releases always generate some excitement.  Normally they are bad news but mainly because they often are a surprise.   Sometimes the actual earnings are a surprise in some way and yet there is no prerelease.  Choosing when to do a pre-release is a judgment call and I’ll try and explain my thought process behind it.  I am not a lawyer, so this is not legal advice.  If I am considering my options on this topic I always check with our lawyers to confirm my decision, and I highly suggest that any finance professional trying to make that decision also check with their lawyer.

First, as a general rule, there is no need to do a pre-release/preannouncement (I’ll stick to pre-release from now on) even if the actual numbers are obviously different than what was guided in the prior earnings release.  Companies need to formally state that in their earnings release and there is even the technically that until a quarter is done even if you do update guidance there is no requirement to do an 8-K (6-K for Foreign Private Issuers).

A disclaimer looks something like this “Apple assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.”   You also need to identify what a forward looking statement is and the more specific to that quarter the better you are.  If you do that, you can claim the SEC safe harbor and be safe if you do not update even if your numbers end up being different than you guided.

You may not have to, but your investors certainly will think you should.  You may actually expect to come in close to your forecast but others in your space missed badly and investors may be assuming you will to.  You may want to do an offering of some kind and your bankers want you to remove any doubt about the likelihood of you making your quarter.

It may seem simple, any material difference from your forecast and you update.  However, even that is not so simple.  You would think that such a common concept as materiality would have a very specific definition that you could just rely on.  Unfortunately, it doesn’t.

The SEC has a long discussion of materiality in Staff Accounting Bulletin #99:

https://www.sec.gov/interps/account/sab99.htm

“Question: Each Statement of Financial Accounting Standards adopted by the Financial Accounting Standards Board (“FASB”) states, “The provisions of this Statement need not be applied to immaterial items.” In the staff’s view, may a registrant or the auditor of its financial statements assume the immateriality of items that fall below a percentage threshold set by management or the auditor to determine whether amounts and items are material to the financial statements?

Interpretive Response: No. The staff is aware that certain registrants, over time, have developed quantitative thresholds as “rules of thumb” to assist in the preparation of their financial statements, and that auditors also have used these thresholds in their evaluation of whether items might be considered material to users of a registrant’s financial statements. One rule of thumb in particular suggests that the misstatement or omission2 of an item that falls under a 5% threshold is not material in the absence of particularly egregious circumstances, such as self-dealing or misappropriation by senior management. The staff reminds registrants and the auditors of their financial statements that exclusive reliance on this or any percentage or numerical threshold has no basis in the accounting literature or the law.”

So the SEC clearly says you cannot rely on a numerical formula to determine materiality.  One example given as to why not is that even a small intentional misstatement by management may be deemed very material by investors even is the absolute amount is small.

I could post another long paragraph from the SAB, but if I suggest that you just click the link I provided and go read it.  The short answer is that management has to look at all the facts and circumstances available to them and then make a determination of materiality.  You are supposed to consider the different audiences that may see the news with investors always being a primary concern.

You would also think that the FASB would have a specific definition of materiality.  Well, it doesn’t either:

http://www.fasb.org/cs/ContentServer?pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176157498129

That is the new guidance but it is an update to the old Concept Statement 2.

What does that statement say?  It says that management and auditors have to consider everything, not just the magnitude of the item and then decide if it is material.  So, again, no magic formula, completely a judgment call.

So there is no real escape, you have to decide if you should do a pre-release or not.

Since this is about when I would do a pre-release, here is what I think about as I make the decision:

  • I do not have to. I have a safe harbor.
  • Many investors do not invest for the quarterly earnings. So a one time item that does not change the business may not even be worth pre-releasing
  • Is the news or results different enough that your investor base will doubt your integrity when they find out later?
  • Would I personally make a different investing decision if I knew?
  • Is the stock trading in sympathy to news from competitors that does not apply?

In my experience, most investors trust you less if they think you are hiding bad news and are more forgiving if surprised with good news.

As an aside, I have done many bets with the reporting team on what the stock will close at the day after earnings.  The results of the bets over the years show that we never really know what will happen.  Report very good news and guide up and the stock goes down sometimes.  Report what you think is disappointing news and it goes up.  Some days the stock moves on no news and I get a call from NASDAQ and have to tell them there is no news that I know of.

So, unless there is an offering that my bankers want investors to not be asking questions about the guidance around it, it takes pretty bad news or a big change in trading before I would want to do a pre-release.

It eventually comes down to if I can face myself in the mirror or face investors and not feel bad if I do not do a pre-release.  And if I was wrong, then it was my call.

How to comment

By

On January 14, 2016

In Uncategorized

I currently require registration to comment (I will experiment in the future but I am already getting bots trying to leave spam).

The base mechanism to login is not so apparent.

You need to try and leave a comment.  The site will tell you that you need to login to comment.  It is not so obvious, but the login text word is actually a hyperlink and that is how you can login (or register and then login).

Why I had to see the Force Awakens a second time

By

On January 14, 2016

In General, Movies

I saw the original Star Wars when it came out in 1977.  For those counting, I was 11 years old.  At that point I had already started loving Science Fiction and Fantasy.  I was almost finished or finishing Grade 6 and was going to start HS that fall in Montreal, far away from the suburb I grew up in.

Like many people, watching that first Star Wars film was magical.  It had space battles, a small group of rebels fighting and winning against a massive and powerful empire, and sword fights and magic.  I was captivated by the movie and swept away.  I am sure that it was a big influence on me and one of the reasons why I joined the SCA (I wanted to be a knight).

Like most people who fell in love with Star Wars via the original trilogy, I was very unsatisfied with the prequel trilogy. In particular, the Phantom Menace was so terrible to me that I almost quit going to the films.  It was mainly a sense of stubbornness that made me complete the prequel trilogy.  Years later after several more viewings of the prequel movies I still think they are poor, but they at least have some decent lightsabre battles.

So I went from a childish sense of wonder from the first trilogy to an adult disappointment with the second trilogy.  For The Force Awakens, I decided I would not go see it until I had heard that it was not terrible.  So I made no effort to get tickets on or near opening day and then I waited to hear what people thought of the new movie.

The verdict was pretty much the new movie did not suck.

So I went to the movie.  I went with my 18 year old daughter who only watched the Star Wars films in the past few years and liked them but was not a fanatic.

We both liked it.  Sarah was even much more enthusiastic than I was, but I left the theatre happy that the movie actually was competently made and did not make me feel sad and dumb for liking the series.  However, I was not completely sold on the film and had quite a few reservations bouncing around in my head as I thought about it.  The main one was that it followed too many things from the first film and I thought it was too tied to redoing that story.  The other was dealing with Harrison Ford being so old.  I loved Hans Solo.  He was young and cocky and full of life.  A much older Harrison Ford who had almost died in a plane crash just could not walk and move like the Hans Solo of old.  Finally, I thought that the lightsabre battles just were off and not that exciting.

I went to see the movie again.  I enjoyed it a lot more the second time.  Afterwards, I tried to track down what was different the second time around.  It was so obvious that I am surprised I did not realize what was so different the second time around.  I saw the movie without being afraid.

The first time I went, even though enough people had said it did not suck, I was very worried that I would leave disappointed again and another little bit of childhood magic would slip away.  So I could not relax and just watch the film.

The second time I knew that the movie was good.

And this time I left with a smile on my face and the memory of dancing around at 11 holding a stick and wielding a lightsabre firmly in my mind.

Selling Put Options for Income

By

On January 12, 2016

In Finance, Investing

One evening after fighter practice while we were enjoying a beer at “church”, Patrick and I were discussing income from investments.  I talked about my “selling puts” strategy, and promised him I would explain it in more detail.  I figured why not explain it here so more can benefit and comment.

I will start by saying that using options is by definition using leverage.  One option represents 100 shares. As such, gains and losses are magnified.  As well, options create “ordinary income” and you will be taxed at your full income tax rate for the gains you make (unless you do this in a 401(k) or IRA account).  This is USA tax advice, obviously varies by country.

To do the strategy I will describe, you need to have basic option functionality for your account and available margin.  Brokerage fees/commissions tend to be higher than stock transactions.

First, here are some base statistics for options.  There is an erroneous statistic that is quoted that 90% of options expire worthless.  That is actually false.  10% are exercised.  That does not mean that 90% expire worthless.

10% are exercised (in the money at expiration date, seller could have made a gain or loss)

55%-60% are closed out before expiration (could be at a gain or loss)

30-35% expired worthless (seller makes 100% gain if held to expiration)

So the ratio is still 3-1 for exercised compared to expired worthless, but the 90% “internet truth” is wrong.

I would hope before anyone trades in options that you have a basic understanding of them, but here is a simple explanation.

An option is a right to buy (call) or sell (put) a stock at a certain price (strike price) before a certain time (expiration date).  “American” style options can be exercised at any time.  Selling an option is going short the option (you hope the option goes down in price).  Buying an option is going long an option (you hope that an option goes up in value).  When you buy an option, maximum loss is your investment.  When you sell an option, you can lose much more than the price you receive.

Options have two components of value – actual value which is the actual price of the underlying security less the strike price of the option and time value which is the trading price of the option less the actual value of the option.  Time value is a complex relationship between the volatility of the underlying stock and the actual remaining time.  Valuing options is typically done via a Black-Scholes model (there are even more modern valuation methods) and there are a huge number of firms that specialize in trading differences between the market value of options and the valuation model.  In general, if you trade liquid options on stocks with good value, then the market price tends to revert to the model price because of the automated buyers and sellers.

That was a pretty long intro.  There is just too much background information on options that I could explain, but that should cover the basics.  Here is a book that can help.  I prefer Options as a Strategic Investment, but it is way more expensive.

http://www.amazon.com/Understanding-Options-2E-Michael-Sincere/dp/0071817840/ref=pd_sim_14_2?ie=UTF8&dpID=51q5Y48G6JL&dpSrc=sims&preST=_AC_UL160_SR105%2C160_&refRID=0EYQMNRN4D2J8J79SE4S

My strategy is to sell slightly out of the money Put contracts with a fairly short time to expiration date.  This a bullish to neutral strategy as you hope the stock stays the same price or goes up (or goes down less than the “slightly out of the money gap”).

Breaking it down, you need to do the following:

  • Pick a stock
  • Pick the time you want the option to be outstanding
  • Pick the strike price of the option

You also need sufficient margin in your account to support the trade.

My strategy has two built in flaws. Because you use shorter duration contracts, you will do more transactions in a year and incur higher commission expenses. Because I tend to use shorter time durations (one month to one week), there is less “time value” available.

The other basic flaw is that you can make a lot of small wins and then lose all of in in one trade if the stock moves much larger than expected downwards.  I try and reduce this risk by carefully selecting when the trade will happen, but this is the basic downside to any options trade.

  • Picking the stock

This is a leveraged, short time duration strategy. It has a slightly bullish orientation. So you need to select a stock that you have some confidence that it will at least be stable in the period you choose and it probably should be a stock that you understand well and that you would be comfortable owning. However, this is not my other selling puts strategy (backing into owning a stock that you like but is too expensive).  This is an income generating strategy.

One potential source for a stock to pick is the S&P Platinum Portfolio.  It is S&P’s “best of the best” list.  The list is not perfect, of course, but it does have a very long track record of good performance versus the market.

You can also pick an index or an ETF that tracks an index.  Many stable stocks track the market in the short term anyways, so the overall market is as good a choice as any.

Finally, you want a stock that trades pretty often and has a lot of option trades.  Otherwise spreads are quite wide and it is hard to enter into and close trades.

I personally pick AT&T.  I own the stock, follow it pretty closely, it trades a lot and options are liquid, in a disaster it pays a good dividend anyways, and it is completely a USA business so less need to worry about something happening overseas.  It is pretty stable overall so there is less time value premium.

For purposes of this example, I will also look at Apple and SPY (Vanguard S&P 500 tracking ETF).  I have included the option chains (from TD Ameritrade)  from the day I am typing this plus the current stock price and the last three months of historical prices (Yahoo Finance is great to get those).

I could be a smarter blogger and put all these tables at the end of the blog, but this is actually important. If you want to follow this type of strategy, you need to spend some time studying this type of information to get comfortable with it. If you don’t spend the time, I recommend the don’t pass line at the nearest casino with reasonable craps rules. After options commissions, “trading” without knowledge and a plan is probably not as good as the odds at the don’t pass line.

T 5 days until expiration ($33.51)

Puts  Bid Ask Last Change Vol Op Int
32.5 Put 0.04 0.05 0.04 0.00 0 626
33.0 Put 0.09 0.10 0.08 0.00 0 1,844
33.5 Put 0.22 0.23 0.20 0.00 0 1,643
34.0 Put 0.50 0.55 0.46 0.00 0 510
34.5 Put 0.78 1.02 0.89 0.00 0 126
35.0 Put 1.24 1.51 — 0.00 0 0

 

T 26 days until expiration ($33.51)

Puts  Bid Ask Last Change Vol Op Int
32.5 Put 0.17 0.20 0.17 0.00 0 3,432
33.0 Put 0.27 0.31 0.29 0.00 0 412
33.5 Put 0.45 0.49 0.43 0.00 0 516
34.0 Put 0.71 0.75 0.67 0.00 0 302
34.5 Put 1.00 1.10 0.88 0.00 0 36
35.0 Put 1.29 1.54 1.49 0.00 0 6

 

AAPL  5 days until expiration ($119.5)

Puts  Bid Ask Last Change Vol Op Int
117.0 Put 0.66 0.68 0.66 0.00 7,894 2,084
118.0 Put 0.97 1.00 0.98 0.01 6,267 3,274
119.0 Put 1.41 1.43 1.43 0.04 5,965 2,766
120.0 Put 1.92 1.98 1.92 0.00 11,584 3,860
121.0 Put 2.58 2.65 2.53 -0.05 4,205 1,327
122.0 Put 3.35 3.45 3.30 -0.05 1,158 593

 

AAPl  26 days until expiration ($119.5)

Puts  Bid Ask Last Change Vol Op Int
117.0 Put 2.06 2.12 2.06 0.00 128 426
118.0 Put 2.45 2.50 2.41 -0.03 41 135
119.0 Put 2.89 2.95 2.70 -0.19 109 92
120.0 Put 3.35 3.50 3.20 -0.15 113 137
121.0 Put 3.90 4.00 3.39 -0.51 33 86
122.0 Put 4.55 4.65 4.32 -0.23 43 58

 

SPY 5 days until expiration ($207.93)

Puts  Bid Ask Last Change Vol Op Int
206.5 Put 0.89 0.97 0.93 -0.04 9,073 11,100
207.0 Put 1.08 1.12 1.09 -0.03 18,145 15,832
207.5 Put 1.21 1.29 1.29 -0.01 7,246 5,922
208.0 Put 1.43 1.48 1.46 0.01 32,493 8,987
208.5 Put 1.61 1.70 1.77 0.07 14,330 5,232
208.8 Put 1.14 1.85 1.10 -0.73 0 56

 

SPY 26 days until expiration ($207.93)

Puts  Bid Ask Last Change Vol Op Int
206.5 Put 2.33 2.43 2.27 -0.06 314 1,680
207.0 Put 2.49 2.60 2.28 -0.21 116 1,394
207.5 Put 2.67 2.78 2.44 -0.23 303 514
208.0 Put 2.85 2.94 2.91 0.00 650 2,264
208.5 Put 3.05 3.18 3.25 0.07 370 307
208.8 Put — — 3.10 -0.15 10 41

 

T historical prices

Date Open High Low Close Volume Adj Close*
Oct 30, 2015 33.62 33.75 33.51 33.51 24,420,900 33.51
Oct 29, 2015 33.48 33.67 33.28 33.55 17,746,000 33.55
Oct 28, 2015 33.36 33.60 33.13 33.42 27,780,400 33.42
Oct 27, 2015 33.57 33.61 33.16 33.21 24,356,700 33.21
Oct 26, 2015 33.75 33.76 33.48 33.66 25,400,300 33.66
Oct 23, 2015 34.70 34.74 33.62 33.74 46,213,200 33.74
Oct 22, 2015 33.46 34.16 33.46 33.96 32,707,100 33.96
Oct 21, 2015 33.88 33.94 33.33 33.60 27,215,000 33.60
Oct 20, 2015 33.59 33.85 33.52 33.75 20,014,100 33.75
Oct 19, 2015 33.63 33.69 33.42 33.63 27,757,500 33.63
Oct 16, 2015 33.75 33.86 33.54 33.83 32,868,400 33.83
Oct 15, 2015 33.33 33.50 33.20 33.49 18,564,200 33.49
Oct 14, 2015 33.23 33.39 33.10 33.27 23,282,700 33.27
Oct 13, 2015 33.19 33.29 33.06 33.22 22,063,400 33.22
Oct 12, 2015 33.20 33.31 33.07 33.30 14,109,800 33.30
Oct 9, 2015 33.42 33.52 33.00 33.14 19,351,300 33.14
Oct 8, 2015 33.11 33.41 32.87 33.40 17,305,200 33.40
Oct 7, 2015 33.07 33.34 33.01 33.12 21,010,300 33.12
Oct 7, 2015 0.47 Dividend
Oct 6, 2015 33.50 33.52 33.25 33.31 27,867,000 32.84
Oct 5, 2015 32.98 33.49 32.97 33.43 27,876,700 32.96
Oct 2, 2015 32.34 32.64 32.19 32.64 28,505,900 32.18
Oct 1, 2015 32.48 32.64 32.17 32.53 30,815,500 32.07
Sep 30, 2015 32.36 32.71 32.24 32.58 34,815,500 32.12
Sep 29, 2015 31.99 32.18 31.85 32.07 33,785,200 31.62
Sep 28, 2015 32.26 32.34 31.88 31.90 35,924,900 31.45
Sep 25, 2015 32.27 32.70 32.16 32.33 27,104,200 31.87
Sep 24, 2015 32.02 32.23 31.95 32.11 24,741,400 31.66
Sep 23, 2015 32.29 32.34 32.04 32.20 15,739,200 31.75
Sep 22, 2015 32.32 32.45 32.13 32.27 25,518,700 31.81
Sep 21, 2015 32.55 32.69 32.45 32.56 19,870,300 32.10
Sep 18, 2015 32.68 32.79 32.41 32.55 44,627,200 32.09
Sep 17, 2015 32.73 33.14 32.41 32.78 37,922,100 32.32
Sep 16, 2015 32.86 33.10 32.76 32.94 23,514,200 32.48
Sep 15, 2015 32.68 32.93 32.54 32.86 22,371,700 32.40
Sep 14, 2015 32.74 32.78 32.51 32.55 18,504,700 32.09
Sep 11, 2015 32.73 32.78 32.56 32.72 17,626,900 32.26
Sep 10, 2015 32.77 32.84 32.55 32.75 25,602,300 32.29
Sep 9, 2015 33.40 33.50 32.72 32.78 22,559,100 32.32
Sep 8, 2015 32.95 33.19 32.81 33.14 18,851,000 32.67
Sep 4, 2015 32.68 32.78 32.35 32.56 29,318,900 32.10
Sep 3, 2015 32.97 33.24 32.92 33.04 22,833,400 32.57
Sep 2, 2015 32.97 32.97 32.50 32.82 24,093,000 32.36
Sep 1, 2015 32.60 32.79 32.16 32.32 33,048,000 31.86
Aug 31, 2015 33.20 33.28 33.01 33.20 22,286,500 32.73
Aug 28, 2015 33.34 33.45 33.10 33.29 24,154,000 32.82
Aug 27, 2015 33.01 33.49 32.82 33.44 42,589,900 32.97
Aug 26, 2015 32.36 32.85 32.01 32.69 49,631,200 32.23
Aug 25, 2015 33.11 33.11 31.77 31.80 50,674,200 31.35
Aug 24, 2015 32.18 32.69 30.97 32.37 77,231,300 31.91
Aug 21, 2015 33.70 33.95 33.38 33.38 41,636,700 32.91
Aug 20, 2015 34.17 34.46 33.95 33.95 38,363,400 33.47
Aug 19, 2015 34.30 34.50 34.07 34.36 21,139,300 33.88
Aug 18, 2015 34.16 34.43 34.12 34.35 20,538,200 33.87
Aug 17, 2015 33.96 34.23 33.90 34.23 21,050,600 33.75
Aug 14, 2015 33.91 34.05 33.78 34.05 22,759,600 33.57
Aug 13, 2015 34.01 34.17 33.79 33.81 35,521,100 33.33
Aug 12, 2015 33.86 34.07 33.45 34.02 61,974,500 33.54
Aug 11, 2015 34.60 34.96 34.57 34.65 35,402,700 34.16
Aug 10, 2015 34.30 34.78 34.20 34.78 29,179,800 34.29
Aug 7, 2015 34.11 34.26 34.04 34.21 25,627,600 33.73
Aug 6, 2015 34.55 34.59 33.95 34.24 32,734,200 33.76
Aug 5, 2015 34.79 34.83 34.51 34.57 22,837,600 34.08
Aug 4, 2015 34.79 34.80 34.50 34.58 26,249,900 34.09
Aug 3, 2015 34.95 35.02 34.50 34.66 29,677,600 34.17
Jul 31, 2015 34.94 34.99 34.72 34.74 29,880,900 34.25
Jul 30, 2015 34.86 34.89 34.68 34.80 25,958,800 34.31

 

AAPL historical prices

Date Open High Low Close Volume Adj Close*
Oct 30, 2015 120.99 121.22 119.45 119.50 48,812,000 119.50
Oct 29, 2015 118.70 120.69 118.27 120.53 50,240,800 120.53
Oct 28, 2015 116.93 119.30 116.06 119.27 85,023,300 119.27
Oct 27, 2015 115.40 116.54 113.99 114.55 57,953,600 114.55
Oct 26, 2015 118.08 118.13 114.92 115.28 66,019,500 115.28
Oct 23, 2015 116.70 119.23 116.33 119.08 59,139,600 119.08
Oct 22, 2015 114.33 115.50 114.10 115.50 41,272,700 115.50
Oct 21, 2015 114.00 115.58 113.70 113.76 41,795,200 113.76
Oct 20, 2015 111.34 114.17 110.82 113.77 48,778,800 113.77
Oct 19, 2015 110.80 111.75 110.11 111.73 29,606,100 111.73
Oct 16, 2015 111.78 112.00 110.53 111.04 38,236,300 111.04
Oct 15, 2015 110.93 112.10 110.49 111.86 37,341,000 111.86
Oct 14, 2015 111.29 111.52 109.56 110.21 44,325,600 110.21
Oct 13, 2015 110.82 112.45 110.68 111.79 32,424,000 111.79
Oct 12, 2015 112.73 112.75 111.44 111.60 30,114,400 111.60
Oct 9, 2015 110.00 112.28 109.49 112.12 52,533,800 112.12
Oct 8, 2015 110.19 110.19 108.21 109.50 61,698,500 109.50
Oct 7, 2015 111.74 111.77 109.41 110.78 46,602,600 110.78
Oct 6, 2015 110.63 111.74 109.77 111.31 48,196,800 111.31
Oct 5, 2015 109.88 111.37 109.07 110.78 51,723,100 110.78
Oct 2, 2015 108.01 111.01 107.55 110.38 57,560,400 110.38
Oct 1, 2015 109.07 109.62 107.31 109.58 63,748,000 109.58
Sep 30, 2015 110.17 111.54 108.73 110.30 66,105,000 110.30
Sep 29, 2015 112.83 113.51 107.86 109.06 73,135,900 109.06
Sep 28, 2015 113.85 114.57 112.44 112.44 51,723,900 112.44
Sep 25, 2015 116.44 116.69 114.02 114.71 55,842,200 114.71
Sep 24, 2015 113.25 115.50 112.37 115.00 49,810,600 115.00
Sep 23, 2015 113.63 114.72 113.30 114.32 35,645,700 114.32
Sep 22, 2015 113.38 114.18 112.52 113.40 49,809,000 113.40
Sep 21, 2015 113.67 115.37 113.66 115.21 46,554,300 115.21
Sep 18, 2015 112.21 114.30 111.87 113.45 73,419,000 113.45
Sep 17, 2015 115.66 116.49 113.72 113.92 63,462,700 113.92
Sep 16, 2015 116.25 116.54 115.44 116.41 36,910,000 116.41
Sep 15, 2015 115.93 116.53 114.42 116.28 43,004,100 116.28
Sep 14, 2015 116.58 116.89 114.86 115.31 58,201,900 115.31
Sep 11, 2015 111.79 114.21 111.76 114.21 49,441,800 114.21
Sep 10, 2015 110.27 113.28 109.90 112.57 62,675,200 112.57
Sep 9, 2015 113.76 114.02 109.77 110.15 84,344,400 110.15
Sep 8, 2015 111.75 112.56 110.32 112.31 54,114,200 112.31
Sep 4, 2015 108.97 110.45 108.51 109.27 49,963,900 109.27
Sep 3, 2015 112.49 112.78 110.04 110.37 52,906,400 110.37
Sep 2, 2015 110.23 112.34 109.13 112.34 61,888,800 112.34
Sep 1, 2015 110.15 111.88 107.36 107.72 76,845,900 107.72
Aug 31, 2015 112.03 114.53 112.00 112.76 56,229,300 112.76
Aug 28, 2015 112.17 113.31 111.54 113.29 53,164,400 113.29
Aug 27, 2015 112.23 113.24 110.02 112.92 84,616,100 112.92
Aug 26, 2015 107.09 109.89 105.05 109.69 96,774,600 109.69
Aug 25, 2015 111.11 111.11 103.50 103.74 103,601,600 103.74
Aug 24, 2015 94.87 108.80 92.00 103.12 162,206,300 103.12
Aug 21, 2015 110.43 111.90 105.65 105.76 128,275,500 105.76
Aug 20, 2015 114.08 114.35 111.63 112.65 68,501,600 112.65
Aug 19, 2015 116.10 116.52 114.68 115.01 47,445,700 115.01
Aug 18, 2015 116.43 117.44 116.01 116.50 34,560,700 116.50
Aug 17, 2015 116.04 117.65 115.50 117.16 40,884,700 117.16
Aug 14, 2015 114.32 116.31 114.01 115.96 42,929,500 115.96
Aug 13, 2015 116.04 116.40 114.54 115.15 48,535,800 115.15
Aug 12, 2015 112.53 115.42 109.63 115.24 101,217,500 115.24
Aug 11, 2015 117.81 118.18 113.33 113.49 97,082,800 113.49
Aug 10, 2015 116.53 119.99 116.53 119.72 54,951,600 119.72
Aug 7, 2015 114.58 116.25 114.50 115.52 38,670,400 115.52
Aug 6, 2015 115.97 116.50 114.12 115.13 52,903,000 115.13
Aug 6, 2015 0.52 Dividend
Aug 5, 2015 112.95 117.44 112.10 115.40 99,312,600 114.88
Aug 4, 2015 117.42 117.70 113.25 114.64 124,138,600 114.12
Aug 3, 2015 121.50 122.57 117.52 118.44 69,976,000 117.91
Jul 31, 2015 122.60 122.64 120.91 121.30 42,885,000 120.75
Jul 30, 2015 122.32 122.57 121.71 122.37 33,628,300 121.82

 

SPY historical prices

Date Open High Low Close Volume Adj Close*
Oct 30, 2015 209.06 209.44 207.74 207.87 125,338,300 207.87
Oct 29, 2015 208.35 209.27 208.21 208.89 84,727,800 208.89
Oct 28, 2015 207.00 208.98 206.21 208.94 132,528,000 208.94
Oct 27, 2015 206.20 207.00 205.79 206.57 74,930,600 206.57
Oct 26, 2015 207.30 207.37 206.56 206.99 66,254,500 206.99
Oct 23, 2015 207.25 207.95 206.30 207.52 138,355,700 207.52
Oct 22, 2015 202.98 205.51 201.85 205.21 164,941,500 205.21
Oct 21, 2015 203.61 203.79 201.65 201.87 99,149,500 201.87
Oct 20, 2015 202.85 203.84 202.55 203.09 75,598,000 203.09
Oct 19, 2015 202.50 203.37 202.13 203.32 73,106,800 203.32
Oct 16, 2015 202.83 203.29 201.92 203.27 109,692,900 203.27
Oct 15, 2015 200.08 202.36 199.64 202.29 125,812,600 202.29
Oct 14, 2015 200.18 200.87 198.94 199.30 95,532,400 199.30
Oct 13, 2015 200.65 202.16 200.05 200.18 83,578,000 200.18
Oct 12, 2015 201.42 201.76 200.91 201.59 55,425,200 201.59
Oct 9, 2015 201.38 201.90 200.58 201.40 94,899,000 201.40
Oct 8, 2015 199.41 201.55 198.59 201.20 148,387,100 201.20
Oct 7, 2015 198.90 199.83 197.48 199.43 120,246,700 199.43
Oct 6, 2015 198.31 198.98 197.00 197.81 106,144,200 197.81
Oct 5, 2015 196.46 198.74 196.33 198.48 122,213,200 198.48
Oct 2, 2015 189.77 195.03 189.12 194.99 206,129,500 194.99
Oct 1, 2015 192.08 192.49 189.82 192.16 127,828,700 192.16
Sep 30, 2015 190.37 191.83 189.44 191.59 152,593,200 191.59
Sep 29, 2015 188.27 189.74 186.93 188.08 152,279,900 188.08
Sep 28, 2015 191.78 191.91 187.64 187.91 158,514,500 187.91
Sep 25, 2015 194.64 195.00 191.81 192.87 142,052,900 192.87
Sep 24, 2015 192.15 193.45 190.56 192.93 159,378,800 192.93
Sep 23, 2015 194.11 194.67 192.91 193.60 92,790,600 193.60
Sep 22, 2015 193.88 194.46 192.56 193.90 153,890,900 193.90
Sep 21, 2015 196.44 197.68 195.21 196.44 105,726,200 196.44
Sep 18, 2015 195.71 198.68 194.96 195.36 223,657,500 195.36
Sep 18, 2015 1.033 Dividend
Sep 17, 2015 200.02 202.89 199.28 199.70 276,046,600 198.67
Sep 16, 2015 198.82 200.41 198.41 200.14 99,581,600 199.10
Sep 15, 2015 196.61 198.99 195.96 198.45 113,806,200 197.42
Sep 14, 2015 196.95 197.01 195.43 195.98 79,452,000 194.97
Sep 11, 2015 195.38 196.82 194.53 196.81 119,691,200 195.79
Sep 10, 2015 194.56 197.22 194.25 195.85 158,611,100 194.84
Sep 9, 2015 199.32 199.47 194.35 194.76 149,347,700 193.75
Sep 8, 2015 195.94 197.61 195.17 197.46 116,025,700 196.44
Sep 4, 2015 192.85 193.86 191.61 192.59 207,081,000 191.59
Sep 3, 2015 196.26 198.05 194.96 195.65 152,087,800 194.64
Sep 2, 2015 194.62 195.46 191.77 195.36 160,269,300 194.35
Sep 1, 2015 193.12 194.77 190.73 191.92 256,000,400 190.93
Aug 31, 2015 198.11 199.13 197.01 197.54 163,298,800 196.52
Aug 28, 2015 198.50 199.84 197.92 199.24 160,414,400 198.21
Aug 27, 2015 197.02 199.42 195.21 199.16 274,143,900 198.13
Aug 26, 2015 192.08 194.79 188.37 194.68 339,257,000 193.67
Aug 25, 2015 195.43 195.45 186.92 187.23 369,833,100 186.26
Aug 24, 2015 197.63 197.63 182.40 189.55 507,244,300 188.57
Aug 21, 2015 201.73 203.94 197.52 197.63 346,588,500 196.61
Aug 20, 2015 206.51 208.29 203.90 204.01 194,327,900 202.95
Aug 19, 2015 209.09 210.01 207.35 208.28 167,316,300 207.20
Aug 18, 2015 210.26 210.68 209.70 209.93 71,692,700 208.84
Aug 17, 2015 208.71 210.59 208.16 210.56 79,072,600 209.47
Aug 14, 2015 208.43 209.51 208.26 209.36 72,786,500 208.28
Aug 13, 2015 208.73 209.55 208.01 208.70 89,383,300 207.62
Aug 12, 2015 207.11 209.14 205.36 208.83 168,996,000 207.75
Aug 11, 2015 208.97 209.47 207.76 208.66 126,081,400 207.58
Aug 10, 2015 209.28 210.67 209.28 210.63 80,270,700 209.54
Aug 7, 2015 208.16 208.34 206.87 207.92 117,858,000 206.84
Aug 6, 2015 210.29 210.42 207.65 208.35 116,030,800 207.27
Aug 5, 2015 210.45 211.31 209.73 210.10 85,786,800 209.01
Aug 4, 2015 209.70 210.25 208.80 209.32 81,820,800 208.24
Aug 3, 2015 210.46 210.53 208.65 209.73 113,965,700 208.65
Jul 31, 2015 211.42 211.45 210.16 210.45 103,266,900 209.36
Jul 30, 2015 210.16 211.02 209.42 210.82 91,304,400 209.73

 

That was a lot of numbers ….

You should be looking over the numbers for ranges that have happened in the prior year in one month and one week buckets.  Of course, past performance does not guarantee future performance, but it often gives you a good clue.

What is my conclusion?  Apple seems to swing around a lot more than the options premium would justify. I don’t think just out of the money puts make sense, you would have to go to much more out of the money options to balance the risk of the stock movements.  The stock trades high volume and the options and pretty liquid as well. If you are a big Apple fan and follow them closely, it might work.

AT&T moves in a much tighter range in weekly and monthly buckets. Premiums are small but volatility is small as well.  This is the stock that I use to trade my strategy. Because the weekly profits are small, it is harder to recover if there is a week where the trade swings against you. The main advantage for me is that it pays a good dividend so if I cannot close a trade and get put I do not mind owning the stock.

SPY is also good. Much more of a swing than AT&T as the general market had some large up and down days in the period being reviewed. This is instructive as it reminds you that you can have a quick and bad day at any time. Stops help some but do not help much when there is a flash crash. That is why it is important to pick a stock that I you are put you do not mind owning.

So three stocks and any of the three could work, it depends on your personality and emotional ability to handle price changes.  You cannot make money every week or month, you need to accept and cut losses and roll over to the next period. Over time, with the right focus, you should be able to make a profit more often than you make losses (which tend to be fewer but larger).

  • Pick the period

The longer the period you pick, the more time value you receive and the more time for a temporary change in trading to revert back to the expected pattern.  However, it also is more time for the entire market to change direction or some external event to change a stock price (of course, longer dated options do give more time to recover).

I have traded one month, two month and one week options with this strategy. All worked.  For AT&T I prefer 1 week options, but 1 month work well too. When I tried Apple, I tried 2 month options as the stock was up and down more but the overall trend was flat to up so the longer term options gave more time for the strategy to work.  I found the price swings too much and there was too much non-company news that moved the stock and too many “event” days so I stopped trying to use this trade with Apple.

The other very important strategy is to avoid “story” weeks. When a stock goes ex-dividend the stock often reacts more than just the dividend. Earnings releases should also be avoided with this strategy. There is extra volatility those weeks which are good for options pricing, but they are also weeks that do not follow the pattern and the trading that you are attempting. They can be traded, but not via the strategy I am explaining here. Avoid them.

  • Pick the option

You want options that are out of the money so if the stock is flat through your period the trade works. That allows for upwards or flat movement to be a winner. You need to look at typical stock moves for the stock you picked and make sure the average down move will not cause such a large loss that it wipes out the gains you had made before.

For AT&T I have been trading weekly options and the option closest to the actual share price that is in the money. For monthly options I pick options that are deeper in the money but still give me more return than the weekly options.  For AT&T I switched to weekly options mainly because the premiums for deeper in the money longer term options did not give me the return I wanted considering the extra time used for each trade.

My results

I trade 30 AT&T options a week for about $400 – $500 a week of option premium. That is about $24K to $26K of potential income.  I have averaged $20K a year for the last several years doing it. If you get put you need about $100K to buy the shares (margin). I can trade a lot more options but my schedule often means I cannot monitor the price all day (especially when I am in China) so I am often “naked” on the close day and just need to accept being put because the stock is too close to close the trade.

Most people that do not trade on margin have enough margin available for this strategy and you can make much more than the smaller number I said above.

Options as a Strategic Investment

 

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