Hi guys!
We are through the earnings season for the most part and doing well. The trade we put on was a success and the paper trade and the covered calls we put out all were successful. All in all a good week.
Eldest daughter is halfway through basic training and appears to be doing ok. Is anybody headed to San Antone? – It looks like me to paraphrase the old Charlie Rich song. This is an interesting time for me. This is the longest I have gone without talking to her or seeing her or texting or emailing or something.
Boy is almost done with driver training. One week to go, then the BIG test! He is doing much better on the road, but turning through intersections is still a little hairy!
Youngest daughter is gearing up for swimming lessons and another go round of camp. One of her friends is on a swim team and YD wants that as well. So I bet she will work really hard in lessons this week.
I am through 3 weeks of the MAX10 program and things are going very well. I haven’t lost much weight, but there is a definite reshaping of my body. I had some XXL shirts that are now looking big on me. The physical part is doing ok, I need to work more in the nutrition part.
Now we move to the options part of the blog:
ANALYSIS
Google Chart for last week
Here is the trade we put on last week:
GOOG 530 Put $1.82
GOOG 520 Put ($1.15) This gave a $0.67 Credit for a 6.70% ROI
Now let us delve into why this trade was made:
1. The overall market trend was up until Friday when there was a big sell off. This led to the inclination to do a Put Spread.
2. This was an earnings reporting week. All of the equities or indexes that I use to trade in were going to be impacted by the announcements each day. So the kicker was to find something on our trading list that would not be affected as much nor had the distance from the strike to be successful.
3. Of all the choices – RUT, SPX, NDX on the indexes and GOOG, PCLN, AMZN, APPL on the equities only GOOG gave a good return and looked safe. The GOOG chart shows a brown vertical line indicating when I made the trade and the two white lines showing the boundaries of our spread.
4. As you can see we had a large measure of safety built in with the Std Deviation. Std Dev = 2.1 at time of trade and got metter as the week went along.
5. We achieved a ROI of 6.7%, much better than the 3.5% floor with this trade.
6. GOOG kept getting better as the week went along largely helped by other tech stocks that were reporting this week. When Intel (INTC) reported better EPS despite lower revenue (In the business this in known as a bad top line but good bottomline). The interesting thing for INTC is that after reporting there was a bump, but then the stock took back that gain to only end up fractionally for the week starting @ $25.23 and ending at $25.57 but reaching a high of $26.42 just after earnings were announced.
7. There were hints for a week before the earnings announcement that GOOG would be coming in very well. Leaks came out about future acquisitions and joint venture opportunities. So when GOOG cam out and beat the street estimates the stick just kept going higher.
PAPER TRADE
Sold: VVUS 34 Call $0.63
Bought: VVUS 36 Call ($.32) 15.5% ROI is successful
This was the paper trade for the week. We were trying to see if we could profit on the upcoming FDA approval notice for the Qnexa weight loss drug by Vivus.
Our paper trade last week was a very speculative one. Vivus Inc. (VVUS) is a pharmaceutical company that was waiting to hear on FDA approval for a weight loss drug it has been working on for years. In fact in 2010 this same drug was not approved, which sent a shock through the pharma community as just about everybody thought the approval was a foregone conclusion. The stock tanked in 2010 and only rebounded when institutional investors that missed Arena (ARNA) and its big jump took to buying VVUS. Well, the drug was approved this time, but this news was already pretty much baked into the price so the price dropped a little on the news. This made our paper trade a big success.
COVERED CALLS
Here are the covered call trades put on last week:
Symbol Company Stock Option Option Initial Annualized
Ask Bid Outlay Return
VVUS Vivus 27.11 July 34 .35 2,676.00 14.2%
MCD McDonalds 92.40 July 92.5 .66 9,174.00 7.85%
We were successful on both of these trades as:
Ending price Friday for VVUS = $24.15
Ending price Friday for MCD = $91.58
So now we need to put on more covered calls for these stocks. VVUS is the easy one. VVUS does not have weekly options. Sunday afternoon as I am writing this there are two August options that look good. The Aug 28 and the Aug 29 call both look good. I have a preference for the Aug 29 call, but wither one will fit the bill.
The Aug 28 call will give a one month ROI of 2.76% or an annualized yield of 33.15%. If successful the Aug 28 call will give a 2 month return in our VVUs position of 4.06%. The premium for the Aug 28 call is $75 per contract.
The Aug 29 call will give a one month ROI of 2.10% or an annualized yield of 25.23% If successful the Aug 29 call will give us a 2 month return in our VVUS position of 3.39%. The premium for the Aug 29 call is $57 per contract.
MCD is a little more complicated since MCD does have weekly options. My preference is to go for the weekly option. That way I can have 4 expirys and I can control the option strike price 4-5 times a month. Either way is ok, it is just a matter of personal preference.
The MCD Weekly July 27 95 Call is giving $23 dollars in premium. This would give a .2% weekly premium. This would go to .8% for a month and 9.6% annualized.
The MCD Aug 95 Call is giving $49 in premium. This would give a monthly ROI of .5% annualized this gives 6.42%
As you can see with both VVUS and MCD we set the strike price just above what we paid for the stock. So if we get called, we will make money on the option premium as well as price appreciation of the stock. Ya gotta like multiple streams of income from one trade.
Other Stuff
I am working on more questions that have come in during the last few weeks. I will put these up toward the middle of the week.
Keep those questions coming. I love to see them and get the info out to you guys.
The next couple of weeks will be very turbulent IMHO. The signs are here for a big short term pull back in the markets so be very cautious and tread lightly. Europe has several countries with debt auctions and if they don’t go well that could ripple over to us. Also McDonald’s, Caterpillar, Apple and UPS are the biggies that report this week. If any of these companies give bad reports that could send a short term shock to the markets.
See you in the middle of the week!
Happy Trading!
DISCLAIMER: Hashley Capital Management, LLC; as well as I are not giving any trading advice. All data is historical in nature and is intended for use as an educational tool. Trading in options is risky and can result in loss of capital. There is no attempt to sell any brokerage services or act as a broker or dealer by Hashley Capital Management, LLC. Any forward looking comments on this blog are not attempts to solicit business for Hashley Capital Management, LLC and are the opinion of Hashley Capital Management only. If you choose to follow the same path and invest in the strategies and trades used by Hashley Capital Management, LLC after doing your own due diligence, that is your decision and yours alone.
Reach me @:
Email: hashleycm@yahoo.com
Twitter: @awagel01
Stocktwits: awagel01
Or leave a comment on the blog
TTFN
Ash
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