Hey all! This was a good week. Last week of MAX10 class, and I am already missing it. We had an end of session celebration where we got our before and after pictures (no I am not posting them here – I wouldn’t do that to you fine folks!) and there is a definite improvement in my look. I only lost about 5 pounds, but I have more endurance and am stronger than I have been in a long time. I do plan on signing up for the next session. YTD I have lost almost 25 pounds and am down 4 pants sizes.
Also found out for sure I am testing for my 2nd Dan in a couple of weeks. The forms I pretty much have down, but some of the terminology is still giving me fits. I am kinda nervous about this test. There is a great deal of objective parts to it, but still there is a large degree of subjectivity to it.
No volleyball last week, but we get hit up with a bunch of games next week. Lots of travel, but looking forward to it.
Eldest daughter busted out a 98% on her first test @ Tech School, so she is continuing her streak of success.
Well, we had another week of successful trading. We put on two trades this week on in Apple (AAPL) and the other in the gold ETF GLD.
Ok now on to the trades:
ANALYSIS
Here is last week’s trade #1:
Apple (AAPL) 1 Month Price Chart with trade
AAPL 650 Put $ 0.99
AAPL 645 Put $(0.62) This gave an Net Credit of $0.37 for a 7.40% ROI
The wait for the new Iphone will soon be over. September 12 is now the date when the official release date will be announced as well as an outline of the new features of the new phone. This helped push the stock higher through the week. Also toward the end of the week when Apple announced that they are in the beginning stages of starting a service to rival Pandora (P).
everything to get the $1,000 typical spread valuation.
1. We put this trade on Tuesday after watching the price action continue to move upward while the premiums remained almost unchanged on the put side.
2. The price stayed above the 20 day and 50 day SMA all week, and in fact is outpacing the upward slope of both lines. This was our first clue to use the Put side.
3. We went out slightly more than 2 Std Dev from the strike price and used our probability to get a 93.1% success probability.
4. The trend went more upward this week than last, so we didn’t entertain the thought of stretching this into a Condor Type trade like we thought about last week.
5. This week I started using a new indicator to help identify good trades. My primary online broker is Trademonster, and as part of their trading screen they have a graph of implied and historical volatility. When Implied volatility is greater than historical volatility this shows good option premium, the bigger the gap between Implied Volatility (IV) and Historical Volatility (HV) usually the better the option premium. IV > HV = good trade indicator. We used this as part of our thought process to reinforce our decision to go with a put option.
Trade #2:
GLD 1 Week Price Chart with Trade
GLD 161 Put $ 0.22
GLD 160 Put $(0.14) This gave a $0.07 Net Credit for a 7.00% ROI
GLD is a trade I like to do because there is little price movement normally. The $7 upward price movement this week was very extraordinary. Europe had a lot to do with that as well as increased tension in the US as our election campaign keeps sinking to new lows and a mixed employment report.
GLD has been channeling recently between 154-173 for most of 2012 with a recent move out of that channel in the last couple of weeks. The channeling and now upward trend in price was the first clue to go put side for the trade.
1. The probability calculator gave this trade a 90.1% success probability.
2. At this trade we were just a little more than 1.5 Std Dev away from the underlying strike price.
3. Our new indicator the IV> HV was in our favor.
4. The trade was better than our minimum 3%.
5. The overall trend was up so we go put side.
PAPER TRADE
MS 6 Month Price Chart
MS 13.00 Call April 2013 Qty=10 Cost=$4,200 Mkt Value=$4,800 Gain=$600
As I was searching the weekly list for potential trades I came across this stock. Morgan Stanley (MS) looks very good from a technical standpoint. The weekly options just didn’t have the premium to make this a viable trade. But with a good setup like the chart shows this had potential for a profitable trade if we went out a little further. Let us walk through this trade:
1. The chart is showing a definite up trend bouncing off support of $13.
2. At the $17.08 closing price Friday we are closing in on the 52 week high of $21.19
3. IV > HV
4. The options picked were about 7 months out, this gives us plenty of time to let our anticipated up move while lessening the effects of time decay.
5. A deep in the money call was bought because:
a. It is already in the money so the option premium will continue to rise as underlying stock price rises
b. The amount of the premium will be greater than an out of the money call that moves into the money
6. The target for the underlying price is $17.50. This approximately equals the underlying price plus the option price. AT the $17.50 price level we can see an anticipated $800 in profit for this trade. If the trends look good and we hold longer then we can potentially see even more profit!
COVERED CALLS
We have been doing covered calls on Vivus and McDonald’s. We are continuing with these two stocks in our covered call adventure.
Symbol Company Stock Option Option Initial Annualized
VVUS Vivus 22.90 Sept 25 .27 2,676.00 12.1%
MCD McDonalds 89.54 Sept 92.5 .16 9,174.00 2.09%
VVUS closing price Friday came in at $22.63 and looks to be an the beginnings of an uptrend to reclaim some stock price. It looks right now like we are in little danger of being called for this stock and will now look to prepping for the next month’s covered call. We will firm this up in a couple of weeks when the current call expires, but right now it looks like the $25 or $26 level will be the place to do the October call.
MCD looks to be starting an up move in price again. If it gets past the $92.5 price level and we get called away this will have been a VERY successful trade. We will have had three months of call premium, plus we will get $70 in dividend for the past quarter since we held the stock past the Ex-Dividend day of August 30. Plus we will make $76 if we are called away. A nice little sum Then we wait for a pullback in price and get into it again.
Remember, unless we hit a 15% stop loss point we will continue to use these covered call stocks to generate income and not worry about the day to day or month to month price fluctuations. We will concentrate on getting the most premium we can safely from these stocks.
DIVIDEND STOCKS
Here is our Dividend Stock Portfolio:
Ticker Name Buy Current Date Div
Price Price Yield
KO Coke 38.17 37.90 08/27/2012 2.65%
AGD Alpine Global Dynamic Fund 5.76 5.88 08/27/2012 12.52%
AOD Alpine Total Dynamic Fund 4.37 4.49 08/27/2012 15.10%
MO Altria 34.26 34.27 08/27/2012 5.16%
Current Prices as of 09/07/2012 Closing Price
I also should put here MCD even though we have it in our Covered Call Portfolio. McDonald’s fits the bill as it has a definite “moat” around its’ business and puts off a good dividend.
I have developed a watchlist for this Portfolio. These are stocks that basically meet the criteria we have: (1) a moat business model, (2) dividend of at least 3%, (3) solid fundamental analysis numbers. Here is our watchlist:
Ticker Name Recent Price Date Div Yield Target Price
PG Proctor and Gamble 67.19 08/31/2012 3.35% 62.50
JNJ Johnson & Johnson 67.43 08/31/201 3.62% 65.00
INTC Intel 24.83 08/31/2012 3.60% 22.00
INTC – There was some bad news on this stock last week. They missed earnings and lowered guidance for the rest of the year. So I am looking to get into this stock at around $22 or lower depending how far the current downtrend goes. Despite lowering guidance they are still hands down the world leader in chip making. They are the pre-eminent company in their sector and I do feel confident that they will make the transition to tablets as everybody is saying that is where the PC market is going. Now I will just try to pick up this World Beater on sale.
JNJ – I am looking to get into this stock at $66.00 or lower. The stock is on a slight uptrend again after a slight pull back. There is a recent run from $62 to $68 and so I would like to split the difference and get in at $66
PG – I am looking to get into PG at $64 or lower. PG is on a longer term uptrend starting in late June but is showing signs of coming back down as the price is getting ready to cross the 20 and 50 Day SMA. I will be patient as the chart shows that $62 is long term support for this stock. Also at this level that would raise our Dividend Yield to 3.75% AND give us lots of upside potential.
Probably mid-week I will have some of the questions you guys have put forward ready to answer. Thank you for your patience.
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. Stocks as well carry inherent risks and should be well researched before any buy decision is made. 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.
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Twitter: @awagel01
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TTFN
Ash
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