Hello followers, lurkers and casual observers,
This week was a weird week. This was the big week for earnings season. Most of the companies that were set to report for the quarter reported last week. There were big point gains and point losses on the major indexes this week. Also the different sectors in the S&P 500 were gyrating back and forth during the week.
AAPL gave an enticing target this week. Option premiums on both the call and put sides of the chain were extremely high. It was tempting to put a bet on like what we did with GOOG last week. If we had done so it would have been very profitable. But you long time readers know I am not a fan of earning speculation plays. AAPL ended up following the lead of other big tech sector stocks last week and kept the downward plunge. But there was enough other items out there like: the product announcement earlier in the week, the renewed buzz about Apple Radio, the supply problems for the iPhone 5. These things kept me out of the AAPL gall spread or outright buying of puts.
GLD was our pick again this week. The premium in GLD is still holding and the ETF itself is still trading in a range bound manner. This was like our safety blanket in this very volatile week.
I completed week 4 of MAX10 this week. I am getting the feeling that this is a muscle building session. I have not lost any weight, but during the workouts I have noticed that I can push myself harder and do a little more than last week, of even when this last session started. My toe seems pretty good now and I think that next week I will be back to 100%.
The two youngest are finishing up their first marking period and getting geared up for conferences. I always like this part as the teachers are very engaging and let you know how your kids are going. Boy is getting pretty good grades – consistent to where he was last year. Youngest received her first GPA this year in fifth grade – 3.8 most excellent.
Eldest daughter got to her duty station and starts her first tour of duty on the 29th. I hope she has a great learning experience during this tour.
Ok, let’s get on with the analysis:
ANALYSIS
Here is the trade:
GLD 167.50 Call $0.151
GLD 168.50 Call ($0.090) This gave a $0.061 Net Credit for a 6.1% ROI
GLD 169.00 Call $0.10
GLD 170.00 Call ($0.06) This gave a $0.04 Net Credit for a 4.0% ROI
Total ROI for the week = 5.05% - Remember – we equally distribute assets among trades
We have done trades like this before. I like to call them ladder trades as the trades look like rungs on a ladder when you look at them on the graph. We start with our normal trade hitting our parameters. Then we will go farther up the chain for calls and further down the chain for puts to still meet our ROI requirement.
Looking at the chart it seems that we could have run a condor type trade. I seriously thought about this, but I couldn’t get a put spread that met all of my requirements. I also gave lots of consideration to making a trade that would give me some extra income but not hit my ROI requirement. I probably could have done this as long as my overall ROI requirement kept intact, but I didn’t. That is a thing I will have to keep in mind the next time this scenario comes up.
PAPER TRADE
Here are the Paper Trades from last week and our reasoning for getting into the trade:
AAPL 605.00 Put Bought Monday @ $0.92
Sold Friday @ $8.60
Net Profit = $768
1. This put was bought to take advantage of the continuing slide of AAPL that has gone on for most of the month
2. This was a big gamble with the product announcement coming out in the middle of the week, but when the numbers for the iPad came out we hit it big. I probably should have sold this Thursday but still grabbed a nice gain for the paper account
3. I followed the overall trend with this, but was greatly helped with the big downward bounce from the product announcement. If not for that I probably would have lost on this trade.
4. The probability calculator had a 86.4% of success when I bought the put.
The paper trade was a success, but I really went out on a limb for this. The trend was down for AAPL as well as the sector, but AAPL is notorious for beating those estimates and sentiments. The item that really saved us was the numbers of iPads sold quoted in the product announcement. The number was significantly down from what the Street thought they were going to be. The big dip happened during the announcement. As a result there was no big dip when earnings came out Thursday evening. (There was a quick big dip, but still in aftermarket trading that dip largely went away and AAPL ended up Friday closing only a little more than $5 down.)
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 17.55 Nov 23 .41 2,676.00 18.38%*
MCD McDonalds 88.72 9,174.00 1.30%
* Changed this calculation from using the stock price at call option sell to using the initial investment.
VVUS – As we predicted last week, it looks like we are heading in for the support line of $17.46. I am looking for this stock to start rebounding soon. The drugs VVUS has in the pipeline are all still showing positive signs and the fundamentals of why I picked this company really have not changed. We are getting really awesome premiums from this stock and technically it looks like we will start to pick up the share price soon.
MCD is disappointing! The option premium for this stock has basically dried up. It is still a good stock to have overall and I will continue to hold it, but right now I am moving this from the covered call portfolio to the dividend portfolio. MCD will be found there next week.
DIVIDEND STOCKS
Here is our Dividend Stock Portfolio:
Ticker Name Buy Current Date Div
Price Price Yield
KO Coke 38.17 37.04 08/27/2012 2.71%
AGD Alpine Global Dynamic Fund 5.76 573 08/27/2012 12.18%
AOD Alpine Total Dynamic Fund 4.37 4.24 08/27/2012 14.80%
MO Altria 34.26 31.76 08/27/2012 5.17%
INTC Intel 22.87 21.95 10/01/2012 3.94%
HIX Western Asset Hi Income Fund II 10.53 10.37 10/15/2012 9.44%
Current Prices as of 10/26/2012 Closing Price
As I said above we will now see MCD in this portfolio as this is a great company making money hand over fist. Earnings were a disappointment and the stock has taken a hit because of it. But this is a great company and will rebound soon. We get the dividend for this and will be good.
Each of these stocks carries a 15% stop on them, and we are nowhere near that on any of these stocks. If 100 shares in each stock is held that will generate $416 in dividend revenue assuming no reinvestment. This gives a 5.10% return. This is a pretty good return in this market and it is very safe. Three Blue Chips and two funds that are diversified in sectors and globally. If reinvestment is used that number goes even higher.
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
MSFT Microsoft 28.21 10/05/2012 3.12% 28.00
PG Proctor and Gamble 69.44 09/21/2012 3.27% 62.50
JNJ Johnson & Johnson 70.90 09/21/2012 3.56% 65.00
MSFT – I will probably be picking up this stock any day now as we are nearing my target.
JNJ – Still waiting!!!
PG – Again still waiting!
QUESTIONS
None at this time
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 stocks and/or 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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