Hey all,
I know this is starting is starting to sound like a broken record, but we are riding a wave that just keeps on giving good returns. At some point this ride will stop, but until then we will ride it as long as we can! Yes we did AAPL and GLD again this week.
Well, the promotion ceremony for the Tang Soo Do testing was put off a week because all the supplies didn’t come in on time. The ceremony will be this weekend instead. I am looking forward to it because I think I earned the 2nd Dan, but you never really know until it is tied around your waist. The knee is better and the toe is healing, and most of the bumps and bruises have healed up as well. Just in time for MAX10 to start up again this week. I am now a BIG proponent of the high intensity short rest type of workouts. Last 10 weeks I lost 3 inches and about 5 lbs. BUT the big change was in my body composition. My look totally changed. This time around I am looking to tone up and get some definition. I do MAX10 which is a local thing here to Cedar Rapids, similar to Farrell’s and Kosama and from what I hear a little like the Insanity workout from Beachbody (the P90X folks).
Youngest cherub is still in the volleyball thing. Only a couple more weeks to go for this season. She has really enjoyed it so far, but the early mornings are starting to take their toll. She is her mama’s child in this respect!! She also starts tumbling this week. She has wanted to get back to more gymnastics than dance so this is a good fit. It is fun to watch as she starts finding shat she likes and doesn’t like and getting her passion for things besides butterflies.
Eldest daughter is three weeks out from going to her first duty station. She is just shooting the lights out in her tests. She has always been that way – when she gets an idea in her head and wants to do well, she does well. I hope being in the middle of nowhere won’t weigh her down too much. It will only be a couple of years before she could request a transfer to another base. I know she wants to travel and has been assured that if she stays in long enough she will travel quite a bit. She has a birthday coming up and this will be the first on I won’t be able to spend with her since she will still be in tech school.
Well AAPL and GLD have been very good to us the past few weeks. September hit 6.8% return for the month. The retirement account hit a 32.6% ROI and the income account hit 28.6% ROI. These results are far from typical. We have been riding the AAPL wave and reaping some great rewards for it. Typical ROI is about 6% a month. So let’s take a look at last week.
ANALYSIS
Here is last week’s trade #1:
AAPL 685 Call $ 0.97
AAPL 690 Call $(0.60) This gave an Net Credit of $0.37 for a 7.40% ROI
Two weeks ago we went on the put side as IPhone 5 sales were just coming out and the stock was still rising. Last week we reversed and went to the put side and got basically the same result. AAPL was falling most all week due to the Apple Maps app issue. This is one of those things that AAPL should have just left alone until they had their product ready to fully go. Most of the week AAPL price tumbled except for Thursday. Thursday there was an unexpected rise in the share price. Later this was determined to be the HFT (High Frequency Traders) coming in to buy AAPL on the cheap after the 5% drop. Friday the slide continued and let my heart get back into its normal spot.
The two white lines on the graph show our spread. As you can see we came close to breaching the lower end Thursday. I had an out of town meeting where I would be mostly unable to get on the internet, so I checked AAPL right before going in and the price was about $660- so I thought al was good. I got out at almost 3 PM CST – almost when the market closes and saw that the price had rallied to just over $681 at the close. This was a Holy S%@T moment. AS I started looking at the news reports and blogs, it seems that the HFT activity kicked into high gear when the price hit $660 (as seen by the brown line a relative resistance line for AAPL this month), or a 5% drop in the price. This led to massive amounts of buying the stock thereby raising the price. Thankfully this was a one-day event. Friday the stock slid back down again and kept us profitable for the week.
This HFT activity is starting to come under the scrutiny of regulators. Although there is nothing on the books yet, and I think it will be extremely difficult to put some regulations in place, I do think there will be some limits put on HFT in the near future. The total reversal of a market trend due to massive amounts of buying from a very small number of firms pushed the price of one of the biggest market cap stocks for a big move that only certain people could profit from. So called retail players like me and most of you following and/or lurking this blog also fall into this category. All the technical indicators and sentiment indicators – RSI, Bollinger Bands, Black-Scholes modeling all showed that the trade I put on was a high probability trade (92.4% chance of success, but was almost undone by the HFT activity.
1. We put this trade on Tuesday afternoon after watching the price action fall through the 20 and 50 Day SMA. When both SMA lines are broken that is a strong Call Spread signal.
2. The price was below both the 20 day and 50 day SMA when I made the trade. Now I look for a set of strikes that are at least 1.5 Standard Deviations from the underlying market price at the time of the trade. Toward the end of the day Tuesday we achieved that with the 685/690 strikes.
3. As it turned out this would have been probably the worst week to think about converting this trade into a condor type trade. The spike Thursday skewed thing so if a trade was put on the put side with any hope of making money Friday would have burned you bad. Condor type trades work in two scenarios: (1) when the underlying price is mostly flat, and (2) if the underlying price can be put into a narrow range. Neither of these instances was happening this week so we stayed away from the condor type trade.
4. We went out slightly more than 1 Std Dev from the strike price and used our probability to get an 88.9% success probability.
5. The IV > HV indicator also showed us that this was a good stock to put a spread on as IV>HV. But the gap is narrowing. So in the near future we may have to change the horse we are riding.
Trade #2:
GLD 168 Put $ 0.42
GLD 167 Put $(0.26) This gave a $0.18 Net Credit for a 18.0% ROI
We got into this trade Wednesday afternoon, close to the end of the trading day. GLD for most of September was trading in a flat pattern. Wednesday morning there was a big dip in the price of GLD, then a steady climb back up so that by the end of the day the price had almost gotten back to Tuesday’s closing price. We took advantage of the dip to grab some premium on the put side. Thursday and Friday kept the relatively flat pattern going. Again here is an example of HFT trading hitting a stock/ETF. And again, this is something that the retail guy doesn’t know until after the fact. All of our analysis and sentiment readings told us one thing and we ended up being right, but the HFT put a lot of spice into the trade that we couldn’t anticipate.
1. The probability calculator gave this trade an 88.7% success probability.
2. At the time of the trade we were well under the 1-1.5 Std Dev marker we like. But the trend was moving the price to that place. At the end of the day we were just at the 1 Std Dev marker.
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
Do not have one of these yet, but looking.
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 21.01 Oct 23 .32 2,676.00 14.3%*
MCD McDonalds 93.66 Oct 100 .10 9,174.00 1.3%
* Changed this calculation from using the stock price at call option sell to using the initial investment.
VVUS has sunk a little lower in price since we put on the next covered call. As we said last week this is part of the high volatility of a biopharma stock. I am ok with it right now because of my long term outlook for this stock. Based on our initial investment we have a 14.3% ROI and so far for the year we have generated 3.14% return over the 3 months we have covered calls on VVUS. This would equate to a 12.6% ROI for the year I will take that any day.
MCD we had to buy back a little early. That kinda irked me because just after closing above the strike for the options expiration MCD promptly moved back down below our strike. But I wanted to hold onto the stock for the dividend and am still able to generate some call premium income. This is a stock that I will hold for a long time. It is world leader in fast food and is generating cash incredibly well. They are moving their menu around here in the states with our new found emphasis on healthier fast food, and are starting to incorporate local foods into their mix abroad. This is a great company. If I were a trader I would accumulate shares on any dip of 5% or more than let the stock recover and sell, hopefully gaining some dividends along the way. As it is, I am using MCD like a bond for covered call purposes.
DIVIDEND STOCKS
Here is our Dividend Stock Portfolio:
Ticker Name Buy Current Date Div
Price Price Yield
KO Coke 38.17 37.95 08/27/2012 2.71%
AGD Alpine Global Dynamic Fund 5.76 5.86 08/27/2012 12.18%
AOD Alpine Total Dynamic Fund 4.37 4.43 08/27/2012 14.80%
MO Altria 34.26 33.39 08/27/2012 5.17%
INTC Intel 22.87 22.87 10/01/2012 3.94%
Current Prices as of 09/28/2012 Closing Price
Each of these stocks carry 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. Two 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
PG Proctor and Gamble 69.34 09/21/2012 3.25% 62.50
JNJ Johnson & Johnson 68.88 09/21/2012 3.56% 65.00
INTC – This hit close enough to our buy price that we pulled the trigger on in and have added it to the Dividend Stock Portfolio.
JNJ – I am still 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 might have to wait on this one a bit. It is continuing the uptrend and is closing in on a 52 week high. The slight pullback I saw was more of a quick consolidation. So now I just sit back and wait patiently for this stock to come back to Earth. The last thing I want to do is buy at the high and wait for another high to come along. 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.
QUESTIONS
Would you please give us your methodology on how you look for dividend stocks and covered call stocks? You have hinted at it in the comments but I would like to see a check list like you gave us for the weekly options.
I am working on putting this together and will have it up soon in detail, but the quick sketch is I look for stocks that are world beaters at what they do, and have solid earnings year over year over year. For the dividend portfolio I look for these companies that have raised their dividend year over year for years. For example – Coke (KO), everyday millions of people have a Coke and a smile, or Diet Coke, or Cherry Coke, or Coke Zero, or PowerAde, or Minute Maid juice. Intel (INTC) the latest addition to the Dividend Portfolio is the world’s leading microchip manufacturer. Yes they have gotten late in the game with smartphones, but they are by far the leader in PCs and are ramping up in Tablets. As the tablet and smartphone merge I see Intel as the chip maker getting the lion’s share of that new market.
The approach with the Covered Call Portfolio and the Dividend Portfolio is to generate income over time and grow the base for that income over time. The quick income part of the portfolio is the weekly options. The weekly options portion will always be the bigger portion; in fact the profits from the weekly options are fueling the expansion into the Covered Call and Dividend Portfolios. We are effectively locking in gains and then making more money off those gains.
Happy trading and we will talk soon!
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.
Reach me @:
Twitter: @awagel01
Stocktwits: awagel01
Or leave a comment on the blog
TTFN
Ash
No comments:
Post a Comment