Hello friends,
This week we decided to go on more of a technical bent. We got off our AAPL kick as the decaying option premium got to the point where it became no longer practical to get into the AAPL option chain. We moved into GOOG based on technical indicators. We stayed with GLD as the option premium in this ETF is still quite high.
I completed week 3 of MAX10 this week. This go round I am not losing much weight, but I am really reshaping myself…I almost have abs and visible biceps and triceps again!! The stress relief also is a good thing. I love the daily workouts. I still have to be a little gentle on the almost healed fractured toe, but I am going about 85% right now. Hopefully in the next couple of weeks I will be back to 100%.
Youngest child is now starting tumbling. She really likes the gymnastics aspect, and loves the flexibility stuff. We have the middle school volleyball program coming up next week then all the volleyball stuff will be done until this summer.
Eldest daughter has been on leave for the past week. She is resting as she gets ready for her first active duty station. She will be off to Ellsworth AFB. She is still really gung-ho and I hope she keeps that.
Middle child, the boy, had a full social calendar this week. He is starting to get invited to more and more things as he is there longer and longer. It is good to see him having fun and making friends and memories.
ANALYSIS
Here is the trade:
GOOG 795.00 Call $2.96
GOOG 800.00 Call ($2.33) This gave a $0.63 Net Credit for a 12.6% ROI
As I said in the intro I worked on more of a technical bent this week with one trade than I usually do. This was the GOOG trade. The GLD trade we pretty much followed the formula.
Again, I am going to use some terminology here to help some of the newbies that have asked for more usage of terms they see elsewhere our in the web-o-sphere.
The GOOG trade was a little out on the limb for me. Usually I don’t trade a stock in the week of earnings. In fact that is one of the tenets of my system. The following points can be seen in the chart above, I broke with that because:
1. GOOG was retreating from its all-time 52 week high that it hit in early October. The retreat is shown by the yellow line and the brown line shows the 52 week high.
2. The technology sector was consistently reporting poor earnings calls this quarter.
3. Many of the same questions hitting Facebook, Microsoft, Oracle and others were being asked of GOOG and like their brethren GOOG didn’t really have good answers.
4. The option premiums showing in the option chain well above the 52 week high were very high.
5. The two white lines at the top show our trade parameters.
If ALL 4 of the above facts had not been present, I would not have gone out on a limb like that. Other than the trading a stock during earnings we followed our system:
1. The trend line is going down, so we go with a Vertical Call Credit Spread.
2. The underlying market price for our trade is at least 1.5 Standard Deviations away from the short strike sold.
3. The probability calculator showed at least 85% probability of success – we were at 98.24% when trade put on.
4. The ROI is at least 3-4%. In this case 12.7%
5. Our stock was on our list. The list is in the archives as well as our tenets.
Trade #2:
GLD 171.50 Call $ 0.19
GLD 172.50 Call $(0.11) This gave a $0.08 Net Credit for a 8.00% ROI
The trades this week give us a 10.80% blended ROI. This is a once in a GREAT LONG time return. Weeks like this do not come along often.
1. The probability calculator gave this trade a 93.4% success probability.
2. Our new indicator the IV> HV was in our favor meaning that the IV (Implied Volatility) was greater than the HV (Historical Volatility).
3. The trade was better than our minimum 3%.
4. The overall trend was down so we go call side.
PAPER TRADE
Here is the Paper Trade from last week and our reasoning for getting into the trade:
RVBD 26.00 Call $0.42
RVBD 27.00 Call $(0.31) This will give a $0.11 Net Credit for a 11.00% ROI
1. The probability calculator hits in at 89.69%
2. The Std Dev are between 1.0 and 2.0
3. The overall trend is going downward so we look to go Call Spread
4. This stock is not covered by Trademonster so I could not get the IV>HV indicator for tis one
5. One of two things that is a little worry some about this stock is that the Implied volatility for the options is 132.5% This is a very high number. That is why we are putting this in the paper trade account so it won’t cost us real money.
6. The other thing is that RVBD will report earnings this week. Normally I do not trade a stock when it is coming up on earnings, but this looks attractive as any bumps + or – from past earnings would not push the underlying past our strikes. Again this is why I am doing this in the paper trade account instead of the real money account.
Well, the paper trade was a success. As I thought, there was a huge spike up on positive earnings, but it did not come close to our lower limit ending Friday at $23.07.
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 20.06 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 – we did not put on another VVUS trade for the week as the option premium was just not there. The stock closed Friday at $20.6 and looks like it is heading toward the recent support line of $17.46. The only reason I am sticking with this one is that I know that this stock is extremely volatile – that is how we get the outrageous premium we get for the covered call each month. I am not overly concerned about the stock price as long as I keep getting the great ROI on the option premiums.
MCD came out with disappointing earnings last week. As a result of the negative earnings the options premium has absolutely dried up. So we still hold onto the stock and will look for option premiums to rebound up. The food sector is getting hit hard recently with the buzz on Chipotle and MCD and YUM and others not looking good. Worst case scenario we grab the dividend again in a couple of months.
DIVIDEND STOCKS
Here is our Dividend Stock Portfolio:
Ticker Name Buy Current Date Div
Price Price Yield
KO Coke 38.17 38.39 08/27/2012 2.71%
AGD Alpine Global Dynamic Fund 5.76 5.87 08/27/2012 12.18%
AOD Alpine Total Dynamic Fund 4.37 4.36 08/27/2012 14.80%
MO Altria 34.26 33.21 08/27/2012 5.17%
INTC Intel 22.87 21.26 10/01/2012 3.94%
HIX Western Asset Hi Income Fund II 10.53 10.31 10/15/2012 9.44%
Current Prices as of 10/19/2012 Closing Price
This week on market price we are down about $256. Half of our portfolio gives us monthly premiums so this will help us grow the portfolio quickly. AOD, AGD, HIX give us monthly premiums.
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. 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
MSFT Microsoft 28.64 10/05/2012 3.12% 28.00
PG Proctor and Gamble 68.57 09/21/2012 3.27% 62.50
JNJ Johnson & Johnson 71.86 09/21/2012 3.56% 65.00
MSFT – This is closing in and we will be poised to pull the trigger.
JNJ – This took a slight downturn this week, but I am still waiting for more of a pullback.
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
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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