Hey all,
This week we go back to an old standby. AAPL has been great to us. After a couple of weeks moving away from AAPL due to low premium, we got back on that horse. AAPL is starting to show premium life. This leads me to believe that the slide is close to over. I had predicted that AAPL would fall to $500, but it looks like we might be a little low on that. It looks like $525 might be the low point. This is still a very fundamentally strong company. Cash flow is great, the maps disaster is being dealt with (Google has put out an app that AAPL is letting in their app store that basically puts the old map app back on the iPhone), iTunes store and App Store are going like gangbusters. The selloff I feel is the result of the great run up in price AAPL has seen this year. If you bought AAPL a year ago today you would still see a 52% appreciation in stock price EVEN AFTER the selloff. This is my opinion why the selloff has occurred – folk who own lots of shares of AAPL are selling off before all the tax hikes hit at the beginning of the New Year, locking in capital gains at the low rate of 15% currently in effect.
GLD, the pick for the past few weeks just didn’t have the premium this week. If I were to put on a third spread last week, I would have gone to GLD, but happily I didn’t have to be in that position.
Ok, here is my weekly MAX10 commercial—just kidding, they don’t pay me anything for these testimonials. Finished week 7 and am really starting to feel good. During the first session I was struggling mightily at this stage and had to take some breaks. This time around I have not had to take any breaks. The workouts are still challenging and I am seeing some big differences in the body composition. I am not losing the weight that I did the first time around, only about 5 lbs. this time, but the muscle definition is much better now.
Kids are doing well – all three of them. Noting much went on this week with them. I guess going into the Thanksgiving holiday there is a little lull. The kids only have a couple of days this week. I remember when we had to go Mon-Wed on Thanksgiving week. Lucky kids!!!
Now on to the analysis:
ANALYSIS
Here is the trade:
AAPL 545 Call $1.08
AAPL 550 Call ($0.59) This gave a $0.49 Net Credit for a 4.9% ROI
AAPL 555 Call $0.48
AAPL 560 Call ($0.12) This gave a $0.36 Net Credit for a 3.6% ROI
Total ROI for the week = 4.25% - Remember – we equally distribute assets among trades
Yes, we did another ladder trade. I really like these types of trades. 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.
We will analyze the 545/550 trade since the 555/560 trade will be even better except for ROI. The chart above shows the trade in pictorial form.
1. The overall trend since the election has been down so we are looking call spread.
2. Among the eligible trades on our list of approved stocks/indexes/ETFs AAPL and GLD were the only ones that had ROI that were acceptable.
3. GLD was bucking the overall market trend, but AAPL was following the market trend. Also the premiums on AAPL were better than what GLD was offering, so we went with AAPL
4. Now moving up the Call side of the option chain we arrive at the 545/550 trade when we got
a. 91.05% probability of success
b. 4.9% Net ROI
5. The White lines show the 545/550 trade and the brown lines show the 555/560 trade.
6. The first yellow vertical line show when we entered the trade and the second vertical yellow line show the price at expiration.
PAPER TRADE
No Paper Trades this week.
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 Premium Initial Annualized
VVUS Vivus 10.33 Dec13 .26 2,676.00 11.65%*
* Changed this calculation from using the stock price at call option sell to using the initial investment.
VVUS – Well, we were wrong on our prediction – the support line was blown away. This was because VVUS wasn’t the first to market with a hepatitis C drug. When they got beat in this race. Remember this is a speculation play so we are taking lots of risk with it. The drug they have out – weight loss drug Qysmia. The drug is out on the market, but kind of limited – you can only get it through mail order pharmacies right now. It is expensive and insurance companies are hemming and hawing to pay for it. They lost the race for being first getting a Hep C drug out. But VVUS does have some other good drugs in the pipeline and they will have a Hep C drug out as well. My patience is starting to wane, but still there with this stock.
DIVIDEND STOCKS
Here is our Dividend Stock Portfolio:
Ticker Name Buy Current Date Div
Price Price Yield
KO Coke 38.17 37.22 08/27/2012 2.71%
AGD Alpine Global Dynamic 5.76 5.19 08/27/2012 12.18%
AOD Alpine Total Dynamic 4.37 4.09 08/27/2012 14.80%
MO Altria 34.26 32.18 08/27/2012 5.17%
INTC Intel 22.87 20.21 10/01/2012 3.94%
HIX Western Asset Hi Inc II 10.53 9.78 10/15/2012 9.44%
MCD McDonald’s 91.74 84.12 10/30/2012 3.55%
MSFT Microsoft 28.55 26.52 10/30/2012 3.12%
Current Prices as of 11/16/2012 Closing Price
The portfolio is down as is the entire market after the Presidential election. For me this is a winning situation. AGD, AOD and HIX are Closed End Funds that pay monthly dividends. With dividend reinvestment this means that these positions will increase and I will be able to get more shares with the depressed prices. If you are not reinvesting dividends then you are still accumulating cash to buy the next batch of stock at the rate you signed on for so you should be happy as well. Or you can now buy more stock with the dividends already accumulated. This is a good case all around.
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. This portfolio is made up exclusively with Blue Chips and Closed End 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 Recent Date Div Target
PG Proctor and Gamble 66.82 09/21/2012 3.27% 66.00
JNJ Johnson & Johnson 69.19 09/21/2012 3.56% 68.00
JNJ – Buying on the next dip below $68
PG – Buying on the next dip below $66
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.
Reach me @:
Twitter: @awagel01
Stocktwits: awagel01
Or leave a comment on the blog
TTFN
Ash
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