Hey Fellow Traders,
This week we go back to a stock we haven’t used much recently – Priceline.com (PCLN). For quite a period of time the premium just hasn’t been there with PCLN. Other items on our list, particularly GLD and AAPL lately have been where the premium has been. This week GLD was still there for premium, but I just couldn’t get the signals to make the buy (there were some signals that I didn’t see until Thursday evening – more on this later). AAPL has lost much of its’ premium luster with the dramatic drop in price.
MAX10 update! – Last week was week 10, the last week. The classes were tough, but now instead of being totally gassed like I was during the first round, I am now just a little winded. This time around I really didn’t lose any inches, but my endurance has gone way up, my legs are getting stronger – I can actually run a few laps around the track again. Thanks to my arthritis I had been relegated to the elliptical for years. I did hit a new personal record of 72 pushups in a minute and came close to my situp record. I am taking the next week off from MAX10 to let the body recharge. I have my body fat analysis next week, I am hoping to be at 20% or less.
We are in the midst of lots of kid Christmas programs and friend’s programs. Lots of great music and holiday cheer. Eldest daughter is doing well, the USAF is doing well and she is blossoming into a fine young woman. Boy is doing well and youngest girl is happy the Christmas is almost here. We have a short week coming up before the holiday with the kids in school then off to the holiday fun!!!
Now on to the analysis:
ANALYSIS
Here is the trade:
PCLN 630 Call $0.68
PCLN 635 Call ($0.35) This gave a $0.33 Net Credit for a 6.8% ROI
Total ROI for the week = 4.25% because we used $500 spreads so we double the spread ROI to get our total ROI.
Let us go through our process to see how we arrived at the call spread.
1. For the past two weeks the overall price trend for PCLNT has been down so we are looking call spread.
2. Among the eligible trades on our list of approved stocks/indexes/ETFs PCLN, AAPL, and GLD were the only ones that had ROI that were acceptable.
3. GLD looked good, but couldn’t get current signals to go our way. AAPL has lost its premium mojo with the recent dramatic price decline. That left PCLN.
4. Now moving up the Call side of the option chain we arrive at the 630/635 trade when we got
a. 92.3% probability of success
b. 6.6% Net ROI
5. The brown lines show the trade.
6. The circles show a new signal that we are looking at incorporating into the model. The circles show where the price hit the upper Bollinger Band then retreated downward. I am working on a full treatment of this mid-week.
PAPER TRADE
No Paper Trades this week.
COVERED CALLS
We still have our covered calls on Vivus.
Symbol Company Stock Option Premium Initial Annualized
VVUS Vivus 11.48 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 – We are riding the downward side of this speculation play. We are making ok money each month, but we need to eventually get back some of the initial outlay. When VVUS rebounds on its next drug announcement we will probably look to sell out.
DIVIDEND STOCKS
Here is our Dividend Stock Portfolio:
Ticker Name Buy Current Date Div
Price Price Yield
KO Coke 38.17 37.66 08/27/2012 2.71%
AGD Alpine Global Dynamic 5.76 5.22 08/27/2012 12.18%
AOD Alpine Total Dynamic 4.37 4.07 08/27/2012 14.80%
MO Altria 34.26 33.16 08/27/2012 5.17%
INTC Intel 22.87 20.53 10/01/2012 3.94%
HIX Western Asset Hi Inc II 10.53 9.80 10/15/2012 9.44%
MCD McDonald’s 91.74 88.88 10/30/2012 3.55%
MSFT Microsoft 28.55 26.81 10/30/2012 3.12%
JNJ Johnson and Johnson 68.03 70.69 11/23/2012 3.53%
Current Prices as of 12/14/2012 Closing Price
The portfolio is still down as the overall market drop after the Presidential election. We are starting to sound like a broken record as this is this lower price will give us a dividend reinvestment opportunity at lower prices. 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 $1,254 in dividend revenue assuming no reinvestment. This gives a 4.12% 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
Name Price Yield Price
PG Proctor and Gamble 69.93 09/21/2012 3.27% 66.00
PG – Buying on the next dip below $66
QUESTIONS
Where have you been the past couple of weeks? I REALLY missed your analysis and tracking of options and dividend portfolio.
First, I must apologize for my absence. I wish I could say it was some noble thing like saving a village in Africa or donating a organ to save someone. But it is much more mundane. I had some family issues that took me away from this blog. Hopefully all that is behind me now and I can get back to a more regular rhythm in these blob posts. My goal is to have this be a weekly and sometimes more posting. The New Year is coming up and that is one of my resolutions.
Why do you stick with VVUS? This is dragging down your overall performance a lot! I understand that sometimes you want a speculation play, but this seems to be a dog. What gives?
Good question. I am sticking with VVUS primarily because a look at the long term chart shows lots of ups and downs in this stock. Right now we are in a down trough. But we will be getting into a up trend soon enough. AS we ride that down trend out we are getting good option premium. Now of course I could be wrong on this and VVUS could never have another drug out there again, but I doubt it. They are in end stage trials on several drugs and the drugs they do have out are gaining acceptance. If you are a little more faint of heart then a stock like Celgene (CELG) or Gilead Sciences (GILD) would be a good fit. Both are fast growing and still a little on the speculative side. If you are a fan of Jim Cramer he is a big GILD fan.
Do you use the covered call strategy on your Dividend Portfolio? It seems this would be a great way to boost the revenue and returns on this portfolio?
I am seriously thinking about using the covered call strategy on part or all of the Dividend Portfolio. Right now the main inhibitor is cost as we have 100 shares (called round lots) of each stock. This amounts to 1 option contract. So for each stock we would have only one option contract available. That is what drives the cost into being prohibitive. As we accumulate shares and can do more than one contract then the covered call strategy would fall into line cost wise. I am working on getting a dividend portfolio that is dollar weighted – meaning that we will spend approximately the same amount of money on each stock instead of having the same amount of shares. The option premium is low right now as we as a nation await the resolution to the fiscal cliff. So currently there are no options that meet our criteria on a monthly basis for the Dividend Portfolio.
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 and options carry inherent risks and should be well researched before any buy/sell 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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TTFN
Ash
