Hello All,
First of all: The graphing issue has been resolved. Never heard from the fine folks at Blogger, but all of a sudden my links started to work. So I am not complaining cuz now I will have graphs to show what we did.
This was an interesting week. Earnings week was heavy with the tech stocks and if you listened to the analysts to make your trades you would have lost your shirt. NFLX was supposed to tank and instead of losing 13₵ a share they made 13₵ a share. Currently NFLX is making new 52 week highs every day since. AAPL was supposed to have blowout results…eh not so much. AAPL had overall very good numbers, but the inner workings of the numbers, particularly iPhone 4 sales outpacing iPhone 5 sales and iPad Mini sales lots smaller than anticipated with AAPL now waying that they will “refocus” their earnings statements to reflect a “new reality” of earnings sent the stock tanking. I kinda feel for the AAPL folks – after all they came in with earnings in line with expectations from the Street. Also a lot of the sales slowdown was old news. But I think right now the stock is still so overbought that those who have made money on their trade are getting out at any hint of bad news. This made the setup made for our trade.
Kids have been back to school for a couple of weeks now and seem to be getting back in the groove. Nothing much coming up for them for a while now school wise. Youngest has a birthday coming up so the plans are under way for the party. She is very stoked on this. Middle child is learning lots in his building trades class – this is a class that suits him well. I can see him an engineer or something similar as his vocation. Eldest is settled in at Ellsworth AFB and getting used to her routine. Hard to believe that others her age are finishing up their senior year of high school. I am very proud of her.
Now on to the analysis:
ANALYSIS
AAPL 470.00 Call $ 0.89
AAPL 475.00 Call $(0.46) This gave a $0.33 Net Credit for a 6.60% ROI
This trade was not possible at the beginning of the week. AAPL according to all the analysts was to have a great quarter. All things were pointing to a good show on the earnings call. Then all went to hell in a hand basket. The earnings announcement was ok. The earnings were in line with the estimates and the financials were very good. AAPL literally has tons of cash on hand, debt is very manageable and profits good. The troubling part of the announcement came with the details. No new products were presented or even hinted at. Further iPhone 4 and 4S sales outpaced iPhone 5 sales and that trend line is continuing. Also Samsung and the Galaxy series is gaining in worldwide sales. This put AAPL stock in a free fall. A 10% drop then next day.
This is why we ALWAYS trade after earnings and NEVER put a spread on into earnings. Thursday morning we put on the trade and were successful.
I put this trade on to take advantage of this info:
1. The trend went downward immediately after the market opening Thursday and down fast. So we look to make at the call side.
2. The Bollinger Band test was met Thursday morning as the price dropped. See the green arrow on the chart
3. This spread had a 94% probability of success.
4. We were a little more than 1.5 Standard Deviations away from the underlying at the time of the trade.
5. The minimum of 3.00% ROI was more than met.
6. The white lines on the chart are the trade that was put on Thursday morning.
PAPER TRADE
The paper trade this week was a new type of trade. It is a form of a trade called strangle. This trade was put on Monday. The theory behind it was that one of the of the two will make money while the other would lose money, with gain outpacing the loss. I bought a NFLX call and a NFLX put at the same time with the dame expiration date but different strike prices. NFLX had on average a 7% price move on earnings announcements over the past year. The price I calculated on was 95. So 7% of 95 is 6.65 and I rounded that to 7 and then had to round to 10 to get the nearest strikes on the option chain. So I bought a 105 February 2013 call and bought a 90 February 2013 put. The call cost $1.23 and the put $1.07 with total cost being $2.30. The put was sold Friday afternoon for $0.10 and the call was sold for $60.80. So total profit was $6,090 and total cost $273 for a net profit of $5,860. This is one of those trades that I wish I had done in real life!!!!! But this is the first I have tried and so I will do more before I do an actual trade.
Summary:
Feb 21 Bought NFLX 105 Feb13 Call - 123.00
Feb 21 Bought NFLX 90 Feb13 Put - 107.00
Feb 25 Sold NFLX 105 Feb13 Call 6,090.00
Feb 25 Sold NFLX 90 Feb13 Put 10.00
TOTAL GAIN: $5,860.00
COVERED CALLS
We still have our covered calls on Vivus. I would like to keep CBI as a covered call but right now there is no premium over what is right at the strike price so I am looking for another. So far I haven’t found one.
Symbol Company Stock Option Premium Initial Annualized
VVUS Vivus 12.39 Feb16 .63 2,676.00 28.25%
Symbol Month Premium Month ROI Ann Month ROI Cum Prem Cum An ROI
VVUS January $32 1.19% 14.35% $32 14.35%
CBI January $50 1.12% 13.39%
VVUS – This stock is still in the $12-$15 range. This is my speculative play and currently I am in the hole overall for it. But I am continuing to collect call premium on it and I know they have some very promising drugs in the near future coming to market. If these are successful then we will more than likely get our overall investment back. In the meantime we just keep collecting the call premium.
Symbol Invested $ Option Prem Call Away Total Return
VVUS $2,676.00 $32 $32 1.19%
CBI $4,480.00 $50 $320 $370 8.26%
Totals $7,516.00 $82 $320 $402 5.35%
I am looking for a replacement for CBI.
DIVIDEND STOCKS
Here are the two portfolios updated:
Ticker Name Buy Current Date Div
Price Price Yield
KO Coke 38.17 37.05 08/27/2012 2.71%
AGD Alpine Global Dynamic 5.76 4.88 08/27/2012 6.25% *
AOD Alpine Total Dynamic 4.37 4.05 08/27/2012 7.41% *
MO Altria 34.26 33.45 08/27/2012 5.17%
INTC Intel 22.87 20.96 10/01/2012 3.94%
HIX Western Asset Hi Inc II 10.53 10.14 10/15/2012 9.44%
MCD McDonald’s 91.74 93.72 10/30/2012 3.55%
MSFT Microsoft 28.55 27.88 10/30/2012 3.12%
JNJ Johnson and Johnson 68.03 73.92 11/23/2012 3.53%
PG Proctor and Gamble 68.72 73.25 12/21/2012 3.27%
Current Prices as of 01/25/2013 Closing Price
For most of the market this was a great week. The S&P hit 1,500 this week. The Dow ends up pushing 14,000. The NDX and Russell 200 are also hitting highs not seen for quite some time.
AOD and AGD also hit us hard this week. After the bell last Friday they both decreased their monthly dividend by half. AGD dropped from $0.06 to $0.03 and AOD dropped from $0.055 to $0.027. This caused a great drop in the price of these closed end funds this week. I am going to hold onto them for now primarily because the price is starting to rebound (the 15% trailing stop was briefly hit, but the price rebounded to keep above the stop level). Also despite the drop these funds will hit 6% without dividend reinvestment. Basically right now the shares are on sale. These funds will rebound in price over the next year and while the price is below our entry price we are getting shares at a bargain.
Both portfolios will carry a 15% stop on them. Portfolio #1 has 100 shares of each stock and will generate $1,198 in dividend revenue assuming no reinvestment. This gives a 4.01% return. Portfolio #2 will have $5,000 invested into each stock and there will be dividend reinvestment. I will carry shares out 3 decimal places. So here is how Portfolio #2 shakes out:
Ticker Name Buy Current Ex-Div.
Price Price Date Shares
KO Coke 36.89 37.05 02/27/2013 135.917
AGD Alpine Global Dynamic 5.76 4.88 02/19/2013 970
AOD Alpine Total Dynamic 4.37 4.05 02/19/2013 1,240
MO Altria 34.26 33.45 03/22/2013 148.894
INTC Intel 22.87 20.96 02/05/2013 240
HIX Western Asset Hi Inc II 10.53 10.14 02/13/2013 523.091
MCD McDonald’s 91.74 93.72 02/28/2013 55
MSFT Microsoft 28.55 27.88 02/19/2013 182
JNJ Johnson and Johnson 68.03 73.92 02/25/2013 71
PG Proctor and Gamble 68.72 73.95 01/17/2013 72
Buy Price Portfolio Value = $51,996.01
Current Price Portfolio Value = $50,907.85
Dividends Received So Far = $169.75
Dividend ROI = 0.33%
Portfolio Return = -2.09%
So far our portfolio is still a little to the negative side in total return and INTC, AOD and ADG are the culprits. The distribution cut announced by Alpine at the end of business last Friday hit the prices of these closed end funds hard during the week. Both have rebounded slightly but have a long way to go. INTC hit a relative low in December and was on an upswing. About the time we bought in it began to swoon again. I am confident that INTC is on an long term up trend as it starts to get more of the mobile and tablet market. It was a slow starter here and kinda caught by surprise. But now that they have turned their attention to these markets I think INTC will creep back up. Remember the idea here is long term. This portfolio has only been up for a couple of months so it is still a baby. The stocks in here are stocks with slow, but steady and highly reliable growth prospects. Also they are all growing the dividends quite well.
Usually there is a watch list portion for the Dividend portfolio. But I have put all the watch list stocks into the portfolio. Now I am looking for replacement stocks for underperformers in the portfolio. But this will not be an easy task. Our three keys make getting on the list and then getting into the portfolio rather difficult. Here are the three keys: (1) a moat business model, (2) dividend of at least 3%, (3) solid fundamental analysis numbers.
Ticker Recent Date Div Target
Name Price Yield Price
QUESTIONS
I will talk a little of the strangle trade that was done as a paper trade this week. I have had some questions regarding this trade and how they operate and what they are designed to do so here goes:
A true strangle trade is put on when you pick a single strike price and expiration date and then buy a put and a call at the same time. The idea is that you are pretty sure there will be a move in the price of the stock but are very unsure of the direction of the move. A good example of this time is earnings season. Companies are notorious for sandbagging numbers and analysts are also notorious for being wrong. But by looking at the charts of the stock you are thinking of working this strategy on, the move around earnings can be calculated. Then you can pick your strike price that is close to that move and away you go.
I modified this a little mainly because in its pure form the strangle can be expensive. I wanted to mitigate some of that cost. I am sure there is a name for this modified strangle, but I don’t know it.
Now the type of profits made on this paper trade ARE WAY SO MUCH NOT THE NORMAL SITUATION!!!!!!! NFLX jumped altogether almost 70% by the close Friday, that is practically unheard of. So the profits we garnered in this trade were way above the expected. I am going to look for others to try during this part of earnings season and see what comes of it. I will let you know of the progress.
Keep the questions coming in. I enjoy them a great deal and am working on other answers to the ones already submitted. You guys are a curious bunch and I like that. To paraphrase Henry Ford – you only stop being young when you stop learning because when you stop learning you stop growing.
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
