Ed Note: Sorry for the delay - some unforeseen complications came up over the weekend and early this week. I apologize for the inconvenience.
Howdy!
This past week was a better week. We revisited an old friend the GLD. This is the ETF designed to follow the spot gold prices. Many of the other stocks and ETFs that we follow did not push out the premium that we need, as earnings and uneasiness over the market nearing a top have lowered premium. If you want to have a good gauge of how the premium is looking watch the VIX as it is the measure of the one month expectation of market volatility. AS VIX rises so does option premium as does volatility. Basic rule – the higher the VIX the more volatility and the better option premium, and the lower the VIX the lower the volatility and the lower the option premium.
This past weekend I was a judge at a District Individual Event Speech Contest. My category was Solo Musical theatre. It was great!!! I got to see TONS of talented kids and hear some great tunes. There were only a couple that I had never heard of before so that made me feel pretty good. The Les Miz influence was evident as 5 kids did songs from this movie/musical. Close second was Hairspray with 4 girls doing the same song!! I love judging these contest and apparently I am pretty good at it. The contest director pulled me aside as I was leaving and told me that he had many comments about what a great job I did and hoped that I would come back to his contest again. I said that I would. And to top it off the lunch provided was fantastic. Homemade soups and sandwiches with killer desserts – a chocolate cake with crème filling and an angel food cake with cream cheese-crème filling with raspberry puree on top. OMG! I could have ate only those and been happy! State contest is in a couple of weeks and I can’t wait for that.
The cutting for the friend’s class project is going well. We have an audience with her professor this week so that will be a neat thing to see how that goes and what he says.
No Wizarding in our future – too bad because I think that would have been a good experience for her.
Eldest daughter got a 91 on her first CDC test. She passed and got day off for her outstanding score. She is now starting to look around for classes to take in her off time. She wants to get some classes done, but really has no idea what she wants to study. Hmmm…an 18 year old doesn’t know what she wants to study in college? Didn’t see that one coming [heavy sarcasm].
ANALYSIS
Here is the trade we did this past week:
GLD 154.50 Call $ 0.109
GLD 155.50 Call $(0.060) This gave a $0.049 Net Credit for a 4.90% ROI
This week we found a trade in the GLD fairly early on in the week. I really wanted to put this trade on with higher strike prices on Tuesday morning, but that didn’t mesh well with the trading rules so I didn’t. I waited until Wednesday to make the trade and all turned out well. I will now go through the process used to determine this trade and how I decided on the strike prices used for the trade
1. I went through the list of stocks and ETFs I trade in:
a. Stocks – AAPL, GMCR, GOOG, PCLN, NFLX
b. ETFs – GLD, SPX, SPY, QQQ, SLV
2. I was looking for the following conditions to be met:
a. IV (Implied Volatility) > HV (Historical Volatility) on a minimum 3 month chart
b. A market price that breaks out of the Bollinger Band Range set as 20 Day Moving Average and 2 Standard Deviations.
c. Probability of success measured on my two trading platforms of Trademonster and Optionshouse of at least 90%
d. A definite trend shown in the monthly and weekly charts
e. At least 3.5% Net ROI on the trade
3. Only GLD met these criteria:
a. The IV > HV
b. There were Bollinger Band Breakouts on the Weekly Chart. This is shown by the green arrows on the graph
c. Success probability was at 91% for Trademonster and 93% for Optionshouse
d. There is a definite downtrend showing in the monthly and weekly chart for GLD. In fact many followers of the GLD and gold in general think that gold my hit the low $1,500s this year. The 50 Day and the 200 Day SMA as shown by the Blue and Pink lines respectively on the chart are both downward as is the weekly chart.
e. Our trade netted a Net ROI of 4.9%
Like I said above, I wanted to put this trade on earlier in the week, but one of our trading rules is that we don’t trade until Wednesday. As it turns out, we could have made a little extra money, but if we don’t use our trading rules then why have them. And I have been burned by placing trades that passed all the tests early in the week. The old saying of bulls make money, bears make money and pigs get slaughtered is very true in the options arena. Set your goals realistically and you will be handsomely rewarded over the long haul.
PAPER TRADE
No new paper trade this week.
Yahoo ongoing trade:
Yahoo Sell July22 Call $ 57 Buy Back $ 89
Yahoo Buy July20 Call -118 Sell Off $184
Yahoo Sell July17 Put 66 Buy Back $ 33
$ 5 $62
So far this trade is still profitable. Yahoo closed Friday $21.22 We are playing the info that Yahoo had good earnings just announced and has new management in place that has a definite plan for Yahoo. Our cap is $2.00 and we are on our way to that cap. As long as Yahoo stays above $17 we are good. And we have lots of time to have this happen.
COVERED CALLS
We still have our covered calls on Vivus and CBI again.
Symbol Company Stock Option Premium Initial Annualized
VVUS Vivus 12.58 Mar16 .28 2,676.00 12.56%
CBI Chicago Bridge 54.01 Mar55 1.25 5,409.00 27.73%
These are the completed covered call trades this year:
Symbol Month Premium Month ROI Ann Month ROI Cum Prem Cum An ROI
VVUS January $32 1.19% 14.35% $32 14.35%
VVUS February $63 2.35% 25.25% $95 42.60%
CBI January $50 1.12% 13.39%
VVUS – This stock is STILL in the $12-$15 range. This stock is really starting to disappoint. The only good thing about it right now is that it is throwing off great premium on the monthly options. We are still underwater on this and probably will be for a long time. In the meantime we are slowly crawling back with the high option premium. This is why this stock is my speculative play. I knew going in that there would be a bumpy ride with this stock and I am really getting bumped!!
CBI – We are slightly below where we bought this stock which is good for us!. I really don’t mind getting called away on this one as I will make money on the call away and on the option premium. If the stock continues to pull back from the 52 week highs it has been setting then we can run another Covered Call next month again. SO this stock is giving us a win-win no matter how we slice it.
This is the cumulative covered call results for 2013:
Symbol Invested $ Option Prem Call Away Total Return
VVUS $2,676.00 $ 95 $95 3.55%
CBI $4,480.00 $ 50 $320 $370 8.26%
Totals $7,516.00 $175 $320 $495 6.59%
DIVIDEND STOCKS
Here are the two portfolios updated:
Ticker Name Buy Current Date Div
Price Price Yield
KO Coke 38.17 38.52 08/27/2012 2.71%
AGD Alpine Global Dynamic 5.76 4.70 08/27/2012 6.25%
AOD Alpine Total Dynamic 4.37 3.98 08/27/2012 7.41%
MO Altria 34.26 35.32 08/27/2012 5.17%
INTC Intel 22.87 20.42 10/01/2012 3.94%
HIX Western Asset Hi Inc II 10.53 10.00 10/15/2012 9.44%
MCD McDonald’s 91.74 95.25 10/30/2012 3.55%
MSFT Microsoft 28.55 27.76 10/30/2012 3.12%
JNJ Johnson and Johnson 68.03 76.25 11/23/2012 3.53%
PG Proctor and Gamble 68.72 76.99 12/21/2012 3.27%
Current Prices as of 02/22/2013 Closing Price
The Dow had a down week last week, but just barely, and the S&P and NASDAQ also had slightly down weeks. But all are up for the year as of the 22nd so it is a good time to be in the market. Next week will be an interesting one as the Sequester is supposed to start on Friday the 1st.
AOD and AGD are the big drags on our portfolio right now. I am looking at another closed end fund and an ETF to take their place, but am not pulling the trigger right now as at the end of the month we will receive the latest monthly dividend. If the price on the CEFs (Closed End Funds) hasn’t rebounded above our 15% cutoff I am ready to pull the trigger and get out of them and move to another CEF.
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 38.52 02/27/2013 135.917
AGD Alpine Global Dynamic 5.76 4.70 02/19/2013 970
AOD Alpine Total Dynamic 4.37 3.98 02/19/2013 1,240
MO Altria 34.26 35.32 03/22/2013 148.894
INTC Intel 22.87 20.42 05/03/2013 240
HIX Western Asset Hi Inc II 10.53 10.00 03/13/2013 523.091
MCD McDonald’s 91.74 95.25 02/28/2013 55
MSFT Microsoft 28.55 27.76 02/19/2013 182
JNJ Johnson and Johnson 68.03 76.25 02/25/2013 71
PG Proctor and Gamble 68.72 76.99 04/19/2013 72.529
Buy Price Portfolio Value = $51,996.01
Current Price Portfolio Value = $51,409.20
Dividends Received So Far = $210.22
Dividend ROI = 0.40%
Portfolio Return = - 1.13%
We are still slightly negative on the overall portfolio value, but we are going to get a big boost this month as many stocks have dividend payments coming in the next couple of weeks. AGD, AOD and INTC are still the drivers of the loss and for AOD and AGD they will be there for most of the year unless a price spike happens. We really need a price spike in AGD, the price decline after the dividend cut really hurt us. Overall the portfolio is not doing all that bad. WE are slightly negative, but growing our shares and closing the gap each week. To show the impact of our closed end funds AOD and AGD, if we take them out of the portfolio we are up 1.90% or a 3.03% improvement.
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 under performers 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
You have dividend portfolios designed to get current income and preserve capital. Will you ever put out a portfolio that is more growth oriented?
I have been asked this several times since I put out the dividend portfolios. I am considering putting a growth or value portfolio out, but it is not a high priority because that is straying from what I know best. As I grow as an investor then a value and/or growth portfolio would be something I could put out there with confidence. That being said I do have my eyes on some stocks that are in the growth area:
Here is the stock Symbol, Name and recent price:
1. TIF Tiffany 64.01
2. MXF Mexico Closed Fund 30.61
3. SBUX Starbucks 53.21
4. PETM Petsmart 62.61
Now I haven’t made a portfolio and these are not recommendations to buy. They are just stocks that I have my eye on for a value play. They don’t meet my dividend portfolio criteria for dividend return and moat business models. But they are good businesses and are growing their markets or are able to find additional revenue and are well managed.
All charts from freestockcharts.com. This is not a paid endorsement. They are a good free app that only asks for credit on their charts when you use them.
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
