Hello Folks!
Well, with the break in the action in the Super Bowl I can knock this out! I did not see the Ravens dominating as much as they have in the game. Wow! The 109 yard kickoff return to start the second half was amazing!!
This game turned out to be much more close and exciting as the 2nd half went on. The early mistakes by the 49ers really cost them. I think this is the difference between a veteran team and a young team.
Las week was a big earnings week. Lots of big companies had their earnings this week and it made for a rough week for my trading system. I did not get a trade on until Friday morning. I did have one show up on Tuesday late in the day, but was leery to act on it. Turns out it would have been a profitable trade, but that is water under the bridge.
Now on to the analysis:
ANALYSIS
PCLN 680.00 Call $ 0.14
PCLN 675.00 Call $(0.05) This gave a $0.09 Net Credit for a 1.80% ROI
The more you wait in the week, the lower your return will be. This is a simple function of time decay, especially when dealing with the weekly options. So when we made our trade Friday we had to throw the 3% minimum rule out the window. There was no way we would get 3% on any trade. The trade signals are in the ovals. There was also a signal on Thursday but there was not a trade at all to make. The transaction costs would have outstripped the proceeds.
Here are the details of the trade decision:
1. The overall trend for the week was downward. So we look to make at the call side.
2. The Bollinger Band test was met Thursday right at the close and then again Friday morning. This is shown by the ovals.
3. This spread had a 92.4% probability of success.
4. We were a right at the 1.0 Standard Deviations away from the underlying at the time of the trade.
5. The minimum of 3.00% ROI was not met, but we disregarded it due to the fact that this was put on Friday and adhering to this rule would have excluded all trades. This is the one rule that is modified on Friday to let us make some money rather than not making any at all.
6. The Brown lines on the chart are the trade that was put on Friday morning.
PAPER TRADE
The paper trade this week was a variation on trades we have done lots in the past. It is a form of an Iron Condor called and Iron Butterfly. It is called a butterfly because it has a “wide” body, that is there is not a common strike price to a call and a put like a condor. I did this on Amazon.com. Again this was an earnings play and that is why I did it here in our lab instead of out in the real world. And once again, I am wishing that I had done this trade for real. Last week there was a huge run up in Amazon, that started to erode up until earnings were announced Wednesday. The stock shot up early in trading, but then spent most of the rest of the week on a downward slide. The huge shot up gave a spike to the volatility and thus hit up option premium as well.
Summary:
Jan 29 Sold AMZN 280/285 Feb13 Call Spread $107.00
Jan 29 Sold AMZN 230/235 Feb13 Put Spread 115.00
Feb 01 Bought AMZN 280/285 Feb13 Call Spread - 40.00
Feb 01 Bought AMZN 230/235 Feb13 Put Spread - 9.00
TOTAL GAIN: $173.00
This gives us a 34.6% gain in a week. Now this is pretty unusual, primarily due to earnings season. Also as can be seen on the graph, the street was paying lots of premium if you went to the put side, much more than the call side (This is shown by how close the call side is to the market price and the big gap between the market price and the put side). These types of anomalies arise frequently in earnings time. This is what draws many traders – and also what makes this time so dangerous for traders. It is easy to get caught up in the rush and try to make the big quick money. But if we had put on a strangle on AMZN we would have lost our shirts. The setup was the same as with NFLX – a great run up after earnings followed by some decline, but with AMZN the price decline in options was much more dramatic.
Another trade:
Yahoo Sell July22 Call $ 57
Yahoo Buy July20 Call -118
Yahoo Sell July17 Put 66
$ 5
This trade will be profitable as long as Yahoo stays above 17, and it is currently $19.60. We made $5 on the trade immediately and can make as much as an additional $2 dollars through expiration. This trade uses $500 in margin for every contract you put on. This trade looks good as the new management has come in and made several changes and are planning many more. Also Yahoo has come in with earnings twice now that were very good. Yahoo has not traded below 18 for almost three months. So this trade looks good. This one will be fun to watch.
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 12.43 Feb16 .63 2,676.00 28.25%
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%
CBI January $50 1.12% 13.39%
VVUS – This stock is still in the $12-$15 range. The option is now trading for $3 ($.03) looking on the option chain), so this looks like a good trade with little chance of call away. 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.
This is the cumulative covered call results for 2013:
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. Ford (F) looks good and I am looking still at CBI for a later buy.
DIVIDEND STOCKS
Here are the two portfolios updated:
Ticker Name Buy Current Date Div
Price Price Yield
KO Coke 38.17 37.54 08/27/2012 2.71%
AGD Alpine Global Dynamic 5.76 4.87 08/27/2012 6.25%
AOD Alpine Total Dynamic 4.37 4.06 08/27/2012 7.41%
MO Altria 34.26 34.20 08/27/2012 5.17%
INTC Intel 22.87 21.36 10/01/2012 3.94%
HIX Western Asset Hi Inc II 10.53 10.03 10/15/2012 9.44%
MCD McDonald’s 91.74 95.95 10/30/2012 3.55%
MSFT Microsoft 28.55 27.93 10/30/2012 3.12%
JNJ Johnson and Johnson 68.03 74.18 11/23/2012 3.53%
PG Proctor and Gamble 68.72 75.92 12/21/2012 3.27%
Current Prices as of 02/01/2013 Closing Price
Overall for the market this was a great week. The Dow ended up over 14,000 and the S&P ended up over the 1,500 mark at 1,515. The Russell 2000 was nearing highs as well and the NASDAQ index nearly closed on a multi-year high.
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. Our long term perspective is what is keeping us in these stocks. AGD and AOD are closed end funds that give monthly dividends. So as long as the price stays below our initial entry point the stocks are on sale to us on a relative basis. So we pick up more stock than we thought we would and build more dividend earning power.
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 37.54 02/27/2013 135.917
AGD Alpine Global Dynamic 5.76 4.87 02/19/2013 970
AOD Alpine Total Dynamic 4.37 4.06 02/19/2013 1,240
MO Altria 34.26 34.20 12/21/2012 148.894
INTC Intel 22.87 21.36 02/05/2013 240
HIX Western Asset Hi Inc II 10.53 10.03 02/13/2013 523.091
MCD McDonald’s 91.74 95.95 02/28/2013 55
MSFT Microsoft 28.55 27.93 02/19/2013 182
JNJ Johnson and Johnson 68.03 74.18 02/25/2013 71
PG Proctor and Gamble 68.72 75.92 01/17/2013 72
Buy Price Portfolio Value = $51,996.01
Current Price Portfolio Value = $51,419.33
Dividends Received So Far = $169.75
Dividend ROI = 0.33%
Portfolio Return = -1.11%
So far our portfolio is still a little to the negative side in total return, but we have almost halved our losses. These losses are really noise at 1% and a good day in the market will most likely erase the overall deficit. INTC, AOD and ADG are the culprits for the loss with the two closed end funds the primary target. They have yet to recover from the price drop after the dividend cut announcement. INTC is still rebounding from the low in December but we still need more movement here.
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
Keep the questions coming. 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.
Reach me @:
Twitter: @awagel01
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TTFN
Ash
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