Greetings to my fellow friends and traders:
We stayed with our old friend the GLD again this past week as the down trend in the GLD has continued. This downward spiral is showing few signs of recovering soon. Many gold experts are thinking gold the commodity will slip below $1,500/oz., and the GLD will soon test 52 week lows and possibly slipping below the $148 level which would make a new 52 week low for the ETF as well. Now this will not be a straight line, it will have ebbs and flows but the overall outlook on a weekly basis has a definite bearish bias.
The politician made crisis of the sequester was a non-event. Crisis fatigue seems to have settled in. In the short term this is good as it probably won’t affect our trades, but long term does not bode well. Despite the fact that the sequester is a man-made crisis that really is an empty threat, the long term issue of the yearly deficits and cumulative debt is a problem. At some point our politicians will need to get the point across in their heads that the military spending as well as the entitlement discretionary spending will both have to be cut and some revenue increases will need to happen. I don’t see this happening in a meaningful way for some time unfortunately. Democrats have their special interests that will crucify them in the primaries if they try to change the status quo. Same thing for the Republicans – probably even more so with the GOP thanks to the TEA party whackadoos. With both sides having these forces working on them the safest course is to do nothing and continue to push the problems down the road.
The more we push these problems down the road the worse they become. And that means that the people of my generation – those of us in our mid to late 40s will be the ones who pay the price in the form of less Social Security benefits and Medicaid benefits and Veteran’s benefits from the feds. This means that we have to do more ourselves to secure our own prosperity in our retirement. This is a big driver of why I do this blog. So far this year we are averaging a smidge over 4% a week. Even if we drop that down to 2% to spread a loss of two out at 2% that would be a 50% gain for the year. This would build a great retirement account!! AND if you are a younger person in your 20s or 30s, this would be an unbeatable way to comfortably retire. Investing in the market is the only way to ensure that.
Next weekend is the IHSSA State Individual Event Competition. I am judging a category called Literary Program, one I have never judged before. I need to read the rules and get ready for this over the next week. I really enjoy the speech judging. The talent and creativity I see in the high school students that do these contests is just amazing. If you have time available http://www.ihssa.org/ is the website that tells where the state contests on March 9th are. Also if you are into this sort of thing and want to become a judge there is info on how to do that on this site as well. Like any officiating you do it for love of the topic, not for the money. But they usually feed you at these events and the food is awesome!!
The cutting for the friend’s class project is going well. Our first rehearsal last week didn’t go so well for me. I wasn’t as fluid with the lines as I would have liked and basically I stank up the place. I really hit the lines hard and now I am at a place I am comfortable. In two weeks we go for our one performance. BUT this next week is spring break for the school so it will be hard to get any rehearsal time in. This will be a challenge.
MAX10 is entering the last three week phase – these last three weeks are really hard on the cardio. But this is what I like. I really need the cardio and want the weight loss!! I am a BIG fan of MAX10 and encourage anybody in the Cedar Rapids area. If you are not in the area then look for a bodyshaping class near you and see if it fits with your personal goals. I mulled it over for 6 months before I took the plunge and am so glad I did! Then don’t forget to put a sensible eating plan with your exercise regimen!
I am looking to see eldest daughter toward the end of the month. It has been almost 6 months since I saw her last at her BMT graduation. Man the time goes by so fast!!! It is hard to believe that she is out and on her own. But it is good to see that she can be on her own and do well.
ANALYSIS
Here is the trade we did this past week:
GLD 158.00 Call $ 0.1100
GLD 159.00 Call $(0.0609) This gave a $0.0491 Net Credit for a 4.91% ROI
This trade was on our radar as we have been riding the GLD for a few weeks now. The longer term trend is to the downside. After a quick run up Monday the rest of the week GLD was in a free fall. This free fall is a boon to us as each day we were able to breathe a little more easily on our trade. I made the trade Wednesday morning.
1. I went through the list of stocks and ETFs I trade in looking for a better trade than the GLD but couldn’t find one. Here are the ones I looked at:
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 on Wednesday. The first right at the open and the second a little latter in the day
c. Success probability was at 90.81% for Trademonster and 94.2% 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 high $1,400s 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. In fact Thursday there was the infamous “death cross” where the 50 day SMA and the 200 day SMA cross over. This confirmed our decision to use call options for the spread this week.
e. Our trade netted a Net ROI of 4.9%
PAPER TRADE
No new paper trade this week.
Yahoo ongoing trade:
Yahoo Sell July22 Call $ 57 Buy Back $150
Yahoo Buy July20 Call -118 Sell Off $266
Yahoo Sell July17 Put 66 Buy Back $ 25
$ 5 $91
So far this trade is still profitable. Yahoo closed Friday $21.94. YHOO continued its upward climb and I love it!! It seems that the new YHOO CEO and team she brought in are doing a good starting bringing YHOO back. As long as the price climbs we will hold onto this trade and not exit. We are in a good position as one call has moved in the money and the other one will probably do so as well. Notice that the spread portion of this trade is OPPOSITE of the strategy that I use in spread trading. The lower strike call was bought and the upper strike was sold. That is because person who showed me this trade had a bullish bias (or idea that the stock was on an upswing) and it seems that they were right.
COVERED CALLS
We still have our covered calls on Vivus and CBI again.
Symbol Company Stock Option Premium Initial Annualized
VVUS Vivus 10.34 Mar16 .28 2,676.00 12.56%
CBI Chicago Bridge 53.96 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 has dropped even further into the $10 range. This stock is really starting to disappoint. The drugs that they are working on and are putting through the approval process are not meeting with success. Since we have made lots of premium on VVUS I am thinking of selling off and booking the loss to offset the great gains we have made in the weekly options trades and re-establish the VVUS position with a lower cost basis. Or find another covered call trade to make. THE only good thing about it right now is that it is throwing off great premium on the monthly options.
CBI – The price dropped another few cents, but nothing like what VVUS has put us through! I don’t mind a slight drop in price. As long as we stay relatively close to the buy price I am happy. I still feel that over time we will go higher in CBI.
Some people would say that we have had a great year already for the portfolio. True if we go on return based on premium, but if we go with the traditional measure of call premium PLUS liquidation value of underlying stock then we are hurting. But I like to look at cash flow and we are doing well with this. 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.
This portfolio is made up of 100 shares of each stock:
Ticker Name Buy Current Date Div
Price Price Yield
KO Coke 38.17 38.70 08/27/2012 2.71%
AGD Alpine Global Dynamic 5.76 4.76 08/27/2012 6.25%
AOD Alpine Total Dynamic 4.37 4.00 08/27/2012 7.41%
MO Altria 34.26 33.49 08/27/2012 5.17%
INTC Intel 22.87 21.03 10/01/2012 3.94%
HIX Western Asset Hi Inc II 10.53 10.02 10/15/2012 9.44%
MCD McDonald’s 91.74 95.68 10/30/2012 3.55%
MSFT Microsoft 28.55 27.95 10/30/2012 3.12%
JNJ Johnson and Johnson 68.03 76.70 11/23/2012 3.53%
PG Proctor and Gamble 68.72 76.49 12/21/2012 3.27%
Buy Price Portfolio Value = $37,300.00
Current Price Portfolio Value = $38,882.00
Gain/(Loss) So Far = $1,582.00
Portfolio Return = 4.24%
Dividends Received So Far = $188.72
Portfolio Return w/ Dividends = 4.75%
Current Prices as of 03/01/2013 Closing Price
We are in a type of pattern of rest for the major indexes. All posted lower for the week the drumbeat of those saying that we are in for a near term decline is growing. We basically have been on a tear since the start of the year so a resting period would be in order now. Remember that stocks never go up or down in a straight line.
AOD and AGD are the big drags on our portfolio right now. If we take the Closed End Funds AGD and AOD out of the portfolio then we are positive for the year in return. 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 38.70 02/27/2013 135.917
AGD Alpine Global Dynamic 5.76 4.76 02/19/2013 970
AOD Alpine Total Dynamic 4.37 4.00 02/19/2013 1,240
MO Altria 34.26 33.49 03/22/2013 148.894
INTC Intel 22.87 21.03 05/03/2013 240
HIX Western Asset Hi Inc II 10.53 10.02 03/13/2013 523.091
MCD McDonald’s 91.74 95.68 02/28/2013 55
MSFT Microsoft 28.55 27.95 02/19/2013 182
JNJ Johnson and Johnson 68.03 76.70 02/25/2013 71
PG Proctor and Gamble 68.72 76.49 04/19/2013 72.529
Buy Price Portfolio Value = $51,996.01
Current Price Portfolio Value = $51,488.44
Dividends Received So Far = $263.56
Dividend ROI = 0.51%
Stock Return = - 0.98%
Total Return = -0.47%
The difference in the portfolios is the timing in the buying of the securities.
We are still slightly negative on the overall portfolio value, but the loss is slowly narrowing each week. 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 2.17% or a 3.14% 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 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
WFC Wells Fargo 35.39 2.85% 35.00
COP ConocoPhillips 58.28 4.53% 58.00
BAC Bank of America 11.34 0.35% 11.00
BRKB Berkshire Hath B 102.05 No Div Pd 100.00
The first thing that should jump out at you is that these stocks really don’t fit the dividend portfolio model except for COP. These stocks were picked more on the basis of anticipated growth.
Wells Fargo – This stock is starting to reap the benefits of getting itself out of a lot of the mortgage mess it found itself in for the past few years. The dividend is likely to increase as the Feds loosen up on the banks
ConocoPhillips – This stock has great potential as the move significantly higher as the recent earnings was good and it has beat the street consistently.
Bank of America –This stock is keeping up a pattern of growing revenues and earnings after nearly collapsing in the banking crisis. This is a stock that I wish I had gotten into at this time last year at around $4.00
Berkshire Hathaway B Class – This is the way more affordable way to get into Berkshire Hathaway and Warren Buffett than the $150K+ regular Class A shares. Over any period of time 2years or greater an investment in Berkshire has made money. This past year (2012) the S&P beat Berkshire, only the 5th time that has happened in the history of Berkshire – over 40 years. So this is one that is purely price appreciation. DISCLOSURE – I own this in my personal stock portfolio –one of the few stocks I do own.
QUESTIONS
I am working on some answers that will be forthcoming soon, but none this week.
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.
Reach me @:
Twitter: @awagel01
Stocktwits: awagel01
Or leave a comment on the blog
TTFN
Ash
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