Hi All!
Yet again we stayed with our old friend the GLD again this past week as the down trend bottomed out, and moved into a more flat line trend. The overall downward trend since the first of the year is still the bias, but right now we are flat. Almost all major experts in the gold field think that the first half of the year will have a test of the lows in the GLD in store. So for now we use our filters and play the probabilities.
This past weekend I was a judge in the IHSSA State Individual Event Competition. I judged a category called Literary Program. In this event a student picks some prose and some poetry to develop a theme. They have 8 minutes to show the theme using their chosen poetry and prose. It was the first time I did this category and I had a great time doing it. I was with a very experienced judge and our picks for All-State were almost exactly the same. He had 10 and I had 12 but all 10 of his were in my 12. We had a first year judge with us as well. He had 7 and 6 of his 7 were on my list so we all were pretty consistent. This is a hobby that I really love. I had to stop refereeing soccer due to health reasons 3 years ago now and I am so glad I found the IHSSA and speech judging. This with my Tae Kwon Do and open tournament judging I have really found a replacement. But I have to work a lot harder in the gym since I am not running all over the pitch anymore!!
Wednesday is the performance of the cutting so I am looking forward to that. It has been a great learning and growing experience. Almost all my theatrical experience is in comedy and/or children’s shows drama is not my forte. Plus I get to help a friend in her project so all is good.
ANALYSIS
Here is the trade we did this past week:
GLD 150.50 Call $ 0.1600
GLD 149.50 Call $(0.0901) This gave a $0.0699 Net Credit for a 6.99% ROI
This trade shows a strange net ROI and that is because I had multiple fills on this trade. I initially put this trade on for a net 8% ROI and was only partially filled, and had to retreat to a net 7% ROI. 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.
c. The red arrows on Friday show an interesting idea. There was a breakout early on Friday morning, but then the price pattern reversed and the price actually ended up higher for the day and week.
d. Between the green arrows and the circles showing multiple breaks and almost breaks to the upside of the Bollinger Band region. This is why I went with a put spread. There were price drops throughout the week, but there always ended up with upward price pressure. That meant we would go to the down side or put side.
e. Success probability was at 94.86% for Trademonster and 97.6% for Optionshouse
f. There is a definite flattening of the trend line now with a slight bias on the weekly chart to the upside. So with all this going in our way we put on the trade to sell a put credit spread.
PAPER TRADE
No new paper trade this week.
Yahoo ongoing trade:
Yahoo Sell July22 Call $ 57 Buy Back $189
Yahoo Buy July20 Call -118 Sell Off $320
Yahoo Sell July17 Put 66 Buy Back $ 19
$ 5 $112
This has been a great trade; I really wish I had done this one for real. Yahoo closed Friday $22.90. This was a bullish biased trade and it seems that was a good bet. Basically the thought was that the stock really couldn’t go much lower so it only had one way to go. Ms. Meyer has brought in many reforms, some of them not so well thought of by the employees, but the markets have responded nicely. We have until July to realize the full potential of the trade so we are going to keep it for now. 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 11.70 Mar16 .28 2,676.00 12.56%
CBI Chicago Bridge 57.02 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 now starting to rebound a little. I think that the skittishness surrounding the stock has started to ebb and that we can get a little comeback. I don’t see a full comeback to our entry price until the next round of drugs gets put forth. But VVUS announced a discount buy program for it’s’ weight loss drug that basically halves the retail price for end users. Even with this modest recovery in price I feel the covered call premium is safe.
CBI – The price is now above our strike price. If this keeps up for the rest of the week then we will get called away. But this is still a win-win for us, when we bought into this stock for the covered call we bought below the strike price so we will see some profit there plus the call premium. This is the best of both worlds. If we do get called away we can always get in again and repeat the process of this past month. I don’t mind inching up in cost basis if I get to keep making profits on both ends of the transaction. All told if we get called away we will make 3.88% total return on stock and option premium for the month we held CBI. I will take this any month of the year.
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 39.22 08/27/2012 2.71%
AGD Alpine Global Dynamic 5.76 4.79 08/27/2012 6.25%
AOD Alpine Total Dynamic 4.37 4.07 08/27/2012 7.41%
MO Altria 34.26 34.00 08/27/2012 5.17%
INTC Intel 22.87 21.58 10/01/2012 3.94%
HIX Western Asset Hi Inc II 10.53 10.11 10/15/2012 9.44%
MCD McDonald’s 91.74 98.71 10/30/2012 3.55%
MSFT Microsoft 28.55 28.00 10/30/2012 3.12%
JNJ Johnson and Johnson 68.03 78.19 11/23/2012 3.53%
PG Proctor and Gamble 68.72 77.18 12/21/2012 3.27%
Buy Price Portfolio Value = $37,300.00
Current Price Portfolio Value = $39,585.00
Gain/(Loss) So Far = $2,285.00
Portfolio Return = 6.13%
Dividends Received So Far = $188.72
Portfolio Return w/ Dividends = 6.63%
Current Prices as of 03/08/2013 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 39.22 02/27/2013 135.917
AGD Alpine Global Dynamic 5.76 4.79 03/19/2013 970.000
AOD Alpine Total Dynamic 4.37 4.07 03/19/2013 1,240.000
MO Altria 34.26 34.00 03/22/2013 148.894
INTC Intel 22.87 21.58 05/03/2013 240.000
HIX Western Asset Hi Inc II 10.53 10.11 03/13/2013 523.091
MCD McDonald’s 91.74 98.71 03/28/2013 55.000
MSFT Microsoft 28.55 28.00 03/19/2013 182.000
JNJ Johnson and Johnson 68.03 78.19 03/25/2013 71.000
PG Proctor and Gamble 68.72 77.18 04/19/2013 72.529
Buy Price Portfolio Value = $51,996.01
Current Price Portfolio Value = $52,262.20
Gain/(Loss) So Far = $266.19
Dividends Received So Far = $263.56
Dividend ROI = 0.51%
Stock Return = 0.51%
Total Return = 1.02%
The difference in the portfolios is the timing in the buying of the securities.
This portfolio has turned positive for the year, however slightly! AGD and AOD are still weighing in heavily on both portfolios but especially here we are seeing the positive effect of the monthly dividend.
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 37.00 2.85% 35.00
COP ConocoPhillips 58.39 4.53% 58.00
BAC Bank of America 12.07 0.35% 11.00
BRKB Berkshire Hath B 103.63 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
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TTFN
Ash
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