Finance, Food, Fun & Other Stuff: AGD

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Tuesday, October 16, 2012

Results for Week of October 12, 2012

Hello fellow traders,

Well, we went back to our familiar pattern this past week, back to the AAPL and GLD trades. AAPL is sliding as the map app disaster is still unfolding. GLD is still range bound but Friday was testing the downward side of the range.

I am pretty much healed up from the Blackbelt testing. My hyperextended knee is feeling good and the fractured toe is no longer painful to walk on. I did my first class last week and that was a lot of fun. I really like the hyung or forms and that was my responsibility – teaching the new 1^st Dans one of their new forms.

Youngest child is now done with volleyball. She had a blast this season. The end of season tournament was cancelled when a couple of teams dropped out. The team dinner is this Friday and then the program banquet is in a couple of weeks. She gets to dress up and man o man she loves that!!!

Eldest daughter graduated Friday from Tech School. Now she has a week off in leave then is off to her first duty station. She is excited to get her career under way but wishes that she could be a little closer to civilization. I like it because she is only a 12 hour drive from me. I feel a road trip or two in my future!!

Our boy is getting very inquisitive on some engineering things. I know just enough to be dangerous. My brother is the engineer. I just picked up some stuff supervising cost engineers and just hanging out with them while I was in the plants. He is also getting involved in the tech side of theatre at school. It is funny how the girls love the stage and the boy loves the tech side. I am just glad they are finding things they enjoy.

AAPL and GLD have been good to us for a while now. AAPL’s continued downward slide has now created a good opportunity because we are seeing some buyers coming in the prop up the price for a day or two then the drop continues. This up and down action gives us some premium that was not there two weeks ago.

ANALYSIS

I am going to use some terminology here to help some of the newbie lurkers that have asked for a more technical bent so they could see what the terms mean.

We will tackle the AAPL trade first. This is a vertical call spread. We are short (selling) the 645.00 strike call and are long (buying) the 650 strike call. The goal of this spread is for it to expire worthless. My basic strategy is called a contrarian strategy. I place trades in the opposite way I think the market is going. In this example I think that APL will continue its downhill slide. Therefore, I entered into a vertical call credit spread hoping that the price will stay below the 645.00 level.

AAPL 645.00 Call $0.68

AAPL 650.00 Call ($0.40) This gave a $0.28 Net Credit for a 5.60% ROI

1. We put this trade on Wednesday afternoon after watching the price action for the first part of the week. Wednesday morning the price dropped through both the 20 and 50 Day SMA (Simple Moving Average). This is when I decided to enter a trade. This drop through both SMA lines had me thinking call spread.

2. Now I look for a set of strikes that are at least 1.5 Standard Deviations from the underlying market price at the time of the trade. The 645/650 Call spread fit that bill.

3. The Probability Calculator gave the 645/650 trade an 89.95% probability of success. Our minimum for the probability calculator is 85%, but if I can go higher I will. Basically this is telling me I have a 90% probability of success. I will take those odds all day long.

4. The IV > HV indicator also showed us that this was a good stock to put a spread on as IV>HV. This gap continually narrowed as the week went on, so our premium was safe, and the time decay was working even more in our favor.

5. The price drop continued throughout the week. That made our premium safer and safer as the week went on. This is exactly the type of setup I like to see. The goal in this system is to make it to Friday and not have to worry that much on our positions. We had that in spades this week.

Trade #2:

GLD 173 Call $ 0.22

GLD 174 Call $(0.13) This gave a $0.09 Net Credit for a 9.00% ROI

The trades this week give us a 7.30% blended ROI. This is a great return!!!

1. Again, we put this trade on Wednesday afternoon after watching the price activity. The price hovered around the 20 and 50 day SMA with a downward bias. This is our clue to go the call spread route. This means that the trend is going slightly down, but very slowly since the price was hovering around the SMA lines and the SMA lines are very close together. Later in the week on Friday the price broke through the SMA lines and that confirmed our decision and made it a pretty stress free Friday. Again, our goal is to have the spreads expire worthless. That we keep the entire premium we collect (less commissions of course – gotta pay the broker!!!)

2. The probability calculator gave this trade a 90.07% success probability. I knew this one would have a higher probability since it was almost 2.0 Standard Deviations (Std Dev) from the underlying price at the time of trade.

3. Our new indicator the IV> HV was in our favor meaning that the IV (Implied Volatility) was greater than the HV (Historical Volatility).

4. The trade was better than our minimum 3%.

5. The overall trend was down so we go call side.

PAPER TRADE

This is one that hit my screen and I thought I would take a flyer and try it in the paper trade environ:

RVBD 26.00 Call $0.42

RVBD 27.00 Call $(0.31) This will give a $0.11 Net Credit for a 11.00% ROI

1. The probability calculator hits in at 89.69%

2. The Std Dev are between 1.0 and 2.0

3. The overall trend is going downward so we look to go Call Spread

4. This stock is not covered by Trademonster so I could not get the IV>HV indicator for tis one

5. One of two things that is a little worry some about this stock is that the Implied volatility for the options is 132.5% This is a very high number. That is why we are putting this in the paper trade account so it won’t cost us real money.

6. The other thing is that RVBD will report earnings this week. Normally I do not trade a stock when it is coming up on earnings, but this looks attractive as any bumps + or – from past earnings would not push the underlying past our strikes. Again this is why I am doing this in the paper trade account instead of the real money account.

COVERED CALLS

We have been doing covered calls on Vivus and McDonald’s. We are continuing with these two stocks in our covered call adventure.

Symbol Company Stock Option Option Initial Annualized

VVUS Vivus 22.74 2,676.00 14.3%*

MCD McDonalds 93.50 Oct 100 .10 9,174.00 1.3%

* Changed this calculation from using the stock price at call option sell to using the initial investment.

VVUS has rebounded significantly since last week, moving up almost 20% this week. We bought back the Oct23 Call at .20 making a .12 profit, and are now waiting to see what happens over the next day or two to sell another one. I want to see what the price action is before getting into another contract this close to expiration. We have made money this month on the stock and we are getting close to breakeven on the stock portion. If I get into another covered call on this stock I will put out another blog post detailing it. Despite selling the call back early we are still on a pace to make more than 10% ROI for the year. This is a ROI I will take any day.

MCD looks like it is on the way back to the $100 mark. WE have come back to show a gain on the stock portion of this covered call and it looks like our call premium is good. The premium is at $0.00 on the bid side. Ask side is $0.04 so even if we have to sell it back we are good. This is working out just great for us.

DIVIDEND STOCKS

Here is our Dividend Stock Portfolio:

Ticker Name Buy Current Date Div

Price Price Yield

KO Coke 38.17 38.13 08/27/2012 2.71%

AGD Alpine Global Dynamic Fund 5.76 5.94 08/27/2012 12.18%

AOD Alpine Total Dynamic Fund 4.37 4.45 08/27/2012 14.80%

MO Altria 34.26 33.17 08/27/2012 5.17%

INTC Intel 22.87 21.73 10/01/2012 3.94%

HIX Western Asset Hi Income Fund II 10.53 10.53 10/15/2012 9.44%

Current Prices as of 10/15/2012 Closing Price

HIX is the latest addition to our Dividend Portfolio. HIX is another closed end fund that yields a monthly dividend. Currently the dividend is .0825 per share. HIX is a high-yield bond fund that invests in non-investment grade bonds (read junk bonds). Until Mr. Bernanke is dropped as Fed Chief HIX should be a good bet since he has stated that interest rates will be kept low until 2013. Now if Obama loses then we will have to reevaluate this addition to our dividend portfolio as Romney’s campaign says they want long term interest rates to rise.

Each of these stocks carry a 15% stop on them, and we are nowhere near that on any of these stocks. If 100 shares in each stock is held that will generate $416 in dividend revenue assuming no reinvestment. This gives a 5.10% return. This is a pretty good return in this market and it is very safe. Two Blue Chips and two funds that are diversified in sectors and globally. If reinvestment is used that number goes even higher.

I have developed a watchlist for this Portfolio. These are stocks that basically meet the criteria we have: (1) a moat business model, (2) dividend of at least 3%, (3) solid fundamental analysis numbers. Here is our watchlist:

Ticker Name Recent Price Date Div Yield Target Price

MSFT Microsoft 29.51 10/05/2012 3.12% 28.00

PG Proctor and Gamble 68.71 09/21/2012 3.27% 62.50

JNJ Johnson & Johnson 68.60 09/21/2012 3.56% 65.00

MSFT – This is close to our target and is heading down to it. Hopefully soon it will be in our range. This stock is literally a household name. If you have a laptop or desktop computer you probably are running a version of Windows on it. Also if you are like me your productivity suite is a Microsoft product. Word is the standard business word processor, Excel is the standard spreadsheet, Access is the standard database system, Outlook is the standard mail program, and Power point is your default presentation software package. MSFT has a lock on these markets. The company is generating tons of cash and is a stable dividend payout stock.

JNJ – I am still looking to get into this stock at $66.00 or lower. The stock is on a slight uptrend again after a slight pull back. There is a recent run from $62 to $68 and so I would like to split the difference and get in at $66

PG – I might have to wait on this one a bit. It is continuing the uptrend and is closing in on a 52 week high. The slight pullback I saw was more of a quick consolidation. So now I just sit back and wait patiently for this stock to come back to Earth. The last thing I want to do is buy at the high and wait for another high to come along. I will be patient as the chart shows that $62 is long term support for this stock. Also at this level that would raise our Dividend Yield to 3.75% AND give us lots of upside potential.

QUESTIONS

None at this time

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 as well carry inherent risks and should be well researched before any buy 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 @:

Email: hashleycm@yahoo.com

Twitter: @awagel01

Stocktwits: awagel01

Or leave a comment on the blog

TTFN

Ash

Sunday, September 16, 2012

Results of Week Ending September 14, 2012

Hey all!

This week was a blur of activity. Youngest daughter had 4 volleyball games this week. She did well, but got a nice little bruise on her forefinger from serving. The team did ok. They split the week going 2-2. So far they are running at about .500 this year. But only a couple of teams have been way better than them.

I completed my 2^nd Dan testing this weekend. It was an interesting way to spend my birthday. I was a stressful, hard, sometimes painful way to spend my birthday, but I loved every minute of it! I only have a few bruises and scrapes. My knees are sore but the rest I did today is taking care of that. I will find out if I passed in about a week.

Eldest daughter got 96% on her Block 2 test in tech school. I am so proud of her! She is just killing it! She has about a month to go before shipping off to her permanent duty station

Another great week for the weekly options trader in me! We had another successful week in the markets.

Ok now on to the trades:

ANALYSIS

Here is last week’s trade #1:

AAPL 645 Put $ 1.05

AAPL 640 Put $(0.66) This gave an Net Credit of $0.39 for a 7.80% ROI

The wait for the new IPhone is now over. The release date has been set and the product revealed. AAPL just shot up last week hitting multi year highs for the stock based on this new info. As the stock went up and up we immediately went to the put side and were very well rewarded.

1. We put this trade on Tuesday after watching the price action continue to move upward while the premiums remained almost unchanged on the put side.

2. The price stayed above the 20 day and 50 day SMA all week, and in fact is outpacing the upward slope of both lines. This was our first clue to use the Put side.

3. We went out slightly more than 2 Std Dev from the strike price and used our probability to get a 94.0% success probability.

4. The trend was still going up quite rapidly so any thought of turning this into a Condor Type trade was quickly quashed.

5. Last week I talked about a new indicator to help identify good trades. The IV > HV indicator. Most online brokers have this information, but sometimes you have to dig a little more to find it. Trademonster is my primary broker and on the quote page this graph is conveniently right below the price chart. When Implied volatility is greater than historical volatility this shows good option premium, the bigger the gap between Implied Volatility (IV) and Historical Volatility (HV) usually the better the option premium. IV > HV = good trade indicator. This indicator was used this week and it worked well.

Trade #2:

GLD 163 Put $ 0.29

GLD 161 Put $(0.16) This gave a $0.13 Net Credit for a 6.50% ROI

GLD is a trade I like to do because there is little price movement normally. This week was not that normal case, but the price action was almost continually upward. Again the IV > HV indicator showed this was a great trade as the separation between the two was almost 20%. The $4 upward price movement this week was another week of high price movement, usually a move of $1 of a high move in this ETF. Over the past month this ETF has gone from around $155 to $172.

GLD has been channeling recently between 154-173 for most of 2012 and looks to be ready to break out to the high side as tensions mount over the financial cliff and the US election and the Europeans not getting their act together.

1. The probability calculator gave this trade a 93.6% success probability.

2. At this trade we were just a little more than 1.5 Std Dev away from the underlying strike price.

3. Our new indicator the IV> HV was in our favor.

4. The trade was better than our minimum 3%.

5. The overall trend was up so we go put side.

PAPER TRADE

MS 13.00 Call April 2013 Qty=10 Cost=$4,200 Mkt Value $5,450 Gain=$1,300

As I was searching the weekly list for potential trades I came across this stock. Morgan Stanley (MS) looks very good from a technical standpoint. The weekly options just didn’t have the premium to make this a viable trade. But with a good setup like the chart shows this had potential for a profitable trade if we went out a little further. Let us walk through this trade:

1. The chart is showing a definite up trend bouncing off support of $13.

2. At the $17.08 closing price Friday we are closing in on the 52 week high of $21.19

3. IV > HV

4. The options picked were about 7 months out, this gives us plenty of time to let our anticipated up move while lessening the effects of time decay.

5. A deep in the money call was bought because:

a. It is already in the money so the option premium will continue to rise as underlying stock price rises

b. The amount of the premium will be greater than an out of the money call that moves into the money

6. The original target for the underlying price was $17.50. The charts show that this price move could easily go to $18.50 since the stock closed at $18.24 Friday. We have already passed our anticipate $800 profit and still have many months to let this one ride. Our new profit stop is at $1,500.

7. So we are letting this one ride a little further. I am prepared to let this ride up to $20 dollars. This is my hard stop, and I will exit the trade and take the profits at that point at the latest. We are at 31% profit right now and are just looking for a little extra.

COVERED CALLS

We have been doing covered calls on Vivus and McDonald’s. We are continuing with these two stocks in our covered call adventure.

Symbol Company Stock Option Option Initial Annualized

VVUS Vivus 22.08 Sept 25 .27 2,676.00 12.1%

MCD McDonalds 91.70 Sept 92.5 .16 9,174.00 2.09%

VVUS closing price Friday came in at $22.08 and looks to be in a holding pattern. I thought were starting an uptrend last week, but that just didn’t materialize. Now it looks like our shares will be safe from the call and we can start to look for the next months covered call to write. We are a week away from the monthly expiration and feel very comfortable with our $27 in premium per covered call. Right now the $24 or $25 strike looks like appealing choices.

MCD is continuing the uptrend in price after bottoming out in the high $80s. We have a possibility of getting called away, but if we do we will have a good short term profit on our hands. We have 3 months of option premium and our current strike is above our purchase price. If it gets past the $92.5 price level and we get called away this will have been a VERY successful trade. We will have had three months of call premium, plus we will get $70 in dividend for the past quarter since we held the stock past the Ex-Dividend day of August 30. Plus we will make $76 if we are called away.

Remember, unless we hit a 15% stop loss point we will continue to use these covered call stocks to generate income and not worry about the day to day or month to month price fluctuations. We will concentrate on getting the most premium we can safely from these stocks.

DIVIDEND STOCKS

Here is our Dividend Stock Portfolio:

Ticker Name Buy Current Date Div

Price Price Yield

KO Coke 38.17 38.12 08/27/2012 2.65%

AGD Alpine Global Dynamic Fund 5.76 5.93 08/27/2012 12.52%

AOD Alpine Total Dynamic Fund 4.37 4.55 08/27/2012 15.10%

MO Altria 34.26 32.94 08/27/2012 5.16%

Current Prices as of 09/14/2012 Closing Price

Ticker Name Recent Price Date Div Yield Target Price

PG Proctor and Gamble 69.16 09/14/2012 3.25% 62.50

JNJ Johnson & Johnson 68.47 09/14/2012 3.56% 65.00

INTC Intel 23.37 09/14/2012 3.85% 22.00

INTC – The slow downhill slide of this stock is still going, getting closer to my buy price. The lowered guidance means that Q4 will probably get a boost as long as INTC hits the new numbers. They are the pre-eminent company in their sector and I do feel confident that they will make the transition to tablets as everybody is saying that is where the PC market is going. Now I will just try to pick up this World Beater on sale.

QUESTIONS

Why have you started dividend stocks and covered calls? I thought you only did weekly option spreads.

Good question, and I will answer it in two parts, but I will say generally that there were many repeated requests for my opinions on these strategies:

1. Covered Calls. The covered call is not all that different from the spreads we normally do. Many options education people will start with covered calls as the first options trade they discuss. I put it in here because the two stocks we have going on right now offer a very good return for relatively little risk. Also with MCD we have the added income stream of dividends. VVUS gives us some exposure to the pharma arena, but rewards us for that added risk with very good options premiums.

2. Dividend Stocks. Dividend stocks offer two income stream potentials. The first is the upside potential in the stock price. This one is a more ethereal on as it is up to the whims of the market. The second is the dividend. This is a reliable income stream since the stocks and funds I choose are of high quality.

By having these three strategies in effect we now have multiple income streams working for us. The best part of it is two of the three income streams require us to do nothing but occasional monitoring after the initial purchase. We still need to watch the stocks to make sure that there isn’t any big news item or fundamental shift in the companies.

What does Delta mean? I see this a lot in the readings and don’t understand it.

Delta measures the change in an options value with respect to the underlying price. For example if a stock costs $30 and moves to $33, the Delta for the stock would be .10. Long call options will have a Delta from 0 to +1.0 and long puts will have Delta from 0 to -1.0. Short positions will reverse the sign on Delta.

Delta is probably the most used of the Greeks because it tells the anticipated move in an option price for every $1 move of underlying stock price.

You might have read the term delta neutral trades in your reading. What this means is that a trader will try to get an overall Delta of 0 for the trades they put on. For example if I buy a call with a Delta of .2 I will need to buy a put with a Delta of -.2 to make the trade Delta neutral.

I really haven’t talked a lot on Delta neutral trades because the trade I do the most is never a Delta neutral trade. In order to make my trades Delta neutral I would have to do both call and put credit spreads each week, essentially doing condor type trades. That is not how my system works.

If I were doing a directional strategy I would consider doing Delta neutral trades to help hedge my position.

I am preparing more questions and will have them answered soon so if yours wasn’t tonight it will be coming soon.

I encourage any and all comments so please keep them coming. Remember I cannot give you specific advice ( Don’t ask me if you should buy 33 shares of XYZ) but can offer general information (whether XZY is a good company fundamentally or if my interpretation of the charts look good or bad)