Monday, September 5, 2011

Downgrade Portfolio Status

Readers will recall that CCI established nine, relatively similar sized positions as the market was falling in conjunction with the S&P downgrade of the US. These trades were an attempt to “buy when others were fearful”. However, to be conservative, these positions were mostly done with options to provide some level of hedging and a different risk/reward than just buying stocks at that time.

The specifics of those trades and update status can be found at this Google doc
Highlights include:

  • Let's start with the worst position which is dragging overall performance down. Bank of New York (BK) is down 12% as financial stocks have continued to perform poorly. This week the current CEO stepped down “due to differences in approach in managing the company”. Barron's this weekend re-iterated their buy on the stock, with target prices over $30. Of course they are more underwater on the trade than CCI. Never the less, this change can be a catalyst for the longer term.   CCI is sticking this one for awhile longer, but may have to cut losses at some point in time.
  • Four of the positions have options with expiration dates in September (9 trading days away). At the present time, Ford and Waste Management stocks are trading up slightly from purchase, but not high enough to trigger the covered calls on them. So if the options decay further this week, CCI will likely harvest those premium profits and perhaps re-establish other calls. (As a side note, CCI also collected the dividend on WM this week for a 1+% gain on the lot) Similar to the covered calls, the naked put in Corning is well in the money and may be harvested this week. Lastly, Bank of America is trading back to $7.25 after the Buffet bounce. Anything could happen to this stock in the next two weeks and even more so with the $7 put CCI sold. Stay tuned.

  • Three end of year option plays around ETFs (xlb, xlu, xlv) are all in the money by a few percent at this point. Current thinking is
    • XLB (materials)– look to harvest gains if/when volatility creates a market bounce
    • XLU (utilities) - this very conservative covered call position will pay its 1+% dividend in late September. Sighting tight at least until then.
    • XLV (health care) – The position is up by 3% of its maximum 6% gain, or “only” 3% possible gain left in this trade this year. If an opportunity to harvest a little more gain presents itself, it maybe time to redeploy elsewhere.
  • Aug EWJ (Japan) $9 put – closed for a profit of .9% in a little more than a week.

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