Rolled SPY Covered Calls

The Index Covered Call Trading Plan  (aka: ICC) is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.

UNDERLYING ETF:  SPY   

DESCRIPTION: SPDRs S&P500

TRANSACTION TYPE: Roll the December $143 call to the January $147 call

TRANSACTION RATIONALE: With only two days until expiration and SPY trading above the Dec strike price it was time to roll this position.   The December option trade took a small  which partially offset the unrealized gain in the underlying (i.e. this strategy makes less when the market goes up)

TRANSACTION DATE: Thurs Dec 20, 2012

Action: Buy to Close

Exp. Date: Dec 22, 2012

Strike: $143

Price: $1.91

Action: Sell to Open

Exp. Date Jan 19,2013

Strike: $147

Price: $1.06

 

Net debit: $.85

CISCO Position Closed....Certainly a Winner

Frequent readers will recall that CCI has had a long standing trade on in Cisco (CSCO).  Specifically owning the Jan 14 $10 LEAP and writing calls against the position.  As discussed in this post from late November the last activity was to sell  the Dec $19 calls against this position.

With Cisco trading over $20 this week, CCI closed this position.  The trade benefited from the lucky timing ....(oops I meant my brilliant analysis) of establish the position when Cisco was trading around $16 and watching the stock run up 25% to $20. The leverage from buying the LEAP vs. the stock turned that appreciated gain on the LEAP to a sweet $55%.  The covered calls sold against this position muted those gains by nearly 10%.  However, writing those calls provided some downside protection to the position in the event that the stock had not moved in the right direction.

The closing of this trade marks the 4th time CCI has cycled through this type of position in Cisco. In total CCI has made a very, very nice 83% gain over about the last 20 months. 

Certainly a winner!

CCI currently has no position in Cisco.  If Cisco were to pull back we would consider re-establishing this  this type of trade in the future.

GMCR Straddle....Certainly Not a Winner

As discussed here,  in late November CCI placed a straddle on the Green Mountain Coffee Rosters (GMCR) prior to earnings.  To be a winner the stock needed to stay in the range of $20 and $36 after earnings.  Unfortunately for CCI, GMCR reported good earnings and its price blew past the $36 upper end options strike, the $37 break even point and over $40.  As the stock dipped back below $40 this week, CCI bailed on this loosing trade.

Overall the upper end of the trade lost about $2.40 per contract and the lower end of the trade made a modest $.30 per contract gain.  Combined that was a bad, $2.10 contract loss.  Fortunately, as originally discussed this trade was done for a very small amount as a purely speculative activity. 

 But still......certainly not a winner.

Rolled IWM Covered Call Out and Up

The Index Covered Call Trading Plan  (aka: ICC) is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.

UNDERLYING ETF:  IWM   

DESCRIPTION: iShares Russell 2000

TRANSACTION TYPE: Roll the December $79 call to the January $84 call

TRANSACTION RATIONALE: With IWM having moved up since the sale of the December call the December option was moving almost in lock-step with the underlying (i.e. delta over 90) and hence this option was no longer effective.  This trade took the loss on the option trade which partially offset the unrealized gain in the underlying (i.e. this strategy makes less when the market goes up)

TRANSACTION DATE: Thurs Dec 13, 2012

Action: Sell to Open

Exp. Date: Dec 22, 2012

Strike: $79

Price: $3.95

Action: Sell to Open

Exp. Date Jan 19,2013

Price: $1.00

 

Net debit: $2.95

A Market Neutral Iron Condor in Apple

Market neutral positions that will profit in a sideways market can provide another aspect of diversification to a portfolio. With last weeks drop in the price of Apple (AAPL), some pundits have suggested this is a buying opportunity for this stock. Another alternative is to use this drop in price as a trigger to establish a market neutral position in Apple. The type of a position that will generate income in a sideways/neutral market, and hence nicely augment a larger portfolio.

With Apple trading around $535 last week one such trade was to

• Sell the Jan $495 put
• Buy the Jan $490 put
• Sell the Jan $580 call
• Buy the Jan $585 call

After commissions this iron condor trade would generate about a $240 credit per contract. That is the maximum gain on the trade, while the maximum loss is $260 per contract. That pricing indicates that conceptually there is just a little less than a 50/50 chance that the stock will be trading between essentially $493 and $582 by January expiration. Potential outcomes if held until expiration are:

• Worse case - the stock falls below $493 and the trade loses $260/contract. Basically, the hope is that buyers might be increasingly motivated to come in if the stock were to fall to below the $500 support level. Hence, the $495 strike is potentially a reasonable level at which to risk losing money.
• Second worse case - the stock rises over $582 and the trade loses $260/contract. The stocks 50 and 200 day moving average will likely be around this level in January. This will potentially provide resistance to the stock rising through this level, and make this a reasonable price at which to risk losing. Further, given its huge weight in the markets, if Apple was to rise this much, it is very likely other more traditional portions of a portfolio will be up as well. Hence losing this trade to the upside can be rationalized as kind of a portfolio hedge.
• Best case - the Apple bulls and bears keep an equilibrium on the stock, and it trades sideways ( in the $85 range between $495 and $580). This would result in a $240/contract winner!

Of course, this trade does not need to be held until expiration. If at some point time, (i.e. early Jan) the stock price happens to vacillate back near the $535 level there will likely be an opportunity to close this position before expiration for a smaller gain. This scenario increases the overall probability of success with this trade.

A Speculative Earnings Play on GMCR

CCI does not usually "play" earnings, but decided to take a speculative flyer today....uh....I meant to say made a highly uncorrelated options trade.

Green Mountain Coffee Roasters (GMCR) is a much discussed and often traded provider of specialty coffee and coffee makers.  Earnings were planned for release after the bell today.  Traders had driven the implied volatility on weekly options (expiring in three days) well over 200%.   CCI was tempted to sell some premium at those levels, but instead decided to sell premium in the Dec options.  The implied volatility in these options was still significant (around 100%), and it seemed that the extra duration might provide a better chance for the stock to settle into a wide range.

With GMCR trading around $29 this afternoon.   CCI sold both the Dec. $20 put and Dec $36 call. This  straddle was sold for a combined credit of just under $1. That is the max return for the trade.  This also  means the trade does not start loosing unless the stock is below $19 or over $37 at expiration.  (about 35% down and 28% up).   Beynd those levels, the position loses dollar for dollar with the stock move. Of course, those are the results if held until expiration.  After the earnings announcement, this high implied volatility also means there is a high probability that the trade will be tested on one boundary or the other.  As the stock gyrates around after earnings,  CCI will be looking for opportunities to either harvest a profit or spread off some of the risk of the trade.  Obviously this is a speculative, risky, and "uncorrelated to anything" trade.   CCI did this trade in very small quantity.  That means the outcome of this trade will not materially move the needle on the overall portfolio.  However, It might represent a good opportunity for readers to monitor how a high implied volatility type of options play might be used as an alternative way to generate income.

* * * Results  ** *

FYI, GMCR reported  earnings after the bell.  The headlines appear to be positive and the stock has moved up near the $36 leveling after hours trading.  Hence, as expected it certainly appears this position will be tested on the top end tomorrow.  We will have to monitor the situation closely and potentially adjust the position.

Cisco Covered Calls Launched... Yet Again

Long time readers will recall that CCI has been selling calls against $10 LEAPs in Cisco (CSCO) for awhile. The last post on these trades (click here) was in September when Oct $19 calls were sold.   Somehow it appears that CCI forgot to post the trade when that position was covered in October (my bad).  Overall that trade netted $.20/contract.  This  resulted in a 2.5% gain in a few weeks based on the leverage from the LEAP position.  Overall 6% in premium has been collected since Sept.

With Cisco rising back to $19 today, CCI sold the Dec $19 calls against the position for a credit of $.30/contract today.  CCI is expecting CSCO to pause/pull back after its recent run up, and would intend for this option premium to be harvested in the short term...yet again.   However, if the stock continues to rise  it might be time to exit both legs of the trade for a very impressive, leveraged profit. 

Stay tuned.

Weekly Sale of EEM Calls

The Index Covered Call Trading Plan  (aka: ICC) is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.

UNDERLYING ETF: EEM    

DESCRIPTION: iShares Emerging Market Shares  

TRANSACTION TYPE: Covered Calls Against Equity Holding

TRANSACTION DATE: Mon. 11/19/12

Action: Sell to Open

Exp. Date: Nov. 23, 2012 (weekly)

Strike: $41.00

Price: $.28

Keeping Some Portfolio Insurance in Place

CCI has continually been keeping a short put spread on the S&P500 (SPY) in the portfolio as a bit of insurance for a down move.  When last discussed here CCI had rolled the put spread to July.   Through the summer, CCI has been keeping this position in play.  During the market upswing of July, September and October these puts spreads were losers. (i.e. the cost of insurance).  With the expiration of November options last week, the put spread paid out reasonable nicely last month.  The portfolio is still overall down on these trades for the year. This should be expected in a year when the market is up.   CCI continues to hold this type of position in the portfolio to try to buffer any potential downturn.   Specifically, currently the portfolio has established the Dec $138- $131 put spread as a small hedge for any potential down draft in the coming weeks. 

Rolling IWM Covered Calls

CCI recently posted a portfolio trading plan for writing covered calls against an index etf.  CCI cleverly calls this the Index Covered Calls or ICC for short. The trading plan for ICC   describes the rational for these trades and contains many detail on which specific options will be sold and how they will be managed.

This is the second post on the blog describing a executed against this trading plan.   There should be more posts about activity against this trading plan in the future.  These posts will focus on the execution aspects of a trade.  If a reader has greater interest in the rationale for the trade they should read the trading plan.

UNDERLYING ETF: IWM

DESCRIPTION:  iShares Russell 2000 Index

TRANSACTION TYPE: Rolling Covered Calls Against Equity Holding

  Drop in IWM Price Causing the Existing Option Delta to Fall Below 10

TRANSACTION DATE: Thurs 11/15/12

Action: Buy to Close

Date: Dec. 22, 2012 (weekly)

Strike: $83

Price: $0.17 

Action: Sell to Open

Date: Dec. 22, 2012 (weekly)

Strike: $79

Price: $1.03

Net Credit: $0.86

Adding Exposure to Gold

As recently discussed here  CCI has decided to take the overall portfolio's position in gold from what most experts would consider underweight to neutral. Further, long time readers will know that CCI likes to gain portfolio exposure to gold via options.  Specifically, selling puts in the gold miners (GDX) and buying calls in the gold etf (GLD).  The objective of this approach is to gain exposure to any potential spike in gold while reducing the amount of capital consumed.

Along those lines, last week CCI was able to

• Sell to Open - Three March $45 GDX puts for $574.69
• Buy to Open - One March $170 GLD calls for $478.73

Summarizing recent activity the portfolio contains the following positions that were established for zero out of pocket costs.

• Short 3 March $45 GDX puts
• Short 3 January $47 GDX puts

• Long 1 March $170 GLD call
• Long 1 January $175 GLD call
• Long 1 December $165 GLD call

As of this morning GDX was trading around $49,  and GLD was trading around $167.

• In the unlikely event that these entities continue to trade near these levels the portfolio for the next few months will break even 
• If the gold minders fall 5-10% ( i.e. below $47 or $45) the portfolio will start to lose money on the GDX options.
• If gold increases at all from here the portfolio will start to register gains on the gld options.  If that does start to occur, CCI will look to take off the risk related to the GDX options and harvest gains in the GLD options.

EEM Covered Calls

CCI recently posted a portfolio trading plan for writing covered calls against an index etf.  CCI cleverly calls this the Index Covered Calls or ICC for short. The trading plan for ICC   describes the rational for these trades and contains many detail on which specific options will be sold and how they will be managed.  This is the first post on the blog describing a executed against this trading plan.   There should be more posts about activity against this trading plan in the future.  These posts will focus on the execution aspects of a trade.  If a reader has greater interest in the rationale for the trade they should read the trading plan.

UNDERLYING ETF: EEM    

DESCRIPTION: iShares Emerging Market Shares

TRANSACTION TYPE: Covered Calls Against Equity Holding

TRANSACTION DATE: Mon. 11/12/12

Action: Sell to Open

Date: Nov. 17, 2012 (weekly)

Strike: $41.50

Price: $.25

Taking a Ride on Trinity

The portfolio added to its position in Trinity this week. Overall, the position provides the portfolio some exposure to the transportation space. More specific rational for investing in this stock can be found in the article below.

http://seekingalpha.com/article/269542-time-to-take-trinity-for-a-ride

The above article focuses on the "facts and numbers" about the stock. Another key part of investing/trading is the psychological aspects of the investor. Learning to successfully managing the feelings of fear and greed are critical to investing success. With my new found blogging activity, it seemed this would make a good case study in not only in stock analysis but human nature's impact on investing.

So...I decided to augment this analysis with my wild ride with the stock.......(in other words, please indulge me a short catharsis).

• When driving across the midwest the past few summers I saw an increasing amount of windmills. I thought this might be an investment opportunity. I did some research and came across Trinity as a supplier of wind mills.....although they have other larger businesses.
• I did some research and when the stock pulled back from its high around $45, I bought some Trinity stock at $32.14. Of course that was September of 2008. Yes, that is right, immediately before the financial panic. The stock proceeded to sink like a rock, going well below $10 in the spring of 2009. What an idiot!
• It fairly quickly bounced off of those lows, only to be seemingly stuck in the teens. Like many investors, I seemed to be too stunned to act.
• After sitting on this loosing position for 3 quarters, I did evaluate the position to see if it was a good candidate to harvest as a short-term tax loss. (FYI, that is my standard process. If a position has not performed as anticipated after 2-3 quarters, I force myself to try to do a fresh analysis and most likely harvest loses.) In this case, after some analysis, I decided not to use this position for tax loss harvesting and hung on to it. It was trading under book value.
• Holding on was "the right" choice because the stock continued to rebound. In fact, Trinity recently zoomed past the “critical, all important” (not really) break even point in my portfolio. Human nature tugged at me to sell, and breath a sigh of relief. After all it is up about 400% from the bottom!
• Before giving into this urge and selling, I decided to wait for another quarter's earnings results and refresh my research. That research went into the article referenced above. Based on that research, instead of selling I decided to double down as the analysis indicates a good possibility of the stock going back to $45.

Who knows how this will work out.... Hopefully it will be an example of controlling emotions leading to a profit. .....or not.

In any event, I thought augmenting the factual analysis with some psychological perspectives might be worthwhile......or not.

CSCO - Trying Those Covered Calls.....Again

As discussed here , CCI just harvested some covered call option premium on CSCO.

With CSCO falling the past few days, we are back in. This time we were able to sell the $19 Oct covered call for $.30 on Tues.  Since then, CSCO has continued to fall and the option is now in the money.  A little more of a drop in the stock price and/or time decay and it will be time to harvest this gain.

CCI Sells Last Lot of Teva

CCI has been in the process of exiting the TEVA position for awhile.
The final lot was sold today for $40.97. An 8.4% gain on this specific lot of the position.

The full saga of the Teva holding can be relived by following  these posts.   I'd have to pull out some old records to determine the exact results of this holding but it was probably about a break even.  A small loss in capital gains but many successful option premiums collected.   Not a great performance during a general up  market, but also not a negative drag on the portfolio.

CCI says "Right on" to BlogMaverick

From time-to-time, CCI likes to feature a "guest contributor"  and/or offer a general market commentary

I happened to read this posting on Mark Cuban's Blog that struck a chord with me. http://blogmaverick.com/2012/09/21/what-business-is-wall-street-in-3/.      Sometimes I agree with Cuban's perspectives, sometimes not.   However, one thing I like about his pieces is he usually just does not opine about some issue, but seems to try to offer some actionable, non-political, suggestion to address the issue. 

This post talks about how wall street has become less about capital creation/allocation and more about using the system to make short-term profits.  That is not an overly unique claim or commentary.  I also agree with that sentiment.  However, Cuban goes on to offer an approach to addressing the issue aside from the tired, old, outdated, populist, cry for "more regulation".    I'd encourage you to read the whole post, but I think the paragraphs below summarize his proposal well.  Agree with them or not....but to me at least I'm glad to see someone actually trying to propose a solution to an issue.

PS: Full disclosure: I am not a Mavs fan.....GO BULLS


* * * From BlogMaverick  * * *


"My 2 cents is that it is important for this country to push Wall Street back to the business of creating capital for business.  Whether its through a use of taxes on trades(hit every trade on a stock held less than 1 hour with a 10c tax and all these problems go away), or changing the capital gains tax structure so that there is no capital gains tax on any shares of stock (private or public company) held for 1 year or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years.  However we need to do it, we need to get the smart money on Wall Street back to thinking about ways to use their capital to help start and grow companies. That is what will create jobs. That is where we will find the next big thing that will accelerate the world economy.  It won’t come from traders trying to hack the financial system for a few pennies per trade.

And solutions won’t come from bureaucrats trying to prevent the traders from hacking the system. The only certainty when bureaucrats step in is that the law of unintended consequences will smack us all in the head and the trader/hackers will find new ways to exploit the system that makes them big money and even more money for the big institutions that develop products for the other institutions that are desperate to play the game."

Harvesting Option Premium in Cisco Covered Calls

About two weeks ago, as discussed here, CCI sold Oct. 20 covered calls against a Jan 14 LEAP option in Cisco. (CSCO).

With Cisco trading back around $19 today, CCI bought back these calls for  $.13 including commissions.
A modest gain of $.25/contract.  Given the leverage of the LEAP holding that is a respectable 3.4% return on capital in 2 weeks (Yes, that is near 100% annualized).  More importantly, this is just another addition to the gains on this position, and it is likely the opportunity to do this type of trade again will present itself several times before Jan of 2014.

Establishing some Insurance in QQQ

With the stock market up and volatility still relatively low, CCI wanted to establish a little hedge/insurance against a market pull back.  Specifically CCI bought the Oct $71 puts and sold the Oct $69 puts in the Nasdaq100 ETF (QQQ).

Read this article for the general rationale and specific probabilities of this hedging trade.

Harvested Covered Call Option Premium in Teva

As last discussed in this post in late July, CCI had sold Sept $40 calls against the last lot of TEVA shares in the portfolio. At that time the stock was trading slightly over $40.

Late Monday, with the stock still trading slightly over $40, the option position was covered.  The option was sold for $2.00 and covered at $.39 for essentially a gain of $1.60 or 4%  in less than 2 months. 


CCI will still be looked to sell this last lot of Teva on the next bounce.

Covered Calls on Corning (GLW)

Readers will recall that CCI has sold puts on Corning (GLW)  many times in the past.  The main rational for this trade has been GLW's $14 book value, single digit p/e, and technology core competencies.

Frankly, CCI has done this so many times that I've lost count.  Usually the puts have expired  or a small profit from option premiums have been taken.  However, the July $13 puts ended up being assigned.  A scenario for which  a put seller always needs to be prepared.  With the credit for this put sale the stock was acquired at an effective price of $12.51 at July expiration. 

With GLW trading back over $13, CCI now switched the strategy and sold the $13 Oct calls against this position for $.40.   Three scenarios

• The stock falls back well  below $13 fairly soon  - Oops, not good, but CCI will harvest a great deal of the option premium and re-evaluate next steps.
• The stock will hover just below $13 - The option will be held until October and expire. The effective cost basis for the holding will be down to $12.11, and CCI will likely look for opportunities to sell calls again.
• The stock will stay above $13 through October - The stock will be called away.  CCI will take the 7+% over three months gain ($13.40 - 12.51) and redeploy the capital.

Rolled Cisco LEAPS

Frequent readers of CCI will recall that the portfolio has owned LEAPS in Cisco (CSCO) for a long time.
The primary logic for holding this position has been a belief that Cisco's solid balance sheet should provide a floor on the stock, but their competitive market space will make it hard for the stock to soar. Meanwhile, market noise around this former tech. darling creates a reasonable high volatility environment which creates rich option premiums to harvest.  Hence CCI has been selling shorter dated, OTM covered calls against these long dated calls to harvest this premium if CSCO goes sideways.


In August, when Cisco was trading back down  near the $17 level where this position was initially entered, CCI rolled the Jan 13 $10 call out to the Jan 14 $10 call.  Those calls were trading under 7.00 and  this roll was done for nearly no additional capital (about $.05/contract).    This provides another potential year of duration to continue to execute this strategy.
Since August, Cisco has had a nice move back up over $19.  With that move, CCI sold Oct $20 calls against this position for $.41.   If Cisco stalls or pull back we will harvest this premium of about 6 % (.41/7).  If Cisco continues to rise over $20 we may consider exiting the position and taking profits.

CCI Back from the Hamptons ...Buying Gold Options

CCI is back after a summer time break from the "pressures" of blogging.
Spent spent some time in the Hamptons......Not those Hamptons...
But rather .....The Hampton Inn off the interstate..lol

One of the decisions CCI made over the last month was to increase the exposure of the overall portfolio to gold.  This does not mean I'm a gold bug.  However, I do concur with most experts that at least a  few percent of exposure to gold might provide some non-correlated protection for a portfolio in the case of some unusual market activity.    The main rational for acting now is a series of macro level risks bubbling around  such as increased tension in the mid-east, central banks around the world making all kind of announcements that seem inflationary over time, US elections and related "fiscal cliff",  potential seasonal demand in Asia, etc.   A miss-step in any of these areas could send gold spiking higher.

 Over the past months the portfolio had a very, very small exposure to gold.  So I guess you could say CCI is going from "underweight" to "neutral" on gold.
 
As discussed in the past, CCI feels using option in GLD and GDX  is a cost and capital  effective way to get exposure to gold.  This article at Seeking Alpha describes the recent trades and rationale for going long options in GLD and GDX.     As before, this consists of selling puts on GDX to buy calls on GLD.

Stay tuned for more updates on the portfolio's gold position.

Bill Gross and CCI agree.

While CCI was enjoying the summer last week, the financial blogosphere seemed to all have an opinion on this monthly newsletter from Pimco's Bill Gross.  You might want to read the newsletter for itself, but the main point I took away from the article is that Mr. Gross  is questioning weather the equity markets 6.6% real (after inflation) average return for the last 100 years can be counted on to continue in the next decade or two. This is very consistent with Pimco's often stated "new normal"  view of the market.

Many pundits and bloggers seem to think the market will generate at least average returns over the next decade, and feel Mr. Gross gives recent history too much credence, is just being bearish, "taking his book", etc.  Reinhart and Rogoff's book that studies eight centuries of data, concludes that debt driven slow downs do adversely impact market performance for a longer period of time. In general, CCI agrees with the idea that the next few decades may not  generate the same performance as the last 10 decades in the markets.  Who knows?

 However it seems that nearly every retail investor in the world is 100% invested into the concept that the next two decades will be like the average of the last ten decades.  They are 100% conceptually invested in something like a 60/40 equity/bond allocation.  Doesn't common sense seem to dictate that an investor should diverse some of their portfolio away from this belief/theory? It seems prudent that perhaps 80% of their portfolio is invested with the belief that the markets will have average performance of the next few decades. ...but maybe 20% or their portfolio should be investing assuming returns will have to be generated via other mechanisms (options, long/short, leverage, hard assets, etc).

Intel puts expire as Intel goes up 4%

In this post early in the week, CCI discussed why we were prepared to add to Intel if the stock fell under $25. So the weekly $25 puts were sold as a potential entry point for this trade.

Intel (intc) was up about 4% in the last two days.  The put sale returned about 1%.

1% in 3 days never sucks, but wish we had just bought the stock.

Should have resisted the 200% volatility in Netflix

As discussed here,  CCI couldn't resist trying to skim some profits from the 200% implied volatility in Netflix weekly options.We should have.

Despite less than disastrous earnings, the stock fell below the lower end of the range of  iron condor. I guess based on lower expectations. .

This speculative trade on weekly options was a loser.
Fortunately not a big trade/loss, but a loss never feels good.

Teva covered calls....again.

Readers will recall that CCI has been in the process of exiting a position in Teva (teva ) for awhile.  The rational for originally getting into, and now out of, this position can be found by following this thread. Using covered calls we were able to dispose of two lots of the position at over $45. Unfortunately the stock plunged into the $30s before we could exit the last lot of shares.  

With Teva trading back over $40, CCI sold Sept $40 covered calls for just under $2.00/contract. 
Time will tell if this option will actually be held to expiration, but I'm comfortable exiting at an effective price of $42.

Can't resist speculating on the 200% implied volatility in Netflix

Netflix (nflx) is announcing earnings after the bell today.  Of course, netflix has a very volatile history.  I won't try to summarize that history here as I assume many investors are familiar with their story.

What caught my eye today was the over 200% implied volatility in the weekly options.  That makes options very expensive.  Hence CCI took a speculative flyer on the 60/65 - 85/90 iron condor for a credit  of $2.25.
At the marco level this is a 45/55 wager (win $2.25 or lose $2.75 per contract) that Netflix will end the week between $65 and $85.  A $20 range.

More fine tuned, CCI is hoping that whatever the earnings news is today

• there will be enough of a tug of war between the netflix bulls and bears to have the stock trade in that range sometime in the next few days
• the volatility should be sucked out of these options after the news is out today

If/when those events happen, hopefully we will be able to buy back this spread for substantially less than the $2.25for which it was sold.

Yes, this is a speculative trade.  It was done as a very small trade in the portfolio which will not really impact overall results for the year...but ..I could not resist taking a chance on the 200+% volatility of the "rational market".

Willing to add to Intel at these levels.

Regular readers will recall that CCI has been bullish on Intel for awhile.  This last article  on Intel (INTC) set my price target for the stock at $30.  Intel reported earnings last week that met expectations largely on 15% growth  in the server market. (i.e. intel powers the cloud). However, they  lowered growth expectations on continued pc slow growth and unproven capabilities in the mobile market place.  The stock had peaked near $29 a few months ago but is now back to $25.

It seems like time to re-evaluate my longer term view of Intel, but in the interim the valuation just seems too compelling to ignore trading around the current position.  At the most basic level of analysis:

• They still seem on track to earn around $2.50/share.  
• Putting a reasonable 12 multiple on the stock
• Still gets to the $30 price target.
• Oh, by the way, it pays a 3.5% dividend with a rock solid balance sheet 

Hence, with Intel trading around $25 today, CCI sold a  lot of the July weekly $25 puts for $.27/contract.
There are essentially two outcomes each with about a 50/50 chance.

• The stock will hold $25 over the next three days and we earn 1% in 3 days.
• The stock stays below $25 and we are the proud owner of another lot of Intel at an effective price of $24.73. The stock will go x-dividend in early August earning another $.21 lowering the break even point almost another 1% to $24.52.  In this case, CCI is willing to hold this position for awhile and hope for better days.

Lulu covered put harvested.

As discussed here,  the covered put in Lululemon lulu expired this weekend.  CCI pocketed the about 1% premium collected to get the break even point on this trade up to $54.    Lulu still has a large multiple that will likely come crashing down with any Lulu stumble around earnings.   CCI plans to hold onto the short position through earnings announcement but may layer some sore of protective option over the position if the stock moves back down toward $55.

Making our Lulu position into a Covered Put

Back at the beginning of the year, as discussed here, CCI shorted Lululemon Antheltic (lulu ) at $53.54.
The stock pretty much went straight up to $80 from there.....ouch.
But.....last quarter's results finally were less stellar than anticipated and the stock is now trading back around $55.  The "pressure" to unload this position as it approached getting back to even has been "large".
However, its pe is still over 40.  Further, general retail sales numbers this quarter seem to be somewhat challenged.   Hence it does not seem like this stock will be bouncing back anytime before the catalyst of its next earnings call.

So instead of unloading this position now, CCI sold the July $52.50 puts for $.55.  This creates a covered put situation.  The inverse of the popular covered call strategy. Scenarios include:

• The stock continues its plunge this week down below $52.50 and the position will be closed at around a price of $52.  "Getting out" with a modest 3% position.
• The stock levels off or rises from here, in which case we will pocket the 1% premium (over 1 week) to reduce our exposure on this trade.  Then we will have to re-evaluate this position going into their earning call.

Apple - Lets Call it a Tie

As discussed here, CCI had established the July, Apple $495-$500, $610-$615 iron condor for a $2/contract credit. In essence, this was a bet that Apple would trade in a  $110 range between $500 and $610 for a month

With Apple (AAPL) recently trading well over $600, the trade has been at risk of losing money on its upper end for awhile. With only 8 days until expiration the risk/reward (risk $3 to make $2) on a position that essentially has a 50/50 chance of going up or down was no longer appealing.  CCI took advantage of a small pull back in Apple today to closed this trade.  Overall the trade made a relatively immaterial credit of $.09/contract (i.e. a tie).

Closing Facebook Position

As discussed here, CCI had sold the Facebook (FB) July $25/27 - $33/35 iron condor for $1.00/contract.  This was in essence a 50/50 bet that the noise over Facebook's IPO would die down and the stock would settle somewhere in the $6 range between $27 and $33 in July.  That seems to have happened!

With FB trading around $31.50 today, CCI covered the position for $.25/contract.  That is a $.75/contract gain or a 75% return on the $1.00/contract of risk capital.  While that seems impressive, these type of trades have either a big gain or loss.  Big gains are better...lol

At a more macro level, this trade and a few other FB trades have now generated enough profits to more than  cover the loss in the small amount of shares I was allocated at the IPO price of $38. So we will take our modest overall profit in Facebook and move to the sidelines on this stock for awhile. 

Going forward, I suspect that even "if" FB posts good earnings results this stock will have a lot of trouble getting to $40 for quite awhile. This is because I suspect many early buyers will be looking to selling if/when they get back to near break even.  "If"  the stock were to move up to about $36, it might be a good candidate to sell something like a $37-$39 call spread.  I've set an alert if it goes over $36 to evaluate this strategy at that time.

Profiting While Going No Where

First day back from vacation was spent looking at the performance of the market over the past three weeks.

Basically the market has gone no where the last three weeks
 Of course the market has gone no where for the last dozen years, so this is kind of fitting.

Before CCI, left town, I wanted to have a little less exposure to the market so I purchased one lot of  the double short S&P 500 (SDS).   I also entered a standing order to sell the position if it went up 1.5% (i.e. the market wiggled down a little).  This level was chosen based on some relatively standard chart levels.   On a big down day a few weeks ago the order was executed. 

This was not the  "normal" process I use for using the double shorts, but....it worked!

4-1-4 playing the double shorts for the first half of the year.
Percentage wise, overall up a modest 4.5%.
Given the market is up for the first half of the year, being up while trading from the short side is not too bad!

Of course, regular readers will recall last year's double short trading record was an impressive 14-0-6.

Back from vacation.... "shocking" developments

CCI has been silent for the past few weeks due to an extended vacation
(I needed to relieve the "stress" of blogging...lol).  

While vacationing, CCI did not pay too much attention to the detail of the markets, but did notice a few macro level developments such as:
- My understanding is Barclays seems to have admitted to somehow manipulated the LIBOR market.  What?  A Market Maker might  manipulate the market for their own profit??..Shocking
- JPM losses due to "the whale" traders,  rogue hedging tactics appear to have continued to grow well past the originally estimated $2b.  Hmm..do you think there would be any noise if a rogue trader had made a $2b profit while hedging?   or are we just suppose to be shocked that they actually can lose money?
- More evidence seems to have come to the forefront that CountryWide Mortgage (now BAC) was providing sweet, VIP mortgage deals to politicians in the early 2000s.  What?  You mean politicians might accept favors from the financial services industry in exchange for future considerations that might benefit  key actors in the  financial system.....shocking.
- A potentially disgruntled JPM employee claims that JPM sold more expensive, less effective products just because they were their own and there was more profit in selling those products.....doubly shocking.
- A month after the "efficient and straightforward" execution of the Facebook IPO the stock continues to trade well under the IPO price.  Shockingly.... more retail investor's than usual seemed to receive allocations.
- Central banks around the world continue to announce various agreements, statements, deals, plans, and policies to "protect" the "free" markets.  Using the words "protect" and "free" in the same sentence and no one seems to even think twice about what this really means for the state of the markets.....shocking
- I did not see any mention that any of the customer money that MF Global seems to have lost has been found...shocking

Less shocking is that retail customers  are still being "sold" the same old strategies, asset allocations and products despite that this does not appear to be your grandfather's market.  Common sense still seems to indicate that retail investors might be better served by not blindly following the advice of an industry with a record like the one outlined above. CCI will resume trying  to play a very small part in providing others investment thoughts when starting more specific market postings this week.

Rolling Insurance

CCI has held a put spread on the market through out the year as a hedge against the specific holdings of the overall portfolio  The last round of this trade was discussed here .

Today I rolled the June $133-$128 put spread to the July $132 - $127 put spread.   The June put spread made a modest gain of $165 per contract, but in essence the insurance was just rolled out a month.

Doubel Shorting the "NasDapple"

With the market seemingly somewhat unsatisfied by the bailout of Spanish banks and jittery, CCI was looking for a way to get a little hedge in the portfolio today.  I decided to buy the double short NASDAQ ETF (QLD) today. I chose that trading vehicle because Apple was holding its world wide development conference and it seemed like the recent increase in Apple could have been an example of  the classic "buy on the rumor, sell on the news".  Apple is a big, big part of the NASDAQ. 

For whatever reason, the market did fade badly at the end of the day.   CCI skimmed a little over 1%  from  this day trade.....(ahhh.... what I meant to say is "profited from this sophisticated, leveraged, hedge".) 

3-1-4 on the double shorts this year.

Every blogger "needs" to have a position on in FB and APPL

These days it seems like everyone in the financial press has some opinion about Facebook (FB) and Apple(AAPL).   Hence CCI felt "the pressure" to join the club and have a trade for these two stocks.

CCI's view for these two stocks is that there will likely be a very public tug of war between people who are  bullish and bearish in these stocks over the summer.  Everyone talking their book. That mean perhaps these stocks will trade sideways this summer.  If this is true the best trading strategy for these two stock is to try to generate some income from option premiums.  Further, this strategy will likely drive results that are somewhat uncorrelated to stock market returns which is another key goal of many CCI positions.

Specifically, CCI established two July iron condors this week. (Selling both a put spread and call spread)
- Apple $495-$500, $610-$615 for a $2/contract credit
- Facebook $25-$27, $33-$35 for a $1/contract credit (more details on this trade are documented in this Seeking Alpha article entitled Using Options to Profit From the Facebook Tug of War)


Each trade has a defined risk/reward that makes it somewhat different that traditional investments.   I'm reluctant to describe it in "gambling" terms...but
- The Facebook trade:  Risks $1 to make $1 trade (i.e. 50/50 odds)  that the stock trades between $26 an $34 (a 26% range) by July expiration.
- The Apple trade: Risks $3 to make $2 trade (i.e. 40/60 odds) that the stock trades between $498 and $612 (a 21% range) by July expiration.

Of course, neither trade needs to be held until the expiration date.  If at some point in time between now and the expiration date the stock gyrates to a price near the midpoint of the iron condor range, it will be "in the money" and  gains can be harvested at that time.  Hence these trade actually have much better odds of being profitable than the static odds of maximum gain at expiration.

 In full disclosure, these are not huge positions in CCI's overall portfolio, but are more intended as an  illustration of  an alternative way to try to generate income in today's go nowhere marketplace.

Plus now CCI has officially joined the crazy world of the financial press and can talk "my book" on these stocks like every other blogger and tv interview ...lol.

Options on Double Shorts....(aka: A win is a win)

CCI was looking to get a short position in play before the unemployment report this morning. Late Thursday, I considered my usual strategy of buying the double short S&P500 (SDS) to provide some portfolio hedge. However, I chose a slightly different strategy.

With SDS trading around $17 late Thursday, I sold one lot of June 1 weekly $17 puts for $.26.  A weekly option made this essentially a 1 day trade. That is about as long as you can hold these double short etfs anyway, so it seems like this approach enforces the discipline of a short holding period for these type pf positions. Also implied volatility was high so the option premium seemed rich.  Yes, I know this is a derivative of a leverage derivative, but....hey....when in Rome...lol


Anyway...This trade capped the potential gain for trade at 1.8%, in exchange for having a 1.5% cushion on the downside before the trade would lose money.  My logic was

•  if the unemployment numbers would be good, that might not be enough to drive the market up too much and the 1.5% cushion might provide a way to get out of the trade with a tie. 
• if the unemployment report was bad , the market would be down and the trade would return 1.8%

The unemployment report was worse than expected and the market went down more than usual.  Just having bought SDS (as I usually do in this situation) would have returned over 5% today.  Instead this trade "only" made 1.8% in 1 day.   A small consolation prize on an overall bad day.  Also, in hindsight using this more complex strategy was not the right choice. 

BUT....A win is a win.

2-1-4 hedging via double shorts this year.

Rolling Gold and Gold Miner Option Position

As discussed here , CCI had established the following option position in the gold miners and gold etfs last February. 
 "Sold 2 June $52 GDX puts and bought 1 June $175 call.  That trade was done for a net credit of $86. As before we will hope to manage our way out of the risk of being short the GDX puts while using the GLD calls to profit from any wacky spike in the price of gold. "

Since the time of that trade the price of gold has fallen and the value of gold miners stocks has fallen further.   Hence this trade has been a loser and was closed on Wednesday for a loss of $1,551/contract.  That is not surprising as results of this position are anticipated to be highly correlated with the price of gold.

Of course no one likes to see a losing trade, but this is the fifth time this same type of trade has been completed and only the first time it has been a loser.  Cumulatively these 5 option trades are up  41% as compared to buying and holding of gold (gld) over the same time period would have returned 29%.

CCI remains somewhat unexcited about the prospects for gold, but feels from a diversification perspective it still makes sense to have some exposure to gold in a portfolio.  I continue to feel this type of paired option trade provides a better leveraged, lower cost way of gaining that exposure for the portfolio than simply buying the etfs. Hence this trade was re-established in September options.  Specifically, on Wednesday CCI

• bought 1 (GLD) Sept $155 call, (with GLD trading at about $151)
• sold 3 (GDX) Sept $39 puts (with GDX trading around $44)
• these trades were done for a collective net $31 credit
• this trade conceptually puts at risk $11,669 for the  potential purchase GDX. (actually less capital is actually tied up due to option margin rules). This trade starts to lose money if GDX falls by more than 10% this summer. The trade starts to gain from anything over about a 3% gain in gold this summer and is position to have unlimited, leveraged gains if for some macro level reason the price of gold spikes this summer.
  

Yet Another Tie

Going into the holiday weekend CCI felt there was some risk of the market  melting down as investors might take some risk off the table before the long weekend.  Hence Friday morning CCI bought one lot of the double short SP500 etf (SDS) and........got stopped out that afternoon for a gain of.......$1.87!!!!

Yes, yet another tie.
  A totally unexciting 1-1-4 when short-term hedging via  double short index etfs this year.

Selling Puts in Intel and Others

With the market down and option implied volatility up, now might be a good time to consider selling naked puts in stocks you might want to own.   If stocks keep going down you might get the stock put to you, hopefully at a discounted price, or if the market levels off in the next month a few percent return can be made.

My seeking alpha article  describes  potential put sales in GLW, MET, and INTC.
I've discussed the idea of adding to Intel before at recent posts at this blog.

Taking Off Some Insurance - Part 2

As discussed in  yesterday's post CCI is taking profits on portfolio insurance positions.

Today CCI rolled the option position in the S&P 500 (SPY) from May to June. Specifically;

•  closed the May $136-$130 put spread.  Paid $1.1/contract. Sold for $2.65/contract!
•  used the gains of this trade to re-purchase insurance via the June $133- $128 put spread for $1.61/contract. 

Insurance is starting to get more expensive to buy as implied volatility increases (i.e vix over 22 ).
If the market continues its current downward path, this might be the last time CCI buys insurance in the option market for awhile.

Taking Off Some of the Insusrance, for a profit!

As discussed here,   in late April,  CCI established two, May, index,  short put spreads to provide a little insurance for a portfolio for the chance/probability that a correction in them market was likely to come at some point this year.

Yesterday, CCI  closed the May $67 -$65 QQQ (Nadaq-100) put spread.  This spread was purchased for $.82/contract and sold for $1.80/contract.  That's a nice, "little",  20% gain to provide a small buffer against the recent market slide.

CCI still owns the SPY May $136-$130 put spread,  but anticipates rolling that out to June in the very near future.

Seems Natural to Speculate in WPRT

Generally CCI's investment style is conservatively biased towards grinding out modest, higher probability gains.
However, every portfolio can probably benefit from having a few speculative positions.  I've taken a small, speculative   position in Westport Innovations. (WPRT).

WPRT is a leader in the field of Natural Gas based engines.  In general, I'm thinking the upcoming political season will generate some press about this space, and could be a catalyst to drive a significant increase in the stock price.  On the other hand, there are many issues with this (and any) smaller company which makes this a very speculative investment.

My overall rational and timing about taking this position is described in a Seeking Alpha article here. 

FYI, since the article was drafted a few days ago, the stock has fallen a few dollars. So now it is obviously  even a better buy....lol!    More seriously, as discussed in the article, this weeks pull back makes it seem like a good thing that options were used to enter the position, thereby lowering my cost basis.

Intel covered call premium harvested.

With the market pull back, CCI closed the Intel (INTC) June $30 covered call position discussed here.
This trade yielded a boring 1% return in less than a month. This added into the sizable pot of unrealized capital gains, dividends, and option premium earned on this stock.

It doesn't seem like there is any real change to the Intel story.  (They did just increase their dividend!).  A modest multiple, on a key industry provider, with perhaps the largest competitive  "moat" anywhere, with a strong balance sheet still seems like a solid investment.  Further, if they ever get a mobile strategy in place, there could be more upside.   Here is a link to an article from Morningstar that seems to share a positive view of Intel's competitive position in the market.

Holding for now, but if the pull back continues towards $26,  we will likely sell a lot of puts in Intel to potentially add to the position.

You can put in on the board.....yes!

Yesterday CCI felt the market had showed a lot of apathy on the news of European election results, and risk of a pullback remains. Monday afternoon CCI bought the double sort S&P500 etf (SDS). Sold it on today's market pull back for a 1.35% gain. 

The first win of the year trying to put some modest, short-term hedges in place against the portfolio via double short etfs. That brings this years record to a boring 1-1-3.  Considering the market is up this year, it could be expected that this type of strategy would be down for the year. Hence, it is nice to report that these 5 trades actually show a small, cumulative positive gain for the year. 

Obviously not much opportunity to use this strategy so far this year. That is  mostly due to low volatility in the markets, but perhaps that will change as the year progresses.

Harvesting Cisco Option Premium....Again

Frequent readers will recall CCI has a small, one-lot position in Cisco (CSCO)  via the Jan 13 $10 Calls (LEAPS).   The intent is to try to generate income against this leveraged position via selling calls against it. This position was described in more detail at a post done on Feb 9 that can be found here.

Earlier this year, one cycle of covered calls successfully yielded a modest $.21/contract gain as described here in March

With today's market pull back, CCI covered the second cycle of covered calls for a cost of $.13 after commissions.  This cycle of covered calls generated $.35 / contract gain.

In total that is a $.56/contract gain.  With the leverage provided by the LEAPS being bought at $8.37, that is a realized gain 6.7%. over two option cycles this year.

The $10 Jan Leap has an unrealized gain of 8.6% at this time.  Cisco reports earnings on Wednesday so this position will likely fluctuate next week, but CCI plans to hold this for awhile longer.

If Cisco's price or option volatility were to spike early next week going into earnings, we might sell the July $21 calls again this position again.  However, more likely we will wait to see the status or earnings before determining next steps for this position.     

Static in Skullcandy headphones, might be a buy

Skullcandy (SKUL) is a manufacturer headphones and other audio related products who might benefit from the ever growing use of a diverse set of mobile devices.  Skullcandy's  IPO was last summer.
It reported earnings yesterday, and unlike many recent IPOs actually has earnings.  However, the stock pulled back as earnings apparently did not meet elevated expectations. This article

adding-to-skullcandy-on-post-earnings-pull-back-noise

describes why now might be a good time for a small,  speculative play in this stock.

More Teva Covered Calls to Exit

Based on the rationale discussed here  CCI has decided to exit the portfolio's position in TEVA.

TEVA closed trading Friday  at $45.63.

• Last weekend one lot of shares was called away via the assignment of the April $45 calls at an effective  price of $45.41

• Near the market close today, CCI sold the $45 May calls for $1.38 after commission.   If the stock stays above $45 for the next 3 weeks the final lot of Teva shares will be called away for an effective price of $46.38.  In theory there is about a 60% chance of this happening.. If the stock reverses back down this month, this option premium will provide up to a 3% downside hedge.

More hedges

The market continues to go sideways making hedging challenging.   However, it seems like at some time this year there should be a pull back in the market.  It is very, very rare for a whole year to go by without a good pull-back.  CCI plans to continue to keep some hedges in place by being short options.

Specifically this week
- On Monday , CCI sold the May $136-$130 put spread on SPY on Monday in case "sell in May and go away" gains traction.
- Today,  on the large move in the "Nasd-apple" today, CCI sold the $67-$65 put spread on QQQ thinking the good Apple news will fade into the background in the short-term.

"Proud"New Owner of HPQ

As discussed here, CCI sold one lot of April $26 puts in Hewlett Packard for $.73.  With HPQ trading at $24.51 on Friday, CCI is the proud new owner of another lot of HPQ shares at an effective price of $25.27.

I continue to believe in my thesis that HPQ will remain range bound for awhile and hopefully that means this lot of shares has been added to the portfolio at an attractive price.  If/when HPQ moves back toward the top its trading range CCI intends to sell some calls against this position. 

FYI, HPQ earnings are not until May 23.

Google Stock Split: Buy, Sell or Hold

As part of Google's earnings announcement this week, they also announced a somewhat unusual stock split apparently aimed at allowing the founders to better retain voting control over the company.   There are a variety of opinions about if this is good or bad.  CCI weighs in with my opinion in the article below.

http://seekingalpha.com/article/504711-google-stock-split-into-more-classes-buy-sell-or-hold

Intel Covered Calls Going into Earnings

Intel (INTC) reports earnings after the bell today.   With the stock trading around $28.50, CCI sold one lot of June $30 calls against the portfolio's position for $.41 after commissions.  Several reasons for this activity.

• As discussed here $30 has been my target price fro awhile. Hence, barring some major change in "the story",  this is a level to lighten-up on the position.
• The stock has had a nice big run.   Even if it continues higher after positive earnings it seems highly unlikely to run way past $30 in the short term.
• If Intel misses earnings or it meets earnings and there is a "sell the news" reaction this position will earn about 1.3% in 2 months.  Just adding a small amount of juice to a nice winner, with little real risk.

* * *
FYI, Intel earnings just came out and seem to be slightly above estimates and hence about in-line with expectations.  As seems to be the usual story, the stock is down in the after markets. Hence, at the moment this covered call hedge seems like it will add a little profit to the position.  I plan to look closer at the earnings results and conference call to determine next steps, but generally what look to be solid numbers continues to make me bullish on Intel and hope to see the stock get over $30 with time.

More useless hedging via double shorts

Last week was the worst week of the year for the US equity markets.   CCI thought there was a chance the market might continue this sell off more substantially going into or over the weekend. 

So, ......Once again,  we purchased the double short etf for the S&P500 (SDS) on Thursday to provide a small hedge to the portfolio.

And......Once again, the market......did nothing.

Closed the position for a negligible gain today, essentially another tie.

 0-1-3 trying to use the double shorts as short-term hedges this year.

I'm not sure if /when market volatility will return to make holding these leveraged short etfs profitable again.  However, we will keep these in our tool kit, and continue to look for opportunities to use them effectively.

A belated option trade on Google earnings

 CCI was a little late getting this posted, so unfortunately the opportunity for readers to follow along with this trade has passed.  However, hopefully it can still be informative.

This week CCI established an option position to somewhat hedge the portfolio's position in Google (goog) prior to the earning announcement this past Thursday.  The rationale and specifics of the iron condor option position is described at a seeking alpha article here. 

CCI felt that the bulls and bears in Google would find enough good and bad news respectively in Google's earnings announcement that the stock would trade between $590 and $660 after earnings.  That is indeed what happened and this trade achieved max profit as the stock did not move significantly on earnings.

Double Shorts Continue to Go No Where

CCI thought that the market might erode into the three day weekend.  Hence we purchased the double short etf for the S&P500 (SDS) at the market close on Wednesday to provide a small hedge to the portfolio.

Today this double short.....went no where....again.
Closed the position for a negligible gain, essentially another tie.

 0-1-3 trying to use the double shorts as short-term hedges this year.

UDC Q1 Performance Meets Objectives....Again

The Utility Dividend Capture (UDC) portfolio (description here) strives to generate an absolute return in excess of 2% per quarter in quarters when the market is up and not lose money in down markets.  The fund accomplishes this objective by swing trading between utility stocks capturing multiple dividends per quarter.

The UDC portfolio returned 3.56% in the first quarter of 2012.   These results represent the 10th of 11 quarters where the fund has achieved its objective.   As planned, the fund once again generated significant dividend income (4.6%) while losing a small amount in capital gains (-.9%).  11 of the 14 trades made this quarter were winners (79%).  This is consistent with the longer term win percentage of 76%.  Volatility remains low.

Performance results for the last 11 quarters are shown in the tables below.

Of course the S&P 500,  had much better gains than the UDC portfolio in q1.  However, as stated above the objective of this fund is not to track the undulations of the S&P500, but instead yield more consistent absolute returns.   A more representative benchmark for this fund is the utility industry as best represented by the SPDR Utilities Select Sector (XLU).  This etf lost 1.7% in q1.  Hence UDC significantly over performed this fund.

Looking ahead, it will be interesting to see how this portfolio performs.  The dividend yields on the target stocks have been declining and it is getting a little harder to find  candidates. Further, there would seem to be some real risk that utility stocks can not to be challenged if/when interest rates begin to rise.  So it is possible we will might better test how well this portfolio meets its objectives in a down market.

 

RETURNS	UDC DIV.	UDC CG	UDC TOTAL	XLU	S&P500 (DSPIX)
2009 q3	7.73%	-2.86%	4.87%	6.26%	11.43%
2009 q4	8.22%	-4.29%	3.93%	7.02%	6.02%
2010 q1	8.10%	-5.93%	2.17%	-4.38%	5.36%
2010 q2	7.98%	-7.89%	0.09%	-3.68%	-11.39%
2010 q3	5.53%	1.08%	6.61%	12.16%	11.24%
2010 q4	5.62%	-3.25%	2.37%	1.05%	14.80%
2011 q1	5.95%	-3.34%	2.61%	2.69%	5.90%
2011 q2	5.96%	-0.39%	5.57%	6.10%	-2.10%
2011 q3	6.85%	-8.89%	-2.04%	1.44%	-13.89%
2011 q4	4.78%	0.96%	5.74%	8.17%	11.20%
2012 q1	4.46%	-0.91%	3.56%	-1.70%	12.00%
Compound Return			41.40%	39.60%	56.60%
Standard Dev			4.0	4.9	9.0
TRADE STATS	Trades	Wins	Loses	Win %
2012 q1	14	11	3	78.6%
Total	194	147	47	76.0%
Correlations between these three funds are shown below.
udc/xlu	0.72
udc/spy	0.70
xlu/spy	0.35