Monday, January 30, 2012

Hedging via The Double Short European ETF

As part of  CCI's new year resolution to more actively mange/hedge the portfolio of global country funds, CCI established a short-term position for hedging purposes in the double short European ETF (EPV) today.  Bought at $41.90 after commissions.   

Aside from the longer-term less than optimistic picture of Europe, this position was taken with the thought the whatever comes out of the latest European meetings in the next few days will be disappointing to the market.

Sunday, January 29, 2012

Locking in Profits in Gold.

As previously posted  here , CCI  established an option position to provide the potential leveraged upside in gold (GLD)  and the gold minors (GDX) in late December.   Since that time gold has gone up  over 10%.  CCI locked some profits in on this position on Friday.  Specifically, CCI cover the 2 Mar $50 GDX short puts and sold 2 Mar $62 GDX calls against the portfolio's GDX position.  This was done for an inconsequential credit of $.014/share. 

More important than the small credits received to establish this position is that this action removed any risk of a pull-back in the price of gold.  (i.e. this trade can now not lose). It also  kept the long $155 March option in gold intact.   This option has increased in value by $9.30.  That is an approximate 14% gain against the total risk capital on the original trade.   Since we are playing with the houses money, we will leave this option open for awhile longer.  It provides a  small open-ended insurance policy against something crazy happening in the world that causes gold to rise rapidly.

Fortunately this same type of trade has now worked four times in a row. As the trade continues to move toward its March expiration, CCI will be looking for the opportunity to put this this type of trade on again in further out months.

Friday, January 27, 2012

You can't win them all

CCI took off  "the pressure" of an undefeated season in the inverse levered etfs today.
Sold SDS for a 1% loss on this lot today.  0-1-0 for the year using this strategy.

Still thinking about getting hedges in place, but did not want to hold this over the weekend.

Establishing some Hedges on Emerging Markets

One of he goals of CCI portfolios is to lose less in down markets, with the trade off being making less in up markets.  Last year, CCI's portfolio of non-US countries performed only slightly better than the global markets. (i.e. loss only a very little less).  It seems this just once again seems to prove the point that just trying to pick the right stock/country is not really enough to improve your risk/reward.  It seems like some amount of hedging needs to be done to improve a portfolio's risk/reward.   This year, CCI plans to put more hedges in place around global funds.  To that end, two option positions were established this week.

1). CCI has a full, long  position in the major Brazilian ETF (EWZ).  This fund is up about 10% so far this year.  An option position to hedge against a stall or fall in this market's rise was established.  Specifically an unbalanced butterfly spread was discussed on  Given the overall long position of CCI in EWZ this seemed to make a tremendous amount of sense.  Specifically a Feb $62/$63 - $66/$68 butterfly was established for a credit of $.94/contract after commissions. A few scenarios:
  • Best case for this trade - the stock stalls in the $63 to $66 range and the portfolio pockets the $.94/contract (nearly 1.5% gain).  This is a relatively narrow range but is offset by the relatively minor impacts to the overall portfolio if the etf trades out of that range as defined below:
  • Best case for the position - the stock rockers well past $68.  This trade loses $1.06/contract, but the long holding goes up substantially.  Admittedly, doing this trade will be a drag on performance, but the position will still be up nice;y
  • Worse Case - The etfs falls below $62.06.  That is the break even for this trade and this trade will lose an insignificant $.06/contract.  However, the long portion of the portfolio will of course be down.
So this trade barely loses if the market falls, is a moderate drag on the position if the etf continues to soar, and enhances returns if the etf  consolidates at this level for awhile.

2). As previously posted, CCI started the year intending to build a position in the emerging market etf (EEM).  However, with this fund also increasing by 10% this year, CCI is thinking it might be time for some consolidation.  Hence, earlier this week CCI bought the Feb $38, $40, $42 butterfly for $.52.   This trade profits if EEM slides back to around $40 in the next three months.  This is a very modest position size and in essence what seemed like a fairly cheap way to be have some short exposure in the global portfolio. As of Friday, EEM is trading around $42.50.  So currently, this is not looking too good.

Tuesday, January 24, 2012

Adding portfolio protection via SDS

CCI continues to look for ways to add a little protection to the portfolio.   One way to provide some portfolio protection over a short time frame is to utilize inverse, leveraged, ETFs.  Last year CCI had an almost unbelievable 14-0-6 record using this approach.  Hopefully we can be half that effective this year.

Today, CCI put on its first trade of this type for the year by buying one lot of  the double short S&P500 ETF (SDS ) at $17.68 after commissions.  Several reasons for initiating this position today.
  • The market has had a nice 4-5% run over the past three weeks and the general ebb/flow of the market might lend itself to a pull-back.
  • IMO corporate earnings seem to be coming in ok....but not great.
  • State of the Union tonight - One of CCI's thesis is that when politicians speak they generally disappoint. That is in no way intended to be a left/right political statement, but rather just a belief that in today's world it is challenging for any politician to make a speech that reduces uncertainty.  That can lead to market nervousness.

Sunday, January 22, 2012

Teva Shares Called Away

Teva continued to move up, and one lot of stock was called away at $42.50 via options assignment this weekend.  Overall the Teva position is up nicely, but this lot will have been called away  at a loss. This lot was sold at a loss, but the overall position is up nicely.

As documented in  this original article , one of the main reason for liking this stock was a management team goal of over $7 eps in 2015.   It is not clear to me that the company is on track for that goal any longer, and certainly the identification of a new CEO could change this type of goal.  Hence, at this point I'm inclined to wait and watch with half a position in play, with a bias towards closing this position on any more upward movements.

MMM Position Closed

With MMM trading over $85, the portfolio's final lot of MMM shares were assigned at options expiration this weekend.  Overall, this lot of shares returned 5.9%.  in about 5 months.  Not bad,  but "just" buying and holding this equity over the same time frame would have resulted in about a 7.8% gain.   Of course, if the stock would have tanked, the option positions would have served to reduce the losses on the position.  So this under performance can be viewed as reasonable opportunity cost of hedging.

Going forward, MMM reports earnings on Thursday 1/26.   CCI's thesis is that MMM very often does everything it can to mange down expectations.  "If" that happens this earnings report, and "if" the stock pulls back toward $80 after earnings,  we might consider re-entering this position.

Friday, January 20, 2012

Tech Earnings Impact on Holdings

Thursday was a big day for earnings reports in the tech sector.  Below are some thoughts on the earnings reports:

Google (GOOG) - Ouch! Their earnings disappointed and the stock fell over 8%.  Very little good news for the portfolio here.  At least we had "only" bought half our target position prior to these earrings.   I'll have to review the earnings call further, but it appears as if search was down and they spent more than expected on the new businesses.   I guess taking a step back, that is what you want your management team to do.  Protect market share with lower pricing on the mature business and invest in the new.   (How's that for rationalizing!).  Looking to the future, I suspect this negative surprise will keep a lid on this stock for at least one (and probably more) earnings cycles.  If the stock retraces back over $600, I'll probably look to unload one of the lots, take a loss, and look to get back in at a lower price

IBM (IBM) - Ho hum, another solid quarter.   Up 4% today. Most importantly to me they reenforced their goal of $20/eps by 2015.   With a huge backlog of long-term business,  this goal seems very achievable.    Given those earnings, it is just a matter of playing "pin the multiple on the earnings".  At 12 times earnings that is $240 or a gain of 27% or 8% per year for the next three years.  Plus a nearly 2% dividend.  Not a home run, but potentially one of the highest probability 10% returns in the market.   If the market ever gets a little enthusiastic and gives it a 15 p/e....$300 here we come!  I continue to believe in this story. In full disclosure this is my largest individual equity holding.

HP(HPQ) - As discussed in yesterday's post HPQ traded in sympathy with IBM today (up 3.6%).  I'm not sure that coattail based enthusiasm will continue.   I still like covered calls against HPQ positions here.

INTEL (INTC ) - Intel keeps grinding forward, meeting lowered expectations, and went up 3%. I think the market is starting to agree with me that Intel's core capabilities make the story much more than just chips for consumer's pcs.   With Intel  trading over $26 today, p/e's are finally getting into double digits and closer to fair value. At $30 I would think it is more fairly valued.  That is "only" 15% from here, so it might be appropriate to take a little profit on this up move.  In that regard, the portfolio has one lot of Feb $25 covered calls in play that might result in one lot of stock being called away.

Thursday, January 19, 2012

HPQ - Covered Calls

HPQ traded over $27 today.     Frequent readers will recall that  CCI believes that HPQ will stall out in the upper $20s for awhile longer.   Option volatility has been steadily falling making selling premium less profitable, but today CCI sold a lot of Feb $28 calls for  $.40 after commissions.  In the most basic scenarios:
  • The stock trades over $28 a month from now and a lot will be called away at an effective price of $28.40.  A level at which I'm comfortable selling
  • The stock will stall or fall and CCI will keep the 1.4% premium to try to ease the pain of the loss we are sitting on in this stock.
More likely, the stock will bounce around over the next month and these options can be profitably traded in the shorter term.

Rationale for doing this today is that I'd expect HPQ to trade tomorrow "in sympathy" with IBM as it reports earnings tonight.  i.e.  If IBM trades up: HPQ will trade up, and if IBM trades down: HPQ will trade down.    However, while HPQ certainly has similarities with IBM it is not the same as IBM.  It has a different valuation, a different status of its management team, a larger focus on pcs and consumer, is earlier in the integration of services, etc.  With these type of differences, I'm not sure trading in sympathy with IBM is necessarily "correct".  Hence if HPQ trades up on IBM results I'd suggest it is getting overvalued, and deserves to be sold.  If HPQ trades down with IBM results, I'd suggest it is getting unduly punished.   The covered call capitalizes on this type of situation.

Wednesday, January 18, 2012

Taking profits in EEM option trade

This post described CCI's option positions straddling EEM.   EEM  moved over $41 today. this year.  CCI was able to close the Jan $40 covered calls for essentially cost  a few days.  The Jan $38 naked puts "should" expire worthless this Friday for a gain of $.55/contract.   It would have been better to just be long this ETF, but these option plays made money with reduced risk. 

CCI will likely re-establish some option positions on any pull back.

ANR Call Spread - Never mind

This recent post described a 1x 2, $23/$25 call ratio spread CCI established on  ANR.  CCI  thought that ANR might be ready to rise and this trade could help the position recover.  Unfortunately,  ANR did not cooperate and retreated back below  $20.  This move seemed to mean it would take too large of a move for this trade to work out, so CCI took off this trade for a few penny, non-material gain.  If the stock moves up we may look to put it back on when it has a higher chance of success.

Monday, January 16, 2012

Rolling Over Option Sales for More Income

With one week until Jan options expiration, CCI closed out the $370/$375 - $430/$435 iron condor in Apple that was established a few weeks ago as documented here.   The portfolio made $88/contract. That is just over 50% of the max gain for the trade and a 26.7% return on the max risk on the trade.   This trade would perform best if the stock had stayed closer to $400 over the past two weeks.  However, the stock flirted with the $430 upper-wing of the trade for the past week.  With the stock back near $420, much of the margin of safety in the trade is gone.  Since 50% of the max gain was obtained,  the risk/reward balance seemed less attractive and hence it was time to take the profits and run.

This portfolio continues to search for ways to make money if the market goes sideways, so CCI re-allocated the capital from the trade above to two new iron condors in CREE and LVS are described in this article.

Saturday, January 14, 2012

Why to start accumulating Google shares now.

As discussed in this post, CCI has started to initiate a position in Google (GOOG).   Read more about why now might be a good time to start building a position in this stock in my atricle at Seeking Alpha.

Thursday, January 12, 2012

ANR ratio spread - Is third time a charm?

Readers will recall CCI had established the $23-$25, 1 by 2 ratio call spread in both Nov. and Dec as a way to repair a put sale gone bad in ANR.    Both times the stock retreated and these spreads expired worthless.

Let's hope the third time is a charm, because today CCI re-established this spread in Feb.  ANR was trading around $22.50 and trade was done for a very modest $.04 per contract credit.  If you need  a refresher on this activity and the rationale for this recovery trade it is documented here.    Book value (from Yahoo finance)  is still over  $36 and my calculations of tangible book value is still over $25.   Hence, it seems the stock still has a reasonable chance to get back over $25.  At that price the spread will have max gain, but it will start to make money over $23 ...all for no further out-of-pocket costs.

Wednesday, January 11, 2012

"Putting" on some insurance

As discussed in this article  with the market up and volatility down it seems like it might be time to establish some hedges by selling a put spread on the S&P500 (spy)

Monday, January 9, 2012

Adding to Google Holdings Today

Google (GOOG)swooned today 
If I liked it at $636 as described here, I must love it at $

Bought a second lot today at $626
Plan to sit on these two lots through earnings, and then review plans going forward.

Stay tuned

Cisco covered calls

Cisco (csco) pushed over $19 today.   In a previous post (here), CCI bought $10 Jan 13 Leaps with the intent of selling calls against that position if Cisco traded higher.  Specifically CCI sold the Feb $20 calls for $.37 after commissions. 

  • If the stock continues to rise to over $20 by Feb expiration we will take both legs off for a nice profit.
  • If the stock reverses, CCI will harvest some of the premium from the Feb covered calls which will lower the break even price for the Jan $10 leap leap.

Friday, January 6, 2012

Shorting LULU.....again

With the overall market starting the first few days of the year in a positive manner, it generally seems like time to get some short positions in place to provide some hedge to the portfolio.   To do that CCI decided to go short Lululemon today at $53.54 after commissions.

CCI discussed some of the fundamental rationale for shorting this stock in this post in October.  Trailing P/E remains at 47.   Being short LULU is not a unique view.  LULU is one of the most heavily shorted stocks in the market.    Earlier this week Goldman Sachs made some positive statements about LULU and the stock has gone straight up about 12%.  CCI is thinking some of that price rise might be a short squeeze caused by this news.  Further, if I was cynical about wall street  (me, cynical about wall street..really) I might think that the street will be nimble enough to take the other side of this situation.  Hence I felt now was a good time to re-enter the short position.  Of course, it is also possible that CCI will become the next victim of the market remaining irrationally optimistic about this stock for an extended period of time.   However,  the overall long bias of the portfolio will probably perform very well if the market continues to move straight up, so this trade can be rationalized as an overall hedge. 

Thursday, January 5, 2012

Using options to build a position in EEM

Frequent readers will recall that CCI had two international portfolio's in 2011 EEM2 and GSPY.
In 2012 CCI will be merging those two portfolios into one global portfolio.  The portfolio plans
  • to continue to hold the 7 country etfs described in those funds
  • to add in several other country funds
  • to more actively trade/hedge this portfolio than done in 2011
As part of the last objective, CCI is working to build  a core position in a leading emerging markets etf (EEM) and trade options around this position to hedge the overall global country portfolio.

At the start of 2012, the portfolio is long one lot of EEM at an effective price of $38.33, and one lot of  naked Jan 6 (weekly) $38 puts.  Building on this position over the past two days:
  • Sold the Jan $40 calls against the one lot of shares owned for a credit $.57
  • Rolled the Jan 6 (weekly) $38 puts to Jan $38 puts for a net credit of $.55
Setting the details of the math aside for a moment.  
  • There is about a 43% chance (according to option theory) that EEM will be trading below $38 at Jan expiration and CCI will be the proud new owner of a second lot of EEM.  Since there is a good chance this may happen an investor really needs to be comfortable with this outcome.   Additionally, CCI will have collected $1.84/share (4.8%) in option premium to lower the cost basis.
  • If the stock stays between $38 and $40 over the next few weeks, CCI will still collect the $1.84 option premium and own one lot of shares.
  • If it rises over $40, CCI will collect the $1.84 in option premium, and make $1.67 on the first lot of shares being called away.

Wednesday, January 4, 2012

Trying to saving some money with a Costco iron condor

In CCI's continuing attempt to generate income via options, an iron condor in Costco (COST) was established.

Readers relatively new to option strategies might recall that  an Iron Condor will make money if the stock trades in a range. In general an iron condor is the combination of a put and call spread.  The specific transactions in this case are:
Sell Feb  $ 80.00   Put     Sell Feb $87.50 Call
Buy Feb  $ 77.50  Put      Buy Feb $90.00 Call
Costco is trading around $84.50.  The options were sold for a credit of $79/contract after commissions.
The $80 level is about the 200dma support level, and the $87.5 is near the recent high resistance. This trade is basically a bet that the stock stays within that 10% range.  

The trade is not anticipated to be held to expiration date, but If held to expiration:
  • Worse case the stock hits new highs over $87.50% or pulls back below $80 and the portfolio will lose $171 per contract.  ($2.50spread -.79 credit)
  • Best case the stock stays anywhere between $80 and $87.5, and the portfolio keeps the $79 premium. gains $164. That range is a little tighter than CCI would normally like to see in an iron condor, but I think this stock has become a leading provider of "staples" that is more likely to stay stable than most of the market.
  • Realistic Case - Around Feb. 1 CCI would anticipate looking to exit this trade.  This is after the Jan options expire and are rolled towards Feb, and initial q4 earnings will have been released. 
If all that "option speak" is too much for you,  just think of it as a "bet" that Costco stays between $80 and $87.5 with 1:2 odds.   You can take either side of the position.  However, CCI is looking to hold some positions that make money if the market continues to go sideways.  This is situation where we believe that can happen.

Tuesday, January 3, 2012

Teva - Covered Calls

CCI's position in TEVA has not moved very much over the past months. Today it jumped nearly 7%.  It seems the market likes the idea of a new CEO!  In the longer term, a new CEO could be a good change agent to help drive this stock towards my original target price near $50.  However, in the shorter-term I suspect that today's positive reaction might be short-lived. It usually takes several quarters for a new CEO to have an impact on the company.

Hence, this morning CCI sold Jan $42.50 calls against one lot of the stock in the portfolio for a credit of $.80. The stock continued to move up during the day and an investor could have gotten a much better price or moved to the $45 strike.  Two scenario's 
  •  Today's positive move was indeed an over reaction, and the stock will pull back in the short-term.  In this case CCI will look to harvest some premium and potentially roll this same call out t a future month
  • The stock stay here or rises.  In this case one lot of share will be called away at an effective price of $43.30, and the other two lots in the portfolio will continue to enjoy the ride. 

Monday, January 2, 2012

2011 Report and 2012 Plans

2011 was the inaugural year for CCI. I want to thank all of you have taken the time to read the blog this year. I hope it has provided some insight for you, and look forward to your continued support in 2012. This post provides an overview of 2011 results and insight into plans for 2012.

2011 Review
CCI had two initial goals in 2011.
  • CCI's first goal was to see if I had the time and energy to keep this active/current for the full year, and if anyone would read it. I feel I was able to accomplish this objective.
  • The second objective was the basic goal of any trading log, to clearly document why an investment is  made, track performance, and become a better investor. Making the effort to documenting trade rationale seems helpful. Frankly, I really did not entire the year with any infrastructure in place to track performance. However, based on my cobbled together, unaudited, approximate review of 2011 posts the performance has been good. Specifically:

    • All domestic stock and options activities had just over a 5% gain. The S&P500 had a 2% gain (all from dividends). Hence, it seems CCI performed 2.5 times better than the market.!!! Of course, past performance is no indication of future results. However, this type of performance is consistent with the objective of the type of investing discussed in the blog. My expectations would be to under perform in big up markets, lose less in down markets, and out perform in sideways markets. Over the long-term, I think that will provide a better, more stable return.
    • The two international portfolio's both lost about 11.5%. It is a little more challenging to determine the right benchmark for these portfolios. My understanding is emerging market were down about 16% and developed markets down about 11% in 2012. Blending those two numbers based on the asset allocation that was used in these portfolios results in benchmark down 12.5%. I guess 11.5% is over-performance, but I would have hoped to lose less than that amount in a down market. CCI will be re-examining the approach in this area in 2012.

What's new for 2012

In the inaugural year, CC posted about a variety of stocks and options that I found of interest. The big change planned for CCI in 2012 is more focus. Specifically, in 2012 CCI plans to focus on six specific groups of stocks or portfolios. The stocks in each portfolio will be in a similar industry and/or share a similar set of characteristics. Within each portfolio CCI intends to use a wide variety of techniques beyond just being long equities. This includes the heavy use of options, some shorting, and a minor amount of leverage. Yes, these can be considered hedge fund type tactics. To many that may seem aggressive. However, it can also be viewed as the common sense way to invest in markets today.

This increased focus is intended to

  • Make it easier for readers to understand how specific post “fit together”
  • Differentiate CCI from many other “stock pick of the day” internet sites
  • Make it easier to track and understand performance

The six stock groupings are
  • Global Country Basket (GCB) - An alternate blend of non US ETFs
  • Options for Income (O4I) - Generating income via selling options 
  • Behind the Clouds (BTC) - Technology Sector, hedge fund
  • Utility Dividend Capture (UDC) - Utility Sector, Income oriented
  • The Short Game (TSG) - Shorting market indexes
  • Sweet Swing Trades (SST) - Traditional opportunistic swing trades

To support this focused effort, there will be some technology changes.
First, the groupings on the left side of the blog will be migrating to these six topic areas. It may take some time to evolve to this architecture, so the community's patience during the process is appreciated.

Second, CCI is also announcing the pilot release of a web site! It can be found at

This web site is intended to provide a platform to better contain common sense thoughts and theories about investing, better keep track of trades over a long period of time, and allow for future expansion of the concept of self directed investors managing and sharing portfolios in their areas of expertise.

Please note: this web site is a work in progress and will probably remain that way for much of 2012
For starters, CCI's IT staff (i.e. me) is still learning how to produce a web site and CCI is too cheap to outsource web-site development (for now). In 2012, the focus will be on adding content, and in future years potentially accessing better web development skills to improve the form of the site.
Secondly the web site is intended to grow over time, so for now several initial pages are listed as “under construction”. Throughout the year, CCI will be considering if/how this web site may need to grow, with the intent of formalizing it better in 2013.

Thanks again for your support in 2011 and best wishes for a happy, healthy and prosperous 2012.


Sunday, January 1, 2012

UDC Portfolio Q4 Results

The Utility Dividend Capture portfolio  (description here) made 5.7% in the fourth quarter, and 12.2% for the year.     The fund once again, as planned,  generated significant dividend income (4.8%).  The portfolio was also able to piggyback on the rising tide of utility stocks in the stock market to post a small capital gain (.9%).

Of course the S&P 500, and more specifically the utility sector ETF (XLU) had much better gains than the portfolio.  That is not surprising as this portfolio's objective is more oriented towards an absolute return and better weathering downdrafts.  This is illustrated by the continually falling volatility of this portfolio.  Over the 10 quarters of existence its SD is now less than half the S&P 500 and 20% less volatile than even the much more docile utility ETF.  Performance results for the past 10 quarters are shown below.

Looking ahead, it will be interesting to see how this fund performs.  The rise in prices of utility stocks has understandable been driving the dividend yields on these stocks down.  Hence it is getting a little harder to find perfect candidates. Further there would seem to be some real risk that utility stocks can not continue to ride.  So it is possible we will be able to see how well this portfolio meets its objectives in a down market

S&P500 (DSPIX)
2009 q3
2009 q4
2010 q1
2010 q2
2010 q3
2010 q4
2011 q1
2011 q2
2011 q3
2011 q4



Compound Return

Standard Dev



Correlations between these three funds are shown below.
  • udc/xlu .77
  • udc/spy .71
  • xlu/spy .46

Win %
2011 q4
1 93.00%