Friday, April 27, 2012

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.

Wednesday, April 25, 2012

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.

Sunday, April 22, 2012

"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.

Wednesday, April 18, 2012

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.

Tuesday, April 17, 2012

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.

Monday, April 16, 2012

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.

Sunday, April 15, 2012

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.

Thursday, April 5, 2012

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.

Wednesday, April 4, 2012

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.

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