HPQ - I told you so....Now What?

HPQ reported earnings on Wed.  Not to say "I told you so".......but.......
Earnings met short-term expectations and then Meg Whitman spent the rest of the day lowering longer term expectations.

The weekly options earnings trade discussed here expired on Friday max gain.  With HPQ trading around $27, the March $29 covered calls discussed here  were deep in the money, and CCI covered them today at $.04. 

Now that I'm done patting myself on the back on those two good trades, it is time to go back to figuring out the next steps for the portfolio's underwater HPQ position.    This article at seeking alpha describes why I think an investor's strategy can continue to be  "trade the range" . 

As discussed there, CCI sold a lot of Apr $26 puts for $.73/contract on Friday.   An investor can get an even better price today.

Closed a Gold Position

With GLD trading over $173 and near its last high (in Nov of $175) CCI sold the March $155 call in the portfolio today.

This completes the fourth round trip for this trading strategy for holding gold. As shown in this google doc,  this round trip had a robust 19% gain, to bring the total gain for this strategy to 56%.  Gold is up "only" 32% during this same period.

CCI remains long gold via the Jun $175 calls.  If gold pulls back we will consider adding to the position in some manner.

Let's try putting on insurance...again

As discussed here CCI had bought some portfolio insurance via a February put spread on SPY.
Oops.   The market has pretty much gone straight up since that article. With the expiration of those options last week this insurance premium is now officially a "sunk cost of hedging."  (That sounds better than a loss...lol)

The normal ebb and flow of markets makes it seem like there is at least a 50/50 chance of a market pull back somewhere around the corner.  Hence CCI re-established a hedge.  Specifically I bought the SPY March $135 - $129 put spread late Tuesday. Cost of $126 per contract.   Hopefully we will lose that again...lol.  Because that means the rest of the portfolio will prosper.  If the market does pull back,  the max gain potential of  $474/contract from this position will modestly reduce the pain.   Break even at $133.74

HPQ Earnings Play using Options

HPQ reports earnings on Wednesday.  Recently the stock has been climbing back after a string of disappointments.  As discussed in this article CCI's thesis on this stock has been that it will be range bound for awhile until it is clearer to the market that some of the past noise around the company is  behind them.  Based on this thesis CCI has been selling calls against the stock owned in the high $20s. 

With the stock trading at $29.5, CCI continues to believe that  it might be near a short-term top.  More specifically HPQ announce earnings this week.  Obviously, I don't know what earnings will be.  If they had a  bad quarter they stock will very likely pull back.   If the earnings are good,   I don't think the new CEO will spin that as "all is well".  She is still new to the job and my impressions is she is well seasoned at managing market expectations.  I think she would expect more twists and turns in the future for HPQ an talk cautiously about future expectations.  That might limit any enthusiasm from good earnings. 

CCI sold the Feb weekly $30-$31 call spread for $.32/contract today.     According to mathematical option theory there is about a 35% chance of the stock trading above the break even of $30.32 at break even.   Given my beliefs above I think the odds are substantially lower than that that the stock will make it that high. So this is short-term, defined risk, speculative way of putting my money behind my beliefs.  If the stock stays below $30, we will make the max profit of $.32/contract.

Thinking Retail has Hit a Short-Term Peak.

Retail stocks have had a great run the past two months.   CCI is willing to take a small position that that trend will slow down soon.   On Friday, CCI sold the March $59 -$60 call spread in XRT (an etf of retailers) for a credit of $43/contract after commission.

Basically this position will profit  if this sector pulls back in the next month. In this case it will act as a hedge by providing some income to balance the likely overall losses to the full portfolio.   If the retails  sector continues to soar, the max loss on this trade is $57/contract.

Rolled HPQ Calls Out and Up.

As discussed here , CCI had sold one lot of Feb $28 covered calls.  Earlier this week CCI rolled those calls out to the Mar $29 calls for an insignificant $.04/contract credit.  HPQ continues to have an attractive valuation based on some of its often discussed issues.  It reports earning next week.  If I were Meg Whitman, (new CEO) I would like to try to paint a picture of stability not wildly optimistic upside.  Hence, I'm thinking this earnings announcement will be at best "in-line".  If that is true and the stock pulls back after earnings,  this option roll-out will provide some yield enhancement.  If I'm wrong and the stock continues its climb for a month we can either roll again or more likely let the shares go.

Adding to the 50% Gain in Gold Options!

CCI continues to want to have some small exposure to gold primarily for "insurance" against some wacky market move.  As discussed several times in  posts like this CCI is getting this exposure via options.  This approach attempts to capitalize on the high correlation, but volatility differences in the gold miners etf (GDX )and gold etf (GLD ).   A trade history for this strategy can be found in this google doc. 

Please note that since these trades were started about a year ago they have gained 50.3%!!!!
Gold is "only" up 26.8% in the same time.  Clearly the leverage has worked in our favor!  What is potentially more important is that less capital was at risk, and if/when the gold market moves against us this approach seems like it should lose less than just holding gold.   Hence, CCI plans to continue using this approach.


With gold slumping this week, a few trades were made::

- Closed the Mar $62 covered calls in GDX.   The portfolio is still long the Mar $155 calls in GLD.  The profits on the GDX options have more than covered the cost of this GLD option.  It is in the money now, but we are going to let it ride for awhile longer.

- 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.   Worse case, on a pull back in gold, the portfolio will become long 200 shares of GDX at a price of $51.57.  

Trying to "Hedge" via the Double Short ETFs

This year's market run-up and some noise from Europe today pushed CCI to day trading the double short S&P 500 etf today.  Wait...I mean employ some advanced hedging tactics to minimize the volatility of the overall portfolio...there that sounds much better.

CCI bought a lot of SDS mid morning and sold it this afternoon for a whopping .1% gain.   Yes, a tie.
That makes CCI 0-1-1 this year on leveraged double short trades.

As an aside, the inter-day moves of the stock market have been very small this year.  Today this double leveraged etf moved only about .5% over the whole span of this trade.  Bespoke Investments had an interesting article about the stock market moves in this article after hours vs trading day.   Seems like an unusually high amount of stock market movement has been occurring in after hours markets not during the US trading day.  I'm not sure if that is a temporary development or more indication of the tail wagging the dog (i.e. futures, options, etfs, foreign stock exchanges, etc driving US equity prices not the reverse).  Not sure what to make of that, but seems like an interesting development.

Cisco Covered Calls Rolled Out and Up

Cisco (csco ) reported earnings yesterday and is trading around $20.

CCI remains long the Jan 13 (Leaps) $10 calls.  We had sold the $20 Feb calls against that position, with the belief the stock would be challenged to break trough $20 and this covered call could boost returns.   This year's relatively rapid move to $20 has been surprising and overall positive for the leveraged LEAP position.  However, with the straight up move there was never really an opportunity to harvest any of the premium from the $20 Feb covered call.  Today we rolled the $20 Feb calls to the $21 Apr calls for a non-material $.03 debit /contract.  This gives us

•  either - more time to harvest this option premium if the stock pulls back
• or -  increases the potential gain from the spread by $1 if the stock rises.

Strangling eBay

ebay (ebay) is a cornerstone of the Internet age.  Currently eBay is comprised of two key businesses

• Marketplaces - such as ebay.com, stubhub.com, etc
• Payment Processing - primarily Paypal

From a long-term investor perspective, these two businesses provide both some synergy and diversification. From a stock market perspective it appears as if this diversification might keep it trading within a range.
Read my article here  that describes how selling a $27 - $35 strangle can be a low risk way to generate a 3% cash return in the short. term.

As originally discussed here and last discussed in December here, CCI continues to have a full position in Boeing (BA).


The position was accumulated  at an average cost of $70.50 over the past year . With the stock trading at $75 it is modestly positive. Additionally, CCI has harvested the 2.3% dividend and a few option premiums.    With a minor pull back in the stock today and the option expiration date near, CCI bought back the lot of Feb $75 covered calls today.  These calls returned just under 2% on one lot of shares over less than 3 months.   Nothing spectacular, but a adding a modest little boost to returns on the holding.

It still seems like Boeing is near the beginning of it cycle of new plane and hence CCI will continue to hold the position. CCI will be looking to sell calls again a little further out and hopefully up in the future.

ANR Call Spread - Foruth Time a Charm?

As last discussed here CCI has made several attempts to repair a trade in ANR by buying a 1x2 call ratio spread.    With some recent positive movement in the stock, time to try that that once again.  This time by buying 1 lot of Mar ANR $24 and selling 2 lots of Mar ANR $26 calls on Friday.  That trade was done for a modest net credit if $.10/contract.   If the stock can bounce back to $26 (still my adjusted book value) we will have more than recovered the loss in this trade.

FYI, This weekend ANR discussed shutting in a small amount of production.  That could be a catalyst to  change some of the dynamics for this stock.

Intel Covered Call Exercised

The Feb $25 covered calls in the portfolio were exercised early today as someone was able to skim off off a small arbitrage profit between the option price and the x-div amount.  Not entirely they way we wanted to this lot to be closed, (at an effective price of $26.25).   However, a big profit on this lot, and Intel may be getting a little ahead of itself.   If there is a pull back, we might consider selling a lot of puts to re-establish this lot.

More Market Neutral Option Plays

CCI continues to add option positions that will profit if the market goes sideways.

 Click here   to read my article at seeking alpha about recent trades in Amazon(amzn) and Starbucks (sbux)
Immediate after Amazon earnings, CCI was able to close that trade for a gain of  $113.51/contract.  The Starbuck trade is slightly in the money  ($.18/contract) and we are still holding that.

Based on some readers comments, we decided to continue pursuing a weekly option trade.  Specifically today we added a 40/45 - 60/65 iron condor in the highly speculative and volatile green mountain coffee (GMCR).  Weekly option volatility was over 250% so we could not resist looking to sell some premium at those levels.  The stock is up 20% after hours on strong earnings so this might not have been the best play, but hopefully we can salvage some of this trade in tomorrow market.