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  However, Cuban goes on to offer an approach to addressing the issue aside from the tired, old, outdated, populist, cry for "more regulation".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.