Selling Covered Calls on Cisco....Again

With Cisco (CSCO) trading back near its 52 week high, CCI continued with the plan of selling covered calls against a Jan 13 $10 call  position.

Specifically, CCI sold the May $21 calls for a credit of $.48/contract after commissions.   A few scenarios:

•  If the stock does break out over $21 in the next two months the combined leveraged from the gain in the LEAP and the covered calls sales to date will be up approx 40%.
• If the stock stalls out or falls in the next two months, the covered call will yield 2.3% (before leverage) to soften the blow of the any market pullback. 

"Linsanity" could make shorting MSG a slam dunk

With the market hitting new highs, CCI continues to contrarily look for  positions to provide a hedge to the overall rising portfolio.

Read this article for rational why Madison Square Garden ( MSG )  stock might be overvalued, largely based on Linsanity.

Hoping the Heat Wave will continue the Decker melt down.

Decker Outdoors (DECK) engages in the design, manufacture, and marketing of footwear and accessories for outdoor activities and casual lifestyle use for men, women, and children.  Mostly known for the UGG brand name.   This previously high-flying stock has plummeted this year.  The most common rationale for the melt down in the stock has been a warm winter meaning lower demand for their well know boots.  Several analysts have downgraded the stock recently.

CCI considered shorting the stock.  However, decided to make a short-term more speculative play. Specifically with the stock trading around $69.20 today,  sold the Mar. $70 call and bought the Mar $72.50 call.  Received a credit of $.57/contract after commissions.  That is the most the trade can make if the stock continues to trade below $70 for four more days.  Pure theory says there is about a 60% chance of that happening, but I'm hoping this week's warm weather is not going to trigger a lot of demand for someone to buy this stock this week.   The trade starts to lose money if the stock trades over $70.57. This is a little more speculative play than CCI normally makes.  I did not commit a lot of capital to the trade, but it does provide a little more short exposure to the portfolio for the short term.

Double Yawn

In breaking news today.....Greece defaulted.  
Yawn.

CCI thought either this event triggering credit default swaps and/or momentum money going to the sideline for the weekend might make today a good day to hedge the portfolio by adding a little of a  double short etf to the portfolio.

Hence,  this morning CCI bought the double short for the NASDAQ 100 (QID)
And......... yawn.  

I just went back and checked. From the point of purchase this morning until the end of the day the etf traded between down $.12 and up $.06.   That "huge" move is in a double leveraged etf.  
That is certainly a....double yawn

Near the end of the day, CCI got stopped out at break even. 
0-1-2 this year trading the double shorts.
Yawn

Not sure why all the market moves this year seem to be pre or post market, but this does provide a feeling of  complacency.  Who knows, but that is sometimes a per-courser to a market pullback. 

3 April Option Plays to Generate Income

Tuesday's market pullback and increase in volatility created an opportunity to generate some income from the sale of puts. Click  here to read about 3 April put sales in AKAM, IWM, and GLW that generate a credit as they are placed, and seem to take reasonable risks.

Harvesting option premium in CSCO

Frequent readers will recall CCI has a small, one-lot position in Cisco (CSCO)  via the Jan 13 $10 Calls (LEAPS).   The intent has been 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.

Cisco has pulled back more than 3%  in the last week or two.  Seems like that is just the normal churn of the marketplace.  However this pullback and the normal time decay in the option market meant that the April $21 covered calls had fallen to just $.10.   That is not a whole lot of  premium left to harvest over the 6 weeks until expiration so CCI covered the April $21 calls today.  

Overall, this cycle of covered calls generated a  $.21/share. That is a very modest 1% gain of the stock price and a slightly less modest 2.5% gain when calculated against the reduced capital requirement of the LEAPS.  Of course,  that is 5% or 12.5% return on an annualized basis and consistent with the goal for this position of generating income via option premium. 

As a big bonus the LEAP itself is up a very, very  nice 14%.   However, with over $8/share of cash stashed around the globe and what seems like a stable business CCI continues to believe this stock is a good candidate for this type of strategy.   Hence CCI plans to hold the Jan $10 call for awhile.  If CSCO rallies back towards $20 look for CCI to reestablish a covered call against this LEAP  and if it falls towards $19 CCI may add a second lot to the portfolio.

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.