With Bunge over $73 today, May $75 calls were sold against one lot for $1.70/share after commissions.
With earnings season starting, (FYI - BG earnings 4/28) it seemed appropriate to put some hedge on this trade. A few scenario's
Up and away - Hopefully BG breaks out past $75 in the next few weeks. In that case this lot would get called away at essentially $76.7o. This would cap the gain on this lot at around 12%, and the other lot in the portfolio will have a good gain and momentum.
Down - Of course, my bullish opinion of this stock could be wrong (hard to believe I know...lol). One concern is that the current chart could be viewed as starting to show a "double-top" just under $75. If the stock does fall, the premium from this option would hedge the downside by about 2% on the lot or 1% on the full trade. That hedge seems appropriate to me, and was the key catalyst for selling these calls.
Sideways - It is possible the next few weeks could be uneventful, and BG keeps trading in the low $70s. In this case, a decrease in volatility (IV around 27 at the time of the trade) that usually comes after the earnings catalyst passes, and time decay would likely allow these calls to be covered for a 1+% profit.
Stay tuned.
Monday, April 11, 2011
Thursday, April 7, 2011
Cisco Trade ---Never Mind
Today's "efficient" market lesson....if CEO writes email then stock goes up 5 %...lol
* * *
I was expecting the earning announcement to be the catalyst to cause a bump in the stock price. However, it looks like Chamber's email has become that catalyst. I still expect the earning's announcement to be constructive. However, it seems like this email has somehow raised the short-term expectations. These higher expectations increase the downsize risk to the stock price, and the higher stock price lowers the upside reward
So.... I took the trade described in the original article off today. It made a 5.6% gain, but since it was just an initial, leveraged position not very much in absolute terms.
I suspect this rapid bump in price is temporary at it will pull back towards $17. Tempted to try a quick short trade but the fundamentals are too strong. I'll sit tight for now, but will be looking for the opportunity to put a trade on again at a lower level.
Wednesday, April 6, 2011
Taking Xerox risk off the table
Xerox approached $11 today, and the May $9 puts sold about 2 weeks ago trading down to a few cents. Prudent risk management led me to cover this position and remove the risk of being forced to buy the stock on some huge unforeseen downdraft. At the same time, the May $12 calls were sold. The transaction was done for a credit of a whopping $.02/share after commissions, but importantly this means there is now no way loose on this lot!
So to summarize the status of Xerox lot 3
- the commitment to buy another lot at $9 is now gone.
- the lot is now essentially long a May $11 - $12 call spread. At this moment that spread is worth about $.18 cents (or a 2% gain of the original $9 risk amount). We will let that amount ride with the belief that after earnings the stock will continue to rally and that will generate more pure profit. Maximum gain of $1 (or 11%) if the stock goes to $12 by expiration.
PS: Portfolio is still also long two lots of Xerox.
So to summarize the status of Xerox lot 3
- the commitment to buy another lot at $9 is now gone.
- the lot is now essentially long a May $11 - $12 call spread. At this moment that spread is worth about $.18 cents (or a 2% gain of the original $9 risk amount). We will let that amount ride with the belief that after earnings the stock will continue to rally and that will generate more pure profit. Maximum gain of $1 (or 11%) if the stock goes to $12 by expiration.
PS: Portfolio is still also long two lots of Xerox.
Closed Unitrin Trade
On Tuesday, Unitrin hit a pre-established trigger point and the second lot of the trade was sold at $31.47 net of commissions. This lot of the trade was up 33% in about 5 months. The S&P 500 was up nearly 13% during the same period.
The stock now seems more fairly valued. The portfolio no longer holds any Unitrin.
Both lots of this trade performed well as the the total trade gained approximately 30% and easily outperformed the S&P over the holding period
The stock now seems more fairly valued. The portfolio no longer holds any Unitrin.
Both lots of this trade performed well as the the total trade gained approximately 30% and easily outperformed the S&P over the holding period
Tuesday, April 5, 2011
Cisco Trade - A favorable risk/reward indicates it is time to initiate a trade
Cisco has disappointed investors over the past few quarters, and the stock has performed very, very poorly especially in the context of a strong overall stock market.
The following article contains reasons why the risk/reward for Cisco may have finally become favorable, and describes an options strategy to initiate a trading position in the stock.
http://seekingalpha.com/article/261787-why-cisco-finally-represents-a-good-risk-reward-opportunity
Coincidentally, today's news contains info of an internal email from CEO John Chambers to Cisco employees. The above article was written prior to the release of that email. Chamber's email seems to emphasize the need to restore credibility with investors, sharpen the focus of the business, and to expect changes throughout the year. That email can be interpreted in many ways, but to me it just reinforces that this is a good time to take a position for a trade in Cisco.
The following article contains reasons why the risk/reward for Cisco may have finally become favorable, and describes an options strategy to initiate a trading position in the stock.
http://seekingalpha.com/article/261787-why-cisco-finally-represents-a-good-risk-reward-opportunity
Coincidentally, today's news contains info of an internal email from CEO John Chambers to Cisco employees. The above article was written prior to the release of that email. Chamber's email seems to emphasize the need to restore credibility with investors, sharpen the focus of the business, and to expect changes throughout the year. That email can be interpreted in many ways, but to me it just reinforces that this is a good time to take a position for a trade in Cisco.
Sunday, April 3, 2011
Portfolio UDC - 2011 Q1 Performance
The Utility Dividend Capture Fund just completed it 7th quarter of operation.
Detailed information on the objective, approach, and returns of this fund can be found at
http://ccentsinvesting.blogspot.com/p/udc-prospectus.html
In summary, the objectives of this fund are
- absolute quarterly returns of 2+% in quarters when the stock market is up and 0% when the stock market is down.
- to be less volatile than the stock market.
This objective is to be accomplished via trading in and out of 15-20 utility stocks around their dividend x-date to capture about a 1% return from the dividend and relying on market ineffeciency to be able to loose less than that amount via capital gains.
For the seventh quarter in a row this fund achieved its objective.
Detailed information on the objective, approach, and returns of this fund can be found at
http://ccentsinvesting.blogspot.com/p/udc-prospectus.html
In summary, the objectives of this fund are
- absolute quarterly returns of 2+% in quarters when the stock market is up and 0% when the stock market is down.
- to be less volatile than the stock market.
This objective is to be accomplished via trading in and out of 15-20 utility stocks around their dividend x-date to capture about a 1% return from the dividend and relying on market ineffeciency to be able to loose less than that amount via capital gains.
For the seventh quarter in a row this fund achieved its objective.
- The fund returned 2.6% in total this quarter
- The return was comprised of 5.9% in dividends and a loss of 3.3% in capital gains
- 17 trades were made. 13 or 76.5% of them were winning trades
- daily standard deviation of the fund was .44, which was about 25% less than the XLU etf.
- Averaged 3.5% in returns
- Never had a loosing quarter!
- Had 94 of 127 winning trades for a 74% win rate.
- Low daily volatility. A SD of .61% which is 33% less volatile than the XLU etf.
- Low quarterly volatility. A SD of 4.21% which is 47% less volatile than the S&P.
GSPY Portfolio 2011 Q1 Performance
The detail rational and objectives of the GSPY fund can be found at
http://seekingalpha.com/article/247845-globalizing-spy-how-to-diversify-without-adding-emerging-market-risk
In summary this portfolio is a mix of Canadian, Swiss, Brazil and Korean ETFS whose objective is to be a better, more global diversification alternative to the S&P 500 without the risk of very popular emerging market funds such as VWO.
In the first quarter of operation the portfolio's performance generally met its objectives. Specifically GSPY
http://seekingalpha.com/article/247845-globalizing-spy-how-to-diversify-without-adding-emerging-market-risk
In summary this portfolio is a mix of Canadian, Swiss, Brazil and Korean ETFS whose objective is to be a better, more global diversification alternative to the S&P 500 without the risk of very popular emerging market funds such as VWO.
In the first quarter of operation the portfolio's performance generally met its objectives. Specifically GSPY
- Returned 3.6% which was better than the return for VWO (1.6%). The fund did under perform the S&P 500s return of 5.9%
- Had volatility as measured by monthly standard deviation of 2.4 % which was significantly less than VWO's monthly standard deviation of 4.5%, but more than the S&P 500's 1.7%.
- Provided excellent diversification with a -.50 correlation with the S&P 500 while having a .94 correlation with VWO.
Portfolio - EEM2 - 2011 Q1 Performance
Complete information about the objective and make up of the EEM2 portfolio can be found at
http://seekingalpha.com/article/258012-don-t-let-your-emerging-market-position-catch-a-cold
In summary the objective of this portfolio is to outperform an emerging market ETF such as VWO by holding several ETFs that focus on the emerging middle class while having less exposure to China.
These positions were just established so performance data is not significant, but performance for the month of March was
http://seekingalpha.com/article/258012-don-t-let-your-emerging-market-position-catch-a-cold
In summary the objective of this portfolio is to outperform an emerging market ETF such as VWO by holding several ETFs that focus on the emerging middle class while having less exposure to China.
These positions were just established so performance data is not significant, but performance for the month of March was
- eem2 - 7.4%
- vwo - 5.5%
- fxi - 7.9%
Wednesday, March 23, 2011
Gold Hits New High - Playing with the house's money now!
Gold hit a record high Thursday. Given that the last month has included: the US government operating from week to week, riots, dictators overthrown, war, earthquakes, tsunamis, and nuclear meltdowns it is kind of surprising gold has not moved more.
Still, this trade established six weeks ago is progressing well. As GDX neared $60 and the short options went under $2 we covered the GDX short put portion of the position. That means
1). Any risk related to a drop below $56 for GDX and being forced to buy it has been removed. No risk capital is now committed to this trade.
2). $800 per lot in cash was originally generating by putting on this short position. $400 was used at the time of the initial trade to buy GLD Jun $137 calls, and the other $400 was used to buy back the position today. i.e. No cash out of pocket has been spent so worse case...break even.
3). As of Friday morning the Jun $137 GLD call was worth $6.40. So the total trade could be cashed in for nearly a 6% gain now. However, given that it appears as if gold could be breaking out, international tensions remain high, and we are playing with the house's money we will leave this trade run for awhile.
Still, this trade established six weeks ago is progressing well. As GDX neared $60 and the short options went under $2 we covered the GDX short put portion of the position. That means
1). Any risk related to a drop below $56 for GDX and being forced to buy it has been removed. No risk capital is now committed to this trade.
2). $800 per lot in cash was originally generating by putting on this short position. $400 was used at the time of the initial trade to buy GLD Jun $137 calls, and the other $400 was used to buy back the position today. i.e. No cash out of pocket has been spent so worse case...break even.
3). As of Friday morning the Jun $137 GLD call was worth $6.40. So the total trade could be cashed in for nearly a 6% gain now. However, given that it appears as if gold could be breaking out, international tensions remain high, and we are playing with the house's money we will leave this trade run for awhile.
ANR on fire...covered option
ANR continued its powerful upward move today. This coal stock is on fire!
(yes, that was a meager attempt at a pun).
Who knows how long this move can go on, but it was time to practice some prudent risk management today and cover the $50 short puts sold last week. Covered at $.25. Trading at $58, there was quite a large margin of safety to hold on to this option until expiration, but with only .5% return left over the next month I just covered the position to free up capital for other potential better uses. This lot of ANR returned 2.9% in just over a week! Of course that pales in comparison to the 10+% the stock has moved in the same time, but this return came with downside risk protection. That protection would have been helpful on the chance the call on this stock was wrong.
The other lot of the trade remains in play. At current prices it would seem like the 19% return somewhat "locked in" via the covered call play will come to pass, but there is a lot of time left in that trade. The plan is just to let this half of the trade run for awhile, but if the coal momentum trade reverses and the stock pulls back perhaps an opportunity to reinvest some of this gain in an upside option trade will present itself.
(yes, that was a meager attempt at a pun).
Who knows how long this move can go on, but it was time to practice some prudent risk management today and cover the $50 short puts sold last week. Covered at $.25. Trading at $58, there was quite a large margin of safety to hold on to this option until expiration, but with only .5% return left over the next month I just covered the position to free up capital for other potential better uses. This lot of ANR returned 2.9% in just over a week! Of course that pales in comparison to the 10+% the stock has moved in the same time, but this return came with downside risk protection. That protection would have been helpful on the chance the call on this stock was wrong.
The other lot of the trade remains in play. At current prices it would seem like the 19% return somewhat "locked in" via the covered call play will come to pass, but there is a lot of time left in that trade. The plan is just to let this half of the trade run for awhile, but if the coal momentum trade reverses and the stock pulls back perhaps an opportunity to reinvest some of this gain in an upside option trade will present itself.
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