I guess the excitement over the CEO email is now beind us, and the first real announcement of the discontinuance of the flip video camera was not that exciting.
Cisco stock pulled back to $17.25 today. So....it is deja vu all over again.
Bought the Jan $10 call and sold the May $18 call against it for net cost of $7.01. That essentially makes the portfolio long one lot at essentially $17.01. Still thinking that is a good entry price for the stock. Time will tell.
Wednesday, April 13, 2011
Tuesday, April 12, 2011
Coal Stocks Get Burned - Changes to ANR Options
ANR and all coal stocks went down in flames yesterday and today. Most everything in this sector is down 5+% over the last two days in yet another example of "efficient" markets.
It appears the main reason for the fall is a Goldman report that said it was time to get out of the energy/commodity trade. I am really " deeply concerned" that Goldman and their associates might have got caught in this down draft cause by their "independent, objective, and confidential" change in sentiment.......but......somehow I expect they were "lucky" enough to have hedged their way out of this unforeseen development...but enough about wall street.
Fortunately, common sense dictated that the highly volatile nature of ANR suggested a hedge be in place. The portfolio had previously sold a covered call. The rapid drop in price back to around $54 meant it was time to remove the hedge. Specifically, the Jan 12 $57.5o call was covered at $6.48 net of commissions. That specific option trade returned $1.57 or just less than 3% of invested capital in a little over 3 weeks. As importantly, it successfully provided some protection for this lot of stock. At this point, lot one of ANR consists simply of the stock held at about cost, and we will let that ride.
At the same time as the call was covered, we decided to totally reverse the sentiment of the trade position with the belief that the market is overreacting. One lot of April $52.50 puts were sold for $.32. Only three days until expiration.
Scenario 1 - The stock stops its slide before/near the chart support at $52.50 (another 3% down) and the portfolio makes .6% in 3 days on this lot (well over 30% annualized). To me this seems more likely to occur than the roughly 20% odds of the stock going below that level that was mathematically priced into the option at the time of sale and hence a good risk to take.
Scenario 2 - The potential for 30% annualized rerun does not come without risk. In this case the risk is the stock/sector continues to fall throughout the week and the portfolio is forced to buy a second lot of the stock at about $52.20. As discussed in previous posts, I feel that is an attractive price and hence not too risky. If the stock is put to me, I would likely write a deep in the money cover call against that stock for next month to try to unwind that lot for a profit.
It appears the main reason for the fall is a Goldman report that said it was time to get out of the energy/commodity trade. I am really " deeply concerned" that Goldman and their associates might have got caught in this down draft cause by their "independent, objective, and confidential" change in sentiment.......but......somehow I expect they were "lucky" enough to have hedged their way out of this unforeseen development...but enough about wall street.
Fortunately, common sense dictated that the highly volatile nature of ANR suggested a hedge be in place. The portfolio had previously sold a covered call. The rapid drop in price back to around $54 meant it was time to remove the hedge. Specifically, the Jan 12 $57.5o call was covered at $6.48 net of commissions. That specific option trade returned $1.57 or just less than 3% of invested capital in a little over 3 weeks. As importantly, it successfully provided some protection for this lot of stock. At this point, lot one of ANR consists simply of the stock held at about cost, and we will let that ride.
At the same time as the call was covered, we decided to totally reverse the sentiment of the trade position with the belief that the market is overreacting. One lot of April $52.50 puts were sold for $.32. Only three days until expiration.
Scenario 1 - The stock stops its slide before/near the chart support at $52.50 (another 3% down) and the portfolio makes .6% in 3 days on this lot (well over 30% annualized). To me this seems more likely to occur than the roughly 20% odds of the stock going below that level that was mathematically priced into the option at the time of sale and hence a good risk to take.
Scenario 2 - The potential for 30% annualized rerun does not come without risk. In this case the risk is the stock/sector continues to fall throughout the week and the portfolio is forced to buy a second lot of the stock at about $52.20. As discussed in previous posts, I feel that is an attractive price and hence not too risky. If the stock is put to me, I would likely write a deep in the money cover call against that stock for next month to try to unwind that lot for a profit.
Monday, April 11, 2011
Covered Calls on One Lot of Bunge
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.
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.
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%
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