$104,340 Virtual Portfolio Update
When we first set up this virtual portfolio on April 10th we set out to utilize $100,000 as safely as possible in a well-hedged and well diversified set of stocks.
Although we deployed very little capital (less than $20,000) in our first month due to a fairly unstable market outlook, we did manage to cash out positions with $4,340 worth of profit so far. As 22% in a month is considered a decent return, a lot of new members are very impatient to jump on these trades but I would urge them to go back to the basics we discussed back in April. We have a "New Member’s Guide" which pretty much lays things out with these standard assignments:
- If you are new to options, read Sage’s Book
- Read 1 full month of my posts and all comments, you will get a good feel for the site, the kind of trades we do and also get to know a bit about the people in chat. Knowing people’s various expertises and understanding their market philosophy and position makes the next live comment they make much more informative…
- Read Option Sage’s articles under his tab, many were co-authored by me that highlight various option stratgies with real-world examples.
- Watch The Man Who Planted Trees, a short video about that characterizes a solid investing (and life) philosophy.
AFTER you do those things, then we are ready to talk about setting up a virtual portfolio, the design of this virtual portfolio is to allow us to track trades weekly with a minimum of fuss, selecting trades that do not require a lot of babysitting during the week. Ideally, as long as you maintain some of the master hedges, the positions we use here should be valid for new entries - even if you missed the earlier positions as we attempt, at all times, to keep a fairly sensible balance.
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If fact, we haven’t done an update since May 12th, there simply was no need to adjust as we had our June options and the market is doing exactly what we expected it would do (dip back to test the May lows) and, as this is a better hedged group than some of the riskier trade ideas we pursure during the average week, there was no need to make adjustments even as I made a call to cash out our other positions.
That is the idea of balance, as we discussed in yesterday’s post "How To Vacation-Proof Your Virtual Portfolio." There are benefits to setting up your positions so that they are able to fend for themselves, without you watching over them every day like a mother hen. As mentioned in Sage’s Market Tamers press release, there is no single strategy you can pursue to balance a virtual portfolio but a mixture of multiple strategies applied across a diversified group of stocks and options can give as a more stable virtual portfolio than any narrowly focused fund is likely to achieve.
As always, patience is key. Don’t buy if you don’t get your price – it will either come back or it won’t but if you pay an extra nickel 20 times then you are paying an extra dollar and, unless your average purchase is over $100, $1 less made on your entries is going to have a serious impact on your performance. Balance also keeps you from selling (or buying) in a panic. It’s easy for Warren Buffett to say "Be fearful when others are greedy and be greedy when others are fearful" - that’s because he’s always got cash on the side. Investing like Buffett also means NOT investing like Buffett and, if you haven’t taken the time to go over the basics, you will never understand what that really means…
So, without further ado, let’s take a look at our open positions:
- 200 GE at $11.28, selling June $10 puts and calls for $2.95, net $8.33/9.17
- GE now $13.10 and the June $10s are $3.29, net $9.81 ($296 profit on $1,666 = 17.8%)
- As we are scaling in, we will buy more in June and roll up the callers so no change now
- GE now $13.10 and the June $10s are $3.29, net $9.81 ($296 profit on $1,666 = 17.8%)
- 300 PGF at net (May $10s finsihed at $2.57) $11.55, selling June $10 calls for $2.10 and June $13 puts for .80, net $8.65/10.83
- PGF is now $13.63 and the June $10s are $3.55 and the $13s are .38 for net $9.70 ($315 profit on $2,594 = 12.1%)
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- Note that we sligtly lowered our net entry but raised our potential "put to" price. This is in line with the fact that we WANT more than 300 shares (this is a dividend play). Also, note, I am not bothering to keep track of dividends as that would be way too much trouble but PGF did pay a .112 monthly dividend on the 15th.
- 10 DBC 2011 $15 calls for net $6.35 (.05 rolling cost to June), selling 5 June $20s for $1.30 and 5 June $21s at .75 nets $5.32
- The 2011 $15s are $8.15 and the June $20s are $2.23 and June $22s are .60 for net $6.73 ($1,410 profit on $5,320 = 26.5%)
- 5 UNG Oct $8 calls for $6.25 (net of .05 loss on roll), sold 5 June $16s for $2.17, net $4.08
- Oct $8s now $6, June $14s now $.28, net $5.72 ($820 profit on $2,040 = 40.2%)
- Taking out $16 callers for .28, selling 3 July $14s for $1.23, buying 1 more Oct $8 for $6
- Oct $8s now $6, June $14s now $.28, net $5.72 ($820 profit on $2,040 = 40.2%)
- 500 UYG at $3.61 (net of .13 loss on roll), selling 5 June $4 puts and calls for $1, net $2.61/3.31
- UYG now $3.78, June $4s now .75 = net $3.03 ($210 profit on $1,305 = 16.1%)
- 5 FAZ Jan $4 calls for $4.95 (adjusted).
- The Jan $4s are now $4.50 (gain of $200 on $2,000 = 10%)
- It’s VERY nice when your hedge ends up ahead along with your long positions!
- The Jan $4s are now $4.50 (gain of $200 on $2,000 = 10%)
The above group is up a total of $3,251 with just $18,176 at risk. I know the other $82,000 is burning a hole in your pocket but this is $7,591 in 45 days, that’s not a bad return on $100K and I assure you, if I see something REALLY good to put money into, I will certainly say something but May 12th was indeed a top and we don’t deploy cash for the hell of it and this is meant to be a long-focused virtual portfolio (and I am still long-term market bullish). We do plenty of short-term bearish trades in the daily chat – that is not the point of this exercise, which is meant to track sensible investing strategies! We did place some newer positions from our interim post "Stress Free Investing In Stress-Tested Banks," added the following plays from the Stress-Free post:
- 200 STI for $18.50, selling June $17 calls for $4.20 and June $15 puts for $1.50 nets $12.80/13.90.
- STI now $16.21, June $17 calls $.32, June $15 puts $2.70 nets $13.19 ($78 profit on $2,560 = 3.1%)
- There is no point to keeping the calls on so we buy them back. With 4 total $15 putters in the money on us, there is no reason not to sell the 2 July $14 calls for $1.75
- STI now $16.21, June $17 calls $.32, June $15 puts $2.70 nets $13.19 ($78 profit on $2,560 = 3.1%)
- Selling 2 STI June $15 puts naked for $2
- June $15 puts now $2.70 ($140 loss on $400 collected = -35%)
- 300 KEY at $6.20, selling June $6 calls for $2.05 and June $6 puts for .65 nets $3.50/4.75.
- Key now at $5.26, June $6 puts and calls now $1.25 combined, net $4.01 ($153 profit on $1.050 = 14.6%)
- 100 USB at $19.50, selling June $19 calls for $2.50 and June $17.50 puts for $1.25 nets $15.75/16.63
- USB now $17.83, June $19s are $.78, June $17.50 puts are $1.12 nets $15.93 ($18 profit on $1,575 = 1.1%)
- This is a great one to go back to the beginning on and see how well premium erosion works in your favor on these plays.
- USB now $17.83, June $19s are $.78, June $17.50 puts are $1.12 nets $15.93 ($18 profit on $1,575 = 1.1%)
- Selling 1 naked USB June $17.50 put for $1.70
- June $17.50 puts now $1.12 ($58 profit on $170 collected = 34%)
- Selling 2 naked STT June $37 puts for $3.
- June $37 puts now .90 ($420 profit on $600 collected = 70%)
- 500 C at $4, selling June $5 calls for .30 and June $4 puts for $1 nets $2.70/3.35
- C now $3.67, June $5 calls are .04, June $4 puts at $.69 nets $2.94 ($120 profit on $1,350 = 8.9%)
- There is too much time left to chance the calls so we take those out for .04
- C now $3.67, June $5 calls are .04, June $4 puts at $.69 nets $2.94 ($120 profit on $1,350 = 8.9%)
- 20 FAZ Oct $2 calls at $3.25, selling 10 July $5 calls at $1.75, net $1.50
- FAZ Oct $2s now $3.70, July $5s now $1.42, net $2.28 ($1,560 profit on $3,000 = 52%)
Once again you have to love it when a plan comes together. Our FAZ hedges did just what they were supposed to do in a downturn in the sector and we took possession of 1,100 additional shares of various financial stocks by spending less than $5,365 in cash on the long side and $3,000 on the short side. Our profit so far on $8,365 out of pocket since May 8th on this new group is $2,547 (30%). As I said: STRESS-FREE INVESTING! Note we have made no adjustments at all since taking this group of positions other than selling an extra USB put on the 12th.
I’m still in no mood to add positions to this virtual portfolio as it’s supposed to be our "safe" one and the markets look nothing like safe. 60% of our profits in the new group came from our hedges, not from the financial stocks we picked up. Also, the VIX is lower than it was early in May and that means we may need to adjust our strategy down the road. We have plenty of financial stocks at this point and it’s time to branch out into other sectors. I’ll be looking to add a few dividend payers from our Tuesday selection (see weekend posts as well) but it sure will be hard to pick a sector if we don’t get a nice pullback for some bargain hunting.
There is nothing wrong with having about $81,000 in cash on the sidelines if you are already ahead $4,340 from cashed out positions and another $5,798 on our working positions. That’s 10% in 45 days on the whole $100K with just $19,201 at risk ($23,541 in positions less the $4,340 already cashed out). Our $100K Virtual Portfolio is in-line with what Charles Dow himself taught us back in 1901:
"The man who begins to speculate in stocks with the intention of making a fortune usually goes broke, whereas the man who trades with a view of getting good interest on his money sometimes gets rich."
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