$106,191 Portfolio Update

Green shoots are just sprouting everywhere aren’t they?

Don’t be alarmed that we are making little progress in our header - we’re only adding in the profits as we close positions from our April 10th start with our virtual $100,000.  We are not including profits from the positions still working because: IT ISN’T REALLY A PROFIT UNTIL YOU CASH IT OUT…  OK then, week 7 of this Frankenstein project that started off as just how to BUILD a hedged portfolio but has now ended up as a ton of positions I have to track.  Oh well, it’s a great exercise and it makes money too so let’s enjoy the ride.

The primary goal of this portfolio is to be conservatively hedged.  The secondary goal of this portfolio is not to mess around with it.  These are meant to be nice safe(ish) positions that do not require you to sit glued to a monitor all day.  Our last review was back on May 25th so once in 8 days isn’t too demanding I hope.  If you are new, please read the last update as there was much wisdom in there.  This week is just a quick review and a check on how our new positions are doing.

We have still deployed only 1/3 of our capital and we will see tomorrow whether we were TOO patient waiting for a pullback that hasn’t come these last 10 days as the Dow has gone from 8,469 to 8,200 and now all the way up to 8,740.  So we missed a big dip by waiting on our entry but our lack of faith in 8,200 holding up made us miss a 5% move up.  Is there a lesson to be learned here?  No - there’s no way to time things perfectly and you have to enter where you feel comfortable and confident.  It’s hard enough hanging onto thing when you really believe in your entries and targets, if you enter when you are not certain then you are certain to have a disaster at some point…

Also, a good thing to do is open the older post in another window and see the beauty of doing nothing!  As I mentioned we have gone up and down 250 points in either direction and, by doing nothing at all about it, we have made nice little advances in most of our hedged positions as the premiums of our callers erodes over just 8 of the 37 days they had to expiration.

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 $13.80 and the June $10s are $3.87, net $9.93 ($320 profit on $1,666 = 19.2%)
    • As we are scaling in, we will buy more in June and roll up the callers so no change now
• 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 $14.08 and the June $10s are $4 and the $13 puts are .17 for net $9.91 ($378 profit on $2,594 = 14.5%)
  • • Note that this is really a dividend play but I’m not tracking them.  PGF did pay .112 on the 15th and will again this month!
• 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 $9.80 and the June $20s are $4 and June $22s are $2.02 for net $6.79 ($1,470 gain on $5,320 = 27.6%)
    • Pretty cool isn’t it?  Even though DBC took off, we didn’t lose any ground because we are deep in the money to our very happy callers.  With the low VIX, the rolls are not tempting (if the market sells off, the VIX goes up and our callers lose money and the premiums we roll them to go up) so we wait.
• 6 UNG Oct $8 calls for $6.21, sold 3 July $14s for $1.23, net $5.60
  • Oct $8s now $7.75, July $14s now $2.42, net $6.54 ($564 profit on $2,040 = 27.6%)
    • Note that the proft from the original calls we took out in the last post is in our cash total so the new profit is off the remaining position only.  July is too far away to worry about these callers today.
• 500 UYG at $3.61, selling 5 June $4 puts and calls for $1, net $2.61/3.31
  • UYG now $4.12, June $4s now .61 = net $3.51 ($450 profit on $1,305 = 34.5%)
• 5 FAZ Jan $4 calls for $4.95 (adjusted).
  • The Jan $4s are now $2.12 (loss of $1,415 on $2,475 = 57%)
    • Finally a chance to buy more!  Let’s get 5 more for $2.12 

That was our original group.  Now up $1,767 on $15,400 at work for June.  As I said last time, I know it’s annoying to sit on so much cash but we are looking for CONSERVATIVE opportunities that balance us out.  As positions develop, we can add more to the ones that are working like DBC and the ones that aren’t, like FAZ - which will give us cover to increase other positions.  $1,767 on $15,400 since May 19th (expiration) is not a bad return and it’s not even a bad return on $100,000 is it?   We don’t deploy cash for the hell of it (we do enough of that in daily chat!) and this is meant to be a long-focused 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 more sensible investing strategies!  We also placed 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 July $14 calls for $1.75 and June $15 puts for $1.50 nets $15.25/15.13.
  • STI now $15.94,  July $14 calls now $2.85 and June $15 puts at $.70 nets $12.94 ($462 loss on $2,560 -18%)
    • This is another one where profits transferred to cash.  Note we just need a $15.25 finish to get out even, the negative balance indicates how silly it would be to pay out that premium.   Also note that we sold the 2 extra June puts to cover (below) and they made money.
• Selling 2 STI June $15 puts naked for $2
  • June $15 puts now $.70 ($260 gain on $400 collected = 65%)
    • Set stop at .90
• 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 $4.82, June $6 puts and calls now $1.33 combined, net $4.01 ($3 loss on $1.050 = 0.3%)
• 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 $18.12, June $19s are $.57, June $17.50 puts are $.65 nets $16.90 ($115 profit on $1,575 = 7.3%).
• Selling 1 naked USB June $17.50 put for $1.70
  • June $17.50 puts now $.65 ($58 profit on $170 collected = 61.7%)
    • Set stop at .80
• Selling 2 naked STT June $37 puts for $3.
  • June $37 puts now .15 ($570 profit on $600 collected =  95%)
• 500 C at $4, selling June $4 puts for $1 nets $3/3.50
  • C now $3.67, June $4 puts at $.67 nets $3 ($0 profit on $1,350 =  0%)
    • Profitable call transferred to cash
• 20 FAZ Oct $2 calls at $3.25, selling 10 July $5 calls at $1.75, net $1.50 
  • FAZ Oct $2s now $2.85, July $5s now $.75, net $2.10 ($1,200 profit on $3,000 = 40%)
    • This cover is working much better than the Jans!  As we are DD on the Jans we can keep these covered but let’s stop 1/2 at $1.

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 $1,738 (21%), not counting what we transferred up top (too annoying to break all down).  As I said: STRESS-FREE INVESTING! 

That brings us to our newest group, the Dividend Plays!  These were from the Memorial Day weekend articles that started here.  If you haven’t read this series, please do as we will be going back to that original group of 21 dividend-paying stocks.  Note that due to the complexity of adding dividends in I probably won’t be tracking them on these plays and we’ll treat them like straight spreads.  If you can’t make money without the dividend, it’s probably not a good play anyway….  Keep in mind these are long time-frame plays and will be pretty dull overall.

• 500 LYG at $5.57, selling 5 Jan $5s for $2.02 and 5 Jan $5 puts for net $1.48, net $2.07
  • LYG now $5.86, Jan $5 puts and calls at $3.47, net $3.39 ($160 profit on $1,775 = 9%)
• 200 TNK at $11.09, selling 2 Nov $10 puts and calls for $3.90 for net $7.19/8.60
  • TNK now $12.07, Nov $10s are $3.70, net $8.37 ($236 profit on $1,438 = 16.4%)
• 400 PGH at $8.11, selling 4 Jan $7.50 puts and calls for $2.82, nets $5.29/6.40
  • PGH now $8.75, Jan $7.50 combo is $3.13, net $5.62 ($132 profit on $2,116 = 6.2%)
• 100 KMP at $47.55 and the Jan $57.50 put for $12.35.  Selling Jan $37.50 put for .95 and 2011 $55 call for $1.20, net $57.75 (put is covered so no buy obligation)
  • KMP now $52.70 and Jan $57.50 puts are $8.30.  Jan $37.50 puts are .57 and 2011 $55 calls are $2.58 for net $57.85 ($10 profit on $5,750 = 0.2%)
    • This one was not meant to make money other than the dividend.  Notice how perfectly balanced it is, holding dead steady on a $10 move in the stock - THAT is what we call balance!  If there was a good roll I would take it but there isn’t.
• 200 CAT for $34.31, selling 2011 $22.50s for $14.20, net $20.11
  • CAT now $37.45, 2011 $22.50s now $16.73, net $20.72 (up $124 on $4,022 = 3.1%)

So here we have 5 dividend paying stocks that haven’t paid a dividend yet but, in just 8 days we have a $662 profit on $15,101 (4.3%) - THAT’S BETTER THAN THE DIVIDENDS!  Look how fun and relatively safe this is too…. Also, look how quickly we went from deploying just $19,000 in cash to $38,866 - this is why you do need to be judicious in your entries and also evaluate each trade so you can weed out the underperformers.  This leaves us with $67,325 left to spend, some will be used to add to current positions.  If we don’t get the sell-off we’ve been waiting for, we’ll have to pick a sector and go for it but we will certainly be adding to our bank stocks if that’s the case.

Our three sections are up $4,167 at the moment, plus the $6,191 gain on positions we cashed is $10,328 in profits after 7 weeks in our $100KP.  That’s 10% in less than two months, a 60% annual run rate (and don’t forget our dividend stocks haven’t come around yet).  Our $100K Portfolio remains 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."

This entry was posted on Tuesday, June 2nd, 2009 at 7:11 pm and is filed under Immediately available to public, Portfolio Review. You can leave a response, or trackback from your own site.