We had a pretty good week with our new virtual portfolio.
The goal of the $5,000 virtual portfolio is to play around the volatility of earnings and make no mistake, it's a high-risk way to trade $5,000 and is meant to be a small portion of a large virtual portfolio – not something you would want to do with your only $5,000. Of course the usual disclaimer is, this is a virtual portfolio, don't try this at home, trading is dangerous, always consult a professional financial adviser, etc, etc. The idea is to practice different option strategies and we had a very exciting first week!
Our first play was a spread on AA into earnings, initiated Monday at 1:10 with a buy of 3 $7.50 calls for $1.75 ($525), which we later covered with 3 $9 calls at $1.04 ($312). That put us in the $1.50 spread for net .71 and we needed AA to finish next week at $9 to collect our full profit. We bought back the $9 calls on Tuesday, ahead of earnings as they fell to .70 (up 33%), which lowered the basis on the remaining $7.50 calls to $1.42 and we got out of that one the next day as they spiked up to $2.50 in the morning after earnings. Net profit $324.
The second trade we entered was a DIA call play, the $84s, which we entered Tuesday at 10:30 at .70 (5 contracts) and subsequently doubled down at .50 (average basis .60) and again at .42 (average basis .51), sold 10, leaving us with 10 contracts at .51 and got out at .60 on Wednesday's "stick save" close. Net profit $90.
The third play of the week was SGR and we initiated that one Thursday at 11:12 with a straight spread of 4 $22.50 calls for $3.30, selling the $25 calls for $1.45 for a net entry of $1.85 on the $2.50 spread. Earnings were a miss on SGR but we felt that the sell-off was an overreaction so we took out the $25 calls for .25 (82% profit), leaving us in the $22.50s for net $2.10 ($3.30 entry less the $1.10 profit on the $25 calls). We hit our goal of $2.50 yesterday (7/14) and stopped out with a .40 gain although some hung on as the $22.50s flew all the way to $3.30 in the afternoon. Even at .40 it's a nice $160 gain.
Our final play of the week was a quickie on MCD on Thursday at 12:27, where we entered 5 July $55 calls for $1.65 and quickly hit our target of $2 for a $175 profit.
Unfortunately, we suffered our first and only loss yesterday (7/14) as we were forced to sell our 5 DELL $13 calls for .10 after buying in for .36 on Friday – so a loss of $120 on that one.
So our first 5 trades have netted us $629 in profits, very nice for our first week! We made one new trade yesterday and that was a tricky ratio backspread on YUM and the full explanation for Members was: "$5KP YUM ratio backspread: Buying 4 Aug $35 call at $2.20 and selling 6 Aug $37 calls for $1.15 for net .48 on the $2 spread. Since you make 2x $1.52 before having to pay back the 3rd caller, you have $3 of leeway before taking a loss so YUM has to hit $40, just off the all-time high, in order for this trade to take an upside loss (and you can adjust). On the downside, you need to retain just .48 in value ($35.48) to break even."
Unfortunately, in Stock Talk, which has the same 140-character limitation as Twitter, all I was able to say was: "$5KP $YUM ratio backspread: Buying 4 Aug $35 call at $2.20 and selling 6 Aug $37 calls for $1.15 for net .48 on the $2 spread" but hopefully the general idea was conveyed. As we expected, YUM's earnings were a small beat but guidance was no great shakes and the stock fell to $35 in after hours trading, which is perfect for us as we may have an opportunity to take out our callers on the dip and ride out the naked calls until buyers show up (kind of like what we did with SGR).
Earnings season is now in full swing and we are still carefully picking our spots but there are enough spots to give us daily picks now! You can follow the action by subscribing to our FREE newsletter trial (use promo code "5K" and make sure you sign up for Alerts!) and you can also follow any additions we make live on Seeking Alpha's "Stock Talk" feature so that non-members can follow along as well. You can follow along by using THIS LINK to follow my trades (click on the word "Follow" on my picture). This will also serve as a back-up to our site should we ever have trouble with our own chat room so members please sign up and bookmark the site as well.
By the way, if you have any friends who might want to follow a virtual portfolio like this, there is no better time to tell them using our "Refer A Friend" box on your Member management link as that will automatically enter you in our $1,000 JULY CONTEST where one randomly selected pair during July will win $1,000 for the referring Member AND $500 for the person they refer – a very nice bonus on a $5,000 Virtual Portfolio!
