Wheeeeeeee, this is fun!
There’s nothing like an active virtual portfolio to get you through a rough market. The last update to our very aggressive virtual porfolio was on the July 28th, when I said to Members "On the whole, we’re pretty short so we’ll be either adding longs or cashing in shorts tomorrow to get a little more even into the weekend but still bearish if there’s no debt deal." There was, of course, no debt deal that week and the next morning I said in our Member Alert:
Volume is not very high – this is a retail panic so far. If you have short positions, strongly consider put tight stops on them (this includes the $25KP and Income Virtual Portfolio) as they put plenty of cash in your pocket and we can always find another layer of shorts if the RUT can’t hold 775.
Needless to say, the RUT failed (10% ago!) and we stayed generally bearish. At the time we "only" had $57,760 of virtual cash (after starting with just $25,000!) with $960 worth of unrealized losses in our remaining, mostly bearish positions. How do you think that worked out? That’s right, possibly our biggest gains of the year! In the last two weeks, we closed the following positions as the markets collapsed around us:
We have (drum roll please!) a whopping $14,190 as we finally caught a big wave going in the right direction AND, MOST IMPORTANTLY, we were wise enough to take it off the table! That brings our cash up to a massive $71,950 and we are well on the way to our $100,000 goal for the year. Our biggest winner was our PCLN ratio backspread from the 1st, where we set up the following play for earnings at the end of the week’s earnings:
PCLN – I’d sell 4 weekly $570 calls for $11 against 3 Sept $605s at $11 for net $1,100 credit on the assumption they don’t go all the way up to $581 and, even if they do, you should be able to roll to the Aug $585s at least and then 5 more weekly rolls before you hit trouble and you can DD on the long calls and do a 1.5X roll if they gain more than 10% but I super doubt it so let’s do one set in the $25KP.
You can see why these are my favorite kind of earnings plays. WYNN and CMG were similar trades and GMCR is the leftover loss from a winning bullish trade. We still have an unrealized loss on 3 open PCLN Sept $605 calls ($1,500) but PCLN had excellent earnings AND we can sell weekly calls so I think we’ll keep them a bit.
The following are our remaining open (unrealized) positions:
We have then, $8,130 of unrealized losses, up over $7,000 from last week but that is the nature of this kind of trading, where we play both sides and, when presented with a large gain on one side ($14,190 in the past 10 days) we cash that and then we see if we can salvage the losers. All in all, our virtual net is up to a very respectable $63,820 as we hit our 28th week of tracking this virtual portfolio and that’s up VERY NICELY from the $10,000 it all began with last year.
Notice this is not about "luck" – we were simply more bearish than bullish but only 2:1, which is about as imbalanced as it gets. Had we been wrong and the virtual portfolio had gone the other way, then we would have lost money on the short bets but made money on our unrealized side. We have plenty of cash and we know we are way too bullish so we’ll be looking for some aggressive short plays this week, very likely some backspreads on remaining earnings for companies we REALLY want to hold the long end of.
We’ll give it through the Fed statement tomorrow (2pm) to stick with our bullish premise (that The Bernank will once again turn on the money spigots) before we go hunting for bear again. You just have to take the profits from a 10% drop off the table though – especially in a virtual portfolio where your goal is "Get in, get out – back to cash!"