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September’s Dozen Update (Members Only)

Two months already? 

The Dow hasn’t made much progress (600 points) since we ran our second annual "September’s Dozen" Buy List but it’s a testimony to our guiding principle of "being the house" and selling the premiums that has made this year’s set a rousing success.  At the time (Aug 27th), we were dubious of the rally gaining traction so our trade ideas were a little more conservative than last year’s QE2-fueled group

They say you can’t make an omelet without breaking a few eggs, so let’s see how our trades are performing – some of them are already done, some still have some time to go and some make fantastic new entry opportunities as well!

It is very useful to go back to the original post, where I laid out my logic for each trade as these kinds of reviews are how we put in our 10,000 hours and work to become experts at catching opportunities like these as they arise in the future.  Note these were very much hand’s off trades – this is the first time we’ve reviewed them since initiating the trades, mainly at better prices, as we tested the bottom of our range in September.  For simplicity in this review, I’m just going by our target entries from 8/27:

BRCM (was $33.91, now $37.22):

  • Sept $33/35 bull call spread at $1.11 offset with short Oct $30 puts at $1 for net .11.  Bull call spread expired net $2, short puts expired worthless for a $1.89 gain (up 1,718%)
  • Jan $31/35 bull call spread at $2.15, offset with short $20 puts at $1.70 for net .45.  Bull call spread now $2.90, 2013 $20 puts now $1.35 for net $2.75 (up 244%).

Notice in the January combo, the gains on the bull call spread are not that exciting, even with the big move up in BRCM but the combo with the short puts gives you a lot more bang for your buck.  Our formula here is simple, stick with stocks you REALLY want to own for the net "put-to" price and follow our normal entry rules for scaling in and stopping out on a position.  Using this system, even longer-term spreads can give you a nice, early payoff although this trade is right on track to make the full 788% potential.  

GNW (was $6.51, now $6) 

Jan $5/7.50 bull call spread at $1.40 offset with sale of Dec $6 puts at .92 for net .48.  Jan bull call spread is now $1.10 and Dec $6 puts now .85 for net .25 (down 48%). 

2013 $7.50/10 bull call spread at .58 offset with short Dec $5 puts at .20 for net .38.  2013 spread is now .55, short Dec $5 puts now .42 for net .13 (down 76%). 

This is another reason it’s good to do reviews – finding bargains!  GNW is down with the insurance group and is still a great value at $6.  Notice both of these trade ideas lost less than if you would have bought the stock and, if GNW just holds $6, the Jan spread will net $1 and be a double off the original and a 4x off the current net .25 so I love it as a new trade, perfect for our brand new White Christmas Portfolio for 10 at $250.  

HCBK (was $5.86, now $6.18)

  • April $4/6 bull call spread at $1.30 offset with short April $6 puts sold for $1 for net .30.  Spread is still $1.30 and short puts are .80 for net .50 (up 66%)

Long artificial buy/writes like this are very slow payers but also slow to lose money going the other way so you can afford to be patient.  

HOV (was $1.68, now $1.41) 

  • 1x 2013 $2 put sold for $1.15, buying 19x 2013 $2/2.50 bull call spreads for .06 ($1.14) for net .01 credit.  2013 $2 puts still $1.15, spread still .06 (even)  

I love this trade because for each 100 shares of HOV you are agreeing to buy for $2, you have the possibility of making $9.50 if they simply hit $2.50.  That’s a lot of bang for the buck.  Let’s say you agree to buy 1,000 shares.  You short 10 contracts and pick up $1,150 and you buy 19 spreads for $1,140 so you put $10 in your pocket and ignore it for 15 months.  If HOV does well, you collect $9,500 – if HOV does TERRIBLY and goes down to .20 – then you spend another $1,000 and buy 5,000 more shares and your average cost of 6,000 shares of HOV is .33 per share (down 40%).  If you don’t want to own 6,000 shares of HOV for .33 – DON’T MAKE THIS TRADE – but, if that sounds appealing to you – it’s worth taking a stab at for a 9.5:1 reward:risk ratio!  

MRO (was $25.89, now $25.81)

  • 2013 $20 puts sold short for $2.70, still $2.70 (even)
  • Sept $24/26 bull call spread at $1.30, offset with sale of Oct $24 puts at $1.18 for net .12.  Sept spread expired at $1.33, Oct puts expired worthless for net $1.21 gain (up 1,008%)

Good example here of the power of SELLING premium.  This trade did not go particularly well but we held our short put target and we took a conservative entry and we were rewarded very well for it.  If you can learn to make money on stocks that go up (of course) OR flatline OR even if they go down a little – won’t that improve your overall performance?

 

SNDK (was $34.80, now $49.76)

  • Jan $30 puts sold for $2.65, now .23 (up 1,052%)
  • Oct $33/36 bull call spread at $1.60 offset with short Oct $30 puts at $1.42 for net .18.  Expired at net $3 (up 1,566%)
  • Oct $30/35 bull call spread at $3.20 offset with short Oct $33 puts at $2.35 for net .85.  Expired at net $5 (up 488%)
  • Sept $34/36 bull call spread at $1.05 offset with short 1/2 Oct $30 puts at $1.42 for net .33.  Expired at $2 (up 525%)

Wheee, that was fun!  Notice how we layered our expectations, covering multiple time-frames with high-return trades so that if one failed to deliver, we already had given ourselves more time at what we thought was a great bottom (my logic at the time was that $34.80 was the 52-week low so a great entry point against an undervalued company that had been unjustly dragged down with the sector).  

Staples Easy ButtonSPLS (was $14.48, now $14.89) 

  • 2013 $15 puts sold for $3.20, now $3.10 (up 3%)
  • Jan $15 calls at $1.15 offset with short Oct $14 puts at .80 for net .35.  Oct puts expired worthless and Jan $15 calls are $1.10 (up 214%). 
  • Jan $12.50/15 bull call spread at $1.45 offset with 1/2 short 2013 $15 puts at $3.20 for net .30 credit.  2013 $15 puts are $3.10 and bull call spread is $1.70 for net .30 (up 100%)

Another good example of how, when we ARE THE HOUSE, we don’t need to be right to make money.  SPLS has gone nowhere but time is on our side and the premium comes to us as the clock winds down on the trade.  I still think SPLS is a great deal at this price so the 2013 puts still make a nice sale.   

SVU (was $7, now  $8.45) 

  • Jan $4/6 bull call spread at $1.40 offset with short 2013 $5 puts at $1.10 for net .30.  Jan spread is now $1.90 and short puts are .70 for net $1.20 (up 300%)

SWY (was $17.08, now $19.20)

  • 2013 $15 puts sold for $1.85, now $1.35  (up 27%)
  • Oct $16 calls at $1.55, expired at $2.85 (up 83%)
  • Jan $15/17.50 bull call spread at $1.50 offset with short $15 puts at .70 for net .80.  Jan spread is now $2.30 and short puts are .20 for net $2.10 (up 162%)

Now this one is a classic, illustrating the 3 of the 4 basic ways we like to play bullish (a natural buy/write being the other).   In the original post, I said I liked SWY because they were a 3.5% dividend payer but none of our trade ideas collected a dividend – we simply set ourselves up for a low-cost entry and did not mind the "worst case" scenario of having the stock put to us – at which point we’d be happy to turn it into a longer-term buy/write and collect our dividends going forward.

Of course, when you see me say I like a short-term naked call (ie. The Sucker’s Bet), then you know I"m REALLY bullish about a stock.  

X (was $27.55, now $22.31)

  • 2013 $18 puts sold for $2.70, now $3.55 (down 31%)
  • Jan $22.50/27 bull call spread at $2.80 offset with the sale of the Jan $22.50 puts at $2 for net .80.  Jan spread now $1.60 and short puts now $3.20 for net $1.60 (down 100%)
  • Oct $28 calls at $2.30 offset with short Oct $25 puts at $1.85 for net .45.  Calls expired worthless and puts expired at $1.68 (down 480%)

See – we CAN lose money on these trades!   I was gung-ho bullish on this one too and they simply did not play out as fast as I thought they would.  Still, losing $2.30 on that last spread, even though it was 480%, was still less than half of the $5.24 drop in the stock price.  We still like X long-term so those first two trade ideas are still playable with better entries.  Obviously, there were ways to adjust the trade by rolling contracts or simply setting stops (50% is the most you ever want to lose – see Strategy and PSW Wiki sections) but we’re just keeping score in this review and this one is a LOSER!  

After our original group, we added a few that week in Member Chat (these Buy Lists and virtual Portfolios are always works in progress).  Also, I should mention here how important it is to read the chat from these posts, as the trades were also summarized there by Danosu (thanks, by the way).    

AA (was $12.28, now $10.36)

  • Jan $12.50 puts sold for $1.45, now $2.45 (down 69%)
  • Oct $12/13 bull call spread at .50, offset with short $11 puts at .42 for net .08.  Spread expired worthless and short puts expired at .80 (down 900%).

In both of these cases, we end up effectively owning AA.  Net $11.05 on the short Jan puts and net $11.80 on the spread.  Of course, the Oct puts could simply be rolled to the Jan puts for a $1.65 credit so, effectively, that Jan short spread would be the active entry and, at $10.36, owning AA for net $11.05 just isn’t that scary, is it?  I don’t like the Jans for a new trade, they are too far out of the money BUT, if we have to roll those, the 2014 $10 puts are $2.75 and those I do like as a new entry (net $7.25).     

BRK.B (was $72.39, now $78.02) 

 

HPQ (was $26, now $25.75) 

 

INTC (was $20.33, now $24.74)

 

 

 

 

 

IN PROGRESS

 

 

 

 

 


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  1. Burrben

    Phil,
    So would you enter the short puts on MRO and SPLS as both of these seem like viable trades?  Are they going to be added to the "official" virtual WC portfolio?

  2. Phil

    This is not the morning post, it just got put ahead of it on the main page!  

    The trade ideas I still like are in blue.  They are not appropriate for the WCP because the goal of that, like the $25KP, is to make many short-term small gains – not to tie up money for a few months (although we do have the long GNW play but we can’t do too many of those).  

  3. lflantheman

    Phil…..Putting the trades you STILL LIKE  in bold type is another stroke of genius!    Very nice.  

  4. savvygaby

    Where r all these trades being announced I seem to see it after it happens .I see them talked about but I don’t see when u recommend the actual trade please tell me where I can get this faBoulous info like the 800 percent brim trade u guys made

  5. Phil

    Thanks lflan!

    Trades/Savvy – you can find the original post by following the link in the first sentence wher it says Septembers Dozen. Not surprisingly, it was from September. Usually a post like this begins as a main page entry and then moves to the portfolio tab and follow up is in the comments under that post or in daily chat until I do an update post.

  6. rokjok777

    Hi Phil, it’s really helpful that you are posting the price of the stock at the time you mention the trade, thanks for that and please continue!
    What a great site/community/service/commentary!

  7. spiyer

    Why do I not see any comments from 8.33 am on oct 27th.
    Why the report still in progress mode

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