Income Portfolio Feb Update – The Joy of Nothing
by Phil - February 4th, 2012 8:15 am
Nothing!
Not one move since expiration day and that's the way uh-huh, uh-huh we like it in our virtual retirement portfolio because, when we actually retire – who the hell wants to have to work – even when that job is simply pushing a couple of buttons on a computer screen once in a while? Our long-term outlook has been bullish since we began this portfolio last April and we did nothing when the S&P fell 300 points and we did nothing now that it's back up 300 points – to about where it was when we started.
Our goal here is to simply generate a monthly income of $4,000 using $500,000 invested without depleting the principal – the kind of thing that my Mom and many of her friends need to do to supplement their not very generous Social Security checks. Please see previous posts in our Virtual Portfolio section for our main strategy discussions – this is just an update.
Our last update was on January 12th and we finally had some work to do after taking 4 consecutive months off as we just laid back and collected our Q4 dividends but January had a lot of our short sold January positions coming due or paying off. We knew this was going to be our time for action as there really is no such thing as a free lunch – even the investing class has to roll out of bed and sit at a desk a couple of times a year!
Prior to making our moves, we had $80,617 of realized gains (positions we had cashed in) against $39,965 for a $40,652 net gain in our 8th month so averaging a bit better than $5,000 a month and well a head of schedule but this is the month we EXPECTED to do well in so we'll see how we made out. The following positions were closed:
- 1,000 shares of RRD paid a .26 dividend on 1/25 – up $260
- 1,500 shares of NYB paid a .25 dividend on 2/3 – up $375
- 4,000 shares of AA paid a .03 dividend on 2/1 – up $120
- 2,000 shares of F paid a .05 dividend on 1/27 – up $100
- 10 KFT Jan $30 puts sold for $1.60, expired worthless – up $1,600
- 10 EXC Jan $37.50 puts sold for $2.20, expired worthless
…
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DiggIncome Portfolio 2012 – Rolling Back to the Future
by Phil - January 12th, 2012 4:46 am
Behold the value of doing nothing!
Although we were worried last month, my comment to Members was "Don't Panic" as we had faith in our positions (not blind faith – we did go over each one!) and, as always, time was on our side as this portfolio is all about SELLING premium and collecting dividends.
Now, after literally doing nothing for 4 moths, it is finally time to make some adjustments as our January positions come due and require action. So time to end the 4-month vacation and start earning our money…
We initiated our virtual income Portfolio way back on April 9th, after dealing with my Father's death and speaking to many of my Mom's friends in Florida got me to thinking there must be a way to structure a portfolio that will hold up through thick and thin and throw off a nice monthly income – using a combination of dividends and option sales. Our goal was to put $500,000 to work and generate at least $4,000 a month in income without reducing the principal.
As you can see from the chart on the right, this is not exactly a radical strategy but, strangely, it's also not one that retirees seem to be aware of. Clearly, since 1990, the difference between dividend paying stocks and non-dividend paying stocks has made quite a difference. These days, with most stocks moving in very high correlation – that is truer than ever because – if they are all going to go the same way, then any dividends you collect are a bonus, right?
Of course, we try to outperform the S&P a bit as well and again, it's a no-brainer to use put option sales to improve your entries because, clearly, if you only enter a stock with a 15-20% discount, then again you are likely to outperform the rest of the index. The final trick up our sleeve is, of course, Fundamentals – we try to pick good stocks that will do better than the rest of the S&P.
And we HEDGE! We hedge because, EVEN THOUGH we picked a good stock and we will collect our dividends and even though we gave ourselves a discounted entry – WE STILL MIGHT BE WRONG! We might be wrong or the market may collapse (as it did on us just 3 years ago) in such a way that…
Income Portfolio – Year End (Almost) Review
by Phil - December 10th, 2011 8:22 am
8 months already!
We initiated our virtual income Portfolio way back on April 9th, after dealing with my Father’s death and speaking to many of my Mom’s friends in Florida got me to thinking there must be a way to structure a portfolio that will hold up through thick and thin and throw off a nice monthly income – using a combination of dividends and option sales. Our goal was to put $500,000 to work and generate at least $4,000 a month in income without reducing the principal.
As you can see from the chart on the left, this is not exactly a radical strategy but, strangely, it’s also not one that retirees seem to be aware of. Clearly, since 1990, the difference between dividend paying stocks and non-dividend paying stocks has made quite a difference. These days, with most stocks moving in very high correlation – that is truer than ever because – if they are all going to go the same way, then any dividends you collect are a bonus, right?
Of course, we try to outperform the S&P a bit as well and again, it’s a no-brainer to use put option sales to improve your entries because, clearly, if you only enter a stock with a 15-20% discount, then again you are likely to outperform the rest of the index. The final trick up our sleeve is, of course, Fundamentals – we try to pick good stocks that will do better than the rest of the S&P.
And we HEDGE! We hedge because, EVEN THOUGH we picked a good stock and we will collect our dividends and even though we gave ourselves a discounted entry – WE STILL MIGHT BE WRONG! We might be wrong or the market may collapse (as it did on us just 3 years ago) in such a way that nothing is safe – so we hedge. This virtual portfolio is very different from our more aggressive White Christmas Portfolio or the $25,000 Portfolio we closed out earlier in the year as our primary concern here is Warren Buffett’s Rule # 1 of investing: Don’t Lose Money! With that in mind, let’s look at our winners AND losers and see who’s going to be a keeper in 2012.
For the third month in a row, we did almost nothing in the Portfolio. We set up our positions over the first…
White Christmas Portfolio – Month 2
by Phil - December 5th, 2011 7:49 am
What a first month we had!
Oddly enough, when I was last on BNN (I’ll be on again this afternoon), we were just about to start our newest virtual portfolio after closing down this year’s virtual $25,000 Portfolio early as we were way past goal, over $130,000 on the 20th (up 420%). As that portfolio went so well, we decided to play a "White Christmas Portfolio" – as I explained on TV on Oct 24th, which aimed to practice making the same kind of small, aggressive trades, with the aim of turning $15,000 on October 24th into $25,000 by Christmas (66%).
In fact, I gave out our first trade idea, GNW, which was $6.30 during my BNN interview, now $6.47 (up 3%). We discussed the Jan $5/7.50 bull call spread for $1.10, which is now $1.40 and that’s up 27% but, more importantly, your gain playing the option INSTEAD of the stock is .30, vs .17 – that’s almost 100% better gain with NO MORE RISK than buying the stock while requiring less than 20% of the cash commitment (and no margin on just the bullish spread).
Of course, our actual WCP trade idea had another component deemed too confusing for TV – we also sold the short Dec $6 puts for .85 as an offset, which lowered the cash cost of the trade to .35 and those puts are now .20, up another .65 on their own and the net of the entire trade has gone from .35 to $1.20, which is a 242% gain on net. Of course, none of that matters – what matters is that you put a net of $350 into the trade (10 contracts) plus about $600 in margin on the short puts on October 24th and you can cash that trade out today (we elected to cover it on Friday) for $1,200 and that is clearly 242% more cash than you started with on October 24th – the margin requirement is gone, but the cash remains!
With that kind of success on our first trade, it’s not too surprising that the whole portfolio has been doing well. We left off last Wednesday with a balance of $35,540 – far better than we expected to do, obviously, in our first month (up 137%) so we decided it was prudent to get back to cash as we were "too bullish".…
Income Portfolio – Month 6 – Doing More With Less
by Phil - November 16th, 2011 7:20 am
Only one move all month!
We added Ford to our virtual portfolio but, other than that – NOTHING! Of course, that’s the goal of this portfolio exercise – our aim is to try to generate a $4,000 monthly income without touching our $500,000 principal – it’s the kind of set-up that would benefit the retired crowd and the last thing they want to do is go running back and forth to their computers every hour to see if the market is up or down 1% (as it can be several times a day lately!).
The current market turmoil has forced a situation where EITHER you jump in and out of trades every time the wind changes direction OR you ignore the gyrations completely and focus on value investing over longer periods of time. While we have had great success with our short-term trade ideas in the White Christmas Portfolio, it’s certainly not a style of trading that is suitable for more laid-back investors.
I’m going to take a hard look at each of our open positions heading into the holidays. We still have half our virtual cash and margin to deploy and we were net plus $37,654, which was practically our goal for the whole year ($48,000) in our first 5 months – so all we had to do was play not to blow it. We already took $54,414 of virtual cash off the table and there was a net loss of $16,760 on our open positions and we closed the following (ALL passively) since our October 15th update:
- 25 DIA Oct $111 puts sold for $3.10 expired worthless – up $7,750
- 1,000 shares of HCBK paid a .08 dividend on 11/2 – up $80
- 1,000 shares of RRD paid a .26 dividend on 11/8 – up $260
- 1,500 shares of NYB paid a .25 dividend on 11/3 – up $375
- 4,000 shares of AA paid a .03 dividend on 11/3 – up $120
- 10 TLT Oct $118/114 bear put spreads at $1.05 expired at $4 – up $2,950
…
I’m Dreaming of a White Christmas – Portfolio
by Phil - October 29th, 2011 8:35 am
Wow, what a market!
Maybe we closed out our $25,000 Portfolio too early last week, with a virtual gain of $105,000 (420%) for the year, but we still have our Income Portfolio, which was quite bullishly positioned and well ahead of goal as well as positions in our very aggressive September’s Dozen List that are winding down, so we decided to set up this new virtual portfolio with the goal of turning $15,000 in to $25,000 between now and Christmas to have a little extra spending cash for the holidays.
The strategy is the same as the $25,000 Portfolio, which is meant to be the aggressive, "risk" portion of a $250,000 or larger portfolio, utilizing excess margin to our advantage with the goal of making a series of hit and run plays, with the goal of making $1,000 a week for the next 10 weeks. Also like the $25KP, we take our winners off the table and work out our losers as best we can because, above all else, this is an exercise in adjusting and managing short-term positions.
This virtual portfolio will be available to Voyeur Members but trade ideas during chat will have their usual 1-hour delay. Premium members will get the trades with no delay Basic Members also see WCP-related comments with no delay as well. New trade ideas and updates will be copied into the comment section of this post or, assuming I write one, the updates of this post. If you are not a Member yet, now is a good time to join. Check out the subscription page – Our EXAMPLE trade on C closed up 200% and our ENP example returned 137% – not bad for free samples, right?
Our first official trade for the new portfolio was one we discussed on the weekend, GNW, which I added to the main post on Monday (and discussed that afternoon, in part, in my BNN interview). We’re not going to re-hash the logic for every trade here, this is simply a review post to track the trade ideas (and, while we do our best to be as accurate as possible, we do NOT include trading fees, which vary greatly so always take that into account) so we can see how they are doing and discuss how they can be adjusted but, of course, all the live commentary…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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