by Option Review - October 15th, 2012 2:22 pm
Today’s tickers: LTD, AGNC & LYB
LTD - Limited Brands, Inc. – Options on the operator of retail brands Victoria’s Secret, Bath & Body Works and others, are more active than usual today, with volume topping 8,500 contracts as of 1:40 p.m. ET, versus the stock’s average daily options volume of 1,058 contracts. The bulk of the action is in the October expiry options, where it appears one strategist purchased roughly 6,000 calls at the Oct. $49 strike for an average premium of $0.35 apiece. Upside call buying may pay off for the trader at expiration later this week if shares in LTD rally 1.7% over the current price of $48.54 to top the average breakeven price of $49.35. Limited Brands holds its 2012 Investor Day starting at 8:30 a.m. on Wednesday morning. The stock traded up to an all-time high of $52.20 in September.
AGNC - American Capital Agency Corp. – Shares in mortgage REIT, American Capital Agency Corp., fell as much as 9% this morning to an intraday low of $29.63, extending recent declines following the Fed’s decision last month to expand its mortgage bond-buying program. The stock, currently off its lows and down 2.4% on the day at $31.91 as of 1:05 p.m. ET, has dropped 13% in the past four weeks. A sizable bullish options trade initiated on AGNC this morning suggests one strategist is prepared to benefit from a rebound in the price of the underlying. The options player appears to have purchased 2,120 calls at the Nov. $31 strike for a premium of $1.27 apiece, and sold 4,240 calls at the Nov. $34 strike at a premium of $0.20 each. Net premium paid to establish the spread amounts to $1.07 per contract, with profits available on the upside in the event that AGNC shares reverse course and top the breakeven price of $32.07 by November expiration. Maximum potential profits of $1.93 per contract are available on the position should…
by Phil Davis - July 4th, 2011 8:29 am
What a crazy couple of weeks.
Ka-ching is the word though as we did NOTHING – as planned back on the 18th, in our last update - as we expected the market to go down then up. On Friday, we took our short puts off the table as we expect there is a better than average possibility that we go back down again between now and expirations (15th), so we took our short-term winners off the table. The only move we did execute in the past two weeks, other than taking our virtual money and running, was the sale of 10 FCX July $47 puts for $1.21 ($1,120) on the 24th and those cashed out yesterday at .13, up $1,080 two weeks early so of course we take it off the table!
Our other short July puts that were cashed out were:
by Phil Davis - June 18th, 2011 8:26 am
Well, this is embarrassing…
When we set up this virtual portfolio on April 9th, the idea was to create a virtual portfolio for people like my Mom, who just became a widow, and so many of her friends, who need a relatively safe place to invest their money but would rather not live off the 6% returns generated by the typical retirement fund. Our primary goals in the virtual portfolio is A) Don’t Lose Money, which is Warren Buffett’s Rule #1 of investing and B) To generate a relatively steady monthly income of $4,000 against our $500,000 virtual portfolio (about 10% a year).
Despite the fact that we have allocated less than 40% of our cash, we have accidentally made WAY too much money already and this is NOT the lesson we are trying to teach! What happened is, this past couple of weeks, we had a really nice dip in the markets and our disaster hedges kicked in – as they are supposed to – but our other positions were already well-hedged and well positioned enough that they haven’t really lost anything so we ended up far, far ahead of the curve. While that’s a good thing, obviously, the danger here is getting the wrong idea. We got lucky – and one day we may get unlucky – so let’s keep ourselves grounded and people who are just catching up need to keep in mind that this is not meant to be a get-rich quick virtual portfolio.
If we made too much money on a dip – it’s because we were OVER-hedged and that’s something we will attempt NOT to do in the future. To some extent, it’s a discipline problem for me because I essentially BET that the market would go down and then I BET the market would go back up with our DIA adjustments (as well as overriding our original plan to stop out our new short puts with 30% losses). There was a logic to it because we were only about 25% invested so we had plenty of cash to layer in bullish plays if the market did go up and they we would have rolled our protective shorts (which would have been losing) up to cover. Instead, the shorts paid off and we didn’t have enough bullish positions to hurt us. As we get more invested, we won’t have the luxury…
by Phil Davis - April 15th, 2010 5:50 am
I am one reluctant bull!
I am still trying to be bullish, I am trying to get enthusiastic about this rally and it’s been 3 weeks since I went to mainly cash rather than leave the majority of our Buy List on the table. The Dow was at 10,850 that day and I didn’t think we’d see the top of 11,000 for more than a day but now we’ve been up here for 2 weeks and yesterday we had strong(ish) volume on a strong up day and I’m still having trouble believing it BUT – believe it we must as long as our upside levels hold.
Those levels are now: Dow 11,000, S&P 1,200, Nas 2,500, NYSE 7,700 and Russell 720.
We had a nice, relaxing holiday but now we have hard work ahead as I think the investing environment is littered with land mines – ready to blow up in our face if we take any mis-steps. This bull has horns and we were gored by daring to go bearish in our $100K Virtual Portfolio but our Buy List is all bull and, hopefully, no crap as we try to make safe plays out of the finest companies.
Ideally, our Buy List plays are about finding bargains. We may love AAPL, but they are not on sale. Earning season will hopefully be a great time to do some bargain hunting so this list will be a work in progress but for today we’re just going to review our remaining open plays from the last list and also I would like Members to please use the comment section on this post to suggest companies we should be looking at. Who do you think is trading way too cheaply? We especially love dividend payers, of course and I’ll be looking for companies that service the top 10%, not the bottom 90% – who still look pretty screwed to me and, from yesterday’s news, it seems like the top 10% is down to the top 8% but it doesn’t seem to bother the markets so we won’t dwell on the implications until we’re below 5% and, of course, our goal is to be in the top 5% when it all hits the fan…
After having really good timing on our Feb 8th entries, March 18th seemed like a good time to take the money and run and we shut down 2/3 of our Buy List postions. Let’s do a quick review of the survivors, ones that were "so good" that I couldn’t…
by Phil Davis - February 20th, 2010 8:27 am
What a wild last 30 day’s we’ve had!
I’m going to do a little bit of charting today so we don’t miss out on the next potential Meatball Market (where bad news "just doesn’t matter") as we get past earnings season without any serious dings. Of course, like Icarus, they higher we go, the further we have to fall, especially when we’re getting there on wax wings but part of our fundamental outlook is looking at market sentiment along with the motives, means and opportunity of the manipulators.
The Fed threw a little monkey-wrench into the works Thursday with a surprise rate move but the market was amazingly unphased and, as you’ll notice on the chart below, we are neatly repeating the same move we saw in early November, when we waited 400 points for the correction that never came – until January 20th of course! This week, we took a few pokes at short plays and got burned and we went into the weekend a little bearish but mostly neutral. Our Buy List is off to the races, of course and only 2 of our 42 trade ideas there (AGNC and DF) are off course – I had meant to do an update this week but there’s no point!
We don’t pay much attention to the Buy List in our daily posts or even in chat because those trades do their job with very little fuss. Ideally, the bulk of your virtual portfolio should be made up of boring, low-touch trades that make nice, consistent returns and THAT allows us to have fun with our more aggressive short-term plays that do demand our regular attention. Someone asked me about allocation the other day and I said that, generally, I feel 75% should be in long-term, well-hedged positions like the ones on our Buy List while the other 25% should be used for more opportunistic trading and, generally, we rarely stray from keeping 1/2 of that in cash to remain flexible.
Of our aggressive virtual portfolio, we try to keep our allocations to no more than 10% of our cash on new positions (which means the more trades you make, the less you put into the next trade) and limit our losses to 20% of a full position or 2% of that virtual portfolio MAX. 2% of 25% is 0.5% of the total virtual portfolio. If our Buy/Write Virtual…
by Phil Davis - January 9th, 2010 7:26 am
Well we finally hit our levels!
Fundamentally, I still don’t buy this rally but, technically, we could go up and up from here. We discussed in chat yesterday how we may be in a pattern similar to 2003-7 where we came out of the dot com crash and 9/11, which took the market lower than it should have and then government stimulus took us higher than we should have been. Sure it all ended badly but there was a really good ride up in between. HOWERVER, 2004, which is about where we would be now, was a choppy and downtrending year. That is not a problem for our buy/write strategy as long as we keep our heads and scale into our positions.
Obviously we can’t rely on patterns to simply keep repeating themselves. We could have another terrorist attack, we could have more stimulus or maybe both in our future but, until we see the patten broken, we can play for a similar move. Our buy/write strategy is ideal for this as it’s a conservative play that gives us 15-20% downside protection. Combine this with our usual strategy to scale into positons along with some sensible disaster hedges and we can build a nice, bullish virtual portfolio for 2010. Keep in mind we don’t fear the upside with buy/writes as our "worst case" there is we get called away with a nice profit.
I put up our latest Watch List on Dec 22nd, following through from our bullish lists of September 6th, October 8th and Nov 24th. These are the bullish plays that form the bulk of our virtual portfolios and that sometimes gets lost in our weekly short-term trading. It was a lot like shooting fish in a barrel, picking winners since September (we had our last Buy List on July 11th our first since the bottom in March, which was followed by the more conservatively mixed $100K Virtual Portfolio that we used from April through July, when we were worried the market would be choppy (it was). As always, our active lists are found under the Virtual Portfolio Tab near the top of our pages - always check there for recent updates.