Weekly Wrap-Up

Wow, what a week!

The Dow went from 13,000 on Monday afternoon all the way back to 13,350 at Tuesday's close and back to 13,060 on Thursday afternoon.  The fact that we called the moves ahead of time gave us, yet again, one of our most profitable weeks of the year.

Last weekend I talked about the absolute importance of virtual portfolio balancing and I'm thrilled to see a lot of members really starting to get the idea that we can maintain a well-balanced virtual portfolio and still have a great time playing momentum on the fringes, having 90% of the fun with less than 25% of the risk!  This Friday was a very mellow options expiration day as everyone was very well covered and the marked did us the very great favor of juming right into our predicted trading range.

We came into Monday morning looking for a bounce after a very painful week where we dropped 600 points in the last 3 days.  As grim as things looked, I posted up the Big Chart and said: "I’ve decided to hold onto our current chart levels until it is really time to give up."  While this is not the place for a Big Chart reprint I'm happy to report that we did manage to hold the line in the US on all but the SOX (down 10) and the Transports (down 45) and, given that this was an expiration week, I'm almost willing to give it a pass.  Europe and Asia held up aw well with India actually making 1,200 points of progress as the rest of the World flatlined. 

Monday afternoon our virtual portfolios took a huge hit as the VIX ran up our callers but I pulled out the trusty old Hitchhiker's Guide and told members not to panic as we took advantage of the situation by selling MORE November calls for huge premiums.  New members should read this post as I went into detail about strategy to use at the time while the market was moving against us.  I made a nice Free Pick in the wrap-up of the ETFC Jan '09 $5s for $1.50, which were still available for $1.70 the next day before topping out at $2.75 on Wednesday (up 62%). 

We'll be giving away some free picks for the holidays so this would be an excellent time to make sure you sign up for our FREE Email Newsletter as this will also be the only way you will be able to get discount codes next year when the daily free content goes away.

On Tuesday WMT gave the markets just what they needed, a BS excuse to rally.  We were very happy to take a skeptical ride to 13,350.  As bad as Monday was for our virtual portfolios, Tuesday was the opposite as we called the dead bottom just perfectly and buying into Monday's dip paid off in spades.  As I said in the wrap-up: "Today’s move was perfect for us as we sold callers into a very high VIX, which inflated their value so, even as the markets jumped up today, we had all the time in the world to buy them back, often at no more than they paid us, as the collapsing VIX destroyed their premiums.  This is the reverse of the frustration you feel as an option buyer when your stock goes up but your call barely budges.  There is a proper time to buy and sell calls and, just like a surfer, you have to know the top of the wave from the bottom or you’re not going to have a good ride."  

Our Free Pick for Tuesday, within the context of fixing of our Googlefly Play was the bear call play of the GOOG $670 puts at $14.50 against which we sold the $650 puts for $10, a net $4.50 play that netted $20 at Friday's close (up 344%) but that was nothing compared to what we made on the member site as we took out our putter on Wednesday morning's spike and rode the $670 puts naked – some of us all the way down to $620!

 Wednesday we weren't fooled by the morning spike and I reiterated my 13,300-13,000 range call even though the Dow was at 13,350 – now that's sticking to my guns!  Again we had a perfect play as we ended up Tuesday more bullish than we planned but Wednesday's wild gyrations between 13,330 and 13,350 early in the day gave us many opportunities to cover before the big dip in the afternoon took us all the way back to 13,200.  The best thing about all this was that it was expiration week and we were able to re-sell and cash out some November callers and putters 3 times this week alone!  Although I didn't specify a DIA put pick as a Free Pick, anyone who followed my recommended 475:50 put to call ratio on the DIAs would certainly have had a nice week!  For members, these mattress plays make up a good part of our core investing strategy and this week they paid a huge dividend.

My Wednesday morning comments about the week's upcoming data (despite the upbeat CPI report) were: "Hmm, maybe I should have bought some more puts!  This is unlikely to be a set of data we’re going to like…" and "Let’s be exceedingly careful out there and we’ll look to lock in our ill-gotten gains (and it helps if you think of them that way) with either November or December calls and then we’ll just have to wait and see if we can really get back to our comfort zones:  Dow 13,500, Transports 2,900, S&P 1,505, NYSE 10,000, Nasdaq 2,600 (we’re there, 2,750 is breakout), SOX 490 (long way) and Russell 830.  That’s what it will take to resume our uptrend – we’ll take what we can get today but without at least a couple of clear break-outs, I’m not going to sleep well as it can all be undone in the morning!" 

Sadly, we didn't even get a chance to sleep on it, I was proven right by 3:45 when the Dow dove 150 points in a flash and gave us one of our single best days of the year.  As we were fairly well hedged on the member site and just bored watching the market go up and down, we decided to run focus puts on BIDU again and BOY did we pick the right day to do that!  BIDU opened at a ridiculous $370 and finished the day at $340 but wasn't done there and dropped another $30 before the week was done.

Wednesday's Free pick was the DUG Apr $37s, which opened Thursday at $9.60 and finished the week at $10.40 (up 8%) against the sale of the Nov $43s for $1.07, which finished the week at .70 (up 35%) even if you didn't buy them out for .20 later on Thursday.  This was a long-term premium collecting play and the Dec $44s should have been sold for $3.15 but, of course, the correct play of taking out the caller on Thursday's spike and selling those same Dec $44s at that time for $4 would have yielded much better results.

Thursday I noted the "headless chicken" pattern of the markets and we decided it was panic selling so we started buying again as the market neared my 13,000 mark.  I mentioned it was easy to be a bullish bargain hunter when you are 80% in cash.  By Thursday's wrap-up we had taken DIA CALLS of all things as the selling seemed really overdone.  We went nuts on the Free Picks in the wrap up, giving away the AppleFly play (as we had great fills), which was (entries were all AAPL December):  $180s bought for $5, $165s sold for $11.75, $150 puts bought for $4.50, $165 puts sold for $12.50.  EVERY ONE of those positions hit the mark the next day and we did a DD in the $25KP, leaving us with 10 of each, with some improvements of course!  My other Free Pick was SBUX '09 $25s, which opened Friday at $2.50 and finished the day at $3.15 (up 26%) and the Dec $22.50s which opened at .85 and finished the day at $1.38 (up 62%).  Of course these are not day trades but they're off to a pretty good start and, of course, we took 1/2 the SBUX Decembers off the table because only a fool doesn't cash out better than 50% profits in a single day!

Friday morning I called for another exciting day and we got yet ANOTHER chance to re-sell callers with a nice pop all the way 13,200.  There were no Free Picks but we jumped all over RIMM calls in the morning as they got cheap fast, as the stock dropped all the way to $97 in early trading.  We did hang tough at 13,050 and finished the week right in the middle of my trading range – essentially it was a perfect week!

I ended the week far more bullish than I had intended so many of the gains we're showing in the virtual portfolios may be fleeting if we get a bad sell-off on Monday.  Callers I had sold on Wednesday were taken out on Thursday and Friday, although tempting, only retraced 1/2 of the dip and just wasn't that exciting to sell covers into.  I hate to be callous about it but we can afford to gamble for a day or so but there is NO WAY I'm going into the holiday weekend any way but VERY, VERY neutral so there's lots of work ahead.

Thanks to BIDU and GOOG and the DIA puts (and SU and XOM and FXI puts too!) the Short-Term Virtual Portfolio had yet another THE BEST week of the year adding another 170% to the basis, now up 1,578% for the year.  This is now getting silly as a 6% gain in the overall virtual portfolio now adds 100% to the original basis and I will be resetting by the year's end.  We are already 78% in cash but that still leaves $1.5M in positions covered by $600K in premiums sold and we still have 36 open calls offset by just 5 puts (but they are big ones!) along with 20 spreads.  Pretty much everything will be covered or cashed by next week in preparation for the holiday weekend.  We've already gone very defensive in the STP by adding length and we have 104 average days to expiration on our remaining positions.

Our Long-Term Virtual Portfolio could not have had a better expiration week, jumping 37% as it was pure carnage for our callers.  That left us up 386% for the year and we finished the week off exceptionally bullish with 25 open calls, 1 put and 15 spread positions.  I realized I was actually quite bullish on Thursday morning when we did our LTP review and I planned on leaving so many positions naked but again, as I said before, it is easy to be bullish when 80% of your virtual portfolio is in cash… 

We bid a very fond farewell to our $10,000 Virtual Portfolio at $45,854, not bad for 54 days!  We finished up 358% (up 100% on the week) with a huge boost from Google – and we didn't even ride that one all the way down…  There are 7 remaining positions that are all replicated in the $25KP and we'll have an ALMOST clean slate on Monday (we took 10 MDT Dec $47.50s for $1.10 on Friday for the new virtual portfolio, which are still available) so congrats to all our $10KP graduates who are moving on up to our slightly more aggressive virtual portfolio. 

Speaking of our $25,000 Virtual Portfolio, Google puts also gave us great gains there as we jumped 80% on the week, bringing the net return since 9/25 up to 296%, a total of $99,068 with $84,193 in cash.  This is a perfect position for a choppy market and makes for a very easy transition for the former $10KP players looking to put their cash to work.  We have 15 open positions including the fabulous Applefly spread and a couple of very far out of the money Googlefly legs we'll need to work on next week as it's time to admit our $710 target price might not happen in the next 30 days.

We modified the Happy 100 a bit, still leaving AMGN Jan $52.50s (basis $5.13), IBM Jan $110s (basis $6.84) and IMCL Jan $40s (basis $5.15) open with a covered call of the HXL Jan $22.50/Dec $25s (net basis $1.85).  The virtual portfolio is up 1% for all our troubles so far but it sure beats taking the full hit on those IBM calls!

Our Complex Spreads Virtual Portfolio is chugging along with another 36% gain on the week as our poor Google and Apple callers expired totally worthless.  We are left with a lot of open GOOG, AAPL and CROX so we'll see how that goes next week but we've taken out most of the big plays and are standing in 71% cash, up 718% since we started it back in  May to handle what was then just too many Google and Apple positions.

Not surprisingly, as it was an expiration week, we closed a LOT of positions.  172 positions were closed with a crazy average gain of 322% but that is thrown off by so many of our callers expiring at zero.  The gain on cash was a very nice  72% for the month as we had very few losers to close ourselves: