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Long Term Virtual Portfolio Review

By phil
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Our Long-Term Virtual Portfolio took a hit last week and we have a lot of open positions as so many of our callers got wiped out last week.

Do we re-cover, do we roll down, do we double down?  These are great questions and I have no idea until I conduct a review so let’s do that and maybe you can find some plays you’d like to add to your own virtual portfolios.  Long-Term plays are NOT instant money winners and the main thing you have to get used to is the wildly fluctuating values of your callers but understand that your caller is your PARTNER, not your enemy.

Your caller and you are purchasing options TOGETHER, you have a longer horizon than him so you are betting the stock will go up over the long haul and your caller is betting it will go up now.  You only need to make one bet between now and Jan 2010, your caller needs to make 20 and will be charged a premium, by you, each time.  Realistically, as long as we don’t pay more than $20 in premiums ourselves and as long as our caller is paying us $1 per month in premiums, we could care less how much the stock goes up because there is no amount that our caller can rise to that will put us underwater as long as we collect our premium by 2010.

Warren Buffett said that when he looked back over his investments in his early partnerships, the larger investments always did better than his smaller ones. He attributed this to a "threshold of examination and criticism and knowledge that has to be overcome or reached in making a big decision that you can get sloppy about on small decisions."  By forcing yourself to buy longer-term "investments" and more expensive options, you may be able to get out of the cycle of "betting" on short-term moves, taking the time to learn intimately the moves of several select stocks that can help you get to learn the rythms of the markets.

 

Description Type Cost Basis Opened Sale Price Closed Days Gain/Loss $ %
AAPL
40 Jan 2009 120.00 AAPL CALL (VAAAD) LC $ 131,210.00 1/18/2008 $ 95,200.00   52
$ -36,010.00 -27.4 %
This was my morning example.  I like the deep 2010s better now .   As a new postion I also like the ’09 $110s at $28.82, which have just $16 in premium against which you can sell the current $125s for $3 and then the Apr $125s for $5+, collecting 1/2 of your premium back in 2 weeks with a $15 position advantage against your caller and 8 more months to sell.  I’m still giving these the week for a bounce, otherwise I will roll and DD and then go into the straight premium selling business as the LTP is no place for gambling!
$ -36,010.00 -27.4 %
AIG
25 Jan 2009 45.00 AIG CALL (VAFAI) LC $ 18,835.00 11/2/2007 $ 15,750.00   129
$ -3,085.00 -16.4 %
25 Mar 2008 45.00 AIG CALL (AIGCI) SC $ 2,375.00 3/8/2008 $ 6,865.00   2
$ 4,490.00 65.4 %
This is a rollin’, rollin’, rollin’ play.  The nice thing about insurance stocks is they can flatline for years, which is actually great for selling calls.  The Apr $45s are $2.15 but I can collect $4.90 for the $40s and cover just 1/2, that gives me more flexibility as the stock could go either way from $42.88 so I’m likely to go with that. 
$ 1,405.00 6.6 %
AXP
40 Jan 2009 45.00 AXP CALL (VAXAI) LC $ 31,600.00 9/4/2007 $ 19,600.00   188
$ -12,000.00 -38.0 %
40 Mar 2008 42.50 AXP CALL (AXPCV) SC $ 4,600.00 3/5/2008 $ 7,190.00   5
$ 2,590.00 36.0 %

This is a big Buffett holdiing offered up at 3-year lows.    I’m staying in ’09 because I can roll each $5 and I have a better upside delta to my caller (note the jump after the Jan lows).  Bottom line is any time I can be in a positon where my out of the money April caller (the $42.50s at $2.25 in this case) pays for over 75% of my roll ($2.25 to roll to the $40s), then I consider the position to be pretty much of a no-brainer.

  Always remember, a big up move, like another spike to $50, would mean I owe my caller $5 more than he gave me.  If I had sold the $32.50s last month, for example, I would owe them $9 (net $6.50) and I would be rolling them to the Apr $40s for $3.55 (net $2.90) while my long calls would be $10 deeper in the money for $2.90 out of pocket.  ALWAYS PLAN on putting more money into your LTP positions and being happy about it, it means you are doing well!
$ -9,410.00 -26.0 %
BA
40 Jan 2009 95.00 BA CALL (VBOAP) LC $ 36,810.00 9/4/2007 $ 29,600.00   188
$ -7,210.00 -19.6 %
40 Jan 2009 95.00 BA CALL (VBOAP) LC $ 36,800.00 9/4/2007 $ 29,600.00   188
$ -7,200.00 -19.6 %
40 Mar 2008 80.00 BA CALL (BACP) SC $ 2,600.00 3/5/2008 $ 7,790.00   5
$ 5,190.00 66.6 %
40 Mar 2008 80.00 BA CALL (BACP) SC $ 2,600.00 3/7/2008 $ 7,590.00   3
$ 4,990.00 65.7 %

Et tu BA?  The scuttlebut does indicate there will be an additional delay and my plan is to roll and roll and buy more and more.  Charts say they can drop $10 more so I’m selling 1/2 the Mar $75s now ($2.85) and rolling to 100% cover on Apr $75s ($4.35) if we head lower (near expiration of course) and rolling myself down to the (muhaha) Jan $75s for just +$2.40.

I don’t really care what my losses look like right now.  I’m in the BA ’09 $75s and next month I will be happy to spend $2.40 to be in the $70s and in May I will spend $2.40 to roll to the $65s, then the $60s in June and then I will spend $7 to roll to the 2010 $55s for a net cost of $25.80 (about) and they cost $25.70 right now.  So, ignoring the fact that my callers will offset much of the cost of my rolling, the question is, "would you mind owning the BA 2010 $55s for $25.80?"  As long as my answer now is no, then there is no question as to whether or not I should stay with this stock.   

$ -4,230.00 -5.4 %
BMY
30 Jan 2010 20.00 BMY CALL (WBMAD) LC $ 14,760.00 8/21/2007 $ 10,800.00   202
$ -3,960.00 -26.8 %
15 Jan 2010 20.00 BMY CALL (WBMAD) LC $ 8,755.00 8/21/2007 $ 5,400.00   202
$ -3,355.00 -38.3 %
15 Mar 2008 22.50 BMY CALL (BMYCX) SC $ 450.00 2/19/2008 $ 2,030.00   20
$ 1,580.00 77.8 %
Wow, I can’t believe how EVERYTHING is getting sold off!   This is a triple bottom test at $19 (now $21)  and the April $22.50s are .57 so this remains a nice little income producer but you DO NOT want to oversell the short side as it will take you a very long time to work off a spike against you at .50 a month.  So, in short, this is not particularly a good income producer candidate but it is a damn good price for a solid company.
$ -5,735.00 -23.9 %
BSX
30 Jan 2009 12.50BSX CALL (VSBAV) LC $ 4,960.00 8/27/2007 $ 6,150.00   196
$ 1,190.00 24.0 %
20 Jan 2009 12.50BSX CALL (VSBAV) LC $ 3,300.00 8/27/2007 $ 4,100.00   196
$ 800.00 24.2 %
30 Mar 2008 12.50 BSX CALL (BSXCV) SC $ 1,050.00 2/19/2008 $ 2,240.00   20
$ 1,190.00 53.1 %
How did this sector get so out of favor?  They are being probed so we’ll maintain 60-75% covers but they pay much better than BMY (.65 for the Apr $12.50s against $2 leaps)  
$ 3,180.00 34.2 %
C
80 Jan 2010 20.00 C CALL (WRVAD) LC $ 60,170.00 11/7/2007 $ 46,400.00   124
$ -13,770.00 -22.9 %
Rolled to ’09 $15s for + $1 and DD at $5.50.  The logic is I get better leverage on a bounce, eliminate my premium and improve my position by $5 in exchange for a year I don’t think I’ll need to see a nice bounce.  Holding naked and hoping to sell $22.50s for $1+.  Of course with a basis of $7.01, I’m looking to get 1/2 out even asap. 
$ -13,770.00 -22.9 %
CAT
20 Jan 2009 60.00 CAT CALL (VKTAL) LC $ 22,460.00 7/13/2007 $ 28,000.00   241
$ 5,540.00 24.7 %
20 Jan 2009 60.00 CAT CALL (VKTAL) LC $ 22,470.00 7/13/2007 $ 28,000.00   241
$ 5,530.00 24.6 %
20 Mar 2008 70.00 CAT CALL (CATCN) SC $ 3,340.00 2/19/2008 $ 5,190.00   20
$ 1,850.00 35.6 %
If they don’t retake $70 by Wednesday, it will be time to sell 20 $67.50s and put tight stops on the $70 callers. 
$ 12,920.00 26.8 %
CCJ
10 Jan 2009 30.00 CCJ CALL (ZBKAF) LC $ 7,010.00 2/5/2008 $ 10,000.00   34
$ 2,990.00 42.7 %
10 Mar 2008 40.00 CCJ CALL (CCJCH) SC $ 350.00 3/7/2008 $ 1,090.00   3
$ 740.00 67.9 %
Took out this caller on Monday.  Will sell $35s, now $1.73 if no bounce on Tues.
$ 3,730.00 50.7 %
COH
10 Jan 2009 25.00 COH CALL (VZFAE) LC $ 6,980.00 8/29/2007 $ 7,000.00   194
$ 20.00 0.3 %
10 Jan 2009 25.00 COH CALL (VZFAE) LC $ 6,980.00 8/29/2007 $ 7,000.00   194
$ 20.00 0.3 %
10 Mar 2008 30.00 COH CALL (COHCF) SC $ 550.00 2/19/2008 $ 2,360.00   20
$ 1,810.00 76.7 %
Took out caller on Monday, time to sell $25s if we go further down.
$ 1,850.00 12.7 %
CY
80 Jan 2009 20.00 CY CALL (VSYAD) LC $ 44,650.00 2/14/2008 $ 36,800.00   25
$ -7,850.00 -17.6 %
This SHOULD be a bottom so I’m not anxious to sell against but I will sell the April somethings 1/2 to 3/4 cover.
$ -7,850.00 -17.6 %
DRYS
20 Jan 2010 60.00 DRYS CALL (KOOAL) LC $ 39,010.00 1/29/2008 $ 51,800.00   41
$ 12,790.00 32.8 %
Sold $65s during drop on Monday, didn’t help much but I love these as a new entry at $23 as the front-month premiums are huge. 
$ 12,790.00 32.8 %
GS
10 Jan 2009 165.00 GS CALL (VSDAM) LC $ 25,760.00 11/8/2007 $ 24,100.00   123
$ -1,660.00 -6.4 %
Sold $160s Monday morning after failed spike, will buy back with a stop.  We initiated new play in Complex Spreads.  Another one with great premiums to sell. 
$ -1,660.00 -6.4 %
HD
40 Aug 2008 25.00 HD CALL (HDHE) LC $ 14,600.00 11/30/2007 $ 11,600.00   101
$ -3,000.00 -20.5 %
Expecting a bounce off $24, this is a good new entry.
$ -3,000.00 -20.5 %
HOV
60 Jan 2009 7.50 HOV CALL (OZWAU) LC $ 16,810.00 11/15/2007 $ 18,600.00   116
$ 1,790.00 10.6 %
40 Jan 2009 5.00 HOV CALL (OZWAA) LC $ 11,210.00 12/11/2007 $ 17,200.00   90
$ 5,990.00 53.4 %
60 Mar 2008 10.00 HOV CALL (HOVCB) SC $ 1,800.00 3/3/2008 $ 9,590.00   7
$ 7,790.00 81.2 %
Took out caller for .25, that may seem unneccessary but this darn thing flies up and down but respects the $8-$12 channel quite well so once we confirm the 50-dma it’s best to sell.  I love the $7.50s at $3.10 as the Apr $10s are .75! 
$ 15,570.00 52.2 %
INTC
60 Jan 2009 17.50 INTC CALL (VNLAW) LC $ 27,310.00 1/3/2008 $ 24,900.00   67
$ -2,410.00 -8.8 %
20 Jan 2009 17.50 INTC CALL (VNLAW) LC $ 9,100.00 1/3/2008 $ 8,300.00   67
$ -800.00 -8.8 %
60 Mar 2008 20.00 INTC CALL (NQCD) SC $ 3,420.00 2/21/2008 $ 7,190.00   18
$ 3,770.00 52.4 %
Took out 20 callers, left the rest. This is another one I like as a new entry as the $17.50s have just $2 in premium and you can sell Apr $21s for .80 
$ 560.00 1.4 %
ISRG
20 Jul 2008 260.00 ISRG CALL (AXVGX) LC $ 78,210.00 3/8/2008 $ 79,400.00   2
$ 1,190.00 1.5 %
Wow, I was so ahead at one point!  Covered with $260s  as $12 for 2 weeks is a lot of money against a $34 position but I’m hoping to roll back to Oct $240s for $15 or less on a dip and I can sell the April whatevers for $20.   
$ 1,190.00 1.5 %
MCD
40 Jan 2009 50.00 MCD CALL (VMDAJ) LC $ 35,410.00 1/11/2008 $ 25,600.00   59
$ -9,810.00 -27.7 %
Sold $55s on that run.   $1 is often my "magic" number as I figure, how can I turn down $1 for 2 weeks? 
$ -9,810.00 -27.7 %
MDT
20 Jan 2009 50.00 MDT CALL (VKDAJ) LC $ 6,010.00 9/6/2007 $ 7,200.00   186
$ 1,190.00 19.8 %
I think they are way undervalued but  the charts say otherwise so I will cover if we don’t improve by Wednesday.  
$ 1,190.00 19.8 %
MRVL
30 Jan 2009 25.00 MRVL CALL (OZLAE) LC $ 1,060.00 7/27/2007 $ 300.00   227
$ -760.00 -71.7 %
30 Jan 2009 10.00 MRVL CALL (OZLAB) LC $ 8,560.00 2/22/2008 $ 8,250.00   17
$ -310.00 -3.6 %
I’m lucky they jumped up so far as I would have bought them out if they had climbed slowly but now I’m worried after TXN (which wasn’t that bad).
$ -1,070.00 -11.1 %
NEM
50 Jun 2008 50.00 NEM CALL (NEMFJ) LC $ 6,510.00 12/21/2007 $ 21,500.00   80
$ 14,990.00 230.3 %
50 Mar 2008 50.00 NEM CALL (NEMCJ) SC $ 7,250.00 3/8/2008 $ 12,490.00   2
$ 5,240.00 42.0 %
Callers stopped out in the AM and on the rumor of another big Fed cut I decided not to re-cover.
$ 20,230.00 147.0 %
PEIX
20 Jan 2009 5.00 PEIX CALL (OOSAA) LC $ 3,270.00 1/23/2008 $ 1,900.00   47
$ -1,370.00 -41.9 %
I am baffled that with $105 oil and a US energy policy that’s ethanol based that this is laying around so I’m going to DD down here. 
$ -1,370.00 -41.9 %
PEP
30 Jan 2009 70.00 PEP CALL (VPAN) LC $ 18,910.00 2/8/2008 $ 17,400.00   31
$ -1,510.00 -8.0 %
20 Mar 2008 70.00 PEP CALL (PEPCN) SC $ 2,100.00 3/3/2008 $ 2,990.00   7
$ 890.00 29.8 %
I was too bullish to leave these on up 50% and I love the ’09 $70s at $5.60.
$ -620.00 -3.0 %
SBUX
30 Jan 2009 17.50SBUX CALL (VPRAW) LC $ 11,370.00 8/1/2007 $ 7,200.00   222
$ -4,170.00 -36.7 %
30 Jan 2009 17.50SBUX CALL (VPRAW) LC $ 8,380.00 8/1/2007 $ 7,200.00   222
$ -1,180.00 -14.1 %
30 Mar 2008 19.00 SBUX CALL (SQXCS) SC $ 450.00 3/3/2008 $ 1,340.00   7
$ 890.00 66.4 %
Will have to bite the bullet and roll down next month as I need to have position advantage over my callers and I’m ready to give up and sell $17.50s.
$ -4,460.00 -22.1 %
SHFL
40 Jan 2009 15.00 SHFL CALL (ZTHAC) LC $ 1,810.00 9/12/2007 $ 600.00   180
$ -1,210.00 -66.9 %
This has been very disappointing and I’m just looking to get out with 1/2.
$ -1,210.00 -66.9 %
STX
80 Jan 2009 25.00 STX CALL (VTTAE) LC $ 22,410.00 10/18/2007 $ 15,200.00   144
$ -7,210.00 -32.2 %
40 Mar 2008 22.50 STX CALL (STXCX) LC $ 5,410.00 3/8/2008 $ 1,200.00   2
$ -4,210.00 -77.8 %
Will be very nice if tech ever recovers. Rolling down to $22.50s and selling April $22.50s if we don’t perk up by Weds. 
$ -11,420.00 -41.0 %
THQI
10 Jan 2009 20.00 THQI CALL (VZOAD) LC $ 2,810.00 1/31/2008 $ 2,000.00   39
$ -810.00 -28.8 %
Another one that WAS ahead.  Going to add a round and sell 1/2 Apr $17.50s, now $1.45  
$ -810.00 -28.8 %
TM
10 Jan 2009 110.00 TM CALL (ZVKAB) LC $ 10,660.00 3/5/2008 $ 8,500.00   5
$ -2,160.00 -20.3 %
This is a play on a dollar rebound so no hurry on adding but I will roll down, buy more and sell Apr $100s or $105s depending.  These guys are a nice income producer!
$ -2,160.00 -20.3 %
TXN
20 Jan 2009 30.00 TXN CALL (VXTAF) LC $ 4,310.00 12/29/2006 $ 6,600.00   437
$ 2,290.00 53.1 %
20 Jan 2009 30.00 TXN CALL (VXTAF) LC $ 9,010.00 10/24/2007 $ 6,600.00   138
$ -2,410.00 -26.7 %
20 Mar 2008 30.00 TXN CALL (TXNCF) SC $ 920.00 3/8/2008 $ 1,490.00   2
$ 570.00 38.3 %
Guidance was down mainly over loss of NOK business, not something to do with the industry and not something that wasn’t priced in so I’m rolling down on the dip and taking out the caller.
$ 450.00 3.2 %
UTX
15 Jan 2009 75.00 UTX CALL (VXUAO) LC $ 3,010.00 7/13/2007 $ 5,850.00   241
$ 2,840.00 94.4 %
Rolled down to $70s but getting worried about these guys.  Will cover if they don’t bounce. 
$ 2,840.00 94.4 %
WFR
20 Jan 2010 70.00 WFR CALL (ZYGAN) LC $ 2,610.00 4/20/2007 $ 50,800.00   325
$ 48,190.00 1,846.4 %
20 Jan 2009 85.00 WFR CALL (ZETAQ) LC $ 25,610.00 2/15/2008 $ 25,200.00   24
$ -410.00 -1.6 %
Time to sell the $70s and roll the $85s down soon, will cover if they break below $72.50
$ 47,780.00 169.3 %
WM
100 Jul 2008 12.50 WM CALL (WMGR) LC $ 16,010.00 3/7/2008 $ 20,000.00   3
$ 3,990.00 24.9 %
Waiting and hoping
$ 3,990.00 24.9 %
WMT
20 Jan 2009 45.00 WMT CALL (VWTAI) LC $ 7,910.00 8/28/2007 $ 15,600.00   195
$ 7,690.00 97.2 %
20 Mar 2008 50.00 WMT CALL (WMTCJ) SC $ 1,700.00 3/3/2008 $ 3,190.00   7
$ 1,490.00 46.7 %
Slow and steady wins the race with these guys.
$ 9,180.00 95.5 %
Total Gain/Loss
$ 24,260.00 2.6 %

 

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Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither PSW Investments, LLC d/b/a PhilStockWorld (PSW) nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither PSW nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance, including the tracking of virtual trades and portfolios for educational purposes, is not necessarily indicative of future results. Neither Phil, Optrader, or anyone related to PSW is a registered financial adviser and they may hold positions in the stocks mentioned, which may change at any time without notice. Do not buy or sell based on anything that is written here, the risk of loss in trading is great.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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