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Thursday, December 7, 2023

$5,000 Virtual Portfolio Update – Week 3 – $5,598

We're up 12% in 3 weeks – not bad…

The goal of the $5,000 virtual portfolio is to play around the volatility of earnings and make no mistake, it's a high-risk way to trade $5,000 and is meant to be a small portion of a large virtual portfolio – not something you would want to do with your only $5,000.  Of course the usual disclaimer is, this is a virtual portfolio, don't try this at home, trading is dangerous, always consult a professional financial adviser, etc, etc.  The idea is to practice different option strategies and we're having a a very exciting first few weeks! 

Our first play 4 plays that we closed were on AA, DIA, SGR, MCD and DELL, which had a total gain of $629 in our first 6 days.  For details on those trades, go to the Day 6 post.  We have been posting all of the moves for the $5KP in member chat, of course, but also on Seeking Alpha's Stock Talk, where we have discovered the added bonus that, like Twitter, you do not have to refresh the page to see new comments!  If you want to follow these trades, just click on "Follow" under my picture and you will automatically see any comments made there.    

On Wednesday, we also had an open a ratio backspread play on YUM and we sold 6 Aug $37 calls for $1.15 ($690) and bought 4 Aug $35 calls for $2.20 ($880).  The idea of a trade like this into earnings is that a large drop will hurt your callers more than it hurts you and, to the upside, you have net $800 in the net $190 spread before you have to pay your 2 open callers a penny.  That means they would each have to go up $3 before wiping out your profits.  Since YUM was at $36 at the time and we did not feel it would be likely to go to $40, even on great earnings, the play made sense.  YUM had very poor earnings and dropped right down to $34, below our strike.  We decided to buy back the 6 Aug $37 calls for .40 ($240), so a gain of $450 on that leg.  That left us with the 4 naked Aug $35 puts, which we paid $880 for, less the $450 gains so we are in those 4 calls for an average of $1.13 per contract.  We have since doubled down that position at .40 leaving us with 8 at an average entry of .77 per contract.  Currently, they are trading at .50 so we are down $216 on this position, still hoping for a nice breakout but the clock it ticking on this one!   

From our Day 9 post: CY went against us for a $65 loss, MAR made $180 and DIA puts cost us $148, which was pretty much a wash at the end of week two and we closed out that week up $424, carrying only YUM over the weekend.  As we were behind on YUM, we were fairly cautious this week, taking quick profits and trying to "catch up" on our poorly performing position.

Fortunately, this week went well:

  • On Tuesday, we went for a WFC ratio backspread, Buying 2 Oct $27 calls for $1.60 ($320) and selling 3 Aug $26 calls for $1.08 ($324) a $4 credit on the spread, with a slightly bearish outlook ahead of earnings.  WFC fell hard the next morning and we bought back the Aug $26 calls for .50 (+$174) and eventually sold our two Oct $27 calls for $1.15 (-90) for a net profit of $88. 
  • Thursday we picked up 2 SRS $16 calls for $1.50 ($300) and we are still in those at $1.70 ($340), up $40. 
  • Also on Thursday we added another backspread on AXP, taking advantage of the big run they had a head of earnings.  We bought 2 Oct $32.50 calls for $1.50 ($300) and sold 3 Aug $30 calls for $1.65 ($495).  Friday morning we got a nice dip and took the opportunity to buy out our 3 callers for .85 (+$240) and we sold our calls, a little too early, for $1.15 (-70) for a net profit of $170.

We attempted to fill a $1 calendar spread on VNO (Sept/Aug $50s) but could not fill that so that was it for the week.  We closed 2 positions for a $258 profit, bringing our 3 week total profit on closed positions to $854 and our two working positions (YUM and SRS) hedge each other and have an unrealized loss of $256 so a net gain of $598 after 3 weeks (12%).  I know this doesn't seem very aggressive but it's a rate of 208% a year and don't forget – we did get way ahead and blew $148 taking a chance on the DIA puts on expiration day.  Even in an aggressive virtual portfolio, it's good to follow Warren Buffetts #1 Rule for investing – DON'T LOSE MONEY! 

We went into this week wary of the markets.  In the $5KP Update last week I warned: "The temptation is to short stocks that have already had big runs ahead of earnings but, with the indexes on such a run, the short squeeze may not be over next week so we'd rather wait and see."  Well we waited, and we saw and we are still waiting for our YUM play to take off.  Having $400 tied up there isn't killing us but it's annoying as we hadn't intended it to be a long-term hold.  We did get a little more bullish this week as earnings continued to come in on the high end of expectations but we're not going to go crazy until we see the upper end of our trading range taken out.  The futures jumped half a point after the markets closed so it's very possible something is in the works for Monday, bad for SRS, good for YUM – we'll wait and see….

You can follow the action by subscribing to our FREE newsletter trial (use promo code "5K" and make sure you sign up for Alerts!) and you can also follow any additions we make live on Seeking Alpha's "Stock Talk" feature so that non-members can follow along as well.  You can follow along by using THIS LINK to follow my trades (click on the word "Follow" on my picture).  This will also serve as a back-up to our site should we ever have trouble with our own chat room so members please sign up and bookmark the site as well. 

By the way, if you have any friends who might want to follow a virtual portfolio like this, there is no better time to tell them using our "Refer A Friend" box on your Member management link as that will automatically enter you in our $1,000 JULY CONTEST where one randomly selected pair during July will win $1,000 for the referring Member AND $500 for the person they refer – a very nice bonus on a $5,000 Virtual Portfolio!  



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