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$100K Porfolio – Our Q4 Watch List

 

We are NOT jumping right into these positions for the new $100KP.

This is just a post to organize trade ideas for the new $100KP and we'll be watching these stocks and looking for good opportunities but, right now, the market is high and the VIX is low so it's just not all that attractive to jump in on upside plays at the moment.  I still feel the market is toppy and, if you look at the October 8th Watch List, we were looking to see if we could hold September highs of Dow 9,829, S&P 1,071, Nas 2,146,  NYSE 7,047 and RUT 620.  Well, we STILL aren't at 620 on the RUT – something is strange about that!

Our last Watch List did very well but that was BECAUSE we took well-hedged positions and scaled in slowly!  Keep in mind it's a watch list and not a Buy List.  Buy Lists are for clear bottoms where we need to load up on things, we haven't had one of those since July 11th.  A Watch List is for things we feel are good values so we keep our eye on them or, as I said in the previous post, a good place to start scaling in SLOWLY to new positions, so we can take full advantage of additional weakness. 

All of these stocks are ones I like and they are good for any virtual portfolio.  Anytime you see one falling though, that's the time we want to take a closer look to see if we have an opportunity to jump on something we like while it's on sale!

AGNC (11/24) is (gasp!) a REIT.  But it’s a strange one that (according to them) "Invests in agency pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government agency or a U.S. Government sponsored entity.  The company funds its investments primarily through short-term borrowings structured as repurchase agreements."  This $26.20 pays a QUARTERLY $1.40 DIVIDEND!  The next dividend is in late December and we can buy the stock here and sell the June $25 puts and calls for $5.60, which puts us in for net $20.60/22.80.

ATVI (11/24) is a good one if we are going to have a good retail season.  They own WarCraft, which is the 2nd biggest monthly revenue producer behind SNE's Everquest.  Having a monthly subscription base sees them through rough times and they have had their growth halted in China as they switch distributors, which should be finished by the fall.  I like selling the 2011 $10 puts for $1.35 and buying the 2011 $7.50/10 bull call spread at net $1.75 so the stock is put to you at net $10.40 if it falls more than 10% or pays 525% if they hold $10.  Say you were considering buying 100 shares for $1,145 and you are willing to risk a $200 loss.  You could instead buy 2 of those spreads for net $80 + $1,000 in margin (assuming 50%) and your upside is $420 at $10 (down 10%) wheras, with the stock, you would need the stock to go to $15.65 (up 36%) to make the same $420.  You don't lose $200 until ATVI is at $8 (and it's put to you down 30%) whereas you lose $200 with the stock at $9.45 (down 17%). 

CPLP (11/24) is an all double-hull tanker company that pays a nice dividend (21%).  They are a crazy moving stock and the spreads on the options are very wide so be careful.  Since we want to collect the dividend, the play is to buy the stock for $7.50 and sell the June $7.50 puts and calls for $2.50 for a net $5/6.25 entry

CUZ (11/24) is the little train that might.  They are a REIT that took some write downs and is raising capital and that took them from $10.95 in Aug down to $7.50 later in Aug, now $7.14 again.  Last time I said that I think I might be willing to ride these guys out at $6.50 and we just tested that line on Friday with a good bounce.  I still like selling the Apr $7.50 puts naked for $1.20.  They cut their dividend to .36 for the year but that’s over 5% of $6.50 if it holds but consider that one a gamble for sure.

ENP (11/24) is a nice little E&P operation and our last entry was $16.50 but they just went ex-dividend on 11/5 at $19 and are back to $17.50.  Since we can sell June $17.50 puts and calls for $3.50 to net $14/15.75, I still like them for an entry up here

INTC (11/24) is a good bet if tech isn't dead.  The SOX are up 100% since March and that would be $23.50 for INTC so you have to like them at $19.40.  Jan $19 puts and calls can be sold against them for $1.75, giving us a net $17.65/18.32 entry, which is kind of a long way to go to save a buck.  I think I'd rather buy the 2012 $15s at $5.80 and sell Jan $20 calls for .60 and Apr $18 puts for $1 for a net $4.20 entry on the $5 spread with 2 years to roll.

FLY (11/24) has no options and I was hoping to see them retest $7 so I’m not very excited about buying them at $9 but let’s keep an eye on them as they have a great business leasing aircraft and their competitors have a lot of troubles, which should help them long-term.  That is the exact same comment as I made on 10/8 and the lowest they got was $8, very briefly, so I'm now willing to scale in at $8.   

FTR (11/24) is a CT-based phone carrier that pays a REALLY nice 13.4% dividend.  The stock is $7.71 but the contract prices are very lame, with the May $7.50 puts and calls just $1.10 but we don't mind owning them long term at net $6.61/7.06 as long as they are paying that $1 annual dividend.

GLW (11/24) all the things that are selling:  Laptops, phones and TVs have one thing in common – glass!  That's half their business and the reason they were a favorite of ours last fall.  Now they have more than doubled but the other half of their business is fiber so I think they have room to double again.  2011 $12.50 calls are $5 and you can sell Jan $17.50 calls for .50 and Jan $16 puts for .60 for net $3.90 on the $5 spread, which makes for a nice entry

GOOG (11/24) is in a funny spot where they may go up or down $100, depending on the broader market.  One trade I'm looking at for them (NOT for the $100KP) is buying 4 June $570 calls for $55 ($22,000) and selling 5 June $600 calls for $40 ($20,000).  That's net $2,000 on a 4x $30 spread ($12,000) so a $10,000 profit before we owe that extra caller any money, which means this trade is profitable from $575 to $700.  You can mirror that play with a bearish backspread of 4 June $610 puts at $62.30 ($24,920), selling 5 June $580 puts at $46.60 ($23,300) which makes that spread net $1,620 with a b/e from $490 to $606.  Taking both sides gives you a break even between about $505 and $675 with a $5,000-$12,000 profit between $560 and $625.  This is a good trade if you feel comfortable managing your ratios on momentum.

GOOG (11/24) for those of you not inclined to watch so closely, 2012 $700s are $60.50 and you can sell 2011 $660s for $40.85, which is net about $20.  Since the 2011 $700s are $29, this is a good trade if GOOG stays over $550 and should be rollable if GOOG heads higher.  You can risk more to the upside by selling 4 for every 5 longs or buying the 2012s and setting a "sell-stop" on the 2011s at $37.50, which would still leave you with a good spread. 

GPW (11/24) is a nice little (and I emphasize little) power company that pays a 5.75% dividend on $25 shares (no options).  The kicker for them is they MAY qualify for state aid in building their new plants as they continue to expand and that could give them a boost as would an acquirer paying just a fraction over the $250M market cap.

Notice that many of our virtual portfolio trades are REITs and energy companies.  While I feel that REITs are in big trouble and commodities are overpriced, they make good offsets to our more speculative downside plays on SRS, OIH or ERY.  This is a very important part of virtual portfolio balancing, selecting a mix of stocks to offset your bearish ETF betting or vs. vs. so you are not likely to be ALL wrong when the sector moves one way or the other.  In general, since I am pretty bearish on the economy, I like stocks that benefit from me being wrong on my macro view.  These are, of course, also stocks I don't mind being "stuck with" long-term, just in case my macro view turns out to be right. 

NRF (11/24) is a small REIT but a lender, not an operator and they are based in NY dealing with mainly corporate clients so, hopefully, based a little steadier than most.  They are at a bad spot for options right now at $3.46 as they only have $2.50 and $5 strikes but even the 65% reduced dividend of .10 is 11.4%.  The company has $260M in cash and $3.3Bn in properties (never trust those values) with just $1.9Bn in debt.  They do keep selling stock to raise cash and A/P has run up and bears watching so this is a scale-in but they could easily double up if CRE really does recover. 

ORCL (11/24) is up "just" 50% off the bottom but MSFT is up 100%.  ORCL has a slightly lower p/e than MSFT and they have yet to realize gains from their buys of PeopleSoft, Siebel and BEAS (who we had played as a bargain before they got snapped up).  They are also buying JAVA which will turn them into a total solution provider so I like them long-term.  The 2011 $17.50s are $6 ($1 premium) and you can sell Jan $22.50 calls for .90 and Jan $20 puts for .40 for net $4.70 on the $5 spread with a year to roll

PDS (11/24) is having a rough time and halted their dividends, which used to be over $1 per year.  They may have expanded too much at the top but they make a nice speculative play, selling Jan $7.50 puts naked for .90.  I also like the June $5/$7.50 bull call spread for $1.40 (must be patient for dip) with a 78% gain if they get over $7.50 by then and you can stop out at $1 for a 40% loss to a 78% gain risk/reward profile.  We did this last time with the March spread and that's up .30 already (21%) with little hassle.

PGH (11/24) is almost always our value lists.  They are a Canadian trust that pays a MONTHLY .092 dividend.  At $9.63, the July buy/write is attractive, selling the $10 puts and calls for $2.20 for a net $7.33/8.67 but you MUST expect to be assigned at $8 or even less and you’d better want to DD there if oil drops back below $50.  Long-term, these guys are good producers and a nice inflation hedge on the price of oil.  From ‘04-’08 dividends were around .20 per month so a nice set and forget in the long-term virtual portfolio.

PRM (11/24) is up 20% from when we picked them on 10/13 but I still like them for cautious scaling.  They make those little free apartment and home for rent/sale guides that you get for free in diners.  Like every publisher in America, were getting killed and they were all the way down under $1 last time we picked them.  $2.45 would be our ideal entry if they get back there, hopefully on some general publishing news that takes down the sector.  This is generally a stock to stick under your pillow and forget about for a couple of years (but a DD or TD (triple down) at $1 of course).

SB (11/24) is a very boring shipper that pays a very boring 7% dividend and has no options at $9.03.  This is up $1 from our 10/13 pick and they fell all the way to $6.75 so it's a WATCH ONLY here.  They have made .58 to .76 a share in Q3 ‘08 through Q2 ‘09 and little is expected of them.  It’s a good upside play on the overall economy but, if we turn down, there is a serious glut of cargo capacity that will hurt everyone.

TNK (11/24) is another tanker company I like who just cut their dividend, reported a loss and dropped 10% – the trifecta of value buying.  The reduced dividend is still 7.2% and hopefully it will return to its former glory over time.   The stock is at $8.23 and you can sell the May $7.50 calls for $1.10 (no less, or you are likely to get called away) and  the May $10 puts for $2.60, which is net $4.53/7.27 so we REALLY want to own this one 2x with that spread as it's VERY likely to be put to us under $10.  If you are not so sure, you can sell the May $7.50 puts for .75 and that’s net $6.38/6.94 but you can see why my logic is that, for .33 more (on the put to side), we may as well go for the 120% calll away at $10 rather than the 17% call away at $7.50.

WHX (11/24) is an interesting little REIT.  They are a subsidiary of WLL that seems to be nothing more than a vehicle to funnel profits off land leases out of the parent company to be distributed out as dividends through WHX.  That makes the income fairly uncertain as it seems tied to oil revenues but they have no debt at all and the dividends work out to over 15% so worth a small position at $16.  Sadly – no options… 

IN PROGRESS

 

 

 

 

 


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  1. Phil: was not around for watching/trading:
    what’s the DIA put situation to hold ? naked ??
    Are you bearish now for the rest of week ?


  2. Hi Phil,
    PGH is now paying a $0.067 monthly dividend as opposed to a $0.092 monthly dividend.  Also, what are the ramifications of the new Canadian tax rules that go into effect in 2011 (http://www.dividenddetective.com/canadian_royalty_trusts.htm) which will directly impact these energy trusts?