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Monday, February 6, 2023

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Income Virtual Portfolio – Cashing it in for an Early Retirement!

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:  

  • 20 short GLW Aug $20 calls at $1.30, out at .20 – up $2,200
  • 20 XLF July $15 puts sold for .50, out at .06 – up $880
  • 10 INTC July $22 puts sold for $1.05, out at .15 – up $900
  • 5 BA July $75 puts sold for $2.50, out at $1.40 – up $450
  • 5 DE July $77.50 puts sold for net .67, out at .13 – up $270
  • 50 IYR Aug $55 puts sold for .53, out at .38 – up $1,500 
  • 10 FCX July $47 puts sold at $1.21, out at .13 – up $1,080

So that $7,280 was added to the $17,054 we have already cashed out as well as the $4,000 we withdrew in anticipated profits on two of our trades PLUS we got our dividends on NYL ($1,950) and AGNC ($2,800) for a total of $33,084 collected in just 4 months (100% ahead of goal) and we’re STILL 70% in cash!  We’ve been waiting for a real dip to deploy more cash in our virtual $500,000 virtual portfolio and we haven’t got it yet.  Meanwhile, we keep selling puts in stocks we’d REALLY like to own if they come down to our strike price.

As I said in the last update and as we teach at a much faster rate in our $25K (now $50K) Virtual Portfolio, we have a huge advantage when we sell puts in stocks we REALLY want to own as we can ride out the down cycles, as we did though the last update, because the "worst case" scenario is that we end up owning a stock we REALLY wanted to buy at a price that is cheaper than we originally wanted to buy it for.  Either we get our cheap stocks or, as above, we get our cash!  Cash is nice too, isn’t it?  

Even our HORRIBLE RIMM short puts are coming back a little and we’re not too psyched about owning 1,500 shares at net $26.78 in January – it sure beats our original bet of owning 500 shares at net $33.35 with RIMM now at $28.93.  That’s the power of scaling into positions, you can take a 20% hit on a stock, even a 40% hit – and turn it to your advantage!  Our remaining open short puts are as follows.  

  • 10 KFT Jan $30 puts sold for $1.60 ($1,600), now .43 (up $1,170)
  • 10 EXC Jan $37.50 puts sold for $2.20 ($2,200), now .85 (up $1,350)
  • 10 HCBK Jan $10 puts sold for $1.50 ($1,500), now $2 (down $500)
  • 10 GE 2013 $17.50 puts sold for $2.10 ($4,200), now $2 (up $100) 
  • 10 HPQ 2012 $35 puts sold for $2.90 ($2,900), now $2 (up $900) 
  • 10 CCJ Jan $25 puts sold for net $1.25 ($1,250), now $2.30 (down $1,050)
  • 5 RIMM Jan $35 puts sold for net $1.65 ($825),now $8 (down $3,175)
  • 10 RIMM Jan $27.50 puts, sold for $4 ($4,000), still $3.35 (up $650) 

So, even with the RIMM disaster (and RIMM is still over our net basis so it’s all just premium, PAPER losses so far), our net on the short put plays is a net loss of $555 against our $33,084 of REALIZED gains.  Keep in mind this is our low-touch virtual portfolio, we’re mostly just letting things play out because SELLING premium puts time on your side and one thing retirees have on their side is time – so you can go play golf while the market flip flops up and down and we come back once every couple of weeks and make our adjustments and that’s that.  

LET TIME DO YOUR WORK FOR YOU – that’s what being the house is all about and what our "Man Who Planted Trees" strategy is all about.  You don’t have to trade like a maniac to make good money in the markets, you just have to trade consistently, over the long-term with solid, attainable goals.  The man in the story doesn’t always do the same thing, does he – he adapts his strategy as conditions change over time but he just keeps planting.  What have you done today that will make you money tomorrow?  

While we wait for FRUITION (very apt in this metaphorical case), we take pokes at stocks we REALLY want to own at discounted prices by selling puts. That’s pretty much it for the strategy – it’s not all that complicated, mainly it’s just a matter of getting used to the rhythm of the monthly, quarterly and yearly adjustments over time. Which brings us to our remaining positions starting first with our hedges:

 

  • 100 IYR Jan $50 puts at net $1.70 ($17,000), now $1.32 (down $3,800)  
  • 50 DIA March 2012 $110 puts at $4.15, now $3.15 (down $5,000)

 

That’s a very big swing on our hedges, that were up $7,250 last time and that gives us a nice benchmark as the Dow was 600 points lower (5%) at our last update so our hedges give us about $15,000 worth of protection on a 5% drop in the Dow, which works out fine because the paper losses on our short puts were $10,190 last time and now we cashed in our short-term winners and have a flat set of remaining puts in which we stand to collect $18,475 if the market stays strong over the longer-term.  That’s why we didn’t want to offset our DIA’s – it was just too unpredictable and, when in doubt, better to be protected – we have many, many months in which to sell offsets.  If we don’t head down next week, I’m fairly sure we will go with partial covers to pay for roll-ups on our long puts.  

 

We don’t really want to be up or down, we just want to collect our premiums and our dividends – which brings us to our Dividend Positions and Spreads:

  • 3,000 NLY 2013 $12.50/15 buy/write at net $11.26/13.15 (only 15 puts sold), now $18.20 –  No cash taken.  .62 dividend expected 9/30 ($1,860)
  • 2,000 AGNC Sept $28 covered at net $27.21, now $29.60 – $2,200 withdrawn.  $1.40 dividend expected 9/30 ($2,800). 
  • 3,000 FTR 2013 buy/write at net $5.69/6.60, now $8.20  – $1,800 withdrawn.  .19 dividend expected 9/30 ($570)
  • 20 GLW 2013 $ 25 calls at $1.65 ($3,300), now .90  (up $1,500)
  • 20 GLW 2013 $17.50 puts sold for $2.40 (-4,800), now $2.40 (even) 
  • 1,000 CSCO 2013 $17.50 buy/write at net $11.92/14.71, now $15.86 – .06 dividend expected 7/15 ($60) 
  • 1,000 HCBK Jan $7.50 buy/write at net $5.78/7.39, now $8.25 – .08 dividend expected 8/30 ($80)
  • 2,000 SKX Jan $14 buy/write at net $9.75/11.88, now $14.69

 

Isn’t this section nice and relaxing?  It’s nice and relaxing for me to review.  NLY – on track, AGNC – on track, FTR – on track, GLW – on track…  We have short GLW 2013 $17.50 puts we sold for $4,800, we collected net $2,200 for the Aug calls (cashed in now) and we sold the 2013 $25 calls for another $1,660 so, IF 2,000 shares of GLW are assigned to us at $17.50 or less, we will have spent net $8,840 ($4.42/share) to own them.  Isn’t that nice?  THIS is how you buy a stock!  

In just 2 months, we knocked 75% off the purchase price if it’s assigned to us.  On the upside, if we cover at $22.50 ($45,000), we still have the $8,660 we collected and, if we are called away at $25, that’s another $5,000 in profits for net $13,660 potential profit on net $31,340 laid out (43% in 18 months and we haven’t laid out the $45,000 yet!).  

So here we are at the beginning of month 4 with $33,084 already in the bank (our goal was/is to generate $4,000 in monthly income without touching our principal) and our dividend collections alone should carry us through to our $48,000 goal for the year but that doesn’t mean we can’t make a little fun money over the next 6 months.  We’re only using about $200,000 of our $1M worth of margined buying power and, hopefully, I haven’t been too conservative in not taking more advantage of the small dip we did get but there’s always going to be something on sale and we’ll just keep selling puts while we wait to see who gets cheap enough for us to convert from a short put to a buy/write because each of those buy/writes is one of our trees taking root and those trees can bear fruit for us for the rest of our lives.  

 

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Phil hi hope you are enjoying your 4th today.
Looking at the above on paper the 500k portfolio is very pacient. I must say all my trees of AGNC and NLY have been riped out. I managed to buy some stock of NLY but mainly sold puts on both stocks. HCBK you got me as a non believer. Same with SKX to me a dead loss as their claim on advertising is not true losing weight by walking with their shoes please!. The rest, I did not enter some of the recommendation with the full amount, have learned my lesson with HOV and BAC and C. So some of the trees are growing some missing a lot of water. Saludos

 Phil
I had the same problem with AGNC and NLY – they were called away and if buy them back, short calls was out of premium.
is it better to sell ATM calls and hedge them with TBT (how I understand income of both companies highly depends of interest rate)
what do you think about Real Estate companies who pay monthly dividends (O) here we can sell ITM calls without much risk to be called away because monthly dividends are pretty small

Hi Phil,
If I wanted to start following this income portfolio from now, then would you recommend to reestablish all current position in your portfolio right now? If not all then please recommend which ones?
Below are all open positions from your post.

10 KFT Jan $30 puts sold for $1.60 ($1,600), now .43 (up $1,170)
10 EXC Jan $37.50 puts sold for $2.20 ($2,200), now .85 (up $1,350)
10 HCBK Jan $10 puts sold for $1.50 ($1,500), now $2 (down $500)
10 GE 2013 $17.50 puts sold for $2.10 ($4,200), now $2 (up $100) 
10 HPQ 2012 $35 puts sold for $2.90 ($2,900), now $2 (up $900) 
10 CCJ Jan $25 puts sold for net $1.25 ($1,250), now $2.30 (down $1,050)
5 RIMM Jan $35 puts sold for net $1.65 ($825),now $8 (down $3,175)
10 RIMM Jan $27.50 puts, sold for $4 ($4,000), still $3.35 (up $650)

100 IYR Jan $50 puts at net $1.70 ($17,000), now $1.32 (down $3,800)  
50 DIA March 2012 $110 puts at $4.15, now $3.15 (down $5,000)

3,000 NLY 2013 $12.50/15 buy/write at net $11.26/13.15 (only 15 puts sold), now $18.20 –  No cash taken.  .62 dividend expected 9/30 ($1,860)
2,000 AGNC Sept $28 covered at net $27.21, now $29.60 – $2,200 withdrawn.  $1.40 dividend expected 9/30 ($2,800). 
3,000 FTR 2013 buy/write at net $5.69/6.60, now $8.20  – $1,800 withdrawn.  .19 dividend expected 9/30 ($570)
20 GLW 2013 $ 25 calls at $1.65 ($3,300), now .90  (up $1,500)
20 GLW 2013 $17.50 puts sold for $2.40 (-4,800), now $2.40 (even) 
1,000 CSCO 2013 $17.50 buy/write at net $11.92/14.71, now $15.86 – .06 dividend expected 7/15 ($60) 
1,000 HCBK Jan $7.50 buy/write at net $5.78/7.39, now $8.25 – .08 dividend expected 8/30 ($80)
2,000 SKX Jan $14 buy/write at net $9.75/11.88, now $14.69

 Phil,
I love this portfolio.  While I don’t have the cash to follow it, I have been paper trading it in anticipation of the day that I do.  (When my book sells and my Mom cashes in the Iowa farmland, yada, yada, yada.)  You need hope, right?  I would like to know more about selecting puts to sell.  It is increasingly becoming a major strategy and my best money-maker in my margin account.  No rush, maybe an article down the road on a quiet summer weekend.  Thanks for the amazing work you do and happy 4th of July.  I’m heading out for a walk here.  (My wife’s picture.)

tchayipov
Re. O I do hold this stock as well not such great div as the other two. The problem with this one is the calls have very little premium. I have sold the Dec 35 c for .70cents.

 yodi / O
I sold Dec.30s calls just with 0.2 premium more for protection than for additional income

Phil I share your point on NLY and AGNC but with HCBK I am the proud owner  by selling the 12.5p of Jan 12 in Jan 11 for 2.08 now 4.40. As I said before on paper these trades always look better as paper is very patient.

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