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Tuesday, February 7, 2023


$25,000 Portfolio – Month 8 – Madness Continues

We're over the $80,000 mark in our aggressive, virtual portfolio  with more than 3 months to go.

That puts us right on track for our $100,000 goal for the year so let's not blow it.  It's all fun and games trying to turn $10,000 into $25,000 (last year's goal) and then $25,000 into $100,000 because you know it's a long-shot and it's all fun and games but trying to turn $80,000 into $100,000 is RISKING $80,000 and that is NOT what we signed up for when we originally decided to risk $10,000.  This is a classic trading mistake and not just with portfolios (virtual or otherwise) but with each individual trade – as the trade goes up in value, your risk increases and, very often, your potential additional reward decreases.  

You need to understand this well enough to internalize it in order to make better  trading decisions.  We had the same issue last year when we were up to $35,000 in November off our $10,000 Portfolio and we decided to take the virtual money and run rather than risk going for $50,000 into the holidays.  We're not at that point yet as we're still finding lots of fun things to trade but this week was substantially thinner in trading than the week before and we took our small profits quickly and were glad about it…  

It is a very natural tendency to feel that, since you are up $70,000, you can afford to make bigger bets or take bigger chances – THAT IS EXACTLY THE URGE YOU MUST LEARN TO FIGHT!  It's the same urge that makes you want to make a big bet to "catch up" after taking a big loss – also a bad idea.  If you can usually make 10% a month with a system and one month you lose 50% (as happened to spread traders last month), the best thing to do is just go right on making 10% a month.  Over the course of a year, you can still make 70% – but only if you stick with your plan!  

Our last update was sent out on the 3rd, at which point we had $78,910 of realized gains, offset by $5,115 of unrealized losses.  As I said at the time: "I’m not too psyched about overly committing into this mess, which is why we have a constant mix of bullish and bearish bets with a lot of quick profit taking but you can see how nicely it adds up if you just keep at it."  Since then, we've closed the following positions:  

  • 20 UUP Dec $21 calls at .55, out at $1.10 – up $1,100
  • 10 BNO Sept $75 puts at net $3.50, out at $2.15 – down $1,350
  • 20 USO Sept $34 puts at .75 out at $1.75 – up $2,000
  • 10 DIA 9/30 $112 puts at $1.54, out at $4.90 – up $3,360
  • 10 DIA Sept $115 puts sold for $1.80, out at $3 – down $1,200 
  • 5 TZA 9/9 $42/43 bull call spreads at net .05, closed at $1 – up $475
  • 20 QQQ 9/9 $56 calls at .35, expired worthless – down $700
  • 20 TLT Sept $110 puts at net $1.78, out at $1.20 – down $1,160
  • 10 USO $34 puts at net .57, out at .65 – up $80
  • 10 USO $34 puts at net .57, out at .70 –  up $130
  • 10 HPQ Sept $25 calls at .35, out at .30 – down $50
  • 10 USO Oct $3 puts at $1.22, out at $1.45 – up $230
  • 10 FAS Sept $13 calls at .80, out at .65 – down $150
  • 10 QQQ 9/16 $54 calls at .55, out at .77 – up $220
  • 10 QQQ 9/16 $54 calls at .55, out at .80 – up $250

Notice how, as the two-week period moved on, we ended up just grabbing quick little profits off the table as the markets got very unstable and we got more nervous!  Still, it was a nice net $3,235 of additional realized gains for a grand total of $82,145 so far.  Unfortunately, we do still have open positions and, last week, we were left with $5,115 of unrealized losses.  Our goal is, as usual, to take each opportunity (as we did above) to minimize the damages, take the profits off the table and realize as little of those losses as we are able

As of yesterday's close, we are left with the following open positions:  

  • 40 GLL Oct $17 calls at net $1.76 ($7,040), now .70 – down $4,240
  • 20 RIMM Sept $26 puts sold for net $1.14 (-$2,280), now .46 – up $1,360
  • 5 HPQ Sept $23 puts sold for $1.57 (-$785), now .40 – up $585
  • 5 TLT Sept $115/112 bear put spreads at $2 ($1,000), now $1.73 – down $135
  • 3 TLT Sept $112 calls sold for $2.05 (-$615), now $1.60 – up $135
  • 50 XLF Oct $12/13 bull call spreads at net .52 ($2,600), now .55 – up $150
  • 10 JPM Oct $28 puts sold for .75 (-$750), still .75 – even 
  • 30 XLF Oct $9 puts sold for .15 (-$450), now .05 – up $300
  • 5 FAS Oct $8 puts sold for $1 (-$500), now .45 – up $275 
  • 10 BCS Sept $10 puts sold for .85 (-$850), now .35 – up $500
  • 10 TZA Sept $48/51 bull call spreads at $1 ($1,000), now .20 – down $800
  • 20 BCS Sept $8 puts sold for .45 (-$900), now .05 – up $800
  • 10 USO Oct $34 puts at net $1.55 ($1,550), now $1.60 – up $50
  • 20 FXI Sept $36 calls at .52 ($1,040), now .42 – down $200

Down net $1,220 – that's a huge improvement.  We made more money paring back our unrealized losses (through rolling, stopping out and doubling down) than we did actually closing positons!  Notice we took a big bet on the Financials bouncing and hedged it with TZA and that's working out so far with a lot of those Sept short puts looking to expire worthless.  If not, we'll roll them along as we still have faith but maybe we'll add some new protection – just in case.  In fact, the TZA $48 calls are still .50 and they can be rolled to the Oct $41/44 bull call spread for another .50 and that's the real cost of the insurance – .50 a month for $3 of disaster protection.  

So, net of unrealized losses we have $80,925 and we have only net $7,100 of our virtual cash (less than 10%) deployed in our open positions (but using quite a bit of margin) so PLENTY of room to make adjustments.  Our biggest loser, so far, is our GLL position – the short play on gold – and time is ticking on that one with 36 days to October expirations.  That's another good thing about laying out your portfolio this way – it helps you identify and focus on your problem spots and we could, for example, decide to offset the trade with short puts or a bullish play on a miner here or in our main portfolio.  

It's all about balance and, when we have bets on both sides of the table – whichever way the market tips we are bound to find some profits to take off the table.  Even when they are small ones, like the ones above – you can see how they add up over time because profits turn to cash and cash turns to more trades and half of those trades (if balanced) make a small profit and then more cash and more trades as you balance out the open side.   

We're ending this option period pretty bullish overall with expectations that gold and TLT will calm down as we head into the Fed meeting next week.  Europe remains a wild-card but, as I said, we have 90% of our cash on the sidelines as we wait PATIENTLY for clarity because the last thing we want to do with a 200% gain for the year is gamble it – JUST to make another 25%!  



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