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Weekend Virtual Portfolio Recap – 1/2/2012

This is the first weekend virtual portfolio recap of 2012! We had mixed results since the last recap. Market gyrations and a low VIX make it difficult to sell premium. Short term trades with a market neutral setup should do better in general! Here are the various virtual portfolios. Since this is the first recap in an article format, I have added some more information about the original positions. I have listed the P&L from the previous recap before the new listing to outline the results for this week.

AA Money

This is only portfolio based on the original FAS Money setup – Long strangle to protect us against large moves and short options to pay for the strangle and generate revenues. AA was chosen originally because FAS had proven very volatile and forced us to trade a lot except in the last month when we finally switched to selling monthly options. The AA Money portfolio was started on 10/21/2011 with a Jan 2013 7.5/12 strangle and we started by selling weekly options. However, selling weekly options against AA proved to be costly as options don’t have much premium. We switched to monthly options to limit transactions and capture more premium. Due to the AA price erosion, we have had to revise the strangle and settle with a Jan 13 7.5/10 strangle. This move cost us some money. We have not had any transactions since early December. The current position is bearish with only put sold.

Recap of 12/27/2011 – YTD P&L – $20.00

The position has deteriorated this week due to the weakness in the underlying stock. But we’ll keep on selling premium for the next 12 months.

FAS Money

While this retained the FAS Money name, the setup is somewhat different from the original FAS Money portfolio. No strangle here. We bought an XLF Bull Call Spread betting that XLF will be over $13 by January 13 and we sell weekly and monthly FAS options to pay for the BCS. This portfolio has proven profitable due to the large premium in the FAS options. The XLF BCS is slightly profitable, but 99% of the profits have come from the short FAS options. This portfolio had a decent week despite a sideways move by XLF. But by selling puts and calls in a more neutral setup, we profit from the lack of movement of the underlying security. The 2 weekly FAS options that we sold the week before expired worthless. The sold options are a little bearish but we’ll sell some more options this week.

Recap of 12/27/2011 – YTD P&L – $3440.00

IWM Money

This portfolio is built around the same setup as the new FAS Money setup – an IWM Bull Call Spread betting that IWM will be above $72 by January 2013 while selling TZA and TNA weekly and monthly options to pay for the BCS. As opposed to the FAS Money portfolio, we have had to adjust the BCS at the end of November due to the market correction. This was expensive, but the new BCS is now very profitable. The combination of lower premium and a lesser aggressive setup has made this portfolio less profitable than FAS Money. But the concept is still very valid and profitable in the long run. We didn’t have any trades last week, but the week was also decent due to the decay of the TNA premium sold earlier. The current position is somewhat balanced although a bit more bearish.

Recap of 12/27/2011 – YTD P&L – $1489.00

AAPL $50k Portfolio

I can’t really comment on this portfolio as it is driven by lflan. Maybe he can add some comments below the article. But the portfolio had a very good week!

Recap of 12/27/2011 – YTD P&L – $3390.00

FAS Strangle Experiment

This started as an experiment after I observed the large premium in FAS and how quickly they decayed in the weekly options. I had run an analysis and computed an average weekly move for FAS of around 6% in the last 52 weeks. The principle behind the portfolio was then to sell a strangle using weekly options with about 10% protection on each side. We generally tighten the strangle toward the end of the week as statistically there will be smaller moves – although with a 3x ETF like FAS there is always the risk of a very large move. The risks are somewhat mitigated by the fact that every week we can find good rolls either in the following week or in the next monthlies. As I outlined in a post about 2 weeks ago, I would not hesitate to roll a position a month out and wait for a rally or correction to take small profit and create a new position. The weekly tactic has been to cash the winning side (put or call) at the end of the day and carry overnight the losing side, hoping for a recovery. We have been lucky so far except once when we had to roll the position to the next week. I was not very hopeful last week with the short week, but improved the results with a more aggressive move on Friday by selling a tight 65/66 strangle. We bought it back with over 50% profit right after lunch. We left some money on the table as both side expired worthless but we could not take the chance of a last minute move! There is no open position at this time.

Recap of 12/27/2011 – YTD P&L – $7240.00

I am working to improve the timing of the options sales with TA to generate better returns. But that’s for later this month…

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 Comments on AAPL 50k Portfolio:   This portfolio was established on December 6, 2011, with an initial funding of 50k.   The purpose of the portfolio is to demonstrate that holding and trading positions in multiple companies is unnecessary and distracting,  that trading techniques are far more important than stock-picking, and that, therefor,  excellent results can be obtained by trading options on a single well-chosen stock.  The goal is to double the portfolio value yearly for the next 4.5 years, reaching a value of 1 million at that time.  The portfolio is traded in an aggressive manner using multiple option trading techniques, the choice of which will be determined by market movement in general and AAPL in particular, over time.   Since inception the account is up $7,170 or 14%.  I’m expecting the next few weeks to be very profitable for the portfolio, with upward pressure on AAPL into January earnings.    Present holdings include a July bull call spread and several January calls.   Expect to see me convert the calls to other positions in the coming week, in order to deal with changes in volatility and theta as both earnings announcement and January expiration approaches. 

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