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Income Portfolio Moves – Selling in May and Going Away

Now that I've slept on it, I want to raise cash

As I mentioned in yesterday's update, we are very bullish, perhaps too bullish in our Income Portfolio and we are also 100% ahead of schedule and more like 250% counting the gains from our buy/writes, some of which are well in the money.  Since we aren't thrilled with the overall economic picture and, since we're supposed to be learning new techniques and, since I think it's time to start a fresh Income Portfolio anyway, let's go through our positions and learn how to sell in May and go away with style.

We're not purposely cashing it all out but we won't be upset to be cashed out on some – and I'm sure you'll see why.  I'm going to comment on every position with red highlights for action items, we'll start with our short puts:

  • 20 HCBK July $9 puts sold for $1.45 (-$2,900), now $2.10 – down $1,300
  • 1,000 HCBK at net $6.83, now $6.79 – .08 dividend expected 5/8 ($80)
    • HCBK is now $6.79 and we essentially own them for $9.  They pay a .32 dividend and we already have 1,000 shares uncovered so let's sell 20 July $7 calls for .30 ($600).  If we're over $7, then we lose our current 1,000 shares (but get paid $7) and we'll have 10 short calls to roll into July, where anything between $7 and $9 is an improvement to our current short puts.  
  •  10 GE Jan $17.50 puts sold for $2.10 (-$2,100), now $1.38 – up $720

    • I don't see GE popping $20 very easily but let's cash these puts in and sell 15 April $19 puts and calls for .99 to raise $1,485 that will expire in April.  As we're willing to own GE long-term, either being forced to roll the puts or forced to buy stock to cover (with $2,195 already in our pocket) is not something we're worried about.   
  • 15 HPQ Jan $30 puts sold for net of $2.23 (-$3,345), now $7.08 – down $7,275

    • Here we "own" HPQ at net $27.77 and HPQ is now at $24.18 so not reason for us not to sell 10 April $24 calls for .90 ($900) to begin to eat into that loss.  
  • 15 CCJ Jan $20 puts sold for net $2.17 (-$3,255), now $1.88 – up $435

    • CCJ is now $23.57 and these are 100% premium with $2,820 left to collect.  Patience is its own reward here.  
  • 20 RIMM 2014 $22 puts at net $3.52 (-$7,040), now $10.27 – down $13,500

    • RIMM  now $13.58 and the problem with covering RIMM is we're worried they get bought and we get screwed.  What we need to do here is man up and take the loss on the long position and roll it to 20 Jan $17.50 puts at $5.50 ($11,000) and sell 20 Jan $17.50 calls at $1.65 ($3,300) so at least we're sure to collect one side or the other and RIMM would have to be bought for 100% over current for it to be worse for us than it is now and the premiums expire faster on the Jans.
  •  20 IMAX Jan $22.50 puts sold for net of $4.50 (-$9,000), now $2.60 – up $3,800

    • At $25.92 and a stock we love long-term, it's like CCJ and patience is all we need here.  Seems a waste not to sell 10 April $27 calls for $1.30 ($1,300) to lock in some of our gains though.  
  • 30 FTR Jan $7.50 puts sold for $1.30 (-$3,900), now $3.50 (down $6,800)
  • 3,000 FTR at net 6.29, now $4.42 – .10 dividend expected 6/7 ($300)
    • FTR now $4.42 but still paying a .40 dividend, even after the cut-back.  Since we own 3,000 shares and it looks like we'll own 3,000 more and since we can sell the April $4 calls for .50, we may as well sell 3,000 of them for $1,500 as they can be rolled up to the Aug $4.50 calls, now .30.  
  • 20 GLW Jan $17.50 puts sold for $2.40 (-$4,800), now $4.60 (down $4,400)

    • GLW down at $13.29 tells you tech is not as hot as we are being led to believe.  Unlike RIMM, we're THRILLED to own GLW for the rest of the decade but that's no reason not to collect $980 for selling 10 Jan $15 calls and cut almost 1/4 of our potential loss.  
  • 30 NLY Jan $15 puts sold for net $2.43 (-$7,290), now $1.01 (up $4,260)
  • 3,000 NLY at net $15.76, now $16.16 – .62 dividend expected 3/27 ($1,860)

    • I love these guys but it's very annoying how low the call premium is.  There's really nothing to sell as it would cost us our dividend (getting called away) but let's take the money and run on the short puts and then we'll be happy to sell another 30 if we get a dip and that becomes our insurance.  
    •  
  •  10 TITN March $22.50 puts sold for $4.50 (-$4,500), now .35 (up $4,150)

    • At $25.21, these should expire worthless on Friday
  • 10 ECA 2014 $20 puts sold for $4.60 (-$4,600), still $4.60 – even

    •  We just bought these and we like them.  

Not so bad, only 7 trades to make and we raise $7,565 against the possibility of a sell-off – much better than nothing.  Now let's look over our remaining positions and see what, if anything, we can do with them to feel a bit more secure:  

  • 2,000 AGNC at net $27.65, now $29.50 – $1.25 dividend expected 6/5 ($2,500).

    • We have no intention of getting out but silly not to sell 2000 Jan $30s for .85 ($1,700) and, if we do get called away, wouldn't we want to buy it back at net $23.55?  Then we should also sell 20 Jan $25 puts for $1.45 ($2,900).  
  •  1,000 CSCO Jan $17.50 buy/write at net $11.92/14.71, now $19.80 – .06 dividend expected 4/3 ($60)

    • Already a buy/write that's on track for $5,580 so nothing to do here.  
  • 5,000 SVU 2014 $7 buy/write at net $2.29/4.64, now $6.42 – 0.088 dividend expected 5/28 ($440)

    • On track for a $23,550 win. 
  • 1,000 RRD Jan $12.50 buy/write at net $6.78/9.64, now $12.94 – 0.26 dividend expected 5/3 ($260)

    • On track for a $5,720 win.  
  • 1,500 NYB Jan $10 buy/write at net $8.30/9.15, now $12.99 – 0.25 dividend expected 5/3 ($375)

    • We can cash the stock and the short calls for net $10 now and that leaves us with 15 short Jan $10 puts at .40 and we'd love to own them cheap again so we can leave those open.  
  • 2,000 SKX July $12 buy/write at net $7.15/9.58, now $12.62

    • On track for a $9,700 win.
  • 5,000 WFR Jan $7.50 buy/write at net $3.85/5.67, now $3.87

    • Let's buy back the Jan $7.50 calls for .17 (-$850) and sell the 2014 $3 calls for $1.60 ($8,000), which will drop our net to $2.42/4.96.
  • SONIC Drive-in 2,000 SONC March $10/$12.50 buy/write at $6.95/9.72, now $7.29

    • Glad I got back to these, didn't realize they were March.  The $10s are worthless so let them expire, of course and we can sell 20 Sept $7.50s for $1 ($2,000) and roll the short $12.50 puts ($5.25) to the Sept $12.50 puts at $6 for net .75 ($1,500)
  • 3,000 HOLI July $10 buy/write at net .10/5.05, now $10.07

    • On track for a $29,700 win! 
  • 1,500 HOV Jan $2/1 buy/writes at net .58/.79, now $2.86

    • On track for a $2,300 win.  
  • 500 MT Jan $15 buy/write at net $7.50/11.25, now $19.71 – 0.188 dividend expected 5/16 ($94)

    • On track for a $3,750 win. 
  • 4,000 AA Jan $7.50 buy/write at net $5.43/6.47, now $9.81 – 0.03 dividend expected 5/3 ($120)

    • On track for an $8,280 win. 
  •  2,000 F 2013 $10 buy/write at net $7.30/8.65, now $12.58 – .05 dividend expected 4/31 ($100)

    • On track for a $5,400 win.  
  • 3,000 ACI Jan $12.50 buy/write at net $7.50/10, now $12.08 – .11 dividend expected 6/1 ($330)

    • On track for a $15,000 win.  
  • 15 OIH Jan $36.67/43.33 bull call spreads at $3.33 ($5,000), now $4.30 – up $1,455

    • OIH is at $43 so on track here for up to $4,990 in gains.  
  • 15 OIH Jan $33.33 puts sold for $3.83 (-$5,750), now $2.00 – up $2,745

    • Well on track. 
  • 10 BRK.B Jan $70/82.50 bull call spreads at $4.70 ($4,700), now $8.20 – up $3,500
  • 10 BRK.B Jan $50 puts sold for $4.40 (-$4,400), now .95 – up $3,450

    • On track at $79.41

  • 5 CAT Jan $80/95 bull call spreads at $6 ($3,000), now $11.90 – up $2,950
  • 5 CAT Jan $55 puts sold for $5.55 (-$2,775), now $1.15 – up $2,200

    • Seems safe enough to let it run out.  
  • 10 ANR Jan $30/40 bull call spreads at $2.85 ($2,850), now .55 – down $2,300
  • 5 ANR Jan $25 puts sold for $6 ($3,000), now $9.50 – down $1,750

    • Also glad I got back to these.  Jan $30 calls (.60) can be rolled to 10 2014 $25 calls at $2.65 (-$2,050) and the 5 Jan $25 puts at $9.50 can be rolled to 10 of the 2014 $20 puts at $7.40 for a net $2,650 so overall we pick up $600 on the adjustment.  
  • 10 TM Jan $62.50 calls bought for $6.50 ($6,500), now $22.40 – up $15,900 - We are done with these as $85 was goal (close enough)
  • 10 TM 2013 $55 puts sold for $5 ($5,000), now $1.20 – up $3,800

    • No other changes 

That's another $15,850 in our pockets plus the $7,565 above for $23,415, and the only other potential adjustment I see would be selling short calls and puts against our SDS and DIA hedges as now our positions are better prepared for a move down and we don't need to over-cover if the market looks strong.  

If things stay well, aside from the dividends, we have another $113,970 on our buy/writes that are well on track already and that's over another 2 years worth of income so we'd have to call this portfolio a success and we'll be ready to begin a new one in May – dip or no dip.  


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  1. Phil, this is awesome!  I've been waiting sometime for a update for me to really sink my teeth into with this portfolio.  I'm excited to really read through it later today and plan out some possible trades for the coming week.
     
    Thanks!