Comment by phil

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phil
August 17th, 2017 at 2:42 pm

Options Opportunity Portfolio Update (OOP):  Well we're up $4,000 today so I guess we're still bearish.  Unfortunately we peaked out at $325,753 back on our July 18th review and now we're down to $311,063 (up 211%), which is down $14,690 for the month.  Unfortunately, our two new plays since then were LB and TEVA, both took big losses in the first round.  We'll be adding to both of those losers.

For those who are new, we transitioned this portfolio to more of a long-term portfolio as our first few months (it's our 2-year anniversary, in fact!) made us realize most people were not able to follow active trading due to the platform restrictions at SA.  We've moved towards a hybrid portfolio that mirrors the style of PSW's Long-Term/Short-Term paired portfolios, which relies on long-term positions, short-term premium selling and hedging to create a steady income stream.  

That's going very well, as we're up 211% in two years, so no reason to change things now, right.  It makes the portfolio less exciting but it's exciting to have money too – so we'll stick to the winning formula in year 3 ahead.  



• CHL – We sell short puts mainly to generate a little cash (often to offset a bearish position) and also, as in this case, to put a placeholder down on a stock we'd really like to buy if it gets cheaper.  What's our buy signal?  When the short puts are losing lots of money!  Sadly, this one is up 59%, so it looks like we won't be getting to buy CHL cheaply this quarter.  
• NLY – Another one we'd love to own if they get cheap.  In this case, it's our favorite REIT and, rather than buy the stock ($12.30) and then cover it with a call and hope it holds its value while waiting to collect a $1.20 dividend – we just sold the $12 puts for $2.75 (more than two years' worth of dividends) and our worst case is getting assigned the stock at net $9.25 (25% off).  That keeps $12,300 CASH!!! in our portfolio, which generates $24,600 of ordinary margin and the margin requirement on the short puts is just $1,300.  So, to summarize, use 1/10th the cash/margin we would have to buy the stock and collect more than the dividend with a 25% cushion should the stock fall.  THAT is how you buy a stock!  
• WTW – We cashed out WTW positions twice already this year.  This is the leftover short put and we have no reason to buy it back early because we don't need the margin.  
• FXP – Looks bad but China can fall fast – we'll just let it play out for now.  They have to deal with that psycho that has his finger on the nukes – as well as Kim Jong Un…



• SQQQ – This is one of our primary hedges and it's right on the money.  Unlike the STP, the OOP doesn't seem to need to be more bearish.  If we consider it's a 3x ETF, then a 20% drop in the Nasdaq should pop it 60% from $28 to $45, so the spread is exactly what it should be and 50 x $18 is $90,000 worth of protection less the $15,000 current value so $75,000 of potential protection from this position.  I do want to make one change – let's roll the Jan $27 calls ($4.25) to the March $26 calls at $5.25 for $1 as we're buying $1 in position for a Dollar and the extra 2 months of protection is free.  
• TZA – Our other main hedge.  This one is already $2.50 in the money and x 80 that's $20,000 and the net of the spread is $22,500 and the potential at $30 is $120,000 so almost $100,000 worth of protection here and TZA doesn't have March yet so we'll just let it stand.
• SVXY – Our bet here was that, by Sept, the VIX would finally make a comeback and send SVXY lower.  While we've had a few spikes in the VIX, none have been sustained.  The Dec $90 ($20)/$80 ($15) bear put spread is $5 and I'm considering rolling to those but, for now, let's BUY 20 of those Dec $90/80 put spreads and keep what we have but our goal is to cash out our Sept $72.50 puts next week – hopefully at a better price.  After that, we'll hope SVXY holds $50 so the short puts expire worthless and we'll be in great shape.  



F – No movement on the stock (good for a new trade) but we're in it for the dividends.  Also, we planned on getting called at $10 so it's a darned good thing we took a conservative entry at $11.03 with the low hedges.  

AAPL – The potential for this position is $180,000 and the current net is a net $2,800 credit so good for a new trade if you want to make $182,800 if AAPL Is over $170 in Jan 2019 (but not too far over or the short calls will hurt us).  The short Sept $140 calls are $19.50 and the Nov $145s are $17.25, so that's the roll we'll be looking at.  Once the premium wears off Sept, it should be an even roll.  Also, it's only a 2/3 cover, so nothing to worry about and I'm glad for the protection in case the market corrects and drags AAPL with it.  This trade alone could double our profits in 16 months!  

AAXN – I can't see why Taser took a dive.  You would think the police would be stocking up for the coming riots.  We still love them and it's a long-term trade so we're going to take advantage of the dip and make these changes:  Roll 10 2019 $20 calls ($5) to $15 calls ($8) for net $3 ($3,000).  Sell 5 more 2019 $20 puts for $2.70 ($2,700).   So we've spent net $300 and added a potential $5,000 to the spread. 



• ABX – Even though we are on track and up $4,000, it's still a nice trade at $5,000 net that returns $14,000 at 20 in 16 months for a $9,000 profit (180%).
• ATI – Doing surprisingly well considering we didn't get our infrastructure bill.  I'd say on track, I'd be thrilled to own them if they went lower.  
• CDE – I like them down here and we're still on track – once again saved because we took a conservative position on entry.  Greed kills!  



• CHK – We just talked about them in Member Chat and I said that all that shale drilling + Qatar issues make me too nervous to add to CHK here.  On the other hand, I like the long-term LNG export story so I'm not willing to cut and run yet.  



• CLF – All this tariff talk is good for them and they are on track so all good here.  
• CSCO – They took a hit today but our long-term premise is the Internet of Things will need a lot of routers.  Too early to adjust though, we'll just watch and wait.
• CSIQ – Boy did we back the right horse here!  Time to cash it in though.  I still like them but up 30% in two months is good enough for me.  



• DBA – Our perennial inflation hedge.  Still not working!   We got a nice dip so let's buy back the short Jan $23 calls for 0.05 and roll the 10 Jan $21 put ($2.45) to 15 2019 $20 puts ($2), which drops $550 in our pocket.  Now we can roll our 10 2019 $17 calls ($2.75 = $2,750) to 20 2019 $15 calls $4.20 ($8,400) and sell 20 2019 $19 calls for $1.55 ($3,100).  That's net $2,000 spent plus the net $1,050 we spent in the first place is net net $3,050 on the $8,000 2019 $15/19 spreads with a $5,000 (ish), 160% (ish) upside potential.  Yeah, I like that adjustment.  
• DIS – Right at our Jan target level.  
• EWZ – That was a good call.  Potential is $10,000 and current net is $6,692 so about 45% to go if we hang on for 16 months.  We KNOW we can make more than that in 16 months and I'm a little worried our market tanks and drags Brazil with them and I'd say there's almost a 45% chance that another scandal drags their markets back down so let's take the money and run!    



• FNSR – Back to where we came in.   Like CSCO, it's an IOT play and I think worth sticking with long-term and good for a new trade.  
• FTR – Have they finally stopped going down?  Our net is $14,888/800 = $18.61/share so doubling down at $13.85 would be $16.23 – that's not worth doing.  So we'll just let it sit and see what happens for now.  
• GE – When did they get toxic?  Right when we bought them, it looks like!  Anyway, it's GE, so let's take advantage of the dip to roll the 5 short 2019 $30 puts ($5.95) to 10 short 2019 $25 puts at $2.40 ($4,800) and that will cost us $1,950 of the $2,175 we originally collected so net about $0 and our break-even on the puts is now about $25.  We can also spend $1 to roll the 15 2019 $25 calls ($2.10) to 20 of the $23 calls ($3.20) for $1.10 (+ the extra 5 calls).    The new 5 are uncovered with more room to run.



• GM – On track
• IMAX – Ouch!  Way overdone sell-off so we'll take advantage buy buying back the short Dec $28 calls (0.10) and rolling the 10 $23 calls (0.45) to 20 of the March $15 ($4.70)/20 ($1.80) bull call spreads at $2.50 ($5,000).  That has $5,000 upside potential which will make up for losses on the call side but the 10 short Dec $29 puts ($10.30 = $10,300) will take some work, starting with rolling them to 20 March $22 puts at $4.30 ($8,600).   That's going to cost $1,700 to roll and we collected $3,150 when we sold the originals so still a $1,450 credit but that's not much (0.70/contract).  Still, it's an improvement and we don't try to win everything back at once – this would be a huge improvement by itself if $20 or better holds.  



• JO – We can salvage $2.45 from the 15 Dec $15 calls ($3,675) and roll to 15 of the March $12 ($5.30)/$17 ($1.60) bull calls spreads at $3.70 ($5,550) so net $1,875 plus $2,175 we spent to start is $4,050 on the $7,500 spread that's 100% in the money.  The short puts are still an issue and we can roll the Dec $19 puts $2.30 to the March $18 puts at $1.90 for $600 – worth the cost to gain $1,500 in strike.  
• LB – The thing to understand is LB discontinued swimwear and apparel this year so every quarter they are going to be missing 10% of last year's sales.  They cut the catagories because they weren't as profitable as the rest and the profits are on track so it's all working – yet people are freaking out because their sales are down from last year (not even 10%) and they think AMZN is taking over the panty and bra biz.  Investors are generally idiots, you know…   Anyway, their idiocy is our opportunity and we can roll the 5 short 2019 $40 puts ($9.60 = $4,800) to 10 short 2019 $32.50 puts ($5.40 = $5,400) and that adds $600 to our pocket.  Let's buy back short 2019 $50 calls ($1.90) and roll the $40 calls ($4.10) down to the $32.50 calls ($6.85) for net $2,750 and add 10 more ($6,850).  We'll stay uncovered until hopefully $45 and then turn it back into a very cheap spread.  



• M – Another market overreaction but that's different than LB, where people clearly just have it wrong.  M I see as a long-term real estate value but we have to let that play out.  I'm not worried about $25 as the short put target but let's roll our 2019 $20 calls ($3.10) to the 2019 $18 calls ($3.85) as it's silly not to for 0.75 and let's buy 10 more for $3,850 while we're in the mood.  I don't want to buy back the short calls because $1.10 is a rip-off for the $28s (40% up from here) so we'll just let them clock out.  
• SGYP – Big loss for us as they blew their drug trial.  There's another study coming early next year and we have time to hang on but more of a gamble now.  It would be silly not to roll the 2019 $3.50 calls ($1) down to the $1.50 calls ($1.90) for 0.90 ($3,600) and then recover that money by selling 40 $4 calls for 0.90 ($3,600) so now we're in the money again and we collect $10,000 at $4 if all goes well for a small net net profit.  Hopefully, the spread will protect us from taking too much more damage.  



• SPWR – Another solar play, well on track.  
• SVU – They did a reverse split but on track overall.  Good for a new trade, in fact.  
• TEVA – Another awful sell-off.  Fortunately we started small but still down big as it dropped like a rock with a rock around its neck.  The 5 short 2019 $30 puts are $13 and we can roll those to 10 of the 2019 $22.50 puts at $7 and pocket $500.  We'll leave our long $32.50 calls (you never know) and buy back the short $40 calls (0.33) and set up 10 of the 2019 $15 ($4.80)/25 ($1.40) bull call spreads at $3.40 ($3,400) and they return $10,000 if things turn around, which would still be a nice profit despite the 50% drop as we started with a net credit.  



This is why we like to start with small positions.   You always have to expect a stock to go 40% against you and have a plan for what you will do if it does.  Markets don't need good reasons to discount your stocks but smart shoppers keep their heads – and plenty of CASH!!! (have I mentioned how much I like CASH!!! lately?) on hand so that, when the sale comes (and they always do), they will be BUYERS and not panic sellers.

We don't knee-jerk buy everything that goes down but, when we think the move is overdone, having a small start makes it not at all painful to take advantage and pick up a bigger position at better prices.  TEVA started with a $950 credit and we hoped to make $3,750 more at $40.  They went the WRONG way by a mile but now we're spending just $3,065 to put ourselves in a $10,000 spread that pays off at $25 – that's 23% lower than where we came in!  

If you begin with sensible portions in positions that you would HAPPILY double down – even twice – then you will be able to ride out even the harshest of corrections.  

• TGT – Our faith was rewarded and they are making a comeback.  
• TWTR – On track.
• UNG – More nat gas.  Well, we want the short Jan calls to go worthless and plenty of time to adjust the short puts.  A hurricane could put us right in the money. 
• WPM – Our Trade of the Year.  Halfway to goal with 16 months left – looks good to me!  
• XOM – Oops, we were supposed to dump them.  Let's dump them.  

A lot of adjusting work this month but I'm very pleased with the overall portfolio – which is really great on a down 200 day and best of all, the Portfolio is rock-steady.  If the AAPL trade works, the rest are just window-dressing anyway!