November finished with a bang!
Powell spoke yesterday and indicated the Fed may slow their pace of tightening as soon as the next meeting and it wasn’t news – it was exactly what we expected – but it made the markets happy and now the Dow is only down 5% for the year. This doesn’t affect our slow, steady investing strategy for our $750/month Portfolio, which began on August 25th and, as of last month’s review, was down 0.7% with $2,100 invested.
Our goal in this portfolio is to show investors how to use slow, steady, simple options strategies to amass over $1M over 30 years by investing just $700/month ($252,000). If you can apply this discipline in your early working years – your retirement will be a breeze.
Our goal is to make 10% a year on our investments and, though it has only been 3 months – the portfolio is up 9.3% already – so we’re back on track. No dividends were paid out in the last 30 days but Annaly Capital (NLY) did make a nice recovery after reverse-splitting and it’s very hard to stay mad at them when they pay out $3.52 per $21.67 share (16.24%) in annual dividends.
AT&T (T) has gained about $1 this month and the short puts we sold on Chimera Investment (CIM) are already up 23.4% ($75) in their first month – as we caught a nice bottom with our entry.
The key to this strategy is picking the right stocks in the first place. Fortunately, we are Value Investors – it’s what we do… We would rather have our stock selections stay low long enough for us to accumulate at least 100 shares – which is the point at which we can begin to sell options and I do expect us to be rangebound into next quarter – despite yesterday’s little pop.
Now, we have another $700 we can put to work and we are fresh off picking our 2023 Stock of the Year, which is Yeti Holdings (YETI), but YETI is a $45 stock (now that we popped it 7% yesterday), so a bit much for this portfolio at this stage of our process.
HOWEVER, we did have some good finalists including the very reasonable Energy Transfer (ET) at $12.54 and SoFi Technologies (SOFI) at $4.83. While I do love SOFI as a speculative investment, ET pays a whopping $1.06 (8.4%) annual dividend and we are just $1,254 away from having 100 shares and being able to sell the 2025 $10 calls for $3.30, which would drop our net to $924 – essentially this month’s investment.
Once we are covered, we’ll still have $476 to spend next month while we can expect $106 in dividends from the ET shares x 2 years ($212) and another $76 when called away at $10 in Jan 2025 (unless we roll the calls, which is likely) and that’s $298 (32%) back on our net $924 investment over 2 years.
Is that going to be the best use of our $700 this month? SOFI is $4.83/share but we can sell the 2025 $5 puts for $1.85 and that would give us a net entry of $3.15 – 35% below the current price. So, over $5, that would clearly make us 35% in 2 years but really we could sell 2 for $390 and that would tie up $630 in margin so our return on margin would be 62% with our worst case being that we own 200 shares of SOFI at a 35% discount.
OR, we could buy 100 shares of SOFI for $483 and sell 1 2025 $4 call for $2.40 ($240), which is a ridiculous premium due to more people than me thinking SOFI is way too cheap. We can pare that with 1 short 2025 $5 put at $1.85 ($185) and our net cost of 100 share is $58 and we’re tying up $500 in margin (assignment risk) and, if we get called away at $4 we make $342, which is 61% of $558 cash and margin.
If we could sell 2 of them, them I’d do it that way but we don’t have the margin for it so let’s be a bit more aggressive and sell the $5 calls for $2.07, which raises our net by $33 but gives us a potential $409 profit at $5 out of $591 cash and margin, so a 69% potential return in two years.
That would be the winner except for the fact that SOFI doesn’t pay a dividend – so why should we pay $483 to own the stock when we could, instead, set up an artificial position using options. So our $700 play on SOFI will be:
-
- Buy 5 2025 SOFI $3 calls for $2.85 ($1,425)
- Sell 5 2025 SOFI $5 calls for $2.07 ($1,035)
- Sell 1 2025 SOFI $5 puts for $1.85 ($185)
The net of this spread is $205 and we need $500 in margin so $705 cash and margin (we had $58 left last month, so we’re good) and this is a $1,000 spread at $5 that is almost entirely in the money to start. So now, using the same amount of cash and margin that we hoped would make us $400 at $5 in 2025, we are now potentially able to make $795 against $705 in cash and margin – that’s 112%!
Meanwhile, let’s not take the rally too seriously until we see what sticks next week. Powell made some nice noises yesterday and that caused the Dollar do drop 2% and the markets generally move 2x inverse to the Dollar over the short-run and, so far, it’s a very short run:
See it’s all very logical…
Good morning!
As noted above, markets got a bit over-excited and now Oil (/CL) is touching $83 and that’s a good spot to short with tight stops above.
The Dollar is likely to bounce off 105 and that alone will send /CL back to $82.50 or lower.
Please help us add to the Holiday Shopping Survey – even if you are not shopping – it would be nice to know why.
Keep in mind trade ideas like SOFI above will work at 50 bull call spreads and 10 short puts, which would be net $2,050 on the $10,000 spread so $7,950 upside potential is about a 400% return on CASH!!! and margin is minimal in a normal account. What’s the worst that can happen? You get assigned 1,000 shares of SOFI at $5 but that doesn’t make the risk $5,000 unless they are going bankrupt. Since it’s a 3/5 spread – even at $4, you get $5,000 back on the larger spread and you are assigned 1,000 shares at $5 for a $1,000 loss but still up about $2,000 at $4 and break-even is about $3.50 – and, of course, we can roll and adjust so the reward here is quite a bit more likely than the risk – which is what makes a good spread.
Good Morning.
Personal Income was up 0.7% vs 0.5% expected and Personal Spending was up 0.8%, as expected.
PCE Prices were only up 0.3%, which is great and core PCE is 0.2%, which is the Fed’s target so all done???
PMI is contracting at 47.7 – flat to last month.
ISM was a bit off at 49 vs 49.9 expected – this is contraction!
Construction Spending down 0.3% but it’s up 9.2% from last year.
Good morning!
Our holiday shopping has been and will be low key, almost all online, most things are on sale. My kids are opposed to fast fashion for environmental reasons. They will still get a few things. In fact this year they are rejecting Xmas gatherings and only want a solstice party. I don’t go to malls but I did go pick up some toothpaste the other day. I was surprised to see my usual go from $6 to $9.50. I guess PG is doing well.
Yeah, these kids are really serious about the environment, aren’t they.
And it is amazing the ridiculous price increases we’re willing to take without complaining. I guess, over time, we end up switching brands but it takes a while.
Solstice party sounds great!
hi phil could you remind me of the nasdaq bounce lines corresponding to s and p 4160 and 4320
thanks
On the daily chart, the Nasdaq looks like this:
Vs SPX
Phil-MO hasn’t been mentioned in a while. I have 10- 2024 uncovered 40 calls at 7.66 net from an old 45/55 BCS that I rolled down . I am leery about rolling to 2025 and/or doubling down out in time because of the future of the tobacco industry. Also have the 2024 45 short Puts @5.33. Would appreciate your opinion. Thanks
In the LTP, we have and aggressively long position in MO with 50 2024 $40 calls we bought last November for $7.30 and now they are $7.75. We bought back the short calls for a nice profit and we still have 20 short Jan $45 puts (sold for $5) that are on track to expire worthless. In two weeks I’m sure we’ll be selling short calls and more puts, now that we had a nice pop.
https://charts2.finviz.com/chart.ashx?t=mo%20%20&ty=c&ta=1&p=d&s=l
You have our same calls and puts for a bit more money and I guess you also made a profit on the short calls. I don’t think the last 30M Americans who smoke (cigarettes) are going to be quitting and I DO think pot will be Federally legalized and MO will move in and we’ll all be getting Camel joints, vapes, etc. down the road, which is why I like them so I’m planning to roll to 2025, probably the $40 ($8.10)/52.50 ($2.65) bull call spreads at $5.45 with half as many short $45 calls at $6.30 for net $2.30 on each $12.50 spread.
Phil,
Would like help in understanding comments from Dollar General (DG) CEO “that supply chain constraints led to a $40m increase in supply chain costs” whereas physical merch inventories reportedly increased by 28% resulting in an eps miss of 8% (2.33 vs 2.53 expected), whereas sales actually grew by 11%.
#1, If they were short on merch, how did sales increase 11% and, #2, how did selling more stuff cause inventories to increase especially with supply chain problems ?
TIA
If we give him the benefit of doubt, I’d say it cost him $40M to keep the merchandise flowing in as usual but, at the same time, demand dropped and spiked his inventories. “Selling more stuff would just be selling the same stuff but now $1.25 vs $1 (their new pricing system), which is probably why a lot of items are left on the shelf now (perceived value is lacking).
Inflation has a lot of moving parts and the machines these guys have relied on for years to manage the supply chain were designed by programmers and consultants who may have lived their whole lives without significant inflation. This is a whole different ballgame but the machines are meant to keep things that sell on the shelves and they use prior years as their guide (think of the lag time between order and restock when everything is made in China) so it all goes out of whack in situations like this.
That’s why we PATIENTLY wait for quarterly reports to see how each individual retailer is coping. Some, like AAPL (which is run by supply-chain specialist Tim Cook), are right on top of things while others, like BBBY, haven’t got a clue how to adjust.
I suppose you could say the same about BIG BIg Lots. Their CEO is also 51 years old
Sure, you have to look at their actual background, of course but people who missed the 80s haven’t got a clue how inflation works.
Bruce is actually born in 1967 so a very critical 5 years graduating high school in 1985, which means he worked (probably) during inflationary times.
And, of course, you want to look at his execs to see if any older/wiser heads are around him.
https://finance.yahoo.com/quote/BIG/profile?p=BIG
Makes me feel old thinking about how young these CEOs are.
CRM is killing the Dow this morning with a $16.66 and pretty much that’s x 8.5 so 142 is half the Dow’s losses from them – even though they are a $144Bn company out of an $10Tn index, so 1.4% – so silly….
AMGN is another small (relatively) cap taking a $4.64 hit so another 40 points there and $3.5 from GS, $2.20 from JPM and $2 from BA and that’s our bad day on the Dow.
Good job anti-vaxxers – Polio is back!
YETI finally slowing down at $46 – quite the frenzy since we named them.
https://charts2.finviz.com/chart.ashx?t=yeti%20%20&ty=c&ta=1&p=d&s=l
It’s an interesting space but I don’t have the expertise to say which company really has the goods, so I generally ignore it but CyberSecurity is definitely a thing (read any Gibson novel) whose time has come.
Seeing some headwinds for BX. I always thought as largest asset mgr. with almost 8 trillion AUM they had a large moat. UPDATE 1-Florida pulls $2 bln from BlackRock in largest anti-ESG divestment
BlackRock, Inc. (NYSE:BLK) insiders sold US$81m worth of stock, a possible red flag that’s yet to materialize
Blackstone limits withdrawals at $125bn property fund as investors rush to exit’ – Financial Times ( Mon Traded REIT
*VICI Properties to Acquire Remaining 49.9% Interest In MGM Grand Las Vegas And Mandalay Bay Joint Venture From Blackstone Real Estate Income Trust For ~$1.27B, I think that was a 5BB stake at one time.
Sorry, the links got it held up in spam.
Unfortunately, when you are that big, you end up being more like an ETF than an investment manager and you’re going to go down with the market. That even happens to Berkshire.
Back in October, we went with BXMT as a Dividend Play:
BXMT – Very nice with a $2.48 (10.5%) dividend. They are benefitting from a floating rate portfolio so the interest they charge is rising faster than the interest they pay (so far). $20Bn in debt is scary but it’s all re-lent and they know what they are doing. $22.80 is $3.9Bn and they only take in $600M but it’s 75% profit ($450M) as all they are doing is flipping loans – not managing properties. No reason to think they can’t keep doing that so yes for the Dividend Portfolio as:
https://charts2.finviz.com/chart.ashx?t=bxmt%20\&p=w&s=y
Keep that in mind – we either make 62% on our $14,470 outlay if BXMT falls less than 10% or if it goes lower we have 2,000 shares at $17.23 and then we sell $8 more puts and calls, etc..
https://charts2.finviz.com/chart.ashx?t=bxmt%20%20&ty=c&ta=1&p=d&s=l
Here’s the Money Talk links:
Since we caused the run up, I would not chase the bull call spread or change the strikes. Just have to be patient if you are waiting to fill it around $6.
The reason I don’t mind changing the puts is our target is $50 anyway, so the put sale was just being conservative.
Phil/BNN: Nice job on the show!
Thanks
RKT mentioned in our Nov15th post. Today a trader bought 12,000 March $12 calls for about .20 -.25 and sold 6,000 $6 puts for .26 or .26
interesting
My Future is Now comment on RKT was:
They’ve come back nicely since.
https://charts2.finviz.com/chart.ashx?t=rkt%20%20&ty=c&ta=1&p=d&s=l
We have 40 of the 2024 $4 calls at $4.25, now $3.93 and we have 10 short 2024 $13.99 puts at $3.75, now $6.08 but we made $6,500 on the short calls we bought back, so we’re in good shape.
CNN The San Francisco Board of Supervisors voted 8-3 Tuesday night to approve a controversial policy that would allow police to deploy robots capable of using lethal force in extraordinary circumstances.
is this the beginning of Robocop or Terminator? to see what could go wrong, just ask Hollywood
oh dont forget I,Robot starring Will Smith
Oh fun!
Still, I can see where there are situations like that where it may be necessary. We deploy lethal force with drones all over the World, why not at home if it’s the best way to save lives?
I know it’s hard to make those calls but calls have to get made eventually. And it’s not like the robots are independent (yet), there’s a human controlling it and pulling the trigger so it’s like a remote gun (or drone).
How about if the camera on the robot showed all people as green? That might be an improvement…
Volume today is 1/3 of yesterday already.
Austan Goolsbee to become next Chicago Fed president
That’s a moderate replacing the biggest dove on the Fed.
I like Goolsbee though, smart cookie.
These auto numbers are due to supply bottlenecks getting worked out as well as very easy comps to last year.
Nice pull back in oil. Congrats to all who played that one.
Don’t be greedy, be overnights could be crazy.