$112,291 Virtual Portfolio Update, Week 16
by phil - August 8th, 2009 8:23 am
Next week will be the last week for our very profitable virtual portfolio, that started with $100,000 on April 10th.
This virtual portfolio has already made 19% in 16 weeks and many members wanted to start a new one from scratch. So, by popular demand, we will be restarting a brand new virtual portfolio the week after options expiration, also with $100,000 and also a hedged virtual portfolio but this time with the goal of drawing a monthly income. I got this idea when I went down to Florida last week and spoke to many people who asked me about their investing accounts. Many of these "safe" accounts had been cut in half or worse and the returns they were producing were coming in at 5% year – if that and people were counting on this money for their monthly expenses. I spoke to many people with $1M in the bank who were living off $50,000 a year in interest and dividends!
Using options and good hedging strategies, we have been able to produce a return in our virtual portfolio of 19% in just 16 weeks (12% cash, 7% unrealized). I'm not advocating someone take a whole $1M and shift it to stocks and options but, if you can make 20% on $200,000 while your other $800,000 makes a "safe" 5%, your annual income goes from $50,000 to $80,000 – that's a lot of early-bird specials! I will, of course, be happy to answer any adjustment questions on this virtual portfolio anytime during chat but we will no longer be tracking it weekly or making new plays. The goals of the new virtual portfolio will be similar and the new trade ideas can be applied whether you are looking to draw an income or just start building long-term set of holdings for reinvestment.
In the last $112,007 Virtual Portfolio Update, from July 28th, we remained bullish and it really paid off with another $2,117 in unrealized gains ($6,690 not included in above total) as we made a very well-timed bottom call the week before and ran with it. We have haven't had to call an "audible" in two weeks, sticking to our plan as the market held up nicely.
The first few weeks after you sell options are usually the worst and the rising VIX had boosted the premiums of the puts and calls we sold but none of that matters because we played a…
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Weekend Wrap-Up, Ripping Through the Top or Topping and About to Tip?
by phil - July 25th, 2009 12:34 pm
What a week this has been!
In last week's 600-Point Weekly Wrap-UP, I said it would take some spectacular earnings results next week to keep the rally going and it seems like we got them this week as roughly 85% of the companies reporting this week beat expectations with 42 of this week's reporting companies guiding up and only 18 guiding down. While people like Richard Bernstein may make very good arguments for why we shouldn't focus too much on quarterly earnings surprises, I have to say I am somewhat swayed by the preponderance of evidence we've gotten this week that, by and large, the vast majority of our companies are weathering the storm far better than analysts have expected.
"It's pretty amazing what passes for good news these days," remarks Barry Ritholtz on his blog, The Big Picture (www.ritholtz.com.) "Beating dramatically lowered earnings forecasts on cost-cutting and layoffs — rather than top-line growth — seems to be the order of the day. The irony is that the Wall Street analyst community overestimated earnings at the top of the cycle — pure extrapolation of trend to infinity. They seem to be doing the same thing now, only extrapolating falling earnings to zero. What that produces is not true upside surprises, but merely jumping over a dramatically lowered bar," he says.
It's interesting Barry says this now because it sounded familiar and I went back to my May 2nd Weekly Wrap-Up, where the sentiment was very similar and I said at the time: "With 2/3 of the S&P 500 weighing in, earnings have been 70% positive. I had warned earlier in the week that we are only beating a very low bar but we are beating nonetheless. As you can see from the above chart, even if we do keep moving up, we are heading into some very serious overhead resistance that may not prove futile this time. With the added pressure of the old "sell in May, go away" adage – there will be a lot of obstacles to overcome this week and next so we will remain on guard but we have also trained ourselves not to think and simply go with the flow, letting our levels guide us and, so far, our levels keep saying yes – despite our common sense…
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$100,000 Hedged Portflio Update
by phil - April 18th, 2009 4:39 pm
We didn't do a wrap-up last week as I instead wrote a long, Members Only post (only Part 1 too) on "Setting Up A $100,000 Hedged Virtual Portfolio" concentrating on a virtual $20,000 allocation in the financials for our first sector.
We're going to do more of these on the weekends as people find them useful and also because, although they are very popular, I do get tired of just reviewing what we did for the past 5 trading days every week. So maybe a little of both today but I aim to keep this short (as I usually do, but it never works out) so we can do another post on earnings plays tomorrow.
How is our new sample virtual portfolio looking after a week? Well let's see:
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500 UYG at $3.48, selling 5 May $3 calls for .72 and 5 May $3 puts for .28, net $2.48/2.74
- UYG now $3.79, May put and call combo now $1.12 = net $2.67 ($95 profit on $1,240 = 7.7%)
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Selling 2 FAS $7.50 puts for .45 naked
- FAS closed at $9.40 so 100% profit of $90
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500 C at $3.04, selling May $3 puts and calls for $1.11, net $1.93/2.47
- C now $3.65, May $3 put and call combo is $1.19 = net $2.46 ($265 profit on $965 = 27.5%)
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Selling 2 IYF May $36 puts for $2 naked
- IYF closed at $40.26, May $36 puts $1.20 ($160 profit on $400 =40%)
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Selling 2 JPM May $29 puts for $1.95 naked
- JPM closed at $33.26, May $29 puts $1.17 ($156 profit on $390 = 40%)
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Selling 7 FAZ May $10 puts for $2.40 naked (adjusted to reflect Monday's gap down open)
- May $10 puts are now $2.67 so a loss of $189 (-11.3%). Both our July and Oct escape rolls are still intact so no worries here anyway (this is a hedge to the others)
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5 FAZ Oct $12.50 calls for $4 (adjusted), selling 5 May $21s for $1.05, net $2.95.
- The Oct $12.50s are now $3.29, May $21s are now .45 so net $2.85, a loss of $50 (3.4%)
So far so good! The FAZ hedges are holding up nicely while all of our upside plays were winners. …
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site