A new position was established today on ZEUS. The following is the trade information, including IB commissions:
26-Jan-07 - Initial Stock Position - BTO 100 ZEUS @ 25.15
26-Jan-07 - Initial Call Option - STO 1 Jul07 25.00 Call @ 2.89
Stock Investment: $2,515.00
Income Generated: $289.00
Percent Income Generated: 11.49%
Net Profit If Called: $274.00
Percent Return If Called: 10.89%
Annualized Return If Called: 22.72%
Days to Expiration: 175 days
Friday, January 26, 2007
URBN - New Position
A new position was established today on URBN. The following is the trade information, including IB commissions:
26-Jan-07 - Initial Stock Position - BTO 100 URBN @ 23.82
26-Jan-07 - Initial Call Option - STO 1 Jun07 22.50 Call @ 3.24
Stock Investment: $2,382.00
Income Generated: $324.00
Percent Income Generated: 13.60%
Net Profit If Called: $192.00
Percent Return If Called: 8.06%
Annualized Return If Called: 21.01%
Days to Expiration: 140 days
26-Jan-07 - Initial Stock Position - BTO 100 URBN @ 23.82
26-Jan-07 - Initial Call Option - STO 1 Jun07 22.50 Call @ 3.24
Stock Investment: $2,382.00
Income Generated: $324.00
Percent Income Generated: 13.60%
Net Profit If Called: $192.00
Percent Return If Called: 8.06%
Annualized Return If Called: 21.01%
Days to Expiration: 140 days
CRI - New Position
A new position was established today on CRI. The following is the trade information, including IB commissions:
26-Jan-07 - Initial Stock Position - BTO 100 CRI @ 26.02
26-Jan-07 - Initial Call Option - STO 1 Jun07 25.00 Call @ 2.99
Stock Investment: $2,602.00
Income Generated: $299.00
Percent Income Generated: 11.49%
Net Profit If Called: $197.00
Percent Return If Called: 7.57%
Annualized Return If Called: 19.74%
Days to Expiration: 140 days
26-Jan-07 - Initial Stock Position - BTO 100 CRI @ 26.02
26-Jan-07 - Initial Call Option - STO 1 Jun07 25.00 Call @ 2.99
Stock Investment: $2,602.00
Income Generated: $299.00
Percent Income Generated: 11.49%
Net Profit If Called: $197.00
Percent Return If Called: 7.57%
Annualized Return If Called: 19.74%
Days to Expiration: 140 days
Thursday, January 25, 2007
Today's New Positions
You'll probably notice that not all of the positions opened today met my criteria of 12% premium and 24% annualized return if called. However, this is more of a guideline than a solid requirement. I aim for 12%/24% if possible, but will accept a lower percentage between 10%/20%. EBAY was the exception is this case with a annualized return if called of 18.96%, but it was close enough.
However, all the companies met my fundamental criteria, which is a solid requirement. I'm willing to compromise on the returns, but not on the company fundamentals.
However, all the companies met my fundamental criteria, which is a solid requirement. I'm willing to compromise on the returns, but not on the company fundamentals.
UPL - New Position
A new position was established today on UPL. The following is the trade information, including IB commissions:
25-Jan-07 - Initial Stock Position - BTO 100 UPL @ 50.56
25-Jan-07 - Initial Call Option - STO 1 Jun07 50.00 Call @ 5.45
Stock Investment: $5,056.00
Income Generated: $545.00
Percent Income Generated: 10.78%
Net Profit If Called: $489.00
Percent Return If Called: 9.67%
Annualized Return If Called: 25.04%
Days to Expiration: 141 days
25-Jan-07 - Initial Stock Position - BTO 100 UPL @ 50.56
25-Jan-07 - Initial Call Option - STO 1 Jun07 50.00 Call @ 5.45
Stock Investment: $5,056.00
Income Generated: $545.00
Percent Income Generated: 10.78%
Net Profit If Called: $489.00
Percent Return If Called: 9.67%
Annualized Return If Called: 25.04%
Days to Expiration: 141 days
TEX - New Position
A new position was established today on TEX. The following is the trade information, including IB commissions:
25-Jan-07 - Initial Stock Position - BTO 100 TEX @ 59.14
25-Jan-07 - Initial Call Option - STO 1 Mar07 55.00 Call @ 6.10
Stock Investment: $5,914.00
Income Generated: $610.00
Percent Income Generated: 10.31%
Net Profit If Called: $196.00
Percent Return If Called: 3.31%
Annualized Return If Called: 24.19%
Days to Expiration: 50 days
25-Jan-07 - Initial Stock Position - BTO 100 TEX @ 59.14
25-Jan-07 - Initial Call Option - STO 1 Mar07 55.00 Call @ 6.10
Stock Investment: $5,914.00
Income Generated: $610.00
Percent Income Generated: 10.31%
Net Profit If Called: $196.00
Percent Return If Called: 3.31%
Annualized Return If Called: 24.19%
Days to Expiration: 50 days
NFLX - New Position
A new position was established today on NFLX. The following is the trade information, including IB commissions:
25-Jan-07 - Initial Stock Position - BTO 100 NFLX @ 22.92
25-Jan-07 - Initial Call Option - STO 1 Jun07 22.50 Call @ 2.49
Stock Investment: $2,292.00
Income Generated: $249.00
Percent Income Generated: 10.86%
Net Profit If Called: $207.00
Percent Return If Called: 9.03%
Annualized Return If Called: 23.38%
Days to Expiration: 141 days
25-Jan-07 - Initial Stock Position - BTO 100 NFLX @ 22.92
25-Jan-07 - Initial Call Option - STO 1 Jun07 22.50 Call @ 2.49
Stock Investment: $2,292.00
Income Generated: $249.00
Percent Income Generated: 10.86%
Net Profit If Called: $207.00
Percent Return If Called: 9.03%
Annualized Return If Called: 23.38%
Days to Expiration: 141 days
NDAQ - New Position
A new position was established today on NDAQ. The following is the trade information, including IB commissions:
25-Jan-07 - Initial Stock Position - BTO 100 NDAQ @ 34.10
25-Jan-07 - Initial Call Option - STO 1 Jun07 32.50 Call @ 4.39
Stock Investment: $3,410.00
Income Generated: $439.00
Percent Income Generated: 12.87%
Net Profit If Called: $279.00
Percent Return If Called: 8.18%
Annualized Return If Called: 21.18%
Days to Expiration: 141 days
25-Jan-07 - Initial Stock Position - BTO 100 NDAQ @ 34.10
25-Jan-07 - Initial Call Option - STO 1 Jun07 32.50 Call @ 4.39
Stock Investment: $3,410.00
Income Generated: $439.00
Percent Income Generated: 12.87%
Net Profit If Called: $279.00
Percent Return If Called: 8.18%
Annualized Return If Called: 21.18%
Days to Expiration: 141 days
EBAY - New Position
A new position was established today on EBAY. The following is the trade information, including IB commissions:
25-Jan-07 - Initial Stock Position - BTO 100 EBAY @ 33.25
25-Jan-07 - Initial Call Option - STO 1 Jul07 32.50 Call @ 3.79
Stock Investment: $3,325.00
Income Generated: $379.00
Percent Income Generated: 11.40%
Net Profit If Called: $304.00
Percent Return If Called: 9.14%
Annualized Return If Called: 18.96%
Days to Expiration: 176 days
25-Jan-07 - Initial Stock Position - BTO 100 EBAY @ 33.25
25-Jan-07 - Initial Call Option - STO 1 Jul07 32.50 Call @ 3.79
Stock Investment: $3,325.00
Income Generated: $379.00
Percent Income Generated: 11.40%
Net Profit If Called: $304.00
Percent Return If Called: 9.14%
Annualized Return If Called: 18.96%
Days to Expiration: 176 days
CHS - New Position
A new position was established today on CHS. The following is the trade information, including IB commissions:
25-Jan-07 - Initial Stock Position - BTO 100 CHS @ 20.91
25-Jan-07 - Initial Call Option - STO 1 May07 20.00 Call @ 2.39
Stock Investment: $2,091.00
Income Generated: $239.00
Percent Income Generated: 11.43%
Net Profit If Called: $148.00
Percent Return If Called: 7.08%
Annualized Return If Called: 22.86%
Days to Expiration: 113 days
25-Jan-07 - Initial Stock Position - BTO 100 CHS @ 20.91
25-Jan-07 - Initial Call Option - STO 1 May07 20.00 Call @ 2.39
Stock Investment: $2,091.00
Income Generated: $239.00
Percent Income Generated: 11.43%
Net Profit If Called: $148.00
Percent Return If Called: 7.08%
Annualized Return If Called: 22.86%
Days to Expiration: 113 days
AMD - New Position
A new position was established today on AMD. The following is the trade information, including IB commissions:
25-Jan-07 - Initial Stock Position - BTO 100 AMD @ 16.24
25-Jan-07 - Initial Call Option - STO 1 Jul07 16.00 Call @ 2.14
Stock Investment: $1,624.00
Income Generated: $214.00
Percent Income Generated: 13.18%
Net Profit If Called: $190.00
Percent Return If Called: 11.70%
Annualized Return If Called: 24.26%
Days to Expiration: 176 days
25-Jan-07 - Initial Stock Position - BTO 100 AMD @ 16.24
25-Jan-07 - Initial Call Option - STO 1 Jul07 16.00 Call @ 2.14
Stock Investment: $1,624.00
Income Generated: $214.00
Percent Income Generated: 13.18%
Net Profit If Called: $190.00
Percent Return If Called: 11.70%
Annualized Return If Called: 24.26%
Days to Expiration: 176 days
Wednesday, January 24, 2007
Switched to Value Line Daily Options Survey
I canceled my subscription to PowerOptions today in favor of Value Line Daily Options Survey. Value Line's service meets my needs at a much lower cost.
I was happy with the service I received from PowerOptions over the past 2 years, but I only used a very small portion of their site, mainly searching for covered calls once a month. After trying Value Line's service, and finding the same trades as PowerOptions, I decided to make the switch today.
This was a personal decision. Some people might prefer PowerOptions and others might prefer Value Line Daily Options Survey. I recommend that you give both a try and decide for yourself.
I was happy with the service I received from PowerOptions over the past 2 years, but I only used a very small portion of their site, mainly searching for covered calls once a month. After trying Value Line's service, and finding the same trades as PowerOptions, I decided to make the switch today.
This was a personal decision. Some people might prefer PowerOptions and others might prefer Value Line Daily Options Survey. I recommend that you give both a try and decide for yourself.
Saturday, January 20, 2007
ZMH - Closed
The ZMH Jan07 70 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.
Covered Call Results
Stock Investment: $6,958.00
Income Generated: $672.00
Net Profit: $714.00
Percent Return: 10.26%
Annualized Return: 11.32%
Duration of Trade: 331 days
Buy & Hold Comparison
Opening Price: $69.58
Closing Price: $78.66
P/L per Share: $9.08
Shares: 100
Dividends: $0.00
Net Profit: $908.00
Percent Return: 13.05%
Annualized Return: 14.39%
Duration of Trade: 331 days
Trade History:
22-Feb-06 - Initial Stock Position - BTO 100 ZMH @ 69.58 -
22-Feb-06 - Initial Call Option - STO 1 Mar06 70.00 Call @ 1.49 - Expired
20-Mar-06 - Continued Trade - STO 1 Apr06 70.00 Call @ 1.76 - Expired
24-Apr-06 - Continued Trade - STO 1 Jun06 70.00 Call @ 1.39 - Closed
23-May-06 - Buy Back & Roll Out - BTC 1 Jun06 70.00 Call @ -0.11 -
23-May-06 - Continued Trade - STO 1 Jan07 70.00 Call @ 2.19 - Exercised
19-Jan-07 - Option Exercised - EX 1 Jan07 70.00 Call @ 70.00 -
Covered Call Results
Stock Investment: $6,958.00
Income Generated: $672.00
Net Profit: $714.00
Percent Return: 10.26%
Annualized Return: 11.32%
Duration of Trade: 331 days
Buy & Hold Comparison
Opening Price: $69.58
Closing Price: $78.66
P/L per Share: $9.08
Shares: 100
Dividends: $0.00
Net Profit: $908.00
Percent Return: 13.05%
Annualized Return: 14.39%
Duration of Trade: 331 days
Trade History:
22-Feb-06 - Initial Stock Position - BTO 100 ZMH @ 69.58 -
22-Feb-06 - Initial Call Option - STO 1 Mar06 70.00 Call @ 1.49 - Expired
20-Mar-06 - Continued Trade - STO 1 Apr06 70.00 Call @ 1.76 - Expired
24-Apr-06 - Continued Trade - STO 1 Jun06 70.00 Call @ 1.39 - Closed
23-May-06 - Buy Back & Roll Out - BTC 1 Jun06 70.00 Call @ -0.11 -
23-May-06 - Continued Trade - STO 1 Jan07 70.00 Call @ 2.19 - Exercised
19-Jan-07 - Option Exercised - EX 1 Jan07 70.00 Call @ 70.00 -
STLD - Closed
The STLD Jan07 30 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.
Covered Call Results
Stock Investment: $6,353.00
Income Generated: $1,143.00
Net Profit: $790.00
Percent Return: 12.44%
Annualized Return: 16.81%
Duration of Trade: 270 days
Buy & Hold Comparison
Opening Price: $31.77
Closing Price: $33.38
P/L per Share: $1.59
Shares: 100
Dividends: $65.00
Net Profit: $224.00
Percent Return: 7.05%
Annualized Return: 9.53%
Duration of Trade: 270 days
Trade History:
24-Apr-06 - Initial Stock Position - BTO 100 STLD @ 63.53 - Split
24-Apr-06 - Initial Call Option - STO 1 Aug06 60.00 Call @ 8.39 - Expired
14-Jul-06 - Dividend Received - DIV 100 Dividend @ 0.20 -
28-Aug-06 - Continued Trade - STO 1 Jan07 60.00 Call @ 2.24 - Split
10-Oct-06 - Dividend Received - DIV 100 Dividend @ 0.30 -
24-Apr-06 - Split 2 for 1 - BTO 100 STLD @ -63.53 -
28-Aug-06 - Split 2 for 1 - STO 1 Jan07 60.00 Call @ -2.24 -
21-Nov-06 - Initial Stock Position - BTO 200 STLD @ 31.77 -
21-Nov-06 - Continued Trade - STO 2 Jan07 30.00 Call @ 1.12 - Exercised
15-Jan-07 - Dividend Received - DIV 200 Dividend @ 0.15 -
19-Jan-07 - Option Exercised - EX 2 Jan07 30.00 Call @ 30.00 -
Covered Call Results
Stock Investment: $6,353.00
Income Generated: $1,143.00
Net Profit: $790.00
Percent Return: 12.44%
Annualized Return: 16.81%
Duration of Trade: 270 days
Buy & Hold Comparison
Opening Price: $31.77
Closing Price: $33.38
P/L per Share: $1.59
Shares: 100
Dividends: $65.00
Net Profit: $224.00
Percent Return: 7.05%
Annualized Return: 9.53%
Duration of Trade: 270 days
Trade History:
24-Apr-06 - Initial Stock Position - BTO 100 STLD @ 63.53 - Split
24-Apr-06 - Initial Call Option - STO 1 Aug06 60.00 Call @ 8.39 - Expired
14-Jul-06 - Dividend Received - DIV 100 Dividend @ 0.20 -
28-Aug-06 - Continued Trade - STO 1 Jan07 60.00 Call @ 2.24 - Split
10-Oct-06 - Dividend Received - DIV 100 Dividend @ 0.30 -
24-Apr-06 - Split 2 for 1 - BTO 100 STLD @ -63.53 -
28-Aug-06 - Split 2 for 1 - STO 1 Jan07 60.00 Call @ -2.24 -
21-Nov-06 - Initial Stock Position - BTO 200 STLD @ 31.77 -
21-Nov-06 - Continued Trade - STO 2 Jan07 30.00 Call @ 1.12 - Exercised
15-Jan-07 - Dividend Received - DIV 200 Dividend @ 0.15 -
19-Jan-07 - Option Exercised - EX 2 Jan07 30.00 Call @ 30.00 -
SHW - Closed
The SHW Jan07 50 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.
Covered Call Results
Stock Investment: $5,262.00
Income Generated: $922.00
Net Profit: $660.00
Percent Return: 12.54%
Annualized Return: 13.79%
Duration of Trade: 332 days
Buy & Hold Comparison
Opening Price: $52.62
Closing Price: $64.28
P/L per Share: $11.66
Shares: 100
Dividends: $75.00
Net Profit: $1,241.00
Percent Return: 23.58%
Annualized Return: 25.93%
Duration of Trade: 332 days
Trade History:
21-Feb-06 - Initial Stock Position - BTO 100 SHW @ 52.62 -
21-Feb-06 - Initial Call Option - STO 1 Mar06 50.00 Call @ 3.89 - Expired
17-Mar-06 - Dividend Received - DIV 100 Dividend @ 0.25 -
20-Mar-06 - Continued Trade - STO 1 Jun06 50.00 Call @ 1.79 - Expired
09-Jun-06 - Dividend Received - DIV 100 Dividend @ 0.25 -
26-Jun-06 - Continued Trade - STO 1 Jan07 50.00 Call @ 2.79 - Exercised
08-Dec-06 - Dividend Received - DIV 100 Dividend @ 0.25 -
19-Jan-07 - Option Exercised - EX 1 Jan07 50.00 Call @ 50.00 -
Covered Call Results
Stock Investment: $5,262.00
Income Generated: $922.00
Net Profit: $660.00
Percent Return: 12.54%
Annualized Return: 13.79%
Duration of Trade: 332 days
Buy & Hold Comparison
Opening Price: $52.62
Closing Price: $64.28
P/L per Share: $11.66
Shares: 100
Dividends: $75.00
Net Profit: $1,241.00
Percent Return: 23.58%
Annualized Return: 25.93%
Duration of Trade: 332 days
Trade History:
21-Feb-06 - Initial Stock Position - BTO 100 SHW @ 52.62 -
21-Feb-06 - Initial Call Option - STO 1 Mar06 50.00 Call @ 3.89 - Expired
17-Mar-06 - Dividend Received - DIV 100 Dividend @ 0.25 -
20-Mar-06 - Continued Trade - STO 1 Jun06 50.00 Call @ 1.79 - Expired
09-Jun-06 - Dividend Received - DIV 100 Dividend @ 0.25 -
26-Jun-06 - Continued Trade - STO 1 Jan07 50.00 Call @ 2.79 - Exercised
08-Dec-06 - Dividend Received - DIV 100 Dividend @ 0.25 -
19-Jan-07 - Option Exercised - EX 1 Jan07 50.00 Call @ 50.00 -
NVT - Closed
The NVT Jan07 25 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.
Covered Call Results
Stock Investment: $2,800.00
Income Generated: $469.00
Net Profit: $169.00
Percent Return: 6.04%
Annualized Return: 25.32%
Duration of Trade: 87 days
Buy & Hold Comparison
Opening Price: $28.00
Closing Price: $31.62
P/L per Share: $3.62
Shares: 100
Dividends: $0.00
Net Profit: $362.00
Percent Return: 12.93%
Annualized Return: 54.24%
Duration of Trade: 87 days
Trade History:
24-Oct-06 - Initial Stock Position - BTO 100 NVT @ 28.00 -
24-Oct-06 - Initial Call Option - STO 1 Jan07 25.00 Call @ 4.69 - Expired
19-Jan-07 - Option Exercised - EX 1 Jan07 25.00 Call @ 25.00 -
Covered Call Results
Stock Investment: $2,800.00
Income Generated: $469.00
Net Profit: $169.00
Percent Return: 6.04%
Annualized Return: 25.32%
Duration of Trade: 87 days
Buy & Hold Comparison
Opening Price: $28.00
Closing Price: $31.62
P/L per Share: $3.62
Shares: 100
Dividends: $0.00
Net Profit: $362.00
Percent Return: 12.93%
Annualized Return: 54.24%
Duration of Trade: 87 days
Trade History:
24-Oct-06 - Initial Stock Position - BTO 100 NVT @ 28.00 -
24-Oct-06 - Initial Call Option - STO 1 Jan07 25.00 Call @ 4.69 - Expired
19-Jan-07 - Option Exercised - EX 1 Jan07 25.00 Call @ 25.00 -
NVDA - Closed
The NVDA Jan07 25 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.
Covered Call Results
Stock Investment: $4,905.00
Income Generated: $668.50
Net Profit: $763.50
Percent Return: 15.57%
Annualized Return: 21.04%
Duration of Trade: 270 days
Buy & Hold Comparison
Opening Price: $28.54
Closing Price: $31.87
P/L per Share: $3.33
Shares: 100
Dividends: $0.00
Net Profit: $333.00
Percent Return: 11.67%
Annualized Return: 15.77%
Duration of Trade: 270 days
Trade History:
24-Apr-06 - Initial Stock Position - BTO 100 NVDA @ 28.54 -
24-Apr-06 - Initial Call Option - STO 1 Sep06 27.50 Call @ 3.88 - Closed
06-Jul-06 - Buy Back - BTC 1 Sep06 27.50 Call @ -0.30 -
06-Jul-06 - Dollar Cost Averaging - BTO 100 NVDA @ 20.51 -
06-Jul-06 - Combined Cost Basis - $4,905.00 200 @ 24.53 -
06-Jul-06 - Continued Trade - STO 2 Jan07 25.00 Call @ 1.55 - Exercised
19-Jan-07 - Option Exercised - EX 2 Jan07 25.00 Call @ 25.00 -
Covered Call Results
Stock Investment: $4,905.00
Income Generated: $668.50
Net Profit: $763.50
Percent Return: 15.57%
Annualized Return: 21.04%
Duration of Trade: 270 days
Buy & Hold Comparison
Opening Price: $28.54
Closing Price: $31.87
P/L per Share: $3.33
Shares: 100
Dividends: $0.00
Net Profit: $333.00
Percent Return: 11.67%
Annualized Return: 15.77%
Duration of Trade: 270 days
Trade History:
24-Apr-06 - Initial Stock Position - BTO 100 NVDA @ 28.54 -
24-Apr-06 - Initial Call Option - STO 1 Sep06 27.50 Call @ 3.88 - Closed
06-Jul-06 - Buy Back - BTC 1 Sep06 27.50 Call @ -0.30 -
06-Jul-06 - Dollar Cost Averaging - BTO 100 NVDA @ 20.51 -
06-Jul-06 - Combined Cost Basis - $4,905.00 200 @ 24.53 -
06-Jul-06 - Continued Trade - STO 2 Jan07 25.00 Call @ 1.55 - Exercised
19-Jan-07 - Option Exercised - EX 2 Jan07 25.00 Call @ 25.00 -
ELOS - Closed
The ELOS Jan07 25 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.
Covered Call Results
Stock Investment: $5,077.00
Income Generated: $716.50
Net Profit: $639.50
Percent Return: 12.60%
Annualized Return: 15.07%
Duration of Trade: 305 days
Buy & Hold Comparison
Opening Price: $30.14
Closing Price: $26.47
P/L per Share: -$3.67
Shares: 100
Dividends: $0.00
Net Profit: -$367.00
Percent Return: -12.18%
Annualized Return: -14.57%
Duration of Trade: 305 days
Trade History:
20-Mar-06 - Initial Stock Position - BTO 100 ELOS @ 30.14 -
20-Mar-06 - Initial Call Option - STO 1 Sep06 30.00 Call @ 4.29 - Closed
06-Jul-06 - Buy Back - BTC 1 Sep06 30.00 Call @ -0.21 -
06-Jul-06 - Dollar Cost Averaging - BTO 100 ELOS @ 20.63 -
06-Jul-06 - Combined Cost Basis - $5,077.00 200 @ 25.39 -
06-Jul-06 - Continued Trade - STO 2 Jan07 25.00 Call @ 1.54 - Exercised
19-Jan-07 - Option Exercised - EX 2 Jan07 25.00 Call @ 25.00 -
Covered Call Results
Stock Investment: $5,077.00
Income Generated: $716.50
Net Profit: $639.50
Percent Return: 12.60%
Annualized Return: 15.07%
Duration of Trade: 305 days
Buy & Hold Comparison
Opening Price: $30.14
Closing Price: $26.47
P/L per Share: -$3.67
Shares: 100
Dividends: $0.00
Net Profit: -$367.00
Percent Return: -12.18%
Annualized Return: -14.57%
Duration of Trade: 305 days
Trade History:
20-Mar-06 - Initial Stock Position - BTO 100 ELOS @ 30.14 -
20-Mar-06 - Initial Call Option - STO 1 Sep06 30.00 Call @ 4.29 - Closed
06-Jul-06 - Buy Back - BTC 1 Sep06 30.00 Call @ -0.21 -
06-Jul-06 - Dollar Cost Averaging - BTO 100 ELOS @ 20.63 -
06-Jul-06 - Combined Cost Basis - $5,077.00 200 @ 25.39 -
06-Jul-06 - Continued Trade - STO 2 Jan07 25.00 Call @ 1.54 - Exercised
19-Jan-07 - Option Exercised - EX 2 Jan07 25.00 Call @ 25.00 -
ARO - Closed
The ARO Jan07 30 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.
Covered Call Results
Stock Investment: $3,092.00
Income Generated: $572.00
Net Profit: $480.00
Percent Return: 15.52%
Annualized Return: 18.58%
Duration of Trade: 305 days
Buy & Hold Comparison
Opening Price: $30.92
Closing Price: $35.80
P/L per Share: $4.88
Shares: 100
Dividends: $0.00
Net Profit: $488.00
Percent Return: 15.78%
Annualized Return: 18.89%
Duration of Trade: 305 days
Trade History:
20-Mar-06 - Initial Stock Position - BTO 100 ARO @ 30.92 -
20-Mar-06 - Initial Call Option - STO 1 Jul06 30.00 Call @ 3.19 - Expired
24-Jul-06 - Continued Trade - STO 1 Aug06 30.00 Call @ 1.29 - Expired
28-Aug-06 - Continued Trade - STO 1 Jan07 30.00 Call @ 1.24 - Exercised
19-Jan-07 - Option Exercised - EX 1 Jan07 30.00 Call @ 30.00 -
The return on this position was almost identical to the buy & hold return. However, with buy & hold I would've had to wait the entire 305 days to receive the profit, but with a covered call I received income of $572 long before the position was closed. That income was then reinvested into other positions, thereby compounding the returns.
Covered Call Results
Stock Investment: $3,092.00
Income Generated: $572.00
Net Profit: $480.00
Percent Return: 15.52%
Annualized Return: 18.58%
Duration of Trade: 305 days
Buy & Hold Comparison
Opening Price: $30.92
Closing Price: $35.80
P/L per Share: $4.88
Shares: 100
Dividends: $0.00
Net Profit: $488.00
Percent Return: 15.78%
Annualized Return: 18.89%
Duration of Trade: 305 days
Trade History:
20-Mar-06 - Initial Stock Position - BTO 100 ARO @ 30.92 -
20-Mar-06 - Initial Call Option - STO 1 Jul06 30.00 Call @ 3.19 - Expired
24-Jul-06 - Continued Trade - STO 1 Aug06 30.00 Call @ 1.29 - Expired
28-Aug-06 - Continued Trade - STO 1 Jan07 30.00 Call @ 1.24 - Exercised
19-Jan-07 - Option Exercised - EX 1 Jan07 30.00 Call @ 30.00 -
The return on this position was almost identical to the buy & hold return. However, with buy & hold I would've had to wait the entire 305 days to receive the profit, but with a covered call I received income of $572 long before the position was closed. That income was then reinvested into other positions, thereby compounding the returns.
Thursday, January 18, 2007
NTY - Closed
The NTY Jan07 25 Call was exercised yesterday and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.
Covered Call Results
Stock Investment: $4,414.00
Income Generated: $170.50
Net Profit: $756.50
Percent Return: 17.14%
Annualized Return: 13.90%
Duration of Trade: 450 days
Buy & Hold Comparison
Opening Price: $22.07
Closing Price: $45.70
P/L per Share: $23.63
Shares: 200
Dividends: $0.00
Net Profit: $4,726.00
Percent Return: 107.07%
Annualized Return: 86.84%
Duration of Trade: 450 days
Trade History:
24-Oct-05 - Initial Stock Position - BTO 200 NTY @ 22.07 -
24-Oct-05 - Initial Call Option - STO 2 Nov05 22.50 Call @ 0.49 - Expired
23-Nov-05 - Continued Trade - STO 2 Jan06 22.50 Call @ 0.29 - Expired
23-Jan-06 - Interim Trade - STO 2 Feb06 17.50 Call @ 0.29 - Closed
27-Jan-06 - Buy Back & Roll Out/Up - BTC 2 Feb06 17.50 Call @ -2.31 -
27-Jan-06 - Continued Trade - STO 2 Jun06 25.00 Call @ 0.24 - Expired
26-Jun-06 - Continued Trade - STO 2 Jan07 25.00 Call @ 1.84 - Exercised
17-Jan-07 - Option Exercised - EX 2 Jan07 25.00 Call @ 25.00 -
Unfortunately, this is an example of what can happen when I don't follow my own rules. It also highlights the missed opportunity risk inherent in covered call positions if you don't act to avoid assignment.
I made several mistakes with this trade. This was an old position, before I modified my criteria and return requirements. I started with a 200 share position (now I only start with 100 shares) and received 2.22% cash back (i.e. premium or downside protection. Now I require at least 12% cash back).
The stock chart for NTY during this holding period shows that it dropped after I bought it, went sideways for awhile, and then shot up.
I initially sold the Nov05 22.50 call which expired worthless. I then sold a Jan06 22.50 call which also expired worthless. All was fine up to here. The stock dropped to a low of $15.58 in Jan06 so after expiration I sold the Feb06 17.50 call. As luck would have it, 3 days later the stock shot up past the $17.50 strike price and never looked back. Since the option was ITM I bought it back and rolled out to Jun06 and up to the 25 strike. However, I broke my rule of always rolling out for a net credit, which was my first big mistake. Now, instead of having positive cash flow, I had negative cash flow.
The Jun06 call expired worthless so I sold a Jan07 25 call. In Jul06 the stock shot past the 25 strike and again never looked back. I probably should have rolled the option out/up at this time, but I did nothing. Well, the stock kept climbing and the option was getting deeper and deeper ITM. It was at a point where I couldn't roll it out for a net credit without dollar cost averaging and committing more money to the trade. I decided to just take my lumps and let the stock get called away in Jan07. Even with all these mistakes, I still managed to get about a 14% annualized return.
However, look at the buy & hold return. It was over 100%. The stock had doubled in price since I originally purchased it. Covered calls limit your upside unless you take action to avoid assignment. I didn't and lost out on a great opportunity.
If I hadn't made so many mistakes with this trade I could have gotten a better return and participated in more of this uptrend. Oh well, this was a lesson learned, but at least I made a profit.
Covered Call Results
Stock Investment: $4,414.00
Income Generated: $170.50
Net Profit: $756.50
Percent Return: 17.14%
Annualized Return: 13.90%
Duration of Trade: 450 days
Buy & Hold Comparison
Opening Price: $22.07
Closing Price: $45.70
P/L per Share: $23.63
Shares: 200
Dividends: $0.00
Net Profit: $4,726.00
Percent Return: 107.07%
Annualized Return: 86.84%
Duration of Trade: 450 days
Trade History:
24-Oct-05 - Initial Stock Position - BTO 200 NTY @ 22.07 -
24-Oct-05 - Initial Call Option - STO 2 Nov05 22.50 Call @ 0.49 - Expired
23-Nov-05 - Continued Trade - STO 2 Jan06 22.50 Call @ 0.29 - Expired
23-Jan-06 - Interim Trade - STO 2 Feb06 17.50 Call @ 0.29 - Closed
27-Jan-06 - Buy Back & Roll Out/Up - BTC 2 Feb06 17.50 Call @ -2.31 -
27-Jan-06 - Continued Trade - STO 2 Jun06 25.00 Call @ 0.24 - Expired
26-Jun-06 - Continued Trade - STO 2 Jan07 25.00 Call @ 1.84 - Exercised
17-Jan-07 - Option Exercised - EX 2 Jan07 25.00 Call @ 25.00 -
Unfortunately, this is an example of what can happen when I don't follow my own rules. It also highlights the missed opportunity risk inherent in covered call positions if you don't act to avoid assignment.
I made several mistakes with this trade. This was an old position, before I modified my criteria and return requirements. I started with a 200 share position (now I only start with 100 shares) and received 2.22% cash back (i.e. premium or downside protection. Now I require at least 12% cash back).
The stock chart for NTY during this holding period shows that it dropped after I bought it, went sideways for awhile, and then shot up.
I initially sold the Nov05 22.50 call which expired worthless. I then sold a Jan06 22.50 call which also expired worthless. All was fine up to here. The stock dropped to a low of $15.58 in Jan06 so after expiration I sold the Feb06 17.50 call. As luck would have it, 3 days later the stock shot up past the $17.50 strike price and never looked back. Since the option was ITM I bought it back and rolled out to Jun06 and up to the 25 strike. However, I broke my rule of always rolling out for a net credit, which was my first big mistake. Now, instead of having positive cash flow, I had negative cash flow.
The Jun06 call expired worthless so I sold a Jan07 25 call. In Jul06 the stock shot past the 25 strike and again never looked back. I probably should have rolled the option out/up at this time, but I did nothing. Well, the stock kept climbing and the option was getting deeper and deeper ITM. It was at a point where I couldn't roll it out for a net credit without dollar cost averaging and committing more money to the trade. I decided to just take my lumps and let the stock get called away in Jan07. Even with all these mistakes, I still managed to get about a 14% annualized return.
However, look at the buy & hold return. It was over 100%. The stock had doubled in price since I originally purchased it. Covered calls limit your upside unless you take action to avoid assignment. I didn't and lost out on a great opportunity.
If I hadn't made so many mistakes with this trade I could have gotten a better return and participated in more of this uptrend. Oh well, this was a lesson learned, but at least I made a profit.
Wednesday, January 17, 2007
NTES - Adjustment
The following adjustment was made today on NTES:
17-Jan-07 - Buy Back & Roll Out/Up - BTC 4 Jan07 18.75 Call @ -0.41 -
17-Jan-07 - Continued Trade - STO 4 Mar07 20.00 Call @ 0.99 -
The Jan07 18.75 Call was ITM and had very little time value left so I bought it back and rolled out to Mar07 and up to the 20.00 strike to avoid assignment. If assigned in Jan the annualized return would have been 10.20%. By rolling out 2 months and up to a higher strike the potential annualized return is now 16.27%. Notice also that I have over 33% income generated during the holding period, which has been reinvested into other positions.
Current Position Summary:
Stock Investment: $9,694.00
Income Generated: $3,254.00
Percent Income Generated: 33.57%
Net Profit If Called: $1,560.00
Percent Return If Called: 16.09%
Annualized Return If Called: 16.27%
Days to Expiration: 361 days
Trade History:
20-Mar-06 - Initial Stock Position - BTO 100 NTES @ 96.94 - 4-1 Split
20-Mar-06 - Initial Call Option - STO 1 Jun06 85.00 Call @ 15.29 - 4-1 Split
28-Mar-06 - Split Stock Position - SPLT 400 NTES @ 24.24 -
28-Mar-06 - Split Call Option - SPLT 4 Jun06 21.25 Call @ 3.82 - Expired
26-Jun-06 - Continued Trade - STO 4 Jan07 22.50 Call @ 3.19 - Closed
23-Oct-06 - Buy Back & Roll Out/Down - BTC 4 Jan07 22.50 Call @ -0.16 -
23-Oct-06 - Continued Trade - STO 4 Jan07 18.75 Call @ 0.69 - Closed
17-Jan-07 - Buy Back & Roll Out/Up - BTC 4 Jan07 18.75 Call @ -0.41 -
17-Jan-07 - Continued Trade - STO 4 Mar07 20.00 Call @ 0.99 -
17-Jan-07 - Buy Back & Roll Out/Up - BTC 4 Jan07 18.75 Call @ -0.41 -
17-Jan-07 - Continued Trade - STO 4 Mar07 20.00 Call @ 0.99 -
The Jan07 18.75 Call was ITM and had very little time value left so I bought it back and rolled out to Mar07 and up to the 20.00 strike to avoid assignment. If assigned in Jan the annualized return would have been 10.20%. By rolling out 2 months and up to a higher strike the potential annualized return is now 16.27%. Notice also that I have over 33% income generated during the holding period, which has been reinvested into other positions.
Current Position Summary:
Stock Investment: $9,694.00
Income Generated: $3,254.00
Percent Income Generated: 33.57%
Net Profit If Called: $1,560.00
Percent Return If Called: 16.09%
Annualized Return If Called: 16.27%
Days to Expiration: 361 days
Trade History:
20-Mar-06 - Initial Stock Position - BTO 100 NTES @ 96.94 - 4-1 Split
20-Mar-06 - Initial Call Option - STO 1 Jun06 85.00 Call @ 15.29 - 4-1 Split
28-Mar-06 - Split Stock Position - SPLT 400 NTES @ 24.24 -
28-Mar-06 - Split Call Option - SPLT 4 Jun06 21.25 Call @ 3.82 - Expired
26-Jun-06 - Continued Trade - STO 4 Jan07 22.50 Call @ 3.19 - Closed
23-Oct-06 - Buy Back & Roll Out/Down - BTC 4 Jan07 22.50 Call @ -0.16 -
23-Oct-06 - Continued Trade - STO 4 Jan07 18.75 Call @ 0.69 - Closed
17-Jan-07 - Buy Back & Roll Out/Up - BTC 4 Jan07 18.75 Call @ -0.41 -
17-Jan-07 - Continued Trade - STO 4 Mar07 20.00 Call @ 0.99 -
Friday, January 12, 2007
Managing a Losing Position vs Taking a Loss
Probably the most controversial aspect of my trading plan is that I choose to manage losing positions rather than taking a loss. This goes against conventional wisdom, but then I'm somewhat of a rebel remember ;-)
Probably the best way to explain why I choose to do this is to show an example where I recovered a losing position and compare it to taking the loss instead. For this example, I'll use the PPC position, which was posted here in Nov 2006.
On 9/19/05 I bought 100 shares of PPC @ $35.17 and sold an Oct05 35 call @ $1.19. My breakeven point was $33.98. This was when I sold front month options and before I changed my criteria to 12% downside protection and 24% annualized return if called.
The Oct05 option expired so I sold a Nov05 35 call @ $1.99 on 10/24/05 and now my breakeven point was at $31.99. The stock closed that day at $36.47 so the option was ITM and the position was looking good.
The Nov05 option also expired so I sold a Jan06 35 call @ $0.64 on 11/13/05 and now my breakeven point was $31.35. The stock closed that day at $31.67 so the option was OTM and I still had a slight profit if the price stayed the same until expiration.
By Jan06 expiration the stock had dropped to $25.43 (27.69% below the purchase price) and the Jan06 option expired. At this point I was looking at a loss of about $592 on the position if I sold the stock. The stock lost $974 ($2543-$3517) but I received $382 in premiums ($119+$199+$64) for a net loss of $592 ($382-$974) or 16.82%.
Let's say I decided to sell the stock and take the loss. My back to cash amount would have been $2925 ($3517-$592). Now, in order to just get back to breakeven I would have needed to make $592 or 20.24% on my next trade. Remember, it takes a greater percentage gain to recover from a loss. Now, let's look at my new criteria for establishing a position, which requires 12% premium and 24% annualized return if called within 6 months. With $2925 I could receive $351 premium at 12%. This is less than I needed to recover from the loss and since I usually sell ITM calls the return if called would've been even less.
Instead, I decided to continue with the trade and 9 months later, by dollar cost averaging twice and selling lower strike calls, I was able to finally close this position for a $331 profit or 4.07% return (4.12% annualized). From a buy & hold standpoint this position was down $641 or -18.23% (-18.43% annualized), so I did much better than buy & hold.
This wasn't a great return, and not one of my better results, but I turned an unrealized loss into a realized profit by following my trading plan. Also remember, my goal is income generation, and this position generated $958 of income during this period, which was reinvested into other positions.
Now, some might say I should have closed the position and taken the loss. Then reinvested that money, and the money I used to dollar cost average this position, into other positions. I could have then put on from 1-3 new positions, depending on the stock price. I would have had $2925 from closing this position and $2392 from the first dollar cost averaging and another $2218 from the second, for a total of $7535. This could have returned $904 at 12% premium, which would have offset the loss by approximately $312 ($904-$592), if these new positions worked out as planned. Taking the entire amount invested of $8127 that would have been a return of 3.84% (3.88% annualized), which was less than I made by continuing with this trade.
However, what if those new positions were also losers? How long would it take me to recover from more than one loss? My opinion of this company hadn't changed, so why change horses in the middle of the stream? They were going through a rough patch, mainly due to the bird flu scare. I figured that would pass and the stock would eventually recover, which it did. It just never got back to where I originally bought it, but it didn't have to since I lowered my cost basis. I could have continued with this position and possibly made a better return, but by that time my opinion of the company had changed so I let the stock get called away.
So far, I've closed 120 positions since May 2005, and haven't had to close any for a loss, which satisfies my goal for capital preservation. Will I ever take a loss? Maybe, it depends on the situation. However, if I can avoid a loss by following my plan and still meet my return goals, I'll continue to do so.
Probably the best way to explain why I choose to do this is to show an example where I recovered a losing position and compare it to taking the loss instead. For this example, I'll use the PPC position, which was posted here in Nov 2006.
On 9/19/05 I bought 100 shares of PPC @ $35.17 and sold an Oct05 35 call @ $1.19. My breakeven point was $33.98. This was when I sold front month options and before I changed my criteria to 12% downside protection and 24% annualized return if called.
The Oct05 option expired so I sold a Nov05 35 call @ $1.99 on 10/24/05 and now my breakeven point was at $31.99. The stock closed that day at $36.47 so the option was ITM and the position was looking good.
The Nov05 option also expired so I sold a Jan06 35 call @ $0.64 on 11/13/05 and now my breakeven point was $31.35. The stock closed that day at $31.67 so the option was OTM and I still had a slight profit if the price stayed the same until expiration.
By Jan06 expiration the stock had dropped to $25.43 (27.69% below the purchase price) and the Jan06 option expired. At this point I was looking at a loss of about $592 on the position if I sold the stock. The stock lost $974 ($2543-$3517) but I received $382 in premiums ($119+$199+$64) for a net loss of $592 ($382-$974) or 16.82%.
Let's say I decided to sell the stock and take the loss. My back to cash amount would have been $2925 ($3517-$592). Now, in order to just get back to breakeven I would have needed to make $592 or 20.24% on my next trade. Remember, it takes a greater percentage gain to recover from a loss. Now, let's look at my new criteria for establishing a position, which requires 12% premium and 24% annualized return if called within 6 months. With $2925 I could receive $351 premium at 12%. This is less than I needed to recover from the loss and since I usually sell ITM calls the return if called would've been even less.
Instead, I decided to continue with the trade and 9 months later, by dollar cost averaging twice and selling lower strike calls, I was able to finally close this position for a $331 profit or 4.07% return (4.12% annualized). From a buy & hold standpoint this position was down $641 or -18.23% (-18.43% annualized), so I did much better than buy & hold.
This wasn't a great return, and not one of my better results, but I turned an unrealized loss into a realized profit by following my trading plan. Also remember, my goal is income generation, and this position generated $958 of income during this period, which was reinvested into other positions.
Now, some might say I should have closed the position and taken the loss. Then reinvested that money, and the money I used to dollar cost average this position, into other positions. I could have then put on from 1-3 new positions, depending on the stock price. I would have had $2925 from closing this position and $2392 from the first dollar cost averaging and another $2218 from the second, for a total of $7535. This could have returned $904 at 12% premium, which would have offset the loss by approximately $312 ($904-$592), if these new positions worked out as planned. Taking the entire amount invested of $8127 that would have been a return of 3.84% (3.88% annualized), which was less than I made by continuing with this trade.
However, what if those new positions were also losers? How long would it take me to recover from more than one loss? My opinion of this company hadn't changed, so why change horses in the middle of the stream? They were going through a rough patch, mainly due to the bird flu scare. I figured that would pass and the stock would eventually recover, which it did. It just never got back to where I originally bought it, but it didn't have to since I lowered my cost basis. I could have continued with this position and possibly made a better return, but by that time my opinion of the company had changed so I let the stock get called away.
So far, I've closed 120 positions since May 2005, and haven't had to close any for a loss, which satisfies my goal for capital preservation. Will I ever take a loss? Maybe, it depends on the situation. However, if I can avoid a loss by following my plan and still meet my return goals, I'll continue to do so.
Sunday, January 7, 2007
Contrarian Approach
Being somewhat of a rebel most of my life I've always questioned the way things were done and usually ended up doing things my way. With investing it's no different. That's why parts of my investment philosophy and trading strategy seem to disagree with conventional wisdom.
For example, I don't believe in the Efficient Market Hypothesis, which says that everything that is known about a company is already reflected in the stock price. Instead, I believe that the market is a reflection of the irrational actions of its participants.
The tech boom of the late 90's is a prime example. Everything that was known about most Internet companies was that they were losing money and some were deep in debt. Yet, investors kept buying their stock and inflating the share price. Does this sound like an efficient market or irrational exuberance?
Most investors buy stock in a bull market when prices are rising and sell stocks in a bear market when prices are falling. Does this sound like a rational act? Haven't we always been told to buy low and sell high? But many try to buy high and sell higher, and usually end up selling lower. If most investors use this strategy and most investors lose money, doesn't it make sense to do just the opposite?
When it comes to investing, people do the exact opposite of what they would normally do. When making a major purchase of some personal item would you buy when prices were rising or would you wait for a sale? Most people would wait for the sale.
For example, say you wanted to buy a new computer and found two that had all the features you wanted. They both had a retail value of $1,500, but one was on sale for $1,000. Which one would you buy? Most would buy the one on sale.
Now say you wanted to buy a stock and found two that met your criteria. They both had a fair value of $50. One was selling for $75 and making new 52 week highs. The other was selling for $25 and near its 52 week low. Which one would you buy? Most would buy the first stock, which is the exact opposite of what they would have done when deciding which computer to buy.
When a department store cuts prices and announces a major sale people rush to the store to buy stuff, sometimes even if they don't really need it. However, during a bear market where stock prices are cut, people sell their stocks, rather than buy more on sale. During a bull market where stock prices are rising, people rush in to buy stocks at higher and higher prices. This makes absolutely no sense to me.
I look at declining stock prices as a buying opportunity and at rising stock prices as a selling opportunity. Buy low, sell high. I try to buy undervalued stocks in good solid companies with sound fundamentals. That's why I'm willing to buy more stock (i.e. dollar cost averaging) when one of my positions declines in price. I've already determined that the company is a good long term holding and now I can buy more at a discount and lower my cost basis.
This is one of the principals of value investing. Buying undervalued stocks with a margin of safety (i.e. discount to fair value). However, with value investing, sometimes you need to wait for the stock price to decline in order to reach your margin of safety price, and this can take a long time. I create my own margin of safety price by selling covered calls. The premium from the call reduces the cost basis of the stock.
For example, say I wanted to buy a stock for $26.40 but it was currently selling for $30. I could either wait for the stock price to decline 12% or I could buy the stock at $30 and sell a call option for 12% premium, which would result in a net cost basis of $26.40. As long as the call option met my goal of 24% annualized return if called, I'd buy the stock and sell the option rather than wait for the stock price to decline.
My contrarian approach to investing and covered calls is probably different than most investors. I choose to go against the crowd, since I believe that the crowd is usually wrong and irrational. Not everyone will agree with me, but then I'm not looking for agreement. In fact, I'd rather everyone disagree and continue buying high and selling low, so I can do the exact opposite and come out ahead.
For example, I don't believe in the Efficient Market Hypothesis, which says that everything that is known about a company is already reflected in the stock price. Instead, I believe that the market is a reflection of the irrational actions of its participants.
The tech boom of the late 90's is a prime example. Everything that was known about most Internet companies was that they were losing money and some were deep in debt. Yet, investors kept buying their stock and inflating the share price. Does this sound like an efficient market or irrational exuberance?
Most investors buy stock in a bull market when prices are rising and sell stocks in a bear market when prices are falling. Does this sound like a rational act? Haven't we always been told to buy low and sell high? But many try to buy high and sell higher, and usually end up selling lower. If most investors use this strategy and most investors lose money, doesn't it make sense to do just the opposite?
When it comes to investing, people do the exact opposite of what they would normally do. When making a major purchase of some personal item would you buy when prices were rising or would you wait for a sale? Most people would wait for the sale.
For example, say you wanted to buy a new computer and found two that had all the features you wanted. They both had a retail value of $1,500, but one was on sale for $1,000. Which one would you buy? Most would buy the one on sale.
Now say you wanted to buy a stock and found two that met your criteria. They both had a fair value of $50. One was selling for $75 and making new 52 week highs. The other was selling for $25 and near its 52 week low. Which one would you buy? Most would buy the first stock, which is the exact opposite of what they would have done when deciding which computer to buy.
When a department store cuts prices and announces a major sale people rush to the store to buy stuff, sometimes even if they don't really need it. However, during a bear market where stock prices are cut, people sell their stocks, rather than buy more on sale. During a bull market where stock prices are rising, people rush in to buy stocks at higher and higher prices. This makes absolutely no sense to me.
I look at declining stock prices as a buying opportunity and at rising stock prices as a selling opportunity. Buy low, sell high. I try to buy undervalued stocks in good solid companies with sound fundamentals. That's why I'm willing to buy more stock (i.e. dollar cost averaging) when one of my positions declines in price. I've already determined that the company is a good long term holding and now I can buy more at a discount and lower my cost basis.
This is one of the principals of value investing. Buying undervalued stocks with a margin of safety (i.e. discount to fair value). However, with value investing, sometimes you need to wait for the stock price to decline in order to reach your margin of safety price, and this can take a long time. I create my own margin of safety price by selling covered calls. The premium from the call reduces the cost basis of the stock.
For example, say I wanted to buy a stock for $26.40 but it was currently selling for $30. I could either wait for the stock price to decline 12% or I could buy the stock at $30 and sell a call option for 12% premium, which would result in a net cost basis of $26.40. As long as the call option met my goal of 24% annualized return if called, I'd buy the stock and sell the option rather than wait for the stock price to decline.
My contrarian approach to investing and covered calls is probably different than most investors. I choose to go against the crowd, since I believe that the crowd is usually wrong and irrational. Not everyone will agree with me, but then I'm not looking for agreement. In fact, I'd rather everyone disagree and continue buying high and selling low, so I can do the exact opposite and come out ahead.
Wednesday, January 3, 2007
HLX - Adjustment
The following adjustment was made today on HLX:
03-Jan-07 - Buy Back & Roll Out - BTC 2 Feb07 40.00 Call @ -0.11 -
03-Jan-07 - Continued Trade - STO 2 Jun07 40.00 Call @ 0.59 -
The Feb07 40 Call had very little time value left so I bought it back and rolled out to Jun07.
Current Position Summary:
Stock Investment: $8,053.00
Income Generated: $1,442.00
Percent Income Generated: 17.91%
Net Profit If Called: $1,389.00
Percent Return If Called: 17.25%
Annualized Return If Called: 12.44%
Days to Expiration: 506 days
Trade History:
25-Jan-06 - Initial Stock Position - BTO 200 HLX @ 40.27 -
25-Jan-06 - Initial Call Option - STO 2 Feb06 40.00 Call @ 1.91 - Expired
01-Mar-06 - Continued Trade - STO 2 Mar06 40.00 Call @ 0.64 - Expired
20-Mar-06 - Continued Trade - STO 2 Jun06 40.00 Call @ 1.49 - Expired
26-Jun-06 - Continued Trade - STO 2 Jan07 40.00 Call @ 2.34 - Closed
19-Dec-06 - Buy Back & Roll Out - BTC 2 Jan07 40.00 Call @ -0.16 -
19-Dec-06 - Continued Trade - STO 2 Feb07 40.00 Call @ 0.49 - Closed
03-Jan-07 - Buy Back & Roll Out - BTC 2 Feb07 40.00 Call @ -0.11 -
03-Jan-07 - Continued Trade - STO 2 Jun07 40.00 Call @ 0.59 -
03-Jan-07 - Buy Back & Roll Out - BTC 2 Feb07 40.00 Call @ -0.11 -
03-Jan-07 - Continued Trade - STO 2 Jun07 40.00 Call @ 0.59 -
The Feb07 40 Call had very little time value left so I bought it back and rolled out to Jun07.
Current Position Summary:
Stock Investment: $8,053.00
Income Generated: $1,442.00
Percent Income Generated: 17.91%
Net Profit If Called: $1,389.00
Percent Return If Called: 17.25%
Annualized Return If Called: 12.44%
Days to Expiration: 506 days
Trade History:
25-Jan-06 - Initial Stock Position - BTO 200 HLX @ 40.27 -
25-Jan-06 - Initial Call Option - STO 2 Feb06 40.00 Call @ 1.91 - Expired
01-Mar-06 - Continued Trade - STO 2 Mar06 40.00 Call @ 0.64 - Expired
20-Mar-06 - Continued Trade - STO 2 Jun06 40.00 Call @ 1.49 - Expired
26-Jun-06 - Continued Trade - STO 2 Jan07 40.00 Call @ 2.34 - Closed
19-Dec-06 - Buy Back & Roll Out - BTC 2 Jan07 40.00 Call @ -0.16 -
19-Dec-06 - Continued Trade - STO 2 Feb07 40.00 Call @ 0.49 - Closed
03-Jan-07 - Buy Back & Roll Out - BTC 2 Feb07 40.00 Call @ -0.11 -
03-Jan-07 - Continued Trade - STO 2 Jun07 40.00 Call @ 0.59 -
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