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Weekly Up to Date Performance
October 27 – 31, 2014
The two new purchases, both dividend plays, were ahead 2.2% for the week, but still lagged the S&P 500 which was 2.7% higher for the week and 2.6% higher on an adjusted basis, following a nearly 2% move higher in those same 2 days.
Unlike previous weeks that characterized the sharp upward climb coming after a ne
arly 9% drop, this time around there was news to account for the market’s movement, especially to end the week, with some very unexpected news coming from the Bank of Japan.
For the first time in 3 weeks there was an assignment, albeit just one. Closed positions finished 3.5% higher, as compared to 1.8% for the S&P 500 for the comparable holding periods. That 1.7% advantage represents a 93% difference in return.
It’s hard to know how to characterize this week.
It ended on a real surprise, although it was the good kind of surprise.
No one expected the Bank of Japan to do what everyone has been saying was need to be done by the European Central Bank.
Everyone agreed that the unexpected action is what sent markets soaring from the outset on Friday and as opposed to the market’s sharp climb on Thursday, the week ending surge was broad and not confined to a very small segment of the market and not so wholly reliant on the performance of a single stock.
As has been the case with the majority of hedge funds in 2014, when you have a week that climbs so strongly, hedgers are left in the dust. That happened this week, especially if you have some significant energy holdings which continue to lag the market and may also be responsible for some of the broad advances as low energy prices are good for most everyone other than those owning energy stocks.
This week, though, was one where there was at least some more trading activity in the past few weeks, in addition to the 2 new purchases to get the flow of income moving once again, especially after a very fallow week last week.
This week there was a decent combination of rollovers and sales of calls on uncovered positions, in addition to the single assignment.
Of course, I still want more of each of those categories.
Next week already has 6 positions set to expire and with a little bit of cash replenishment I may be interested in adding some additional positions, but would still be far more interested in making what already exists become more productive portfolio members.
With volatility back to its very low levels, with very little mention by the very people that were shouting from the rooftops about its climb, the option premiums, especially for out of the money strikes, such as are used in the DOH Trades aren’t very attractive and just don’t offer much in the way of enticement.
For those that look at the daily updated spreadsheet, you may have noticed an additional column to the far left. coded in “Red” and “Green.” That column represents the break even price on positions that includes all realized premiums and dividends and can act as a guide as to what strike price, if assigned, can be sold without incurring a net loss on a position. The guide may be helpful in identifying opportunities to capitalize on achieving premiums even at strikes below the original purchase price and that would still result in a gain for the position.
I may come to rely on those more frequently in order to accomplish 3 things:
a. generate more premium income
b. generate more cash reserves through increased assignments
c. reduce the total number of holdings and lots
As is usually the case, the ideal time to try to do such trades is during upward moves in shares, despite the declining premiums that ensue.
As opposed to DOH Trades, in which you generally would prefer not to have your shares assigned, as it would represent a net loss, the decision to rollover positions that have a “Green” strike price may be done on an individual basis, depending on needs, such as “do I want to generate cash reserves?”
I don’t usually speak about individual stocks in the week end wrap up, but Intel warrants some comment.
Next week, for those that own Intel, which goes ex-dividend on Wednesday, you’ve probably noticed its wild swings on Thursday and Friday. With its generous dividend and shares being currently deep in the money, I may look to roll the position in one of two ways. Either roll the November 7, 2014 $33 contract to a $34 November 14, 2014 contract or roll the existing contract to a November 7, 2014 $33.50.
With Intel currently being deep in the money, either of those trades, even if assigned early and very likely to be assigned early, would add, at the current prices for options, an additional
$0.12 in premiums, to offset the likely loss of the $0.22 in dividend, while allowing the funds to be re-invested in some other income producing position.
So if that Trading Alert comes your way, don’t scratch your head, too much. Given the extremely heavy put option activity on Thursday, some of which expired today, anything can still happen with those shares, as someone made a very, very big bet that Intel shares would be heading lower.
So far, they are wrong and the large block of $33.50 in the money puts that expired today lost about $0.90/share in the 2 day transaction, as there wasn’t any evidence of them being rolled forward. It was simply a very big bet that was allowed to die, although the bet is still on for the week of November 14th.
But that’s just a single stock.
So as hard as it is to characterize this past week, it’s even harder to understand what next week may bring. It’s never easy, but if anyone has any clue as to what next week may bring, let me know, because I’m not a big believer that Quantitative Easing in other countries is necessarily good for the US markets, as it would do what our QE did.
That is, siphon money from foreign markets into our own, except this time we’re the foreign market.
(Note: Duplicate mention of positions reflects different priced lots):
New Positions Opened: F, INTC
Puts Closed in order to take profits: none
Calls Rolled over, taking profits, into the next weekly cycle: F, LVS
Calls Rolled over, taking profits, into extended weekly cycle: DOW (11/14), EMC (11/14)
Calls Rolled over, taking profits, into the monthly cycle: none
Calls Rolled Over, taking profits, into a future monthly cycle: none
Calls Rolled Up, taking net profits into same cycle: none
New STO: ANF (11/7), K (12/20), LO (11/7), TMUS (11/14)
Put contracts expired: none
Put contracts rolled over: none
Long term call contracts sold: none
Calls Assigned: WFM
Calls Expired: BX, GM
Puts Assigned: none
Stock positions Closed to take profits: none
Stock positions Closed to take losses: none
Calls Closed to Take Profits: none
Ex-dividend Positions: F (10/29 $0.12)
Ex-dividend Positions Next Week: INTC (11/5 $0.22), WLT (11/6 $0.01)
For the coming week the existing positions have lots that still require the sale of contracts: AGQ, BX, CHK, CLF, COH, EBAY, FAST, FCX, GDX, GM, GPS, HAL, HFC, .JCP, JOY LULU, LVS, MCP, MOS, NEM, RIG, TGT, WFM, WLT (See “Weekly Performance” spreadsheet or PDF file)
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