| Option to Profit Week in ReviewFebruary 3 – 7, 2014 |
| NEW POSITIONS/STO |
NEW STO |
ROLLOVERS |
CALLS ASSIGNED/PUTS EXPIRED |
CALLS EXPIRED/PUTS ASSIGNED |
CLOSED |
| 3 / 3 |
6 |
6 |
3 / 0 |
3 / 0 |
0 |
Weekly Up to Date Performance
February 3 – 6, 2014
New purchases beat the time adjusted S&P 500 this week by 0.6% and also surpassed the unadjusted index by 0.6% during a week that saw lots of big moves, reminiscent of 2011.
The market showed an adjusted gain for the week of 0.8% and unadjusted gain of 0.8% for the week, while new positions gained 1.4%., reflecting higher premiums early in the week as volatility was temporarily elevated on most positions. For the first time in a month we closed the week on a higher note and we actually put two nice gains together back to back.
For the 28 positions positions closed in 2014, performance exceeded that of the S&P 500 by 1.4%. They were up 3.2% out-performing the market by 80.9%. Again, at some point that will be reduced to a more reasonable level at some point, as I don’t expect position out-performance to be that much higher as the year goes on.
All in all, this was a much better week than I was expecting, but I’m totally focused on one thing and that’s “The Gap.”
For those that know their trivia and are Woody Allen fans, they may know that the title name, “Annie Hall” was said to be derived from Allen’s anhedonia, or inability to experience pleasure.
I don’t really suffer from that, but a good week should have been better. Of course it could have been much better if I hadn’t been so conservative about adding new positions.
I don’t usually get upset when a stock’s price moves against me, but my wife heard me yell out an expletive when The Gap announced revenues, sales and increased guidance after yesterday’s close. That’s not something I do.
Ever.
What surprised me was that earnings are scheduled to be announced after the end of the February 2014 option cycle on February 27, 2014.
I understand that companies occasionally do that. Zynga, for example surprised everyone by reporting earnings last week instead of this week as scheduled. Companies also occasionally catch you off guard by releasing revised guidance and certainly there’s a long history of monthly sales data being released, although that is going the way of the dinosaur.
What bothered me about The Gap, besides the fact that I sold those D’oh options on them the day before at a paltry premium, was that someone knew this was coming, although I couldn’t find any mention anywhere. What I did see was that the entire’s day worth of option volume on the $39.50 option expiring today took place in the first few minutes of trading and in heavier than usual volume.
Additionally, the premium went up much more than you would have expected, to the point that the time value portion of the premium represented more than a 2% ROI for an option expiring the next day. The previous day, the time value was miniscule, by comparison.
What that suggests is that the news wasn’t available on Wednesday, at least not while the option market was open, but was available on some basis as soon as Thursday options started trading. Since the significant enhancement of the premium didn’t extend into the next week it was clear that it was a time limited event.
And that time was yesterday after the close.
Although the use of the D’oh Strategy entails some risk of generating a loss if there’s a sudden price increase, usually its done using a strike level that would represent a healthy price rise in order to be assigned. While that certainly can happen, the expectation is that it won’t or if it does the new price would still be in a reasonable neighborhood so that the contract could be rolled over and done so with a Net Credit in hand.
That’s not going to be the case when there’s a large jump in share price.
While Walgreen did the same, I hurled no expletives on that one. It simply went higher because for now people look at it as an alternative place to go get cigarettes, now that CVS has decided to stop selling death and health in the same store. That unexpected announcement was fair game and Walgreen’s shares went higher as people believed that Walgreen would not follow the CVS lead, regardless of the likelihood that it will do so.
When it was all said and done, though, it was a good week for new and existing positions, despite The Gap and Walgreen. Hopefully their rollovers to higher strikes will work out and just serve to enhance the return in the weeks ahead.
For next week with a few positions assigned, some rollovers and some newly covered positions I do feel a bit more optimistic as the week starts, but will still be mindful of opening new positions with cash reserves.
If anything this week indicates that no one really knows what they’re talking about as the week began with people beginning to suggest a 15-20% correction, with an assured 10% coming sooner rather than later.
So far, that’s now how its working out, as for the third time in about year the market has battled back from a 5% drop. Again, the volatility appears to be as good of a predictor or measure as anything else of a market that’s oversold. The volatility index just can’t get above 22, which isn’t really very high, at all.
For that short time late last week and this week that volatility was high and moving higher, I was beginning to salivate. Now, instead I just hurl expletives.
And that’s on a good week
This week’s details may be seen in the Weekly Performance spreadsheet * or in the PDF file, as well as as in the summary.below
(Note: Duplicate mention of positions reflects different priced lots):
New Positions Opened: BMY, EBAY, MET
Puts Closed in order to take profits: none
Calls Rolled over, taking profits, into the next weekly cycle: AIG, ANF, TXN
Calls Rolled over, taking profits, into extended weekly cycle: WAG (2/28)
CallsRolled over, taking profits, into the monthly cycle: CSCO, GPS
Calls Rolled Over, taking profits, into a future monthly cycle: none
Calls Rolled Up, taking net profits into same cycle: none
New STO: CLF, GPS, HAL, MOS, WAG, WFM
Put contracts sold and still open: none
Put contracts expired: none
Put contract rolled over: none
Long term call contracts sold: none
Calls Assigned: BMY, EBAY, MET
Calls Expired: CHK, HFC, TXN
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: INTC (2/5 $0.225), MET (2/5 $0.28)
.
For the coming week the existing positions have lots that still require the sale of contracts: AGQ, APC, C, CHK, CLF, DRI, FCX, HFC,INTC, LB, JCP, LOW, LULU, MCP, MOS, MRO, NEM, PBR, PM, RIG, TGT, TXN, WLT (See “Weekly Performance” spreadsheet or PDF file)
* If you don’t have a program to read or modify spreadsheets, you can download the OpenOffice Suite at no cost.
