Hi All,
Sorry for the lack of posts these past few weeks. But, as I said when I launched my blog a few months ago, my goal is simply to communicate and record my covered call and naked put trading successes and failures. It is not my intention to provide daily market commentary. There are too many other web-sites and blogs which are much better suited to perform that role than I am.
Anyway, back to the topic at hand. How did The Money Tree portfolio do this month? Well, as is to be expected, it was just like the market as a whole, in a word…VOLATILE. Let’s look at each of the current open positions.
Forest Labs (FRX) – You’ll recall I opened this position back in January. Back then it was trading in the $25 range and had an almost perfect Visions setup (i.e., coming off recent lows, trending upward, good fundamentals, etc.). Since then it has dropped. The drop can be attibuted to three events, (1) general market decline, (2) adverse reaction to speculation on the Obama healthcare plan, and (3) a government investigation into FRX sales tactics. In February, I chose to ‘double down’ on my investment by selling March 22.5 puts rather than accepting a small CC premium on my existing shares.
Since February 23rd, FRX has traded between a low of $18.37 and a high of $25.04. Friday, it closed at $21.13. My puts were assigned and I now have a net cost basis of $22.67. I plan on initiating a new trade in FRX on Monday. If the market opens higher I intend to sell the Apr 25s, if lower then the Apr 22.5s.
Industrial Select Sector SPDR (XLI) – With this position I’ve learned a few lessons on trading ETFs. First and foremost is to carefully consider the size of each underlying position in the ETF. For example, GE at the time of my purchase constituted approximately 15% of the market cap. of XLI. Thus, one of the primary benefits of investing in an ETF, instant diversification, was compromised by the oversized position of this one stock. Consequently, XLI roughly tracked some of the volatility recently experienced by GE.
In the past month XLI has traded between $15.14 and $18.94. On Friday, XLI closed at $17.39. Since my net cost basis of $20.49 is significantly higher than this I haven’t and don’t feel comfortable selling any new covered calls right now. I’ll continue to wait until the price has recovered somewhat before I sell any new CCs against XLI.
Energy Select Sector SPDR (XLE) – For the second month in a row this trade has been a bright spot in my portfolio. XLE gave me a wild ride this month but closed Friday at $43.oo which was well above the strike price of my Mar 39 puts. During the month it traded between $37.40 and $46.02. I intend to sell puts on XLE again this month. However, right now I can’t decide between the Apr 38s or the 39s.
iShares MSCI Brazil Index (EWZ) – I also did well in my other naked put trade this month. EWZ performed very well all month and never approached my $25 strike price. The low for the month was $31.14 and the high was $39.47. I’m tempted to sell puts on EWZ again this month but am hesitant because of the strong run-up in price. I’m currently considering selling the Apr 30 puts for around $0.50.
Well, there you have it folks, another month in the books. I’ll be back later this week to provide an update on any new trades I place.
The Money Tree 