The Money Tree

Safely Generating Income in Retirement

Archive for February, 2013

New Trade – POT

Posted by mounddweller on February 28, 2013

Fellow Traders,

I slipped in one more trade this month.  Today, I sold 3 APR POT $37 puts at $0.47.  After commissions I netted $131.25 from this trade.  This trade came to me by way of my participation on the Yahoo Covered Calls Naked Puts Option Strategies board.  We have a lively discussion.  For further information on how you can join our group see the link on the left side bar.

Let’s look at what I and others saw that convinced us to get in this trade.  First, let’s look at the 3-month chart for POT.

BLOG - POT 3 MTH Chart

As you can see POT, after hitting the upper BB at around $44 on January 28th began to head south.  On February 20th it hit the lower BB and began to drop rapidly.  On Monday, February 25th it bottomed out and the following day carved out a small gain.  Then on Tuesday it had a big gain and pulled away from the lower BB.  This was the signal that it was time to consider a naked put trade.  Thus, this morning while the stock was hitting its lows of the day I pulled the trigger and sold the APR $37 puts.

Here’s the intra-day chart for today.

BLOG - POT Intraday Chart

If you look closely you’ll see a little blue dot on the chart when POT was around $39.65 at 11:05 ET.  This is when I executed my trade.  You’ll notice POT had hit what was to be its low of the day just a few minutes prior to 11:00.  I watched it bounce off these lows and then retrace and try to retest them.  It didn’t make it before turning back up.  That’s when I decided it was time to jump in.  My timing was good (for once).  I was only one penny away from capturing the highest premium of the day for the APR $37 puts.  The stock took off from there and closed at over $40/share.

Regards,

Troy

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Monthly Results – FEB 2013

Posted by mounddweller on February 28, 2013

Fellow Traders,

You’ll recall last month I started a new series of posts summarizing my monthly trading results.   This being the last day of the month let’s take a look and see how I did.

Number of Closed Positions: 2

Profit on Closed Trades: $(1,338.45) – Yes, I lost money this month.  More on that later…

Total Capital Used on Closed Trades: $39,267.90

Average Number of Days Trades Were Open: 530 – No, that’s not a misprint.  Again, more on that later…

Return on Invested Captial: None, I had a realized loss of capital.

OK, before I move on to the stats for my open trades, let me tell you a little more about these closed trades and the peculiar results.  Actually, I had one losing trade and one winning trade.  The losing trade was a long-held position in EXC that was unexpectedly called away from me.  I had ITM calls that got assigned early so someone could capture EXC’s last $0.525 dividend.  I had held EXC in my account for almost 3 years.  My sale of naked puts and covered calls and the collection of quarterly dividends could not make up for the steady decline in price.  Thus, I lost about $1,500 out of the $20,500 of capital I had in this trade.  I am working to recapture that lost capital by selling a new round of naked puts.  As a result my net loss on EXC is now down to $1,200.

My other closed trade was a winner.  My 3 naked puts in YUM at the $62.50 strike expired OTM.  This resulted in a gain of $214 on $18,750 in capital in 25 days.

Now let’s look at my open trades.

Number of Open Positions: 7

Net Cash Flow in February from Open Positions: $1,288.85

Total Capital Used on Open Trades: $90,340

Net Cash Flow on Invested Capital: 1.43%

This month I am again pleased with the net cash flow on invested capital.  However, I am disappointed in the realized loss of capital from my closed trade in EXC.  I am working hard to learn to avoid sizable losses of capital.

Best of luck to all my readers as we head into March.

Regards,

Troy

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New Trades

Posted by mounddweller on February 25, 2013

Fellow Traders,

I executed two new trades today in CAT and INTC.

Catepillar (CAT) is engaged in manufacturing heavy construction equipment.  It has a 52-wk range of $78.25 – $116.40.  Over the past few weeks it had fallen from $100 to close at $91.54 on Friday.  My investing buddy Teddi at www.fullyinformed.com noted in her weekend commentary that CAT appeared to be severely oversold.  Thus, I decided to give it a look.  CAT initially opened higher but then rapidly fell and found support just above $91.00.  I, in my usual fashion, tried to catch the exact bottom and ended up watching the stock move away from me.  After kicking myself for missing the opportunity I decided to keep an eye on CAT.  Later that morning I found CAT once again testing its previous lows and I was determined to not have a repeat performance of watching the opportunity pass me by.  I was looking at the MAR $90 put and wanted to get at least $1.30 for it.  However, in looking at the 3-month price chart (see below) I noticed a gap had occurred between the close on 12/31/2012 and 1/2/2013.  It has been my experience that stocks will often try to backtrack and fill the previous gap.  Thus, I decided an extra bit of caution was warranted.  So instead of selling the MAR $90 put I opted to sell the MAR $87.50 put for $0.63.

BLOG - CAT 3M Chart

After bouncing again off of support at $91 I felt pretty good about my trade.  But then Mr. Market began to wipe the smile off my face.  CAT sold off again and this time the support at $91 did not hold.  CAT ended the day at $89.16.  I am happy I decided to sell the $87.50 put rather than the $90 strike.

My second trade today was in a stock I’ve traded many times, Intel (INTC).  I want to build a significant long-term position in INTC.  I currently own just over 505+ shares and feel the $20 price is a good level to add to my position.  Thus, today I sold 5 MAR $20 puts at $0.25.  INTC was at $20.34 when I executed my trade.

BLOG - INTC 3M Chart

If INTC falls below $20 by MAR expiration I may elect to roll these puts for a couple of months to collect more premium and thus further reduce my cost basis.   If it stays below $20 as the next dividend date approaches I may choose to accept assignment in order to capture the dividend.

Good trading to one and all.

Regards,

Troy

 

 

 

 

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Update – FEB Expiration

Posted by mounddweller on February 18, 2013

Fellow Traders,

Just a short post tonight to update you on my trading activity this past week leading up to FEB expiration.

GDX – I thoroughly messed this trade up.  As you may recall I was short both the FEB $44 and $41 puts.  Earlier in the week GDX was trading above $42 and I could have bought back my $44 puts at a small profit.  The $41 puts could have been bought back for pennies.  However, with only a few days to expiration I decided to let both of them ride.  BIG MISTAKE!  Gold fell through support and the Gold Miners Index fell right along with it.  GDX closed Friday $39.89.  Thus, not wanting to accept assignment, I had to move quickly to roll my puts out.  Here’s what I decided to do:

(1) I rolled my FEB $44 puts out to the SEP $41.50 strike for a net credit of $0.05.  The small net credit essentially covered my commissions.  I did this because I expect we’ll get a bounce soon and by now having puts at the $41.50 strike I should be able to extract myself from this trade for a small profit.

(2) I rolled my FEB $41 puts out to the 22FEB $41 strike for a net credit of $0.22.  I thought $0.22 for one week was a fair trade.  If GDX doesn’t bounce by Friday I’ll roll out again and likely down to the $40 strike.

COH – Very strange transaction occurred with Coach.  Recall I was long 100 shares of COH and had sold a FEB $52.50 call.  In addition, I had sold 2 FEB $50 puts.  On Friday (the day BEFORE expiration) I had 200 shares of COH put to me at $50.  The owner of my puts put the stock to me!  Why I have no clue.  He/she could just as easily have sold to close and made a sizeable profit.  Oh well, it didn’t matter to me because I wanted to acquire the additional 200 shares anyway.  Now, I own 300 shares at a net cost of $49.94 share.  Tomorrow, I will sell OTM covered calls against my 300 shares and thereby set myself up to receive the $0.28 dividend in early March.

EXC – I had another embarassing gaff with Exelon.   Long-time readers will remember I have been holding EXC shares and trading puts and calls against them for three years.  My most recent trades had been to write covered calls at the $30 strike in anticipation of the stock going down after the dividend cut was finally announced.  Well, much to my chagrin EXC initially increased after the dividend cut announcement.  My calls were now deep in the money.  Long story short, someone called away my stock earlier this week so they could capture the hefty $0.525 dividend.  I waited too long to roll my calls.

Since I want to own EXC long-term I immediately sold another round of APR puts at the $30 strike for $0.60.

YUM – Last, but not least, I need to update you on my YUM trade.  The lesson to be learned in this trade is not to panic and to be patient.  Many of you know YUM is facing a strong headwind in their largest market, China.  The rumors of tainted chicken have caused sales to fall significantly.  The stock responded accordingly by falling to $60 earlier this month.  At that time my puts were $2.50 in the money and YUM looked like it could fall further.  Rather than panic, I heeded the sage advice of my friend Teddi over at www.fullyinformed.com.  By staying the course I was able to watch YUM recover, closing Friday at $63.99.

This trade resulted in a ROIC of 1.14% in 25 days or 16.7% annualized.

Best of luck to everyone trading this week.

Regards,

Troy

 

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New Trade – GLW

Posted by mounddweller on February 10, 2013

Fellow Traders,

On Friday I entered a new position in Corning (GLW). I executed this trade after watching GLW for the past few weeks. GLW has fallen since hitting $13 in early January. It continued to sink and trace a path along the lower bollinger band finally bottoming at $11.79 on Monday, February 4. On Tuesday the stock bounced off the lower bollinger band and began to move higher. I continued to watch the stock proceed higher on Wednesday and Thursday. By Friday I feared that I had missed my opportunity. However, on Friday morning the stock pulled back and I swooped in buying 1000 shares at $12.14. At first I had tried executing a buy/write for a net debit of $11.78. However, I was unable to get a fill.

I then changed my strategy. I decided to try to time my entry by buying the stock near the bottom and then waiting to sell calls as the stock reached an intra-day overbought condition. Yes, this was a risky move on my part. There were no guarrantees that the stock would move back up at some point later in the day. However, given the previous 3-day rally in the stock I thought it was worth a chance. As it turned out, I was right. I was able to buy the stock as it bounced off its lows of the day. As I mentioned above I bought 1000 shares at $12.14 at 10:59 a.m. Then using a 1-minute price chart and Williams %R I was able to sell the MAR $12 calls at $0.45 around 3:17 p.m. You can see I missed my best chance to sell the calls a short time earlier. Greed got the best of me and I waited too long trying to get one more penny for my calls. Thankfully, I was given a second chance before the market closed to sell the calls at a good price.

BLOG - GLW 1 day chart

Let’s look at my potential profit on this trade.  By buying the stock at $12.14 and selling the MAR $12 calls for $0.45 I have the potential to make a net of $0.31 per share.  My ROIC is 2.55%.  That’s a nice return.  However, it gets even better.  GLW is expected to declare a $0.09 dividend before expiration on March 16th.  If my calls are not exercised early and I am also able to capture this $0.09 dividend it will boost my ROIC to 3.29%.

Best of luck to all my trader friends in the coming week.

Regards,

Troy

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New Feature Post – Monthly Results

Posted by mounddweller on February 1, 2013

Fellow Traders,

In an effort to bring more accountability to my trading results I’ve decided to share my results at the end of each month.  Time will tell if this influences my results one way or the other.

So, let get to it.  How did I do in January 2013?

Number of Closed Positions: 5

Profit on Closed Trades: $1,576.00

Total Capital Used on Closed Trades: $54,858.00

Average Number of Days Trades Were Open: 68

Return on Invested Capital: 2.87%    Annualized: 15.51%

 

Number of Open Positions: 4

Net Cash Flow from Open Positions: $1,185.65

Total Capital Used on Open Trades: $75,040.00

Net Cash Flow on Invested Capital: 1.54%

 

I’m happy with the returns I was able to generate this month.  However, the total amount of capital employed was a fraction of my investable assets.   Thus, in order to meet my overall objective of a total return of 12-15% annually I need to identify and be willing to invest a much larger portion of my investable assets each month.

Regards,

Troy

 

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