MSFT Update

The other option expiration update I had was the Microsoft covered calls. This one wasn't as simple. The market love MSFTs earnings last week and the stock price raced up past the strike price Friday morning. I had a chance to close the call at breakeven early in the day, but decided to put in a limit order and let things play out whichever way and deal with it today. Well, MSFT kept plugging higher all day and the stock got called away at $29. Since I wasn't ready to end this trade yet though, I repurchased the stock this morning. Luckily MSFT has been dropping today and I was able to repurchase at $29.46. With the $0.14 option premium on the latest call, that means I'm only missing out on $0.32 share. Not what I wanted when I sold those most recent calls, but that happens with covered call positions sometimes. I am going to continue to track this as a single trade.

• Sell 100 shares MSFT @ $29.00
• Buy 100 shares MSFT @ 29.46

The Numbers

• Cash: -$46

ECA Update

I meant to write about updating my expiring options last week, but was out of town until yesterday and didn't have a chance to put it together. The Encana naked puts have gone away from me since pretty much day one and are significantly under water. I rolled them again and got very little premium even rolling it out all the way to July. If these are still deep in the money in July and the premiums aren't there, I will look at letting the stock get assigned to me. If I can only grab $0.30 in premium, I'm probably better off collecting and reinvesting the dividends.

• Buy to Close: 1 ECA Jan 21 2012 27.0 Put @ $9.53
• Sell to Open: 1 ECA Jul 21 2012 27.0 Put @ $9.87

The Numbers

• Cash: +$34

Microsoft Calls

I've gotten a nice little pop in the price of Microsoft, so I'm going to take advantage and sell another covered call against my shares. Stocks seem a little anxious to move higher these days, so I'm going to keep this one short and sweet.

• Sell to Open: 1 MSFT Jan 21 2012 29.0 Call @ $0.14

Once again this isn't much money, but it's only a week away and we've got some room to spare with MSFT just above $28 these days.

The Numbers

• Cash: +$14
• Short Option: -$15

All That Glitters

Let's give gold another shot. Gold is below both it's 120-day and 200-day moving averages so it's technically in bear mode, but I'm willing to take a shot that it's exhausted it's downside momentum for the time being. Just like last time, I'm going to use the same triple-leveraged ETF(DGP) with a tight stop. For now I'm going to use a 5% soft trailing stop. I bought this morning at $50.86/share. If DGP breaks it's 5% trailing stop(about $48), I will take another look at the technical picture and decide whether to give it some more room or not. Regardless of what happens with that, I will keep a hard 10% trailing stop and sell if it hits that. On the upside I'm looking for gold to at least go up to $1,750. That's about 10% on the upside which would be approximately 30% gain since I'm using the 3x leveraged ETF.

• Buy: 50 shares of DGP @ $50.86

The Numbers

• Cash: -$2,543
• Long Stock: +$2,543
• Available Margin: -$1,500

Year End Review

Welcome to the year end review. I'm not sure what the best way to write/grade this post, so bear with me while I wing it. I also don't expect it to be too in depth. And while I will likely comment on open trades and make note of the total portfolio value, I will be focusing on realized gains.

I wasn't very active with the published trades this year, but I hope to do more consistent posts this year. I only had 23 trades(including rolling options) in about 8 months and since this blog is more of a high percentage singles hitter than a home run hitter with lots of strikeouts, the gains on these trades is often pretty small. This means my total returns are going to be smaller than I was hoping for. This should improve as I do more trades in 2012.

First up is my inaugural trade: the Microsoft covered call. I still have the shares of stock and it finished the year up slightly with just over 2% in unrealized gains. More importantly though I received $52 in dividend income and $54 in covered call proceeds for a total realized gain of $106 for about a 4.2% gain on the initial outlay of $2,541. This trade will never be a huge winner for the portfolio because I'm not tracking reinvested dividends and on a stock like MSFT I'll be more conservative on the covered calls so that I don't get my stock called away from me.

Cisco was a moneymaker for me this year. I started with some longer term naked puts which I eventually closed out for just $0.08 per contract for a total realized gain of $196 for both contracts(approx. 30% gain on margin) in 7 months. The other CSCO trade ended up being 6 trades in one as I rolled it out a several times. I also closed out that trade for $0.08 per contract after receiving a total of $209 per contract in option premiums for a total realized gain of $402 on margin requirements of approximately $650 for gains of about 63% in just 7 months. All told, I had $598 in realized gains with Cisco. Not too shabby.

Usually a regular trade for me, I just didn't have the time this year to do much expiration week trading, but back in June I did make a couple trades(both winners). I realized gains of $33 on First Solar and $28 on Amazon. At less than 1% combined gain on margin, this was a small winner, but I was only in it for 2 days and would normally be doing several trades like this every month. Those start to add up.

I did do a fair amount of arbitrage trades. It was successful for the most part, but I also had my only realized loss on an arbitrage trade.

• VSEA - Closed out for a total gain of $140(about 11% on margin) in about 3 months
• KCI - Closed out for a total gain of $125(about 8% on margin) in about 3 months
• LZ - Since I already had this trade on the books before I started the blog, I tracked this one with the price I could have gotten at the time so my realized gains on this one are smaller than the actual gains I saw in my account. Still, I closed it out for total gain of $60(2.1% on margin) in just a month and a half.
• MMI - Still open and in the black.
• NETL - Still open and in the black
• PPDI - Closed out for a total gain of $96(about 12% on margin) in just 6 weeks
• TLVT - And here's my loser :-( Read my exit post on the trade for how I screwed up this one. It was closed out for $646 for a total loss of $326(about 30% on margin)

The Encana naked puts is also a loser so far as well, but it's still open. My timing was pretty bad on this one and I already rolled it out once and likely will have to at least once more to turn this trade profitable. I will look at this trade again at option expiration in a couple weeks and decide whether to stay in it or not.

My leveraged gold trade wasn't quite as profitable as I was hoping, but I won't complain about a 5.5% gain in a month. I closed it out at $56.83 after buying at $53.86 for a total gain of $148.50 on an initial outlay of $2,693.

The Berkshire naked puts and Microsoft naked puts were both winners, but I didn't close them out until January 3. For 2011 purposes, they are both unrealized gains.

The only other trade that was closed out in 2011 was the quick trade on the SSO puts. This was another quick, low return profit that gave me a realized gain of $36(about 1.5% on margin) in just 4 days.

All told, I had realized gains of $1,044.50 on an initial portfolio of $25,000. That comes out to about 4.2% in 7 months for an annualized gain of about 7.2%. I normally won't use annualized gains except on the year end review because I do so much short term trades and it skews the results pretty drastically. For example, that SSO trade that made me 1.5% in 4 days would equal nearly a 100% gain if you annualize it. That's not an accurate representation of the trade, especially when I'm not making that trade every week.

4.2% isn't great, but considering the overall market was almost dead even for the year(looking at the S&P500), it's pretty good. If I beat the market by 4% every year, I'd do pretty damn well for myself.

As for the unrealized gains, the model portfolio at market close today(January 4, 2012) is $26,160.50 for a gain of $1,160.50 or just slightly more than my realized gains.

Here's to a great 2012 folks!

Site News

2012(20-duz) is here. Even though I've only been doing this blog since last May, I'm going to do a year-end review of the model portfolio sometime this week. I will be using the account values from last Friday to calculate returns. Unfortunately, I forgot to do this over the weekend, so some values(mostly things like margin and open option positions) will have to be estimated. I don't anticipate this causing more than a few dollars difference one way or the other, but I will make sure and do it on time next year. Here's to another good year!

Closing out trades

Two more winners to close out today; My naked BRK.B puts from October and my naked MSFT puts from the end of November. The market jump this morning has killed most of the remaining value on both these trades. Luckily I get cheap commissions on options from TD Ameritrade. With higher commissions it's not always worth it to close out "zero-risk" trades when they get cheap like this. I know these aren't technically "zero-risk," but since they are both rock-solid companies I don't see any risk to holding the options since they are just an opportunity for me to purchase the stock cheaper than it is now. The only reason I close them out is because it frees up margin for more profitable trades(within the current model portfolio, I have plenty of margin available, but that may not always be the case. It only costs me a few bucks to close them out now and if the stock drops again I can get back in for a better price.

• Buy to Close: 1 BRKB Jan 20 2012 67.5 Put @ $0.09
• Buy to Close: 2 MSFT Jan 21 2011 24.0 Put @ $0.04

I ended up with about a 21% gain in 2 1/2 months on Berkshire and a 12% gain in just a month with Microsoft.

The Numbers

• Cash: -$17
• Short Option: +$17
• Margin: +$1000