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Philstockworld November Portfolio Review – BALANCE!

Sunday, November 6, 2016 9:03
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(Before It's News)

$1,545,421! 

That's up $945,421 (157%) in just under 3 years (11/26/2013) from our original $600,000 allocation on our paired portfolios.  We are, however, down $27,008 (1.7%) from our September high (reviewed 9/30) and that's just fine as our portfolios are about 80% CASH!!! and very defensive into the election uncertainty.  When you make 157% in 3 years, you need to know how to protect it.

We're well ahead of the market, the S&P was at 2,180 on the close of Sept 2nd and Friday we closed at 2,085 so down 95 points is 4.3% and falling at less than 1/2 the rate of the market is all we can hope for when we have so many leveraged positions.  Of course, some of our bigger hedges don't kick in until the market is down more than 5% and, depending on the outcome of Tuesday's election – we may be seeing that and much more.  

Other than our paired Long-Term and Short-Term Portfolios (and the STP is 20% of the LTP and it's main function is to protect our Long-Term positions), our two self-hedging portfolios are doing surprisingly well.  Our $100,000 Options Opportunity Portfolio finished the week at $211,332 and that's up $111,332 (111%) in one year and 3 months since we began it.  In our September 3rd Review, the OOP was at $189,027 so we've gained $22,105 in two months – not bad with hardly any changes.

Finally, our steadiest and oldest portfolio, the Butterfly Portfolio, finished the week at $296,092, up $196,092 from our $100,000 start on 7/29/13.  That's up $8,212 since our 9/3 review and that's exactly what the Butterfly Portfolio is designed to do, grind out a steady income in virtually all market conditions.  

The Butterfly Portfolio is very low-touch, fantastic for retired investors who don't want to watch the market every day – or every week for that matter.  In fact, no new positions were added in the last two months – only adjustments the existing positions, made once a month ahead of option expirations.  

PSW Members can access the full portfolio and positions HERE.

  • MSFT – We added the short calls because we expected a pullback and finally we're getting one.  A nice bonus $6,500 if they expire worthless.  The main part of the position is targeting $57.50 in Jan and we're right on track.
  • WMT – In Sept we expected a pullback from $73 and now back to $69 is right on the button.  
  • AAPL – This is an aggressive position but 1/2 covered with April $115 calls, which we're glad of at the moment as AAPL sank below $109 on Friday.  We're actually showing a loss at the moment so I love this as a new trade.  
  • DIS – In the low end of our range but fine.  Earnings will be interesting next week.
  • GIS – We were calm when it flew up on us to $70 and stuck to our guns with short $60 puts and calls and now those are right on track again.

  • PG – Also right on target.  
  • TGT – At the low end of our range but I love them down here ($66)
  • TXN – Last time, I said we'd take a stand as $70 was too much so we cashed our longs and left ourselves short 20 2018 $65 calls AND 20 Jan $57.50 calls.  That's working out much better now.

  • UNG – Horrific pullback and, sadly, we were are aggressively long on these.  Still, it's a long-term play (2018) and we still have full confidence (and it's still profitable, despite the pullback).
  • VLO – In the high end of our range but coming down nicely  

Yawn – this has to be the dullest way to make $10,000 a month I've ever come up with!  Image result for yawn emoji animated

Short-Term Portfolio Review (STP): $503,206 is up 403% and we're up $19,780 since the Sept review, balancing out some of the losses from the LTP.   It's all about BALANCE – we have positions that make money when the market goes down and positions that make money when the market goes up and we cash out our winners and adjust our losers (if we still have faith in them) and it's a nice, relaxing way to deal with market turmoil.  

We have not taken too many new positions in the STP, which is sitting on $461,071 in cash.  Normally, we'd trasfer the cash ($361,071 is profit) to the LTP but the LTP has been doing so well it doesn't need any cash – so it's sitting in the STP, looking for a reason to deploy it. 

PSW Members can access the full portfolio and positions HERE.

  • SHLD – Speculation, still waiting for Eddie to pull a rabbit out of his ass on earnings (1st week of Dec)
  • SQQQ – We never covered in the STP as we're more aggressive (and have more to protect) than the OOP play.  SQQQ topped out at $22 in June so up $7 from here x 60 is $42,000 and currently $22,000 so $20,000 upside potential on these as a hedge.  
  • AMZN – ROFL!  
  • TSLA – ROFL!  
  • USO – Oops, those were gone yesterday at $2.75.  
  • BHI – New one, essentially we took it as an offset to a hedge we haven't made yet but it's nice to get paid $15,000 for promising to buy 2,000 shares of BHI for net $47.50, right?  
  • GOGO – I still like these.  Net $7.50?  OK.  Now net $7 if you sell them here. 
  • SLW – Just waiting for them to expire, too cheap to pay $90 to clear it.
  • ABX – Our new hedge, pays $30,000 at $21, now net $15,000 so $15,000 upside potential (at least as we have the time advantage on our long calls).  

  • FAS – Here we're betting on Financial weakness.  The big loss on the Jan $35 calls is from an old spread we made money on, they were just the protection (it was a LOT of money).  What matters is the $33,000 worth of shorts and we make all of that money if FAS finishes between $15 and $25 in Jan, 2018 so, essentially, we're betting the Financals are 10% too high through 2017. 

Keep in mind though, this is a HEDGE and we do have some longs on Financials (mostly REITS) so this is our insurance against long positions in the LTP.  As a stand-alone, I'd want a higher target, probably $20-32.50 but this makes a lot more money if the market goes down – and that's what hedges are supposed to do.  

If the Financials go up, presumably our RIETs and Banks will be doing well and our 40 short $25 calls will lose $20,000 at $30 and $40,000 at $35 (but already counted as a $30,000 loss so only $10,000 at risk vs $30,000 to gain) so, as long as we make more than $40,000 when the financials are up 20% from here – all shall be well in either direction (and of course we'd adjust along the way).

JO – I have to keep fighting the urge to have $70,000 worth of these, not just $7,000.  Still, it pays $20,000 at $23 and we're already over that  and net $13,000 already is up 50%, simply “on track” for our intended 185% gain on cash by March.  

LABU – Now this one we do want to add to but March still isn't trading so I'm not inclined to do anything until after the election. 

TZA – Another hedge and this is a big one but lasts all of next year.  Net $16,000 bought us $150,000 worth of upside protection if TZA is over $40 – seems worth it.  Currently net $27,000 is already up 70% but merely on track to our 900%ish goal.  Gosh, who could have guessed the RUT was the most vulnerable index?  cheeky

It's funny because you look at trades like TZA and you almost wonder why this portfolio is ONLY up 400% but that's because, generally, we've been pretty conservative – just taking the big, obvious opportunities and adding bigger hedges whenever we think we're topping in a channel (and then taking the profits when we think we're bottoming).  It's only accidental that we're up 400% – this portfolio (at 20% of the LTP) is supposed to LOSE money when the LTP is doing well – we've just been brilliant with our side bets – well, with most of them.  

Long-Term Portfolio Review (LTP): On Tuesday, we were at $1,039,515 and now it's $1,042,215 so not getting worse while the STP is getting better is all was ask at the moment (we had a net $43,030 loss in the paired portfolios from the 19th and now it's down to net $31,397 – not terrible for a $1.5M pair of portfolios and a 2.5% market drop).   Despite my general cautious outlook – we're still pretty bullish in our long-term positions.  They may take a big hit on a sudden drop, but that's what the CASH!!! is for. 

PSW Members can access the full portfolio HERE.

The first section is 22 short puts we sold on various stocks.  The ones that are green are obviously not an issue and then we have our reds:

  • CLF – Net $3.50 would be fine for an entry. 
  • DNKD – Net $41.30 would be fine for an entry. 
  • GNC – Net $14.20 is above where it is now and 1,500 shares is $21,300 and, in a now-$1M portfolio, our buying power is $20,000 and our allocation blocks are $50,000 so if we get assigned, I see 2018 $12.50 calls are $3.40 and the $10 puts are $1.90 so let's say we were assigned at $14.20 and sold those puts and calls – then we'd be in the buy/write (next section) at $8.90/9.45 on 3,000 shares if that were assigned ($28,350).  So GNC, now $13.50, can fall to $9.45 and we'd still only have used half an allocation block and we'd own 3,000 shares (now worth $43,500).  So, the question is, do we hate GNC so much that this scenario bothers us?  If not – then DON'T WORRY!  

INFN – Net $6.32 would be fine for an entry.

MON – Didn't BAYRY offer to buy them for $128/share?  This seems silly to me – let's sell 5 more at $15 ($7,500).  

SKX – Net $19.90 would be our entry and we're right there.  Looking ahead, the 2019 $18 puts are $3.80 so that would be better than even on a 2x roll so then we'd have to buy 2,000 shares for net $15.45 ($30,900) so, like GNC – I actually hope we get to do it!  We purposely sold aggressive calls back in July though and we have no reason to change our mind yet.

SPWR – The whole sector is being hammered and our net here is $9.50 on 2,000 ($19,000) and the 2019 $8 puts are $3 and we can take a small hit and do a 2x roll there and we'd be at net $6.50ish on 4,000 ($26,000) so the question is really do we want to PROMISE to buy 2,000 more shares for $7,000 ($3.50/share) and sure we would so, short story – not worried as we have perfectly good adjustments to make.  

TEVA – I accidentally entered those twice so I have to adjust.  Meanwhile, Net $41 is below the current price so not worried and looking to add a bull call spread next week.

TWX – They too are getting bought and our net is $70.85 so, even if they don't get bought – we're happy.

So 9 of our 22 short puts are in the red and that's certainly a sign of a market that's turning ugly.  Just because there are none we particularly don't like doesn't mean it's going to be wise to hold them all and use our cash, rather than take the small loss (about $17,000) and wait to see where the bottom really is.  

We also have to balance this with how much money the STP will make on the way down because, if we “lose” $50,000 on our puts and the STP makes $50,000 on the hedges – then all we end up doing is getting the stocks we wanted at cheap prices with free money from the STP.  That's a good thing, as long as our stocks really do hold up over the long run.

  • SDRL – That's a funny spread.  Net 0.50 so anything over $1 makes money.  HOWEVER, the 2018 $10 calls have given us all they can so let's spend 0.10 to buy them back and spend what looks like 0.25 to roll the 2018 0.50s ($1.55) to the 2019 0.50s ($1.80) and sell 10 April $2 calls for 0.55 to finance some of the cost of the roll.  
  • ARR – I love monthly dividends.  We should do a whole portfolio of those except it's a pain to keep track of.  On track.  
  • CG – On track. 
  • CIM – On track.
  • CM – On track.
  • F – A bit low but fine.  
  • FTR – $3.15 now, have to wait for them to stop dropping but I want to double down.
  • HOV – On track
  • NRF – On track.
  • PSO – I'm not enthusiastic enough to add to them but I'm not too worried either.  The Dec calls will go worthless and we'll roll the puts and sell lower calls and see if we can drop our $9.95/11.225 net.  For example, the puts are $3.50 in the money at $9 and the June $10 puts are $1.75 and the June $7.50 calls are $2 so there's 0.25 more than we collected before and our net would be $9.70/9.85 without doubling down.   There was also a 0.24 dividend collected so even(ish), even at $9.
  • RRD – See this morning's discussion.  I have to figure out what we own now and how those puts and calls are affected – big mess.
  • STWD – On track.

No major trouble with our dividend payers and they are generating $50,000 in dividends so we're happy to add more to most of them if they are cheap enough. 

  • AAPL – A bit off track but already a heavy position at net $39,000 and it pays $120,000 if all goes well.  Currently, it's down to net $29,725, so down about $10,000 but, at $110, we're actually $40,000 in the money – great for a new entry.
  • ABX – On track
  • BHI – On track. 
  • BX – Not moving much but at least staying even.  Crazy movement all year.

  • CBI – Love them too much to cover.  
  • CLF – Same as CBI.
  • CMG – Wow, ugly hit on those.  That's what happens when you like things too much to cover!  Actually we bought back the short calls with a nice profit, albeit too early.  I still don't want to cover and I still like my $450 target so we'll just wait for the 2019s to come out.  So this is good for a new entry.  
  • DBA – On track.
  • DIS – Nice comeback, back on track.
  • EXPE – Way over track.  
  • GILD – Great for a new entry. 
  • IBM – On track.
  • LL – On track.
  • OIH – On track
  • RIG – A bit lower than we'd like but making money so no complaints.  

  • TASR – Way over the tracks.
  • TWTR – On track
  • UNG – Let's roll the 2018 $8 calls ($1.35) down to the 2018 $6 calls at $2.35 for net $1 and let's buy 20 more of the 2018 $6 calls.  Let's roll the 20 short 2018 $10 puts ($3.20 – $6,400) to 30 of the 2019 $9 puts ($2.80 – $8,400) which pays for some of the long call moves. 

What a nice, relaxing portfolio!  We hit $1M in July and, since then, we've added about $35,000 despite being very cautious.  The market has made no progress and don't forget we have since been concentrating on locking in the gains (last December, the LTP was at “just” $650,000, so it was a 50% gain in the first half) without risking what we had already made.  

If the market does break up and  have another rally, we can easily make another $300,000 or so with the current positions and, in a flat market we'll grind out a nice 15-20% anyway.  I'm a lot more concerned about what happens if it goes the other way for now.  

OK, that brings us to the Options Opportunity Portfolio Review (OOP):  We're up 111.3% at $211,332, which is down a modest $1,288 from our Oct 7th review, when we were at $212,620.  This is our first loss in a long time but, after gaining 112% in our first year, we wanted to lock ourselves into neutral ahead of the election and, now that we've had a bit of a stress test – I can safely say we have accomplished that mission.  

A couple of things have gone wrong for us, like LABU, but we still have faith so we can only expect more explosive growth once the markets gain some traction but, meanwhile, in case they go slip-slidin' away – we're ready for that too!   We've added new trades on CLF, FTR, M, SGYP, SONC and WTW and, of course, new trades cost money to initiate -especially when they go the wrong way like FTR and SONC did!

PSW Members can access the full portfolio HERE and Seeking Alpha Members can access the full portfoliio HERE.

  • SJB – Why won't they die?  Wait until after the election to give up, I guess.  
  • JNK – This was us doubling down and replacing SJB.  At least this one is working a bit, making up for SJB's losses already.  
  • ABX – On track
  • BHI – On track
  • TGT – On track
  • TLT – These we'll have to roll.  They were the leftovers from the bear spread so no worries.  
  • WSM – Our theory is this was the bottom so we added these on 10/19.  Earnings are in 2 weeks (no set date) and we'll have a better idea.  It's a heavy margin position so we'd better be right! 

  • TZA – This one is a hedge so we hope it doesn't make money but, if it does, the upside is $50,000 and the current value is $13,400 so up nicely from our $9,000 net entry already and good for another $36,600 if all goes poorly in the market.  This is a LOVELY hedge to have at our backs.
  • WTW – Brand new this morning but moved up fast so we'll have to sell the 2019 $10 puts instead to get our $3+ on the put side.  
  • SQQQ – Hedge #2 is more subdued.  We spent $4,100 on a $16,000 hedge and the current value is $7,250 so again, a nice gain but plenty to go with $8,750 of upside potential but we won't be keeping it if the market recovers post Hillay's election next week as we expect a nice market bounce.  
  • FTR – Well here's where $2,300 went down the tubes on this new trade.  We called the bottom way too early at $4 and now $3.18 but it's a 1-year trade and we're in week 3.  If anything, we'll be adding more.  I love this as a new trade, selling 2019 $3 calls (0.70) and 2.50 puts (0.60) for net $1.70 and, if assigned below $2.50, then you'd own 2x for $2.10, which is 30% below the current price.  That's your worst case! 

  • AAPL – Oh, this is why we aren't showing a profit this month!  Wow.  Last month this trade had a net gain of $15,403 and now it's an $11,325 loss.  We dropped some cash as we adjusted the position but AAPL went the wrong way and it's a big position so, ouch!  We still love it though, great for a new entry. 
  • BHI – On track 
  • CLF – Off to a good start
  • DBA – ON track
  • DIS – Back on track. 
  • GOGO – Fell 10% on disappointing earnings but we still love them so good for a new entry.

  • HOV – Disappointing but we weren't expecting much out of them.  We'll have to roll the short puts but we'll deal with them after the election. 
  • IMAX – On track and should have a great Q4. 
  • JO – Already blasted over our targets.
  • KATE – Disappointing so far but we still like them.  Good for a new entry. 
  • LABU – I really love them down here but we'll wait for after the election to adjust (if necessary).  March is still not trading or I'd want to roll.

  • M – New trade, good for a new entry. 
  • MRVL – Way over target already.  
  • SGYP – Off to a slow start and good for a new entry.
  • SONC – Went the wrong way on us on earnings but our adjustments are paying off already.  

  • SPWR – Solar stocks have had it rough but we like SPWR, more so if Hillary is elected (and she will be).  2019s are not out yets, so no hurry to roll.
  • TASR – Well over our targets already.  
  • TWTR – Nice comeback and at our target again. 
  • UNG – This is another one that came way down on us but we love them into next year – great for a new entry.  
  • XON – Back on track and should do even better in the spring. 

Well that was an easy one.  Only 1 adjustment to make and it's a trade we're still working into.  The OOP has morphed into a very relaxing cash-generating portfolio and I kind of like that.  After the election, we can deploy some more cash but we're 2/3 cash now, using just half our margin, which is a nice, flexible way to be in an uncertain market.

Overall we're in very good shape, all 4 of our portfolios are pursuing a balanced strategy, which works well in this market but I'm still very concerned the markets will take a bearsh turn and stress-test our hedges.  That seems fine, as we have plenty of CASH!! on the side but you have to fight the temptation to jump back in too early – or all that PATIENT building of reserves can quickly go to waste.  

 

Provided courtesy of Phil’s Stock World.

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