Options Archives

Been some movement in my account, I bought in after the dip and was lucky enough to pick up a quick 2.5% on Monday.

Moving into a fresh 2013 is exciting for me. My goals remain the same, 25% a year (9.31x for 10 years).

I’ve decided to no longer post exact dollar amounts of my portfolio balance for privacy, but I finished up 61% after commission for the year. This is well in excess of my 25% a year goal, and I would love to have a repeat.

I’m Long (64% invested)

Powershare QQQ Trust Series 1 (Symbol: QQQ)(25%)
That’s right. I’m 25% invested in Apple..errm…  I mean QQQ. QQQ is an ETF that holds major tech companies, and since it 16.31% Apple and Apple tends to be an industry leader, it’s kind of like investing Apple.  I think tech is oversold (for the most part), and I’m looking for a major bounce. [ Composition of QQQ found to the right ]

Silver (Symbol: SLV) (12%)
It’s always good to have some commodities in your portfolio, especially with inflation and instability. I have about 12% of my account in Silver. I’ve been in and out of Silver with some major success.

MET (Symbol: MET)(10%)
The option chains were just too cheap and I think this stock has some room to easily pop up $1.50 – $2.00. Hoping to grab a quick (within 3 months hopefully) 20% gain.

AMD (Symbol: AMD)  (6%) and Sprint (Symbol: S) (6%)
These are my hail marys. I have them both on Jan 2015 calls. I simply could not avoid such a good upside potential. I actually like AMD more than Sprint, and I’ve considered selling out of Sprint altogether (might on a small bounce).



GE (Symbol: GE) (5%)

Hoping GE crawls back up to $22+ range so I can get a few % return on my portfolio. Relevantly low downside, but also very limited upside. Hoping this stock was oversold a bit going into the end of the year.

 

 

Time to Bite into Apple (Symbol AAPL)

I use Google Finance (along with my broker) to screen stocks daily, and it’s just impossible not to talk about Apple (Symbol: AAPL).

With growing revenues and net incomes, an insanely attractive P/E (around 12), a healthy dividend, and rumors of more products yet to come, Apple is most likely underpriced.

Microsoft is arguably the best comparison to Apple, but virtually on every fundamental it is inferior (be sure to note the scale (y-axis) on the income statements).

The only note-able quality that Microsoft even has over Apple is its investments. But when it comes down to strictly an operation comparison, it’s kind of a joke.

Hence I believe Apple (Symbol: AAPL) is almost for certainly undervalued.

How to play this information (four options):

Go Long on Apple Stock (Symbol AAPL) and pray for a rally to the 700+ point range (About a 33% return + dividends)

Pros: Less volatility, collection of dividend, downward resistance.
Cons: Limited profitability due to lack of leverage. Large capital requirements for size-able return.

Buy a LEAP Option on Apple (Option Chains shown below). For example, $10,145 to control all of the upward swing from now till Jan 2015 on 100 shares (1 contract).

Pros: Less volatility than a short-term option or a butterfly option. Very large potential net gain due to leverage (If stock went to $700 by Jan 2015, 67.5% return). Less capital requirements.
Cons: Leveraged bet that this stock will at least go to $631.45 (Breakeven) by Jan 2015. $664.92 would give approximately the same return (33%) as the first option, ignoring dividends. Don’t forget Option Expiration.


Call Spread, You buy a call and sell a call above it. Example: Buy $530 call ($101.45) and sell $540 call ($96.00).

Pros: Low capital requirements. If stock finishes anywhere above $540 you would have gotten $10 for your $5.45 which is an 83.4% return.
Cons: Limited Profitability, Potential for someone to early exercise to capture dividend, slightly complex liquidity due to holding a call spread, margin requirements, and of course option expiration. All very important to understand before buying a call spread.


Buy Tech ETFs (Option or Stocks) that have APPL and a mix of other tech companies

Pros: Diversity and if Apple tanks and the rest of the market avoids the crash, you mitigate your losses (unlikely in my opinion)
Cons:
Fees, May contain stocks in the holding you don’t believe will perform well, and your avoiding selective targeting for maximum profit.
As for me personally? As I mentioned yesterday I sold out of a large portion of my portfolio, but I kept two ETFs that have a large AAPL component. As much as I hate call spreads because of the dividend capture and margin requirements, I can see call spreads being a solid play (and maybe not just for LEAPS).

 

How I Dodged the Silver Bullet (Symbol SLV)

A while back I was long on Silver (Symbol: SLV) for many reasons. Inflation scares, shaky markets, and diversity to name a few. Then suddenly I took a look at it versus the current market and thought “where can this even go from here?”

Are we going into a massive depression? Are we going back to a metal based pegged currency? I was bull on the market, so how could I continue to be bull on it’s counterpart indefinitely?

Already up a solid 55.0%, I decided it was time to sell. This might have been one of the luckiest sells. Not only did I sell before a downward movement, but I sold literally at the short-term peak.

And sure enough when Silver is falling, its usually because the indices are climbing.

I view silver as a semi-hedge against the market, and I’ll consider getting involved again if the market continues to rally and silver remains relatively stagnant.

Overall though, I’m very happy I got a little of the metal action, but I’m pretty bearish on the whole for gold and silver. I believe we are going through a lot of things with the economy which causes a bubble short-term, but I feel like we are more likely to see $1500 gold than $1900 gold (Currently $1700). One of the major reasons I decided silver over gold in the first place was that silver didn’t quite have the bubble that gold did at the time.

For now I’ll take it off the table and look for better investments.

 

AMD Stock, Why I’m Placing a Small Bet

Despite all the talk that AMD stock is a falling knife, I had to place a bet on it long. I have put $820 on black … er umm I mean AMD stock. As silly as it seems, it is a gamble that I believe warrants taking.

The Good

1. AMD’s revenues are not that terrible.

2. AMD has a decent looking balance sheet.

3. AMD is probably oversold a little.

4. AMD options are very cheap.

I bought into AMD options for Jan 2015 @ 2.50 for a whopping $.82 a contract. That means I picked up a mean 10 contracts. If this stock gets a little bit of life and returns to the $5 range in the next 762 days, we’re talking $2500 on my $820 (204% return)

Now let’s talk about the bad. AMD’s presence in the computer market has simply been getting smaller. I’m actually in the market for a computer and I personally don’t see any real reason to go AMD unless there is an absolute killer deal (which hurts overall margins). This is a giant problem, a potentially brand ending problem, but I have faith that AMD will stick around. I believe if a recovery does come, it’s going to take a while (and hopefully it’s within the next 700 days or so).

But ultimately it comes back to the simply risk vs reward. I think the odds of this stock touch $5 in the next 700 days or so is probably 30-40% (gut feeling off fundamentals). I think there is even a small chance it could higher than $5 a share. Factor that into a quick equation, The option’s value seems worth the gamble.

Interesting enough, if you think it’s 50/50 AMD will recover or go bankrupt.. straddle options are looking amazing on AMD. You can get in for about $.40 on a $1.0 put / $7.0 call straddle. This for people who aren’t familiar with straddles would mean you would capture any gain below $1 and any above $7 from now until Jan 2015.

And if you really think AMD is done in the next two years, then just buy the $.18 ask Jan 2015 @ $1.0 put, if the company does go out of business entirely you can expect a solid 400% return.

Final thoughts:
I would argue that option plays on AMD are the safest play you can make on the highly volatile AMD. Buy 1000 shares at $2390 or pay $820 for virtually all of the upside on the same amount of shares (from now till Jan 2015) and risk 1/3 the money if it completely tanks and defaults.

Option traders are looking for high volatility to make money and just take a look at that chart. This feels like Sprint all over again. This is why I’m $820 in AMD long (but considering adding in that $1.00 put contract for $.20 to make a straddle).

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