Well we have talked strategy and stocks for a while now. It is now time to show you what our March portfolio looks like. We will post this with results every trading day along with thoughts on different stocks and financial market situations. These trades are shown for educational purposes only. All investments have risk. Please do not invest money you cannot afford to loose.
The format is the stock symbol/description/quantity bought or sold/purchase or sale price.
Negative numbers mean the number of calls sold.
ARNA/ARENA PHARMACEUTICALS INC/700/$6.97
.UGGCU/ARNA MAR 7.5 Call /-7 /$0.85
CRME/CARDIOME PHARMA CORP/800/$6.02
.UXYCU/CRME MAR 7.5 Call/-8/$0.70
PGNX/PROGENICS PHARMA INC/400/$16.39
.GUBCW/PGNX MAR 17.5 Call/-4/$0.95
PMI/PMI GROUP INC/500/$7.51
.PMICU/PMI MAR 7.5 Call -5/$1.20
YGE/YINGLI GREEN EN HOLDING CO/200/$22.45
.YGECX/YGE MAR 22.5 Call/-2/$2.20
This account is based on a $25,000
$24,496 of stock purchased
$2,575 call premiums
Return 10.1%
Current profit loss on stock ($710)
Net month to date $1835
Talk to you tomorrow.
Wednesday, February 20, 2008
Tuesday, February 19, 2008
The 3rd scenario
If you using a covered call strategy to generate monthly income, you need to evaluate each stock in your portfolio every month just like in the 2nd scenario. The difference is generally what return are you good with keeping in your portfolio. As we stated yesterday, call premiums change based on several different factors.
As we talked about yesterday if you can average 6% per month and reinvest, the power of compound interest grows your account balance very quickly. If you are taking all or part of the generated income every month you have to think about what % do you want to take out as income every month. If your account balance is $100,000 and you would like to generate $5000 or 5%, you have to think about your asset protection differently. In the first 2 scenarios, you leave you call premiums in the account for the long term which allows you to dollar cost average you stocks over the medium/long term. In those cases when a stock is no longer delivering the call premium you would like it is generally easier to liquidate since your account balance is continually growing. If you have a none performer you can liquadate the position and get into another stock that has a good call premium.
In this scenario since you are more than likely taking most or all of your premiums, you do not always have that luxury. When you are in any type of account to produce long term income, you have to protect your underlying investment. In this case, you have to protect your $100,000. That money is your instrument to generate income.
Lets think about that example. If in the above example you want to take 5% every month, we would suggest targeting at least 7-8%. That will give you the cushion you need to sell stock that you may have a negative balance on and the call premium has fallen significantly. Job number 1 is to keep that $100,000 whole so you can keep generating that monthly income.
Talk to you tomorrow.
As we talked about yesterday if you can average 6% per month and reinvest, the power of compound interest grows your account balance very quickly. If you are taking all or part of the generated income every month you have to think about what % do you want to take out as income every month. If your account balance is $100,000 and you would like to generate $5000 or 5%, you have to think about your asset protection differently. In the first 2 scenarios, you leave you call premiums in the account for the long term which allows you to dollar cost average you stocks over the medium/long term. In those cases when a stock is no longer delivering the call premium you would like it is generally easier to liquidate since your account balance is continually growing. If you have a none performer you can liquadate the position and get into another stock that has a good call premium.
In this scenario since you are more than likely taking most or all of your premiums, you do not always have that luxury. When you are in any type of account to produce long term income, you have to protect your underlying investment. In this case, you have to protect your $100,000. That money is your instrument to generate income.
Lets think about that example. If in the above example you want to take 5% every month, we would suggest targeting at least 7-8%. That will give you the cushion you need to sell stock that you may have a negative balance on and the call premium has fallen significantly. Job number 1 is to keep that $100,000 whole so you can keep generating that monthly income.
Talk to you tomorrow.
Monday, February 18, 2008
The 2nd scenario
When you are looking to do covered call strategies for longer term wealth growth, this is generally done in an IRA, the key thing to remember is you have to evaluate every stock at the end of every option month. Stock price volatility and/or the belief the stock will rise rapidly in the short term is what gets us a higher premium and therefore a better return.
If in the case of an account where you leave all the call premiums in the account, such as an IRA, your outlook may need to be a little different. Lets think about the powerful investing tool of compound interest. If you make 6% per month and reinvest that profit every month, you will double your money every 12 months. If you start with $4000 and double every year with our 6% per month, in 5 years you have $128,000 and you have over a million dollars in 8 years. This is a very powerful tool when planning for retirement.
Since stock volatility changes over time, we need to reevaluate our portfolio each month to see what rate of return you are receiving from each stock and its call premium. In an account where all premiums are held and reinvested in the account and the account grows tax free, you can afford to take less risk and accept less return and still grow your nest egg quite nicely.
Talk to you tomorrow.
If in the case of an account where you leave all the call premiums in the account, such as an IRA, your outlook may need to be a little different. Lets think about the powerful investing tool of compound interest. If you make 6% per month and reinvest that profit every month, you will double your money every 12 months. If you start with $4000 and double every year with our 6% per month, in 5 years you have $128,000 and you have over a million dollars in 8 years. This is a very powerful tool when planning for retirement.
Since stock volatility changes over time, we need to reevaluate our portfolio each month to see what rate of return you are receiving from each stock and its call premium. In an account where all premiums are held and reinvested in the account and the account grows tax free, you can afford to take less risk and accept less return and still grow your nest egg quite nicely.
Talk to you tomorrow.
Sunday, February 17, 2008
3 Trading Scenarios
Now that we have looked at some stocks that might be good candidates for covered call strategies, lets think about how we trade covered calls day to day. The three basic reasons that people use strategies such as covered calls. The first is to increase the rate of return on current stock investments and give some downside protection with the generated call premiums. The second is to generate longer term wealth accural, such as an IRA. The third is to generate monthly income. Over the next three days we will discuss options on how to best trade for each of these scenarios.
In the first scenario you can write options on stocks that you have owned for a length time. Generally they are blue chips. Writing covered calls on these is not going to generate a tremendous return, but if your goal is to hold blue chip stocks for long term gains you can add 8-10% per year. The key is remembering what the goal of this and each of the three strategies is. In this case, the goal is long term appreciation of the stock. You will have to determine option premium versus stock price increase versus short term trend for the stock price.
Lets take Wal-Mart as an example. As of close on friday the stock was at 49.44. The short term outlook for the stock is bullish (above 50 day moving avg, relative strength indicator is rising). The 50 march option is at 1.40. The 52.50 is going off at 0.55. If you think of the options premium at an addition to the strike price of the option, in this case 50 +1.40 =51.40. So if you don't think the stock is going above that with the next 30 days, it would be best to sell the 50 option. You would get the stock increase up to the strike price, 50 in this case. Using the 52.50 option, your defining price would be at 53.05.
The other benefit to consider is the average price of the stock. In the 50 option scenario, it is 49.44 - 1.40 = 48.04. The average price that you have in the stock is 48.04. If you are in the market to hold blue chip stocks for lock term appreciation this can be very important. In overall bear markets, if you hold the stocks until the market turns around, you can lower your average price and increase your profit long term.
Covered calls can be a nice addition to this type of portfolio. It will take a little analysis to understand when to write that closet option versus a farther out option. It will take a little more work, but it will be worth it. Tomorrow we will talk about scenario number 2.
Talk to you tomorrow.
In the first scenario you can write options on stocks that you have owned for a length time. Generally they are blue chips. Writing covered calls on these is not going to generate a tremendous return, but if your goal is to hold blue chip stocks for long term gains you can add 8-10% per year. The key is remembering what the goal of this and each of the three strategies is. In this case, the goal is long term appreciation of the stock. You will have to determine option premium versus stock price increase versus short term trend for the stock price.
Lets take Wal-Mart as an example. As of close on friday the stock was at 49.44. The short term outlook for the stock is bullish (above 50 day moving avg, relative strength indicator is rising). The 50 march option is at 1.40. The 52.50 is going off at 0.55. If you think of the options premium at an addition to the strike price of the option, in this case 50 +1.40 =51.40. So if you don't think the stock is going above that with the next 30 days, it would be best to sell the 50 option. You would get the stock increase up to the strike price, 50 in this case. Using the 52.50 option, your defining price would be at 53.05.
The other benefit to consider is the average price of the stock. In the 50 option scenario, it is 49.44 - 1.40 = 48.04. The average price that you have in the stock is 48.04. If you are in the market to hold blue chip stocks for lock term appreciation this can be very important. In overall bear markets, if you hold the stocks until the market turns around, you can lower your average price and increase your profit long term.
Covered calls can be a nice addition to this type of portfolio. It will take a little analysis to understand when to write that closet option versus a farther out option. It will take a little more work, but it will be worth it. Tomorrow we will talk about scenario number 2.
Talk to you tomorrow.
Wednesday, February 13, 2008
SulphCo. Inc
Today's stock that we are going to talk about is a little different. There is not a lot of fundamental history to talk about with Sulphco, but they have patented a sonar "cracking" or breaking down of heavy crude oil. The world is not running out of oil. It is running out of nice light easy to refine oil. As more and more crude oil that is newly discovered is a heavier oil, it requires more refining. There are much fewer in the world that can refine heavy crude. Sulphco just signed there first contract to use their process. Investing carries risk. Please do not invest money you cannot afford to loose.
SulphCo. Inc. is a developmental stage company, engaged in the development and commercialization of technology for the upgrading of crude oil. The company's Sonocracking process is based upon the use of ultrasonics that include the application of energy and frequency sound waves, which alters the molecular structure of crude oil, decreases the relative density and the viscosity of crude oil, and increases the amount of lighter oils that can be recovered during the refinery processes.
This technology also reduces the weight percentage of sulfur and parts per million of nitrogen in the chemical composition of crude oil. The company serves crude oil producers and refiners. SulphCo has a collaboration agreement with ChevronTexaco Energy Technology Company and a joint venture with Trans Gulf Petroleum Co. to implement SulphCo's Sonocracking desulfurization technology.
SUF Investor Highlights
Announced that it has signed an agreement with Pt. Isis Megah ("Isis"), an Indonesian oil and gas services company, which grants Isis an exclusive distributorship in the sales territories of India, Malaysia, Singapore and Indonesia.
Announced its first customer order, procured through Isis, for Sonocracking units with at least thirty thousand barrels per day of processing capacity.
Reported results from the first and second rounds of testing in Europe. Two sets of testing programs were completed with minimal operating issues and the appropriate analyses have now been completed.
Reported that the interest level in the Sonocracking process remains high as potential customers see the value that can be driven by the technology.
Trades:
Covered Call
But stock @ 4.51
Sell March 5 call @ 0.55
12.2% return in 36 days
Hedge Wrap
Buy stock @ 4.51
Sell March 5 call @ 0.55
Buy March 2.50 put @ 0.05
11% return in 36 days
Talk to you next week.
SulphCo. Inc. is a developmental stage company, engaged in the development and commercialization of technology for the upgrading of crude oil. The company's Sonocracking process is based upon the use of ultrasonics that include the application of energy and frequency sound waves, which alters the molecular structure of crude oil, decreases the relative density and the viscosity of crude oil, and increases the amount of lighter oils that can be recovered during the refinery processes.
This technology also reduces the weight percentage of sulfur and parts per million of nitrogen in the chemical composition of crude oil. The company serves crude oil producers and refiners. SulphCo has a collaboration agreement with ChevronTexaco Energy Technology Company and a joint venture with Trans Gulf Petroleum Co. to implement SulphCo's Sonocracking desulfurization technology.
SUF Investor Highlights
Announced that it has signed an agreement with Pt. Isis Megah ("Isis"), an Indonesian oil and gas services company, which grants Isis an exclusive distributorship in the sales territories of India, Malaysia, Singapore and Indonesia.
Announced its first customer order, procured through Isis, for Sonocracking units with at least thirty thousand barrels per day of processing capacity.
Reported results from the first and second rounds of testing in Europe. Two sets of testing programs were completed with minimal operating issues and the appropriate analyses have now been completed.
Reported that the interest level in the Sonocracking process remains high as potential customers see the value that can be driven by the technology.
Trades:
Covered Call
But stock @ 4.51
Sell March 5 call @ 0.55
12.2% return in 36 days
Hedge Wrap
Buy stock @ 4.51
Sell March 5 call @ 0.55
Buy March 2.50 put @ 0.05
11% return in 36 days
Talk to you next week.
Xinhua Finance Media Limited
This stock is another Chinese company. The fundamentals do not look that great, but the chart and the analyst recommendations look positive. As we have stated before, when using foreign based stocks for a covered call, we strongly recommend the hedge wrap strategy due to an increased volitilty level. All investing carries risk. Please do not invest money you cannot afford to loose.
Xinhua Finance Media Limited (XFM) is a diversified media company in China. XFM has developed an integrated platform that includes the creation and production of content that is distributed across nationwide television and print media outlets, and radio in Beijing and Shanghai. XFMGÇÖs business operates across five groups: media production, broadcasting, print, advertising and research. Beijing Taide Advertising Co., Ltd. (Beijing Taide), an affiliated entity, XFM acquired 50% of Beijing Jingguan Xincheng Advertising Co., Ltd., or Economic Observer Advertising. In June 2007, it acquired Singshine (Holdings) Hongkong Limited and Beijing Mobile Interactive Co., Ltd. On July 2, 2007, the Company acquired the entire stake in a Virgin Islands-based company, which holds 100% stake in Convey Advertising Company Limited, a Hong Kong-based company. In November 2007, the Company acquired JCBN Company Limited, an advertising company with operations in Shanghai, Beijing and Hong Kong.
Xinhua Finance Media Ltd: Stock Rating Summary
3
Xinhua Finance Media Ltd, a micro-cap company in the consumer services sector, is expected to underperform the market over the next six months with above average risk.
FundamentalGrade: D
• The most recent quarterly earnings report was slightly lower than analysts’ consensus forecast. Neutral/Negative
• Earnings growth information is unavailable or inconsistent.
• Earnings estimate revision information is unavailable or inconsistent.
OwnershipGrade: C
• Insider trading information is unavailable or inconsistent.
• Shares are neither being accumulated heavily nor sold heavily by financial institutions. Neutral for a small company like XFML
ValuationGrade: C
• The price-to-earnings multiple is lower than average for all stocks in the StockScouter universe. Positive
• Price-to-sales information is unavailable or inconsistent.
• The ratio of XFML's price-to-earnings multiple to its five-year growth rate is unavailable or inconsistent.
TechnicalGrade: NA
• Relative strength information is unavailable or inconsistent.
• Moving average information is unavailable or inconsistent.
Average brokerage recommendation is Strong Buy.
Trades:
Covered calls
Buy stock @ 4.88
Sell March 5 call @ 0.65
13.3% return in 37 days
Hedge Wrap
Buy stock @ 4.88
Sell March 5 call @ 0.65
Buy March 2.50 put @ 0.10
11.3% return in 37 days
Talk to you tomorrow.
Xinhua Finance Media Limited (XFM) is a diversified media company in China. XFM has developed an integrated platform that includes the creation and production of content that is distributed across nationwide television and print media outlets, and radio in Beijing and Shanghai. XFMGÇÖs business operates across five groups: media production, broadcasting, print, advertising and research. Beijing Taide Advertising Co., Ltd. (Beijing Taide), an affiliated entity, XFM acquired 50% of Beijing Jingguan Xincheng Advertising Co., Ltd., or Economic Observer Advertising. In June 2007, it acquired Singshine (Holdings) Hongkong Limited and Beijing Mobile Interactive Co., Ltd. On July 2, 2007, the Company acquired the entire stake in a Virgin Islands-based company, which holds 100% stake in Convey Advertising Company Limited, a Hong Kong-based company. In November 2007, the Company acquired JCBN Company Limited, an advertising company with operations in Shanghai, Beijing and Hong Kong.
Xinhua Finance Media Ltd: Stock Rating Summary
3
Xinhua Finance Media Ltd, a micro-cap company in the consumer services sector, is expected to underperform the market over the next six months with above average risk.
FundamentalGrade: D
• The most recent quarterly earnings report was slightly lower than analysts’ consensus forecast. Neutral/Negative
• Earnings growth information is unavailable or inconsistent.
• Earnings estimate revision information is unavailable or inconsistent.
OwnershipGrade: C
• Insider trading information is unavailable or inconsistent.
• Shares are neither being accumulated heavily nor sold heavily by financial institutions. Neutral for a small company like XFML
ValuationGrade: C
• The price-to-earnings multiple is lower than average for all stocks in the StockScouter universe. Positive
• Price-to-sales information is unavailable or inconsistent.
• The ratio of XFML's price-to-earnings multiple to its five-year growth rate is unavailable or inconsistent.
TechnicalGrade: NA
• Relative strength information is unavailable or inconsistent.
• Moving average information is unavailable or inconsistent.
Average brokerage recommendation is Strong Buy.
Trades:
Covered calls
Buy stock @ 4.88
Sell March 5 call @ 0.65
13.3% return in 37 days
Hedge Wrap
Buy stock @ 4.88
Sell March 5 call @ 0.65
Buy March 2.50 put @ 0.10
11.3% return in 37 days
Talk to you tomorrow.
Tuesday, February 12, 2008
Vanda Pharmaceuticals Inc.
Well we are looking at yet another small pharma company, These companies are fairly immune to economic slowdowns, therefore a large number of investors are wanting to buy call options. This results in driving up the price on the options we want to sell. The thing to keep in mind is that these stock prices are very Susceptible to FDA rulings on their drugs as they go through trials. All types of investing carry risk. Please do not invest money you cannot afford to loose.
Vanda Pharmaceuticals Inc. (Vanda) is a biopharmaceutical company focused on the development and commercialization of clinical-stage drug candidates, with exclusive worldwide commercial rights to three product candidates in clinical development for various central nervous system disorders. VandaGÇÖs lead product candidate, iloperidone, is a compound for the treatment of schizophrenia and bipolar disorder. Its second product candidate, VEC-162, is a compound for the treatment of sleep and mood disorders. In November 2006, Vanda announced positive top-line results from its Phase III trial of VEC-162 in transient insomnia. VEC-162 demonstrated significant improvement in several parameters used to measure the efficacy of insomnia therapies, including reduced duration of wake after sleep onset, improved sleep efficiency and shortened time to persistent sleep. VandaGÇÖs third product candidate, VSF-173, is a compound for the treatment of excessive sleepiness and is ready for a Phase II trial.
Vanda Pharmaceuticals Inc: Stock Rating Summary
5
Vanda Pharmaceuticals Inc, a small-cap company in the health care sector, is expected to match the market over the next six months with above average risk.
10 is the best possible rating.
FundamentalGrade: B
•The most recent quarterly earnings report was significantly higher than analysts’ consensus forecast. Positive
•Earnings growth information is unavailable or inconsistent.
•Earnings estimate revision information is unavailable or inconsistent.
OwnershipGrade: C
•Insider trading information is unavailable or inconsistent.
•Shares are under heavy accumulation by financial institutions. Positive for a small company like VNDA
ValuationGrade: D
•The price-to-earnings multiple is a negative number. No effect
•Price-to-sales information is unavailable or inconsistent.
•The ratio of VNDA's price-to-earnings multiple to its five-year growth rate is unavailable or inconsistent.
TechnicalGrade: F
•The StockScouter measure of relative price change and consistency is very low. Very negative
•Previous day’s closing price for VNDA was significantly below its 50-day moving average, a level from which prices frequently rebound over the long term. Positive
Average brokerage recommendation is Moderate Buy.
Trades:
Covered call
Buy stock @ 4.91
Sell March 5 covered call @ 0.70
14.3% return in 38 days
Hedge Wrap
Buy stock @ 4.91
Sell March 5 covered call @ 0.70
Buy March 2.50 put @ 0.10
12.3% return in 38 days
Talk to you tomorrow.
Vanda Pharmaceuticals Inc. (Vanda) is a biopharmaceutical company focused on the development and commercialization of clinical-stage drug candidates, with exclusive worldwide commercial rights to three product candidates in clinical development for various central nervous system disorders. VandaGÇÖs lead product candidate, iloperidone, is a compound for the treatment of schizophrenia and bipolar disorder. Its second product candidate, VEC-162, is a compound for the treatment of sleep and mood disorders. In November 2006, Vanda announced positive top-line results from its Phase III trial of VEC-162 in transient insomnia. VEC-162 demonstrated significant improvement in several parameters used to measure the efficacy of insomnia therapies, including reduced duration of wake after sleep onset, improved sleep efficiency and shortened time to persistent sleep. VandaGÇÖs third product candidate, VSF-173, is a compound for the treatment of excessive sleepiness and is ready for a Phase II trial.
Vanda Pharmaceuticals Inc: Stock Rating Summary
5
Vanda Pharmaceuticals Inc, a small-cap company in the health care sector, is expected to match the market over the next six months with above average risk.
10 is the best possible rating.
FundamentalGrade: B
•The most recent quarterly earnings report was significantly higher than analysts’ consensus forecast. Positive
•Earnings growth information is unavailable or inconsistent.
•Earnings estimate revision information is unavailable or inconsistent.
OwnershipGrade: C
•Insider trading information is unavailable or inconsistent.
•Shares are under heavy accumulation by financial institutions. Positive for a small company like VNDA
ValuationGrade: D
•The price-to-earnings multiple is a negative number. No effect
•Price-to-sales information is unavailable or inconsistent.
•The ratio of VNDA's price-to-earnings multiple to its five-year growth rate is unavailable or inconsistent.
TechnicalGrade: F
•The StockScouter measure of relative price change and consistency is very low. Very negative
•Previous day’s closing price for VNDA was significantly below its 50-day moving average, a level from which prices frequently rebound over the long term. Positive
Average brokerage recommendation is Moderate Buy.
Trades:
Covered call
Buy stock @ 4.91
Sell March 5 covered call @ 0.70
14.3% return in 38 days
Hedge Wrap
Buy stock @ 4.91
Sell March 5 covered call @ 0.70
Buy March 2.50 put @ 0.10
12.3% return in 38 days
Talk to you tomorrow.
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