Update: October 13, 2014

October 13, 2014

 

Portfolio Update

It’s been a rough couple weeks for the stock market since our last update.  Just last week, the S&P 500 was down 3%, bringing the year-to-date return below 5%.  Macro fears, especially regarding a global economic slowdown, have been the main culprit.

This time around I’m going to talk about our portfolio, since it’s been fairly dramatically affected by the selloff.  Anytime the market moves as much as it did the last week or so, it’s going to significantly impact a short to medium-term options trading service such as this one.

Basically, several of our positions either became big winners or big losers after the latest pullback.  We’ve had to close several of our call positions as losers, but also hit a few huge puts winners.  We tend to have more calls than puts in our portfolio because 1) we’ve been in a major bull market and calls have worked much better than puts on average, and 2) calls tend to be much cheaper than puts.

Of course in a selloff, calls take it on the chin.  That’s why we have a handful of puts on at any given time, so we can at least get a few big winners during big down moves.  I’ll talk about some individual positions below.

Finally, I got a question about why I have exit points on some positions that come before we even reach the strike price of our options (such as in the LNG position).  That situation can occur on the more volatile stocks, when close to the money options are too pricey.  Because the stocks tend to be highly volatile, odds are the position will get cashed out long before expiration… when there will be plenty of time value left in the options.  That’s true even though the options may remain out of the money at the time of the closure.

Now, let’s take a look at the portfolio highlights…

 

Portfolio Highlights

Just a quick note:  We won’t update every open position every update.  I try to focus on the positions that have some significant news or price movement.

• SunEdison (SUNE) October 23 Puts – SUNE is a great example of why it pays to buy some extra time in your options if you can afford it.  We bought these puts way back in July.  The exit point for conservative traders was hit awhile back.  However, it wasn’t until today (the week of expiration) that we hit the aggressive exit point.  If you’re one of the people who held on to the options, congratulations, you just made 252%!

 

• Yelp (YELP) November 62.50 Puts – Okay, how about a more recent put winner?  We bough Yelp puts at the end of September.  Today, the stock crossed below our exit point for conservative traders due to the market selloff.  The trade is already a 162% winner.  And, more could be on the way for aggressive traders.

 

• Halliburton (HAL) December 65 Calls – Alright, time to look at one of the big disappointments.  I never would have expected a $50 billion company like HAL to take it on the chin so thoroughly this past week.  However, the energy sector got hit even harder – defying most professional expectations.  As such, we’ve reached the final exit point for HAL (as well as LNG).  On the bright side, from the trade last week, DO has actually become a big winner… which is exactly why we take multiple trade approaches on each and every theme.

 

Category: AOA Updates