I spend quite a bit of time putting together all types of stock and option portfolios. I track their peformance to see where I hit, where I miss and why. Some of these portfolios make it to Seeking Alpha, others do not.
By far, the Technology/Internet LEAPS options portfolio I published on Seeking Alpha ranks as my best to date. Detailed here, it turned $20,000 into roughly $32,000 over four months. That's a 60 percent return. Not too shabby. Granted, that portfolio got a major boost from puts on the short of 2011.
In this article, I present an portfolio that strives to turn $10,000 into $20,000 -- a lofty 100 percent return -- between now and the end of the year. I intend to close positions and open new ones and update the trades as they happen through the stocktalk feature and articles published on Seeking Alpha. You can view past articles I have written about each stock by searching through my article archive.
Let there be no doubt -- I am inspired by the work of fellow Seeking Alpha contributor Philip Davis. I learn, laugh and think with each of his articles. Really, that should be the goal of writing for this type of site, in my opinion -- to get people to do each of those things every time you write.
Because we are only working with $10,000 (and trying to double it), I tend toward using options, as they give you the most bang for your buck in terms of generating the necessary returns in a relatively short time frame.
In lieu of writing straight puts, I use credit spreads to reflect the same sentiment. This strategy generates income. With a $10,000 portfolio, you will not generate much in the way of income via dividends, therefore credit spreads make the most sense.
In each case, you'll need enough account equity available to cover the difference between the two strike prices. I do not count this equity against the $10,000. Instead, I treat the credits as income, just as you would dividends, knowing full well I will likely close the position prior to expiration. I intend to make the necessary adjustments to the size of the portfolio upon closing the trade.
Simply put, the credits received from option spreads count toward the goal of doubling the $10,000 portfolio.
Bull put spread
- Apple (NASDAQ:AAPL). Sell AAPL Sept $365 put for $7.30/Buy AAPL Sept $335 put for $2.44. Net Credit: $4.86 (+ $486).
Bear call spread
- Netflix (NASDAQ:NFLX). Sell NFLX Sept $270 call for $4.50/Buy NFLX Sept $300 call for $0.81. Net credit: $3.69 (+ $369).
- Amazon.com (NASDAQ:AMZN). Buy 2 AMZN Jan 2012 $225 calls. Cost Basis: $11.48 ($2,296).
- Ford (NYSE:F). Buy 50 F Mar 2012 $16 calls. Cost Basis: $0.26 ($1,300).
- Best Buy (NYSE:BBY). Buy 10 BBY Mar 2012 $22 calls. Cost Basis: $4.28 (4,280)
- Buy 1 NFLX Mar 2012 $200 put. Cost Basis: $19.70 ($1,970).
Total credits received: $855
Total cost basis: $9,846
Total cash (before credits): $154
Total cash (after credits): $1,009
Account value, as of close, Monday 8/15/2011: $10,855
Because I only intend for you to use this portfolio as an idea generator, I used prices from Monday's close when building it. Of course, putting these trades on Tuesday (and thereafter) would result in different, and potentially less favorable entry prices. With the exception of NFLX, I would buy each stock outright or dollar cost average into them over time as an alternative to using options.
I also encourage you to this portfolio as a way to hold me accountable. I put my trades, winners and losers, out there on a regular basis. I have no problem putting this ambitious portfolio out there as well.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL, BBY over the next 72 hours.
Additional disclosure: I am long F via a position in F Mar 2012 $16 call options. I may open a short position via puts in NFLX over the next 72 hours.