Doubling the $10,000 Portfolio by the End of the Year

Includes: AAPL, AMZN, BBY, F, NFLX
by: SA Editor Rocco Pendola

On Tuesday I published an article that introduced a $10,000 options portfolio that I intend to double in value by the end of the year. You can read that initial write-up and see complete details on the original positions here.

In this article, I provide the first update to that portfolio. Before I make the updates, consider several important points:

First, I hope this exercise accomplishes several things. I want it to provide a learning experience for me as well as the Seeking Alpha audience. I would ask readers to not necessarily copy the portfolio, but to use it as an idea generator. I also feel comfortable putting myself out there and giving readers the ability to track my performance.

Second, as I publish updates, I will not only note how I am handling a specific trade, but provide some rationale as to why I am doing it. That rationale will cover the mechanics of the trade as well as the sentiment toward the stock and company that drives the trade.

Note: Prices are approximate, as of early afternoon Eastern time, Wednesday, Aug. 17, 2011.

  • Closing the Netflix (NASDAQ:NFLX) bear call spread. Buying to close the NFLX $Sept 270 call for $1.76. Selling to close the NFLX $Sept 300 call for $0.38. Profit = $231.

The presently profitable long play on one NFLX Mar 2012 $200 put remains on. As I articulate in recent Netflix articles, the stock's story, along with its chart, continues to break down.

It's interesting to note that NFLX remained weak Wednesday, even when the broader market was green. Somewhat bullish news from Piper on the anticipated impact of Netflix's price hike did not even propel the stock. Back in the day (like a couple of weeks ago), that sort of report might have sent the stock to new highs. That's no longer the case. Plus, I have a hard time relying on a survey with a sample size of 350 that was, most likely, not drawn using any rigorous scientific methods.

  • Open an additional Apple (NASDAQ:AAPL) bull put spread. Sell the AAPL Sept $370 put for $9.05. Buy the AAPL Sept $340 for $2.75. Net credit: $6.30 (+ $630).

AAPL continues to show strength in a market struggling to find direction. With a breakeven for the put buyer at $360.95, I am quite confident in this trade. If AAPL were to break down, the long put hedges your exposure. That said, if you have the cash handy for 100 shares of AAPL, I would advocate hanging onto the long put as a hedge against a new long position at $370, if get put the shares at that price.

The following trades remain on, with updated performance, as of early afternoon Wednesday:

  • NFLX Mar 2012 $200 put: +$208
  • (NASDAQ:AMZN) Jan 2012 $225 calls (2): -$572
  • Ford (NYSE:F) Mar 2012 $16 calls (50): -$300
  • Best Buy (NYSE:BBY) Mar 2012 $22 calls (10): +70

Total credits received: $1,347 ($231 banked on closing of NFLX spread).
Total cost basis: $9,846
Total cash (before credits): $154
Total cash (after credits): $1,501

Account value, as of intraday Wednesday Aug. 17, 2011: $10,599

I will update any changes for the remainder of the week using Seeking Alpha's StockTalk feature. I will publish a complete update on the portfolio early- to mid-next week as an article.

Disclosure: I am long F.