The bad news: A dismal jobs report put a damper on what was an otherwise solid week for the $10,000 portfolio.
The good news: I have time on my side, as I attempt to take a speculative $10,000 portfolio and turn it into $20,000 by year's end.
If you're keeping score, see the most recent update to the holdings here.
Thursday and Friday have been painful, especially when you consider the stellar day the portfolio had on Wednesday. With $2,773 in profits and option spread credits remaining banked or effectively on hold in the account, here's how the open positions looked on the last day of August:
- 10 Best Buy (NYSE:BBY) Mar '12 $22 calls. Cost basis: $4.28. Wednesday price: $4.95. Profit/Loss: + $670.
- 10 BBY Oct '11 $26 calls. Cost basis: $1.31. Wednesday price: $1.37. Profit/Loss: + $60.
- 100 Ford (NYSE:F) Mar '12 $16 calls. Cost basis: $0.22. Wednesday price: $0.18. Profit/Loss: - $400.
- 2 Amazon.com (NASDAQ:AMZN) Jan '12 $225 calls. Cost basis: $11.48. Wednesday price: $16.52. Profit/Loss: + $1,008.
Those numbers put the value of the $10,000 portfolio at $14,111, as of Wednesday's close.
What a difference two days makes. At Friday's close, +670, +60, -$400 and +1,008 turned into -$380, -$550, -$900 and +614, respectively. That puts the account value at $11,557. Ouch. I tend to think we'll be alright come next week, but I hope I am not wishing I had taken profits on Wednesday. With that in mind, if the same opportunity presents itself again, I might close out my positions and start over with cash. We'll see how it shakes out.
I originally intended to dump the F calls on a dip like this, however, I decided against it. I expect the market to bounce back a bit next week. If the F calls gain a couple of cents, I will likely dump them and take a loss. If they do not recover or go lower, I will end up selling them. It's important to note, however, that I will not be selling the same F Mar '12 $16 calls I own in my personal account. Using the same reasoning, I lifted the stop I had on the BBY Oct calls.
I intend to use a bit of a hedging strategy in this portfolio (I think) to take advantage of this choppy market with some contrarian swing trades against my core positions. Here's how I suggested doing it with Research in Motion (RIMM) on the basis of its continued woes masked by ephemeral shows of strength:
I would play it by shorting the stock or buying long-dated, slightly out-of-the-money puts. Consider picking up the RIMM January 2013 $30 puts for the song-and-dance price of $6.30. I'm experiencing deja vu after having suggested a similar strategy back in March.
To take advantage of temporary shows of strength, you could always hedge the position with monthly or weekly calls and/or by writing weekly puts. This trade, however, must be carefully selected and timed during short bouts of strength.
I am employing a similar strategy against my long position in Pandora (NYSE:P). On weakness, I've been scalping some puts. It's a nice way to profit as you wait out the conviction in your longer-term position. With AMZN, for instance, it would have been really nice to have day- or swing-traded a weekly put or monthly put and banked a profit, while having full confidence that, probably within days, the core position will rebound.
Executing such a strategy in this portfolio is easier said than done. The capital to do so does not exist at present. I'll need to close a position or wait until my open spreads on Apple (NASDAQ:AAPL) and AMZN expire in September to generate some income with October bull put spreads.
Bottom line - in a market like this, any type of hedge, whether it's simply hanging on to some S&P 500 (NYSEARCA:SPY) puts or doing something more sophisticated, makes perfect sense. And that goes for a portfolio you're boldly looking to double in a short time frame or an IRA account.
Disclosure: I am long P, F.
Additional disclosure: I may open and close positions on any of the stocks mentioned in this article, often using options, at any time.