I've made some decisions as to how I will move forward with the $10,000 portfolio.
You may recall that last August, I started with 10 grand and made a series of aggressive options trades with the goal of doubling the bankroll by the end of 2011. Thanks, largely, to weakness in Netflix (NASDAQ:NFLX) and Research in Motion (RIMM) and strength in Apple (NASDAQ:AAPL), I actually brought the total value to over $30,000.
Because quite a few readers have emailed over the last six months asking, I will compile a list of all of the trades I pulled off to achieve that triple and post it to Robert Weinstein's Paid2Trade website this weekend. I'll alert Seeking Alpha readers with a StockTalk when it's up.
I'm transferring coverage, for the most part, of the 2012 version of the $10,000 portfolio to my stock option investing newsletter, which you can read about here. That portfolio and, more so, the newsletter works best for relatively conservative, long-term investors who want to use basic options strategies - as well as stocks and ETFs - for growth, to generate income, hedge against risk and seek diversification.
Here at Seeking Alpha, I'm taking considerable risk by starting from scratch. But, I'm not only going tabula rasa, I'm upping the ante. The goal this time around - take a $100,000 simulated account and turn it into $500,000 by the end of 2012. It seems like an impossible task (and it probably is), but I doubted I could do a double last year, let alone the triple that ended up taking place.
Because it's such a challenge and I only have 11 months to make it happen, I'm giving myself a little bit of a head start. I'm inheriting two positions from another portfolio I started assembling last year that, frankly, I lost interest in. Here's how the two holdings, both picked up in Q4 2011, shape up:
|Stock/Option||Quantity||Entry Price||Price, 2/1 Close||Value/Performance|
|AAPL Jan '14 $600 Call||1||$32.80||$28.20||$2,820 / -14.0%|
|Lululemon (NASDAQ:LULU)||100||$55.25||$63.76||$6,376 / +15.4%|
It's not much of a head start, but I like both positions. It cost $8,805 to get into the trades, leaving the now $100,000 portfolio with $91,195 worth of cash. Take into account the on-paper loss in the AAPL option contract and the on-paper gain in LULU and the value of the $100,000 portfolio stands at $100,391, as of Wednesday's close.
So, I've got a boatload of cash and I plan on putting it to work. Here are the first two moves.
- Buy 5 NFLX January 13 $130 puts for $35.50 each. That's a debit of $17,750, bringing the cash balance to $73,445.
I might hedge this position using options in the next several weeks and months. It all depends on how much strength NFLX shows. I think it still has (irrational) room to run; however, it will implode, yet again, this year. And, when it does, it will be worse and much longer-lasting than what we saw in 2011. I said all I can say about this unmitigated smoke-and-mirrors disaster in a Seeking Alpha article from Tuesday.
- Sell 20 Pandora (NYSE:P) March $11 puts for $0.50 each. That brings in a credit of $1,000, taking the cash balance to $74,445.
Earlier this week, I published an interview with Pandora CFO Steve Cakebread. I came away from our conversation even more confident in my real-life, long-term investment in his company's stock.
As I promised earlier this year, I would not perpetuate the Sirius XM (NASDAQ:SIRI) versus Pandora debate that hijacked otherwise meaningful conversations last year. Ultimately, while I think the two services compete (all audio entertainment companies do at some level), they cater to different audiences, using distinct business models. Along with services like iTunes and Spotify, Sirius XM and Pandora can coexist; it might even make sense for them to forge some sort of partnership.
That said, when I consider an investment, it's all about the future. My forward-looking tendency informs my bullishness toward Amazon.com (NASDAQ:AMZN) in the face of fierce near-term pressure. Like Cakebread, near-term profitability does not concern me all that much. Not at Amazon. Not at Pandora.
If a company stands still, sitting on a pile of cash, and appears to have no idea what to do with it, I get concerned, particularly when the company runs in ultra-competitive spaces with massive potential for growth. (Of course, Apple is an exception to this rule). For all intents and purposes, that's what Sirius XM appears to be doing. Sitting on a pile of cash that should be actively invested in the future.
Even if you're an ardent bull, you've got to admit, that money should serve one of two purposes - pay down debt (I don't care when it's due or what the terms are) or reinvest in the business. And heavily. It boggles my mind how you can sit on what will likely be over a billion dollars later this year in a broad sector undergoing such fast and sweeping change.
Spend money. Just do not do it recklessly. As long as the expenditures further a set of well-defined goals, spending makes me bullish when it comes alongside growth. I'm not sure what Sirius XM's long-term goals are, other than to keep doing more of the same. While things have certainly gone well, often exceeding expectations, new media companies must innovate and evolve, with an aggressive zest, or die.
That's why I like Pandora (and Amazon) so much. Sure, the company has put up impressive numbers across the board (revenue, ratings, vehicle and consumer electronic penetration) and it gets some Facebook love, but it's also out in front. Out in front letting investors in on its plans for the future. No reason exists for them to be top secret. We're building out a sales team and we're going to take ad dollars from broadcast radio and maximize the opportunity in mobile.
With that in mind, I would have no problem getting put 2,000 shares of Pandora at $11 in March. I do not necessarily think I will, but in any event, I expect the stock to finish the year higher than my current, real-life cost of basis of $13.20, let alone $11.00.
Obviously, I am sitting on 75 grand. Cash is not going to cut it if I expect 400% appreciation. As such, next week I plan on putting most of it on the line.
Additional disclosure: I am long NFLX June $40 put options.