Based on my experience with last year's $10,000 portfolio, I've found that, for record keeping purposes, it makes sense to lead off each installment with a position update. Speaking of that, by the end of the weekend, I hope to get the $10K portfolio's trade history up on Robert Weinstein's Paid2Trade. I'm already keeping a running log of the $100K trades over there.
Here's how things stand, as of Wednesday's open (prices change fast and there's a slight lag time to publication, so it's all approximate).
- Apple (NASDAQ:AAPL) Jan '14 $600 call. Purchased one contract for $32.80. Holding at $32.70 for an on-paper loss of ($10). Position value: $3,270.
- Netflix (NASDAQ:NFLX) Jan '13 $130 puts. Purchased five contracts for $35.50 each. Holding at $31.75 for an on-paper loss of ($1,875). Position value: $15,875.
- Pandora (NYSE:P) Mar $11 puts. Sold 20 contracts for $0.50 each. Holding at $0.25 for an on-paper profit of $500. Credit banked: $1,000.
- Buying 2 NFLX March $120 calls for $13.45 each. That's good for a debit of $2,690. (At Breakeven).
- 10 NFLX bull put spreads. Sold 10 NFLX March $97.50 puts for $1.43 apiece and bought 10 NFLX March $77.50 puts for $0.27 for a net credit of $116 per spread and $1,160 total.
Newly Closed Positions
Getting out of the Direxion Daily Total Market Bear 1X Shares ETF (NYSEARCA:TOTS) at $33.91 for a loss of ($150). That pretty much offsets the $200 gain I took when I exited the Direxion Daily Retail Bear 3X Shares ETF (NYSE:RETS) yesterday. The positions close with values of $33,910 and $16,360, respectively.
When I said we'd learn from this process, I did not necessarily mean from an airhead move made by ... me. I was ill-advised to get into those ETFs, mainly because of the low volume. RETS has been around for a while so I probably would have been fine, but TOTS is relatively new and trades thin so I might have had trouble entering and exiting. Frankly, I did not pay attention to volume. I was just looking to follow my short-term conviction. Mea culpa.
Add it all up and the total value of the $100K portfolio equals $101,618. I have $79,783 worth of cash to play with.
It's quite clear what I think about AAPL. And it's about time the stock sustained post-earnings strength without even the hint of a meaningful pullback. This run has been nothing short of incredible and well-deserved for the company and investors.
$500 represents the next key psychological level for AAPL. Recently it was $450. Before that, $400. The stock will need to pop roughly another 6% to hit that level. March options expire on the 17th, about five weeks away with a holiday tossed in for good measure. As hyped as I am about Apple's prospects going forward - as evidenced by my $600 LEAPS call - it might be time to temper the near-term enthusiasm.
As such, I am going to enter some (not very bear) credit spreads, selling 10 AAPL March $500 calls for $3.90 and buying 10 AAPL March $510 calls for $2.52. That works out to a net credit of $138 for each spread and a total credit banked of $1,380, bringing the $100K's portfolio cash balance to $81,163 and the total value to $102,998.
Each spread requires roughly $1,000 worth of margin (the difference between the strikes) for a total of $10,000 (I am not counting the credit received there). No matter what happens, I keep the credit received for writing the spreads. If AAPL closes below $500 on options expiration day, everything expires worthless. If the $500 call I sold gets exercised, I can turn around and exercise my $510 call and, if applicable, eat the difference between what I had to sell AAPL for ($500) and what I had to buy it for ($510).
I am using a good bit of cash to go long Amazon.com (NASDAQ:AMZN). Make it 250 shares at $184.52 for an outlay of $46,130, bringing the portfolio's cash balance to $35,033. I am also writing two covered calls against that position. Make it the AMZN March $195 calls, bringing in $2.76 apiece for a total credit of $552. That takes the cash balance to $35,585 and the total value of the $100K portfolio to $103,550.
I feel like I have a good handle on AMZN. Up until last week, I thought it made the most sense to stay away from the stock ahead of earnings. AMZN, however, has held up remarkably well - and even bounced back - from its post-earnings lows. We've seen this pattern before.
This thing has room to run and, even possibly, hit higher highs just like it has done time and time again. The bears have a flimsy case. Just as I have given up fighting NFLX's momentum, AMZN bears need to recognize that Wall Street has confidence in Amazon's management team for a reason. They're good at what they do. You certainly cannot say the same when you consider the smoke and mirrors taking place at Netflix.
Additional disclosure: I am long NFLX June $40 put options.