Somewhat sadly, that's the position I am in, in the $100,000 portfolio. I say "somewhat sadly" because, as I have stressed from the get-go, this is more about learning and less about winning and losing. But, still, I dislike being in a position of weakness and, for all intents and purposes, that's where I am right now.
As such, I did something I probably would have done anyway and unloaded my 2 Netflix (NFLX) March $120 calls at the open for $4.55 apiece. I take a hefty loss of $1,780 on those and keep proceeds of $910. Yuck.
On the upside, my 5 NFLX January 2013 $130 puts are moving in the right direction at the moment. I bought them for $35.50 each. As of this writing (shortly after the open), they trade for around $35.71. That represents an on-paper gain of $105. Not a big gain, but it reverses a sizable loss.
Now, I just have to hope that NFLX's 2012 implosion holds off long enough to keep my March $97.50/$77.50 bull put spread intact.
Of course, this Comcast (CMCSA) deal is interesting, but, of course, I cannot talk about it. I do, however, remember somebody writing all last year that the old guard content and delivery companies would start doing these things and that it would have serious repercussions. As fellow Seeking Alpha contributor Cameron Kaine Tweeted to me this morning:
And, with that said, it's pretty easy to get brought back down to Earth in this business.
I wish I could say I am freeing up cash for the carnage of a correction or crash. That I am prepping "dry powder" to scoop up screaming bargains. That's simply not so. I need the cash to cover my ...
To make these portfolios all the more exciting and challenging, I make things more difficult for myself than I need to. For instance, in the $10,000 portfolio that tripled, I made daring moves, such as holding potentially volatile stocks like NFLX and Research In Motion (RIMM) through earnings. Of course, it worked well, but there were hardly any guarantees.
With the $100,000 portfolio, I am not relying on margin. It might come into play briefly, but, ultimately, I want to cover everything I do with cash (for the naysayers, here's the value, as we talk mechanics, process, etc.) That's where the Apple (AAPL) March $500/$510 bear call spreads I own come into play.
In this simulated portfolio, nothing gets exercised until option expiration day. At this juncture, I will be on the hook for $10,000 with AAPL trading above $510. How so? Follow me ...
I sold 10 AAPL March $500 calls. That gives somebody the right to buy AAPL (from me) for $500 a share.
I bought 10 AAPL March $510 calls. That gives me the right (thankfully) to buy AAPL (from somebody else) for $510 a share.
So, I sell AAPL for $500 a share at the same time as buying it for $510 a share. Not a good deal. With 10 spreads on, that works out to a loss of $10,000 ($51,000 - $50,000 = $1,000 on each trade X 10 spreads).
We'll see what happens. AAPL might dip below $510, lowering my cost or it could close below $500 on OpEx day, putting me in the clear. In any event, somebody somewhere is learning something from talking out the potential outcomes of these trades. I know I am.
I ran the math at 7:15 a.m., Pacific Time, and the $100,000 portfolio sports a value of $106,882. That includes a cash balance of $10,245.
Basically, I need to wait for the March options to sort themselves out. Once that happens, I intend to logically throw all caution to the wind. Logically throw all caution to the wind. That means I will follow my true convictions, but I will do so via the most aggressive, highest-risk, highest-reward trades I can think of. Given the goal and the desire to make mistakes so this continues to be a learning experience, I really have no choice.
Additional disclosure: I am long NFLX June $40 put options. Hold your laughter. Another implosion awaits.