It may be a bit redundant to refer to a "Troika" as "evil."
Although behavior is not really part of the definition, for many, the word still conjures up the Stalin era judicial system and its use of three impartial judges to find you guilty of a crime to be determined after your execution.
More recently, "Troika" has been used to describe the participants in what Greek nationals see as the invasion of their sovereignty by the European Central Bank, the European Commission and the International Monetary Fund.
My Evil Troika, however, has treated me well, despite being reviled, and rightfully so, by so many. I have no moral qualms about trading the shares of a company that's mired in controversy, although I might think more than twice before purchasing shares in a secondary offering or an IPO.
The very names Halliburton (HAL), British Petroleum (BP) and Transocean (RIG) conjure an immediate reaction from all who recall the Gulf Disaster of 2010. For those a little older, there's no shortage of other controversies surrounding these companies or their one time subsidiaries. Many of the controversies surround explosions, but there is ample diversity to satisfy most everyone's needs.
At this moment, all three stocks are on my weekly watch list awaiting the post-Memorial Day market open.
Of course in the after-math of the Gulf tragedy, some saw some black humor in how the members of the Evil Troika quickly started turning their backs upon one another and pointing fingers of responsibility and seeking legal redress. No doubt, that most people believe that there was more than enough blame to go all around.
At first, I had considered writing about trading for income and profit on all three of these misanthropic companies, but realized that would muddy the waters, although not to the same extent as they have proven themselves capable. So instead, I wanted to start with Halliburton.
A company that was at one time on many people's "hate list," both for having been lead by Dick Cheney and for it's apparent sweetheart contracts in Iraq, after the invasion in 2004.
As with its brethren, 2012 has to date (May 28, 2012) not been a very good year. While the S&P 500 is up 4.8% YTD, Halliburton is down 9.1%, having closed this past week at $31.37
(click to enlarge)
Being an inveterate covered call writer, I rarely see large profits on my underlying shares, as I tend to sell near the money or in the money contracts. I also try very hard to have my positions covered at all times, though that is not currently the case with all of my Halliburton shares.
Yet despite not allowing myself to benefit from a buy low - sell high kind of existence, Halliburton represents another excellent example of how a stock can generate sufficient income to more than offset paper losses. In Halliburton's case, it can function as an annuity until the day comes, and it will, that a share price rebound will result in assignment.
When reporting ROI, I tend to be conservative in how I define the denominator, as it is constantly changing, with new shares moving and out on a regular basis.
I often use an analysis that grossly understates the actual return, but I find useful, much the same way as a bank finds the total amount of money that an account passes through via transactions, as perhaps more important than a snapshot of the daily balance.
I look at the cumulative amount invested during a period of time. For example, If I purchased 1,000 shares of Halliburton on February 1, 2012 at $35/share and then purchased a new lot of 1,000 shares on February 8th at $35 to replace the assigned February 1st shares, I would consider the denominator to be $70,000, despite the fact that there was never more than $35,000 at risk at any one time.
Ridiculous, I know. But using that methodology, my return on Halliburton has been 1.0% YTD. Had I not lost and gambled on using Halliburton shares in an effort to "Collect Crumbs" as options were expiring, the return would have been significantly higher. But, the tenet of that sub-strategy is to never have regret over a trade gone badly.
A more realistic analysis might simply look at the return relative to the total costs associated with the maximum number of shares held at any one time. In that case, the return was 4.7%, using a $36 purchase price.
(See 2012 trading history for Halliburton and associated options)
Although that would be slightly below the S&P 500 return, it's far better than the decline in Halliburton share value, demonstrating that you don't necessarily need to know how to pick stocks or know how to time your purchase. You just need to steer the holdings using simple tools.
An important distinction to be made is that ROI, in either analysis, represents realized gains, because they came from the sale of option contracts. There are no paper gains to be evaporated in the time it takes to write an article.
My approach to the management of shares begins with how and under what circumstances they were acquired and is colored by a general short term pessimistic outlook, despite believing in a longer term upward trend.
If acquired by simply purchasing shares, I tend to immediately sell calls at the nearest strike price, reflective of the short term pessimism. If the shares came as the result of having had put contracts assigned to me, I do the same, already having received an option premium for the sale of the put contract. Finally, in the event that I already own shares and they are sitting at a depressed price, I'll often purchase additional shares and sacrifice that newer lot by selling in the money calls, just to generate enhanced premiums to offset the paper losses on the original share lot.
Instead of misery of dying by a thousand cuts, I look to create profit by a reveling is a thousand healed scabs, much like you may have received in shot in the face by a vice-Presidential pellet rifle.
At the moment, Halliburton's miserable price makes it just right to begin that glorious healing stage.
