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Ryan Takach
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I am an individual investor with over eight years trading experience in equities and options. I hold an MBA from the Kellstadt Graduate School of Business at DePaul University in Chicago and a BA in Supply Chain Management from Michigan State University. My work has brought me to different parts... More
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  • 2013 Recap And Update Of Investment Objectives

    Hello everyone and happy new year!

    I was on a short hiatus from financial journalism for the last few months while I devoted my writing energy to my graduate assignments. The final month of school was one of the busiest in my academic career as I buried myself in research and wrote nearly 15,000 words across a few different assignments. I'm proud to say that I've now completed my program and have my diploma in hand. It's taken a few years to complete, with some professional breaks required here and there as I worked my day job, but I persevered and accomplished my goal.

    In between working full time, handling school a few nights a week and attending to my social life, I was still able to stay active in my portfolio management, albeit in a somewhat passive way. I keep my finger on the pulse of the market but it can be hard when life events start to pile up. It makes it equally hard to research investment opportunities and write decent articles about them when there are other, more ominous, deadlines to attend to. That's why I've chosen to instablog this time: it's a nice soft return back to the Seeking Alpha community after focusing my energies on school.

    I also took some time off work to visit my friends in London. I don't often take time off from work, at least not for that long. I've had about three weeks off and I feel more refreshed than ever. Being back on my old stomping ground gave me a chance to reflect on 2013 and map out a plan for 2014. It allowed me to forget about work for a little bit and focus on friendships and personal fulfillment. I tend to work too much and focus too much energy on my career. This is not necessarily a bad thing but it can lead to burnout, I was getting dangerously close between balancing school and work.

    Some reflections on 2013:

    • School is a lot of work, but I learned a lot and proved to myself that I can take on the challenge.
    • A corporate day job is a lot of work, especially after being up late after class working on assignments. Returning to work after my lengthy holiday was refreshing. I have a renewed sense of focus and I'm ready to take on the challenges that 2014 will bring.
    • The bull market is kind of blowing my mind, I love the gains but I'm starting to get a bit nervous about some of the action in my portfolio. I've been writing calls against some of the upside with mixed success.
    • I've made some good stock picks, and I'm excited about making some more, but I'm approaching with caution and looking for a pullback in some cases.

    On my HCP call…

    I'm a man that admits when I'm wrong, and boy was I wrong on this one. Not in that it was a bad investment, but that I used the phrase "the selling is overdone" when talking about it. Apparently it wasn't overdone enough! The stock experienced a nice rally in the few weeks after I published the article, but it was later dragged down by the overall REIT sector. I'm still long the stock, but my intermediate-term projections were pretty optimistic. I'm down on this one, by a lot, but I'm not out. It's paying a good dividend and operating more efficiently. The recent green initiatives and other cost-saving activities are encouraging as well. Lower operating expenses provide more breathing room for dividend increases. Speaking of which, the company normally announces a dividend increase in late January and I'm hopeful for a 5% increase, same as last year. There is also a lot of interest rate uncertainty right now. The news of a slight taper from $85B/month to $75B/month pushed the overall market upward, which was the opposite of what I would have expected, but the benchmark rate remains the same so I don't expect anymore downward momentum on REITs as a result of this action.

    I still maintain a "hold" on this stock and I'm looking to just collect dividends while I focus on other areas of my portfolio. It's a solid income play, and when it raises above my cost basis I'll look to initiate some covered call positions to pull more cash from it while I feel out the market sentiment. It's all about income at this point for me, even though the options aren't that liquid, any opportunity to generate cash from this position should be taken. I am not selling unless I am forced to via option assignment, in which case I'm back in via short puts.

    On my VFC call…

    I really do want to toot my horn on this one. I know I wrote about VFC after earnings were released and it was all good news, but since I published the article the stock appreciated in value pretty significantly. It has a bit of a pullback since the stock split, but I think it's just taking a rest until the next earnings announcement on February 14th before the market open.

    There are a few catalysts here, specifically for The North Face, but also for much of the VFC brand portfolio. First of all, the winter Olympics is coming up and you can bet The North Face will be on prominent display. In fact, they've already announce their new line of "Sochi Villagewear," which they will be providing to the US freeskiing team. It is somewhat questionable how much additional exposure this will give them, but it's a small promotional expense relative to the size of the event and potential marketing reach.

    There is also the holiday season, which I think will result in higher than usual seasonal sales. Going back to my Google Trends analysis, it would appear that The North Face saw a year-over-year uptick in December search volumes. Furthermore, with the recent "polar vortex" in effect I think we'll see some impulse purchases of North Face products. I can attest that I noticed a few of my work colleagues sporting new North Face winter wear shortly after the first cold snap, and now we're due for more cold weather.

    (click to enlarge)

    The above trend graph is specific to the United States only, where search activity peaked in December 2013. This sets the new high water mark against which all other trend data will be measured. My hope is that this increase in search trends translates into an increase in sales.

    More interesting are the locations of current search activity, with Chicago taking the top spot. Chicago has been hit hard with cold weather recently, so much so that we've been given the green light to work from home to avoid commuting in the unforgiving deep freeze.

    (click to enlarge)

    On the rest of my portfolio…

    2013 was simply a fantastic year, so there's not much to say about success or failure, because the majority of my holdings are quite successful. I'm still a sad holder of Cliff's Natural Resources (NYSE:CLF) and I'm down quite a bit, but I'm not totally discouraged. With respect to Cliff's, I believe the iron market will make a slow recovery and the company's efficiency initiatives will result in better operational results. Cheap iron ore and weak demand is going to hurt their top line, but it's not going to put them out of business. There are plenty of quality articles on Seeking Alpha that explore this concept in more depth, with varying viewpoints, but I remain long this stock despite the short-term challenges. It's probably going to drop a bit further, at which point I might consider averaging down, provided the fundamentals have not changed significantly.

    I'm also looking to expand from my Dividend Aristocrats into companies that have a shorter track record of dividend growth. I'm trying to identify companies that have been raising dividends annually for at least five years, but no more than 15. My theory is that companies with shorter track records of dividend growth typically have lower payout ratios and an ability to raise dividends by a larger percentage than the established Aristocrats. I'm going to start testing this theory and then take a stab at picking a few good companies from this criteria and investigating them further.

    That's all I have for right now, but I'm actively looking for new opportunities to write articles. I think my biggest challenge right now is time, of which I have very little, but my after-work schedule is starting to loosen up so I'm going to use that time to scan the market some more.

    Happy investing everyone!

    Disclosure: I am long VFC, HCP, CLF.

    Tags: VFC, HCP, CLF
    Jan 27 8:23 PM | Link | Comment!
  • How Intraday Price Action Affected My Option Rolling Strategy

    Hi again everyone, the market is now closed and I wanted to look at how today's price action on Intel (NASDAQ:INTC) stock affected my options premium. It closed at $25.01, up $0.42. This is enough to skew delta out of our favor. ITM options have higher deltas the closer they are to expiration, which means the ones I'm holding are rising in price faster than the ones I'd like to roll out to. Let's look at three points of interest, the price to buy my call back (NYSE:A), the price at which I can sell Sept calls (B, C):

    A. The ask of my June $24 call closed at $84 on Friday, the ask at close today is $113, a $29 increase.
    B. The bid of the Sept $24 call closed at $145 on Friday, the bid at close today is $169, a $24 increase.
    C. The bid of the Sept $25 call closed at $95 on Friday, the bid at close today is $113, an $18 increase.

    As you can see, the delta component of the options pricing model skews premiums closer to expiration, and as we raise the strike price the delta is less. Let's look at the roll premium on each day:

    A. Friday: BTC @ -84.00 / Monday: BTC @ -113.00
    B. Friday: STO @ +145.00, credit 61.00 / Monday STO @ +169.00, credit 56.00, loss in credit -5.00
    C. Friday: STO @ +95.00, credit 11.00 / Monday STO @ +113.00, credit 0.00, loss in credit -11.00

    Something I think important to note, but not a major factor in these price changes as it's only been one day, is time value, or time decay. For readers that don't know, time value is the component of the option premium ascribed to the time left on the contract, and is larger as expiration gets further away, since there is more time for the price to gain. Time value on option premiums are measured by theta, which describes the rate of change [reduction] in the premium for each passing day, all else remaining the same. Theta is like delta in that it increases as we get closer to expiration, but it will decreases as the underlying gets deeper in-the-money. But in the case of the example above, it doesn't have much of an impact because the underlying price changed so much: this was delta skew, not theta skew. But just for fun let's look at the current theta of each option using an options calculator:

    A. June $24 call, theta -0.0113, or a loss of $1.13 each day due to time decay if nothing else changes.
    B. Sept $24 call, theta -0.0064, or a loss of $0.64 each day.
    C. Sept $25 call, theta -0.0066, or a loss of $0.66 each day.

    Time decay is less for the Sept $24 call because it is deeper in the money than the $25 call; traders are putting more time premium on the higher strike prices. This also illustrates how time decay can affect our rolling strategy if the price had stayed flat all day, essentially we'd pay $1.13 less to buy back the June, and collect $0.64 less for selling the Sept $24.

    Even though the time decay here is minimal, it will have an impact later in the week and closer to expiration, and this brings me to my big point: time value is in our favor. Every time we write an option, we take a bet that very little is going to happen between now and expiration, in the hopes that time decay simply eats away at the premium. And this is one of the biggest reasons option writing is becoming so popular with individual investors, we can generate income from basically sitting on our portfolios. That is an oversimplification, but we write contracts against our positions, that were already just sitting there, collect a bit of cash, sit on that for a week or two, and hopefully buy back the option cheaper, pocketing the difference. That's my perspective at least.

    And while that's not the whole thesis of this article, it does raise a good point about rolling options: why am I paying the market time premium to buy back an option that's not at risk of early exercise? Why not let the option exhaust all its theta before deciding to roll? It's getting close: INTC closes $25.01 with the June 24 closing at $1.13, the option sellers are asking a $0.12 time premium per share to write that, because it's only $1.01 in the money. While buyers of the Sept 24 calls are offering $1.69, or a $0.68 time premium per share.

    Go back to the theta numbers above, in the next nine days of trading the June 24 call will lose $0.1017 per share in time value all else being equal (9x -0.0113). The Sept 24 call will lose only $0.0576 per share in the same period (9 x -0.0064). So what's the point of even considering a roll today...

    The bottom line of this post is that I'm going to leave well enough alone until next Thursday/Friday when expiration becomes reality. There's no sense speculating on what the price may do by then, there's still a reasonable chance that it will close below $24 or at least get close enough to roll profitably. Being in-the-money is fine, ideally as long as the amount is less than the premium you collected writing the option in the first place. For example, if you sold the June 24 for $0.45, and INTC is trading at $24.30 near the close on expiration, then you can close the call for a gain, since the ask price will probably be the in-the-money amount, $0.30. If that happened, you wouldn't have to roll at all! Just close it out, take a small gain and walk away knowing you get to keep the stock.

    And there: I've introduced an additional consideration in the roll or not roll dilemma, the idea that in the last five minutes of trading your lucky stars will be shining and it will either expire worthless, or trade less than your sell price. Bravo.

    I'll be watching this one and updating how it goes.

    Disclosure: I am long INTC.

    Additional disclosure: The securities and situations described above, while real life, are not meant to be considered investment advice. The scenarios are presented to give an example of common option trading situations that can arise, and to offer a few ideas about ways to deal with them. I am not an investment adviser. I only share these in the hope that other young, non-professional traders like myself get exposure to what other like minded people are doing in the market.

    Tags: INTC
    Jun 11 3:12 AM | Link | Comment!
  • Two Weeks Until Options Expiration, What Do I Do?

    [this was originally posted on my blog Sunday evening, all prices are current as of COB Friday, INTC has made a run up today and has completely skewed the premiums described in the table below, will follow up on that at market close today]

    Hi everyone! Another relaxing weekend behind us and a full week of trading ahead of us! We've got two weeks of trading until the June options expiration cycle, and I've got a couple positions that could play out either way. While I do regularly watch all my positions, I tend not to mess with most of my short calls unless I can buy them back for a decent gain. This month I have two in-the-money short calls that I need to start planning for. [Continue reading]

    Intel (NASDAQ:INTC) - short $24 call

    This is one that I wrote just to get enough cash to round out another purchase. I wrote it in late April for a reasonable premium, it was trading around $24 anyways, and my cost is $22.21, so I was already going to profit. Let's look at the trade:

    Buy 100 INTC @ $22.21$2,221.00
    Sell 1 June $24 call$42.93
    Profit on exercise ($24 - 22.21)$179
    Including option premium ($179+42.93)$221.93
    Yield on option premium (42.93/2221)1.93%
    Total % gain (221.93/2221)9.99%
    Dividends collected (3 cycles at $22.50 each)$67.50
    Total return including dividends (221.93+67.50)/222113.03%
    Holding Period232 days
    Annualized Return (365/232) * 13.03%20.49%

    Not too shabby, I won't be upset it this one gets exercised. However, INTC pays a good dividend, currently 3.7%, and based on the past two years of dividend history I believe they are going to raise on the next announcement in mid-to-late July. It makes me want to stick with the stock due to the increased income and the share appreciation associated with this. They raised the dividend 13.71% in July 2011 and 7.13% in July 2012. It may taper down around 5% this time, who knows, but a raise is good anyways.

    In order to keep the stock I need to close the option, but I will take a loss for it and I don't want to spend my valuable spare cash covering a short. My best bet is to roll the option. Here I can either simply roll out or roll up and out. Either way it is somewhat of a losing game. First of all, I will book a loss buying back the initial option, but the premium I get should offset this. Secondly, if I perpetually roll the option as the underlying price increases over time, the spread between the two premiums will eventually diminish and the underlying gets deeper in the money. And finally, in order to offset the reduction in spread, the option writer may have to write contracts whose expiration is too far in the future. Some people are OK with the third point as long as there's an income stream, but it's somewhat painful in a young account.

    Let's have a look at our choices. All prices are as of close on June 7. The first row is our price to buy back the June $24 call, the rest are the current bid prices of possible roll candidates.

     Strike Prices
    Jan15 233n/a

    The premiums in bold font are all higher than my cost to close the June $24. As you can see, in order to successfully roll up and out I have to roll out to a much later expiration date. This can be a disadvantage, but will allow me to at least lock in some dividends. Based on a very predictable history, I expect the the next ex-dividend dates to be August 3 and November 5. I'd ideally like to collect at least one dividend, since I expect it to increase on the next announcement, so I could write an August or September contract. Caution: the August contract is the most likely to get exercised early if it's in the money on August 2! Options are rarely exercised early, except in the case of an ex-dividend! This has happened to me before on a position that wasn't even that deep in the money.

    If an ex-dividend falls before the option expiration, consider writing the following month or an out of the money strike. In this case, the Aug $25 strike has a premium less than the cost to buy back the June $24, resulting in a net debit, but increasing the exercise profit by $100. However, I am still taking a chance that the share price will stay lower than $25, which it probably won't if they bump the dividend, and so the August $25 is still likely to get exercised. The better bet would be the Sept $25, because it allows for an increase in exercise profit by $100, plus a net credit of $11 (95 - 84). Unless INTC is really deep in the money on the ex-div in August, it's not likely that the September expiration will get assigned/exercised early.

    The result of that trade is that my cash balance increases by $11, due to the net credit; I take a ST loss of $41, due to the buying back ($84 - $43); the new call covers the loss, but I just dug a deeper hole that requires a larger downward price movement to start making up for the realized loss; my expiration horizon has increased by three months, meaning I can't really do anything with the underlying stock if it continues to run up, I have to just sit and watch the stock run while my short option goes the other way.

    What other considerations go into making this decision?
    What do you value more: money today for reinvesting in other stock, or a reasonable guarantee of money later? I think the reason why there's so much confusion, or at least indecision, about rolling options is because the trader really has to take a stance about what's important. If I really wanted cash right now, I would just let it get assigned and take all the cash. Or, more conservatively, I could roll out to the farthest expiration at the current strike of $24, all the way to Jan 2015, for a net credit of $109, and six dividend cycles to collect until they expire (another $135 - $145 income). The problem is that now the stock could keep running higher, to the point that I have absolutely nowhere to roll it to because it's so deep in the money and they don't list options with 10 year expiration, which is the kind of time value you would need to cover the debit needed to close your short!

    But I also want capital appreciation of course, so I could sacrifice credit now while locking in gains down the road, so rolling up is the best bet. So where do I stand on this? Seriously undecided. I really need more money now in order to add to my other dividend stocks, but don't want to get locked into an ITM option for too long, especially during our current bull market! I'm going to take a balanced approach:
    First: there are still two weeks to play out before this $24 call expires, I'll wait until next week to really look at where premiums are. The example above was just used to show what my choices are if I rolled today.
    Second: I'll take a balanced approach, if the option is still ITM, I will roll up to the September $25 as explained above. This way I get the dividend and the extra $100 in assignment profit.
    Third: continue to monitor the situation, I may need to roll again. If the stock breaks out it can sometimes be a good idea to roll sooner rather than later. As the Sept $25 call gets deeper ITM, the premium will consist of less time value, but a later expiration that is ATM or OTM may carry enough time value to offset the debit required to close the Sept call. Who knows, but always be aware of the price action on your short positions, duh!

    Solazyme (NASDAQ:SZYM) - short $10 call

    Here's one I haven't discussed before, Solazyme is a company that makes synthetic oils from algae. Since I'm kind of a green energy nut I naturally got behind them. I bought at $8.96 and wrote the $10 call during a rally last month, it's continued to run since but I've since grown bored with it. It doesn't pay a dividend, it was waffling under $10 for so long, that when it finally broke, I got antsy for income and wrote a call. It's currently trading at $11.41, so I'm pretty deep in the money here. I don't have many choices to be honest. First of all, these options are highly illiquid, so getting out of one and into another for a good price is going to be difficult. Second of all, there are none expiring later than December, leaving me with a short time horizon to roll. And third of all, the strikes run in $2.50 increments, making it even harder to roll.

    I won't go into the same level of detail as I did with the INTC example, because quite honestly I cannot roll this one up for a net credit. The best I can do is a $45 debit to roll to the December 12.50. I'm not too sure what this company is going to do in the intermediate term. There is a chance that they could explode, or at least continue to run up to $15 at a steady pace. They have a good business model and are starting to produce oils at a lower cost, but it's still anyone's guess as to when they'll become truly profitable. Therefore, I'm inclined to let this one expire so I can use the proceeds to fund my other pursuits, here's how the trade stacks up:

    Buy 100 SZYM @ $8.96$896
    Sell 1 June $10 call$43.55
    Profit on exercise ($10 - 8.96)$104
    Including option premium ($104+43.55)$147.55
    Yield on option premium (43.55/896)4.86%
    Total % gain (147.55/896)16.46%

    In this case my return on investment was actually better than the INTC situation, mainly due to the higher volatility of SZYM. Because of this, I was able to collect the same amount of premium against a much cheaper investment (about $43 premium on each trade, but divided over $896 versus $2,221). And in fact, my return on this position beats the dividend adjusted return on the INTC example! I'll take my 16.46% gains thank you very much, and $1,000 to invest somewhere else.

    Closing ideas for the rest of June and into July

    We've got some good ex-dividends coming up in the dividend aristocrats this month, and with an extra $1,000 to play with at start of trading on Monday June 24, I'll be looking at the following securities to improve my income stream:

    Philip Morris Int'l (NYSE:PM) - ex-div not announced as of this writing, but it's expected to be June 25, just in time. $0.85/share, 3.6% yield
    Illinois Tool Works (NYSE:ITW) - confirmed ex-div June 26, $0.38/share, 2.10% yield
    Sysco Corp (NYSE:SYY) - confirmed ex-div July 2, $0.28/share, 3.3% yield, this price has dropped since I bought it, good chance to average down.
    McCormick (NYSE:MKC) - not confirmed yet, but expected July 5, $0.34/share, 1.8% yield, also down slightly since buying.

    Disclosure: I am long INTC, SZYM, PM, SYY.

    Additional disclosure: The securities and situations described above, while real life, are not meant to be considered investment advice. The scenarios are presented to give an example of common option trading situations that can arise, and to offer a few ideas about ways to deal with them. I am not an investment adviser. I only share these in the hope that other young, non-professional traders like myself get exposure to what other like minded people are doing in the market.

    Jun 10 4:18 PM | Link | Comment!
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