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I used to run a limited partnership, boutique hedge fund in the 90s. Retired in 2000 and moved from New York City to Toronto, Canada, got married, raised a family and basically settled down. After a few years in Toronto, my wife got tired of the city’s 8 months of cold weather and insisted that... More
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iBBQ, Inc.
  • Importance Of Diversification To Mitigate Risk, PART 2 4 comments
    Dec 27, 2013 12:28 AM | about stocks: ALIM, ARIA, ATHX, CHTP, CYTR, GALEQ, HALO, PSDV, RMBS, RMTI, S, MDGL, SPWR, SUNEQ, ASMB, ZIOP

    One of the readers here, KC, asked a question that I feel deserves an answer in a fresh new blog post...

    Here is KC's (paraphrased) question(s):

    "Looking back through the moves displayed here on your O2W public portfolio over the first half of 2013, generally speaking, there were pretty much 3 underlying stocks that made the portfolio successful-SPWR, SUNE (WFR), and S. (respective profits->$620k, $394, $45k). Were you just simply very confident / comfortable with these companies based on your five step method and that is why you weighted them so heavily?

    ...And as we are nearing the New Year, are there any particular stocks, or sectors for that matter, that you personally believe will rewrite history in 2014 like SunPower and the Solar Sector did in 2013?"

    Diversify...but Not Too Much

    In my post, "Importance Of Diversification To Mitigate Risk," I stated the following:

    "it's important to diversify…not a whole lot, but enough to help mitigate the pain of bets that could, and will, go awry…too much diversification will only offer moderate growth..."

    As you can see, even though I espouse diversification, I am not very big on too much diversification...However, I diversify just enough to ensure that my overall portfolio is relatively safe in case one of my picks turns out to be a clunker...

    As KC correctly noted, during the O2W 6 month experiment, most of the gains came from 3 bets that paid outstanding returns, however, there were a couple of clunkers and since my level of confidence in those stocks was not very high, I made sure that my bets were not too big...So yes, I was very confident in my bets in Sprint, SunPower and MEMC Electronic Materials and the results proved that my confidence was well placed...

    Buying Options on SALE:

    One other point...when my level of confidence is very high in a given stock, I will continue to buy options in that company even, in fact, especially, when its price is going down...I figure that if I made a purchase at a higher price then when the price is down, I should love the new discounted price...Most folks don't buy into a good company when its stock is going down and instead chase it when its price is moving up...I, on the other hand, buy with both hands when the price is going down and start to sell when the price starts to rocket up... I buy big when the prices are actually going down...This allows me to build sizable positions every time the options go on SALE...

    One recent example is GALE...I started to buy GALE's $2.5 CALL options for 35¢ and then chased it all the way down to 20¢ and ended up owning more than 60% of all the open positions in that particular option...Currently I own only 10 contacts, basically having sold my entire position during the recent run-up with a rate of return comparable to one of my O2W portfolio bets...Today, I am looking to begin rebuilding a brand new position in GALE...

    One of my all-time favorite sayings: "Opportunities always look bigger going away, than coming!"

    Play the Cycle:

    Also, over the years I have learnt when to get on the train and equally as important, when to get off...And since every stock has a cycle, it is very important to recognize those cycles if you want to achieve outsized gains...Once you recognize the cycle of a given stock you will know when to get off its gravy train, and then, when to get back on for a brand-new ride...

    Stock Tips for 2014

    There are a number of stocks that I'm quite bullish on...I will share the names of 6 here and plan to write a new post on the seventh :-) :

    ARIA, GALE, GTAT, HALO, PSDV, and the usual suspect, SPWR...

    You will find out about the 7th in the next few days...



    DISCLAIMER: All postings made here are strictly for my personal record keeping and in no way, shape or form, am I even remotely suggesting others to follow my Buy and Sell moves. Trading options is definitely not for the faint of heart as one's portfolio can move up, or down, anywhere between 10%-30% during a single trading day. Feel free to follow my progress here, but PLEASE do not follow my moves. However, if, in spite of all my exhortations, should you decide to do so, be advised that you, and ONLY YOU will be responsible for any losses that you may suffer...In other words, the onus is strictly on you. On the other hand, if the move(s) result in a profit for you, I am open to discussing a split. ;-)


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Comments (4)
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  • darween
    , contributor
    Comments (22) | Send Message
    KP thanks for all your feedback. Gale is on fire again, wow what a run!


    I was wondering how you felt about the coal sector. What do you think of NRP? Chart seems to be good with a price target of 35. Thanks!
    8 Jan 2014, 11:31 PM Reply Like
  • darween
    , contributor
    Comments (22) | Send Message
    KP, sold Gale yesterday. My assumption was it reached my price target of 6.25 and belive it will drop to around 5 bucks. I plan to buy again around 520-5, what do you think?
    9 Jan 2014, 04:57 PM Reply Like
  • Options2Wealth
    , contributor
    Comments (135) | Send Message
    Author’s reply » Yes, Gale was on fire yesterday and today it needed to take yet another, much needed respite from its torrid run that lasted almost 7 weeks...my original January $2.50 CALLS that I paid an average price of 25¢ yielded me an amazing return...I got off the train once during the last 7 weeks and then got back on, and like you, have sold out my entire position, leaving just 1 contract of its April $4 CALL for monitoring purpose...Congratulations on your great move to sell your position yesterday and I concur with you that it should pull back...Hopefully to fill both the gaps in the $5 area ($5.36 and $5.20)...kp
    9 Jan 2014, 08:16 PM Reply Like
  • LifeIsGood84
    , contributor
    Comments (4) | Send Message
    Hi KP,


    First off, thank you for all the time and effort you have put into this blog. One of my good friends got me on board a few months ago and I have been learning a ton and adding to my portfolio ever since.


    I wanted to add this comment to your post from the other day about the blog's new direction, but since that has been taken down I decided just to post here instead.


    I think all of the ideas that you and kccase have in mind are excellent. For a novice investor like myself to be able to follow and learn from you and create wealth for myself as well as others is a great opportunity and I feel privileged to be a part of it. The idea of giving back with the profits is a great way to raise money for a lot of great causes while also increasing the wealth of your followers. I am not sure what the "right" number is to donate but I believe 25%+ is certainly warranted.


    I am looking forward to the newsletter and, like THollenbach, would be happy to help out if there is anything you or kccase need.


    9 Feb 2014, 12:18 PM Reply Like
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