The $10,000 Portfolio: On The Way To A Double?

Includes: AAPL, AMZN, BBY, F, NFLX
by: SA Editor Rocco Pendola

On August 16th, I set out a $10,000 options portfolio with the lofty goal of doubling it by the end of the year. To view the original positions and follow updates to the holdings, see the following Seeking Alpha articles as well as my latest StockTalk and Instablog posts:

The $10,000 Portfolio: A Double By the End of the Year?

Doubling the $10,000 Portfolio By the End of the Year

First, I have banked $861 worth of profits thus far in the portfolio by closing out a Netflix (NASDAQ:NFLX) long put and bear call spread. I probably closed the NFLX put a day or so early, but it comes as no surprise that the stock rebounded, albeit not as strong as it might have weeks ago (until today), on the market's various rebounds. With that in mind, I do not mind leaving some profits on the table. The time will come to go bearish on NFLX again - namely at its next earnings report, I think - but I will stay on the sidelines for now.

Second, the portfolio holds $1,912 worth of credits received from open bull put spreads on Apple (NASDAQ:AAPL) and (NASDAQ:AMZN). Today's market rebound was big for all four open spreads. I expect AAPL and AMZN to maintain strong enough support for the short end of the spreads to stay comfortably above breakeven and for time decay to start doing its thing. The following bullets list each spread, all September expirations, along with the breakeven price for the written put:

  • AAPL $355/$335; $355 short put, B/E -- $344.85
  • AAPL $365/$335; $365 short put, B/E -- $357.70
  • AAPL $370/$340; $370 short put, B/E -- $360.95
  • AMZN $175/$155; $175 short put, B/E -- $169.85

I stand by the contention that heading into the holidays, AAPL and AMZN - regardless of the type of holiday shopping season retailers experience - will lead the way. As things stand today, going forward I intend to execute more bull put spreads on these two names through the end of the year.

Taken together, profits and credits account for $2,773 in account value.

Here's how each remaining open long position stands, as of Tuesday's close:

  • 10 Best Buy (NYSE:BBY) Mar '12 $22 calls @ average of $4.28. Current price: $4.25. On-paper profit/loss: - $30
  • 100 Ford (NYSE:F) Mar '12 $16 calls @average of $0.22. Current price: $0.14. On-paper profit/loss: - $800
  • 2 AMZN Jan '12 $225 calls @average of $11.48. Current price: $9.28. On-paper profit/loss: - $440

Those three open long positions account for total on-paper losses of $1,270.

You can read about my BBY bullishness here. In a nutshell, the stock hung tough during the recent routs. I think it tests $30 before the end of the year.

The F calls have taken a bit of a beating. Much more and I'll have to cut them loose. I like that F managed to stay above $10, but a close below $10 will likely put my position, at least for the purposes of this ambitious portfolio, in the books. To achieve a double on $10K in three-and-a-half months, you've got to be pretty aggressive, thus the use of high risk/high reward OTM calls. That said, if F does not make a break, it's dead money and not fit for an aggressive portfolio with a relatively short time horizon.

As for AMZN, it outperformed the market and its high-flying peers today. It closed a bearish gap in the low $190s and appears headed for a retest of $200. When the company officially announces its tablet plans, look for a pre-holiday surge in the stock price. I am comfortable with my position in the calls, within the context of a portfolio that needs to act aggressively, mind you.

Speaking of acting aggressively, I'll need to get even more aggressive at some point in the next two months. While I like the strategy of using bull put spreads to generate income, I'll need something more to ensure the portfolio crosses the $20,000 mark. I've got some long and short ideas up my sleeve to choose from that I think will help make it happen.

Taking profits banked (+ $861), credits received (+ $1,912) and profit/loss (- $1,270) from the open long positions, the account value of the $10,000 portfolio stands at $11,503, as of Tuesday's close. Thanks primarily to AMZN and with some credit to BBY, that's up from $10,651, as of Monday's close.

Keep an eye on my StockTalks and Instablog for any other changes. I will publish another complete update as a Seeking Alpha article next week.

Disclosure: I am long F.

Additional disclosure: I may open and close positions in any of the stocks mentioned in this article at any time in my personal trading and investing accounts.

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