Turning $100,000 Into Half A Million: Apple And Amazon Lead The Way

by: SA Editor Rocco Pendola

Based on my experience with last year's $10,000 portfolio, I've found that, for record keeping purposes, it makes sense to lead off each installment with a position update. Speaking of that, by the end of the weekend, I hope to get the $10K portfolio's trade history up on Robert Weinstein's Paid2Trade. I'm already keeping a running log of the $100K trades over there.

Here's how things stand, as of Wednesday's open (prices change fast and there's a slight lag time to publication, so it's all approximate).

Open Positions

  • Apple (NASDAQ:AAPL) Jan '14 $600 call. Purchased one contract for $32.80. Holding at $32.70 for an on-paper loss of ($10). Position value: $3,270.
  • Netflix (NASDAQ:NFLX) Jan '13 $130 puts. Purchased five contracts for $35.50 each. Holding at $31.75 for an on-paper loss of ($1,875). Position value: $15,875.
  • Pandora (NYSE:P) Mar $11 puts. Sold 20 contracts for $0.50 each. Holding at $0.25 for an on-paper profit of $500. Credit banked: $1,000.
  • Buying 2 NFLX March $120 calls for $13.45 each. That's good for a debit of $2,690. (At Breakeven).
  • 10 NFLX bull put spreads. Sold 10 NFLX March $97.50 puts for $1.43 apiece and bought 10 NFLX March $77.50 puts for $0.27 for a net credit of $116 per spread and $1,160 total.

Newly Closed Positions

Getting out of the Direxion Daily Total Market Bear 1X Shares ETF (NYSEARCA:TOTS) at $33.91 for a loss of ($150). That pretty much offsets the $200 gain I took when I exited the Direxion Daily Retail Bear 3X Shares ETF (NYSE:RETS) yesterday. The positions close with values of $33,910 and $16,360, respectively.

When I said we'd learn from this process, I did not necessarily mean from an airhead move made by ... me. I was ill-advised to get into those ETFs, mainly because of the low volume. RETS has been around for a while so I probably would have been fine, but TOTS is relatively new and trades thin so I might have had trouble entering and exiting. Frankly, I did not pay attention to volume. I was just looking to follow my short-term conviction. Mea culpa.

Add it all up and the total value of the $100K portfolio equals $101,618. I have $79,783 worth of cash to play with.

New Positions

It's quite clear what I think about AAPL. And it's about time the stock sustained post-earnings strength without even the hint of a meaningful pullback. This run has been nothing short of incredible and well-deserved for the company and investors.

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$500 represents the next key psychological level for AAPL. Recently it was $450. Before that, $400. The stock will need to pop roughly another 6% to hit that level. March options expire on the 17th, about five weeks away with a holiday tossed in for good measure. As hyped as I am about Apple's prospects going forward - as evidenced by my $600 LEAPS call - it might be time to temper the near-term enthusiasm.

As such, I am going to enter some (not very bear) credit spreads, selling 10 AAPL March $500 calls for $3.90 and buying 10 AAPL March $510 calls for $2.52. That works out to a net credit of $138 for each spread and a total credit banked of $1,380, bringing the $100K's portfolio cash balance to $81,163 and the total value to $102,998.

Each spread requires roughly $1,000 worth of margin (the difference between the strikes) for a total of $10,000 (I am not counting the credit received there). No matter what happens, I keep the credit received for writing the spreads. If AAPL closes below $500 on options expiration day, everything expires worthless. If the $500 call I sold gets exercised, I can turn around and exercise my $510 call and, if applicable, eat the difference between what I had to sell AAPL for ($500) and what I had to buy it for ($510).

I am using a good bit of cash to go long Amazon.com (NASDAQ:AMZN). Make it 250 shares at $184.52 for an outlay of $46,130, bringing the portfolio's cash balance to $35,033. I am also writing two covered calls against that position. Make it the AMZN March $195 calls, bringing in $2.76 apiece for a total credit of $552. That takes the cash balance to $35,585 and the total value of the $100K portfolio to $103,550.

I feel like I have a good handle on AMZN. Up until last week, I thought it made the most sense to stay away from the stock ahead of earnings. AMZN, however, has held up remarkably well - and even bounced back - from its post-earnings lows. We've seen this pattern before.

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This thing has room to run and, even possibly, hit higher highs just like it has done time and time again. The bears have a flimsy case. Just as I have given up fighting NFLX's momentum, AMZN bears need to recognize that Wall Street has confidence in Amazon's management team for a reason. They're good at what they do. You certainly cannot say the same when you consider the smoke and mirrors taking place at Netflix.

Disclosure: I am long AAPL, P.

Additional disclosure: I am long NFLX June $40 put options.

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