$100,000 In Apple: Eggs Meet Your Basket

Includes: AAPL, AMZN, NFLX, P, RL
by: Rocco Pendola

Back from a weekend in Las Vegas, one of my least favorite places in the world, where I primarily worked with fellow Seeking Alpha contributor Robert Weinstein on plans for our stock option investing newsletter. In the time that I did "play," I dropped a cool $20 on a bet I knew I would lose (the Leafs over the Canucks on Saturday night) and another $20 on one I was sure I would win (Capitals-Lightning over 5.5).

Looking around at some of the people you see in Vegas, you often wonder if they removed the mirrors from hotel rooms just like they keep the casino floor free of clocks. You also remember quite quickly that there's no such thing as a sure thing.

Investing can teach you that lesson quite often as well. Take the Apple (NASDAQ:AAPL) March $500/$510 bear call spread that I put on when the stock was trading at $100 or something (that's an exaggeration). While I expected upside, I did not expect it to come so hard and so fast. Heading into the trade, I felt like the odds were incredibly low that I would have to dip into my cash balance to cover an exercise on the short end of the trade. With AAPL closing this past Friday's session at $502.12, I certainly stand a good chance of that happening.

For a complete look at the history of the trades in the $100,000 portfolio, visit this running entry at Weinstein's Paid2Trade Website.

To get down to business here, I offer the following quick and dirty review so we can see the portfolio's value and cash balance, as of Friday's close.

Option Credits Banked

  • AAPL March $500/$510 bear call spread: $1,380.
  • Pandora (NYSE:P) March $11 short puts: $1,000.
  • Netflix (NASDAQ:NFLX) March $97.50/$77.50 bull put spread: $1,160.
  • Amazon.com (NASDAQ:AMZN) March $1.95 covered calls: $552.
  • AMZN March $180 covered calls: $1,090.
  • Ralph Lauren (NYSE:RL): February $175/$155 bear call spread: $300.

The RL spread expired with no action as the stock closed at $174.47 on Friday, the last day to trade February options.

Total credits banked: $5,482.

Open Trades

  • AAPL January 2014 $600 call. On-paper profit: $2,210. Position value: $5,490.
  • NFLX January 2013 $130 puts. On-paper loss: $1,985. Position value: $15,765.
  • NFLX March 2012 $120 calls. On-paper loss: $990. Position value: $1,700.
  • 250 shares of AMZN at $184.52. On-paper loss: $505. Position value: $45,625.
  • 150 shares of AMZN at $177. On-paper profit: $825. Position value: 27,375.

Add it all together and you have a total portfolio value of $105,290. That includes a cash balance of $9,335.

I could just take the easy route and actively use margin here. But I never take the easy route in these portfolios, which makes it even harder to double, triple (see the $10,000 portfolio from last year) or quadruple (this year's goal) them.

For the most part, I'm securing everything with cash, which means I will need to generate some more cash by closing a position sometime soon. I have limited options here, as I have to hang on to all of my AMZN shares if I want to keep the covered call trades open. I do not want to sell the AAPL LEAP. As such, I will probably have to make a decision on NFLX this week, which, interestingly, is really what's holding me back here.

When you use options to hedge or generate income, consider the bigger picture. Right now, my long call and long put trades on NFLX combine for an on-paper loss of $2,975. The credit received from my NFLX bull call spreads effectively lowers the damage to $1,815. That's still not what I was looking for. With the stock basically stagnating in a relatively narrow range, the hedge is simply not working out all that well at this point.

On a somewhat brighter note, I took advantage of an opportunity in AMZN last week and added to my position. Between my two AMZN lots I sit on an on-paper profit of $320. When you factor in the income I received from writing covered calls against my 400 shares, however, the gain jumps to $1,962. Assuming all heck does not break loose between now and March's options expiration day, that's pretty good execution.

While I have more than 10 months remaining to hit my goal, it's clear that I've got to get moving here. While a gain of 5.3% is better than losing, it still underperforms most of the major indices YTD. I want to kick myself for not just hauling off and putting it all into AAPL.

Consider this insanity. I started this experiment on February 2nd. AAPL closed trading that day at $455.12. I could have picked up 219 shares for $99,671.28. Using AAPL's close of $502.12 this past Friday, I would be sitting on $109,964.28. That's a 10.3% gain. At it's all-time high of $526.29, AAPL would have returned 15.6%.

Click to enlarge

About one year ago (Feb 18, 2011), AAPL closed at $350.56. You could have picked up 285 shares for just under 100 grand. Today, that investment would be worth 143,104.20, good for a whopping 43.2% gain. Had you waited until after last year's President's Day holiday, you could have purchased AAPL for as low as $337.32. That would have snagged about 296 shares, upping your one-year percentage gain to 48.6%.

Let's see how the week develops. I'm not going to do anything rash at this stage of the game, but the time to get more aggressive is certainly near. And I mean ultra-aggressive. That could mean getting ulta-aggressive and putting at least most of my eggs in one or a small number of baskets.

Stay tuned.

Disclosure: I am long AAPL, P.

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