Time to get serious in the $100,000 portfolio. As of Friday's close, here's how things stand:
- 200 shares of Amazon.com (NASDAQ:AMZN). Current value: $37,010. (+$106)
- 2,000 shares of Pandora (NYSE:P). Current value: $20,640. (-$1,360)
- 5 Netflix (NASDAQ:NFLX) January 2013 $130 puts. Current value: $18,575. (+$825)
- 200 Wendy's (NASDAQ:WEN) January 2013 $5 calls. Current value: $12,000. (+$1,000)
- Short 5000 shares of Sirius XM (NASDAQ:SIRI). (+$100)
Add in a cash balance of $14,895 and the total portfolio value, excluding the short sale, equals $103,120.
The first thing I will do is write two AMZN April $190 calls, which brings in $700 worth of income, based on Friday's closing bid of $3.50. That income increases the portfolio value to $103,820 and the cash available to $15,595. For the record, I use margin to secure trades when necessary (the SIRI short position), but I will not use it to increase the buying power of my cash balance.
I was part of an interesting, but not surprising exchange on Twitter late last week:
Have a look at P's chart. We've been here before. I want a lower price as well, however, I'm not so sure we're going to get one as soon, or as low, as some bears suspect. Compare P's November 2011 swoon to the present one. Just another day in the life of a rapidly-growing, volatile IPO in perpetual start-up mode.
I've been using the Williams %R indicator for awhile now and it's proven pretty reliable, as the chart shows, in predicting short- to mid-term trends. When Williams %R resides between -80 and -100, it indicates that a stock sits in oversold territory.
Lots of people ask me when the right time to get into P is. I always respond the same way. First, depending on the type of investor you are, it may never be the right time. It's a risky stock. Very speculative. In fact, I advocated staying away from it ahead of earnings:
In terms of how to play it ... I am not sure you should. I consider it a pretty big risk ahead of earnings. If Stifel is correct with its estimates, this thing should take off. I am in the stock with a cost basis of about $13.20. I have a buy scheduled to go off on Tuesday. That goes as planned. It would take something shockingly negative to make me stop buying Pandora on a regular basis going forward.
My cost basis now stands at $13.05. The second thing I tell people is that if you believe in the long-term story of this stock, or any other for that matter, there's no reason not to buy regularly regardless of price. SIRI bulls as well as investors who did well over the last couple of years in Ford (NYSE:F) can relate.
If you've done your homework, there's no guarantee that you'll be right, but at least you've put your best foot forward and have, presumably, a sane and logical, even if subjective, conviction. Going "all-in," however, on the basis of that conviction, makes no sense. I scale into a position in Pandora much in the same way that people build up a constant flow of caffeine that circulates through their systems. Some cats buy a latte and muffin every morning, I put the investing equivalent of a latte and muffin into Pandora on weekly to bi-weekly basis.
I do that, on similar schedules, with a couple handfuls of stocks at different levels, based on the risk profiles and unique circumstances of each stock and company. I'm well aware that I will win some and lose some, but my current quality of life or long-term prospects likely will not suffer as a result. I do not keep 75% of my portfolio in plays like P. I reserve that portion for several far more conservative strategies.
In this $100,000 portfolio, however, I do things differently and, just as I make some trades that I actually make in real life, I make many that I would be much less likely to touch. If P dips below $10 anytime soon, I will buy more in "real life," but on a much lower scale than I will here in this simulated portfolio, where I seek to achieve the next-to-impossible.
That said, for the moment, I am keeping $10,000 worth of cash free in the event P flirts with the sub-$10 level. If it does, I will likely add to my simulated position in a big way and my real-life position with a fraction of that dough. Right now, with the remaining some odd $5,000, I am going to get pretty aggressive.
Lululemon (NASDAQ:LULU) reports earnings this Thursday, the 22nd. I've been bullish for awhile and it seems that nobody can tell me why the company does not deserve its market-assigned valuation. When I ask why it's overvalued, people either provide no answer; broadly state that brand loyalty cannot last forever; note that growth must slow because, well, it just has to; or reconstruct the question in the form of an answer - it's overvalued!
LULU, the stock, and Lululemon, the company, are on a roll. If the incredible numbers the company posted last quarter fall off of a cliff, color me stunned. I'm taking the type of pre-earnings risk I tend to shy away from most of the time by going long LULU via call options.
We'll grab five LULU September $75 calls for $8.00 per contract (Friday's closing ask price). That costs $4,000 and brings the cash balance in the $100,000 portfolio to $11,595.
Krispy Kreme (KKD) reports earnings on Tuesday. While the company has done a nice job picking itself up off of the ground, I think it's gotten a bit ahead of itself. As such, I will make a small bearish bet ahead of the report, going long five August $10 puts for $2.30 apiece (Friday's closing ask). That takes up $1,150 and brings the cash balance to $10,445.
By using long-dated contracts on LULU and KKD, I buy myself time and should take less of a hit and, potentially, give myself more time to recover if things do not go as I expect.
Additional disclosure: I am long NFLX June $40 put options.