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Progress Report - Our 5 Trade Ideas For The Next 5 Months

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Philip Davis's Blog
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  • I know it's only been two weeks but we want to put stops on some of our Trade Ideas already.
  • We haven't cashed out our main portfolios yet but it's almost time.
  • Knowing we can make this kind of money as a substitute gives us more confidence to cash in our other positions.

"Let me tell ya, your love (your love keeps lifting me)Keep on lifting (love keeps lifting me)Higher (lifting me)Higher and higher (higher)I said your love (your love keeps lifting me)Keep on (love keeps lifting me)Lifting me (lifting me)Higher and higher (higher)" - Jackie Wilson

Here we go again!

3,028 was our July high on the S&P 500 and we're so close this morning we might actually get there into the weekend - isn't that great! This is the highest the S&P has been since it dropped 200 points (6.66%) in the last week of July/first week of August but we held that top for a good two weeks so it's not that likely we'll fall right back off the cliff on Monday - especially as the driving catalyst is "progress" on the China deal and we're not actually meeting until October - so we can have a whole month of enthusiasm before the next breakdown.

That's good news because we'll be adjusting our portfolios into next Friday's Options Expiration Day and it's Quad Witching as the quarter is ending as well so Futures contracts expire along with stock options and I'm going to be very hard-pressed for a reason not to take the money and run on a good deal of our positions, rather than risk an uncertain Q4 - keeping in mind that last year we rolled into September making a new all-time high at 2,950 (that's right, the S&P is only up 75 points (2.5%) since last year) but plunged 600 points (20%), below 2,350, into Christmas.

I think a proper China Trade Deal could take us up to 3,300 but that's up less than 10% from here and that's our "reward" compared to a much larger risk so I'm inclined to cash our out portfolios and start again from scratch. In fact, to demonstrate that we could just start again from scratch and not miss much, I posted "5 Trade Ideas to Make $25,000 in 5 Months" for Seeking Alpha two weeks ago (Aug 29th) to demonstrate what we could do with our money if we cashed out.

So if, for example, we were to cash out our $300,000 Options Opportunity Portfolio (from the SA Marketplace), which we began with $100,000 less than two years ago, we could re-deploy just $6,565 of our cash and $26,659 of our margin on just 5 trades to make up to $33,603 if everything went perfectly. As silly as it is to worry about the trades after just two weeks - we may as well see how they're doing as the point is to demonstrate that we shouldn't fear cashing out our porfolios over worries we might miss some gains.

These are just the trade ideas - our logic behind them is, of course, back in the original Report:

  • Sell 5 VAC April $85 puts for $5.70 ($2,850)
  • Buy 7 VAC Jan $80 calls for $20 ($14,000)
  • Sell 7 VAC Jan $90 calls for $12.80 ($8,960)

As you can see, Marriott Vacations (VAC) really took off and we're way over our goal already. The April puts have fallen to $2.75 ($1,375) and the Jan $80/90 spread is already $31/22 for net $9 ($6,300) so net $4,925 is already up $3,550 (258%) in just two weeks. Our max gain on this spread is $4,810 so we can only make $1,260 between now and April so I'd pull the plug on this one if VAC fails to hold $110 (super-tight).

  • Sell 10 WBA Jan $50 puts for $3.70 ($3,700)
  • Buy 30 WBA Jan $47.50 calls for $5 ($15,000)
  • Sell 30 WBA Jan $50 calls for $3.60 ($10,800)

Walgreens (WBA) just got a downgrade yesterday so back to $55 but still a strong play. The short $50 puts have dropped to $1.60 ($1,600) and the $47.50/50 bull call spread is tight and that works against us but still $9.10/7.10 is net $2 ($6,000) so net $4,400 is up $3,900 (780%) but our max gain here is $7,000 and I think WBA is a fantastic bargain so I'm inclined to keep these for the next $3,100 gain (79% from here) but not if they can't hold $55.

  • Sell 10 LB Jan $17.50 puts for $2.80 ($2,800)
  • Buy 25 LB Jan $15 calls for $3 ($7,500)
  • Sell 25 LB Jan $17.50 calls for $1.85 ($4,625)

L Brands has been very disappointing but we caught this one right and the short puts are down to $1.60 ($1,600) while the $15/17.50 spread is now $4.75/3 for net $1.75 ($4,375) so net $2,775 is up $2,700 (3,600%) but another $3,400 left to gain is still 122% more than we have now and we only have to hold $17.50 to get paid - this one's a keeper and even good for a new trade - if you don't mind ONLY making a 122% return on cash in 5 months (4.5 now!).

  • Sell 10 THC Jan $20 puts for $2.50 ($2,500)
  • Buy 20 THC Jan $15 calls for $6.50 ($13,000)
  • Sell 20 THC Jan $20 calls for $3.10 ($7,500)

Tenet really popped for us and we're miles over our conservative goal so this one will be a keeper too and the short $20 puts are already down to $1.15 ($1,150) while the $15/20 spread is now $11.50/7 for $4.50 ($9,000) so net $7,850 out of a possible $10,000 is already up $4,850 (161%) out of a possible $7,000 but why close it when we have $2,150 (27%) more to gain if THC can just hold $20? That's now down 20% from where we are!

  • Buy 50 SKT Jan $12.50 calls for $1.85 ($9,250)
  • Sell 50 SKT Jan $14 calls for 0.95 ($4,750)
  • Sell 20 SKT Jan $15 puts for $1.85 ($3,700)

Tanger (SKT) is another one we played fairly conservative and I can't believe this stock is under $20, let alone $16.50. The puts have dropped to 0.85 ($1,700) for a nice gain and the $12.50/14 spread is now $4.25/2.85 for net $1.40 ($7,000) so that's net $5,300 out of a possible $7,500 but we're already up $4,500 (562%) so I'd put a tight stop at $16 on this one to lock it in as well.

So, in just 2 weeks, we're up $19,500 against our $25,000 goal (we didn't expect to be perfect) and that's a 297% overall gain on the $6,565 cash requirement. See - it wasn't hard at all to find substitutes for our portfolios, was it? The reason we did so well is we purposely picked stocks we thought had strong value and we waited PATIENTLY for a good bottom to pull the trigger. We also had a high VIX (over 20) which gave us great prices on the short puts and short calls we sold while we paid a far lower premium for the in-the-money calls we bought. That's BEING the House!


Have a great weekend,

- Phil

Analyst's Disclosure: I am/we are long VAC, WBA, LB, THC, SKT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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