How Am I Doing?

Posted On March 2, 2015 2:41 pm

In the three months since I’ve started contributing to The Option Specialist I’ve made 22 specific trade recommendations. Let’s see how I’m doing.

All too often in the world of financial journalism of newsletter services people churn out all types of advice and stock picks and never circle back, or conveniently forget, to do a proper accounting of how those recommendations have fared. So in the name of transparency and the immortal words of Mayor Ed Koch, I’m asking “How’m I Doing?”

Each trade recommendation was arrived at taking the profit and probability approach described in this three part series.   Many, but not all, of these made into the $20k Portfolio in which position sizes might have varied according to conviction level, such as high risk/reward earning’s plays might only get a very small allocation relative to a longer term macro trend position.  Also, adjustments might have been made along the way to manage the position.

But for the purposes of this exercise, which is as much about learning about our process as it is about keeping score, we will assume each position was allocated the same dollar amount. Profits or losses are based on the closing prices at expiration or marked to market based on today’s current price.

The bottom line numbers are of 22 open positions 8 have been closed with 4 winners for a 165% profit.   We still have 14 open showing a current 470% profit thus far.

Here they are in chronological order:

The first recommendation I want to lead off with was actually my top pick for 2015. It was Lennar (LEN) the homebuilder in which I recommended buying January 2016 LEAPs $45 calls for $5 per contract. Shares of Lennar have climbed some 13% to $50 a share and the value of the calls have climbed to $8.30 for a 66% gain thus far. I still have a $55 price target but would start using a trailing stop to protect profits. 

The next item I wrote about was the macro theme of a Strong Dollar in which I suggested buying PowerShares Dollar Index (UUP) June $23 calls at $0.75 a contract. UUP has gained 8.6% and the calls are currently $2.25 for a $150% gain. I would consider rolling the position up to the $25 calls to lock in some gains.

I suggested Integrated Technology Devices (IDTI) as a way to play the evolution of wireless power charging I think is coming over the next year by purchasing the January 2016 LEAPs with a $17 calls for $4.10 a share. The stock has since gained some 10% and the calls are now trading $5.70 for a 39% gain thus far. I would look at creating a diagonal calendar spread to reduce cost and generate some near term income.

My foray into MakeMyTrade (MMYT) an India based online travel firm has not fared very well. The stock has been in a steady downtrend, off some 18% over the past two months. The May $35 calls I suggested buying for $1.50 are down to $0.30 a contract for an 80% loss. I would just close the position here to salvage what premium remains.

White Wave (WWAV) was a play to catch the organic trend and it was a stellar performer. Shares have climbed over 18% and hit our $40 price target. The April $35 calls we bought for $1.30 were able to be sold at $5.40 for a healthy 315% gain.

When volatility spiked in mid December we used a put spread in the iPath Volatility (VXX) to place a bet that it would revert to the mean. We bought the January $31/28 puts spread for $1.50 and when the VXX dipped down $28.10 a share 11 days later the position was near maximum profit and was closed for $2.80 for an 86% return.

Pollo Loco (LOCO) shares been nearly cut in half and when they hit $20 at the end of the year I thought it represented a good buying opportunity. We bought the March $22 for $1.70 and with the stock now at $25 the calls are now $2.60 for a 52% gain. With earning do next week I would close the position or roll up to lock in some gains.

Yelp (YELP) was a covered call of established by purchasing shares at $52.90 and selling the February $55 calls at $3.90 a contract.   Shares did climb above the $55 strike which would have allowed for a us close the entire position for a 35% gain. If you didn’t close it I would now sell the March $50 calls for $1.00 a contract. This would bring the cost basis down to $48 which is basically where it is trading now. We’ll call this one a scratch thus far. Keep rolling calls or close it down once shares move above the strike.

Costco (COST)  1.02.15 was a straight up purchase of the July $145 calls for $5 with $160 target. The stock surged to $156 on news it would issue a special $5 dividend and $8 for a 60% gain thus far.   I would look at selling some April $155 calls to create a diagonal calendar spread to reduce cost and generate some near term income.

Medallion Financial (TAXI) Was the anti-Uber trade in which we bought the May $10 calls for $1.00 a contract. The company recently reported earnings and shares traded as high as $10.90 but my $15 target seems unreachable. I’d close the position for a scratch here.

Under Armour (UA) Was a basic vertical call spread of the April $70/75 call spread for $1.80 a contract. Shares are at $77 putting the spread full-in-the-money and can now be sold to close for $4.80 or a 160% gain.

Crossamerica Partners LP (CAPL) was another covered call of purchasing shares at $39 and selling the April $40 call for $2 a contract.   Shares have slumped very badly dropping some 15% to $33 in just the past week. I would roll down the calls by selling the April $35 calls for $1 bringing our cost basis down to $36 for a current 8.5% loss.

Microstrategy (MSTR) was a bearish earnings play in which we bought the February $150/4140 for $3 and it resulted in 100% loss.

We looked to generated some in income in the SPDR Trust (SPY) SPY by selling an iron condor in the February 190/195-209/2113 for $1.15. The SPY surged to new highs the final week closing at $209.98 on the expiration allowing us to eke out a small 12% gain.

We got a little tricky creating with our Double Feature in which we paired a long position in Imax (IMAX) against a short position in Regal Cinema (RGC). The June $33 calls we bought in Imax have surged from $1.40 to $3.10 but the March $22.50/$25 call spread we sold for $0.75 is now $1.25. Meaning the position is now a solid 67% gain. I’d probably close it here and take the profit.

We tried another bearish earnings play in Google (GOOGL) using a butterfly spread. It was a total loss. But again, in the real portfolio approach I would have committed only about 25% of a typical position given was big risk/reward and earnings play. Still, here we take the full 100% loss.

We dipped into oil via the SPDR Energy Select (XLE) using a diagonal calendar spread that consisted of buying the June $78 calls and selling the February $79 for $2.75 debit . The XLE rallied above $79 at the February expiration and the position was closed for $4.10 credit for a 49% gain. If one wanted to keep trying to generate income the short calls could have been rolled. But I’ll take a near 50% return over three weeks anytime.

We stuck to the volatile energy patch to generate income in the United States Oil Fund (USO) by selling an iron condor in the March 13/15- 24/26 for $0.35 credit. After one month of decay it is down to 12c. With another 18 days until expiration I would close it out for the 55% profit.

Priceline (PCLN) bullish call spread in which we bought the April 1040/ 1080 for $14 delivered a quick 100% as the stock surged and we sold the spread for sold for $28 credit

Net Ease (NTES) bullish trade proved hard as our June 115/125 which we paid for $3.80 was stopped out at $2.00 for 47% loss.

Newly planted Scotts Miracle Gro (SMG) April $65 calls were purchased for $2 a contract and that’s about where they are trading. I have a $70 price target.

Athenahealth (ATHN) is a bearish diagonal calendar consisting of buying the September $130 put and selling the March $125 put for a $12 net debit for the spread. It is still right there.

So, all told not a bad start to the first three months. Remember, past performance is no indicator of the future. But no matter what happens we can always learn by that we all will profit.

About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.