Friday, January 29, 2010

Sold HP

I sold my stock position in HP for $41.87. I still own the 2012 $40 calls.

Wednesday, January 27, 2010

Bought PWR calls

Bought Jan2011 $12.50 calls on PWR for $6.46 per share. If exercised, PWR will be 5% of my portfolio. PWR is currently trading at $18.20 per share.

Monday, January 25, 2010

Bought calls on AAPL, HP

Today I bought LEAP calls on my two largest positions. I bought 2012 LEAP calls on HP at a $40 strike for $12.70 per share and a 2012 LEAP call on AAPL with a $180 strike for $56.50 per share.

Buying the calls means I own the right to buy the stocks at the strike price any time between now and January 2012. It's a good way to regain liquidity without sacrificing too much upside potential. I can now sell my full positions of HP and AAPL if I need the cash to buy cheap stocks, but I will still profit if HP and AAPL continue to rise.

Friday, January 22, 2010

Sold RIG and ADBE

Sold my full position in RIG for $88.07. Sold my full position in ADBE for $35.52. I'll consider buying both back at lower prices.

Thursday, January 21, 2010

Bought KCI, GTI

I put 5% of my portfolio in KCI at $41, and another 5% in GTI at $14.

Tuesday, January 19, 2010

NS RIG puts exercised

The NS RIG puts I sold were exercised; here are the results:

The option package was "$2314.38 cash in lieu of shares, 47 shares of RIG." I put up $8000 per contract to secure the position. The contract was exercised.

I received:
$2,314.38 cash
47 shares of RIG (current market value, at $91.85/share, is $4,316.95)
$1705 option premium($17.05 per share, 100 shares per contract)

I paid:
$8,000 cash

So, my net gain is Cash + RIG + Premium
or $2,314.38 + $4,316.95 + $1705 = $8336.33

I paid $8,000 to get $8,336.33, approximately a 4.2% return in one month. If I could do that all the time, I'd write a book.

However, I repeat that NS (Non-Standard, also called "exotic") options are not for beginners. They can be very tricky, and you can lose a lot of money very quickly.

An unexpected result of the transaction is that my average buy price for RIG is now $126.28--my broker has a buy price of $8,000/47 shares, or $170.21 per share for my new shares. It will have no affect on my trading (or for tax purposes in my particular type of account) but it makes an ugly red mark in my portfolio. Let the record show that my effective buy price is ($8,000 - 2,314.38 - 1,705)/47 shares or $84.69 per share.

Friday, January 15, 2010

Bought back FLS calls

The FLS call I wrote was set to expire this month; instead, I bought it back for $25. Ouch.

To recap, I got FLS in July when shares were put to me at a $70 strike price. I was paid $5.90 for the puts. I wrote calls on the shares I was put, at an $80 strike. I was paid $4.20 a share for that part of the transaction. FLS performed far better than I expected, and now I want to keep the stock.

So here's the summary:

(purchase price) - (put premium) - (call premium) + (cost to close call) = effective buy price


$70 - $5.90 - $4.20 + $25 = $84.90 effective buy price.

The alternative would have been allow the call to expire and sell at $80:

$80 + $5.90 - $4.20 - $70 = $20.10 profit per share.

FLS is currently trading around $105, so if I sold my shares now, I'd get about $20.10 profit. Buying back the shares will be more profitable if FLS continues to increase in value. If FLS drops before I sell, then I would have been better off letting the contract expire.

Sold MDT puts

Sold May 45 MDT puts for $2.60 per share.

Thursday, January 14, 2010

Sold FPL

I sold my FPL at $50, taking about a 5% loss on the position. I closed the position due to the company's decision to reduce capital expenditures after a rate hearing went against them. I may write puts to get the shares at a lower price.

Wednesday, January 13, 2010

Bought GOOG

Bought a 2% position in GOOG for $580.

SLV called away early

The calls I sold on my SLV shares were exercised today. The calls were part of an income producing strategy, rather than a core holding. I'll wait until SLV drops in value, then write puts for more income.

Friday, January 8, 2010

Bought MELA calls

Bought July 2010 $5 MELA calls for $6.00 per share. MELA is a micro-cap currently trading at $10.33. If I exercise the calls, MELA will be just 0.5% of my portfolio. This is a small position because of the risk involved; it will only gain value if MELA's flagship product gets FDA approval.

Thursday, January 7, 2010

Bought more FPL, bought JNJ puts

Today I bought more FPL at $52.90. I already had 2% of my portfolio in this stock; this purchase brings my position to 5%. FPL is an electric utility company with two parts; one a regulated public utility and one an unregulated private energy producer. FPL has not participated in the broader market rally, up only 12% from it's March 2009 lows.

I also bought January 2012 $50 calls on JNJ for $14.70. Since I bought the calls, this means I have the right to buy JNJ at $50 per share any time between now and 2012. JNJ is currently trading at $64.

If I exercise these calls, I'll be buying JNJ for $50 + $14.70 = $64.70. The calls will increase in value if JNJ rises. I'll break even if JNJ is at $64.70 at the expiration date. If JNJ is below that price, my loss on the position will increase until JNJ drops to $50, for a maximum loss of $14.70 per share (i.e., the calls expire worthless). If JNJ is above $64.70 per share, I make a profit. There is no cap to the profit on this strategy. Since JNJ could theoretically increase to infinity, my profit is theoretically infinite, too. In practice, JNJ's record high is around $70 and I'd be surprised (if delighted) to see that height again. In that best case scenario, my profit would be around $15 per share ($70 - 50 - $14.70) if I exercised the contracts.

I could also resell the contracts, later. The price would depend on the time remaining until expiration, and JNJ's price at that time.