Logical Progress Advancing a Little Bit Every Day


What a great buying opportunity

Quick mobile blog post: good pullback the last two days, quite a bit of panic selling but leaving a great set up to average down on my prices. Already added more PM yesterday on the drop. Looks like global markets are back in buying mode now. Can't wait to see what happens today!

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INTC Covered Calls Follow Up, Market Declining Now

After two down days we're starting to get into a reasonable position on these INTC options.

As a preface, there are formulas that explain these pricing phenomena; the market makers and algorithmic traders are using them, except they've plugged them into computers. I'm not a mathematician, and I don't really make option trading decisions based on options pricing models, except when I'm using a black-scholes calculator to figure out if the market is under/overvaluing option premiums. The problem I have with using those is that implied volatility and be measured and derived in so many ways; it's IV that determines the bulk of these pricing models. What I instead choose to do is look at what the market is offering and what I'd be willing to take. I wouldn't write a call if the premium and assignment profit weren't worth it, like I did with those Ford weeklies.

Market is closed now for Wednesday June 12th. INTC closes at $24.46 per share, a pullback from $25.01 on Monday's close. My June $24 calls closed at an ask of $0.68. We're looking at a $0.22 time value premium for a week and a half before expiration. Two days ago, the time value was $0.12 per share. Now that the stock is less in-the-money, the time value premium tends to increase as the delta increases. It's still in the money, but just not as much, so delta impact has already set in on its fall from $25.01 to $24.46, and now delta is greatly reduced as it gets closer to both the strike price. The delta on the June $24 is 0.6841, lower than Monday. [I'm sorry, I'm looking through my notes and I definitely didn't record the delta on Monday, that's crucial for showing the comparison, but trust me, when INTC was $25.01, the delta on that call was higher than 0.80.]

The frustrating part for the option writer that really wants to hold the stock is that the intrinsic option value is now equal to his sell price, presenting an opportunity to get out at a break even, but there's also $0.22 of time value! This option writer is still in the red! Unless the stock pulls back to $24 in the next seven trading days I either have to roll or say goodbye to the stock.

I'm still counting on further pullbacks. I'm loving the current devaluation. It makes my portfolio look kind of sad, but it also gives me lower entry points.

Can't wait to see what INTC does next week

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How Intraday Price Action Affected My Option Rolling Strategy

Chicago in Summer

Hi again everyone, the market is now closed and I wanted to look at how today's price action on Intel (INTC) stock affected my options premium. It closed at $25.01, up $0.42. This is enough to skew delta out of our favor. ITM options have higher deltas the closer they are to expiration, which means the ones I'm holding are rising in price faster than the ones I'd like to roll out to. Let's look at three points of interest, the price to buy my call back (A), the price at which I can sell Sept calls (B, C):

A. The ask of my June $24 call closed at $84 on Friday, the ask at close today is $113, a $29 increase.
B. The bid of the Sept $24 call closed at $145 on Friday, the bid at close today is $169, a $24 increase.
C. The bid of the Sept $25 call closed at $95 on Friday, the bid at close today is $113, an $18 increase.

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Review of Current Short Call Positions Going Into June 2013 Expiration

Garbage Pail Kids Zack Snack

Hi everyone! Another relaxing weekend behind us and a full week of trading ahead of us! We've got two weeks of trading until the June options expiration cycle, and I've got a couple positions that could play out either way. While I do regularly watch all my positions, I tend not to mess with most of my short calls unless I can buy them back for a decent gain. This month I have two in-the-money short calls that I need to start planning for. [Continue reading]


Dividend Portfolio Mid Year Review


Hi everyone, it's the first week of June so I thought it'd be a good time to see where I stand with my dividend portfolio. In prior articles I talk mostly about my quest to build positions in the S&P Dividend Aristocrats, but some of my dividend holdings are not on that list, and some will probably never be on that list (I have a few positions deep in the red that are best left for dead, but I'm not selling at the moment, I'm hopeful of a comeback). [continue reading]


Added to my VF Corp (VFC) Position on Wednesday

Just a quick update to the dividend aristocrats portfolio: added another 10 shares of VFC for an additional $8.70 quarterly income. Small, yes, but a valuable addition nonetheless. I was hesitant to buy in since the price had jumped up so much, but I had idle cash and I felt it more better that it was working for me. After all, income is the goal. It went ex-div on Thursday. Have a great weekend all.

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Added Philip Morris International to Dividend Portfolio

Just a quick update, I took an opportunity on a small pullback today to add Philip Morris International (PM) to the dividend portfolio. If you don't know, PM was a spinoff of Altria (MO) a few years ago, they've spun off their international arm. It's not officially part of the S&P Dividend Aristocrats, and neither is Altria, but I consider it to be a strong enough candidate to hang with the other aristocrats in my portfolio. 

A lot of analysts believe this company has a lot more growth potential than Altria due to the decline of smoking in the USA. I agree with them, and while there are some obstacles (like the bland packaging on cigarettes in Australia and general public health initiatives in developing countries), I still feel that the growth opportunities are huge.

Having lived in the UK for over two years now I can say with confidence that the most popular brand of cigarette here is Marlboro, and smoking still remains quite popular with minimal public outcry. Sure the packages have pictures of lung tumors, but that doesn't seem to be much of a deterrent. Smoking in the US is on a major decline, but in the UK and other parts of Europe it still seems to be en vogue. This is why I feel PM will do well.

They are paying a 3.7% dividend, and they haven't announced their latest one yet but I'm anticipating an announcement next week with an ex-div around June 25. Stay tuned

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Play The The Ford Weekly Options For A Mild Ride

Also posted on Seeking Alpha Instablog

I do say mild in the title with great enthusiasm, not sarcasm. Of course the recent action in Ford stock has been fun to say the least. I'm usually not a serial put-call writer in practice, I do like to dabble a bit when I can.

I recently came into some cash when my short Altria (MO) calls got exercised. I know, I was sad, but I have loads of it in another account anyways, so I was overweight. Flashback to mid February, I was already up a couple points on my holding so I decided to write some $34 calls for a bit of cash to roll into my dividend favorites. I didn't anticipate the great run on the markets and the stock had gone to $37 by May 17 expiration, so at that point it was too deep to roll. I couldn't use the cash to write more Altria puts since the only $34 worth selling didn't expire until next January. So, fresh with $3400 cash, I decided to get back into old faithful Ford. [continue reading]

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Followup on Ford options play and dividends for this week

Ford closed at $15.89 today, recovering from a bit of a spill, so I closed out my options position in the last minute of trading for a small gain. I tried to close it out in the first minutes of trading, as it spiked into $16.10 territory, but I set my limit too low because I wasn't in a position to watch intently at the moment, so I set it and forget it. I was greedy though, I could have settled for less and it still would have been more than I made on the close. Oh well, a profit is a profit.

To summarize, I was assigned 200 shares of Ford (F) at $15.00 on the May 24th expiration, I sold two calls before the close in anticipation of assignment. Those calls got exercised on the May 31st expiration; knowing this was going to happen, I turned around and sold the $15.50 puts for June 7 expiry. I intended to hold these into expiration and see what happens, perhaps repeating the same strategy for the following week. In the end I decided I should employ my $3100 cash into something else...back to building dividend shares.

On my radar tomorrow: Pepsi (PEP), Genuine Parts Co (GPC), Kimberly-Clark (KMB) and Becton Dickenson (BDX). These all go ex-div on Wednesday. In my existing portfolio VFC Corp (VFC) goes ex-div on Thursday, but it's shot up pretty far from where I originally bought it, so I'm going to leave that. ADP is going ex-div next week but is in the same situation, moved too far from my entry point and I don't want to average up.

I also need to look at building up my positions with less than 100 shares, I need more positions eligible for covered call writing. Unfortunately positions like VFC, at about $185 per share, are going to require a lot more cash to get there, especially with the recent run up in price. It becomes a balancing act: add new positions while also adding to existing positions. At some point I'll have to decide on a more humble basket of stocks with less frequent buying intervals, I don't have enough free cash flow to keep supporting this buying behavior. For now, I'm not there yet, but I'll probably reach saturation around September or October, depending how the summer turns out.

Or, I could sit on the cash and wait to see what Ford does on Friday, but I'm kind of over that action. It's been a good two weeks, I made a nice little sum. I'm looking at other weekly options strategies like NVDA (NVDA). I suppose the conclusion of this article is that I cannot make up my mind, and that's OK. I'll let you know what happens next.

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Selling those Ford calls was a bad idea

A lot of times in life you learn lessons the hard way, and you base your actions on expectations of the future, right or wrong.

Ford is now trading at $15.80 pre-market. I wrote calls with a strike of $15, so I'm leaving a ton of money on the table. My only saving grace here is that I still have 200 un-leveraged shares in another account with a buy price about $10, so I'm still sitting pretty.

On the flip side, because its moved so far away from $15, the premiums on $15 puts expiring next week are going to be practically zero. This is a shame, but at least I put my money to work for me, otherwise that $3000 would have been sitting earning zero interest.

Here is a summary of the anatomy of this trade:
Wrote 2x $15 puts expiring May 24 for a net return of $22
Prior to assignment, I wrote the $15 calls expiring May 31 for a net premium of $14
My total return on the $3000 required to be put on the line was $36, or 1.2% over a two week period. A rough annualized return on this would be about 31.2% assuming I'd be able to repeat this scenario every two weeks, unlikely though.

However if I hadn't written those calls, I'd be up $160 on the whole position. I was certain it would waver around $15 for a little bit, and I'm overall bullish on Ford, but never expected it to rise so much so fast, especially during yesterday's brutal sell off.

Oh well, the important take away here is this: a small profit is better than a massive loss.

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