$10,000 Income Portfolio

[GOB]

I'm planning to update the balance on a monthly basis, for several reasons:

1) It's easy to read off my monthly statement
2) It allows a good number of my positions to be closed to provide a realized gain/loss
3) It keeps me from thinking too short term - even though my trades are often short term my goal is to grow the portfolio with large, sustainable monthly gains

If I updated weekly most of the fluctuations in my account balance would be due to open unrealized positions, and that could be inaccurate and also lead to a false sense of confidence.

Since you asked though, as of right now my account can be liquidated for $21,583. That's a $1083 gain on my $20500 deposit, or a 5.3% gain in about 1.5 months. Although, I have only been trading with a $10,000 deposit until the start of this week, so actual return is significantly higher (but I'm too lazy to calculate).

[GOB]

Aug 15

Bought to Close: 2 KCG 22SEP12 4.00 P: -$223.52 (Total profit $83.52)

Felt like reducing my exposure to KCG, locking in a little profit and freeing up some valuable margin. I still have an 17AUG12 put sell that will get assigned to me as well as 2 more 22SEP12 put sells that I will hang onto for now.

Aug 16

Bought to Close: 1 AAPL 17AUG12 625.00 P: -$20.62 (Total profit $143.76)
Sold: 1 AAPL 24AUG12 630.00 P: +$435.37

[Lephturn]

Thank you humble_pie for pointing me to this thread! Excellent idea GOB, this is great. Thank you so much for doing this. Can you share how you are going about trade identification?

Last week I exited my reversal/synthetic - I sold a Jan 13 505 Put and bought a Jan 13 545 Call. I did this back in May when AAPL got beat down into the $ 530s. I exited last week sometime when AAPL went up to $ 615. Although I should probably have held on to the 545 Call, I had over an 8k profit and I wanted to lock that in given it puts me up about 20% on the year. I'm not going to put much of that profit at risk. That was a massive bet with tight stops that I put on when I felt AAPL was extremely underpriced - I normally don't do big directional bets like that. It also tied up about 15k in cash initially and I happened to have that cash in the account at the time. As it moved higher and higher I kept the trade on, but with a really nice move over 600 I had the vast majority of the short put profit already in hand, so I closed it. That left me with the 545 Jan 13 call deep in the money. AAPL had made a big move so I had a great profit in hand and I felt volatility was going to keep coming in + theta was eating my profits so I closed that position as well.

Any thoughts on AAPL in this current low vol environment? I have been poking around at a call back spread as that would be a combination volatility and directional trade. I am still examining the term structure and looking for the right strikes, but I probably won't have time to find the right contracts until the weekend. I'm looking to go fishing - humble_pie style - next week some time.

[humble_pie]

another thought just struck me. Is it true that IB presently does not charge any commish or fee for option assignments ?

this would mean that an IB client can, theoretically speaking, acquire a large portfolio of diverse stocks with zero commish. All he has to do is sell puts close enough to the money that they will likely be exercised. If assignment doesn't occur, then keep on selling puts.

ooh. This prospect is making me giddy.

[GOB]

I believe you are correct that IB does not charge commission for US option exercises or assignments. Not sure about Canadian but I'll find out and let you know.

Lephturn - Apple is in a tricky spot right not. All-time highs and a dramatic post earnings run-up imply that a correction may take place at any time. That being said the new iPhone is all but certainly launching next month, and there is the additional possibility of a smaller iPad at the same time or a little bit later that will dominate the 7" tablet market. Not to mention the recent first dividend payment and the mysterious television rumours.

If I were you I would have held the Jan 2013 $495 call and waited for assignment (if you had the capital). Reason being Apple will report two absolutely mind-boggling earnings results after that option expires. There's a high chance that the stock will take off again in Feb-Apr 2013. EPS for the first two calendar year quarters will surely (in my opinion) be $30+.

As for what to do right now, it's anybody's guess. I personally don't mind taking the risk of a correction while getting assigned the shares so I made another play today on Apple's strength:

Aug 17

Bought to Close: 1 AAPL 24AUG12 $630.00 P: -$203.51 (Total profit $231.86)
Sold: 1 AAPL 24AUG12 $640.00 P: +$499.37

I realise I'm playing on the edge here but it seems that as much I try chasing Apple doesn't want me owning their shares! Although my other accounts certainly appreciate it, it's actually not great for this portfolio that it's running up so fast - I'd much rather see it level out for a bit so I can play both sides nicely in a range. But I'll have to take what I'm given.

[Lephturn]

I believe you are correct that IB does not charge commission for US option exercises or assignments. Not sure about Canadian but I'll find out and let you know.

Lephturn - Apple is in a tricky spot right not. All-time highs and a dramatic post earnings run-up imply that a correction may take place at any time. That being said the new iPhone is all but certainly launching next month, and there is the additional possibility of a smaller iPad at the same time or a little bit later that will dominate the 7" tablet market. Not to mention the recent first dividend payment and the mysterious television rumours.

If I were you I would have held the Jan 2013 $495 call and waited for assignment (if you had the capital). Reason being Apple will report two absolutely mind-boggling earnings results after that option expires. There's a high chance that the stock will take off again in Feb-Apr 2013. EPS for the first two calendar year quarters will surely (in my opinion) be $30+.

What I had was a Jan 2013 545 Call - so not as good as $ 495, but still nice. Yes I probably should have left it on and then built a position around it to protect my gains, but I have such a nice profit I wanted to lock in some cash. If I ended the year right here I'd be in good shape, so I'm moving to lower risk positions.

What's got me looking for a different trade is the very low volatility. AAPL vol in the low 20's is cheap. That said you are right, a correction could happen at any time, and hence my thought to find a nice back spread. A back spread of selling a close to ATM call and then buying 2 more further out with at least 2 months to go should let me have a gain if the stock goes down (because vol will increase and I'm nicely vega positive), and a gain if it keeps shooting up, with the only big loss being if it sits in the hole between the strikes. That would only happen if I held it until expiration - which I would not do. I'm looking for a nice safe 10% or so on this play and I'm out.

[GOB]

What I had was a Jan 2013 545 Call - so not as good as $ 495, but still nice. Yes I probably should have left it on and then built a position around it to protect my gains, but I have such a nice profit I wanted to lock in some cash. If I ended the year right here I'd be in good shape, so I'm moving to lower risk positions.

What's got me looking for a different trade is the very low volatility. AAPL vol in the low 20's is cheap. That said you are right, a correction could happen at any time, and hence my thought to find a nice back spread. A back spread of selling a close to ATM call and then buying 2 more further out with at least 2 months to go should let me have a gain if the stock goes down (because vol will increase and I'm nicely vega positive), and a gain if it keeps shooting up, with the only big loss being if it sits in the hole between the strikes. That would only happen if I held it until expiration - which I would not do. I'm looking for a nice safe 10% or so on this play and I'm out.

That's fair enough - one can never be faulted for crystallizing healthy profits. That being said I won't be the least bit surprised to see AAPL around $750 by mid-2013 - maybe even sooner.

Volatility is low, which would typically make it a great time to get into naked calls and bullish spreads. The trouble is the $80 run-up we've just experienced. In some ways I wish we were back down between $570-600 because I would be backing up the truck on calls with very high confidence that they would pay out handsomely. The current situation makes it a much more difficult proposition, although LEAPs may still be attractive. I do have a couple of spreads in this account that will likely pay out, and several calls bought much earlier in other accounts.

I'm glad this thread is picking up - we're getting some good discussion here.

[Dopplegangerr]

I'm glad this thread is picking up - we're getting some good discussion here.

I am reading all the responses every day and enjoy this thread very much. Wish I had something good to contribute, have to settle on being a lurker for now

[GOB]

I am reading all the responses every day and enjoy this thread very much. Wish I had something good to contribute, have to settle on being a lurker for now

No worries, glad you are reading. Nothing wrong with lurking, I did so for a long time and still do if I have nothing to contribute.

[humble_pie]

gob earlier upthread i mentioned the conventional wisdom which preaches that short put = long stock less short call.

however, this tiny pilot account is certainly defying the preaching. Here's what i mean:

- account has collected, by severely rough estimate, perhaps net 1200-1700 from a sequence of put sales. Please correct if this is wrong.

- if one assumes that account was commenced 12 july/12 with initial injection of 10,000 & bought 100 shares aapl on margin, the price at close on that day was 598.90, so cost was 59,890. Some time later an additional 10.5k was added to improve the margin.

- with aapl closing friday at 648.11, the 100 shares would be worth 64,811, so this account has harvested a paper gain of 4,921.00. This does not take into consideration any theoretical premium that would have been received if a call option or a sequence of call options had been sold against the 100 shares, so actual gains would have been higher.

what a difference between the 2 strategies. 1200-1700 for short puts vs 4,921 for long stk. Selling short call would push this notional return to date above 5000, i am thinking.

ouf. Who knew.

one advantage of a tiny pilot project like this account is that all the numbers stand out so clearly. Lilliputian, but clear as glass.