Stock Option Trading Idea of the Week
A Look Back at the First Year of the Boomer's Revenge Portfolio
Exactly one year ago last week we set up a new options portfolio called Boomer's Revenge. I posted this statement on our sister website (www.BoomersInvesting.com) to explain what it was all about - "My goal is to recover the 40% or 50% you lost over the last year, and to do it in less than 3 years. It will require that you consider an unconventional investment idea that I feel confident you have never been told about before. Nor will you have read about it in the financial press, or Money magazine, or in the AARP magazine."
The Boomer's Revenge portfolio was based on SPY, the tracking stock of the S&P 500. At the time, SPY was trading around $82. For the long side, we purchased Dec-11 calls which had 21 months of remaining life and sold April calls with just under 4 weeks of remaining life.
Here are the actual positions two days after we started the portfolio:
You can see that we bought 3 calendar spreads at the 80 strike, 4 calendar spreads at the 85 strike, and 2 diagonal spreads, buying the Dec-10 80 calls and selling Apr-09 83 calls. We ended up with about a third of our short calls at strikes just below the stock price, about a third just above the stock price, and a third further above the stock price. We retained almost 5% of the $10,000 starting portfolio value in cash in case we had to make any adjustments during the April expiration month.
Over the course of the year, we rolled over short calls each month to the next month out, and selected strike prices that gave us roughly this one-third-each pattern.
The portfolio was an actual one maintained at thinkorswim, and all commissions are included in the results.
Over the year, when the portfolio value exceeded $10,000, we withdrew cash from the portfolio (in increments of $300) so that new subscribers could mirror the portfolio with approximately $10,000 to start. As of last Friday, a total of $5,400 had been withdrawn and the portfolio was worth $10,134.
We overachieved. We set out to recover the lost 40% or 50% in three years, and we did it only one year. Of course, the 54% gain for the first year understates the true return because the gains could have been reinvested instead to taken out of the account. But we believe that most of our subscribers were happy with the 54% they took home.
It is nice to see that our 10K Strategyactually works in the real world. I invite you to come on board and see for yourself.
In case you missed the videos I offered over the past few weeks, you can catch them here by clicking on the title you missed -
- Why Stock Options are Better Than Mutual Funds.
- How to Create a Conservative Options Portfolio.
- How to Use Options to Invest in Gold.
- Making Adjustments to a Conservative Options Portfolio.
Any questions? I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts.
You can see every trade made in 8 actual option portfolios conducted at Terry's Tipsand learn all about the wonderful world of options by subscribing here. Why wait any longer to make this important investment in yourself?
I look forward to having you on board, and to prospering with you.
Terry
Andy's Market Report
Has the market reached a short to intermediate-term plateau? Are investors growing pessimistic about the sustainability of the current market rally?
An advance and retreat scenario played out Thursday and Friday after the major market indices all hit strong overhead resistance. There was not a clear reason for the late-day pullbacks, but several well-respected analysts have stated over the past week that the market is in dire need of a pullback. The Dow has surged for two months with very few setbacks and has advanced 17 out of the last 21 trading days.
"The market is extremely vulnerable to a pullback," said Christian Bendixen, director of technical research at Bay Crest Partners in New York.
Recent gains have come on light volume which is often a sign of a weak rally.
"Investors may be trigger-happy to lock in gains at any sign of selling," said Michael Sheldon, chief market strategist at RDM Financial Group.
For the week, the Dow is up 1%, the S&P 0.6% and the NASDAQ 0.9%. The Dow hasn't risen for four straight weeks since last August.
On the economic front, the U.S. Commerce Department stated that real GDP was up 1.4% in the 4th quarter which was up slightly from a year ago. It was also reported that for 2009 GDP was actually lower 2.4%.
"Consumers are exhaling after the enormous loss of wealth from the recession. The intensive retrenchment that they were doing during the recession has ended," said Robert DiClemente, chief U.S. economist at Citigroup. "But we're only going to get moderate growth in consumer spending so I don't expect this to be a powerful recovery," he added.
Moreover, the University of Michigan's index of consumer sentiment remained at 73.6 in March which was slightly better than economists' had originally forecast.
Technically speaking, the Dow is in a short-term 'overbought' state. Moreoever, as I stated earlier all of the major indices pushed into and failed to move through an area of strong overhead resistance. Could the anticipated pullback occur soon? If it does occur, I expect to see the gap close in the QQQQ from 3/5 which would mean a move back down to the $45.76 level.
However, historically April is the fourth best month for the S&P (+1.25%) and the best for the Dow (1.8%). As we approach another earnings season typically the first half of April is where all of the gains are made (gearing up for earnings). Soon after tax day the market historically starts to show some weakness.
Andy
Overbought/Sold Condition Report
Overbought/Oversold as of March 29, 2010
Major Benchmarks
- S&P 500 (SPY) - 59.2 (neutral)
- Dow Jones (DIA) - 72.7 (overbought)
- Russell 2000 (IWM) - 48.7 (neutral)
- NASDAQ 100 (QQQQ) - 66.2 (neutral)