Good question, although it’s a little self-serving to both ask and answer the question.
LEAPtoProfit has now been available to subscribers for 4 full months.
Previous subscribers to OptiontoProfit will notice one immediate difference. That being that I hardly write anymore.
Instead of twice daily and weekly blatherings, there’s not much else going on besides posting trades as they are being made.
Oh, and there are far fewer trades than ever before.
If you read carefully, or maybe not even so carefully, neither of those should come as a surprise.
The idea has been to create a diversified portfolio that settles into the use of LEAPS to generate additional income and to do so without much fanfare or trading activity.
I’m older. I’m tired. I want to do things other than write and be glued to my computer and the ticker.
But I do still want cash flow and I don’t want mediocrity.
I could also do with less excitement, even as I welcome the return of volatility.
So while I’ve been settling in to a more subdued lifestyle, along the way there were some articles written regarding the actual process of doing just that, and as I now look at the LEAPtoProfit portfolio I see that every position still open is with short options written against those positions has a January 2019 time frame.
Well, that part of the mission is accomplished.
That means that the remaining open and covered positions are going to be pretty low maintenance for the next 3 months, at a time that we might expect continued volatility, as has been the case over the past 6 weeks.
That suits me just fine.
Option premiums, upside potential with strike prices and dividends while I wait.
Here is what the summary since July 1, 2018 looks like (click image to enlarge):
So a quick glance shows that there are 9 open positions and 6 that have been closed.
After 4 months I am closing in on the total number of open positions that I would like to have, which is in the 10-15 range.
What is missing is some diversification, as this snapshot demonstrates (click image to enlarge):
But that may change as the next few positions are established, but let’s dissect the performance statistics, starting with the 2 stinkers that are both currently uncovered.
Those are Bed Bath and Beyond (BBBY) and US Steel (X).
As with most of the positions opened since LEAPtoProfit’s inception, the initial trade was with short term call option sale.
As has been the case with the 6 closed positions, the idea is to start somewhere and either add shares and migrate to a longer term option or get out of the position with some profit in hand.
Good intention, but so far, bad execution for those 2 positions, although it may soon be time to add shares to one or both of those positions and Leapfrog the way toward January 2019.
Not so elsewhere, though, where the things to look at include the actual return on investment (ROI %) and the relative return on investment.
That relative return is a comparison to the performance of the S&P 500 for the time period of holding. In other words, if a particular position has been open for 92 days, as has been a position in General Motors, I’m looking at the S&P 500’s return for those same 92 days.
Looking at that latter metric, both BBBY and X are still doing poorly, but for now, of the 15 positions opened, those are the only 2 laggards.
In total, assuming equal weighting of positions (and that is not a valid assumption), the various positions have had a 0.9% ROI.
Not great, but still actually 3.3% better than having deployed money into the S&P 500 on the same dates as the 15 trades.
On the other hand, if you just placed all of the money into the S&P 500 on July 1, 2018, then your rate of return would have been 0.2%.
If you added in dividends on that S&P 500 holding, the returns would be roughly equivalent, though, so that means more work needs to be done on the existing portfolio.
As I look at the portfolio, I do, however, feel pretty optimistic in terms of how it will hold its value in the event of further volatility, as well as the opportunities to take advantage of that volatility with higher priced options.
When I think back to the 2007 – 2011 period, which seems like an eternity ago, there was a great set of opportunities that began with lowering stock prices and higher volatility and then ending with capital appreciation.
At the moment, and who knows how long things will last, we are seeing what appear to be some bargain stock prices along with heightened option premiums.
I love that environment, even as capital appreciation may be harder to come by.
My guess, at this point, is that if there will be opportunities to roll over some of those positions with short calls expiring in January 2019, I will probably look at either 6 month or 12 month durations for the next trade.
In doing so, I will also likely look to try and attain a total annual return of 12% for each position, as a combination of dividends, premiums and capital appreciation.
If I were more optimistic about the market moving higher, I might set my sights on a higher return, placing more emphasis on capital gains, but for now, I would like to optimize premiums.
What that means is that if there are opportunities to roll positions over, I would look at strike prices that if the positions are exercised would end up offering that return objective. If volatility declines and price appreciation seems attainable, then I would settle for less premium cash flow.
No matter what the market’s rate of return, I could be very, very happy with a year in and year out return of 12%
So, it is early, but so far, even as the market has been net flat for the first 4 months, I’ve been pretty pleased.
I hope you have, as well.
Feel free to let me know your thoughts.
Feel even more free to subscribe, although the subscriptions are not free.
That’s clear, right?
ADDENDUM November 5, 2018 11:00 AM
This morning was certainly not reflective of a typical morning, but here is an example (as subscribers would see it on the “Most Recent Trades” page), of the trades made in support of the LEAPtoProfit portfolio:
One trade, Hewlett Packard Enterprises (HPE) replaced shares that were assigned away the previous Friday at the same strike price. In this case, I once again purchased shares and sold short term in the money calls on the position.
In this case, I was willing to secure a 1.3% ROI for the week, even if shares fell as much as 1.6% during that time period.
This is now the third position in HPE since July 1, 2018. I am actually looking to possibly add new or additional shares prior to next month’s ex-dividend date, but after November’s earnings release.
Additionally, with some strength in US Steel (X), the previously reported “stinker,” I sold January 2019 calls, taking advantage of that price strength to move the strike price up to $35, whereas previously it had stood at $34.
(As a side note, the “Ex-Dividend” column includes legacy trades from Option to Profit positions for those past and continuing subscribers.)