I’ve been staring at a “what if” spreadsheet for about 4 months
With now just 2 weeks to go until most of the LEAPtoProfit positions are set to see their options expire, there’s a lot to be done.
Of course, given the very recent uncertainty injected into the market and world economies, who knows how things will unfold, but that’s pretty much true any day of the week.
First, let’s start with some of my priorities.
The major priority I have for 2020 is to develop an income stream of 10%, which would be comprised of option premiums and dividends.
At the moment, to be able to do that, most positions in the portfolio could have January 2021 call options sold at strike prices that are 5-10% above their current prices.
What that means is that I would be perfectly happy to end 2021 with an increase in portfolio value of 15%.
Ecstatic, actually, even if the S&P 500 has a repeat of 2019.
In reality, however, I expect an overall decline in 2020 in the index.
Looking at the current LEAPtoProfit (and the legacy OptiontoProfit portfolio for old subscribers), that means some positions will be assigned in 2 weeks, some will expire, some will be rolled over and perhaps some currently un-optioned positions will find a reasonable strike price and premium.
What all of this means is that some positions may have options sold upon them at strike prices below their purchase price and perhaps below their break-even price after option premiums and dividends are factored in.
That means a loss, if assigned.
All in all, though, I don’t really care about that as long as my overall portfolio value increases by the objective I set at the beginning of the year.
If you were paying attention, this year that’s 15%
So, for example, take a real horrible loser like US Steel (X).
It’s currently trading at $10.79, a far cry from its purchase price and its $28.86 break-even price.
But with a combined income of $1.25 for a January 2021 $15 option, that’s an 11.5% income stream for a strike price that represents an additional 39% advance from its current price.
Still a loser, but for 1,000 shares that would add nearly $5,500 to portfolio value.
It’s a team effort. I don’t care about individual glory.
In some cases I may look to rollover in the money positions, perhaps at the same strike, if I want to retain the position because of desiring a portfolio with better balance.
For example, I’m under-weighted in Healthcare.
You might recall that I recently rolled over the Bristol Myers Squib (BMY) position in order to secure the January dividend.
In that case I did so for only a month, but when that February 2020 contract is coming up on expiration, there may be reason to roll that over rather than looking for a new replacement position, even as my eyes are on Pfizer (PFE).
For OptiontoProfit subscribers, I may have changed my mind on Newmont Mining (NEM) this morning as it announced a nice dividend increase.
In both of those cases, using the same strike price would basically mean that I was willing to accept a return based only upon income generation, but also would enjoy about 5% downside protection in price, as both are currently in the money.
That’s fine if you think the market or an individual stock may not have as robust of a year.
Again, if listening, you know that’s one of my underlying premises.
Iran, elections and who knows what else; like maybe an old and tired bull?
Anyway, stay tuned