Monday, November 11, 2013


Subsequent to my talk before the S.F. Bay Area Options Group last month, I decided to update my LEAP portfolio for YTD (year so far) results. I was happily surprised that the amount earned on paper ( marking to the market as no trades have been completed) was so high. Entry into these 15 trades was staggered, starting in Dec. of '12, then pretty much monthly up until October, so I did not expect much profit, especially from the later trades. Much like a long distance track race, each stock starts at a different place, but ends simultaneously, on January 2015, for those Leaps, although I have started doing 2016 Leaps, now that they are out as of October expiry.

Despite several dubious candidates ( e.g., gold, metals) that have underperformed short term - expected to rally by 2015- there were counterbalancing trades such as NOK, RAD, TSL and F that rose enough over their short time to allow a rollout and up with the puts.

Bottom line, of the $60,000 invested over 2013, current profit is just under $7,000 for an 11.67% gain, due to the consistent decay of both calls and puts sold, with an occasional dividend thrown in. There are several metal stocks "under water" (below the Leap put price, which, if they do not rise by Jan.2015 expiry, will force me to take on more stock, do another Leap strangle two years out, and lower down in price - since I already own the original shares there is no cost basis there!

I have run this by several option "experts", such as people in the SF Option Group, Alex Jacobson - the prior instructor at the CBOE , and my old Schwab team who handle Friends of Chuck. Possible risks, but very minor, are total bankruptcy, and either a merger or takeover which have variable consequences. One such high risk trade could be on JCPenney, around for a century or so: a 2016 strangle brings in an immediate 75% return  of principal (no dividend yet). At expiry, another 2-year strangle should double one's money, no matter what the price of JCP. Caveat Emptor!

Obviously, stocks in the $5 to $15 range will probably not be the highest quality, but early profits and exits are also likely, although LEAPs needs very little monitoring or tweaking. My estimates are 20 to 60% returns, with annualized returns in the 20%s.

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