That's not surprising since, in the first half of 2020, we had 27 out of 28 winning trades that made $503,547 as of our last review. That's a very successful set of trades and that is, of course, completely untouched as we don't go back and adjust Top Trade Alerts – they are high-value plays that are meant to stand on their own – though many of them do go into our Member Portfolios, of course.
Top Trade Reviews are very useful when you are looking for trade ideas to fill in portfolio gaps. Looking at the last review, I see IMAX has sold off again (Delta virus), HMY (Gold pullback), BBBY, CAKE (Delta) and ALK (Delta). PRESTO! We have a new watch list. Now we can go back and see if the Fundamentals of our recently-winning stocks have actually changed or it's just the sentiment.
As you know, we've been very cautious with our picks in the past month as we have been worried about the Delta Virus (and all the other varients still to come). Covid may be like the Flu, it will hit us year after year and we'll just get used to 0.1% of our population dying each year – as opposed to 0.02% currently killed by the flu. It's still a lot less than Cancer or Heart Disease as a cause of death – and people still smoke, drink and eat bad foods..
Finally a Top Trade Alert! T pays a $2.08 dividend at 0.52/quarter so it's great to own the stock but it also means we can just be aggressive in establishing a position since we'd be happy to own it, right?
- Sell 10 T 2022 $28 puts for $3.75 ($3,750)
- Buy 30 T 2022 $25 calls for $5.60 ($16,800)
- Sell 30 T 2022 $30 calls for $2.80 ($8,400)
- Sell 5 T Sept $30 calls for $1 ($500)
That's net $4,150 on the $15,000 spread so we've got $10,850 (261%) of upside potential if T can simply hold $30 for 18 months and, if it can't, we're selling $500 in the first 57 out of 547 days of this trade so we have a chance to collect another $5,000 to further soften the blow of owning 1,000 shares of T at net $32.15 (assuming the trade is completely wiped out and you are assigned at $28).
If all goes well, you can make over $2,000/yr selling short calls, which is as much as the dividend would be if you owned the stock.
As a rule of thumb, we always buy T when it's below $30, which makes now a good time as well. Here it should be noted that the difference between selling those regular short calls and not is a huge difference in this trade but, just looking at the one short call salw, which expired worthless, the 2022 $28 puts are now $1.90 (time decay is our friend) and the $25/30 bull call spread is now $3.40/0.60 for net $2.80 ($8,400), which is right where they were when we bought them.
Still, despite T's lack of movement in the past year (it was $29.92, in fact), BECAUSE we sold premium and did not buy it – Being the House and NOT the Gambler – we still have a net $6,500 trade that's up $2,350 (36%), even if we didn't sell the Jan, April and July short calls for another $1,500 (23%) - which was kind of the point of the trade.
At this point, the Jan $25 calls are $3.40 and we bought the spread for $2.80 but, with only 6 months to go, it is best to roll for time and the 2023 $25 calls are only $3.80 so spending 0.40 to buy another year of possible gains (and additional short call sales) and decreasing your Theta (time) decay by 66% is a no-brainer of a maintenance move.
Intel became our Trade of the Year for 2021, as it was down to $45 in November, back where it had dipped to when we found it irresistable that July. That's why there are 3 trade ideas for 3 portfolios at that price:
In the STP, let's sell 20 of the 2022 $50 puts for $8.50 ($17,000)
The $50 puts are now $2.75 ($5,500) for a gain of $11,500 (67.6%) and we just let the clock run out on those to get the full 100% gain.
In the LTP, let's sell 20 of the 2022 $50 puts for $8.50 ($17,000) and buy 50 of the 2022 $45 calls for $11 ($55,000) and wait for a bounce to sell short calls.
We used the same base to collect $17,000 but then we deployed it against $55,000 worth of calls to net in for $38,000. The 2022 $45 calls are now $9.55 ($47,750) less the $5,500 for the short puts is net $42,250 so only up $4,250 (10%) if you never sold the short calls but, if you didn't sell them all the way up to $65 – shame on you! In the LTP, we rolled the longs and sold the 2023 $50 calls for $6.25 and we're up about $28,000 on that spread. You don't have to adjust our trades – but it can make a nice difference when we do!
In the Earnings Portfolio, let's sell 10 of the 2022 $50 puts for $8.50 ($8,500) and buy 25 of the 2022 $45 ($11)/$55 ($6.50) bull call spreads for $4.50 ($11,250) and that's net $2,750 on the $25,000 spread that's $12,500 in the money so $22,250 (809%) upside potential is worth a toss.
Same short puts and this time a full spread as we're more conservative in the EP. The puts are $2,750 and the spread is $9.55/3.35 is net $6.20 ($15,500) for net $12,750 and that's up $10,000 (363%) and is still good for a double from here if INTC gets over $55 by January.
As a more conservative play, from scratch, I would go with the following:
- Sell 10 WBA 2022 $35 puts for $4.25 ($4,250)
- Buy 15 WBA 2022 $35 calls for $8.50 ($12,750)
- Sell 15 WBA 2022 $50 calls for $2.65 ($3,975)
That's net $4,525 on the $22,500 spread that's $9,000 in the money to start. The upside potential is $17,975 (397%) if WBA can get back to 50 over the next 18 months, which seems very reasonable to me.
Another stock I truly love. The short puts are down to 0.60 ($600) and the $35/50 spread is now $11.90/2 = $9.90 ($14,850) so net $14,250 is up $9,725 (215%) so far and should end up with the full $22,500 in 5 months, an additional 50% gain from here. Aren't options fun? Keep in mind, that was our conservative idea!
Again? Well, it was cheap again… I threw in a review of the Dividend Portfolio, which was down 2.9% at the time at $194,202 and now it's up 95.1% at $390,162 so, technically, there's $200,000 worth of gains in this alert!
For the T-less LTP, let's add the following:
- Sell 25 T 2022 $28 puts for $3.25 ($8,125)
- Buy 75 T 2022 $28 calls for $3.40 ($25,500)
- Sell 75 T 2022 $33 calls for $1.40 ($10,500)
That's net $6,875 on $37,500 spread so there's $30,625 (445%) of upside potential if T can simply move up 10% over the next 18 months and, since our worst case is owning 2,500 shares of T for $28 ($70,000) + $6,875 if we're wiped out on the spread, that's about $30, which is the current price so our worst case is owning T and collecting 7% dividends - not a bad worst case.
Jan $28 puts are now $1.90 ($4,750) and the $28/33 spread is $1.30/0.27 = $1.03 ($7,725) so net $2,975 is a loss of $3,900 (56%) and, of course, I would favor rolling the 2022 $28 calls to the 2023 $27 ($2.65) calls for $1.35 and then, when the short $33s expire, you can sell 2023 $32s (now $1.07) to pay for the roll. Obviously good for a new trade, selling 2023 $27 puts for $3.25 ($8,125).
- Sell 5 VIAC 2022 $25 puts for $5.15 ($2,575)
- Buy 10 VIAC 2022 $25 calls for $7.50 ($7,500)
- Sell 10 VIAC 2022 $32.50 calls for $4.35 ($4,350)
That's net $575 on the $7,500 spread that's $3,000 in the money to start with an upside potential of $6,925 (1,200%) at a very reachable $32.50 in 18 months. I think that's a comfortable ROI and the worst-case is owning 500 shares of VIAC for $26.15, about 10% off the current price.
Another stock I LOVE. We bought it so cheap back then it's 100% in the money with the short puts at 0.35 ($175) and the $25/32.50 spread at $15.45/9 for net $6.45 ($6,450) so that's net $6,275 for a $5,700 (991%) profit so far. It's a $7,500 spread so it's going to make $1,225 (19.5%) by Jan if VIAC stays over $32.50. That's how easy it is to make money using options!
- Sell 20 M 2023 $7 puts for $3 ($6,000)
- Buy 50 M 2023 $5 calls for $3.70 ($18,500)
- Sell 50 M 2023 $10 calls for $2 ($10,000)
That's net $2,500 on the $25,000 spread so good for a 10-bagger if M gets their footing back.
I love it when the new options come in – they are often mispriced and we can take full advantage. We're miles over target here and the short puts are down to 0.40 ($800) already and the $5/10 spread is now $12.20/8.20 so net $4 ($20,000) for net $19,200, which is up $16,700 (668%) already and we should get the full $25,000 out of this but how boring with only about 25% left to gain, right?
LNG has popped a lot, now $50.44 but we can adjust it as:
- Sell 5 LNG 2023 $45 puts for $9 ($4,500)
- Buy 10 LNG 2023 $40 calls for $18 ($18,000)
- Sell 10 LNG 2023 $55 calls for $11 ($11,000)
That's net $2,500 on the $15,000 spread so $12,500 (500%) of upside potential at $55 and we've got 2.5 years to get there.
Way too conservative on that one as it's 100% over our target already. The short puts are down to $1.25 ($625) and the $40/55 spread is now $44.23/30.85 for net $13.38 ($13,380) so net $12,755 is up $10,255 (4,102%) so far with another $2,245 left to gain.
T again, but I was only reiterating the previous call as it had gotten cheaper with a net $1,687 entry, which would now be a winner but we're only going to count the original trade idea above. Sadly, our only loss for the quarter.
Let's add PFE officially to the LTP as it's a solid entry:
- Sell 15 PFE 2023 $35 puts for $6.60 ($9,900)
- Buy 50 PFE 2023 $30 calls for $8 ($40,000)
- Sell 50 PFE 2023 $37 calls for $4.60 ($23,000)
That's net $8,000 on the $35,000 spread so our upside potential is $27,000 (337%) and our worst-case scenario is owning 5,000 shares at $35, which I doubt will be a bad thing.
We will, of course, sell some short calls, like 10 Nov $37 calls at $1.45 would use up 53 of our 844 days so not even 10% and if we collect $1,450 10 times, that's $14,500, adding 50% to our potential profits – but we'll only sell when we feel PFE is toppy – and it isn't at the moment.
Also looking conservative but so what, I'm a cautious guy who makes 300% on my speads – is that so bad? The 2023 $35 puts are down to $1.40 ($2,100) already and the $30/37 spread is $14.70/8.40 for net $6.30 ($31,500) so net $29,400 out of a potential $35,000 is up $21,400 (267.5%) so far. And that's WITHOUT selling any short calls.
9 winners out of 10 Trade Ideas for Q3 of 2020 gives us a running total of 36 for 38 (94.7%) for the year, so far. These 10 trades have netted $87,980 in profits bringing our 2020 total $591,527 in net profits on our Top Trade Ideas. Notice how we make all these nice, conservative trades on bargain blue-chip (mostly) stocks and they make spectacular returns anyway.
You don't have to chase after fad stocks or day trade to do very well!