We went to CASH!!! two weeks ago (12/5) and we're going to start January 2nd with 4 brand new Member Portfolios and sure, we've been finding a few new trade ideas over the past couple of weeks – just not for our official portfolios. It will be nice to have a clean start in 2018, 3 portfolios using 3 trading styles with $100,000 (Short-Term, Butterfly and Option Opportunity) and the $500,000 Long-Term Portfolio, which we cashed in at just under $2M after 4 years of trading (Nov, 2013).

We also have Top Trade Alerts at PSW – those are our favorite trade ideas from our Live Member Chat Room each week and they are sent out by Email and Text Alert to our Members as well. Our last Review, published at the end of September, covered the first half of the year and, through May 31st, we had put out 27 Top Trade Alerts (about one a week) and 21 (77%) had already been winners vs 6 losers for a $43,850 profit. That, of course, includes hedges, which are not supposed to win – so a pretty good collection of trade ideas!

In fact, the losers are the main reason our Members love the Top Trade reviews as we get a second chance to look at companies which we considered a good value, that got even cheaper a few months later. In the September Review, we had 3 losing trade ideas in March, April and May so, before we get into the June trades, let's look at what we did with those losers.

Our Monday, March 20th short on Tesla (TLSA) failed us but we rolled it into another short and got our win in May, so not really a loser but the original trade was. More valuable though, was our discussion of how to play and we'll look at those two new ideas from the September 30th Review:

When a trade like that moves against you, you can roll the short calls. For instance, TSLA is now $340 and the Oct $300 calls are $43.50 and the Jan $340 calls are $31.20 so we could roll 3 of those ($13,050) to 4 of the short Jan $340s ($12,480) near even and, if we can roll up $40 every quarter – we actually have a massive cushion on the short calls if we stick with them – as we did in the STP (though more aggressively). Similarly you can roll the long puts to higher strikes and longer months when they are not working – if you are willing to invest in the premise that they will work – EVENTUALLY.

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As you can see on the chart, TSLA fell apart nicely in October but not soon enough to avoid the need to roll but the 4 short Jan $340 calls, which were $31.20 per 100 option contract ($12,480)are finally turning into winners, currently at $13.25, which is $5,300 fora gain of $7,180 (57%) and, of course, that's much worse than our 12/5 cash out, when TSLA was $40 lower. TSLA will probably be one of our first shorts of 2018 – but, from our reviews, we know it's certainly not for the feint of heart – but at least we know how to handle them when they go against us!

Another great reason to read our reviews is to get an idea of what kind of trades are too risky for you. We have a lot of high net-worth traders, many of whom are fund managers so some of our trades are aggressive and this one, at one point, was down $16,280 before turning around. The margin requirements on naked short calls are also high, especially on a volatile stock like TSLA, which is why we only play with a few contracts at a time and we tend not to double down.

See, this is how our Top Trade Reviews work, we analyze the trades, figure out what went right or wrong and, hopefully, it makes us a little wiser the next time a similar situation comes up!

Wednesday, March 29th gave us our 2nd loser from the September Review and that was on Cheasapeake Energy (CHK), where I said:

CHK has dropped about $1 since our entry and BEING THE HOUSE can't save you from everything. Still, the damage is mitigated somewhat and, at the moment, the short puts have bumped up to $1.85 ($3,700) while the spread is now 0.70 ($1,400) for net -$2,400 which isa loss of $3,000 (500%)including our initial $600 cost. CHK is at $4.30 and here's a good example of a spread that should be rolled. 2020 options are out so we can:

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Roll 20 2019 $5 puts at $1.85 ($3,700) to 30 2020 $4 puts at $1.25 ($3,750)

Roll 20 2019 $5 calls at 0.85 ($1,700) to 20 2020 $2.50 calls at $2.40 ($4,800)

Sell 20 2020 $5.50 calls for $1.15 ($2,300)

That exchange costs $750, raising the net cost of the spread to $1,350 but now it's a $2.50/$5.50 spread that will pay $6,000 if CHK is simply over $5.50 in Jan 2020 – still a nice gain, albeit over more time. Meanwile, we still have the short $10 calls, now 0.15 and we could buy them back for $300 but better to put an 0.25 stop on them as they will likely expire worthless and save us the money.

Getting a good trade idea is only the first step in the process to being a successful investor – you must also learn how to manage those trades over time. That's what we try to teach our Members in the Live Chat Room at Philstockworld, where we discuss adjustments like these every day. We have an Education and Strategy section that you also should read, so that you can apply our lessons to these Top Trade Ideas.

CHK has gone even lower since September and the new 2020 $2.50 ($1.85)/5.50 (0.75) bull call spread is $1.10 ($2,200) while the 30 short 2020 $4 puts are $1.35 ($4,050) for net -$1,850 so this trade has lost $2,350 now – a small improvement from our $3,000 loss in September and still good for a new trade as you would now start with an $1,850 credit and $7,850 (424%) upside potential if CHK does get back to $5.50 – which we still expect. So, to be clear, as a new trade on CHK, we like (and you don't need 30 short puts – we just did that because we got in trouble):

  • Sell 10 CHK 2020 $4 puts for $1.35 ($1,350)
  • Buy 20 CHK 2020 $2.50 calls for $1.85 ($3,700)
  • Sell 20 CHK 2020 $5.50 calls for 0.75 ($1,500)

So, as a new trade, that's net $850 on the $6,000 spread for an upside potential of $5,150 (605%) if CHK is over $5.50 in two years. The worst-case scenario is that 1,000 shares are assigned to you at $4 + the $850 you spend on the spread (if you let it go worthless) and that's net $4.85 per share, so it's an aggressive entry but we're starting out $2,400 in the money at $3.70 and the margin requirement on the puts is just $417, so it's a very margin-efficient way to make $5,150.

Our other losing play from Q2 of 2017 was on IMAX (IMAX), from a trade we initiated on Friday, April 28th, where we had taken a small position in the Option Opportunity Portfolio, selling 5 Dec $29 puts for $2 ($1,000) "and see how they go before adding a bull call spread." As you can see from the chart, it went way lower, but that's actually what we wanted and it was time to add the spread, so I said:

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Imax took a tumble and 5 Dec $29 puts are now $6.50 ($3,250) fora $2,250 (225%) loss*. Our plan was to roll and double down and the March $24 puts are $3 ($6,000) so, for example we go from 5 short Dec $29 puts to 10 short March $24 puts and take $250 of our original $1,000 out of pocket. That puts us in the short $24 puts for net $750 and, as there are now 10 of them, it's 0.75 per contract and our break-even is $23.25.*

In our Member Chat Room, we added a bull call spread on the dip and we decided to drop to the March $22 puts, but that was back on 8/21, when we didn't know for sure if we'd recover. Now we're more confident and the $24 puts seem fine. The spread was 20 March $15/20 bull call spreads at $4.50/1.80 at the time ($5,400) and now they are $8,100 soI would not chase but, as a new spread, adding 20 March $22 ($2.80)/$26 ($1.15) bull call spreads for $1.65 ($3,300) is the way I would go as it's not too ambitious but still pays up to $8,000 at $26*.*

So the new set-up was 10 short IMAX March $24 puts (net $750 credit) and 20 of the March $22/26 bull call spreads at net $1.65 ($3,300) for net/net $2,550 on the $8,000 spread. Fortunately, IMAX is already over $24 and we're on track for the full $8,000 return and a $5,450 (213%) profit and, at the moment, the $24 puts are $1.30 ($1,300) and the $22/26 spreads are $2.45 ($4,900) for net $3,600 so already up $1,050 (41%) but still a nice $5,400 left to gain from here so great for a new trade.

That's how 2 of our 3 losing trades have already become winning trades. Learning to adjust your spreads is the key to long-term options trading. Now, let's take a look at our 2nd half trade ideas and see if we can find some more that are still good for new entries (ie, "losers"):

Tuesday, June 6th, we had two trade ideas for our Members, the first was for Barrick Gold (ABX) and we reviewed our thoughts on gold and concluded:

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does make ABX a bit silly down at $16, doesn't it? In the LTP we have the Jan $12/20 bull call spread at $3.15 (25) and I say we buy back the short Jan $20s (0.62) and leave the $12s but add 50 2019 $13s at $4.75 ($23,750) and sell 50 2019 $20s for $1.80 ($9,000) and sell 25 2019 $15 puts for $2 ($5,000) for net $9,750 on the $35,000 spread with $25,250 (258%) upside potential at $20 not including the fact that we're already up a few thousand on the original spread*.*

LOL, that's really more of an adjustment to one that was in progress and NOT a winner as ABX has moved lower since, now $14.32. The new part of the trade was 50 of the 2019 $13/20 bull call spreads at $2.95 ($14,750) and 25 short 2019 $15 puts at $2 ($5,000) for net $9,750, so we'll focus on that. The 2019 $15 puts are now $1.95 ($4,875) and the $13/20 bull call spread is $2.20 ($11,000) so, surprisingly, this one's a loser at $6,125, down $3,625 (37%) and fantastic for a new trade as the potential at $20 is $35,000 off that net $6,125 entry so that's $28,875 (471%) upside potential in 12 months. That one is definitely going in the new portfolios!

Our other trade idea from June 6th was for DineEquity, who had taken a harsh fall. My comment was:

DIN is in a tricky space given the declining traffic issues but mostly IHOP and AppleBees is pretty solid and the 50% sell-off is a bit silly and they do have options soI like selling the Dec $45 puts for $4.30, which nets you in at $40.70 if they go lower or pays way more than the $3.88 dividend if they don't. Let's sell 10 of those in the LTP to keep an eye on them*.*

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Keep in mind that was June 6th, so it was a bumpy ride but we got there and the Dec $45 puts expired worthless and made for a 100% gain ($4,300) in 6 months – simply for promising to buy 1,000 shares for net $41.30 back in June.

Tues, June 13th was a good lesson but a bad trade. I'll let the conversation speak for itself:

We wanted to discuss leverage today so let's talk about how we can limit our risk while still having good upside with a speculative play on the Pharmacy play, Zynerba Pharmaceuticals (ZYNE).

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ZYNE makes transdermal delivery systems (skin patches) for cannaboid therapeutics (pot) to help treat epilepsy and they are conducting a Phase II trial that, if it goes well in August, could lead to explosive growth. Or it could fail and they die – so it's the kind of play where we want to limit our losses.

Rather than buying the stock for $18, we can instead go past our expected August event and buy a bull call spread that limits our downside risk:

Buy 4 ZYNE Nov $15 calls for $7.50 ($3,000)

Sell 4 ZYNE Nov $22.50 calls for $5 ($2,000)

That puts us in the $3,000 spread for net $1,000 and our loss is limited to the $1,000 we put in yet our upside potential is $2,000 (200%) at $22.50. In order to make $2,000 at $22.50 you would need approximately 400 shares of stock for $7,200 and limiting your loss to $1,000 would mean you would have to set a stop at $15.50 and phama stocks are very volatile.

Using the spread does cap your gains but it limits your losses and gives you great leverage (7:1 in this case). Not only that but, because you are buying 4 $15 calls for $1,000 ($2.50 each), your break-even is $17.50, which is 0.50 below the current price – giving you a discount to buying the stock right from the start.

As you can see, the stock went the other way and collapsed, socall it a $1,000 (100%) lossfor someone who didn't adjust it (it was actually easy to save). The real lesson here is that, had the tradee been successful, it could have made 200% ($2,000), so there was plenty of upside but, rather than buying 400 shares for $18 ($7,200) and seeing them collapse to $6 ($2,400) and losing $4,800 – our loss capped out at just $1,000 and we only tied up $1,000 while the other $6,200 could have gone into more sensible trades. THAT is how you speculate – SAFELY!

Friday, June 16th, we decided it was time to buy Target (TGT) as they dipped on disappointing earnings – that is exactly what we define as an "Options Opportunity":

TGT is earning about $4 a share and you can buy them for $50, that's what I care about. I'm a fundamental investor and I like to buy stocks that make me a return on my investment as a business. If they are doing that, the stock price will eventually follow.

For their sector, figure 15x earnings ($60) would be a reasonable price and, even if you assume AMZN really hurts them for 10% (unlikely) then $54 is still better than we are now so let's add them to the OOP:

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Sell 5 TGT 2019 $45 puts for $4.20 ($2,100)

Buy 7 TGT 2019 $40 calls for $12.50 ($8,750)

Sell 7 TGT 2019 $52.50 calls for $5 ($3,500)

That's net $3,150 on the $8,750 spread that pays $5,600 (177%) and all TGT has to do is hold $52.50 in to Jan 2019.

That one was easy money and we're miles over our target on Target already and the short 2019 $45 puts are down to $1.50 ($750) and the $40/52.50 spread is already $8.32 ($5,824) out of a $12.50 potential for net $5,074, which is up $1,924 (61%) already but still $3,676 left to gain, which is 72% on $5,074 so, once again, even the leftover scraps from our PSW Trade Ideas make more money than the best picks from other services!

Wednesday, June 21st, our trade idea was for the Biotech Ultra ETF (LABU), which we love to play when they are low in the channel. We had discussed it in that afternoon's Live Trading Webinar:

Saw a good LABU (3x Biotech) idea in the Webinar for the STP:

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  • Sell 5 LABU Dec $45 puts for $5 ($2,500)
  • Buy 10 LABU Dec $55 calls for $19 ($19,000)
  • Sell 10 LABU Dec $70 calls for $12 ($12,000)

That's net $4,500 on the $15,000 spread that's $11 ($11,000) in the money with $11,500 (255%) upside potential at $70.

As you can see, LABU is right at our $70 goail and paid us in full last Friday, when they closed at $69.95 (OK, we were off by 0.05). That paid $14.95 ($14,950) on the spread for a $10,450 (232%) gain in just 6 months!

Friday, June 23rd, we had two trade ideas and the first one was a rare, straight stock pick on QuickLogic:

QUIK/Albo – Starting to move, hopefully it continues. Too bad the options are so thin but, at $1.36, may as well play the stock straight-up.

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At $1.68, that one is simply up 0.32 or 23.5%.

Too bad we didn't stop there but I couldn't resist GE as it began it's long fall (hopefully done now):

GE Time. Don't know why it's so cheap, don't really care. It's friggin' GE! I'm not even to discuss why buying GE with their $1 (0.96) dividend for $27.50 is a good idea as a stock you will proudly give to your Grandchildren one day. You either know that's true or you don't.

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For the LTP:
Sell 10 GE 2019 $28 puts for $3 ($3,000)
Buy 25 GE 2019 $25 calls for $3.85 ($9,625)
Sell 25 GE 2019 $30 calls for $1.40 ($3,500)That's net $3,125 on the $12,500 spread and we would be THRILLED to have 1,000 shares of GE assigned to us so we could DD and have 2,000 shares to collect dividends on on the mid-$20s ($50,000ish), which would pay us $2,000 a year while we sell more puts and calls.
At $27.60 now, you can sell the 2019 $25 calls for $3.85 and that drops the net to $23.75 so let's imagine things go badly and GE falls to $20 and we're forced to own 1,000 at $28 plus the $3,125 loss so $31.25 but GE is at $20 so we DD and we're at $25.58 avg on 2,000 shares and we sell 20 2021 calls for $2 and now our basis is $23 and we'll collect $2 in dividend and another $2 if we're called away for $4 (17%) profit despite GE dropping another 20% from here. That's the kind of play I can feel very comfortable with!

Those 2019 $28 puts are now $10.30 ($10,300) and the $25/30 bull call spread is 0.17 ($425). We did, in fact flip to owning the stock as it dipped but, given this net -$9,875 spread that cost us $3,125 for a net loss of $13,000 (416%), the way I would go with GE is to sell 20 of the 2020 $20 puts for $3.75 ($7,500) and buy 40 of the 2020 $15 ($4.20)/$22 ($1.30) bull call spreads for $2.90 ($11,600) and that's net $4,100 more into the spread so net $17,100 and the best we'll do is get $28,000 back if GE hits $22 by Jan 2020.

Of course, as a new trade, I love it as the upside potential is $23,900 (582%) and we're $11,000 in the money to start at $17.75 but, for our poor Top Traders, getting $10,900 back on $17,100 (63.7%) over 18 months is considered a trade that went badly for us.

Our final Top Trade Ideas for the first half were on Tuesday, June 27th, where I reiterated GE and TGT and we added 2 more:

FNSR has missed out on most of the tech rally after disappointing earnings in March (through 1/30), where they missed by 4.8% but still made 0.59 and still on track to easily make $2 for the year, which is a p/e of 13.5 for a company that does fiber-optics and 3D sensors (for self-driving cars). Well worth a long-term investment though they may get cheaper in a tech crash.

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In the LTP, our allocation blocks are $50,000 so no worries selling 10 2019 $25 puts for $4.80 ($4,800), which would net us in at $20.20 ($20,200) as an initial entry. We'll also play 20 of the 2019 $23 ($9.20)/30 ($5.90) bull call spreads at $3.30 ($6,600) and that will make the net of the whole $14,000 spread $1,800 with $12,200 (677%) upside potential*.*

In the LTP, we actually added a lot to FNSR on the dip to $18 but this trade, as it stands now, is not good with the 2019 $25 puts at $6 ($6,000) and the $23/30 bull call spread at $1.90 ($3,800) for net -$2,200 plus the $1,800 we put into it is down $4,000 (222%). That makes it great as a new trade with a $4,000 credit and a $14,000 potential return and we do still like them BUT, as a new trade, I'd go 2020 with the following:

  • Sell 10 FNSR 2020 $20 puts for $4.60 ($4,600)
  • Buy 20 FNSR 2020 $17 calls for $8.40 ($16,800)
  • Sell 20 FNSR 2020 $25 calls for $5 ($10,000)

This way, we're in the $16,000 spread for net $2,200 with $13,800 (627%) upside potential and that one is certainly going to be in our new portfolios as well. See – this is why we love our reviews – they give us great new trade ideas!

Our final Top Trade Idea for the first half of 2017 was, fortunately, a winner – as we didn't have a great June. It was for Cisco Systems (CSCO):

CSCO is another long-time favorite we don't happen to own at the moment. I've given up on $30 and again we have an attractive $1.16 (3.6%) dividend that would be nice to add to the LTP but, in this case, I'm going to do it like the above OOP play and we can sell high puts aggressively:

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Sell 10 CSCO 2019 $32 puts for $3.80 ($3,800)
Buy 20 CSCO 2019 $28 calls for $5.30 ($10,600)
Sell 20 CSCO 2019 $35 calls for $1.85 ($3,700) That's net $3,100 on the $14,000 spread with $10,900 (351%) upside potential at $35 and our worst-case is owning 1,000 shares for net $35.10 – we can certainly live with that after we double down, sell calls and start collecting our dividends, right?

CSCO went flying and is way over our goal and, already, the short 2019 $32 puts are down to $1.15 ($1,150) and the $28/35 bull call spread is at net $5.65 ($11,300) for net $10,150 and that's up $7,050 (227%) already but still another $3,850 left to gain over the next 12 months and that's 54.6% up from $7,050 if you start here – not terrible. One could argue that this is now a much safer trade too but I'm glad we cashed it in as we have PLENTY of ways to make 200-500% on our CASH!!! – so why tie it up to make 5% a month?

Overall, we had 6 winners and 4 losers in June and that's only 60% winners, which brings our average down for the first half to 28 and 10 (73.6%) – not counting the losers that turned into winners, of course. It's the losers we love to look at – that's where the bigger opportunities are and, since we are Fundamental Investors – it's rare that we see a losing trade as anything other than an opportunity to buy more stock and options for even less money.

From a CASH!!! standpoint, we netted positive $2,099 but it's better than losing and brings our first half total up to $45,949 in profits on 38 trade ideas. We already have a Watch List for 2018 and we'll be adding some of these trade ideas to that but we'll be very cautious with our new portfolios until we see some of those Q4 earnings reports later in January and get some 2018 guidance under what we assume will be a new tax code (see yesterday's post for my thoughts on that).

We're hoping for a nice market correction to give us some good entries but hope is not a valid investing strategy – so we study and review our past trades – to make sure we are ready and able to take advantage of the next opportunity that comes along.