We had a pretty good week with our new portfolio.
The goal of the $5,000 portfolio is to play around the volatility of earnings and make no mistake, it’s a high-risk way to trade $5,000 and is meant to be a small portion of a large portfolio – not something you would want to do with your only $5,000. Of course the usual disclaimer is, this is a virtual portfolio, don’t try this at home, trading is dangerous, always consult a professional financial adviser,etc, etc. The idea is to practice different option strategies and we had a very exciting first week!
Our first play 4 plays that we closed wereon AA,DIA,SGR, MCD and DELL, which had a total gain of $629 in our first 6 days. For details on those trades, go to the Day 6 post. We havebeen posting all of the moves for the $5KP in member chat, of course, but also on Seeking Alpha’s Stock Talk, where we have discovered the added bonus that, like Twitter,you do not have to refresh the page to see new comments! If you want to follow these trades,just click on”Follow“under my picture andyou will automatically see any comments made there.
On Wednesday, we also had an opena ratio backspread playon YUM and we sold6 Aug $37 calls for $1.15 ($690)and bought 4Aug $35 calls for $2.20($880). The idea of a trade like this into earnings is that a large drop will hurt your callers more than it hurts you and, to the upside, youhave net $800 in thenet $190 spread before you have to pay your 2 open callers a penny. That means they would each have togo up $3 before wipingout your profits. SinceYUM was at $36 atthe time and we did not feel it would be likely to go to $40, even on great earnings, the play made sense. YUM hadvery poor earnings and droppedright down to $34, below our strike. We decided to buy back the6 Aug $37 calls for.40 ($240), so a gain of $450 on that leg. That left us with the 4 naked Aug $35 puts, which we paid $880 for, less the $450 gains so we are in those 4 calls for an average of $1.13 per contract. The calls have fallen to .70 so we are down .43 on those ($172) so far. While we do feel that YUM is still a good value, our concernis…