Sunday, November 16, 2008

11/16/08 Bottom Fishing Portfolio Update - New Low

On Friday, October 3, 2008, I couldn't resist the temptation of buying some stocks before the bailout vote. I bought shares of Bank of America (BAC), J.P. Morgan (JPM), Wells Fargo (WFC) and Monsanto (MON). I believed that these three banks will not only survive this financial crisis, but will be one the four major banking powers in the next year. Monsanto was down over 50% from its high and its seed and agricultural businesses are still very strong.

In hindsight, I bought the financial stocks way too early. I've learned my lesson. I will not purchase any more financial company stocks, until there is a more clear turnaround in the financial crisis of 2008.

A new bottom occurred, due mainly to Bank of America, which is now down 56.79%. The overall portfolio declined again last week and is down 29.78%, surpassing the low of -27.15% from three weeks ago. Monsanto is also now declining, after being at break even for the past two weeks. The Monsanto put was closed on 10/29/08 for a small profit.

Bottom Fishing Portfolio
Stock [purchase date]SharesPurchase Price

Price on 11/14/08

Bank of America(BAC) [10/3/08]100



J.P. Morgan (JPM) [10/3/08]100



Wells Fargo (WFC) [10/3/08]100



Monsanto (MON) [10/3/08]50



I also sold one Nov 60 put contract on Monsanto. The contract is an obligation to buy 100 shares of Monsanto at $60. I closed out the contract at $0.91, for a profit of $148.49, or a 62.10% gain.

Put Contracts Sold Short to Open
Stock [short date]SharesShort Price


Monsanto Nov 60 put (MONWL) [10/3/08]100


closed on 10/29/08 for $0.91

At this point, the market and these stocks appear to be declining again. If Monsanto falls reaches the low 70s, I will consider selling a put contract, either a November 40/50 or December 50, on the stock again. I will hold the financial stocks, but make no additional purchases.

Disclosure: At time of publication, I own Bank of America, J.P. Morgan, Wells Fargo and Monsanto shares.

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This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC


Eric said...

Why didn't you wait another week and let the put expire worthless? Your gain would have been 100% of the premium less only one commission, rather than the difference in the premiums less 2 commissions.

Super Saver said...


Thanks for the comment and great question.

Here's why I decided to close the option. On 10/29/08, the date of the purchase to close, there were still 3-1/2 weeks to expiration. In this volatile market, I like to take profits, because I've seen paper profits evaporate quickly due to the large market swings.

At this time, it appears letting the put expire worthless was the right strategy, but it wasn't as clear to me 3 weeks ago. However, since I don't have any open positions on Monsanto puts, I am comfortable considering selling a Dec 50 or 60 put if Monsanto should drop further.