Sunday, December 28, 2008

12/28/08 Bottom Fishing Portfolio - Still No Bounce

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.

As part of this portfolio, I have also been selling put contracts to open on specific stocks. I have been selling put contracts at one to two months from expiration on Monsanto and Energy Conversion Devices (ENER).

Three weeks ago, I decided to buy some Ford (F) call options, to capitalize on a possibility of a rebound if Congress supports an auto industry bailout. On December 2, 2008, I bought the December 5 call and on December 3, 2008, I bought the January 7.5 call. Since the automaker bailout did not cause a large bounce for Ford, the December calls have expired worthless.

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. Of the three financial stocks, Bank of America has been the worst pick. It also appears that I had been overly optimistic about the market impact o the automaker bailout. Because I believe Monsanto has a good business, I may buy another 25 shares of Monsanto this week. If Monsanto drops below 60, I will consider buying an additional 50 shares.

The portfolio was down 4.4% in the past week. The overall portfolio is down 34.41%, after reaching a low of -45.30% three weeks ago.

Bottom Fishing Portfolio
Stock or Option [purchase date]SharesPurchase Price

Price on 12/26/08

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



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



Wells Fargo (WFC) [10/3/08]50



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



Ford Dec 5 call (FLA) [12/2/08]1000


expired 12/20/08 at $0

Ford Jan 7.5 call (FAU) [12/3/08]1000



Currently, I have profited from all four put contracts which have been closed or allowed to expired. Next week, I will consider selling some January put contracts short for both Monsanto and Energy Conversion Devices.

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

Closed Price

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


closed on 10/29/08 for $0.91

Energy Conversion Nov 20 put (EQIWD) [11/12/08]100


expired 11/21/08 at $0

Monsanto Dec 40 put (MONXI) [11/20/08]100


expired 12/20/08 at $0

Energy Conversion Dec 17.5 put (EQIXW) [11/25/08]100


expired 12/20/08 at $0

Unfortunately, it appears the rally from the Obama economic announcements has ended. The late November rally was the first five day rally since July, 2007 and the largest five day percentage gain since March 16, 1933. At this point, I am not very optimistic about a year end rally occurring. Perhaps, these stock may participate in a January effect rally which some experts predict is more likely in 2009.

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

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

Copyright © 2008 Achievement Catalyst, LLC


Early Retirement Extreme said...

How did you get to sell puts to open? Do you have to put down margin? Which broker do you use if you care to share?

Super Saver said...

@Early Retirement Extreme,

I needed to get approval for the highest level of option trading, i.e. selling uncovered options. A margin account is required, and there is a maintenance requirement to cover the potential of the option being exercised. The maintenance requirement will fluctuate depending on the value of the underlying security, and whether it is in or out of the money.

I used TD Ameritrade for the option trades discussed in this post.