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.
| Stock or Option [purchase date] | Shares | Purchase Price | Price on 12/26/08 |
| Bank of America(BAC) [10/3/08] | 100 | $38.00 | $13.36 |
| J.P. Morgan (JPM) [10/3/08] | 100 | $49.74 | $29.8 |
| Wells Fargo (WFC) [10/3/08] | 50 | $37.07 | $27.71 |
| Monsanto (MON) [10/3/08] | 50 | $88.97 | $67.72 |
| Ford Dec 5 call (FLA) [12/2/08] | 1000 | $0.078 | expired 12/20/08 at $0 |
| Ford Jan 7.5 call (FAU) [12/3/08] | 1000 | $0.088 | $0.02 |
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.
| Option [short date] | Shares | Short Price | Closed Price |
| Monsanto Nov 60 put (MONWL) [10/3/08] | 100 | $2.39 | closed on 10/29/08 for $0.91 |
| Energy Conversion Nov 20 put (EQIWD) [11/12/08] | 100 | $0.69 | expired 11/21/08 at $0 |
| Monsanto Dec 40 put (MONXI) [11/20/08] | 100 | $1.19 | expired 12/20/08 at $0 |
| Energy Conversion Dec 17.5 put (EQIXW) [11/25/08] | 100 | $1.39 | 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
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2 comments:
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?
@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.
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