At this point, I am no longer buying any financial company stocks, which I consider to be toxic. In the near term, the only investment I will make in a financial rebound is buying calls, which limits the downside. I had already used the call buying strategy with Ford, with no success, prior to the auto bailout. I briefly considered buying stocks with 6-7% dividends, but then several of the potential candidates cut their payout significantly. The only strategy that has been profitable is selling puts short on Monsanto and Energy Conversion devices.
Because the strategy is working, I will continue to sell put contracts to open. In addition, since I think a bottom is near, I have made selective buys of stocks that I believe will emerge well from the recession, Monsanto, Amazon (AMZN), and Energy Conversion Device.
I am also taking the opportunity to sell when the market rallies. Last week, I sold 50 shares of Amazon and 100 shares of Energy Conversion Devices at a 5-15% profit after owning them a week or less. If Monsanto rises into the 90s, I may also sell the shares that were acquired in 2009. I am hoping, OK - wishing:-), that the financial stocks will rally significantly when the mark to market rules are relaxed. If they do, I plan to sell these toxic stocks.
The portfolio was up 15.66% in the past week, versus a Dow increase of 9.14%. Financial stocks were up significantly last week in anticipation of accounting rule changes that will reduce the issue of mark to market of mortgage securities.
| Stock or Option [purchase date] | Shares | Purchase Price | Price on 3/13/09 |
| Bank of America(BAC) [10/3/08] | 100 | $38.00 | $5.76 |
| J.P. Morgan (JPM) [10/3/08] | 100 | $49.74 | $23.75 |
| Wells Fargo (WFC) [10/3/08] | 100 | $37.07 | $13.94 |
| Monsanto (MON) [10/3/08] | 50 | $88.97 | $79.11 |
| 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 | expired 1/16/09 at $0 |
| PNC May 45 call (PNCEI) [1/20/09] | 100 | $1.51 | $0.40 |
| PNC Jan 55 call (WYLAK) [1/20/09] | 100 | $1.71 | $0.90 |
| Monsanto (MON) [2/23/09] | 50 | $76.38 | $79.11 |
| Amazon (AMZN) [2/26/09] | 50 | $64.45 | $68.63 |
| Monsanto (MON) [2/26/09] | 50 | $80.26 | $79.11 |
| Amazon (AMZN) [3/6/09] | 100 | $60.25 | sold on 3/11/09 at $68.87 |
| Energy Conversion Devices (ENER) [3/6/09] | 100 | $17.49 | sold on 3/13/09 at $18.46 |
Currently, I have profited from all five put contracts which have been closed or allowed to expired. I will continue to sell put contracts on Energy Conversion Devices and Monsanto.
| Option [short date] | Shares | Short Price | Price on 3/13/09 |
| 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 |
| Energy Conversion Feb 15 put (EQINC) [1/14/09] | 100 | $0.44 | expired 2/19/08 at $0 |
| Monsanto Mar 65 put (MONOM) [2/23/09] | 100 | $1.09 | $0.10 |
| Energy Conversion Mar 20 put (EQIOD) [2/26/09] | 100 | $0.74 | $1.60 |
It's clear to me that the financial stocks will not likely recover in the near future. Originally I was looking to close out the long positions in the financial stocks by end of March, 2009. However, with the potential changes in mark to market accounting, I may hold the financial stocks a little longer.
Disclosure: At time of publication, I own shares of Bank of America, J.P. Morgan, Wells Fargo, Monsanto, and Amazon. I am long PNC call contracts and short Monsanto and Energy Conversion Device put contracts.
For more on New Beginnings, check back every Sunday for a new segment.
This is not financial or investment advice. Please consult a professional advisor.
Copyright © 2009 Achievement Catalyst, LLC
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