Options are doing it again

Note from Author:
I have written articles in the past about options investing. You can find
these by clicking on investments in the header and scrolling through the 
titles, or you can send an email mailto:freewavemaker@gmail.com and 
request them and I will forward you a link to all the options articles. 

New Options this week

As many of you that have followed my investment articles know, I just love buying call options.  When you buy call options you get to see changes in value rather quickly.  Sometimes these changes are positive and sometimes they are negative … but nevertheless … they are quick to happen.

Here’s five options I purchased for my brother and myself two days ago:

New Options

Using the program I use in excel to update these options … Marketxls … the Ask, Bid, Mid and Last prices of the options are updated by the minute … so these are not the prices I actually paid.  However, the amount in the yellow columns for Ed and Jerry are the actual dollars that were invested for each of us.  The Value (green column) updates based on the value found in the LAST column just behind the MID column (fifth column from the left).

In the upper left corner, you see a Portfolio Size of $68,662.52.  This was the size of the Options Portfolios (including cash) that he and I both have.  The 2% Risk of $1,372.45 is the amount he and I are willing to lose on each option investment.  This is used to calculate how many contracts we can purchase on each of five stocks.  Thus, if one goes all the way to $0.00 (and that is possible) the most we lose is 2% of our portfolio value at the time of buying the option.

The Estimated Contacts number comes from the product of $1,372 divided by the Ask Amount.  As you can see in the first one … since we could not purchase 3.92 contracts … we purchased 4 contracts.  In the last one we could not purchase 2.31 contracts so we purchased 2 contracts.

You will also notice that we are up on every option with the exception of 1 based on this information.  PFE (Pfizer Corp) is down about 6¢ for Ed and about $4 for me.  You will also note that Ed has lower costs overall than I do.  Why is this?

Since the market was declining when I was doing these trades on Monday of this week … I did my trades first followed by Ed’s.  This way he could have the advantage of lower costs.  Had the market been rising I would have likely done his first followed by mine.  Just a few minutes can change things quite drastically.

When I was doing this for a living before retirement, I was required by law to make sure that if I was purchasing the same investments a client purchased, I had to make sure the client got the better of the two prices.  In a rising market that means a lower price when buying and a higher price when selling.  I have just continued that lifelong habit.  Of course, since I cannot call in and correct a trade anymore to make it to the clients benefit … I simply have to time it – for better or worse.

You can see that Ed’s portfolio is up about $632.74 or 10.02% in two days and mine is up only $612.81 or 9.68% (though I am certainly not complaining since most people would give their right arm for this kind of a return in a year).

On an annualized basis … if this trend continues … and I certainly do not expect it to be this good … Ed could have a return of 1,829.09% while mine would be at 1,765.90%.

I’ve told you in the past that I tend to purchase the five Small Dogs of the Dow – Puppies – as I call them each quarter.  How have we done on this round of options overall?  First of all take a look at the Dow Jones Industrial Average chart since October 17, 2018 when I put the first five options into these portfolios for my brother and me:

DJI for Options

Notice that Yellow Line.  There has not been much movement at all in the past 111 trading days.  Overall the market is pretty flat … which means had you purchased stock in the DOW … other than dividends that were paid … you did not make a whole lot of money since October 17th last year.

Now look at these two options portfolios (the newer purchases are in green highlighting):

Jerry’s Portfolio:

Jerry Portfolio

Even though I have unrealized losses (not sold so not realized yet) on 8 holdings … I am up overall 33.69% during a period of time the market broke even.

Ed’s Portfolio:

Ed Portfolio

He, too, is up over 25.8% in the same period of time it has taken the market to break-even.  Now don’t confuse the Market Value of these portfolios with the $68,662.52 that I mentioned as a value earlier.  Remember that earlier value included Cash … these snapshots of the portfolio’s did not include cash.

Do you see why I like options?  I certainly hope you do.

Good Luck and Good Investing,

Jerry Nix, FreeWaveMaker, LLC


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