OptionPundit

Category: Financial Freedom

  • OPNewsletter Oct’10 Up 7.7%, Gear-up for Earnings

    Undoubtedly GOOG earning play was a star trade generating over +800% gains in a day. It wasn’t sheer luck, we prepared ourselves for it. I shall share our exact trade after earning season is over as we plan to use similar strategies for AAPL and later for some more counters during this earning season.

    For the month of Oct expiration, OPN portfolio gained +7.7% on a maximum investment on 63.8% of the portfolio capital. This was our 32nd positive month out of past 34 months despite the worst financial crisis since the great depression. These results exclude P&L from speculative trades or trades mentioned on the OptionPundit blog or on InvesCafe. Here is the tally-

    – POT Income Portfolio: +45.9%
    – NDX iron Condor: +1%
    – Google OPN Portfolio: -16.7%
    – DIA: -2.08%
    – EWZ: +2.9%
    – IWM Portfolio: +10.9%
    – NKE Income Portfolio: +91.5%

    However, as I shared fills for my speculative part of the NDX iron condor trade, the trade generated +37% on the original base of $2K/ spread. That’s a magnificent returns considering that NDX moved over 200 points in one direction only and we didn’t do any adjustment since Sept 21.

    POT This was another star portfolio that generated excellent returns >+45% for less than 1 weeks holding. This wasn’t a speculative trade, but we let it run as the gains were accumulated due to rising IV while underlying didn’t move much. Google Income portfolio didn’t work out as I was expecting. I didn’t use any other combinations of backspreads/verticals/straight calls or puts (like I did in July) to keep it simple. I have shared my perspective about this portfolio. We played NKE earning as part of Income portfolio and within a day of holding this portfolio generated 91.5% returns.

    OP Speculative trades-
    These are bonus trades and are not part of the OPNewsletter and hence the P&L IS NOT part of OPNewsletter performance. We spend only a fraction of the overall capital for these trades and think of it is as accelerators (if we are right) but not as a dampner (if we are wrong). For instance, the Google trade delivered almost $1,500 for each $175 investment (for those who had $10K capital) that alone accelerates the capital gains by roughly 15% on the overall portfolio capital.

    We were stopped out of TLT, TIN was almost break-even. MOS generated +12 to +17% gains for one day holding, JPM generated from -55% loss to +100% profits; then we had great wins/partial loss on USDJPY pair via YUK calls

    OPBlog Trades– Gold, suggested on Sept 2 when it was around 1,250 and since then gold is up almost $100/ounce.

    Invescafe/Twitter Positions– I don’t send alerts for these trades as these are neither part of OPN nor bonus trade alerts and the key reason is because the trade time span can be from 5-10mins to hours and OPN members may not be able to reap benefits as by the time they receive these alerts, it will be too late for them.

    SIGA for +80% for 1 day holding, EQIX for > +50% profits, intraday,  TBT 30/28 BPS > +50% profits, TBT up over 10% since then, AXP +9%, AAPL, NFLX generated +150% and there are many more, check out my InvesCafe updates.

    While reviewing these results, pls keep the overall macro economic environmental context in mind. Sept (usually a bad month for markets) was a record month for S&P500 almost in 50years, a challenging month of non-directional income traders!!! The uncertainty is unusual, short interests are sky high. Yields on both Bonds and Stocks are almost at bottom. The expectations on returns are dismal at best.

    On the other hand, here at OptionPundit, OPN members/readers out of “stocks” since early April 2010, reminded them there is no such thing as “America Won’t recognize itself by the end of 2010” as projected by several top analysts and time and again talked about Feb Low, 10.3k and 10.7K for Dow. We are not taking unnecessary risk yet our returns are still respectable by almost any rationale standard.

    Trading is not about beating the market, always. No one can do that. Just like any other business, trading is a business and needs to be treated that way. We’ll have our shares of wins/losses. As long as we are humble and keep the “ego” at bay, learn from our mistakes and continuously sharpen our craft we’ll develop our own trading style. And if it is indeed a business then it’s not a destination but a journey through thick and thin of varying seasons.

    If you are not an OPNewsletter member and would like to sign-up, pls click here to sign-up for the waitlist as OPNewsletter subscription is open via invitation only.

    It was and still is, preserving capital is more important than a potential opportunity. Capital is for real, opportunity is “potential”.

    Congratulations on another successful month.

    Profitable Trading, OP

  • Financial Freedom – What is it? And What does it Take?

    Financial Freedom – What is it? And What does it Take?

    What is Financial Freedom?

    Today I plan to cover “Financial Freedom”, probably the most sought after “dream” by the investors and traders alike, almost all around world. But what actually is this? Does this really require as much complex and strenuous efforts as it seems? I plan to address a few key points, share some formulae or ratios that you can use to set targets for yourself and measure how well are you doing. This is far from perfect, but my intent is to give you some reference points that you can use for rough estimations (80/20) and also share that this really doesn’t require one to be extremely adventurous with his/her hard earned financial resources.

    Essentially it means that your passive income is more than your active/passive expenses.

    So what is that “One Number” sum that if you had you will retire?

    Some think of a million, others couple of millions and for others it might be much more/less depending upon needs/wants. It all starts with what is the monthly income you desire to have when you retire? Talk to any financial planner, schedule an interview and he can work this out for you based on your profile/wishes/needs. For our calculation purpose, let’s assume US$5,000/month is what you may need after you are retired, your kids are educated/married/financially independent, and you have your own place to live.

    What is the Risk Free Rate of Return in your country of living? Usually this is the rate government bonds offer. Well, there are times like the current “great recession” when there is nothing like risk free, but let’s assume that govt bonds are equivalent of risk free. Let’s say you live in US and it it might be 4% for 30year Bond while in an emerging market it might vary from 6 to 8%. If you are a client of “wealth manager” they may offer you say roughly 6% per annum. But for our calculations, let’s assume that you can only get 5% per annum.

    Here are the two equations we need for our rough calculations-

    1. Desired monthly Income = Financial Independence Target Sum (Your Number) X (Annual Risk Free Return/12)
    2. Financial Independence (aka Retirement) Target= Start-up Capital Available for Investment X [(1+monthly return)*number of month -1]

    Let’s solve the two equations using our assumptions-

    Financial Independence Target= Desired monthly Income X (12/5%) = $5,000X 240

    5,000X240 = 10,000 X [(1+monthly return)*number of month -1] – Assume 1) 5% per month via option trading and 2) $10,000 starting capital available for investment

    Solving the equation via Logarithmic way, you will get 98.3 months as an answer.

    OP Income NewsletterSummary – If your starting capital is $10,000 and you can generate 5% per month, you will be financially independent in less than 100 month should you desire to have $5,000 per month income (assuming 5% per annum risk free rate). You can calculate this for different assumptions.

    The target will be closer if you can add more capital along the way and/or improve your monthly returns. Of course there might be setback when market is not favorable to you but in the end, this simple power of compounding raises the question “do you really need to chase those speculative 1000s % returns? do you really need take unnecessary risk with your capital” Think again!!!

    Disclosure- Above calculation are for example and simplified. Pls use appropriate numbers that fits to your profile and also verify with your financial adviser/planner before concluding any financial decisions.

    Trade carefully, Trade profitable, OP