Alcoa Strategy Written by Shawn Stewart

For the past couple of weeks, I have been playing around with an income trading strategy with some of my bullish picks for the year. The company I used was Alcoa (AA). Since I was bullish, and I owned the underlying shares, I decided to sell puts (bets that the stock would go down) against my shares. For every 100 shares of a stock owned, you can write/sell an options contract for it. In this case, I owed 500 shares of AA, so I wrote 5 put contracts. Here’s the run down for the transaction:

• On 2/21/2014, I sold to open 5 AA 11 Put contracts. The price per contract was $.15 (or 100 x .15= $15), and the shares were trading around $11.84. This means I received a $75 ($15 x 5 contracts) credit to my account.
•  On 3/14/2014, I did a ‘buy to close’ transaction to buy the contracts back so I could close the position. On that day, AA was trading around $11.84, and contracts were trading for $.06 that day, so my profits were the initial $.15 premium minus the closing price $.06. That’s a $.09 (or $9) profit per contract.
•  Take that $9 X 5 AA 11 put contracts, and my profit was $45

Even though the stock pretty much traded flat despite my bullish conviction, I was able to lock in a profit because the shares never dropped below $11. If I let the contracts expire worthless, I would’ve collected a total premium $75 on the trade instead of $45.

Though this strategy yields less return compared to some of the trades Britney has previously made, it was a comfortable transaction. Some traders want to make returns, and be able to sleep at night, and if that is your risk profile then, I would definitely suggest looking into this type of strategy.

Another upside to writing contracts on your shares is that there is potential on top of potential. First off, you would profit from any upside gain on the shares. Secondly, you will still collect dividends on your stocks. And lastly, you now have more income from collecting the premium!

Disclaimer: This was not a risk free investment. If Alcoa, dropped below $11 per share, I would’ve lost money. In this strategy, it is imperative to find 1) a strike price that has a bit of cushion given the time till expiration, and 2) finding the highest premium to write contracts for.

Thanks for reading.

Shawn

Market Recap 3/21/14

This is the same recap I sent out via text on Friday.


Shawn will be posting an income strategy from his mock portfolio later on tonight. 



The big news this week was the FOMC meeting. The Fed decided to remove the 6.5% unemployment rate as a forward guidance target. Meaning the Fed will continue to keep interest rates low, which will encourage lending until the economy is stable. The removal of the 6.5% indicates that they are looking at more than just employment to gauge economic growth. 

Putin's comments eased some concerns of escalating tensions but commodities are still facing some volatility. 

There was some single stock news that put pressure on the major indexes but all and all, Friday ended light. 


Thanks for reading,

Brit

Market Recap 3/14/14

Hello!

First off, I started sending quick market recaps via text to a couple of people interested in learning more about the market and staying up to date. If you're interested please comment below, find me on twitter @BritReport or email me at britreport@gmail.com
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This week was full of macroeconomic news. I think it's important to understand how the events in the Ukraine  are impacting the U.S economy.


How we got here in less than 30 seconds:

• Russia wanted to invade the Ukraine
• The U.S does not want Russia to invade the Ukraine. To prevent the Russian invasion, the U.S threatened Russia with a number of sanctions. The sanctions will effect a number of businesses within the U.S.
• Russia positioned troops for an invasion 
• Today there was a vote on the decision to unite Russia and Crimea. The results were in favor of the union, however there are a number of questions regarding the validity of the results. 

It's good thing to remember  that geopolitical events effect a number of aspects in our economy, not just. Here are some of the effects:

Energy: Russia supplies Europe's natural gas, if we impose a sanction on Russia we could lose support from Europe. Without Europe, the sanctions will be less effective and Russian investors will pull their money out of the U.S and into Europe.

Currency: In times of uncertainty, investors want to decrease their exposure to risky currencies. On Friday, there was a rally in Japanese Yen. (the Japanese currency) Currencies are valued in comparison of another currency. As the Japanese Yen increased in value the US Dollar decreased in value. This indicates that the Yen was perceived as more stable than the dollar, which has a negative effect on the U.S.

VIX: Considered the "fear guage": was up 9.5%, indicating there is a lot of volatility surrounding the macro tape. As the uncertainity continues the market will continue facing downward pressure. 

In addition to the Ukraine, a slow down in China has also put pressure on the U.S Market.

The last week China released some poor economic data indicating a slow down in their economy. Considering that China has one of the largest economies in the world, a slowdown is definitely something that will be monitored closely going into next week. 

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Trading has been tepid with lower then average trading volumes. I will be using this pullback to buy NASDAQ based techs. (TSLA, SCTY)

• What do I mean by pullback? When the stock market is down it is a good time to buy stocks you like because they are trading lower. 

Thanks!

Brit

P.S 

If you would like to learn more about the Ukraine, I attached a map and a link to a timeline of Ukraines Political Crisis.

I read that American's were the most geographically challenged nation. So here's a map:

Timeline of Ukraine's Political Crisis

3/7/14 Recap

Hello!

This is a just a brief overview of what happened in the markets Friday

• Jobs numbers 
• 175K jobs added in February beating the 140k estimates, a positive indicator considering the dismal January data and the extremely harsh weather conditions. 

• Unemployment
• The unemployment rate rose from 6.6% to 6.7%, the increase was caused by more people entering the workforce. 

These two pieces of data are extremely important as the market begins to prepare for tapering. If you need a tapering recap check out my "What the Fed" post.

With previous job releases, good data indicated that the tapering would end and cause the major indexes to go down. Conversely, missing expectations indicated tapering would continue and the markets would continue their record breaking rallies. That trend seems to be coming to and end as the market has slowly started correcting itself for the September taper. 

Check out this article for more details: U.S gains 175,000 jobs in February 

Going into next week...

Markets will be pretty cautious Monday as the bull market hits the 5 year mark. To put it in perspective the average bull market lasts about 4.5 years. Even though it sounds bad, the economy moves in cycles,so this is information will not catch investors by surprise. 

I don't have any positions on right now but as soon as I will post those.

Thanks,

Brit