I am a big believer in setting yourself up for success. This is accomplished through education, motivation, commitment and organization. Investors reading this article and others are definitely seeking education, and are motivated and committed. However, without organization the process will become difficult and perhaps unmanageable. As we create a watchlist of the greatest performing stocks in the greatest performing industries and then buy certain equities and sell their associated options, it becomes essential to set up organized lists of accurate information. Enter portfolio management.
Definition: The art and science of making decisions about investment mix and rules, as we coordinate investments to our goals, asset allocation and balancing risk versus returns. The lists required include:
- Stocks on our watchlist
- Stocks selected and purchased for our portfolio that month
- Options sold in a given contract cycle
- Spreadsheet of options sold showing profits (losses)
Having these organized lists will allow us to do the following in a time efficient and accurate manner:
- Select the most appropriate covered call candidates
- Prepare for potential exit strategy executions
- Monitor our stock and option positions
Watchlist of the greatest performing stocks and stocks selected and purchased:
The figure below demonstrates an organized list of stocks and their current prices, both highlighted in yellow. You can also enter the original transaction price if these were also the actual list of stocks purchased for a particular contract cycle.
Watchlist of the options sold in a particular contract cycle:
The option symbols and current market values are highlighted in yellow. Transaction prices can also be included. When option values drop, we may want to initiate an exit strategy to generate additional income or reduce losses.
Spreadsheet of options sold with profits (losses):
The spreadsheet of options sold with profits (losses) show the following:
A- Stock ticker
B- Purchase price of stock (includes intrinsic value of option)
C- Option ticker (original or previous format shown in this example))
D- # contracts sold
E- Premium per contract minus intrinsic value of option
F- Strike price of option sold
G- Breakeven (stop loss price to some)
H- Profit generated by original option sale
I- B-T-C cost for exit strategies
The Premium Report:
Premium members of the Blue Collar Investor Corp receive a report each week where my team screens stocks looking for the best 1-month covered call write candidates. Stocks are screened both fundamentally and technically and a watchlist, called the running list, is generated. This will reduce the time and effort required although all final decisions and management of positions is still essential. The figure below will show you the first page of the screening process. The “Weekly Stock Screen” portion of the report faithfully follows the Blue Collar Investor stock selection process. Note the thick blue area towards the top categorizes the screens discussed in my books and DVDs:
The end of the report generates your watchlist of the greatest performing stocks in the greatest performing industries. We call it the running list because it is constantly being re-screened and updated to provide the most recent information. The figure below is one such running list:
You will note that additional information such as earnings report dates, industry segment analysis and beta are also included on this list.
Having organized lists of stocks, options and a spreadsheet of options sold, will allow us to become both time efficient and increase our opportunities of achieving the very highest of returns. We are setting ourselves up for success. These lists will facilitate stock selection, prepare us for potential exit strategy opportunities and help us track our returns.
The economic reports this past week were predominantly negative which explains the market volatility and decline. The trade deficit in June widened by $8B as the Fed admitted that the pace of economic recovery has slowed in the past few months. There is concern of deflation which is the simultaneous decrease in prices and rise in unemployment. This has rattled the market. On a mildly positive note, consumer spending rose slightly in July mainly due to auto and gas sales. The real silver lining has been the large percentage of companies that reported positive earnings surprises.
IBD: Uptrend under pressure.
BCI: Cautiously bullish. Fully invested selling mainly I-T-M strikes. I received dozens of emails asking why I-T-M strikes. It is this market volatility that guides me in that direction. I constructed a chart explaining IBDs position (my view of it anyway) and an interesting volume trend:
Note the following:
- The red arrow shows the uptrend that IBD is referencing and the ensuing pressue this past week
- The blue arrows show the recent market declines
- The green ovals show a declining level of volume with each succeeding downturn
- Decline #1 lasted longer than decline #2. Will the current downturn be the shortest of the three?
Thanks to all those in the NY area who attended my seminar this past Thursday and for the gratifying feedback you took the time to send to me. Thanks also to Barry Bergman for his outstanding presentation on the Premium Report.
My best to all,