Not much excitement today so a good time to review.
So far, the first 3 quarters of 2020 have been very successful with 36 (94.7%) of our 38 Top Trade Ideas already winners for $591,527 in profits – no wonder it's our most popular feature! It's important to note that these are nice, simple trades we do on mostly blue chip stocks and we don't even adjust them – that's how we can do things if we simply pick strong Fundamentals and that's what our Top Trades are all about – spreads that we feel are most likely to produce winners over time.
Top Trade Reviews are very useful when you are looking for trade ideas to fill in portfolio gaps. Looking at the last review, I see T is cheap again, INTC is down, WBA cheap, and VIAC still cheap. Going back in time and getting back into stocks that have performed in the past is a great way to fill in the gaps in your portfolio. Just yesterday, in fact, we added INTC back into our Long-Term Portfolio (and it was a Top Trade Alert – again!).
We were very cautious in Q4 of last year so I'll be curious to see what we picked. We had lightened up our portfolios into the quarter, much as we did this year as well. By the way, I know our Top Trade Picks are erratic because we don't let an arbitrary schedule like "every week" dictate when we find a great pick. We're not getting 94.7% right because we take the best of whatever we see on a Friday. WHEN we see a great deal – THEN we make it a Top Trade Alert – if there are no good trades in a month – so be it. If there are four in one day – that's fine too.
Top Trades for Thu, 01 Oct 2020 13:39 – EPD
Good little company with a nice dividend. I like it! We already have ET in the Dividend Portfolio but I think there's room for EPD and their $1.78 dividend so let's go for the following:
- Buy 1,000 shares EPD at $15.92 ($15,920)
- Sell 10 EPD 2023 $13 puts for $2.85 ($2,850)
- Sell 10 EPD 2023 $15 calls for $3 ($3,000)
That's net $10,070 on the $15,000 spread so about 50% upside and the $1.78 dividend is 17.67% while you wait! Worst case is we get to own 2,000 shares at an average of $11.53, which is a 27.5% discount to the current price. That's the worst case – and we're not even counting the $3.50(ish) you will collect in dividends over 2 years. Aren't options fun?
We are way over target on this one and will likely get called away at $15,000 in Jan 2023 for a $4,930 profit and we just collected an 0.45 ($450) dividend on the 28th and that was our 5th so $2,250 in dividends plus $4,930 in profit is $7,180 in returns so far for a 71.3% profit in just over a year. Who says dividend stocks are boring?
Top Trades for Thu, 08 Oct 2020 08:44 – JETS and Future Is Now Portfolio Review
So that makes a 2023 spread on JETS kind of interesting with Trump promising to save the airlines and the Democrats trying to save the airlines. Eventually, hopefully, SOMEONE will actually save the airlines. For a trade in our Future is Now Portfolo, I'd go for:
- Sell 10 JETS 2023 $15 puts for $4.40 ($4,400)
- Buy 15 JETS 2023 $15 calls for $6.50 ($9,750)
- Sell 15 JETS 2023 $25 calls for $3.65 ($5,475)
That's a net $125 credit on the $15,000 spread so, if all goes well, it will make $15,125 (12,100%) if JETS is back over $25 in 2023. Worst case is owning 1,000 shares at $15 (less the $125 credit) and we can always sell calls to lower that risk if we lose confidence but it's a nice, optimistic bet on things getting back to normal – one day. Ordinary margin requirements on ETFs are pretty low, just $841 for this one so it's a very margin-efficient trade as well!
We were way over target and now but, at the moment, the short puts are just 0.55 ($55) and the $15 ($8.55)/25 ($2.35) bull call spread is net $6,20 ($9,300) for net $9,245, a $9,370 (7,496%) gain off our original credit. Aren't options fun?
Top Trades for Mon, 12 Oct 2020 06:53 – IBM
Of course you can own IBM for $100 by selling the 2023 $100 puts for $11.50 so, if we consider that free money, then our trade can be:
- Sell 5 IBM 2023 $100 puts for $11.50 ($5,750)
- Buy 10 IBM 2023 $110 calls for $26 ($26,000)
- Sell 10 IBM 2023 $125 calls for $19 ($19,000)
That's net $1,250 on a $15,000 spread so there's $13,750 (1,100%) upside potential if IBM stays over $125 and, if it doesn't, we should be thrilled to invest more money in rolling down the short calls to the $100s for $5 ($5,000) or less or the $90s for $10 or less ($10,000) and then we'd be in a $35,000 spread for net $11,250 with $23,750 upside potential if we make it back to $125 but our break-even would be $101.25 – that's a risk I could certainly live with!
That's what makes a great trade, the downside to this one is owning 500 shares of IBM for net $102.50. I'd LOVE to own 500 shares of IBM at $102.50 so there's nothing about this trade that worries me. I'll almost be disappointed if it goes straight up and all we make is 1,100%. Meanwhile, it's a nice, margin-efficient trade as the ordinary margin is just $4,028 as it's more than 20% out of the money on the short put side.
We don't have IBM in the LTP so let's add this one but with 10 short puts and 20 long spreads.
Be aware that they are spinning off so these options will get messy down the road but, like SPWR, I'm not afraid of a good decision affecting our position.
We just sent out a new Top Trade Alert for IBM yesterday as we were excited to get back in at $125. We cashed out this spread already but, even if you didn't, the short puts are down to $5.20 ($2,600, and no way I would pay that for them!) and the $110 ($19.50)/125 ($10.50) spread is net $9 ($9,000) for net $6,400 which is up $5,150 (412%) but this is a $15,000 spread that's in the money so it's actually good for a new trade with $9,850 (191%) upside potential.
Top Trades for Wed, 14 Oct 2020 10:06 – GS
There's been some spillover from Main Street to Wall Street as Bank of America's (BAC) profits are down 16% in today's report and Wells Fargo's (WFC) are down 56% but Goldman Sachs' profits almost doubled expectation at $9.68 per $215 share in a single quarter – very impressive. We don't have much banking in the LTP and GS is a good one (well, evil, but good earnings) so let's add them with the following trade:
- Sell 5 GS 2023 $165 puts for $20 ($10,000)
- Buy 10 GS 2023 $170 calls for $60 ($60,000)
- Sell 10 GS 2023 $210 calls for $40 ($40,000)
That's net $10,000 on the $40,000 spread that's 100% in the money to start and all GS has to do is not be lower than it is today in 2.25 years and we make $30,000 (300%) – aren't options fun? Our worst-case scenario is owning 500 shares at net $185, 15% lower than the current price and the ordinary margin requirement is just $5,718 – so it's a very margin-efficient way to make $30,000 too!
This one is ridiculously in the money – I'm sorry we didn't buy a lot more. The $165 puts are down to $2.80 ($1,400) and the spread is about $39 ($39,000) so net $37,600 is still up 276% if you cash in early – which you should because, obviously, we can do a lot more with $37,600 than spend a year making $2,400 (6.3%).
That's part of the less of the Top Trade Alerts. These are "set and forget" trade ideas that consistently make tremendous returns, very similar to our Long-Term Portfolio picks (often the same). Understanding that you can consistently make well over 100% returns on cash will hopefully help you to think clearly about the use of cash and margin in your portfolio and not waste opportunities sitting on positions with low potential returns.
And what was the "risk" to the above trade? The worst case is we'd be forced to buy 500 shares of Goldman Sachs at $165 per share ($82,500) but FUNDAMENTALLY, we didn't consider that to be a bad thing because GS was ridiculously undevalued. Clearly the stock has proven that as it's now double our target a full year ahead of schedule.
Top Trades for Thu, 22 Oct 2020 09:44 – CHL
If T is making money, I bet China Mobile (CHL) is making money as they have 950M subscribers and AT&T has around 100M yet T is valued 50% more than CHL, which is trading at 7.6x earnings. We already have CHL stock in our Dividend Portfolio, because it pays $1.97 (6%) per $32.65 share and we have 1,000 shares so we're going to promise to double down at $30 by selling 10 2023 $30 puts for $5.50. That would net us into 1,000 more shares at $24.50.
You can just sell the puts for $5,500 to initiate a long position but, in our Long-Term Portfolio, we're going to also buy 30 of the 2023 $27.50 ($6)/35 ($3) bull call spreads for net $3 ($9,000) and that will put us in the $22,500 spread for net $3,500 and we're sure to be able to make that up selling a few calls along the way. The ordinary margin on the short puts is $1,444 so it's a super-efficient play as well. If all goes well and CHL is over $35 in Jan, 2023, then the profit on the spread will be $19,000 (542%).
We're going to call this a loss because CHL no longer trades in the US due to whatever BS our Government and China are going through. We can't collect on the options (which are technically in the money) but we can't be assigned either as the brokers can't trade the stock so, unless the rules change again by next January, this is a $3,500 loss.
Top Trades for Tue, 10 Nov 2020 11:50 – IBM
IBM/Ravi – From scratch I would go with:
- Sell 5 IBM 2023 $100 puts for $20 ($10,000)
- Buy 15 IBM 2023 $110 calls for $20 ($30,000)
- Sell 15 IBM 2023 $135 calls for $10 ($15,000)
- Sell 5 IBM Jan $120 calls for $4 ($2,000)
That's net $3,000 on the $37,500 spread so that's $34,500 (1,150%) upside potential at $135, which is not very far away. The short calls can be rolled and I don't think IBM will explode and, of course, any time IBM doesn't gain a few % in a quarter, you lower your basis.
Also nice that we're starting out $10,500 in the money so it's another Trade of the Year contender with that kind of leverage!
So, a month later IBM was still cheap so I made it a Top Trade again. IBM finished the year at $123.87 so the short calls made all of 0.13 ($65) but a consistent selling strategy would have done you well this year on IBM, which is back to $125 now. The $100 puts are $5.20 ($2,600) and the $110 ($19.50)/135 ($6.75) bull call spread is net $19,125 so net $16,590 is up $13,590 (453%) for the year but it's a $37,500 spread so I'd stick with it with $20,550 (123%) left to gain.
See – only one trade idea for all of November but it made 453% – quality over quantity!
Top Trades for Wed, 02 Dec 2020 10:50 – T
Of course 45.8% wouldn't make it the Trade of the Year so we'd use a spread instead, probably 50 of the 2023 $27 ($3.75)/32 ($1.85) bull call spreads at net $1.90 ($9,500) against 20 of the short 2023 $27 puts ($8,000) for net $1,500 on the $25,000 spread that's 40% in the money to start. No dividend but the upside at $32 is $23,500 (1,566%) and that's right in our Trade of the Year territory but I'm not sure VZ getting an upgrade is enough of a catalyst to make T a clear winner… yet.
T has has a nasty sell-off since the spring and is back down to $25.37, where we love them as a new trade. The 2023 $27 puts are now $4.60 ($9,200) and the $27 ($1.30)/32 (0.50) bull call spread is now net 0.80 ($4,000) so net -$5,200 is a $6,700 ( 466%) loss so far and NOT good for a new trade as the target of the bull call spread is too aggressive for a year.
As a new spread, I'm fine with those short puts (or the 2024 $27 puts are $6 paired with the 2024 $23 ($3.75)/27 ($2.15) bull call spread at just net $1.60). So, OFFICIALLY, we would roll this spread to that one and gain $2,800 on the put roll while spending $4,000 for the bull spread which would put us in the 2024 spread for a total of $3,700 with $16,300 (440%) upside potential. Still, we'll call it a loss for now.
That's another thing I love about options, the ability to adjust and "roll out of trouble". If a stock falls drasitcally on you, it's more difficult but that's another reason we like to stick to blue chips – they rarely fall more than 20% in any 6-month period and we have plenty of time to adjust.
Top Trades for Wed, 16 Dec 2020 12:45 – MO
MO dividend is a very fat 8.16% now at $3.44 per $42.87 share. As a new trade, you can:
- Buy 1,000 shares of MO for $42.87 ($42,870)
- Sell 10 MO 2023 $35 puts for $4.50 ($4,500)
- Sell 10 MO 2023 $40 calls for $6.25 ($6,250)
That's net $32,120 and the spread pays back $40,000 if called away in two years with a $7,880 (24.5%) profit plus the $3,440 dividend x 2 is another $6,880 (21.4%) so a very nice way to tie up $32,120 to make $14,760 while we wait for MO to get into the hemp/cannabis space.
Another one that looked better last week. Despite taking a huge tumble, we're still over target and this was a stock play for dividends, not so much gains so anything over $40 is a complete win. At the moment, the stock is $44,050 and the short puts are $2.60 ($2,600) and the short calls are $5.85 ($5,850) for net $35,600 and we've collected $3,480 in dividens so far (next one is due soon) so net net $39,080 is up $6,960 (21.6%) in our first year – a bit higher with the next dividend. Again, these are very nice returns for very boring blue-chip stocks.
Top Trades for Wed, 30 Dec 2020 12:23 – GILD
GILD is back where we like them and we cashed them out of the LTP so, for the LTP, let's get back in with:
- Sell 5 GILD 2023 $50 puts for $8 ($4,000)
- Buy 10 GILD 2023 $50 calls for $12.80 ($12,800)
- Sell 10 GILD 2023 $65 calls for $6.75 ($6,750)
That's net $2,050 on the $15,000 spread that's $7,000 in the money to start with an upside potential of $12,950 (631%) if GILD can power up to $65 over the next two years. Worst-case is you own 500 shares at net $60.10 – because we sold aggressive short puts but, hopefully, GILD will go even lower and we can double down on this one.
We ended 2020 with a good one as we're already over target, even after the recent sell-off. The short puts are now $3 ($1,500) and the $50 ($16.25)/65 ($6.75) bull call spread is net $9,50 ($9,500) for net $8,000, which is up $5,950 (290%) in year one but it's a $15,000 spread, so worth keeping.
So we have 7 winners out of 9 selections and 7 wins and 2 losses might get you to the World Series but it's only 77.7% so it's going to bring down our average as the total for 2020's Top Trades is 43 wins and 4 losses for a 91.4% success rate. Our Q4 trade ideas made net $77,100 so our total gains for the year for 2020 Top Trade Alerts was $668,627 – certainly worth the price of a subscription, right?
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2021 is already drawing to a close and it will soon be time to review our Q1 Alerts there as well. I know these seem like boring trades but, as you can see, they do add up to very nice returns and these are not generally risky stocks – that's why we make them our Top Trades!
We've actually been very busy this Q, selecting BIG, XRX, BYD, GOLD, HPQ, PFE, SPWR, VIAC, COIN, PFE, RKT, IBM and INTC so far. Why so many? Because the market pulled back a bit and earnings put things on sale. As I said, we make our Top Trade selections when the time is right – NOT because we arbitrarily promise one trade a week – that would be stupid!
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