Weekly Wrap-Up

What a great way to end an option period!

We went from 100 points below our month's 12,850 target to 100 points above it over the course of the week and that's not bad targeting for 30 day's of crazy Dow moves.  Still we were hedged to the cautious side and many of our callers ended up in the money and we remain on the side I would not call bearish but more like bullish and expecting a drop.

It's a testimony to how well members are learning our system that we had a pretty quiet Friday, with just 315 comments, despite a pretty chaotic day.  Every month we have less and less questions about rolling and repositioning which is our best indicator that things are going generally well for people.

We had a fortunate flat-line into expirations and an unfortunate drop in the VIX that has devalued our long-term holdings to some extent.  Still, our virtual portfolios came out very, very well this week and we are excited to be starting next week with a new $10,000 Virtual Portfolio, a new Stocks Virtual Portfolio and a new Day Trading Virtual Portfolio,

• Our Short-Term Virtual Portfolio gained just 6% on the week as our protective puts were taken to the cleaners and our oil puts continued to take a beating.  We're concentrating our attention now on XOM June $95 puts, now $3.70 as well as SU June $135 puts and SU Sept $125 puts as our key oil shorts that we intend to roll up at any opportunity until we get our pullback.  Right now about 7% of the virtual portfolio is short on oil, we're willing to build to 10% before we start hedging.  For the year we're up 286% so we can afford to take a chance as oil is up close to 40% over the same period.
• The Long-Term Virtual Portfolio also picked up 6% on the week.  That's great considering we took on the burden of most of our June covers already, paying the spreads and commissions for the next month early on.  34 of our 53 positions are covered and we'll be covering up about half of the rest next week.  The virtual portfolio is up 137% for the year.
• Our Stock Club Virtual Portfolio also follows the LTP model and lost a grand total of $6,000 in its first month.  As we are establishing all of our positions from scratch, that represents a lot of spreads and commissions paid and we've already rolled to near 100% June coverage.  As we analyze the virtual portfolio we see that our $1,370K investment has actually left us with $1,500K in positions, covered by $355K worth of callers who have $232K in premium (our goal to gain for the month) and $216K in cash.  It's important that all LTP players note that it takes time to establish your positions before they start making big money.  Our LTP started this year with $1M in positions, not $1M in cash, that's why it's running at such a hot rate, those positions were already established last year.  Generally it takes about 3 months of successful sales (ones that don't get away from you) to put yourself in a really good position.
• Day trading was clearly the way to go this quarter and our Day Trading Virtual Portfolio will close out up 314%, after a nice 46% add for the week thanks to very nice behavior by Apple and Google into expiration.  We will begin next week with a fresh $100K in cash and the remaining positions will get transferred into the STP, except Apple and Google, which go to Complex Spreads, of course.
• We are closing down the Q2 $10,000 Virtual Portfolio at $16,039 and those positions are all mirrored in the $25KP other than SNE, which is a July/June $50 spread that's even and we'll move that to the STP along with TASR June $10s, which we can't do much with at .05 but wait and hope.  That will make TASR the #1 holding in the STP in terms of number of contracts!  We begin with a fresh $10,000 on Monday.
• Our $25,000 Virtual Portfolio has been a nightmare this quarter and sits at just $29,451.  We are very well covered and may have a good month if they markets hold fairly flat but the performance (up 17%) is very disappointing after 3 months.  We went defensive and the strategy now is more of a hybid LTP as we have $50,000 in positions covered with $30,000 worth of callers and $9,000 in cash so it's very much a waiting game as well at the moment.
• Our Stocks Virtual Portfolio is cashing out up 62.3% for the year and we'll start with a fresh $250,000 on Monday so we can have a little fun playing the stocks while we discuss people's CNBC Challenge Virtual Portfolios.
• Complex Spreads, like our DTP also had a good week thanks to GOOG and AAPL and we gained another 14% on the week, driving our total gain for the year to 318% in a virtual portfolio that is just Googel, Apple and Crocs (the BIDUfly and MA spread closed). 

Back on May 2nd, I had called a top at 13,150 for this run (from  way down at 11,740 on March 10th).  We pulled back as low as 12,745 last Friday (9th), which is a 28%  pullback off the 1,410 run,  If we take a longer view, we could look at the sustainable floor of Jan through March as having been 12,000 and the run double topping out at 13,000, which makes 12,750 a much expected 25% pullback of that run.

Since 12,750 was upside resistance around 2/27 and early April and has now twice acted as support at the end of April and this past week, we can now look to that as our new serious technical level to watch and, since we are currently bouncing off there and pushing up against the 200 dma at 13,014, we're going to have to be on the lookout  for a bullish break-out, despite my fundamental reservations to the contrary.

While we were well covered into the weekend, I was already fed up with the media and all their knee-jerk negativity on Monday, when I pointed out that "sell in May and walk away" was actually a terrible market strategy.  Our big worry for the week was the heavy economic data, all of which seemed to be laughed off by the markets, despite some pretty poor numbers.  The bullish wedge we pointed out in the S&P on Monday night held all week and the S&P finished right at the 1,425 line.

By Tuesday morning I already felt like I was being a crabby old man as I seemed to be the only one who was worried about the markets.  We kept getting poor data (Tuesday it was retail sales) yet the market kept ignoring it – so what can you do?  Tuesday was, in fact, a down day, but it was our last one of the week as solar stocks led the Nasdaq to a huge rally for the remainder of the week as tech joined oil as a market leader. 

Wednesday, we decided FSLR had gone up way too far, partially because of the price of Tellurium., which I mistakenly called $2,060 per kilogram based on this chart, which turns out to be based in Yuan!   So yes, Tellurium is up 350% in a year, but it's "only" to about $350 per Kilogram.  Of course it's not the $$ per K that concerns us, it's the fact that you can't get Te at ANY price in the quantity that FSLR needs that bothers us.  The only thing worse than selling things at lower profits due to materials cost is not selling any due to lack of materials and so far, so good on our FSLR puts.

Our big boost on Wednesday came from a very suspect CPI report, in which key component gas prices FELL 2% (not 0.2%, 2%!) as well as drops from transportation prices including air fares.  Cross Profit pointed out  in Seeking Alpha's comments that day: "Airline fares dropped because fuel surcharges are not included in fare calculations. This is an easy manipulation. Reduce the ticket price by 2%; on average $5 and tack on an additional $10 fuel surcharge! Also the $12 checked bag fee is not included…get the picture?"  Oh yeah, we're getting it all right!

Thursday morning the Donald, the Senate and I put our foot down on oil and we did manage to scare prices back down to $120 – for about 4 minutes – then they resumed their climb to $130 but the severe drop in the sector gave us hope that we are on the right track and led to our focus puts on XOM and SU as we concentrate on just a couple of potentially vulnerable positions.  By Thursday night I was worried we were over-covered but we had committed to our June coverage, for good or bad, over the weekend.

Friday we went over the potential impact of the Senate decision but GS decided options expiration day was they day they were going to cheer-lead oil, sending us up to a new record at $127.50 intra-day and giving us the wrong kind of rally to finish the week.  I reamin very cautiously optimistic but I still don't see how we can have a lasting rally with oil over $120 but that's the wave we're going to be riding into next week.

As usual, it was a busy expiration week with 121 positions closed for an average gain of 19%.    A lot of our callers expired worthless but a lot were also rolled straight out to June as they were in the money.  We took a huge hit closing out the losing side of our MA position, which balanced out the big win we wisely took off the table last week as MA dropped another 5%.  We also took a lot of cash off the table as we opened relatively few positions this week and, of course, we are cashing out the Stock Virtual Portfolio and Day Trading Virtual Portfolio as well so our capital at risk is drifting ever lower (like I said, VERY cautiously optimistic!):