Skip to main content

Time to sell and take a break!

Markets have been on tear for first 3 weeks of 2012. I decided to create a mock portfolio based on recommendations from my first post of 2012 by mock buying these picks in first 2 weeks at or below the prices mentioned. This portfolio is up by nearly 11% assuming all picks have equal amount of investment. Highest returns are BAC with 25% and then STX with 23%. So with yearly target of above 10% returns achieved in 3 weeks what should one do?
All indexes are heading towards highs of 2011 which were reached in May and July before European mess pulled the indexes down for a flat year. European mess is no where near resolution (see debt negotiations between Greece and bondholders). These worries are again going to come to front lines in Feb/Mar. So at this time best course of action to take some gains off the table by selling some of the winners and keeping some dry powder. There would be quite a few buying opportunities when DOW would go below 12000 sometime in next 3-4 months.
If one is for long-haul and does not want to time to market, one could use following strategy to generate some income and provide some downside protection:

  • Enable your brokerage account with "call options" - this would need some paperwork and take 2-3 weeks to get it approved
  • Identify your long-term picks (say BAC)
  • Sell out-of-money "covered call" against your holdings for next month. e.g. BAC120218C00008000. Premium for this is around $9 for one contract representing 100 shares. So if you have 1000 shares, you can sell 10 contracts generating income of about $80 after commission.
  • If stock goes above $8 by 2/18, you are forced to sell your holdings at $8. But that is ok since you would have generated 14% return in one month from current price of about $7
  • If stock remains below $8, you keep your holdings as well as call premium you received
  • If stock goes below current price of $7, do nothing. Since you are in long-haul, you should not be worried about short term paper losses
  • One can repeat this strategy every month and generate income as well as downside protection
It is time to be careful and cautious about this stock market rally since we are not out of woods yet.
Now coming to politics, republican presidential nominee just became lot more interesting with Newt winning South Carolina. Would Gingrich become "Grinch" who stole nomination from Mitt? For that, we will have to wait for results from Florida and then Super Tuesday in March. Till then, enjoy the circus of debates and attacks on each other! I am sure President Obama's campaign is lot more excited with today's results since more it drags on, more fodder it would provide to President Obama for fall campaign.

/Shyam


Comments

Post a Comment

Popular posts from this blog

Clicks to Tokens: Will 2026 Echo 1998's Boom or 2000's Bust?

My "blogging" was in hibernation last 8 months due to my self-imposed restraint given the environment as well as built-in inertia to get started despite so many interesting events and markets reaching all time highs after taking a big dump around "Liberation Day" in Apr...Around that time I had the blog ready that it would be repeat of Mar/Apr 2020 panic and recovery during onset of Covid Pandemic. The hunch happened to be correct and I was glad that I could keep and take some positions which I am still holding especially around AI theme. But that was then...as 2025 is about to wrap up in 10+ weeks, let's look at what's in store for rest of 2025 and 2026. And what's better time than to start writing again just before one of the most important week on the calendar with multiple key events coming up next week... Fed meeting to decide the course of interest rates - it's almost guaranteed that Fed will cut rates by 25 basis points (2nd time in 2025) and...
Post a Comment
Read more

2026: The Year of Convergence – Melt-up, Moonshots, or Mid-cycle Correction?

Happy New Year! After another period of self-imposed hibernation from the blog—partly due to the festivals, travel, intertia and partly to watch the dust settle on a chaotic 2025—I decided to use the quiet of this New Year’s morning to finally reboot.  Looking back at my October post,  “Clicks to Tokens,”  the hunch about the AI theme held firm. We spent much of 2025 debating whether we were in 1998 or 2000. As we enter 2026, the answer seems to be "neither and both." We have the roaring optimism of the 1920s fueled by "Silicon Spirits," but with the high-speed volatility of the 2020s. So, as the calendar flips, what is in store for 2026? Markets may experience melt-up (S&P touching 8000),  with some moonshots (like SpaceX and OpenAI) IPOs or even see mid-cycle correction bringing down S&P to 6000. That's a wide range and will be decided by Four R's... Here are my thoughts on the " Four R’s ":  Rates, Robots, Rotations, and Real Assets. 1. ...
Post a Comment
Read more

And the Oscar goes to...

It's Oscar Sunday and time for predictions for few categories - before I digress into talking about drama in DC or markets.  First of all, I want to recognize the damage LA fires have done to the beloved areas of Los Angeles and impacted families across all spectrums. My heart goes out to them and wish them recovery and rebuilding of their lives... This year's Oscar nominees and post nomination period had been interesting to say the least. Due to this, the field is wide open in almost all categories and that's what makes prediction game so interesting. Just to set expectations, I would consider a win if I get even 50% predictions correct given the dynamics of nominees this year. So here are my predictions - "And the Oscar goes to..." Best Picture - Anora (surprise could be "The Brutalist") Best Director - Sean Baker for "Anora" (Surprise could be Brady Corbet for "The Brutalist") Best Actor - Adrien Brody for "The Brutalist"...
Post a Comment
Read more