2012 Stock Picks Competition – My Trader's Journal

My 2011 stock picks were pretty vanilla and the results were too, except for EET which sunk me the most. (See the results of our 2011 Stock Picking Competition at the bottom of this post.) My 2012 ETF and stock picks mix in some spice with a dash of vanilla left in there too. Of course for my investing style I’d rather sell options on each of these to juice up my returns somewhat and reduce my cost per share, but that’s not how this competition works. We each pick four stocks or ETFs and cannot make changes throughout the year. The blogger with the best return, including dividends, wins. This year I’m going to include my related option trades that would go along with my picks to illustrate how using options could’ve helped me. It’s moot for this competition, but still fun to track.

GLD – Closed 2011 at $151.99

Gold has been beaten down hard since its early September highs and probably has a little more downside risk to it. I’m not expecting this sell off to last for the entire year and think there’s going to be another catalyst to push it higher again before the end of 2012. The biggest risk to GLD will come from a strengthening US dollar. As the green back gains on other currencies (assuming the recent trend continues) then gold will have a harder time rallying again.
If options were allowed in this contest, I’d consider selling naked puts on GLD. Being bullish I’d sell in the money for June at the $165 strike for $18.00 and I could earn 12.24% and wouldn’t lose a dime if GLD fell another 3.28%. If GLD gained 20-30% I’d still be stuck at 12.24%, but that’d be a decent gain in six months for the reduced risk on the table.

TBT – Closed 2011 at $18.06

20 year treasuries are about as volatile as the come, especially when using an ultra ETF like UBT or TBT which attempt to move twice the daily performance (and inverse) of the index they track. I lucked out for this contest in that treasuries had a nice spike to end the year. That spike allows me to add TBT, an ultra-inverse ETF, to my ETF pick list. I think treasuries are overbought at these levels and we’ll see a sell-off during 2012. We’ll probably see 6-8 sell-offs and rebounds, but I’m still banking on seeing yields rise by the end of the year which will leave the price of bonds lower and the price of TBT higher.
My option play would be to sell June $18 naked puts for $1.94. I’d have a potential gain of 12.03% in the next 24 weeks and wouldn’t lose a dime if TBT fell another 11.08%.

UWM – Closed 2011 at $34.86

This small cap ETF is my only returning pick from 2011. It lost value last year, but is on the cusp of taking off again. Like my two picks above, UWM is extremely volatile. Anything can happen in the middle with a year to wait, but after a lackluster 2011, 2012 should be good for the little guys as they have a chance to gain on the large caps that ruled the fear trade in 2011.
My option play would be to sell July $36 naked put for $6.50 (June isn’t available yet). The bid/ask is $5.20/$9.20, so I rounded well below the midpoint to set it up for an easy trade would surely hit with a limit order between the wide spread. This trade would set me up for a 22.0% gain in 29 weeks and would keep some profit all the way down for another 15.45% to the downside in UWM.

GOOG – Closed 2011 at $647.07

I was planning to add a dividend pick in my list, but thought I should go for a bigger move with a single stock pick. GOOG is well off its lows and has reached new highs recently, so it’s not for the risk averse investor, but fun for this contest. I see more growth left in GOOG and expect its share price to reflect that growth through 2012.
My option play would be to sell June $675 naked puts in the money for $65.00. If GOOG finishes June expiration above $675 it would give me a return of 10.65% in 24 weeks and allows GOOG a 5.56% cushion before incurring a loss. In other words, I’ll take a full profit if GOOG gains 5% and only take a partial profit up until a 5.56% loss in GOOG shares.

I thought about trying to make quarterly option expiration predictions for my picks, but wanted to keep at least somewhat closer to the spirit of the real contest’s rules. I won’t change my picks, but will have to make a mid-year adjustment with another naked put or covered call to get me to December.

Be sure to check out our progress each quarter during 2012 as we give updates on the road to my number one finish finally. My competitors this year have their stock picks at the following links which are listed in order of 2011 final rankings. Congrats to Dividend Growth Investor for not only coming in with positive gains for the year, but also just flat out destroying everyone else.

(SEE THE Q1 UPDATE)

PassiveIncomeEarner – New this year
DividendMantra – New this year

Here are the quarterly closing prices for my four top ETF picks for 2011. A flat to down year is not the time to be invested in ultra ETFs and I paid the price, especially with EET.

SSO – Closed 12/31/10 at $48.05. Closed 3/31/11 at $53.27. Closed 6/30/11 at $52.89. Closed 9/30/11 at $37.97. Closed 12/30/11 at $46.39.
UWM – Closed 12/31/10 at $42.69. Closed 3/31/11 at $49.24. Closed 6/30/11 at $47.19. Closed 9/30/11 at $27.23. Closed 12/30/11 at $34.86.
MVV – Closed 12/31/10 at $63.68. Closed 3/31/11 at $75.10. Closed 6/30/11 at $73.24. Closed 9/30/11 at $44.95. Closed 12/30/11 at $55.36.
EET – Closed 12/31/10 at $109.55. Closed 3/31/11 at $112.49. Closed 6/30/11 at $108.12. Closed 9/30/11 at $56.16. Closed 12/30/11 at $63.92.