For the past few years, I’ve joined some of the top financial bloggers of North America in a friendly stock/ETF picking contest. We each picked four stocks or ETFs at the beginning of the year and tracked them quarterly, without any changes allowed. I hung onto my third place standing to finish the year, well below the winner, but also far ahead of the lowest placed participants.
To put a little My Trader’s Journal spin on the results, I like to write up my results as if options were allowed and I was allowed to make quarterly adjustments. The results are not based on options, but on pure growth and dividends from our four picks. Buy and hold just isn’t my style. If I could pick them like he does on WhereDoesAllMyMoneyGo.com, maybe I’d think differently.
My anti-bond pick, TBT, destroyed my chance for second place. My best pick didn’t beat the average of the winner. Other than that, I think I picked OK. If we were doing this again (we are not), I’d have to go with my two worst picks again. I think TBT will make a comeback as will GLD. UWM has some good upside in it, but GOOG might not shine as much in 2013. AAPL will probably be good as it’s due for a rebound.
This is how my four picks have done so far along with how my alternate options trades (which are not part of the contest) are working so far.
- GLD - Closed 2011 at $151.99. Closed 3/30/12 @ $162.12. Closed 6/29/12 at $155.19. Closed 9/28/12 at $171.89. Closed 12/31/12 at $162.02.
- Q1 update: My original GLD June $165 put option has been a great trade so far. At the beginning of the year, it was estimated I could sell the contract for $18.00. At Friday’s close, it was trading at $6.40 which means I’m up about 8.6% (assuming I held back cash to support these option trades in case of assignment) so far while GLD is up 6.7%.
- Q2 update: My June $165 put would’ve been assigned last month and I’d own 100 shares now for a cost per share of $147 (a 5.57% gain so far). If I left a lot of upside potential for the ETF to move higher, I could sell a December 31st GLD $165 covered call for $5.30 which would reduce my cost per share down to $141.70. My gains will be capped at break even on the ETF, but I’ll pocket all the premiums even if the option isn’t assigned.
- Q3 update: Apparently, I cut myself off too low with my Q2 change, but I’m letting it ride through December.
- Q4 update: The covered call I would’ve sold in my Q2 update would’ve been well placed. By starting with an effective cost of $141.70, I would’ve made $20.32 or 14.34% from my cost of $141.70. That’s much better than the 6.6% gain buy and hold would’ve finished the year with.
- TBT - Closed 2011 at $18.06. Closed 3/30/12 @ $20.45. Closed 6/29/12 at $15.84. Closed 9/28/12 at $15.59. Closed 12/31/12 at $63.45 after a 1:4 stock split (effectively $15.8625 pre-split).
- Q1 update: My original TBT June $18 put option has been good also. I started with a pretend sell at $1.94. On Friday, it closed at $0.29. This gives me a return so far of 10.3% versus the TBT gain of 13.2%. I should’ve sold the put in the money and I’d be looking great now. Either way, 10.3% isn’t a bad return for a quarter.
- Q2 update: My TBT June $18 would’ve been assigned and I’d own 100 shares at $16.06 (a 1.37% loss so far). If I sold a December 21st TBT covered call at the $18 strike I’d receive $0.52 per share and my cost would be reduced down to $15.54. This would push me back to a paper profit and the potential to end with a 15% gain if TBT can turn around.
- Q3 update: TBT is such a flawed ETF, but it hasn’t had much of a chance to go my way yet with 20-year treasuries rising as yields fall. I’m close to break even now, but have room for some good gains still. I’m not making any adjustments right now.
- Q4 update: If I had used options, I would’ve finished with a gain on TBT of $0.32, 1.83%, not a loss of $2.20, -12.17%.
- UWM - Closed 2011 at $34.86. Closed 3/30/12 @ $43.76. Closed 6/29/12 at 40.42. Closed 9/28/12 at $44.09. Closed 12/31/12 at $45.52.
- Q1 update: My original UWM July $36 put option was also too conservative, but is doing well. I estimated that I could’ve sold it for $6.50 to start the year. It traded around $1.75 by the end of March. This position is up 16.1% compared to UWM only which is up 25.5%.
- Q2 update: My UWM put is more than $4.00 out of the money and I could buy it back for $0.25 and then sell an October $37 put for $3.00 (the bid/ask right now is $2.50/$3.50). The combination of the buy and sell (aka rolling out and up) would increase my total premiums received by $2.75 net. This would bring my total premium intake up to $9.75 with $37 at risk now, which is a return of 35.14% based on cash needed to back the position.
- Q3 update: UWM has worked well for me. It’s well over my October $37 strike price, so I could buy the put back for $0.20 (bid/ask is $0.10/0.25) and sell a new put. December contracts aren’t posted yet, so I’d use a January contract instead. To take a chance, I could sell an at-the-money put at the January $44.00 strike for $3.90 (bid/ask is $3.60/4.20). This rolling out and up of the puts would add another $3.70 in premiums for me and bring my total to $13.45 with $30.55 at risk (strike minus total net premiums received). If it works out, I’ll have a gain of 44%, but the contest ends before this last option expires, so my final return will be a little less. It’ll be a lot less if UWM losses ground before the end of the year.
- Q4 update: I didn’t check the UWM January $44 put prices at the close of 2012, but can estimate they were close to $0.60+-. That would bring my premium total down to $12.85 and my cost up to $31.05. Dividing $12.85 by my cost of $31.05 would give me a gain of 41.39%, even better than buy and hold’s 30.58%.
- GOOG - Closed 2011 at $647.07. Closed 3/30/12 @ $641.24. Closed 6/29/12 at $580.07. Closed 9/28/12 at $754.50. Closed 12/31/12 at $707.38.
- Q1 update: My GOOG June $675 put option was more aggressive than my UWM put while it should’ve been reversed. I figured I could’ve sold the put for $65.00 to start the year. On Friday, it was trading at $50.20. While GOOG is down almost 1%, my put has decreased in value, giving me a pretend profit of 2.5% based on my cash reserves. This is my worst pick, but even the stock is down I still have a profit on the option.
- Q2 update: My GOOG pick isn’t so pretty. I would’ve been assigned my put in June at $675 and after deducting the premiums my cost per share would be $610.00. That would leave me with a paper loss of $29.93 (4.91%). I could move myself back to break even on paper by selling a December 21st GOOG covered call at the $610 strike for $29.80 (bid/ask right now is $29.50/$30.10). That would guarantee a loss on the stock itself if assigned, but I could make a return of 5.14% on a bad stock pick if it rallies a little when I include premiums.
- Q3 update: GOOG finally came through as a good pick for this contest, but I would’ve played the options wrong and cut out a lot of my gains. I’m letting it run as it is, but think this one is pretty much done as it is.
- Q4 update: If I had used options on GOOG, I would’ve missed some profits. I would’ve ended with a 5.14% gain as noted in my Q2 update instead of a gain of 9.32%.
If I averaged my options gains, I would’ve finished the year with a gain of 15.675%, nearly doubling a buy and hold approach. This took more work for me to run these examples all year, but I think it was worth it to illustrate what a difference using options can make in a portfolio. Good luck to all of you in your quest of alpha in 2013!
This is how everyone finished in order of best to worst with the percentage gains so far this year. Some of these links are to the blogs’ home pages. I’ll update them as I receive new links from everyone.