Before we get to our $1 million portfolio, let’s take a look at our hedges.
We last reviewed our short-term portfolio on Valentine’s Day when the S&P 500 opened at 4,126, but we had already done our adjustments in our Live Member Chat Room on the 7th, when the S&P hit 4,176, which actually turned out to be the high of the month. That left us with nothing to change on the 14th, and the portfolio was at $3,888,503 and this morning, after not being touched since, it’s at $4,069,493, up 1,934.7% in 3 years and $180,990 in just over two weeks – which is how you end up up 1,934%, of course…
Keep in mind we are 85% CASH!!! at present and the value of our positions on the 14th were only $537,375, so active positions gained 33.6% on a 3% decline in the S&P – this is the key to good hedging. We have close to $6 million of downside protection in this portfolio and that’s more than we have in the long positions, so we’re a bit bearish overall but, on the other hand, our long positions will do more than enough to cover losses on our hedges should we find ourselves too bearish – this is a great balance and we would hate to mess it up – so we are very careful when adding new longs.
Knowing how to cover yourself is like knowing how to brake your car. If you don’t know, you can only drive very slowly for fear of hitting something or flying off the road around a bend. The ability to brake opens up a whole new world of possibilities in your driving and in your investments – it allows you to move faster towards your goals, confident in your ability to make adjustments.
Unfortunately, we haven’t covered our $700/month portfolio yet and are suffering our first loss this month. Month 1, 2, 3, 4, 5 And 6 are available for review. It’s a chance to learn our step-by-step portfolio building strategies that hopefully everyone can follow.
Our goal in this portfolio is to show our members how to use slow, steady and simple options strategies to raise over $1 million over 30 years by investing just $700/month ($252,000). If you can apply this discipline in your early years on the job, your retirement will be a breeze.
Our goal is to earn 10% per year on our investments and although it’s only been 6 months, the portfolio is up 8.5%. That’s a rate of 17% per year, and if we did that for 30 years, we would have $6,440,776.90. No, I’m not kidding, you can do the math here! Don’t expect to keep up with this – we’ll have some ups and downs along the way and this wallet isn’t trying to time the market – it’s just a good start.
When we started the portfolio (August 25) the S&P 500 was at 4000 and now we are at 3996, so basically flat. Nevertheless, we made 8.5%. That’s the magic of using options and our Be the house – NOT the player strategy, even when playing very conservatively, you can still make nice gains in a flat market.
As with all of our portfolios, returns tend to accelerate as our positions mature and we are always well ahead of expectations, which is very nice in a marginless portfolio.
Last month we added 32 more shares of NLY and it was an unfortunate moment as NLY has since gone from $24 to $20 and we have gone from $49 to $202 on this position. Apparently they are cutting their dividend and we have no choice but to accept the loss and sell the position.
We have a margin requirement of $1000 on CIM puts and $500 on SOFI puts and cash is $2314 plus the $1260 we will get from selling the NLY position – leaving us with $3,574 minus $1,500 or $2,074 to spend!
Before adding new posts, we should check if old posts need love:
CIM – I would jump all over the place but they have the same management team as NLY so maybe it cuts into that too. I’m not worried about being awarded 200 shares at $5 (net $3.40), so I’m not going to change it, but it’s a bit premature to jump in with more.
T – We could add a put here, it’s tempting. The 2025 $20 put option is $3.05, so we would have $305 in cash and would be forced to net buy $1,695 more. Margin return in the no-margin account is only 18% over 2 years – we can do better.
SOFI – I love them and they haven’t escaped yet, so it’s worth considering.
With regard to potential new stocks:
- B2Gold Corp (BTG) is a gold producer with a 5% dividend at $3.58, or $3.8 billion and they earn $350 million, a p/e of about 11. They also have $600 million dollars in the bank and we like gold as a hedge.
- Nokia (ENOUGH) is still alive and more of an equipment service provider these days. $4.68 is $26 billion and they earn about $2.5 billion, which is 10 times, but only a 1.79% dividend. They do, however, have $4 billion in cash – I like that!
- Global Ship Rental (GSL) is a container charter company that pays a 7.3% dividend on its $20.70 share ($751 million cap), but it earned $274 million last year and s ‘expecting about 20% growth this year – so a nice little company.
- Barclay (BCS) is on our watch list at $8.32, or $32.5 billion, but they’re making $5 billion, so 6x is stupidly low. They pay 4.1% and actually have $16 billion more, or half their market capitalization!
- Ford (F) is back at $12.56 or $50 billion and they earned $6 billion last year and are expected to rise 10% this year. I’m pretty sure 30 years from now you’d be kicking yourself for not buying this one. The dividend is a nice 5% too. $95 billion in debt is the dark cloud, but automobiles, stocks, etc. – it’s pretty normal.
- Future fuel (FF) is one of my favorite small caps. $8.67 is $380 million and they made $23 million, or 16.5x with a 2.5% dividend, but then they paid a special dividend of 0.30 (3.4 %) in December – a nice bonus. They also have $185 million in cash, which is half the valuation.
- Petrobas (ACB) – That would be great, but the government is forcing them to basically give Brazilians oil. Even now they are trying to sell assets and the government is interfering. In a riskier portfolio I don’t mind, but not here.
- Sun Power (SPWR) – Hard not to add our stock of the decade at $15.09 which is only $681M and they made $45M last year and are expected to make almost $60M this year. No dividends but huge growth potential as the solar industry grows.
- Tronox (TROX) – Specialty materials are still fun and sales hit $3.2 billion from $1.8 billion in 2018 and profit is $220 million, but $16.42 is $2.5 billion, so call it 12x. 3% dividend as well.
- Trivago (TRVG) – Travel resumes and $1.76 is $600 million and they expect to earn $60 million this year, so 10X is undervalued. No dividends but fun options.
Since we have the extra cash and SPWR is our stock of the decade and we’re only in 2023 and our target is $50, not $15 (we started at $5 and have already cashed in our $50 original games) and, since the options are CRAZY – let’s add SPWR to our portfolio as follows:
- Buy 5 $15 SPWR 2025 calls for $5.70 ($2,850)
- Sell 5 $23 SPWR 2025 calls for $3.20 ($1,600)
This discrepancy costs us $1,250 net out of our purchasing power of $2,074. That’s a spread of $4,000, so the upside potential is $2,750 (220%) in two years – you gotta like it!
This will leave us $824 to spend and I think that’s enough to tune SOFI a bit more aggressively and what we’ll do is:
- Buy (to close) 5 $5 SOFI 2025 Calls at $3.09 ($1,545)
- Sell 7 $7 SOFI 2025 Calls for $2.40 ($1,920)
- Buy 2 (7 total) $3 SOFI 2025 calls for $4.18 ($836)
That’s $461 net spent and we went from a $1,000 gap at $422 net to a $2,800 gap at $883 net, so our upside potential went from $578 (136%) to 1 $917 (217%) by slightly adjusting our target in an already successful broadcast.
That leaves us with another $363 to carry over to next month!