Investing for a blog is slightly different than investing in your own real money portfolio. I try to keep things as true as possible to what actually happens -- commissions, fees, and whatever the bid/ask happens to be.
One difference is the bid/ask - the amount you can sell or buy a stock or option for. Let's look at Dendreon - on a day where the price is $32.79, that might entail a bid/ask of $32.79/32.80. You can sell it for 32.79 but have to buy it at 32.80. In a real world portfolio, you can enter a limit buy at $32.75 - if during the day the ask price falls to $32.75, the order fills and you've bought at a better price. You might not, however, get filled at all! I almost always enter limit orders so as to "game" a few cents on my entry and exit price. I do not have such a luxury in the Port24, since I wouldn't know if I ever would have gotten filled or not! And the volume comes into play also... on microcaps such as Celsion that may only trade 50,000 shares a day, a 4,000 buy can drive the ask price up by a few cents.
A couple cents here or there, even on a thousand shares, really is not a big deal - $10 or $20. Options, however, present a wholly different challenge. The bid/ask spread tends to be wider on low price or low volume stocks, and can be as large as 30 to 40 cents difference. A limit order here is MUCH more necessary and "gaming" the order is important. If the bid/ask is $0.25/0.45, a sell entered for $0.35 -- maybe even $0.40 -- might well be filled. You can easily gain an extra $20, 30, or 40 on a trade simply by keeping that in mind. On a $5,000 buy in for the stock, where you are expecting a 2% return on your covered call, an extra $25 raises your return percentage-wise by another half percent. Half a percent over 12 months is an extra 6% a year! Always enter limit orders on options!!
Another difference in the way a real vs. fake portfolio can be managed is the psychological factor. I have staked myself to a 24% return in the Port24 (something I am far short of at the moment) and being long Celsion for so long (heck, even Dendreon over the last year!) has hurt my performance when measured over an individual month or series of months. I refuse to sell calls for the most part because there is the chance for a really good movement in the share price coming up and I want to capture that. However, I have opportunity cost in the meantime of the covered call premiums foregone. And monthly, I have to report "underperformance" of my 2% a month return. There is always the temptation to do something "wrong" to make the monthly numbers look better! (This, by the way, is very much why I mistrust a lot of companies' quarterly earnings - there are many things they can do to fiddle around with a particular quarter's earnings... a one-time charge here, etc.) All I can do is remember why I am in a particular stock and stay true to it. In the long run, assuming I'm right on Celsion, a 100%+ return in a year looks better than 2% in each of 12 months.
For March's opex in the Port24, both Delcath and Seattle Genetics expired without being called. Delcath, of course, went horribly wrong a few weeks ago with the FDA not even accepting the filing of the NDA. I'm holding here, as European approval is also in the works and should cause a re-runup towards the end of the spring. SGEN could well bounce around a buck or two up or down; I will simply wait for a small bounce up and sell calls again.
One extra note about the Port24 - several weeks ago I announced the intention to "move" the assets to Zecco from Scottrade. Immediately afterwards, Zecco announced a pricing change, adding a few dimes to their stock and option commissions. While it is still cheaper than Scottrade and for a new money account I would certainly recommend Zecco, for this situation where I'd have to pay "transfer" charges I am just going to keep basng my buys and sells for now off Scottrade's commission costs. Having said that, please don't let such costs deter you from doing transfers in real money accounts - many brokerages will compensate you for the transfer charges as an inducement for your business!
Real money wise, I am coming close to being an idiot with Celsion. I have been buying all the way down from the low $3s through the $2.30s. A large part of me wishes I'd only now heard of it and had bought the entire stake here! We should finally see some movement in the next 1-8 weeks... culminating in a really nice runup by June awaiting full enrollment of the HEAT trial, and the interim calculation announcement. While I don't truly expect a successful interim and trial stop, the increased eyeballs and realization of the microscopic float should cause a share price move of several dollars.
Paramount Gold & Silver should be releasing one of their resource reports within weeks. Not knowing exactly what regions will be included makes it hard to predict share price movement, but suffice it to say over the next year I expect a double or more. That makes it worth hlding on, or adding here.
Regards,
Trond
Showing posts with label Scottrade. Show all posts
Showing posts with label Scottrade. Show all posts
Sunday, March 20, 2011
Wednesday, May 14, 2008
24% returns
The long term stock market average return is around 12% annually. Warren Buffett has returned around 22% since 1966. What am I thinking I can do?
24%, baby. That’s my target.
Now, I have one huge advantage. I will be assuming that my trading will be taking place in an IRA, so I do not have tax considerations to worry about.
However, I will still take commissions into account, and NOT enter any trades which would violate IRS wash rules. Thus, for a very rough taxable account comparison, take my returns and knock off a third.
My fictitious account will be assumed to be held at Scottrade. They offer no-fee IRAs; no annual fee, no inactivity fee, no minimum balance fees, etc. Their commissions are $7 for stock and $7+$1.25/contract for option trades, with a $17 exercise fee.
Although you can consider this a plug for Scottrade (I do have a real life IRA there and have had no issues with their customer service or handling) I have transferred a brokerage account to Zecco instead – still no fees but the commission schedule is much more aggressive – including 10 free stocks trades a month! So – do your own research but PLEASE take fees and transaction costs seriously in your own life.
Back to 24%. Where do I get off claiming that is doable?
First, let’s look at what it gets me. With a 24% return, every 39 months my balance doubles. If I start with $100,000 then it will take just under 11 years to get me to $1 million. Now, I don’t think you can plan on retiring on a million anymore – we’re living longer and medical breakthroughs are occurring faster – so I’d say you have to plan on at living to at least 100 these days. With inflation at 3% (and I’d argue its higher than that) the cost of living will double every 24 years. But $1M is a nice round target to shoot for.
Nice, Trond. But HOW??
Options – covered calls, to be precise. I noticed a few years ago that the premium of slightly out-of the money covered calls tends to be anywhere from 1 to 3% per month. Now, most stocks I own are only in multiples of $1, 2, or 3 thousand dollars. A 2% return on $1000 is a measly $20. But if you do the math it adds up mighty quickly. The biggest obstacle is if you pick a stock and it tanks immediately after buying – you have the choice of selling lower strike options and probably selling at a lower price, or selling the higher strike further out and accepting a much lower yield.
I will be aiming to return about 2% a month -- technically, at 1.809% a month, I would hit my 24% annual returns on the dot – but I like round numbers. I will start with $100,000 and post my trades immediately after deciding on them – I will log onto my brokerage account and use the current ask price for the stocks and the current bid price for the covered call.
Let the games begin!
Regards,
Trond
24%, baby. That’s my target.
Now, I have one huge advantage. I will be assuming that my trading will be taking place in an IRA, so I do not have tax considerations to worry about.
However, I will still take commissions into account, and NOT enter any trades which would violate IRS wash rules. Thus, for a very rough taxable account comparison, take my returns and knock off a third.
My fictitious account will be assumed to be held at Scottrade. They offer no-fee IRAs; no annual fee, no inactivity fee, no minimum balance fees, etc. Their commissions are $7 for stock and $7+$1.25/contract for option trades, with a $17 exercise fee.
Although you can consider this a plug for Scottrade (I do have a real life IRA there and have had no issues with their customer service or handling) I have transferred a brokerage account to Zecco instead – still no fees but the commission schedule is much more aggressive – including 10 free stocks trades a month! So – do your own research but PLEASE take fees and transaction costs seriously in your own life.
Back to 24%. Where do I get off claiming that is doable?
First, let’s look at what it gets me. With a 24% return, every 39 months my balance doubles. If I start with $100,000 then it will take just under 11 years to get me to $1 million. Now, I don’t think you can plan on retiring on a million anymore – we’re living longer and medical breakthroughs are occurring faster – so I’d say you have to plan on at living to at least 100 these days. With inflation at 3% (and I’d argue its higher than that) the cost of living will double every 24 years. But $1M is a nice round target to shoot for.
Nice, Trond. But HOW??
Options – covered calls, to be precise. I noticed a few years ago that the premium of slightly out-of the money covered calls tends to be anywhere from 1 to 3% per month. Now, most stocks I own are only in multiples of $1, 2, or 3 thousand dollars. A 2% return on $1000 is a measly $20. But if you do the math it adds up mighty quickly. The biggest obstacle is if you pick a stock and it tanks immediately after buying – you have the choice of selling lower strike options and probably selling at a lower price, or selling the higher strike further out and accepting a much lower yield.
I will be aiming to return about 2% a month -- technically, at 1.809% a month, I would hit my 24% annual returns on the dot – but I like round numbers. I will start with $100,000 and post my trades immediately after deciding on them – I will log onto my brokerage account and use the current ask price for the stocks and the current bid price for the covered call.
Let the games begin!
Regards,
Trond
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