Your Portfolio Is Your Garden

One of my favorite books is Being There by Jerzy Kosinski. It was later made into a movie, starring Peter Sellers and Shirley MacLaine. It's a short novel and well worth reading as its message is as valid today as when it was first published back in 1979. The main character, Chauncey Gardiner, was a simpleton who was nonetheless excellent at tending to his wealthy employer's gardens. As such, Chauncey viewed everything in life in terms of nature and its life cycles. That's how I see my own investment portfolios, as well. Once planted, they just need to be tended to. That means occasionally harvesting gains or losses, waiting for growth and planning and pruning as dictated by seasons and circumstance. November has seen a sea change in market sentiment. Previous leaders have stopped going up. Previously unloved and unwanted stocks have come alive again in a big way. Smaller-sized companies are now outperforming mega-caps. Retail names, which were devastated early this year by government-imposed shutdowns, are now reviving by leaps and bounds. I thought it might be a good time to share some of my Real Money trades from this morning to illustrate what tending to my garden involved. When rolling covered calls up and out I enter the trades as spread orders specifying a minimum debit or credit, which I'm willing to accept, but not the actual prices. A filled price of 19 cents, as was paid to move my Genesco Dec. 18 $30 calls to June 18, 2021 $40 strike price calls, cost me 19 cents per share, times the 400 shares represented by the four option contracts. I thus paid $76 more to close out my four contracts of the old December $30 calls than I brought in for selling four new June 2021, $40 strike price covered calls. Why did I want to do that? GCO has been running hot. As of 11:28 a.m. on Monday, it was up $1.47 per share, or plus 4.63% so far on the day. For my $76 outlay I now have a shot to sell $10 per share higher than I might have been forced to sell for next month had I done nothing and been called away. Spending $76 now could end up being worth $4,000 more next June ($10 per share x 400 shares). The tiny 10-share purchase of CATO was simply a rounding up from 2,390 shares to 2,400. I got just a partial fill on an order last week and wanted to make it an even 2,400 shares to allow for an extra contract if I later choose to sell covered calls on the position. The next two transactions show negative filled prices of $1.09 and $0.25 respectively. Negative prices mean I collected more for the new options being sold than it cost to buy-to-close (BTC) the old contracts being retired. BTC one contract of LPL Financial Holdings's January $90 call and selling to open (STO) one contract of its July 2021 $100 call netted my $109 while offering a chance to pocket $1,000 more than if called at $90. If LPLA closes at $100 or higher on July 16, 2021 I'll have gained $1,109 ($1,000 + $109) more than allowing my shares to be called away this January. Similarly, I took in 25 cents per share on 600-shares worth (six contracts) of Invesco's January 2021 $16 calls, while shorting six July 16, 2021 $18 strike price calls. That's a $150 credit to my account right now. If IVZ continues to edge higher, I could be forced to sell next summer at $18, rather than for $16 this January. The potential extra profit comes to $1,350 ($1,200 from the $2 rise in strike price times 600 shares, plus the $150 received up front for giving up the extra six months). My outright purchase of 500 shares of UGI was simply a new buy. The sale of five contracts of UGI's July 16, 2021 expiration date puts was a commitment to buy 500 additional shares of UGI for a net price of $33.30, if exercised later ($40 strike price less the $6.70 per share put premium received). See my reasoning on liking UGI in my Monday article here on Real Money Pro. The final trade illustrated was a roll up and out on covered calls for Qurate Retail . QRTEA is running wild to the upside, making me sorry I sold a few covered calls out to April 16, 2021 at $10. I decided to repot those calls by BTC the April $10s and substituting Jan. 21, 2022 calls with $15 strike prices. It cost me just 50 cents per share net ($250 on five contracts) to close out the April $10s, while selling five replacement Jan. 21, 2022 $15 calls. If QRTEA closes at $15 or higher on the new expiration date, I'll have made $2,250 extra ($5 x 500 shares) less the $250 cost of moving my calls. The beauty of being an option seller is that you can always change your mind, as long as the original options have not yet been exercised. In many cases you can even get paid for doing so. When selling options, the raw material you are peddling is time. Where else in life can you sell something for real money that costs you nothing to obtain? Read Being There, and employ the lessons learned from Chauncey to your own investments. They've been working well for me for over 42-years now. Note: This article has been updated from an earlier version that contained some incorrect strike prices for GCO calls.

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