Here's what I did during the sell-off

Investment Analysis Clubs Saul’s Investing Discussions
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Here’s what I did during this chip sell-off during the last few days. It will give you all a chance to second-guess me. I have said before when one stock is down in a rising market I’m suspicious, but when all the stocks are down for no reason, I try to add to my best if they have fallen a lot.

I had to get cash first so I sold off my positions in ELLI and POL, which were more stable and hadn’t fallen hardly at all. (After figuring out that ELLI’s earnings were continuing flat, and with them giving an outlook for earnings for 2015 that was actually down from 2014, I decided to watch from the sidelines at any rate). And sold my AMAVF.

Then I bought more Skyworks for my already oversized position (down a great deal for no reason), bought AMBA (down a lot too), and bought smaller amounts of FB, UBNT, and a very little amount of INBK (where I am cautious because it’s not liquid).

Best,

Saul

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I did not have swks until yesterday
want to build up a 200 shares holding of swks
Yesterday bought 40 , today bought another 40 at 91.60

bridgewater

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I was busy at work and was not able to scramble enough to get more SWKS and AMBA. They are already 15% and 10% of my portfolio but boy did they look good this morning. Not second guessing you at all Saul.

Brian

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Saul, we don’t have any stocks in common. What I did was to sell covered calls with a strike price high enough that they should not be called and high enough that I don’t mind being called.

Denny Schlesinger

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Saul,

I took a bit more risky approach. I didn’t sell any stocks but instead opened a bull spread on SWKS this morning.

I sold the May2015 $110 puts and bought an equal quantity of the Jan2017 $90 calls. This allowed me to up my SWKS position by taking advantage of my margin without paying any interest. My rationale was that SWKS could beat their earnings and we could see the stock hit or exceed $110 by May 15, 2015 in which case the short put position will expire worthless. If not, I could keep rolling the put options forward until the price hits $110 or above.

The calls don’t expire until January 2017 so there is a lot of time for the stock increase in value if indeed the earnings keep growing as I expect them to. I will make $1 for every $1 above $90 (on a per share basis).

Chris

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I wanted to have controlling rights for the most shares possible with my additional investment dollars in SWKS, so I bought Nov, 15, $100 calls when it around $90.50 - 20% gains (on paper) for the day.

I wanted to add more UNBT but held off. I thinking to start a position in FB tomorrow.

LegoAbs

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Chris,
I am not sure I understand the reasoning on selling such a deep ITM put. I know this board does not talk options much. Maybe you could bring your trade to SA Options to discuss. To acquire shares, I would sell shorter term put OTM usually, taking advantage of high CAGR on time decay. For income, I would sell ATM, maybe even farther out, with plans to roll.

Selling so far OTM short term, garners very little TV decay and very much mirrors buying the stock. I don’t see the advantage.

Gator

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I am not sure I understand the reasoning on selling such a deep ITM put. I know this board does not talk options much. Maybe you could bring your trade to SA Options to discuss. To acquire shares, I would sell shorter term put OTM usually, taking advantage of high CAGR on time decay. For income, I would sell ATM, maybe even farther out, with plans to roll.

Selling so far OTM short term, garners very little TV decay and very much mirrors buying the stock. I don’t see the advantage.

Gator,

OK. Let me explain my reasoning, but before I do it is relevant to share my positions in SWKS as prior to this last trade as that information factors in to my reasoning.

*Shares: 12.3% of my portfolio

*Short puts: Apr 2 2015 $98 strike (equiv to ~2% of portfolio if assigned)

*Short puts: May 15 2015 $85 strike (equiv to ~4% of portfolio is assigned)

*Short puts: Aug 2015 $100 strike (equivalent to ~5% of portfolio if assigned)

*Long calls: Jan 2017 $95 strike (control shares equiv to ~5% of portfolio if they were shares)

Now, you can see that I already had a huge position in SWKS prior to yesterday’s trade. I would stand to lose ~23.3% of my portfolio if SWKS shares went to $0.

So here’s my reason for yesterday’s trade:
Like Saul, I believed that the 2 day drop to $90 was unwarranted and temporary. I believe that SWKS is still a great value given its past growth rate and market position/growth prospects. Earnings are due out in late April/early May. SWKS has guided $1.12 adj EPS. SWKS has beat earnings many times in the past and I believe it is likely they will beat. I believe it’s likely that they may raise guidance above what analysts are expecting. So my trade (Buy Jan17 $90 calls and sell May15 $110 puts) is based on my opinion that the shares may very well be above $110 by the May expiration date. It is also my opinion that SWKS will grow its earnings significantly in the coming quarters and that the stock price will need to reflect that growth. Also, May expiration is not that far away (about 7 weeks) so if I am correct about the price reaching $110 then I essentially get the long term calls for free. If I am not correct about my May target price then I will have several opportunities to keep rolling the puts forward (each time collecting more premium) until they expire worthless, leaving me with the call which has unlimited upside. So for this trad I was trying for more premium per share rather than trying to maximize time value decay.

Now if I didn’t already have such a large position in shares, I would have instead opted to buy more shares as Saul did. I realize that I am taking a large risk, particularly because I am now exposed to lose almost 30% of my portfolio if SWKS goes to zero. It certainly is possible for me to lose big on my SWKS position, but everything I see about the company, the future growth demand for their prodcuts, and the value of the stock price leads me to believe that the potential gains outweigh the risks. Yes, it is currently my highest conviction stock.

Here’s SWKS CEO on Cramer yesterday:

http://www.cnbc.com/id/102539484?__source=yahoo%7cfinance%7c…

Chris

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