OPTION PORTFOLIO

ENER order filled.

Mon, 03 Sep 2007 20:39:58 +0200

Our order to sell 2 puts Energy Conversion Devices (ENER - USD 25.95) october 2007 USD 25 at a price of USD 1.65 was filled last week. By selling these puts we are entering the obligation to buy 200 ENER shares at a price of USD 25 if they trade below that level by mid October. Our savings account is credited with the option-premium of USD 330 (2*100*1.65). The 100% margin of the trade amounts to USD 5.000 (2*100*25). These funds are blocked on the account as a guarantee. Click here for the actual option price: http://finance.yahoo.com/q?s=EQIVE.X.

Below, we listed the 3 short put options that are maturing this month. Only Evergreen Solar (ESLR) trades ITM (in-the-money). The position however is still above break-even.

September 2007 maturities

Ticker	Stock price	Contracts	Strike	Price sold	Received premium	Break-even
ESLR	USD 8,97	10 puts	USD 10	USD 1,15	USD 1.150	USD 8,85
ACAD	USD 14,39	5 puts	USD 12,50	USD 1,60	USD 800	USD 10,90
KRY	USD 2,85	20 puts	USD 2,50	USD 0,30	USD 600	USD 2,20

Lets try ENER again!

Thu, 30 Aug 2007 19:37:34 +0200

Energy Conversion Devices (ENER - USD 26.00) is an alternative energy technology company on our watch list. The company makes solar cells and fuel cell batteries. European readers may remember that we sold some June USD 30 puts at USD 3.60 back in February and closed them at USD 0.35 in April. The company reported on Wednesday its fiscal fourth-quarter loss widened as restructuring and other charges offset revenue growth. It expects to post a fiscal first-quarter 2008 profit of $40 million to $45 million. Figures are disappointing. Shares in ENER have now fallen almost 15 % in 2 days and 25% over the last 3 weeks. We still find ENER an attractive play in alternative energy and would like to take a small position in the stock. We give an order to sell 2 puts October 2007 USD 25.00 at a price of USD 1.65. Our break-even price then is USD 23.35. If filled we receive an upfront premium of USD 330. The actual option price can be seen here: http://finance.yahoo.com/q?s=EQIVE.X. For a chart click here: http://stockcharts.com/charts/gallery.html?ener.

Back in DENDREON.

Tue, 28 Aug 2007 16:29:12 +0200

Our order to sell 20 January 2009 USD 2.50 puts DENDREON (DNDN - USD 8.07) at a price of USD 0.90 was filled last week. Till the strike of USD 2.50 Dendreon can drop by 69% from the actual levels. Even if the stock would fall by 69% by January 2009, we will still make USD 1.800 (the premium we received from selling the puts). This implies a return of 36% on the amount needed for a possible purchase of the stocks (1.800/5.000). Remember that we use a 100% margin rule for safety reasons. No leverage in this portfolio. Only in case the stock would trade below USD 1.60 in 16 months time we would make a loss on the position: in other words, DNDN is ‘ allowed’ to sink by as much as 80 % before we make a loss on the position. Here is the actual option price: http://finance.yahoo.com/q?s=ORGMZ.X.

Our portfolio is now worth almost USD 72.000 (annualized return of 15%), and invested for about 80 percent. The current holdings are concentrated predominately in 3 sectors:

1. Alternative energy with positions in EVERGREEN SOLAR (ESLR - USD 8.73), HEADWATERS (HW - USD 15.46) and PACIFIC ETHANOL (PEIX - USD 11.81);

2. Biotechnology with positions in ACADIA PHARMA (ACAD - 14.33), DENDREON (DNDN - USD 8.07) and YM BIOSCIENCES (YMI - USD 1.69);

3. Commodities with positions in COEUR D’ALENE (CDE - USD 3.31), GOLDEN STAR RESOURCES (GSS - 3.03) and CRYSTALLEX (KRY - USD 2.88).

80 % airbag?

Thu, 23 Aug 2007 16:45:20 +0200

You know from our previous posting that we have sold our position in DENDREON (DNDN - USD 7.70). We nevertheless want to keep an exposure in the stock. Dendreon has become a relative stable stock these days. That was different in the first half of the year with some erratic price action. A chart can be seen here: http://stockcharts.com/charts/gallery.html?dndn . The reason for the relative stable behaviour is that there is nothing spectacular to be expected from the biotech company in the near future. Only by the summer of next year the FDA will come up with its review status on Provenge, a potential blockbuster active cellular immunotherapy for the treatment of prostate cancer. Longer dated options put options are expensive, an expression of the anticipated volatility increase after the FDA decision. We want to exploit these high put prices by selling some puts. We give an order to sell 20 January 2009 USD 2.50 puts at a price of USD 0.90. Till the strike of USD 2.50 Dendreon can drop by 67% from the actual levels. Even if the stock would fall by 67% by January 2009, we will still make USD 1.800 (the premium we received from selling the puts). This implies a return of 36% on the amount needed for a possible buy ( 1.800/5.000) . Only in case the stock would trade below USD 1.60 in 16 months time we would make a loss on the position: in other words, DNDN is ‘ allowed’ to sink by as much as 80 % before we make a loss on the position. That is quite an airbag, isn’t it? Not bad at all, if you ask me. Here is the actual option price: http://finance.yahoo.com/q?s=ORGMZ.X.

Outperformance persists.

Wed, 22 Aug 2007 09:39:22 +0200

The order to sell 1.000 DENDREON (DNDN - USD 7.55) at our limit price of USD 7.55 was filled. Taking into account the received premiums on the options we realize a profit of USD 2.050,- or almost 30% in 3 months.

We have been managing the portfolio now for 8 months. The results are satisfactory. We achieve a relative outperformance against the major indices, as can be seen in the table below:

Index	Return since Dec. 19, 2006	Average monthly return
Option Portfolio	+ 9,87 %	+ 1,23 %
S&P 500	+ 1,33 %	+ 0,17 %
Nasdaq	+ 3,01 %	+ 0,38 %
EuroStoxx50	+ 1,78 %	+ 0,22 %

Dendreon position closed with a profit of 36%.

Tue, 21 Aug 2007 20:48:38 +0200

The order to sell 20 puts September 2007 with a strike of USD 2.50 on goldmine CRYSTALLEX (KRY - USD 2.95) was filled at our price of USD 0.30. By selling those puts, we entered the obligation to buy 2.000 stocks at USD 2,50 if case KRY would trade below that price towards mid September. Our savings account is credited with USD 600 (20*100*0.30). The amount of USD 5.000 is put aside as a guarantee (100% margin rule) in order to meet our financial obligation in case we would be assigned. As the maturity of the option is only 1 month away, we can make 12% on our committed capital in 1 month time ( 600/5.000), or a fenomenal 140% on annual calculations.. KRY is allowed to fall 18% further (from 2.95 to 2,50) before we start earning less. Only at prices below USD 2.20 (2.50 minus the received premium of 0.30) the profit is gone. This means that KRY can drop another 25% from the current level before we would end up with a loss.

Last Friday our covered calls on biotech firm DENDREON (DNDN - USD 7.61) matured worthless. Back in May we got executed on our short USD 7.50 put position in the stock. As a result we had the buy 1.000 stocks at a price of USD 7.50. We received USD 1.10 per share for those puts. Once assigned, we sold august USD 7.50 calls for a premium of USD 0.90. By doing so we agreed to sell DNDN at USD 7.50 if the stock would trade higher, which it didn’t. Taking into account both received premiums (matured puts at 1.10 and matured call at 0.90), our break-even buy level of DNDN is actually USD 5.50 (USD 7.50 - USD 1.10 - USD 0.90). In this Option Portfolio we don’t like to keep assigned stock too long. As soon as they reach the buy level again and are uncommitted by options, we will unload the stocks. As the calls on DNDN matured last Friday, the stocks are now available to be sold. We give an order to sell 1.000 DNDN at USD 7.55. If done, we make USD 2.050 (1.000*(7.55-5.50) on the position (option premiums included). That is 36% in 3 months. Not bad at all. We will consider selling puts on DNDN again once the order is filled.

Gold & FX

Thu, 16 Aug 2007 14:24:59 +0200

Goldstocks were amongst the biggest losers over the last sessions. Yesterday, we already sold puts on Golden Star Resources (GSS – USD 3.16 – TTD: + 7 %)). Another gold mine, CRYSTALLEX (KRY – USD 2.75 – YTD: - 24%) was beaten down. Since April the stock has lost half of its value. In the beginning of the year we successfully sold puts on the stock. They all matured worthless because the stock moved higher (chart : http://stockcharts.com/charts/gallery.html?kry). Around the current stock price we think there is again some value is selling USD 2.50 puts. We pass on the order to sell 20 puts December 2007 with strike USD 2.50 at a limit of USD 0.25. The actual option price can be retrieved here: http://finance.yahoo.com/q?s=KRYUZ.X. When the order is executed, we receive USD 500. Our margin (100%) is USD 5.000. This implies 10% yield in 1 month. We only lose in case KRY would trade below USD 2.25 by the 21st of September. KKR is `allowed`to sink another 18% before position turns red.

Still profit even after 40% drop in price??

Wed, 15 Aug 2007 20:37:02 +0200

Our order to sell puts on GOLDEN STAR RESOURCES (GSS - USD 3.31 - YTD 12 %), a Canadian junior miner, has been filled today. We sold 30 put contracts January 2009 with a strike of USD 2.50 at a premium of USD 0.50. In return for the obligation to buy 3.000 stocks at a price of USD 2.50, if the they would trade below that price by January 2009, our savings account is credited with USD 1.500 (30 * 100 * 0.50). The money needed for a possible purchase of the stocks (assignment), is blocked as a guarantee on our account. For this trade this margin amount is USD 7.500 (3000 * USD 2.50). We have a conservative approach and don’t like to leverage. So, we use a 100% margin. The premium of USD 1.500 represents 20% of the margin (1.500/7.500). The duration of this put is 1 year and 5 months. The return on an annual basis amounts to 14%, fully in line with our investment targets. Golden Star may fall another 20% (from 3,31 to 2,50) before the positive return diminishes. Only at a price of USD 2.00 (2.50 minus the received premium of USD 0.50) the profit is completely wiped out.. This means that GSS can fall 40% from current levels before the position turns negative. Golden Star reached a 2007 high of USD 4.95 in April. We think the recent fall in the stock price combined with the increased volatility represent an opportunity to sell some puts. We think the shares will find very good support between USD 2.50 and 3.00. Swiss bank UBS recently upgraded the stock to buy. Click here for an current option price: http://finance.yahoo.com/q?s=OCXMZ.X. A recent article on GSS can be found here: http://www.fool.com/investing/value/2007/08/10/wish-upon-a-golden-star.aspx A general GSS profile can be retrieved here: http://seekingalpha.com/by/symbol/gss.

Welcome

Sun, 12 Aug 2007 13:36:57 +0200

A hearty welcome to this new financial blog. We have been running this site in Europe for 8 months now and enjoyed much market appreciation. Due to its popularity in Europe (where it is written in Dutch) we have decided to create this version in English as well. Both sites will enter the same trades and have the same performance. This site will basically enable you to track for free a real-money portfolio of stock options. The strategy consists of selling (or writing) 100% cash-covered put options on US stocks. This defensive market approach aims to generate annual profits in the range of 10 to 20 %, regardless of the direction of the market.

Back in December 19^th, 2006 we started the portfolio with an initial capital of USD 67.500 (EUR 50.000). The portfolio is currently worth USD 72.125,-. This means a positive return of 10,78 % after 8 months or 17,00 % on annualized terms. We are currently ahead of the Nasdaq, with a return of + 4,94 % and the S&P 500 with a negative return of - 5,73 % for the same period. The portfolio is invested for about 60 %. Our main focus is on biotech stocks, alternative energy stocks and commodity stocks. Current positions in biotech include Acadia Pharma (ACAD), Dendreon (DNDN) and YM Biosciences (YMI). In the alternative energy sector we have exposure in Evergreen Solar (ESLR), Headwaters (HW) and Pacific Ethanol (PEIX). Coeur d’Alene (CDE) is our commodity play. The portfolio, its performance and its history can be downloaded from the left column.

To keep it simple we do not take transaction costs into account. Brokerage fees, especially with online brokers, are cheap. By writing put options on stocks you enter an obligation to buy these stocks at a certain level (strike). In case the stock actually trades below that strike and you are ‘ assigned‘ , you will have to come up with money to buy. The amount that you would need in order to buy the stocks if you were to be assigned (stock price trades below the strike) is ’ blocked’ as a 100% margin on your savings account. That account may yield 4 % or more. We will not take accrued interests into account either.

Unlike other similar sites we do not charge you anything for this service. We hope we can teach you some insights in the world of options and, why not, that you can profit from it. Curious how we will master the markets ? Keep track of us ! Feedback always appreciated !