In May 2020, Gaetan sent me his portfolio positions for the May 2020 contracts. His cash available was $33,000, and he decided to diversify with five different stocks. I thought it would be a useful exercise to look at his positions and analyze what we believe his overall market assessment was at the time of his initial trade executions, explains Alan Ellman of The Blue Collar Investor.
Gaetan’s Five Stock Selections (see chart below)
- 300 x Vipshop Holdings Limited (VIPS) - purple line
- 200 x ZTO Express (ZTO) - pink line
- 100 x Ciena Corp. (CIEN) - brown line
- 100 x Emergent BioSolutions Inc. (EBS) - yellow line
- 100 x RealPage, Inc. (RP) - green line
Comparison Chart with the S&P 500- blue line
3-Month Comparison Chart with the S&P 500
All five stocks were significantly out-performing the S&P 500 (blue line on bottom of chart) over the previous three months as trades were entered. VIPS (purple line) was showing a modest downtrend on the right side of the chart. Gaetan smartly selected an in-the-money strike, which provided 5.6% downside protection of the 4.5% initial time-value profit.
Initial Calculations with the Multiple Tab of the Ellman Calculator
Initial Trade Calculations
- The initial time-value return averages to 3.14% for the month (yellow cells)
- Downside protection on four positions averages to 5.35% (brown cells)
- Upside potential on RP is 2.2% (purple cell)
Discussion
Since seven of the eight contracts were written with in-the-money strikes, Gaetan is showing a defensive inclination for the May contracts. The initial time-value return of 3.14% shows a conservative investor with modest risk-tolerance. I consider myself, as well as most BCI members, to be in this category. Once we enter our trades, we immediately enter buy-to-close limit orders on the short calls based on the 20% guideline, if adhering to the BCI methodology.
Learn more about Alan Ellman on the Blue Collar Investor Website.
