I got a Tweet from Matt Miller, host of Bloomberg Rewind, yesterday.
Back in November I was a guest on his show.
I’m very upset with Matt Miller. He has completely changed my beloved prime time viewing habits, so much so that Comedy Central executives have checked in on me to see if everything was alright. Maybe it’s a kiss of death for a beyond middle aged white guy to say that his show is “hip and happening,” but it’s really an enjoyable and educational hour to top off the day.
But to paraphrase Christopher Walken, “It needs more TheAcsMan.”
Anyway, the day that I appeared happened to be the day when Green Mountain Coffee Roasters was getting hit in the after hours and went down about 40%. Idiot I am, I brought it up during the show, as an example of a company that I had owned. Not because it was a great stock, but because it had nice options premiums, due to all of that volatility, momentum and uncertainty.
Capitalists like to capitalize on opportunities, but the other characteristics are precisely the things that I profess not to like. But in a Ted Haggard kind of way, I fully embrace them, sinner that I am.
I nursed shares back by a combination of buying new shares and exercising the strategy that I call “Having a Child to Save a Life“, as well as selling puts. Again and again.
It worked.
Call me old fashioned, but I’m of the generation that believes that when you have some kind of “agreement” it usually means collaboration. So it was a surprise, not just to me, but to lots of people, based on Green Mountain’s price response to Starbucks’ announcement that it was coming out with a competing single unit machine.
I guess they agreed to compete.
Usually, if you’re in the same line of business, that’s implied. It was nice of them to codify their agreement to go at each other.
Maybe coincidentally, yesterday, Green Mountain took its hit on a day that not only was I within a long stone’s throw of the Bloomberg studios, on a business trip, but I had an opportunity to try a Green Mountain product for the first time.
I’m not much of a coffee affficiendao, but it was pretty insipid.
For those that didn’t see the Tweet and attached image that I sent out the other day comparing the one year charts of Gold ETF, Starbucks and Green Mountain, here’s what you missed.
You can add your own caption to the “Coffee is better than Gold, even after another GMCR plummet.
So here we are, with another opportunity to do it all over again.
Matt Miller’s Tweet was to jog his memory regarding my current position on GMCR. I like it when people want to share my pain.
Happily, though, it was offset by the really nice bounce in MolyCorp, the only other momentum kind of stock that I own and that is also a really great one for covered calls and selling puts over and over. Do it consistently long enough and you could find your stocks cost basis has gone down to zero.
Take Green Mountain for example. The scorecard since my first purchase of shares in April 2010 is as follows: Realized capital gains: $17,153. Options premiums received: $45,189. I’m on the hook for a capital loss of $8,303 if I sell my current shares. In that time 17,100 shares have gone through my hands through purchase, assignment, repurchase, etc. at an average cost of $40.05 per share. That means that a particular lot of shares, which I usually hold for a week to a few weeks at a time has spun off $3.65/share in capital gains and premiums, or an ROI of 9.1%.
Booyah.
But wait. That’s the ultra-conservative analysis. No one reports their results on the basis of cash flow.
The knock your socks off analyis considers that typically 1,000 shares or less were held at any one time, so the total return for those 1,000 shares was actually 153% in a 23 month time period. That’s 79.3% per year.
Booyah, Booyah.
But I know what you’re thinking. You’re thinking “what if?”
What if I lived in a world of perfect knowledge and perfect timing. What if I sold my shares at the 23 month high of $112?
Glad you asked, because based on the monthly average holding of about 750 shares (the 17,100 shares over 23 months) the final gain of $72/share would have resulted in a gain of $54,000.
Only $54,000, Booyah.
Anyway, after an entirely unsatisfying week, I don’t have much free cash coming my way, as I was woefully underhedged last week. Instead of the routine 30-50% weekly turnover, this time it’s more like 4%, so there won’t be much reshuffling.
Not that I didn’t try.
I sold last minute “Crumb” calls on SPDR Energy ETF and Chesapeake Energy in the hope that I could squeeze some last minute premiums out of them and have the shares assigned, just so that I could use the money on Monday.
No such luck.
I will likely sell puts on GMCR Monday morning and may also exercise my new “Ron Paul Hedging Strategy,” pitting silver against anti-silver. That strategy came to me while in midst of one of my 5 minute breath holding exercises.
Ron Paul had me totally mezmerized when twirling that silver coin between his fingers while “questioning” Ben Bernanke at last weeks’ Humphrey-Hawkins testimony. I wonder if they ever did get together for a social chat afterward, as the Fed Chairman seemed to suggest they do.
I’ve owned shares of the ProShares UltraShort Silver for more than 8 months. It is my longest holding in about 5 years. It’s in the dumpsters now, as it inversely tracks silver prices. The saving grace has been the premiums, but I’ve been largely underhedged through the last two monthly cycles.
Did I mention that it was leveraged? It’s leveraged. It is the anti-silver.
In comes the iShares Silver Trust. It is Silver in a plain vanilla wrapper.
Unleveraged and best of all, with well traded weekly options.
What better way to hedge than silver against silver?
Probably the stupidest idea I will ever have without being able to blame it on a brain infarct.
I’m not likely to do it, but if I have any limited cash left over, I may partially dip in a toe. A small toe. Partially.
Dip.
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