In order to reestablish our regular income strategy, we replaced the short stock hedge with a NOV 21/18 Put Spread:

BUY -  NOV 21/18 Put Spread @ $.95

To finance this new hedge we also sold covered calls at the 26 strike in NOV:

SELL -  NOV 25 Calls @ $1.45

In the current downtrend that CROX is in, we sold the covered calls at the overhead resistance near $26.00  These short calls pay for the ST put spread and produce an additional $.50 in income through NOV expiration.  The position remains near neutral to slightly short over the ST as we expect continued weakness along with the market.

Members can view the new position structure in the Model Portfolio after today’s close.

Coach BD

The potential damages that could be awarded range from 1 – 4 Billion with the possibility of trebling.  A positive verdict for RMBS could result in a very big move to the upside.

Coach BD

The news coming out of the courtroom has been largely positive for RMBS and the recent price action would tend to indicate that the market is taking notice.  However, as with all things RMBS, until the verdict and damage award is out… anything can, and usually does, happen.

As we approach a verdict there could still be a stock price manipulation, which has happened during past litigation.  There could also be a settlement.  Or there could be something totally unexpected… that’s just the nature of the RMBS story.

In any case, there is potential for a huge move in either direction based on the verdict and damage award.

Stay tuned to RMBS for an excellent trade opportunity.

Coach BD

With the recent news that NFLX was going to split its rental and streaming businesses the stock plunged and sent our expiring short trade to its maximum profit of $21.15, or a nearly 150% gain for this 4-month trade.

NFLX is our 2nd big winner Short trade since we launched our new portfolio in the 2nd quarter (LULU was the other @ 200%), and a good example of how your analysis of a trade may take longer than expected.

Always buy at least 2 months of extra time to give your trades a better chance for success.  Members may view the position in the Model Portfolio.

Coach BD

The SEP 85/65 Put Spread expired at $14.90, or close to a 200% gain on this mid-term short trade.

Members may view the position specifics in the Model Portfolio.

Coach BD

The strategy we routinely follow for with this type of hedge is to purchase it while the market is in a sustained or irrational uptrend, buy the longest amount of time available, and wait for the usual correction, or volatility to hit the market.

In this case we waited for more than six months before seeing the position move positively, but as was seen with this recent downturn the result if often extreme.

This market action moved our losing position to a highly profitable one in very short period of time.  This is the primary reason we use the VIX vehicle for hedging our long portfolio.

Extreme moves can mean big profits very quickly even when the long portion of our portfolio doesn’t wind up moving down very much despite the volatility.

Coach BD

We sold:

50%  -  AUG 29 Calls for a credit of $1.30

50%  -  AUG 30 Calls for a credit of $.80

This action generates some ST income for our LT position as well as offering us some downside protection through AUG expiration amid this big sell-off.

Members may view the current position in the Model Portfolio.

Coach BD

We sold:

1  -  AUG 35 Call for a credit of $.81

This gives us income of $81.00 and ST downside protection of $.81 down to $34.19 on our long stock position.

Coach BD

We sold:

50%  -  AUG 27.50 Calls for a credit of $1.65

50%  -  AUG 30 Calls for a credit of $1.25

This action anticipates that the VIX will retreat from these high levels between now and expiration.  If it retreats quickly we will roll the calls down to collect more premium and lock-in more profits.

Members view the current position in the Model Portfolio.

Coach BD

All the averages are well below their respective 200-Day MA’s and the weekly trends are now also well below their respective 50-WEEK MA’s.

We may get a nice bounce-back to the upside after this big downside move but it looks as if the sentiment is more room to the downside over the near-term.

Tomorrow’s jobs report may dictate direction over the few days.

Coach BD