20-09-07

Good and bad.

Our order to sell 5 calls PACIFIC ETHANOL (PEIX - USD 11.17) March 2008 USD 12.50 at a price of USD 1.00 was filled yesterday. We were not too bullish on the stock and wanted to earn some money on our long position (we had to buy the stock back in June at USD 15 as we got assigned on the short June 2007 puts). Today Friedman Billings downgraded the stock ( http://finance.yahoo.com/q/ud?s=PEIX) to underperform. Good news on the other hand for our junior goldmine GOLDEN STAR RESOURCES (GSS - USD 4.23). The stock jumps 15% on news it seeks a listing on the Ghana stock exchange. We are short January 2009 USD 2.50 puts. SINOVAC BIOTECH (SVA - USD 4.40), a China based biotech firm, adds another 10%. Over the last month the stock, has doubled in value. The Option Portfolio had sold puts in the beginning of the year. They have already matured worthless. The stock is still on our watchlist.

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16-09-07

End of the hype?

So far this year, our alternative energy stockpick PACIFIC ETHANOL (PEIX - USD 10.77) has not been our best investment. The company produces and markets renewable fuels in the western United States. It produces and sells ethanol, and provides transportation, storage, and delivery services. Since May 2006 PEIX stocks fell from USD 40 to almost USD 10 these days. The hype and the fantasy is clearly priced out. Back in December 2006 our Option Portfolio sold June 2007 USD 15 puts at USD 1.90. In June we were assigned and bought 500 stocks at USD 15. We do not expect a spectacular recovery any time soon. In order to have some income on the stock we are going to sell some calls on it. We give on order to sell 5 calls March 2008 with strike USD 12.50 at a limit of USD 1.00. If PEIX were to rise above USD 12.50 by March next year, we would then be out of position more or less flat against a loss of USD 1.165 based on actual prices (10.77 -(15.00-1.90)*500)). The actual option price can be found here: http://finance.yahoo.com/q?s=PFQCV.X.

At the same time we would like to re-enter a position in EVERGREEN SOLAR (ESLR - USD 8.71). We give an order to sell 10 puts December 2007 with strike USD 7.50 at a limit of USD 0.50. By selling these puts we are entering the obligation to buy 1.000 ESLR shares at a price of USD 7.5 if they trade below that level by mid December. On execution of the order our savings account will be credited with the option-premium of USD 500 (10*100*0.5). The 100% margin of the trade amounts to USD 7.500 (10*100*7.5). These funds are blocked on the account as a guarantee. Click here for the actual option price: http://finance.yahoo.com/q?s=QLUXU.X .

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28-08-07

Back in DENDREON.

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).

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12-08-07

Welcome

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 19th, 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 !

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