Note to new readers: This is a regular update on the status of our Low Risk Income Model Portfolio which is built using the income strategy described in our e-book “A Low Risk Income Strategy for All Economic Conditions”

The pull back continued this week as some traders took profits ahead of US Federal Reserve Chairman Ben Bernanke’s speech at Jackson Hole, Wyoming this weekend. Markets enjoyed a strong rally after QE2 was announced at a similar meeting in 2010. This time markets have rallied ahead of time in anticipation of a QE3 announcement. There could be some violent moves next week depending on whether the market is happy or disappointed with the Fed’s announcement regarding QE3. We will sit on the sidelines as we await the outcome of this meeting.

Trade Transactions This Week

No new trades this week.

Model Portfolio Update

National Australia Bank: NAB September $24.01 CALL

On May 30, I sold to open NAB September $24.01 call options for $0.76 when NAB was trading at $23.76. NAB shares remained flat this week and closed at $25.25 today. The call options are now worth $1.38.

For more information about this trade set up, read my May 30 model portfolio update.

Woolworth: WOW August $26.00 PUT (expired)

On June 6, I sold to open WOW August $26 put options for $0.65 when WOW was trading at $26.24. The share price has shot up and WOW closed at $29.21 when our options expired yesterday. As the share price was above the strike price of  our put options, they have expired worthless and we simply get to keep the $912 of option premium. The trade will be removed from our open positions table.

Telstra: TLS September $3.51 Call

On June 20, I bought some TLS shares at $3.63 per share and sold to open some TLS Sept $3.51 calls. As expected, TLS shares fell after they went ex-dividend last week but is recovering quickly.  Today the shares closed at $3.86 and the call options are worth $0.35.

For more information about this trade set up, read my June 20 model portfolio update.

Newcrest Mining: NCM Oct $24 CALL

On July 27, I sold to open NCM October $24 call options for $1.27 when NCM was trading at $23.23. The massive rally last week has fizzled and NCM shares have fallen back to $24.68.  The call options are now worth $1.58.

For more information about this trade set up, read my July 27 model portfolio update.

Iluka Resources: ILU October $8 PUT

On July 27, I sold to open ILU October $8 put options for $0.56 when ILU was trading at $8.51. The share price continued to pull back and closed at $9.26 today. The put options are now worth $0.23.

For more information about this trade set up, read my July 27 model portfolio update.

Rio Tinto: RIO September $58 CALL (closed early)

On August 10, I sold to open RIO Sept $58 call options for $1.28 when RIO was trading at $56.98. RIO shares have given back all their gains and have fallen to new lows. RIO was trading at $49.17 today and the call options are now only worth $0.07. As the calls are almost worthless and there is not much profit potential left, I have decided to buy back the call options so we can sell more calls again in future to generate more income from our RIO stocks. This position will be removed from our open position table next week.

Westfield Group: WDC Oct $10 PUT

On August 17, I sold to open WDC October $10 put options for $0.36 when WDC was trading at $9.76. WDC shares remained flat this week and closed at $9.87 today. Our put options are now worth $0.27.

For more information about this trade set up, read my August 17 model portfolio update.

Current Open Position Snapshot

A summary of our open positions is shown in the table below. We now have 2 open put positions and 3 open covered call positions.

I will be providing a weekly update on this model portfolio on this blog. If you are intrigued by our income strategy but have trouble following the discussions in this post, you will need to first download and read our e-book in order to understand the strategy and do some basic options education (found on our Resources page) to familiarise yourself with option terminology.

Stay tuned!

Disclaimer: This post is for educational purposes only and should not be treated as investment advice. This strategy would not be suitable for stock investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek investment advice if required.

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