Saturday, July 25, 2015

Financial Planning Weekend Update - July 25, 2015


That looks pretty horrible doesn't it? After Monday's pop to 2128 the S&P has been all downhill mostly due to pretty lackluster earnings. Well, at least none of my positions are deep in the money anymore - ED by $0.90 and VTR by just $0.39.

One bit of "good" news: the Federal Reserve accidentally released some normally classified projections that indicates they expect to raise rates by 0.25% only once this year. That should suck pretty much all the rate hike fear out of the market for the remaining 5 months of 2015. But there's plenty of other scary stuff out there...

This week presents a very useful learning opportunity. Back on April 18 I let virtually all my positions expire in the money. I then restructured the portfolio but in doing so I re-bought KO, GE. PG, and COP at higher prices. What would have happened if I had "bought to close" those 4 positions?


To estimate the "Cost to Close" I added 3 cents to the amount the contract was in the money (a pretty typical amount by 3:30 or so on expiration). For example, in the case of KO that was ($0.30 + $0.03) * 700 = $231.00. The rest of the columns are self explanatory. It turns out that I would be $1267.00 better off if I had bought back those options. Those 4 positions represent a little more than half my current unrealized loss.

The Lesson:

Think twice (at least) before letting a position be called away. You've seen that in action the last couple months - hopefully I've internalized it and I won't make the same mistake again.

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