We present our ideas to our followers here at TheOptionsEdge.Com. Our first goal is to preserve capital. That is to say, we do our best to avoid losses and generate returns that keep up with inflation and a very minimum. Our second goal is to provide ideas that will generate generous returns on a risk-adjusted basis and will help reduce our reader’s diversification profile at the same time. If we do our job correctly, investors who buy one lot (100 shares, 1 spread, or 1 option, etc.) of every idea presented should earn 10 times the cost of an annual subscription to The Options Edge website.
In the spirit of full transparency, we track the performance of these ideas in the TOE Trade-Ideas portfolio. In 2016 and 2017 we wrote for Action Alerts Options over at TheStreet.Com. We identify this portfolio as the AAO Trade-Ideas. The following table summarizes the performance of all our ideas since we started publishing in 2016. We have broken up the analysis into three sub-components. (1) Trades that are still open, (2) Trades that were closed in 2017, and (3) those trades that were closed in 2016.
We completed 67 ideas in 2017. Of those trades, 68.7% (46) were winners and 31.3% (21) were losers. In other words, we had 2 winners for every loser. Gains totaled $5,329 which is 14.6 times the cost of an annual subscription. Offsetting some of those gains are trades that are still developing which are underwater by $1.855. Of the 15 ideas that are still on the books, 40% (6) of which are winners and 60% (9) of which are losers. These trades have not achieved their objective. Added together, our idea performance stands at $3,474 which is 9.5 times the cost of an annual subscription.
There are 2 ideas that performed particularly poorly last year that explain the explain our losses, BBBY and PPLT. We have done a number of updates on BBBY clarifying our bullish and now very bullish vies on BBBY. In our view, BBBY is the most undeservedly hated stock in the retail sector. They are very profitable, and management is both investing in refreshing their stories and shopping experience and buying back stock at the same time. The stock trades at a single digit PE multiple and pays a 2.7% dividend yield. What’s not to like? The street focuses on the fact that revenues are only growing at just over 1%. So as investors write the obituary of BBBY, selling the stock hard, we think the shares represent great value.
Our second, hick-up is PPLT. Platinum is the cheapest of the precious metals and investors are concerned that demand will fall as electric cars gain popularity. We think that concern is premature and since the price of platinum is below the cost of production, we believe that price will rise over time. Net-net, we expect big gains out of these two ideas in 2018.
Computing returns for options trades in a manner that is comparable to a stock portfolio are somewhat challenging. Some people like to compare gains and losses to the price of the underlying security. By this method, the average annualized return enjoyed was 4.9%. It is worth noting that this method over weights risk. The options trades we recommend generally have far less risk than simply holding the underlying stock, as the options strategies we use generally have limited risk compared to a stock holding. The only exception is buy-writes / cover calls suggestions. While a very popular strategy, They have essentially the same downside risk as the stock. An alternative method is to compare the gains and losses on the options trades to the Capital at Risk. This method more closely aligns the risk of our trades to that of holding stocks. By this measure, the tactical portfolio generated an annualized return of 12.3% for 2017 and 19.4% since inception.
You probably want to know more about the individual trades we made, particularly if you are evaluating our service for the first time. The following links will take you to tables that summarize the trades we discussed. Those tables will have the date of trade initiation, prices at which the trade was recommended and the closing prices. This leads us to the profit on a trade by trade basis. The performance of the closed trades is available for everyone to evaluate. The summary of open trades is strictly reserved for our subscribers.
- The Options Edge Open Trades
- The Options Edge Closed Trades in 2017
- Action Alerts Options (TheStreet.Com) Trades Closed in 2017
- Action Alerts Options (TheStreet.Com) Trades Closed in 2016
For more on how we calculate returns, click here.