Track Record

Track Record Summary & Our Standard of Performance Reporting

Every day we publish actionable trade ideas that subscribers may consider for their personal portfolios. Our intent with these ideas is to get our readers thinking. One should not take or ideas blindly. We intend these ideas as our reader’s first step in the investment process. At the same time, we think it is important for our followers to know how we are doing over time. If you are looking for a service that never has a losing trade, you have come to the wrong place. We bring discipline and diligent to our proprietary investment process. We only pursue those ideas where we believe the odds are in our favor. Having the odds in our favor does not guarantee the trade will be a winner. On the contrary, there is always a chance a trade will not work out. Over time, however, we believe our method of finding inexpensive investments with technical setups and sentiment in our favor is our foundation for a value-added contribution to our readers, which over time by generating superior risk-adjusted returns. Our results summarized below support that proposition.

We present our ideas here at TheOptionsEdge.Com and we identify this portfolio as the TOE Trades. In 2016 and 2017 we wrote for Action Alerts Options over at TheStreet.Com. We identify this portfolio as the AAO Trades.  The following table summarizes the performance of all our ideas since we started publishing our ideas in 2016. We have broken up the analysis into three sub-components. (1) Trades that are still open, (2) Trades closed so far in 2017, and (3) those trades closed in 2016. (All trades suggestions for the Action Alerts Options (AAO) Service at TheStreet.Com are now closed.)

Computing returns for options trades in a manner that is comparable to stock portfolios 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 5.7%. It is worth noting that this method is not quite comparable to a traditional buy and hold or stock trading portfolio, as the options strategies we use generally have limited risk compared to a stock holding. An alternative method is to compare the gains and losses on the options trades to the Capital at Risk. This method is more comparable to the risk of holding stocks and captures the asymmetric risks and leverage associated with options. By this measure, the tactical portfolio generated an annualized return of 19.9%.

The portfolio of open trades slipped over the last few weeks. There are 3 trades that continue to give us heartburn at the moment. The bullish Bed, Bath &Beyond (BBBY) trade. The market hates retail stocks in general and BBBY in particular. The stock is currently trading at 5 times trailing earnings and 7-time analysts estimates of forward-looking earnings. We think the stock is trading at somewhere between 25 and 50% of its intrinsic value.  Discovery Communications is another name investors dislike (not quite hate). It is a content provider that provides great programming, delivered over cable and satellite to homes everywhere.  It trades at 10 times earnings and is another name we think is under-priced, so we are staying with it, even as the loss nags at us. We think the shares could rise 50% or more over the next year. Finally, as we discussed last week, Utilities for some reason are trading very week the past month. The sector has fallen in price even as the market has rallied strongly. Our lone position in this sector PPL was hit along with the sector and is down 20% since we wrote a cash covered put. (We got long the stock at expiration and wrote a few calls and collected some dividends since then.) The stock now trades at 14 times trailing earnings, 13 times analysts expectations of future earnings and about 11 times our estimate of future earnings. We think the shares could rise 25% or more over the next year. On the plus side, our position in platinum (PPLT), which we think is the cheapest metal in the precious metal space has finally turned around is now in the black. It gave us some angst as it sold off in the face of improving fundamentals. But we are bullish the precious metals for an intermediate trade and will let this one ride a bit further. This is a case where patience paid off.

Method of Computation

The computation of the return as a “Percent of the Underlying” is relatively straightforward. We simply use the formula:

Return as a Percent of the Underlying = (Return in Dollars) / Stock Price.

To compute the average, we weighted the returns by the stock price. This way, we give a bigger contribution to 100 shares of a $50 than 100 shares of a $20 stock. To compute the annualized return, we divide the return by the fraction of a year the trade was held. The annualized average is the annualized returns weighted by both the stock price and the time the trade was held.

The computation of the return as a “Percent of Capital at Risk” was a bit more complicated. We use the following formulas:

Spread: Return as a Percent of Capital At Risk = (Returning Dollars) / (Difference between Strikes – Credit Generated)

Bullish Risk Reversal: Return as a Percent of Capital At Risk = (Return in Dollars) / (Put Strike – Credit Generated)

To compute the average, we weighted the returns by the capital at risk. To compute the annualized return, we divided the return by the fraction of a year the trade was held. The annualized average is the annualized returns weighted by both the capital at risk and the time the trade was held.

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, trade structure and the prices quoted in the marketplace at the post (usually the closing price the day before the article is posted). 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.