Portfolio Update: EWS, CSCO, AUY, AEO

With all the market action, I’ve spent more time managing holdings than normal this past week. A quick update on some moves I’ve made:

  1. I sold out of my iShares Singapore ETF (EWS) early last week at $13.92. As it turned out, the timing worked out quite nicely as shares worldwide suffered major setbacks but I was not predicting any such sell-off. I simply felt that EWS had made a nice run and determining intrinsic value for something like a country’s stock index is difficult for a value investor like me.
  2. I sold Yamana Gold (AUY) $16 covered calls due Oct 2011 for $0.40 per contract. Of course, this position immediately moved against me but AUY is still trading some ways below $16 and I can’t imagine the gold sector keeping up its torrid gains all the way through October.
  3. I sold Cisco (CSCO) $13 naked puts due Nov 2011 for $0.86 per contract. I already have a good position in CSCO and thought naked puts was the best way to take advantage of CSCO’s falling share price without committing another round of capital to the position. The company reported upbeat earnings and the stock is rallying hard today.
  4. I sold American Eagle Outfitters (AEO) $10 naked puts due Nov 2011 for $0.70 per contract. I am not a huge fan of the retailer space and couldn’t honestly predict which companies will hit the right fashion trends but AEO’s cash flow and especially, their balance sheet are rock solid and shares were trading too cheap relative to FCF. But I still couldn’t bring myself to buy the shares around $11 so I wrote these puts instead. If I am exercised on the shares, my true cost will be $9.30 per share; otherwise, I will generate 6% return.

As always, portfolio holdings will be updated after month’s end.

As I mention in my recent options article, markets look decently priced for the most part even after the sell-off. Those bargains that do exist are flawed in some way, like AEO.  Thus the best play seemed to be use options to take advantage of increased volatility premiums while setting better entry points for stock. Today’s rally may have investors cheering but make no mistake, huge rallies following on steep declines is not good news. Bull markets are steady-Eddies, not whipsaw rollercoasters.

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