ENER - Review

Here's a position on ENER that closed in January. The following is the trade history and returns, including IB commissions. This position was established before I changed my return and stock selection criteria.

09/19/05 - Bought 100 shares @ 37.92
09/19/05 - Sold 1 Oct05 35 Call @ 3.99
10/21/05 - Oct05 35 Call expired
10/24/05 - Sold 1 Nov05 35 Call @ 1.74
11/18/05 - Nov05 35 Call expired
11/23/05 - Sold 1 Dec05 35 Call @ 0.49
12/16/05 - Bought 1 Dec05 35 Call @ -0.71
12/16/05 - Sold 1 Jan06 35 Call @ 2.74
01/20/06 - Jan06 35 Call exercised and stock called away

Stock Investment: $3,792.00
Income Generated: $825.00
Net Profit: $533.00
Percent Return: 14.06%
Annualized Return: 41.71%
Duration of Trade: 123 days

Buy & Hold Comparison

Opening Price: $37.92
Closing Price: $54.44
Dividends: $0.00
Net Profit: $1,652.00
Percent Return: 43.58%
Annualized Return: 129.31%
Duration of Trade: 123 days

This is a good example of a position that would have done better with buy & hold. If you look at a chart of ENER you'll see that the stock declined shortly after the initial purchase and then recovered. At one point, in Dec05, it traded as low as $28.76, or down about 24%.

The first two months the options expired worthless as the stock declined. The Dec option was bought back and rolled out to January. The stock shot up from Dec until Jan expiration, where the call was exercised and the stock was called away.

The profit on this trade was well above my goal of 24% annualized, and therefore I let the stock get called away. As stated above, I would have done much better with a buy & hold strategy. However, I don't worry about that. Hindsight is 20/20. I set a goal and exceeded it, so I'm satisfied with the return.

I go for base hits, not home runs. Sure, everyone loves home runs, but they don't happen very often. Look at the batting average of most home run hitters, they strike out a lot, but when they hit a home run everyone cheers. However, it's the guys that consistently get base hits that have the best batting averages and help win ball games. With bases loaded, every base hit scores a run.