Anatomy of an NLS trade

I just had one of my No Lose Stocks (NLS) trades pay off, so I thought it’d be fun to run through it as an example.

On 2/15/2011, I got my daily email with 21 NLS trades available that met my personal criteria. You can look at the NLS Historical Data if you want to see the spreadsheet. (I still had a few bugs to work out at the time, so there are some duplicate entries, and the first two are probably buyout situations. And my personal preference is not to buy any trades that require more than 25% Annualized Percent to Profit.)

I placed 12 of the trades by buying the call options. All expired in January of 2013. In total, this cost $958. That was money that was gained as interest on CDs. So spending this money did not lower my core capital. There were no commissions because I was (and am) using ChoiceTrades “no commission during option expiration week” feature. (I only bought 12 of the 21 because I didn’t have the interest earnings to buy all 21. I would have had to dig into core capital to do that, and that’s a no no.)

Once the trades went through, I then entered 12 alerts in my Fidelity account. One for each stock, set to alert me if the stock ever reached the call option’s strike price.

The specific one we’re talking about here is MCD. The strike price was $95. The closing price on 2/15/2011 was $76.15. And the option cost $1.03…which is $103 for 100 shares.

Doing all of that took about 20 minutes on 2/15/2011, and I was done placing trades for that month.

During the time between then and now, the only time I spent on investing was to place trades during the option expiration weeks. Fewer and fewer trades because NLS hasn’t been finding as many trades that fit the criteria lately. That again took less than 20 minutes each month…some months less than 5 minutes when there weren’t any worthwhile trades to place.

Fast forward to 11/8/2011…9 months later. I got an email alert from Fidelity that MCD had gone over $95. I logged into ChoiceTrade, found the MCD call option with a $95 strike and a January 2013 expiration. Then I placed a sell order at the market.

The call option sold shortly after for $7.05 per share…or $705. But this wasn’t during option expiration, so the commission was $5.55 with a $0.04 fee for a net of $699.41. (There’s no need to wait for option expiration to hit when I have a nice profit that I need to harvest.)

So I made ($699.41 – $103) $596.41 over 9 months. And I still have 11 other call options that expire in 2013 that might still pay off.

And if you take a look at the MCD chart between 2/15/2011 and 11/8/2011, you’ll see a number of places where I might have sold early, or at least been anxious about whether or not I should sell. But since I didn’t follow the stock at all, and just waited for my alert, I didn’t have to suffer through that at all, and the $596.41 is all the much sweeter for it.

That $596.41 will now be added to my core capital, and since I never spend my core capital, it will never be less than this new total. And this will add to the amount of interest earnings that I can place on future trades.

Little time to place the trade, no worry while waiting, and a fun pay off. Good stuff.