YTD Return Explodes to 15.5%!

Wow! The Aggressive Portfolio exploded last week taking our YTD return to 15.5%, an increase of 11% for the week. That is a huge gain as we saw a number of our long call positions move into the money. We think this portfolio is very well positioned for gains, particularly if the market stays strong for the next few months. Our long call positions in Del Monte, Ezcorp, and the Materials Index were the biggest gainers. Del Monte expires in March so we may sell next week in advance of that expiration. Volatility has dropped significantly which means that option premium prices are very low. The best time to take long call positions is when markets are rising and premium prices are low like they are right now. We plan to increase our investment allocations in long call positions. We find these options using the same Momentum and Value Stock screen by identifying breakout stocks that also trade options. When we find a stock that has options, we look for call options that are reasonably priced with 5-6 months to expiration. Those timelines give our stocks plenty of time to appreciate and the leverage from options can provide for big returns. As for other trading, we closed our March VIX spread position last week for a small loss. For protection, we had purchased the $21 VIX call and sold the $25 VIX. This is an insurance strategy in case the market had a meltdown. This spread position would have gained in value if volatility rose sharply. We decided to sell this protection since the market strength was very strong last week and the position was nearing expiration. We expected to take a loss on the spread, but did that for the insurance protection the position provided. In another trade, we purchased a 20%position in the IWM ETF that is based on the Russell 2000 index. We took this position as part of a new strategy we plan to utilize for this portfolio. In our Aggressive portfolio, we allocate 60-70% of our funds to long call options, 10-20% to income producing trades, and 20% to a trend trading strategy based on a market index. We have spent significant time researching this trend strategy and have now decided to put this in action. The strategy is to take a 20% long position in the IWM ETF (Russell 2000 Index) whenever the market trigger moves up more than 4% on a weekly basis. The long position will be held until that same market trigger moves down more than 4% on a weekly basis. The sell trigger will invoke the sale of the long position and at the same time selling short an equivalent position in the same IWM ETF. In other words, we will always be invested in an IWM position, with that position either being long or short depending on the direction provided from the latest market trigger. A trigger will indicate a change in position only if the weekly change in the index is greater than 4%. Our research indicates that the best market trigger for use with the Russell 2000 index is the Value Line Geometric Index (VLIC). This index is widely available and published on several websites including Value Line and Yahoo Finance. The VLIC trigger was reached just this past Friday as the weekly gain was greater than 4%. That triggered our purchase of a 20% position in the IWM ETF. Our plan is to hold this long position until the Value Line Geometric Index falls more than 4% on a weekly basis. This is a fairly simple strategy, but our research shows this strategy has had tremendous success over a long period of time (420% return from 1/1/2001-11/2/2009). We would emphasize that the use of a weekly percentage change is important as that filters out the noise from daily price movements. We think this strategy works very well in our Aggressive portfolio and will actually offset some of the speculative risks taken with options trading. For this portfolio, we still have cash to invest and plan to increase our allocation in long call options as we find attractive buying opportunities from our Momentum and Value Stock Screen.

Portfolio Details Available Online At: http://www.marketbeatingstocks.com