A NEW WEEK IS COMING

October 25th, 2010

Here’s a brief summary of some of the positions I’m still holding on to:

My BP calls expired worthless, so I kept that premium and re-wrote the Nov 45’s.  I took in just under $1,800.  So even though I am down a bit in the stock, I’m making a really nice return on the call premiums.  And I still believe the stock will continue to go up.

I wrote 10 puts in Nuance, the Nov. 16’s and took in just under $1,700.  See my earlier report on this.

I’m still sitting with my rolled up SPY spread where I am short the Nov 120’s and long the Nov 125’s (to hedge against a sharp rise in the market—this limits my loss potential to under $4,000.)  With the SPY at 118 I could lose money on this if the market keeps going up.  But if I do, I will be making much more in other positions, so this position is like the reverse of an insurance policy: if you take a loss it means you made money somewhere else!  And if you don’t make a profit on your other stocks you keep making a profit on this rolling spread strategy.

I’m still holding MDT with out of the money calls and RIG, which I bought at $60 and I now am short the 75 calls. See earlier blogs for details.

So things are going well, and I’ll have more specific info and advice later in the week.

mlh

ANOTHER LITTLE TIP-NUAN

October 18th, 2010

My friend Dave recently mentioned NUAN, the company that makes Dragon Naturally Speaking.  Speech recognition is a hot topic, and this company has teamed up with IBM to improve the technology.  I didn’t realize until today that options were available on the stock.

So today I wrote 10 puts Jan 16 at about $1.70.  The stock is around $15.35, so if there’s any bounce at all I’ll get to keep the premium.

TIP OF THE MOMENT

October 18th, 2010

I got tired of watching Bank of America stock go down and down, and they reduced the dividend to almost nothing, so last week I sold it and in place of it I  sold a Nov 14 put and took in about $1,400.  The stock seems to be worth somewhere between $15 and $20 so I’m expecting it to get there someday, once the bad news stops.  So far it’s continued to decline, now below $12.  So I think selling a  put at $14 is a good trade, and while it might take a few roll ups before it gets there, I think it’s better to hold a short put position on this stock than to hold the stock itself, because you can’t get any premium from selling calls against the stock.

With the stock below $12 you can get $2.11 selling a Nov 14 put.  Normally I would go out further, but the January is only $2.35 so it’s not enough of a difference to warrant the time.  If the stock doesn’t rebound by expiration in November I’ll buy back the put and sell a new one.

merv

I CLOSED OUT MY GOLD PUT TODAY

October 11th, 2010

Eight months ago, when the ETF called GOLDCORP was at $31, I sold 5 long term puts (”leaps”–see our terms page in tutuorials) and took in $1,550.  Now Goldcorp (symbol “GG”) is at $43.50, so my puts are almost worthless and today, with gold down a bit from yesterday (darn it) I bought back the 5 positions for $100 plus fees ($.20 per put). My profit is $1,455.

This is a typical long term put trade.  When it seems pretty clear that some commodity is likely to go up over the next 6 months, whether it’s gold or wheat or pork bellies, I sell an out of the money put on it. Often I hedge with a long position, but this time I didn’t because I thought gold was low.

Note that I didn’t close out this position because I think gold has peaked (even though I do think that’s possible—it seems like a bubble).  I closed it out because the position is now so cheap that I can get pretty much all of the available profit out of it, and there is not sense waiting until expiration.

Merv

INTERESTING ARTICLE IN TODAY’S WALL STREET JOURNAL

October 6th, 2010

Options Pay Dividends for Fund

Wall Street Journal, oct 6, 2010

‘Covered Calls’ Are Used to Reap Income, Smooth Volatility

BY BRENDAN CONWAY

While a steady stream of dividends can help investors weather a rocky stock market, a second, lesser-known defensive way to generate revenue is to sell options on those holdings.

The Neiman Large Cap Value Fund (trading symbol NEIMX) takes this approach with big, stable dividend-paying companies such as fast-food giant McDonald’s Corp. and oil major Chevron Corp.

The fund, which was launched in 2003, sells “covered call” options on the shares, setting up a second stream of income.

(The article goes on to explain how covered calls work, and mentions that the fund, while only writing options on 27% of it’s portfolio, did 6 times as well as the S&P 500 during the first 9 months of this year.)

I’ve been a busy boy rolling up in this strong market

October 1st, 2010

-We decided to roll up WAG call to a new strike of $35 and out to April for a net loss around $1.

-We rolled up the RIG call to a new strike of $70 and out to Jan for approximately a breakeven.

-We wrote a new call for TEVA since the previous call expired worthless and we kept all the premiums.  The new call was done at a strike of $57.50 out to Jan for close to $1.  The stock was at $52.50 at the time

-We decided to roll up NICE to a strike of $35 and out to Feb for a little more than $1.  The stock was currently at $31 and change.

-We decided to hold the following options for now

-The EEP April $55 call which the stock is at $56 currently and this was bought for the yield play and we are OK with it being called away given we have the April call.

-We decided to hold the CVX call for now that is a Dec $80 and the stock is at $81 currently.

-We decided to hold Costco for now that we have a Jan $60 call and the stock is well above at $65 currently.  Most positions are up on the stock or close to even so the plan was to sit tight and let it get called away if it stays above the strike by expiration.