A GOOD TIP—I HOPE

February 27th, 2011

I’ve owned TEVA stock now for a long time.  I bought it at varying prices, all lower than the current price.  With a PE ratio of 14 and a dividend of 1.7%, it has good statistics.  The 52-week range has been 47-65, so at the current $50.50 price it’s toward the low end of the range.

Friday I sold 10 calls of the August 55 calls, taking in approximately $1,300 net.  If the stock goes to $55, up $5,000, I’ll probably let it be called away and take this additional gain.  Otherwise, this premium equates to $2,600 annually, on a $50,000 investment, which, when added to the dividend, creates an annual return of approximately 7%—a lot more than I can get in the bond market!

A MORE COMPLEX TRADE

February 23rd, 2011

I try to keep options simple.  But not always.  So last week, when the ratio of gold to silver got to the point where I thought silver was going to move up, I placed a more complex bullish silver position, that’s not for everyone.  I did this mainly because I didn’t want to invest a lot of cash.

So what I did was to write a CREDIT put spread on SLV, the silver ETF.  A credit spread is one which produces a positive cash credit.  In this case I sold 10 puts of the July 29’s at over $2 for a credit  of about $2,000.  To protect myself against a major decline in silver (it CAN happen) I bought 10 July 25’s for $.78, at a cost of about $800.  That limited my risk to $4,000 less the $1,200 received, or $2,800.

With the $1,200 I received I bought 10 calls of SLV April 30’s at $1.47, which cost about $1,500.  So my total investment was only about $300.  If silver goes up, I stand to make a nice profit.  In fact, it has gone up every day since I placed the trade on Monday, February 14.  When I last looked I had a profit of about $2,000.

Note that many option web sites would claim a return of $2,000 on a $300 investment, hyping it so that it looks like 700% in about 10 days.  The real way to look at it is that the RISK is the amount of the investment.  So the investment is really about $3,000 even if not in cash.  Still, that’s a 66% return in 10 days, which of course is incredible.  But I didn’t close the position yet so it’s not a profit yet.

The profit I did take is on Apple.  On the long calls I bought which I described in an earlier blog, I told my broker that if the stock went up so that there was a $10,000 profit, sell the calls.  In fact, last week that happened, on Thursday I believe, and I took a profit of $10,500.  Each day since then the stock has gone down.  That was just plain luck.

To see the trades and study them and better understand them, look at Merv’s Trades, preferably in the online portfolio section.

Merv

KEEPING UP

February 11th, 2011

On January 28 I bought back the WAG $42 calls for July, and rolled up to the July $45’s.  My research showed the stock with a value of at least $45, and it was already at $42 or a bit over.  This cost me $1,000.

As my GE puts got down to $.15, I bought them back and kept substantially all the premium.  I sold the $18’s and the stock went over $20.  That’s one problem with options, you can make a nice return, but when there are exceptional results you don’t cash in on them.  Still, a $2,000 profit with basically no risk is not to be sneezed at.  I say no risk because I sold the stock at less than $18 and was willing to re-acquire it but didn’t want to keep that money tied up.  So I effectively sold it at $2 more than otherwise, but would have made $4 per share had I kept it. Who knew?

I continue to watch Apple every day.  I’m in the unusual position of holding long calls.  I have 10 calls of the May 340’s.  I didn’t want to buy the stock and tie up $340,000, so I bought calls instead.  I paid $22 and yesterday they were worth $32 but today they are down to about $28.  A very nice return—even if I only make $6,000, on a $22,000 investment for a few months it’s pretty good. But I haven’t cashed in yet.

I’ll keep you posted on that one. Meanwhile, please look at our portfolio monitor and try it out.  And send me your ideas.

Merv Hecht