DF pops on earnings surprise

The Dean Foods trade I wrote about earlier this year is beginning to pay off. The .50 spread is now trading for 2.40 or about 480% higher. This spread can be closed now or the puts can be bought back to let the calls ride. Hopefully we have seen the bottom in DF and it continues higher!

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

The Queen wants an iPad

http://www.huffingtonpost.com/2011/05/09/queen-elizabeth-ipad_n_859408.html

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

Everyone should read these posts

Investing for income part 1

Investing for income part 2

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

The hiatus is over

Sorry for the break. Been busy starting a new job. In that time, I read this interesting article on how far off deficit projections have been and the major source of the deficit.

Also, I've decided to start selling Apple puts monthly in the benjanomics portfolio. I recently sold a May $330 put for $1,100 right before earnings and are now worth around $170. I'm going to buy it back and look to sell a June put soon, either the $350 or below on any pull back. If the stock ends up being "put" to us, I intend to sell calls to continually lower our basis. With the white iPhone coming out and selling out in China on day 1, continued iPad 2 stockouts, and a future iPhone and iOS operating system due sometime this year, it's only a matter of time until Apple is at $400+.

Oh, and I just ordered an iPhone 4 today!

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

Time to rake the muck

Here are some links I thought were worth sharing:

- If you thought the Real Housewives of Beverly Hills were bad, check out the The Real Housewives of Wall Street.

- So oil isn't at $110 per barrel because of Chinese demand?

- Paul Ryan's "Path to Prosperity" is paved with unrealistic assumptions

- The fed only plans on monetizing $97 billion in bonds through May

- Trading currencies isn't for the average investor? Well color me stupid.

- This guy predicted the last crash. See what he's predicting next.

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

How do you say "vegetarian" in mandarin?

China recently learned how delicious bacon really is and in turn demand for meat has doubled in the past 2 decades. This bodes well for farm equipment manufacturers like Deere (DE). I think this also is good for Monsanto (MON) as this increased demand will almost certainly increase demand for their genetically modified seeds.

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

Was this David Sokol?

Once again Benjanomics is leap years ahead of the mainstream press. Readers were alerted to unusual trading activity in Lubrizol (LZ) on the 15th of March here. (Thanks Live Vol Pro!). A week and a half later, David Sokol, a potential successor to the Oracle of Omaha, is out at Berkshire Hathaway for insider trading (alleged!) in Lurbizol (LZ).

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

Wal-Mart CEO on inflation

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

This week's Stock World Weekly

Here is a link to this week's stockworld weekly. There is a good buy-write on CSCO on page 11 I am going to add to the benjanomics' portfolio.

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

Did Obama cut in line for his iPad 2?

Actually, he got it before the general public! OMG!!!! If the tea partiers were mad before, wait until they hear about this!

Being President has its perks!

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

Pepsi Co. Buy Write

I prefer to drink Coke, but think Pepsi might be a better investment. Everyone knows about Pepsi so I'm not going to say much about it. Here is the buy-write:

Buy 100 PEP @ 63.94:                  ($6,394)
Sell 1 Jan 13 62.5 call @ 6.54         654
Sell 1 Jan 13 65 put @ 8.00            800
-----------------------------------------------------------
Total outlay:                                  ($4,944)

Potential return: $1,158 plus any dividends collected over the next 18+months. After dividends, the return is around 30% on a stock that doesn't have to go up at all from todays price.

Break-even on the trade is 57.22 or about 10% below current prices.

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

Free webinar discussing selling options

Dr. Paul Price over at BeatingBuffett.com is offering a free webinar on selling options and how he picks stocks to sell options on. I suggest you listen to it if you want to learn more about the buy-write strategy as he has mastered it and knows what he is talking about. Below is the link.

http://www.beatingbuffett.com/?p=3334

Click the green "CLICK HERE FOR WEBINAR REPLAY" about halfway down the post.

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

Manipulation 101

Today an analyst at JMP Securities (interesting how its so similar to JPM.....accidental credibility perhaps) did the unthinkable and downgraded Apple. This sent the stock down nearly 5% on the day and spooked a lot of people. The time during options expiration week is pretty interesting, as well as how he ignored the insatiable demand for the iPad 2. But his reasons for downgrading are also very suspect. Here is a link to the WSJ discussing it.

He cites slowing sales growth at Hon Hai, the owner of the main manufacturer of some of Apple's products, as evidence that Apple is not producing as many products. Correlation does not imply causation. This is just ridiculous. You can look around at all the sold out iPads, the fact that Verizon now has 12% of the iPhone traffic and has only been selling them a month, and see that if anything, Apple is producing more!

His logic goes like this: Hon Hai's sales are decreasing. Hon Hai's makes Apple products. Therefore, Apple must not be producing as many products and sales will fall. How do we know they just aren't producing as many products for other people because people just want iPads and iPhones? Maybe they are just slowing down because of the Chinese New Year? Perhaps they just can't afford to make some products because they operate on razor thin margins and the drubbing of the dollar has made it unprofitable to make them anymore? I would take this report with a grain of salt.

I honestly would not be surprised if this firm has a short position in Apple and is just trying to manipulate the stock for their own gain. But it doesn't matter, because now you can get AAPL even cheaper!

Hopefully this guy will be banned from buying an  iPad!

Also, here is why there is a shortage of iPads.

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

The iPad says there's no inflation, so there is no inflation

Almost every commodity, other than natural gas, is up the past 6 months. Oil, corn, copper, iron, wheat, soybeans have all had tremendous increases in price, some of them doubling and tripling in price. But the federal reserve says to ignore all that because this year's iPad model is the same price as last years.
Unfortunately, as one attendee said, " "I can't eat an iPad." I also can't put an iPad in my gas tank. But I can kill the green pigs that ate my eggs, so it's all cool. Perhaps we should give iPads to all the people rioting around the world because they can't afford food. In fact the first generation iPad has actually dropped in price, which is clearly evidence of the dreaded deflation.

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

This Guy (or Gal) is a True Winner

If you haven't heard, Berkshire Hathaway is buying specialty chemical company Lubrizol (LZ) for $135, a 28% premium from its previous close.

But here is an interesting little trade that occurred last Wednesday. I wish I had this kind of luck. Less than a week after buying those options, the company is bought out and the options are sold for a cool $5.71 million dollar gain!

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

iPad 2 News

If I do any more post about the iPad I'm going to have to rename the blog iPadanomics. But here's one more with links to relevant iPad 2 news.

- Forbes says 70% of iPad 2 buyers are new to the iPad
- How much does an iPad 2 costs to make? Depends on who you are asking, but the profit margins are pretty huge based on these estimates.
- Here's a movie created entirely on the iPhone 4 and edited on an ipad 2
- This guy paid $900 to be first in line to buy the new iPad
- This analyst says Apple sold 500,000 iPads this weekend
- Barely 20 years after the fall of communism, Russians are capitalizing on iPad 2 arbitrage

Here are a few ways to capitalize on Apple over the next few months:

1. Buy vertical call spreads. The Jan 12 345/355 call spread is currently going for around $500, and will return $500 if Apple is above $355 in January 2012.

2. Sell Apple cash secured puts. The Jan 12 $255 put is selling for $10.50. If apple is below $255 in January, you will have to buy 100 shares of apple for a net cost of $244.5. The $300 put is selling for $21.15. If Apple is over $300 in January, you keep the full $2,115 or have to own Apple for a net cost of $278ish. Seems like a good bet to me.

3. Sell covered calls on stock. Buy 100 shares of Apple and sell a Jan 12 $400 call for $24. You immediately lower your basis to around $327 and can still participate in any upward movement in the stock up until $400. Total return if Apple is above $400 in January is $7,300 per covered call or around 21%.

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

iPad 2 First Impressions

I've had my iPad 2 since Friday and i've had a chance to play with it. Here are some first impressions:

-It's unbelievably smooth and fast.
-The new gyroscope is pretty cool. When playing Jenga, you spin around to go around the tower of blocks.
-The cameras are pretty awful, but work fine for what they are intended to do.
-Watching Netflix and Xfinity on it is awesome. Netflix needs to beef up their streaming library though.
-There are reports that there are light leakage issues around the edges and corners. I notice it a little in mine, but it's not terrible. I might try exchanging it for a new one, but I haven't lost any sleep over it.
-The lack of Adobe Flash doesn't bother me one bit. I have not run into any problems surfing the internet, plus there are apps that convert flash to HTML5 that can be downloaded in the App Store.

All in all, I think buying the iPad 2 was a great decision. I love it. It's simple to use but is extremely useful in so many little ways. I think it's going to be a huge windfall for Apple. I just went with the wifi only 16gb version because I don't need to use it for holding tons of music and videos. I primarily use it for apps, streaming music from my itunes or pandora, watching movies on Netflix, and playing games. Words with friends is my favorite. If you wanna play, hit me up. Username is Flenjamin.

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

First post from iPad 2

I picked up the iPad 2 from best buy today. I hedged my purchase with some apple Jan 12 vertical call spreads. This thing is sweet. Everyone should get one!

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

Target (TGT)

I actually bought this one in the Benjanomics virtual portfolio last week, but didn't get around to writing about it until now. Luckily, Target has held steady and the trade can still be had for a good price.

I have previously written about two other retail stocks, Kohls and Wal Mart. While I am hesitant to own so much retail in one portfolio, I am comfortable owning these and think that they offer good value to any investor's portfolio.

I personally shop at Target quite often. Being in Atlanta, you are either ITP (inside 285) or OTP (outside 285). Since I am ITP and their are more Targets ITP, I go to Target more often. Also, I think the stores are laid out better and aren't as overwhelming as Wal-Mart. And recently, for the first time in four years, Target actually has lower prices than Wal-Mart. Another thing working in Targets favor is that it will be selling the gadget of the year, the iPad 2! Target currently sells at a PE of 12.91 and has a forward PE of 10.99. So here is the buy-write:

Buy 100 TGT at $51.64:                (5,164)
Sell 1 Jan 12 52.5 Call @4.00:          400
Sell 1 Jan 12 52.5 Put @5.50:           550
------------------------------------------------------------
Total outlay:                                  (4,214)

Total Return: $1,096 on a stock that need to rise by .36 over the next 9 months.

Break Even: $47ish

And to all the people that say "but gas prices are rising and they are going to kill retail!" I say ride the Marta bus.

Disclosure: I may or may not own any of the securities mentioned and am not an investment advisor. Please do your own due diligence before investing in any securities mentioned.

Is China rethinking their one-child policy?

Chinese authorities apparently have been reading Benjanomics and are thinking of taking my advice about their one-child policy. They are thinking of lifting it . Imagine what happens to AAPL when all those Chinese people start using iPhones and Ford when they are all driving Ford's to shuttle their 2 child families to and fro. Also, imagine what happens to DBA and other agriculture etfs when there are a billion more Chinese demanding food.

Maybe it's time to learn mandarin? Nee-how!

I can have a brother now!

Interesting Links

- Our computer overlords are making once high-paying law jobs obsolete

- Based on reselling of the original iPad, it looks like the iPad 2 will be a big seller

- 25 best financial blogs of 2011. Benjanomics was 26

- Ford is at a critical level

- Who will be the 21st century Hunt Brothers?

AAPL/BAC Trade

Sell 1 Apple Jan 12 265 put for $11.10 (1,110 per contract)

Use the proceeds to buy 10 BAC Jan 13 12.5/15 vertical call spreads for 1.24.

Total Cost: $130 (will need to set aside around 2,500 in margin on the short Apple put)

Max Profit: $1,110 if Apple is above 265 on Jan 12 and $1,260 if BAC is above $15 in Jan 2013 for a total of $2,360.

Akamai Technologies (AKAM)

Akamai Technologies (AKAM) is a technology company that provides services for accelerating and delivering applications over the internet. The company's network currently handles more than 15% of all web traffic. It is also a frequent takeover target. Here is a good article explaining a little of what Akamai does.

After the most recent quarter's earnings, the stock got absolutely hammered due to lower guidance. It went from $54 down to its current price $37. I think this makes it an appealing opportunity for a buy-write that can be very profitable even if the stock doesn't move at all in the next 19 mos.

Buy 100 AKAM @ 37.78:       ($3,778)
Sell 1 Jan 13 35 call @ 10.8:     1,080
Sell 1 Jan 13 35 put @ 6           600
---------------------------------------------------------
Total cash outlay:             (2,098)

Potential Return:   $1,124 or 54% on cash invested. Max profit can be obtained whether the stock goes up, stays the same, or drops less than 7%

Break-even: $27.99 giving a margin of safety of 26%.

I think a few things make this a good, safe trade. One is that the stock is severely depressed currently. Another is as more and more people begin using tablets and smart phones, this will only increase the demand for the services Akamai sells. The worst case scenario is that you have to own the industry leader in one of the most rapidly growing markets at a 25% discount from current prices.

Wal Mart (WMT) raises dividend 21%

I've previously written about WMT here. Today they announced a raise in dividend of 21% to $1.46/share.

http://finance.yahoo.com/news/Walmart-Increases-Annual-bw-1581713540.html?x=0&.v=1

iPad 2 has claimed its first victim

iPad 2 just did the same thing to ZAGG that Charlie Sheen plans to do to anyone who gets in his way: destroy them violently. Zagg makes protective coverings for phones and tablets. Today, Apple announced it has its own covering for its newest version of the iPad. The news sent ZAGG's price down 25%. Zagg needs to get some of that Tiger's Blood that is coursing through Charlie Sheen's veins.

What is the real inflation rate?

Don't believe the official inflation rates published by governments around the world? Check out this project by MIT that tracks the prices of millions of goods around the world. It's pretty amazing.

Billion Prices Project

Inflation Hedges

I stopped to fill up my tank today and the price of gas had jumped from $3.00 to $3.25+ in just a month. It made me wish i had done some of these inflation hedges that Phil at Phil's Stock World had mentioned around Christmas, specifically the gas inflation hedge:

http://seekingalpha.com/article/243574-4-inflation-hedges-for-2011

Some of these can be tweaked into very profitable trades still. However, I think the biggest thing to take away from this is that you can use this same thought process to help hedge yourself against any number of scenarios that are out of your control. Some of the trades mentioned in his article are up almost 1,000%. It's a good read and I suggest you go on and read some more of his articles as they are very informative and can deliver big results.

Want a golf course?

For a million dollars one can be yours! Thats $55K/hole!

http://money.blogs.time.com/2011/02/23/what-to-do-with-all-the-foreclosed-country-clubs/

iPad 2 coming March 2

There was a flurry of rumors yesterday that helped beat down Apple's stock. First, there was the National Enquirer reporting that Steve Jobs only has 6 months to live. Then there was some Asian hedgefund saying that the iPad 2 was delayed until September. Fortunately, they were wrong about the iPad 2 as Apple announced that it will be unveiled on March 2.

As for Steve Jobs, he just demolished his house to build a new one. So obviously he is planning on sticking around longer than 6 months.

Apple to $500!

HPQ Update

I wrote about HPQ previously here. It announced earnings today after the market closed. It's revenue came in under the analyst estimates and is down about 6% after hours. Tomorrow should be a good day to get in on a buy-write at an even better price!

Is it insider trading or luck?

One way to find great trading ideas is to look to the options market and try to figure out where the big money bets are being put. When you see people making huge bets and buying blocks of calls in the 1,000s vs prior open interest in the sub-100's, it usually can mean that someone is either really confident or has some sort of inside information. Here are two recent examples:

Coinstar (CSTR):

On 2/14/11 somebody bought 5,071 Feb 42.5 option straddles for around $2.83 per straddle. A straddle is the simultaneous purchase of the call and put in the same strike and same month. The buyer is betting on a large move in either direction. These options expire worthless on Friday. (technically Saturday, but markets are closed)

On 2/17/11, Redbox announces they are going to launch a streaming business to compete against netflix. The stock shoots up >7% after-hours. Tomorrow morning those straddles will be worth between 4-5 dollars per straddle.

Weight Waters (WTW)

2/14/11: A block of 4,273 Feb $45 calls were bought for .95. Stock was trading at $44/share.

2/17/11: Earnings are announced. The stock shoots up $20 or 45%. The calls that were selling for .95 are now selling for $20.21 or a gain of roughly $8 million dollars depending on when they were closed out. All in the matter of 4 days.

Makes me think some people are trading on non-public information! Or they are just extremely lucky!

Ladies, I feel your pain

I, too, am a victim of constant leering and gawking. Some people just don't realize how much of a burden this sexy rear end really is.

Happy Valentines (a day late)

http://deadspin.com/#!5760394/heres-a-video-of-dogs-saying-i-love-you

The most boring 30ish% return of all time

Wal Mart is one of the most boring stocks ever. It basically just hangs out in the $45-55 range. Even during the financial crisis, Wal Mart only went down to $43/share. The people of Wal Mart, on the other hand, are always exciting. Other stocks have rebounded 100-500% off their lows of the financial crisis, but boring old Wal Mart is only up 27% from its lows. I don't expect it to go much higher anytime soon. Neither do most people, as JP Morgan downgraded the stock because they see low income people leaving Wal mart for cheaper discount stores and other shoppers ditching wal mart for pricier retailers. However, Wal Mart is the largest retailer in the US, is expanding in emerging markets rapidly, and sports a healthy 2.2% dividend yield. Shares might suffer in the near-term, but with a few changes in the next 22 months, hopefully Wal-Mart will rocket to $55.01 and make this buy-write return almost 30%.

Buy 100 WMT @54.80                    $(5,480)
Sell 1 WMT Jan 13 $55 Call                $505
Sell 1 WMT Jan 13 $55 Put                 $640
------------------------------------------------------------
Total outlay:                                    $4,335

Potential return: $1,407 including dividends or 32% return on cash invested on a stock that needs to increase <1% in the next 22 mos.

Break-even: 49.18 or 10% below current prices

The secret to suriving for 3 months underground

Apparently the Chilean miners secrety had pot and porn smuggled down to them.

http://newsfeed.time.com/2011/02/14/new-book-reports-that-the-chilean-miners-smoked-pot-in-the-mine/

Remember, what happens in the mine, stays in the mine!

It's ALIVE!!!!!!!

TAXCO LIVES!!! TAXCO LIVES!!! Looks like I won't have to go back to Jalisco's for that yuppie mexican food any longer!

Happ VZ Day!

VZ day? Victory in Zaire day?

Nope. Verizon iPhone day!

Dean Foods (DF)

Dean Foods is the largest distributor of milk and milk products in the united states. It's currently selling just above 10 yr lows. It's 52 week range is 7.13-17.00. The stock has had a pretty decent rally since its low in December.

Dean Foods operates in two segments, Fresh Dairy Direct-Morningstar and White Wave-Alpro. Fresh Dairy Direct-Morningstar is the largest US producer milk, creamer, and cultured products. White Wave-Alpro produces and sells branded milk, soy, and plant based products. Together, they have helped Dean Foods command 40% of the US milk market.

Historically, DF has had operating margins of around 6%, however, a combination of higher demand and the never ending helicopters full of free money Ben Bernanke has been dropping on the economy has driven up input costs of milk. This has squeezed Dean's margins to <3%. Making matters worse, retailers have refused to raise the retail price of milk and in fact have been using milk as a loss leader to lure shoppers into the store. Fortunately, this cannot last forever. As the retailer's margins begin to get squeezed, they will have to raise prices to reflect he input costs of milk and pass those costs onto consumers. Historically, the input costs of milk and the retail price of milk have moved in tandem, and their is no reason things shouldn't revert back to normal in the future.

One thing that is worrisome is that DF does have a significant debt load. However, they do not have any significant maturities until 2012 and will not have to refinance anything until 2014. They also have 1.4 billion in undrawn credit available. Also, they launched a $300 million, 3 yr cost cutting initiative during 2010 and have announced savings of $100 million already. Recently, a prominent hedge fund announced that they have taken a 7% ownership stake valued at $132 million. Another large shareholder is Blackrock. Many analysts believe most of the bad news is already priced into the stock.

I suggest setting up a synthetic long position by selling the Jan 13 $10 puts and using the proceeds to buy the Jan 13 $10 calls for a net costs of .50 or $50 per spread. This allows you to participate in any upside in DF until 2013.

A number of analysts have calculated the fair value of the stock at $15/share. If DF is $15/share before Jan 2013, your $50 investment will be worth $500-$700.

As always, selling naked puts obligated you to buy the stock anytime before expiration. However, the net costs will be < $8/share. But you can always roll your options out or close them out at anytime. Also, they report earnings on Feb 16, which might allow you to get in at a lower price.

Sirius XM Radio

Sirius XM Radio (SIRI) is a stock you either love or you hate. A lot of early investors really got burned by SIRI and XM before they merged. Over the past year, it surge over 100% and now many people believe it is currently overvalued. However, future prospects for SIRI appear to be getting better. They have managed to clean up their balance sheet, improve their cash flow situation, and re-sign their most popular content for 5 more years at very reasonable prices. The have attracted the attention of institutional investors and maintained their listing on the NASDAQ. There are also a number of future catalyst that can drive this stock higher which can be read about here.

There are a few ways to begin investing in SIRI now and building a position to profit in the future. Below are three ways to invest in SIRI which should be considered:

1. Buy stock. It trades at 1.78 currently, 3 cents off its 52 week high.

2. Sell Jan 12 $2 puts. These currently trade for .57 or $57 per contract. If SIRI is below $2 on the third Friday of Jan 2012, you are obligated to by 100 shares for each contract sold. The net costs of the shares will be $1.43 or about 20% lower than today's price. If they are above $2, the contracts will expire worthless and you can keep any premiums received.

3. Create a synthetic long stock position. You would do this buy selling either the Jan 12 or 13 $2 puts and buying the Jan 12 or 13 $2 calls. By doing this, you can participate in any upside above $2 until the respective expiration date. If it is below $2 by the expiration date, you will still be obligated to buy the shares at $2.

Do your research as their is no shortage of opinions out there on SIRI. I plan on selling some 2012 $2 puts, as I think the shares will be above $2 by Jan 2012 but do not mind someone making me buy them at $1.43 a year from now as well. If the shares are put to you, you can always begin initiating covered call positions to lower your basis further.

Somebody call the NAACP, because this guy hates diversity!

This guy is betting it all on Apple and Google. I hope he has taken a little out and bought an iPad!

http://blogs.reuters.com/prism-money/2011/02/08/diversification-defiance-all-your-eggs-in-one-basket/

I think he should think about some insurance on his gains! Perhaps putting a collar on by selling the 410 Jan 12 calls for 19.70 per contract and buying the 300 puts for 18.05. Cheap insurance policy.

Don't listen to those idiots! Hop on my iPad, I'll take you to $450!

Don't tread on my constitutionally protected facebook status updates

This is a huge victory for all those people dumb enough to criticize their bosses and company on their facebook and twitter accounts.

http://www.google.com/hostednews/ap/article/ALeqM5h36km4yy6CmflOcmFaYYz8CFGldQ?docId=496214c641714ab49c04f84719e0825b

Hear that people? Criticize away! But don't be surprised when you don't get promoted. The price of free speech!

Chipotle busted for hiring illegal immigrants

This little bit of news could negatively affect Chipotle Mexican Grill (CMG). Earlier I wrote about taking bearish view on Chipotle over the next year. Reports say that they have had to layoff almost half their workforce in Minnesota. If rising food prices don't shrink their margins, higher labor costs might. Not sure how much this will really affect the stock price, especially with earnings coming out this week.

The Social Network (Winklevoss network)

I decided to watch "The Social Network" this weekend. Overall, I thought it was good. A little far fetched, but a good story.

WE INVTENTED IT! WINKLEVOSS BOOK!!!

Great article on hedging

Here's a great article on how to hedge yourself against large market fluctuations and set yourself up to make money in the future.

http://www.philstockworld.com/2011/02/05/breakout-defense-part-deux-5-more-trades-that-make-500-in-a-rising-market-members-only/

Take the money and run

Sometimes it pays to be poor!

http://www.nytimes.com/2011/02/06/realestate/06cov.html?pagewanted=1&_r=1

Apple Update

I have written about 2 possible apple trades here and here. Here's a good article about why Needham & Co have raised their price target to $450! This bodes well for our two previous trades.

http://blogs.barrons.com/techtraderdaily/2011/02/07/apple-needham-ups-target-to-450-ipad-growing-like-hybrid-corn/?mod=wsj_share_twitter

Rio Tinto and Southern Copper

The large miners are set to report earnings in the next two weeks and they are predicted to be blowouts. These stocks are flush with cash and are looking to make acquistions, increase dividends, and launch large share buybacks. They also have juicy option premiums! One of my favorites is Rio Tinto. The company has a decent debt load but has paid down nearly 40 billion from its acquisition of Alcahn back in 2007. The company has a foward P/E of 7.50 and should benefit from higher commodity prices over the next few years.

Here is a short description of southern copper from seeking alpha. This one should benefit from increased copper demand in 2011. Copper Industry. Market cap of $38.38B. PEG ratio at 0.85. 5-year average ROA at 26.7% vs. industry average at 15.21%. 5-year average ROI at 30.99% vs. industry average at 18.73%. 5-year average ROE at 45.48% vs. industry average at 21.3%. Short float at 3.16%, which implies a short ratio of 2.81 days. The stock has gained 55.53% over the last year.

Buy 100 RIO @ 73.12:                     ($7,312)
Sell 1 Jan 12 75 Call @ 9.00:             $900
Sell 1 Jan 12 75 put @ 13.08:            $1,308
----------------------------------------------------
Total cash outlay:                              $5,104

Potential return: $900+1,308+188= $2,396 or 47% on a stock that needs to go up by 2.5% in the next 11 mos.

Break-even: 63.02

Buy 100 SCCO @ 46.32:              ($4,632)
Sell 1 Jan 12 50 call @ 4.1:             $410
Sell 1 Jan 12 50 put @ 10.2:           $1,020
--------------------------------------------------
Total cash outlay:                         3,202

Potential return: $1,798 or 56.15% on cash invested. Shares need to increase by 8% by jan 2012.

Break-even: $41.01

I also might buy a protective put on these below our break-even, just in case the copper market crashes for a little insurance. Look at the SCCO 35 put at 2.9 and the RIO 50 put at 2.85

Make this 5% yielding stock yield 25%

Excelon corporation (EXC) is a utility holding company that provides electricity to over 5 million customers in Pennsylvania and Illinois. It has the largest nuclear power plant holdings in the US at 11 plants which contribute to 80% of its energy output. It currently trades at 42.75 and has a dividend yield of 4.9%. Doing a buy-write combo on these conservative stock can increase the yield significantly while not increasing risk.

Buy 100 EXC @ 42.75:                  ($4,275)
Sell 1 Jan 12 45 call @ 1.30:            $130
Sell 1 Jan 12 42.5 put @ 3.80:         $380
---------------------------------------------------
Total cash outlay:                            $3,765

Return: $210 dividends + $225 appreciation + $510 option premiums = $945 or 25% return on cash invested on a stock that needs to go up by 5% over the next 12 mos.

break-even: 40.075

RIP Uga VIII

Uga VIII, aka Big Bad Bruce, lost his battle to Lymphoma yesterday. Even though he wasn't even around for a full season, he will be sorely missed. Goodbye, sweet prince.

Also, this is the third bulldog in 2 years. I'm beginning to get a little suspicious of Russ the fill-in bulldog!

Lowes buy-write

Buy 100 LOW @ 24.70 =    ($2,470)

Sell 1 Jan 13 $25 call =           $330
Sell 1 Jan 13 $25 put =           $405
-------------------------------------------
Net outlay:                       $1,735

Return: $88 div + $30 appreciation + $735 in options premiums = $853 or 49% return on a stock that needs to go up by 30 cents in the next 23 mos.

Break-even: $21.17 or 14% cushion from today's price.

Time=Money

No where is the old adage "time equals money" more true than in stock options. 2 of the variables used to price options are volatility and time. The further away options expiration is, the more expensive that option is going to be because of the time premium. This premium slowly decays as time marches on and the rate of decay accelerates in the weeks before expiration.

Because somewhere between 75-90% of all options expire worthless, being a net buyer of options might not be the best idea because each day that passes your investment loses value. However, sellers of options benefit from this decay. This is why selling long-dated options on value stocks you own or want to own in the future is a great way to boost your returns. Time is working for the seller of the options and is working against buyers of options.

Open table short squeeze

Open Table (OPEN) reports earnings on Tuesday. 25% of the float is currently being sold short. I can see this being short squeezed and going up 10-15% as people cover their short bets, just like NFLX the week before.

Deficit tomfoolery

Deficits are okay as long as they are used to finance tax cuts, at least in the eyes of some people this is the case.

http://www.economist.com/blogs/democracyinamerica/2011/02/gop_budget_cuts

America's largest export is.....inflation!

http://dailyreckoning.com/americas-leading-export-inflation/

Verizon is getting the iPhone

Verizon is finally getting the iPhone. This is a good time to do a buy-write on Verizon. It has a forward PE of 13, yields 5.4%, and recently announced a 100M share buyback.

Buy 100 VZ @ $36.35:          ($3,635)

Sell 1 Jan 13 $40 call:             $215

Sell 1 Jan 13 $35 put:             $525

--------------------------------------------------
Total outlay: $2,895

total return if >$40 in Jan 2013: ($365 appreciation + $215 +$525 + $390 dividends) = $1,495 or 52% on a stock that needs to go up by 10% in 2 yrs.

Breakeven:  31.98 or 12% lower than today's price

Maybe China should revisit that one child policy

Everyone is bullish on China. You can't turn on the tv without hearing people praise China and their incredible economic growth. If you thought America went crazy during the real estate bubble, maybe you should check out these images of China's ghost cities!

http://www.businessinsider.com/pictures-chinese-ghost-cities-2010-12?slop=1

Also, China's airforce has a striking resemblance to "Top Gun".

Insider Trading

My super secret sources alerted me to heavy call buying in MEE on friday. MEE was trading around $56 on friday but somebody bought 10,000 Feb $65 call options. These calls are almost 15% out of the money, so the person was obviously banking on a buyout before the third friday of February.

Lo and behold, this comes out this morning. Alpha Natural Resources is in talks to buy-out MEE in a deal valued at $69-$70/share.

The 10,000 calls bought between  $30-$60 a contract are now worth $400-$500 per contract. A gain over 1300%!!!

Was somebody privy to non-public information??

Is this guy eligible to play at UGA?

Well....at least my 5 years were free

Breaking news! Students aren't learning anything in college!

http://shine.yahoo.com/channel/life/does-going-to-college-make-you-smarter-or-poorer-2445161/

I LOVE COLLEGE!!!!

Do championships bring money or does money bring championships?

Forbes has an article out about how much money SEC schools earn and spend on their football programs. Its very interesting....and explains why my bulldogs have sucked the past few years. Below are revenues and expenses for the 12 SEC schools from 7/1/09-7/30/10. Unfortunately, Auburn kept its Cam Newton payments off its balance sheet.

	Stadium Capacity	Football Revenue
1	Univ. of Alabama	101,821	$71,884,525.00
2	Univ. of Georgia	92,746	$70,838,539.00
3	Louisiana State Univ.	92,400	$68,819,806.00
4	Univ. of Florida	88,548	$68,715,750.00
5	Auburn Univ.	87,451	$66,162,720.00
6	Univ. of South Carolina	80,250	$58,266,159.00
7	Univ. of Tennessee	102,037	$56,593,946.00
8	Univ. of Arkansas	76,000	$48,524,244.00
9	Univ. of Kentucky	67,606	$31,890,572.00
10	Mississippi State Univ.	55,082	$14,551,275.00
11	Vanderbilt Univ.	41,448	$14,152,061.00
12	Univ. of Mississippi	60,580	$11,920,510.00

	Football Expenses
1	Univ. of Alabama	$31,118,134.00
2	Auburn Univ.	$27,911,713.00
3	Louisiana State Univ.	$25,566,520.00
4	Univ. of Florida	$24,457,557.00
5	Univ. of South Carolina	$22,794,211.00
6	Univ. of Arkansas	$22,005,104.00
7	Univ. of Georgia	$18,308,654.00
8	Univ. of Tennessee	$17,357,345.00
9	Vanderbilt Univ.	$14,152,061.00
10	Univ. of Kentucky	$13,905,724.00
11	Univ. of Mississippi	$11,920,510.00
12	Mississippi State Univ.	$9,951,097.00

	Football Profit
1	Univ. of Georgia	$52,529,885.00
2	Univ. of Florida	$44,258,193.00
3	Louisiana State Univ.	$43,253,286.00
4	Univ. of Alabama	$40,766,391.00
5	Univ. of Tennessee	$39,236,601.00
6	Auburn Univ.	$38,251,007.00
7	Univ. of South Carolina	$35,471,948.00
8	Univ. of Arkansas	$26,519,140.00
9	Univ. of Kentucky	$17,984,848.00
10	Mississippi State Univ.	$4,600,178.00
11	Vanderbilt Univ.	$0.00
12	Univ. of Mississippi	$0.00

While I can't brag about any national championships, I can brag that my school is the most frugal in the SEC! Perhaps this is why UGA can't win national championships.....or the liberty bowl.

Miyagi says.....don't downgrade my debt!

Did Standard and Poor's just drop an economic nuclear bomb on Japan?

I'll crane kick your ass, S&P!

Take a ride in the Ford Fusion

Ford reports earnings tomorrow morning before the market opens. Expectations are high for Ford with analysts expecting results from Ford not seen since 2000.

I am long F 2012 $25 and  2013 $30 LEAPS because they are cheap ways of participating in any ford upside for the next two years and they costs about $100 vs almost $19/share.

Drive me to the land of bread and honey!

Update:

Ford reported their best annual profit since 2000. Ford's FY net income came in at $6.6 billion or $1.66/share. The fourth quarter income came in lower than anticipated, mainly due to higher commodity costs, one time refinancing charges, and increased advertising on new product launches. Also in 2010, Ford improved its balance sheet and paid down $14.5 billion in debt. Ford still has a substantial debt load at $19.1 billion, but reduced its debt service costs by $1 billion annually.  But the company still ended the year with more cash than debt, something it has not done since 2006.

Due to the earnings miss in the 4th quarter, F was pummeled by short-term speculators and momentum investors. Shares are down over 16% since the earnings announcement. This is a good time to average down on F. I purchased more $25 leaps, a $20 leap, and a 17.50 leap. Also, you might look at selling $15 leap puts to get Ford shares at even more attractive prices in the future!

NFLX

Netflix has been one of the hottest stocks over the past year, going from $48-$211. It is up $25 today after reporting earnings last night. Probably people covering their short positions as 25% of the float is short. It currently trades at 78X trailing earnings and has a forward p/e of 54.

I wish I had bought a ticket for the NFLX train a year ago, however, it is getting pretty crowded now and people should get off while they still can. A few problems that could cause Netflix to slip up in the future are:

1. streaming content is weak. New movies come out 30 days later than Redbox, and typically don't come out on streaming until 6 mos later. As NFLX forces subscribers to streaming only plans, they need to come up with more popular content or risk losing those subscribers.

2. Future margins are going to be squeezed as content owners demand more money for the right to license their content. If netflix wants the best content, they are going to have to pay a lot more for it then they are currently paying.

3. Expectations are so high on netflix that the slightest miss in earnings could cause a massive plunge as it is one of the more heavily shorted stocks around.

I think one way to play this is buying Jan 12 200/190 vertical put spreads. These costs around $500 and will return $500 if NFLX is below $190 come January 2012. If it keeps rallying you will lose the entire $500.

Third-world economics

Rough day at the office

Choo Choo Norfolk Southern (NSC)

Norfolk Southers 4Q earnings improved 31 percent from the prior year. Revenue increased from $7.8 billion to $9.52 billion. CEO Wick Moorman said in a statement the company has "every reason to believe that 2011 will be an even stronger year for us." Another person who has been bullish on railroads lately is Warren Buffett, as he spent $26 billion to acquire Burlington Northern back in November. 1 yr target estimate is $72.88.

Buy 100 NSC:                     (-$6,300)
Sell 1 NSC Jan 12 65 call       480
Sell 1 NSC Jan 12 60 put      540
-------------------------------------------
Net outlay:                        5,280

Return: if >$65 Jan 12, return is $1,220 or 23% on a stock that only needs to go up 3.2% from current prices.

Risk: If stock is below 60 Jan 12, you will have to buy 100 shares at $60.

Break-even: 56.4

Kohl's

I really like Kohl's. It was upgraded this morning by Stifel Nicolaus from Hold to Buy. Their target price is $62.

Buy 100 KSS:                   ($5,206)

Sell 1 Jan 12 52.5 Call:      $500

Sell 1 Jan 12 52.50 Put:     $600
----------------------------------------------
Total cash outlay:          $4,106

Total return: $1,100 or 27% on a stock that needs to rise <1%

Break-even: 46.78 or 10% below current prices.

I have initiated this trade in my virtual portfolio

MMM

3M (MMM) reported earnings today and is down about 3% to 87.32. The stock has had a 52 week range of 68.96-90.52.

MMM reported increases in sales across all its divisions, but gross margins declined which has some investors worried. MMM sports a dividend of yield of 2.40%. The 1 yr target estimate is 100.56.

Buy 100 MMM:            (-8,747)
Sell 1 Jan 12 85 Put:       700
Sell 1 Jan 12 85 call:       860
----------------------------------------
total cash outlay: $7,187

Potential profit: $1,553 (700+613+240 dividend) or 22% on a stock that does not need to go up at all until Jan 12.

Break-even: 78.44

You can also just sell a Jan 12 85 put for 700 which would lower your breakeven to $78 which would be your cost basis if the stock was put to you on Jan 2012.

Ford lotto tickets

Ford (F) is reporting earnings on friday. Option traders are bullish on Ford. Today, one trader bought 10,000 Feb 19 calls while simultaneously selling 10,000 feb 17 puts to finance it.

Perhaps look at buying the feb 21 calls at .04 as a lotto ticket. These were selling for .25 as of last week and could easily go up 300-400% on a sharp move in the stock.

My iPad is smarter than your honor student

Will kids even know what real books are like in 10 years?

http://newsfeed.time.com/2011/01/23/these-kids-are-better-than-yours-tennessee-school-requires-ipads-for-all-students/?xid=sflow

RIP Taxco

Word on the street is that Taxco has been shutdown by the health department. While I hope it isn't true, my heart tells me it might be time to move on.

While there is no shortage of cheap cheesedip slingin mexican restaurants in Atlanta, this one will be missed. Fortunately there are about 20 equally skeezy mexican restaurants right down the road on Buford Hwy for me to try!

One man's trash is another man's treasure

Waste Management (WM) is the nations largest provider of waste management services in the US. It has a history or raising dividends and generates over $1.5 billion dollars in free cash flow that it can use to further increase dividends or execute share buy-backs.

Here is a descrition from morning star:

"Founded in 1894, Waste Management is the nation's largest provider of collection, transfer, recycling, disposal, and waste-to-energy services. The firm serves nearly 20 million customers in the commercial, industrial, municipal, and residential markets. It has 268 landfills that receive 115 million tons of waste per year. Waste Management is the largest provider of domestic recycling services and generates roughly 56% of its revenue from its waste collection business."

As states look to trim budgets, they will look at ways of outsourcing services previously provided by local governments. WM should be a big recipient of outsourced waste services. Furthermore, WM sports an attractive 3.4% dividend yield. Here is a way to play it:

Buy 100 WM @ 37.40 :            ($-3,740)
Sell 1 Jan 12 37.50 Call:            $235
Sell 1 Jan 12 35 Put:                  $245
-----------------------------------------------
Net outlay: $3,260

Potential return: $616 (235 +245+126 dividend +$10 appreciation) or a 19% return on a stock that needs to go up by <1%.

Breakeven: 33.85

Go Fish!

You won't like Google when it's angry!

Recently Google attempted to buy groupon for $6 billion. Thats Billion with a B. Foolishly, Groupon said "Thanks, but no thanks."

It appears Google just decided to copy their idea instead and hold onto their $6 billion. http://techcrunch.com/2011/01/20/is-this-googles-groupon-clone-well-the-logo-fits/

ARRRGHHH NOBODY SAYS NO TO GOOGLE!!!!

Short burritos, Long GS

Chipotle (CMG) has had quite a run the past year. I personally enjoy Willy's but that's neither here nor there. CMG has gone from 93.81 to an astronomical 262 over the past 52 weeks. It's currently selling for 223 and a trailing p/e of 43.15. Expectations are extremely high for Chipotle, and one little slip up might cause the stock to plummet. One bump in the road I can foresee for Chipotle is rising food costs shrinking its already low margins. Also, if unemployment stays high, people might begin looking for cheaper alternatives. Because of this, I don't believe Chipotle can maintain its past performance. I am short chipotle by buying a bearish put spread of Jan 12 230/220. I purchased the Jan 12 230 put and sold the 220 put for a net costs of $480 per spread.

I decided to finance this buy selling 1 JAN 12 Goldman Sachs put for $1,105. I would never buy Chipotle at 223, but I'd love to buy GS $11.05 lower than it is today.

If Chipotle is lower than 220 come Jan 12, the max return is $520 or 108%

If GS is greater than $150, you keep the full $1,105. If not, then you have to own 100 shares of goldman at an effective price of $138.95.

The potential combined return is $1,625 on a trade that you don't even have to spend any money on initially.

Look out for the pullback!

This market has been rising non-stop since September. Many believe that it has gotten ahead of itseld and is due for a correction. People are looking for any excuse for a sell off, so you might want to think about hedging to the downside or taking off any positions that you don't feel comfortable holding for the long-term. I prefer to open up longer-term positions to avoid the temptation of trading day-in and out. Hopefully the pullback will allow me to find some bargains.

Check out these charts over at Beating Buffett showing the VIX creeping up.

The next financial catastrophe

Be wary of municipal bonds. This could easily be the next financial crisis. States all across the country have been overspending, short changing their pension obligations, and borrowing more money than they can repay. Rather than raising taxes and owning up to the obligations made in prior years, states are looking for a way to seek bankruptcy protection. See the article in the NYT today.

Even some of the most conservative states are in terrible shape. Many people consider Texas as the epitome of fiscal conservatism, but it turns out they are no better off than California, NY, Illinois, or New Jersey, according to Paul Krugman.

It also brings up a question of states rights. If the States declare bankruptcy and accept a federal bailout ala General Motors, does this  mean they forfeit their rights on certain issues? This is a very messy situation that could soon get messier.

GE Earnings

GE reported better than expected earnings this morning. GE is a stock that I kick myself everyday for not buying 2 years ago when it was trading at $6. I have personally been short GE $20 Jan 12 puts and long GE Jan 13 $25 calls. These are still relatively cheap at .83 per contract and don't expire for 2 more years. It has runup today due to earnings, but look at adding some in any pullback. Perhaps finance them by selling some puts on something such XHB or even GE itself.

You can currently sell 1 Jan 12 $20 put and buy 1 Jan 13 $25 call for a $1.60 credit per contract. So rather than shelling out $2,000 dollras for 100 shares, you can do the above trade and receive $160 dollars and still participate in any upside until Jan 2013. The risk is you might have to take ownership of the stock at $20, but considering this is cheap for GE historically, this is not such a bad thing.

The flying V (Visa)

Visa has been crushed in recent weeks because of pending legislation to limit the amount of fee's that debit card issuers can charge. This has driven visa down to a 52 week low of 67.50 recently. This has probably been blown out of proportion and will hurt banks more than it will hurt Visa. Visa has been delivering 20% earnings growth and shows no sign of letting up. As more people switch from cash to plastic, this should only help Visa out that much more. The best and least risky way to play this bargain is with a buy-write.

Buy 100 V @ 70.69:           (7,069)
Sell 1 V Jan 12 72.5 Call:     750
Sell 1 V Jan 12 75 Put:         1,000
--------------------------------------------
Total cash outlay:                $5,319

Total return if V > 75 on Jan 2012:  $1,931 or   35% return on a stock that needs to go up by 6% in 11.5 mos      

Break Even:  $65 so you have downside protection of 8%

If V is < 75 in Jan 12, your short put will be exercised and you will have to buy 100 shares at a net price of $65, which probably isn't a bad thing.

The 1 yr target estimate via Yahoo! Finance is 96.27

DUCKS FLY TOGETHER

Inflation Trade

If you believe that inflation is going to pick up in the next year or so, heres a trade to take advantage of it.

Short 1 Jan 12 XLE 55 put for a $2.60 credit

Buy 1 DBA Jan 12 30/35 call spread for a 2.45 debit

Net costs: .15 credit.

Max Profit: $515 (3,400%)  if DBA is over 35 and XLE is about 55 in 11.5 mos. This trade can be closed anytime as well.  If DBA is lower than 30, but XLE stays above 55, then the max profit is the .15 credit received from the start.

Update: This trade is now trading for a 1.56 credit which is a 1,000% gain

Case or no case? "I fell....I fell in da fountain"

Perhaps you have seen this on the web recently. A woman was walking and texting at the mall and tripped and fell into a fountain. She is now considering sueing! Sound like she should sue herself....and perhaps gravity...and that jerk Isaac Newton.

Here is the link to the story discussing the lawsuit: http://news.yahoo.com/video/us-15749625/fountain-lady-nobody-went-to-my-aid-23909987

Apple will rule the world

Is apple a great company? Yes! Should you rush out and buy their stock at $340/share? Probably not!

Here's a better way to play it that can lower you entry, let you use less capital, and still profit whether apple goes up or down!

Most analyst are projecting apple to go up to $400/share. I personally don't have enough money laying around to buy enough apple shares to make it mean anything. So another way to participate in this rally is to sell some apple puts.

Currently, the Jan 12 $250 apple put is selling for around $10, or $1,000 per contract.

You can sell it today and collect $1,000 and still participate in any upside movement. If somehow Apple is below $250 on jan 2012, then you will be forced to buy 100 apple for $25,000. However, you can close this trade early, or roll the option out to a later date. The best part is that you can use the $1,000 to buy something else!

Hewlett Packard

I really like Hewlett Packard. It's one of the worlds largest consumer electronics company and makes some great products. Currently, its selling for 46.13 and has some pretty good option premium. The 1 yr taget price is 54.74 and the stock has a fwd P/E ratio of 8.13. They are also releasing some new tablets and smartphones this year based on their new operating system purchased from Palm. I'd maybe wait for it to pull back a little, but heres how you can enter it today.

Buy 100 HPQ @ 46.13:             ($4,613)
Sell 1 Jan HPQ 50 Call @ 310:    $310
Sell 1 Jan HPQ 45 put @ 435:     $425
-------------------------------------------------
Total cash outlay:                         3,878

Break-even: $41.89

Return if >$50 on Jan 12: 1,122+div/3,878 = ~29% on a stock that needs to go up by 8.3% over 11.5 mos

LOLAmerica

Apparently the best way to get rich in America is to find funny pictures of cats and put humorous captions in them! Check out this article in the WSJ.

I personally like dogs over cats, so heres a picture of a dog who just found out he's not the father!

"I told y'all it wasn't mine!"

Long Ford

The chinaman is buying up cars like its going out of style. They have begun to auction off licence plates via lottery to limit the amount of congestion and emissions. While this limits sales, they are still auctioning off 20 million of them. Why not buy some Ford to take advantage of this!

Perhaps finance it with the sale of some AAPL put options!

sell 1 apple Jan 12 255 put for $10.60

buy 5 F jan 12 25 calls for .70 and 5 Jan 13 25 calls for 1.82

Go Apple go!

Looking to buy some Vertical Call Spreads this week or next. Looking at $10 wide strikes and trying to get in for a net debit of $5 in order to realize profits of 100% or greater. 355/365 strike is around $4.50 this am.

Farmville profits with Monsanto

Buy/write on Monsanto:

This one has had quite a run, but I still believe this will be a profitable trade.

Buy 100 monsanto (7,478)
Sell 1 Jan 12 72.5 Put 980
Sell 1 Jan 12 75 Call 995
-------------------------------------
Total outlay 5,503

Profit if called in Jan 2012: 1,980/5,503 = 36% plus any dividends collected will increase your percentage.

If monsanto is below 72.5 on Jan 12, you can either roll your short put out to a later date or buy 100 more shares at a net cost of 62.7. This trade is still profitable down to the 60ish price.

Why I started this blog?

This blog is a place for me to share my investment ideas as well as anything else I find interesting, humorous, or just feel like venting about.

I read alot of blogs about investing and personal finance. The reason for this is that I want to be in control of my own finances rather than handing my money to some "professional" who will charge fees or just investing in mutual funds that don't truly have your best interest at heart. Hopefully, I can help myself while helping others learn to invest better. I mainly prefer to invest using combinations of equities and option strategies. This helps me boost my returns and manage risk.

I use strategies such as buy-write combos, selling naked puts, covered calls, synthetic combos, and other option strategies. Rarely do I just buy stock and hold it. This is because it is expensive, the risk is always the same, and its not as interesting.

Below is an example of the type of trade I prefer to do:
American Express (AXP): Current price 45.04

Buy 100 shares of  AXP: ($4,504)
Sell 1 Jan 12 $45 put:       $572
Sell 1 Jan 12 $50 call :      $330

Total cash outlay:             $3,602

This should only be done on stocks that you think are poised to rise, that you don't mind owning for the long-haul, and that you wouldn't mind owning at a lower price than it's at currently.

Risk: The risk is that between now and Jan 2012, AXP could drop and your short $45 put will be exercised. You will be forced to take ownership of AXP at $45 per share, but because you sold that put it will be like owning it at $39.28 ($45-5.72 put premium received). This will allow you to lower your basis by the amount of premium collected.

Reward: If AXP is >$50 on Jan 12, your stock will be be called away and you will received $5,000 and keep the $572 collected for the put sold and the $330 collected for the call sold. Your return will be $1,398 ($496+572+330) plus any dividends received. This is a 39% return on a stock that only needs to go up by 11%.

If AXP >$45 but <$50, your call and put will expire worthless, but you will still own the stock and can hold it or sell more calls against it.

Breakeven on trade: On original 100 shares its 45.04 - 3.30 call premium = 41.74

On the put shares, its the $45 strike price less the 5.72 collected or 39.28

The overall breakeven would be: $40.51 or 10% below the current price. This trade will can lose 10% and still be profitable. As opposed to just buying AXP outright, this seems like the much safer option!

Welcome

Welcome! This is my blog I created to share ideas and learn ideas from others. I will mainly use it to blog about investing and personal finance, but also will blog about anything else as I see fit because it is my blog.