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Saturday, February 5, 2011

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


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!

Friday, February 4, 2011

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.


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.

Thursday, February 3, 2011

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.

America's largest export is.....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

Tuesday, February 1, 2011

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!

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