Options Trader: Long Term Picks

by: Philip Davis

Arnie made a comment the other day that we all have very short trading time-frames and it really hurt my feelings (as you all know, I'm the shy, sensitive type). I am not a day trader! I am not adverse to taking profits during the day -- but that does not make me a day trader...

I take a lot of long positions but, as I have mentioned often before, I generally tend to stop worrying about them once they make over 20% as I just set my stop (-20% of the profits) and forget about them. Tracking a bunch of Jan '09 leaps every week would make for a very dull column!

This column is generally about short-term options, not stocks or leaps, which are very, very dull, but I am very, very good at picking those -- probably better than I am at close options. As I always say, the close options are for play money while we watch our real plays take shape!

The last time I touched base with these picks was August 3rdso I think we can indulge ourselves once a quarter to see how I'm doing. I am listing them all, the good, the bad and the ugly because I don't want you to think I'm cherry picking (as embarrassing as some of these picks are!).

I'm sorry that the original picks are all buried at the old blogspot account (and I'm in no mood to dig them out of that mess) but we'll fix it all on the new site (I hope!). I apologize for not having all the exact start dates but if I didn't find them in August, I'll never find them now!

From 8/3 picks on you'll notice a different format as I'm trying to bring this fully up to date.

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  • Sometimes it's nice to just buy something and walk away for a while... Apple Computer Inc. (NASDAQ:AAPL) Jan $55s seemed expensive at $9.40 on 6/20 but we held through the dip by selling the July $60s and collecting $2.50, lowering our base to $6.90. They currently trade at $31.50 (up 357%).
  • Apple Chart 20 11 06

  • I got tired of waiting for Archer Daniels Midland Co. (NYSE:ADM) Jan $35 puts (9/18 -- $1.35) as they were the protective side of a spread but I should have let them play out -- now $2 (up 48%).
  • I always play the Boeing Buddies™ but I hate to sound like a broken record and they are a jumpy group. We last picked AAR Corp. (NYSE:AIR) Feb $25s for $1.25 on 9/6 -- now $3.70 (up 196%).
  • Boeing Buddies Chart

  • Advanced Micro Devices Inc. (NYSE:AMD) Jan $27.50s (8/17 -- $1.25) peaked at $3.40 and gave us two weeks to take $3 (up 140%) and another to take $2.85 if we were slow on the uptake!
  • AMD Chart 20 11 06

  • Boeing Co. (NYSE:BA) Jan $90s (8/8 -- $1.85) is so good we took the '08s too! Now $3.40 (up 84%).
  • Best Buy Co. Inc. (NYSE:BBY) Dec $50s for $2.80 had a bad start in early September but recovered quickly and peaked out in October at $9.35. Up $6.55 means you have a $1.30 trailing stop which triggered the same week (10/20) at $8.05 (up 188%).
  • I'm still waiting for British American Tobacco (NYSEMKT:BTI) Jan $55 puts (8/18 -- $2.60) to move, currently $1.80 (down 31%).
  • I always wish Buffalo Wild Wings Inc. (NASDAQ:BWLD) had options! Last time I picked them was 8/1 when I said: "Another chicken stock I've been hoping to catch a bottom on is BWLD who reported 30% earnings growth on 27% more sales last week but guided earnings down a penny out of 30 which caused the stock to drop 20% to $32. Silly market! This is not an optionable stock or I would play it all the time but if you like to buy stocks, this one is fairly safe with a stop at $30.50 (-5%) and about 15% to go up before testing resistance at the 200 DMA of $36." They're finally pulling back a bit at $54.64 now (up 71%).
  • They said I was crazy when I went long on a few builders back on 9/18. Not much happened but the Beazer Homes USA Inc. (NYSE:BZH) Jan $45s for $2 are now $2.50.
  • Citigroup Inc. (NYSE:C) Jan '09 $40s (8/8 -- $11.30) had the basis reduced by .60 by selling the Sept $50s and are now a very safe looking $12.50 (up 17%) and we should be selling the Jan $52.50s for .65 as this is supposed to be producing an income.
  • Cheesecake Factory Inc. (NASDAQ:CAKE) Jan $25s (8/1 -- $1.20) were a nice bottom call and still trending up at $4 (up 233%) but you could be forgiven for stopping out of this volatile play but I did say at the time: "Speaking of restaurants, what the heck happened to CAKE? They delayed their financials to review option grants, a serious red flag these days, but the sell-off from $39 in February to $22 seems a little extreme, even if growth is slowing. Cake's major problem is that they ran out of ideal malls and, rather than take a break in expanding, they bit the bullet and put stores in more marginal locations. I think they learned their lesson and they are far from saturation (105 restaurants doing close to $2B in sales) so the Jan $25s look good at $1.40 but stopping out if the stock goes below $22." They never did.
  • CAKE Chart 20 11 06

  • Cephalon Inc. (NASDAQ:CEPH) Jan $65s were just $4.40 on 6/15 made $5 on the first dip and were reentered in late August at $3. They now trade at $14.70 (up 390%).
  • Costco Wholesale Corp. (NASDAQ:COST) Jan $52.50s (9/12 -- $1.55) was just too rough to ride, currently at $2.95 (up 90%).
  • Costco Chart 20 10 06

  • CSX Corp. (NYSE:CSX) Jan $32.50s (8/24 -- $1.35) were a nice play on my predicted transport rally (we took Burlington Northern Santa Fe Corp. (BNI) October $70s for $1.50 too) and are currently up at $4.60 (up 241%).
  • On 9/6 I said: "Danisco A/S (NYSE:DCO) is another beaten down company that just got the nod to get a small NASA contract to simulate a launch vehicle. These contracts tend to snowball over time so I like the stock at $17.77." That was pretty good timing -- now $23.50 (up 32%).
  • Dell Inc. (NASDAQ:DELL) Jan '08 $27.50s (9/6 -- $1.60) were meant to be an income producer but they are slow going at $2.60 (up 63%).
  • Deutsche Telekom AG (DT) Jan $15s (8/17 -- .60) are just losing steam at $2.95 (up 392%).
  • EarthLink Inc. (NASDAQ:ELNK) never got it together and the Jan '09 $10s stopped 30% down at $1.10 from the 7/5 pick.
  • Eagle Materials Inc. (NYSE:EXP) Jan $40s (9/5 -- $2.75) seemed oversold but are running out of gas at $4.10 (up 49%).
  • Fairchild Semiconductor Intl. (NYSE:FCS) (9/6 -- $1.10) fell off a big cliff and wiped out if you didn't take the earlier hints to get out with a 20% loss. Rules are good!
  • Fairchild Semiconductor 20 11 06

  • General Electric Co. (NYSE:GE) Jan '08 $35s were last taken on 8/3 at $2.25, now trading at $3.50 (up 56%).
  • Corning Inc. (NYSE:GLW) Feb $25s (9/6 -- $1.45) were in the money for 3 days in October and then fell off a cliff! Smart money stopped out 20% of the profits off the $2.75 peak at $2.45 (up 69%).
  • Harrah's Entertainment Inc. (HET) Jan $70s (8/31 -- $1.80) are now $7.60(up 322%) but that trade is long over due to the buyout. These were added as a pre-roll to the Jan $65s (8/29 -- $2.20), now $12.10 (up 450%).
  • On 8/15 I said: "OK, pop quiz hotshot: If Dell (25% share) laptops are exploding because their Sony (6%) batteries are defective, what are people going to be buying at CompUSA? Toshiba (14%)? No, too Japanese. IBM (10%)? No, too Lenovo. Fujitsu (2%)? Do they make laptops? Gateway? Are they still in business??? Use your phone-a-friend if you need to but I think we should be buying HPQ!!! They have 22% of the U.S. laptop market already and the majority of the shelf space at retail locations. Sept $35s are .65 which I think is a really good deal and I will also be taking the Jan $37.50s for $1.40 as a preemptive roll." I still like them on the pullback at $3.20 (up 129%).
  • International Business Machines Corp. (NYSE:IBM) Jan $80s (8/8 -- $2.20) was another tech winner on a perfect bottom call, now $14.70 (up 568%).
  • Intel Corp. (NASDAQ:INTC) Jan $17.50s (Aug 8 -- $1.50) have been chugging along nicely to $4.90 (up 227%). On 9/1 we added the Jan $22.50s for .45 as a pre-roll, now .85 (up 89%).
  • Cheniere Energy Inc. (NYSEMKT:LNG) Jan $30 puts (9/16 -- $2.95) stopped out with a double and are back to $2.60.
  • Lowe's Companies Inc. (NYSE:LOW) Jan $31.25 (9/20 -- $1.20) worked better than our shorter play, stopping us out at $1.75 (up 46%).
  • Las Vegas Sands Corp. (NYSE:LVS) Jan $60 puts from 7/24 peaked at $7.90 and stopped out at just a week later at $7.30 (up 45%). This is what I mean by taking profits in a day as holding these would have been a disaster! At the time I said "I need to remember to treat LVS more like General Motors Corp. (NYSE:GM) and always short it when it gets uppity." As we discussed in this week's comments, it's about that time again!
  • Way back on 6/28 I said: "I like the MGM Mirage (NYSE:MGM) Jan $37.50s for $5, selling the Aug $40s for $1.60, as I expect MGM to go lower but I would hate to miss the recovery." That was a great plan! We lowered our basis to $3.40, doubled down at $2.50 on the dip (see 8/3 comments) and never had to look back on what is now a $10.90 position (up 269%).
  • MGM Mirage Chart 20 11 06

  • Microsoft Corp. (NASDAQ:MSFT) Oct $25s for .40 were a nice play on 6/29 as they closed at $3.40 (up 750%). This is why it's hard for me to get excited about them now, at $29.50...
  • Mitsubishi UFJ Financial Group Inc. (NYSE:MTU) did great for a while but the Nov $12.50s stopped out even at $1.95 after poor earnings back in August (and boy am I glad we're out of those!).
  • Mitzubishi Chart 20 11 06

  • Micron Technology Inc. (NASDAQ:MU) Jan $20s (8/29 -- .45) seemed like a bargain and zoomed up to $1.30 2 weeks later but we were fed up with it the week after that at $1.10 (up 144%).
  • Micron Chart 20 11 06

  • Overseas Shipholding Group Inc. (NYSE:OSG) Jan $60 puts (9/4 -- $1.50) were a pre-roll, now $2.50 (up 67%).
  • We took the Phelps Dodge Corp. (PD) Jan $72.50s for $11.50 on 6/29 and pocketed $2.50 for selling the $82.50s, lowering our base to $9. On 8/3 we sold the Aug $90s for $3.70 which were wiped out and lowered our basis to $5.30. They peaked out at $23.30 the week of the closing and should have been sold the following week at $19.70 (up 272%) but there was no harm in holding those as they are now $23.30 again!
  • We expected Powerwave Technologies (NASDAQ:PWAV) Jan '08 $7.50s (8/7 -- $1.20) to go down so we sold the Jan $7.50s for .70 and left a .50 basis with a year advantage. I'm not buying out the caller for .20 just yet, but the leaps are still $1.10 (up 80% if I closed out both).
  • Sears Holdings Corp. (NASDAQ:SHLD) Jan '08 $135s were flat on 8/3 at $32.40 and we bought out the Aug $145s we sold for a $4 profit, lowering the basis to $28.40. We then sold the Aug $150s for $3, which expired worthless and lowered our basis to $25.40. Although there've been 2 $5 pullbacks, none confirmed long enough to stop out on such a long call, now at $52.20 (up 106%).
  • Sirius Satellite Radio Inc. (NASDAQ:SIRI) Jan '08 $5s are off .15 at .80.
  • I got my wish on 9/12 when I said: "I would have liked to see Sony Corp. (NYSE:SNE) come down a bit more but I need to take a small entry position if it holds $42. Jan $45s are $1.75 but I fully expect to buy my next round for $1, this is just a protective play in case it pops early." Turns out I had so much time the whole thing stopped out at .80 for a 42% loss!
  • Sony Chart 20 11 06

  • Sunrise Senior Living Inc. (SRZ) Jan $30s (8/11 -- $2.20 ) were a great bottom call, now $4.30 (up 95%).
  • Seagate Technology (NASDAQ:STX) Mar $22.50s were taken for the 3rd and last time on 9/12 for $1.70 with a stop below $20 which it never did hit. The calls are currently looking good at $4.10 (up 140%).
  • Taro Pharmaceutical Industries Ltd. (NYSE:TARO) Apr $12.50s (9/6 -- $2.65) were a quick disaster and stopped at $1.90 (down 28%). I like them again at .95 but I'll wait.
  • TASER International Inc. (NASDAQ:TASR) Jan $10s were picked up in September for .60 and topped out last month at .95, giving us many exit opportunities at .80 (up 25%).
  • THQ Inc. (THQI) were in-and-out-and-in-again in the summer but they finally hit their stride, had a rough quarter, and our original 5/5 pick of the Jan $25s for $3 peaked last month at $8 and stopped at 7 (up 133%). I'm hoping for another pullback on this one!
  • Tiffany & Co. (NYSE:TIF) Nov $35s from 7/24 finished at $1.50 (up 30%) but we made much more on the short trades in between. The Jan $35s (8/08 -- $1) are well in the money at $2.80 (up 180%) but should come off at 150%.
  • On August 29th I said: "Harris & Harris Group Inc. (NASDAQ:TINY) is a nanotech fund which should break out in a good market. My favorite holdings of theirs are Chlorogen, D-Wave, Nanomix and Nextreme, who just got CIA funding. I like owning the stock outright at $9.56 as this is a long-term play. You can sell the Oct 10s for .40 if you are a conservative investor or buy the March $10s for $1.15 (also can sell Oct against)." Those March $10s are waaay in the money at $4.90 (up 326%).
  • Harris & Harris Chart 20 11 06

  • TiVo Inc. (NASDAQ:TIVO) Feb $7.50s from August peaked at $1.60 and we had all of September to get out at 1.35 (up 200%) -- a little late if you didn't!
  • TiVo Chart 20 11 06

  • I don't know what I was thinking, selling the Toyota Motor Corp. (NYSE:TM) Jan $115s (9/20 -- $2.50), as we took a double, but they are now $10.30 (up 312%).
  • Trump Entertainment Resorts Inc. (TRMP) Jan $20 puts (7/3) peaked at $3.80 in October but Cramer got on it and chased us out at $3.40 (up 70%).
  • Texas Instruments Inc. (NYSE:TXN) Jan '09 $30s (8/6 -- $7.70) were picked up as an income producer and we sold the Sept $32.50s for .40 and the Oct $32.50s for $1.10 and the Nov $32.50s for .35, giving us a current basis of $5.95 against the $6.40 strike (up 8%) as we work off the premium.
  • Time Warner Inc. (NYSE:TWX) Oct $17s (7/29) finished at $2.75 (up 588%) -- is 3 months a real leap?
  • United Parcel Service (NYSE:UPS) Jan $75s (9/12 -- $2) seemed like a good early holiday play and rewards the faithful at $5.20, but it took a lot of faith!
  • United Parcel Service Chart 20 11 06

  • Viacom Inc. (NYSE:VIA) was picked on the same day but I gave them an extra month with the Nov $35s for $1.30 and, if you held through the September dip (I didn't), they are currently trading at $4.40 (up 238%).
  • Viacom Chart 20 11 06

  • Vodafone Group plc (NASDAQ:VOD) Jan $22.50s (8/17 -- .80) is going to test a stop at $26, currently $3.30 (up 313%).
  • Washington Mutual Inc. (NYSE:WM) Jan $45s (9/18 -- $1) started out well but died at .75 (down 25%).

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So let's stop all this daytrader nonsense! I advocate a sensible, balanced portfolio with long and short positions.

Also, I play a surprising amount of straight stocks but talking about them is like pulling teeth, so I don't, but most of the ones I talk about on the website are enshrined at the bottom of the spreadsheet.

I've picked 42 regular stock positions in the past few months and they've made an average of 14% over an average hold of 24 days.

Daytrader -- the nerve of some people!

Read all of Phil Davis's articles on Seeking Alpha