I'm sure you're more interested in getting on with the next year that an elaborate review of the past one, and I want to close all these trades out so we can concentrate on our current long-term positions -- 8 of which we took this past month. Those positions are already up 92%. But judging from this year's run, they could still have a long way to go!
As I said in November: "Sometimes it's nice to just buy something and walk away for a while." Other than selling calls against, there was little movement from that post until last week, when I began to cash out at what I thought was a market top. I'll try to give a quick appraisal on each, and hopefully we can all learn a little from my successes and mistakes of last year.
Let's bear (oops, don't say bear!) in mind that this was a fabulous year -- we thought it was a big deal to break 11,000 in January, the extra 1,500 points was just a bonus we took full advantage of!
Apple Computer Inc. (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 went up to $38.40 on 11/24 and I chickened out there and sold the Jan $95s for $6.50, dropping the basis down to $3, and I was able to take that caller out this week for $1, bringing the basis back to $4. Not bad, but the $55s had dropped down to $25 and I was lucky to get $29.50 (up 638%) off the table at the close.
I got tired of waiting for Archer Daniels Midland Co. (ADM) Jan $35 puts (9/18 -- $1.35) as they were the protective side of a spread and I took them off the table, but I should have let them play out, now $3.20 (up 137%).
I love my Boeing Buddies™, and the AAR Corp. (AIR) Feb $25s (taken for $1.25 on 9/6) picked up another dollar to close out at $3.70 (up 196%).
Advanced Micro Devices Inc. (AMD) Jan $27.50s (8/17 -- $1.25) peaked at $3.40 and were taken off long ago!
Boeing Co. (BA) Jan $90s (8/8 -- $1.85) were so good we flipped to the '08s! $4 (up 116%) was enough pre-thanksgiving as we had already rolled to the new play which was well in the money and covered. So this is year 2 of a very productive play.
Best Buy Co. Inc. (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 should have left well enough alone but I rolled some of the profits into some very sad (so far) new calls!
British American Tobacco (BTI) Jan $55 puts (8/18 -- $2.60) were finally dumped at $1.30 (down 50%) and were very frustrating as they looked so good in October. Had I stuck by my rules I would have gotten out up 30% rather than down 50% (kick, kick).
I always wished Buffalo Wild Wings Inc. (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." I gave them up at Thanksgiving at $54.50 after a scary dip (up 70%).
Sometimes selling a call bites you in the back. On 11/18 I said: "Citigroup Inc. (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." Well I got burned on the takeoff and ended up having to buy out my caller for $3, negating much of my gain on that huge run. Final tally: Basis -- $13.65, Exit -- $16, up the same 17% even though the stock jumped 10% (kick, kick, kick!).
Cheesecake Factory Inc. (CAKE) Jan $25s (8/1 -- $1.20) were a nice bottom call at the time but stopped out at $3.60 (up 200%) as I made the mistake of thinking nothing could go wrong with these over the holiday!
Cephalon Inc. (CEPH) Jan $65s were just $4.40 on 6/15 made $5 on the first dip and were reentered in late August at $3. The stopped us out before Thanksgiving at $11.20 (up 273%).
CSX Corp. (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) but turned ugly (with the group) and stopped out at $4.10 (up 200%).
On 9/6 I said: "Ducommun Inc. (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 $22.88 (up 30%).
Dell Inc. (DELL) Jan '08 $27.50s (9/6 -- $1.60) were meant to be an income producer but they are slow going at $2.55 (up 60%). These I'm keeping open, but I should have taken them off as a double at Thanksgiving. Again, rules make you money!!!
Deutsche Telekom AG (DT) Jan $15s (8/17 -- .60) finished out a nice run at $3.10 (up 417%).
EarthLink Inc. (ELNK) never got it together and the Jan '09 $10s stopped 30% down at $1.10 from the 7/5 pick. I no longer have any interest in this stock as they are in a very long building cycle with a dubious outcome.
Back on 11/18 I said: "Eagle Materials Inc. (EXP) Jan $40s (9/5 -- $2.75) seemed oversold but are running out of gas at $4.10 (up 49%)." This is a great example of how time kills an option trade as the stock is up $3.50 since then but the option is still $4!
Corning Inc. (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%) -- good thing too as the disaster continued! We just got back in with May $20s and I hope this is finally a bottom...
Back on 11/18 I said: "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%)." I picked up a little more selling the December $80s and we rolled out of that and into the Jan '08s on the 18th, also a good top call! The Jan $70s finished at $12.60, up a billion percent since the basis was lower than 0 after that second sale, while the Jan $65s were done at $17.50, up a trillion percent for the same reason!
On 8/15 I said: "OK, pop quiz hotshot: If Dell (25% share) laptops are exploding because their Sony Corp. (SNE) (6%) batteries are defective, what are people going to be buying at CompUSA? Toshiba (14%)? No, too Japanese. International Business Machines Corp. (IBM) (10%)? No, too Lenovo. Fujitsu (2%)? Do they make laptops? Gateway Inc. (GTW)? Are they still in business??? Use your phone a friend if you need to. But I think we should be buying Hewlett-Packard Co. (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." On the 18th I said "I still like them on the pullback at $3.20 (up 129%)." They finished Friday at $3.90 (up 179%). We also have the HPQ Jan $40s, which are up 60% already.
International Business Machines Corp. (IBM) Jan $80s (8/8 -- $2.20) was another tech winner on a perfect bottom call. It was hard to let go at $17.50 (up 695%) as I'm not sure we'll ever get a pullback, but there was no way I wanted to let that ride over a 4-day break.
Intel Corp. (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 and finished before Thanksgiving at .75 (up 67%). Our new INTC plays have not fared so well!
Cheniere Energy Inc. (LNG) Jan $30 puts (9/16 -- $2.95) stopped out with a double.
Lowe's Companies Inc. (LOW) Jan $31.25 (9/20 -- $1.20) worked better than our shorter play, stopping us out at $1.75 (up 46%). Another fine example of time killing your play as they have run down to .65 this close to expiration!
Las Vegas Sands Corp. (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! We are having no luck so far with the Mar $85 puts.
Way back on 6/28 I said: "I like the MGM Mirage (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 and never had to look back as we finally got out at $23.90 (up 710%+) after selling more calls dropping our basis below zero.
Microsoft Corp. (MSFT) Oct $25s for .40 were a nice play on 6/29 as they closed at $3.40 (up 750%). We are back in that game with April and July calls and hoping for some Vista magic!
I did not have the stomach to ride the Overseas Shipholding Group Inc. (OSG) Jan $60 puts (9/4 -- $1.50), even though they were a roll, and I gave up on the Dec recovery at $3 (up 100%).
When I said on 11/18 that there was "no harm in holding" the Phelps Dodge Corp. (PD) Jan $72.50s ($11.50 -- 6/29) as we had run the basis all the way down to $5.30 with various sales, I had no clue they were going to $50 (up 843%) the next day! As usual, following the rules maximizes profits, and they have done no better since the inital excitement. We in fact did very well (up 11,000% so far) by turning around and picking up the Jan '08 puts as income producers.
Powerwave Technologies (PWAV) Jan '08 $7.50s (8/7 -- $1.20) is still open as I wait for the Jan $7.50s sold for .70 to burn out. My basis is just .50 and the $7.50s are a nickel so why give it to them?
Sears Holdings Corp. (SHLD) Jan '08 $135s ended up with a basis of $25.40. They finally chased me out after a nasty drop in mid-November made me lose my appetite for a holiday hold at $50.50 (up 99%).
I got my wish on 9/12 when I said: "I would have liked to see Sony Corp. (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. I wish I would have doubled down instead as we got a great pop in December!
Sunrise Senior Living Inc. (SRZ) Jan $30s (8/11 -- $2.20 ) topped out and stopped out right after our last update at $4.30 (up 68%).
Seagate Technology (STX) Mar $22.50s were taken for the 3rd and last time of the year on 9/12 for $1.70 with a stop below $20 which it never did hit. I will very likely put these on again as I cried to lose them at $4.50 (up 165%). I think STX was my stock of the year for '06 with 3 doubles (at least) on the same position!
Taro Pharmaceutical Industries Ltd. (TARO) Apr $12.50s (9/6 -- $2.65) were a quick disaster and stopped at $1.90 (down 28%). Back in Nov I said "I like them again at .95 but I'll wait." You can see what I like (and don't) about this stock!
On 11/18 I said "Tiffany & Co. (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%." That was a great call as it only went below it on the 28th but bounced quickly enough to leave us in but I took $4 (up 300%) and ran the next day!
Harris & Harris Group Inc. (TINY) Mar $10s (8/29 -- $1.15) is my favorite fund -- it has all the volatility of a nano stock but without the total wipeout that 3 out of 4 of them tend to have! My favorite holdings of theirs are Chlorogen, D-Wave, Nanomix and Nextreme, who recently got CIA funding. We stopped out at $3.45 (up 200%).
Texas Instruments Inc. (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, and the Dec $30s for .70 but then I flipped and went for the Jan $30s myself -I should have stuck to selling!!!
Viacom Inc. (VIA) Nov $35s for $1.30 were a hell of a call but I lost mine on the September dip. These guys are now like Apple to me, I can't bring myself to buy them even though I think they'll go higher...
On 11/18 I said "Vodafone Group plc (VOD) Jan $22.50s (8/17 -- .80) is going to test a stop at $26, currently $3.30 (up 313%)." They passed that test and finished the year at $5.40 (up 575%). As with many of these plays, you could have done quite well picking them up on the November post!
Washington Mutual Inc. (WM) Jan $45s (9/18 -- $1) started out well but died at .75 (down 25%). We rolled these into the Jan '08 $45s, which are already up 75% as I tend not to give up on fundamentally good plays just because I have bad timing once. This is a great example of cash management as it would have been much harder for me to get back in and come back had I rode that initial play down further (although holding it would have worked out in the end too).
Let's not forget that these are the survivors.
We took a lot of 1 month losses off the table before this group materialized, but that's why we are starting this year with 24 long-term trades. If we can pull 40 survivors like this group out of the pack over the next few months, those initial 20% losses can be laughed off with ease!
Wishing you and yours a very happy new year,
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