Next month I do something I have not done in some time. I venture to Las Vegas for a couple days. Little known fact - I lived there for about six months in 1999. I was lucky enough to pitch my tent at Mandalay Bay for a few weeks prior to signing a lease (that I eventually broke) on a sterile suburban apartment just a few miles from the Strip.
I have a love-hate relationship with Vegas. I hate the omnipresence of smokers. As such, I'm staying in a five-star non-smoking hotel without a casino. I roll high. (And I use Hotwire). Yet, I love to see people having a good time, even if they have cigarettes in their collective mouths. On the flip side, I hate loud drunks and impulsive, compulsive gamblers (well, I don't "hate" the latter or anybody for that matter, I'm just riffing here).
When you live in Vegas, it's easy to be impulsive and compulsive. There's truly not much else to do. That's why it's a great place to visit for a short period of time. You fly in, drink free beer, put $100 on red, wager more of your hard-earned money on the Leafs to beat the Canucks plus a goal and a half and then head home. No harm, no foul. That's how you should look at not simply speculation in the stock market, but speculating via lottery ticket-type trades.
Most investors should probably speculate a little bit, but there's a "good" and a "bad" way to do it. That's not to say being "bad" from time to time cannot be "good." Consider some examples.
Challenge #1: Close above $12.00 for several days in a row. Hold that level.
Challenge #2: Bust through the 200-day MA like it did the 5, 20 and 50.
Challenge #3: Break resistance around $12.50 and hold for several days in a row.
Friday morning's earning report represents a major turning point. On a lackluster report, F probably just stagnates for at least a few more weeks closer to the $11.50-$12.25 levels. Not necessarily a death spiral. A solid report, however, likely reaffirms this recent impressive run and sends the stock higher.
As for the trades I have on, I refuse to look in my account to see how they're doing, so I only know that I own OTM calls on F with June and January 2013 expirations. OK, fine, I'll look. They're $18 and $20 strikes respectively. Horrible trade. Totally Vegas-style speculation. A "bad" trade that could turn out "good." If not, no harm and no foul.
A smarter way to play Ford bullishness. Go deep ITM on some LEAPS call options. As I write this, for instance, you could slink into some F January 2014 $10 calls for around $4.05 each. That's actually a pretty sweet deal. If Friday's report disappoints, you should not get killed as you have time on your side. If the bull run sustains, you're sitting pretty. Not only do the OTM options require bigger moves in the underlying stock to pop, but they'll be slower to recover, if they do at all, after weakness.
Sprint (NYSE:S). Here's one of those low-priced stocks that people look at and they say "huge company, has the iPhone, there's no way can be at $2.00 for long." Frankly, I do not know what to make of Sprint. And, for that reason, I stay away.
I'll be honest here. I do not quite understand the dynamics of the relatively complicated hook-up between Sprint and Clearwire (CLWR). Sometimes, as investors, particularly male investors, we're too proud to just say, "I don't know." While I love to learn, only so many hours exist in the day. And I do not have the time or the inclination to go beyond the obvious surface vis-a-vis Sprint/Clearwire. I understand where Verizon (NYSE:VZ) is at. I see the vision; therefore, because of that and several other reasons I am long the stock.
If I were to make a play on S, it would happen purely on momentum or technical grounds. I bought the stock a few months ago around $2.17 and had it called away at $2.50 after two months of writing covered calls. I consider that a sane trade because it was clear S was set to bounce. It was a short-term conviction that makes up maybe 5-15% of what I do, depending on my mood.
If you're one of these folks who truly thinks S will be a $10, $50 or $100 stock that you can retire on in 2020, here's what I would do. Buy the stock outright periodically. Make it 2-5% of your portfolio. Keep enough cash in your account to back the sale of S May 2012 $2 puts, which would bring in roughly $0.20 as I write. Using this strategy, you benefit from any upside with the stock, you protect yourself a bit against downside and generate income by collecting the premium on the short put and, if S drops and you get assigned, you pick up some shares at what a bull would consider the bargain basement price of $2.00.
That beats the heck out of falling for the allure of the S May $4 call at $0.02.
Sirius XM (NASDAQ:SIRI). Though in a better position than Sprint on several counts, here's another stock you can play in pretty much the exact same way. If you're bullish, I would resist the allure of jumping on the $2.50 and especially the $3.00 call bandwagon that so many have with March, June and January 2013 expirations. While the trades could come through, they're often tantamount to chasing fool's gold.
Better yet, periodically buy the stock outright if you have positive long-term conviction, but reserve a portion of your capital to back the sale of SIRI $2 puts. You'll generate modest income and, on a pullback, pick up shares which the permabull might consider a bargain.
Don't ignore the chart on SIRI. Lots of double peaks over time there followed by considerable swoons, pops and volatility. The same old situation might be shaping up again.