Jeff Partlow

Additional Dimensions of Value Investing

Geoff,
Regarding your suggestion re covered calls on relatively high dividend/low beta/low volatility stocks, I thought you might find the academic research referenced here of interest since they conclude that better covered calls returns are achieved with high volatility stocks.
www.cxoadvisory.com/bl.../
Regards,
Jeff

Noble Corporation Q1 2009 Earnings Call Transcript

Other interesting quotes:
1. In response to question re operators paying for rig mobilization costs: they will pay unless "load up repair costs and a bunch of other ancillary crud".
2. "so we hear the same junk"
3. "financial goat roping"
4. Final comment at end of call "Au Revoir". What??

Must give them an 'A' for folksiness and candor. Unfortunately, they get an 'F' for details and vision; since (a) no detailed financial slides accompanying audio; (b) lack of earnings guidance (even for next quarter). Greater clarity in details and vision along with a more professional presentation style would go a long way toward improving the low valuations now placed on Noble Corp.

Put-Writing: Too Often Overlooked

Bill,
Good article.
You say in #3 that "Put write strategies have historically outperformed the more widely utilized buy write strategies". Since these two strategies are synthetically equivalent, their performance results should be basically equivalent. What is your evidence supporting your statement?
Jeff

Stick with Covered Calls

To jokingme:
Thanks for your question. I prefer near-month covered calls, which in this case would be Jan09. The exception is when there is a week or less until expiration in which case I would sell the following month (Feb09 in this instance).
If you already own KO, I'd now recommend selling the Jan09 $45 strike. If you don't own it now, since I'm only neutral on the KO stock, I'd wait until the next quarterly earnings release in mid-Feb and then perhaps buy KO and sell the strike closest to the stock price at that time for Mar09 expiration. That way you have a good chance of capturing the ex-div (I think around 3/10/09) on the stock along with the call option time value premium.

Stick with Covered Calls

Tom -- Appreciate your good thoughts re combinations -- I'll have to study and analyze that strategy more throughly.
Re LEAPs, I agree with your point re leverage in a bull market. I also agree with you regarding buying the LEAP deep in-the-money and selling the near-month call options. I'm less enthusiastic about targeting only lower volatility, dividend-paying stocks since (a) you are foregoing the dividend income by being long the LEAP instead of the stock, and (b) in comparing low and high volatility LEAP positions, the higher-volatility position is often more advantageous than the lower-volatility position because the higher monthly call option income obtained can more than offset the somewhat higher time value in the LEAP.

Adam -- Good points. I agree regarding the increased leverage with LEAPs, but the risk/reward profile cuts both ways -- i.e. increased returns on the upside, but also increased downside risk. Re using ETFs, (a) I don't understand your comment re "no security risk:, and (b) I'd rather buy DIA than a DIA LEAP since I prefer not buying an asset (LEAP) that loses time value (albeit slowly) and I prefer capturing the monthly dividend distribution from DIA vs. no dividend via its LEAP.

henarl -- I also consider dividend payments when analyzing potential covered call positions, but it often turns out to be a relatively minor consideration among all the factors that we consider. That is, there are added subleties with dividend-paying companies (that is both positive and negative factors to weigh in our decision-making process).

Glenn -- That's good common sense to me. As we all know, however, predicting bullish and bearish moves is a difficult undertaking -- but that doesn't mean we shouldn't try. So when my Overall Market Meter indicators are Slightly Bullish (as is the case now), I establish mostly slightly out-of-the-money covered calls. When slightly bearish, then slightly in-the-money covered calls, etc. etc. Just as you suggest!

Pablosba -- I do not favor setting stop losses. With wide intraday price movements, it is simply too common for a market maker to stop you out of a position via an inordinately sharp price bounce downward to fill your stop price. I would prefer you establish only a mental stop-loss price. Then follow your stocks prices daily and place a sell market order when you see that your stock has reached your mental stop-loss price.
Regarding getting called away early on dividend-paying stocks, I agree with you that this is often a very desirable result in terms of the good return-on-investment. On the other hand, if we would prefer to retain the stock to capture the dividend, it is easy for us to do that by ensuring that our strike price is either out-of-the-money or only slightly in-the-money (so that the time value remaining in the option is greater than the dividend payout amount -- in this instance, the call option owner has no incentive to exercise early).

Thank you all for your thoughtful and perceptive comments.
Regards and Godspeed,
Jeff