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Mark Bern, CFA  

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  • Daily Call Sheet Focus: Alcoa [View article]
    RS - I actually think you'll be able to get this one at a better price if you are patient enough. Also, I'd recommend that you first read my first strategy article that explains how to get paid for placing limit buy orders. I use puts options (selling, of course) so that I collect some cash while I wait for stock to hit my target price. The link to that article is shown just a few lines above the table. It's a little long, but the discussions in comments section are excellent. There were a lot of good questions and there were many others besides myself providing excellent guidance in information drawn from experience. I think you'll enjoy it.
    Nov 10, 2011. 06:22 PM | Likes Like |Link to Comment
  • Daily Call Sheet Focus: Alcoa [View article]
    Nike - Thanks for the question and kind words.

    I reach a little further into the future on some issues when I have a sense that the industry the company is in is facing difficulties that will likely not be righted before the expiration date. In Alcoa's case, the softness in the global economy is leading to lower pricing for aluminum. That, in turn, pressure's Alcoa's margins and is likely to keep the stock price depressed at least through next spring and probably into the summer.

    For another example, take BAC. I went all the way out to January 2014. But here is a situation where I don't mind having the stock called away because I end up getting a return of 73% from the gain plus the premium. I'll take that kind of return in 14 months anytime. If I really like the stock I can get back in, either by buying the stock after it is called away or by selling a put option and getting a little cheaper. Then I do it all over again. What I like is that I am either going to get a 9% annualized yield if the I can keep the stock, just from the call premium plus the dividends regardless of appreciation, or I am going to get 73% if it is called away. Either way, I'm locked into a return I can live with. If the stock goes down from here long before the expiration date, I'll have the opportunity to buy back the call at a few pennies and sell another one, thereby increasing my cash yield. Again, with the volatility in the market, and especially in the financial sector right now, I may be able to lock in more yield and a similar gain situation in the future. Again, it's not how much I can make from the purchase price; it's how much can I gain from where I am today. That is how I make my decisions because it takes most of the emotional attachment out of the picture and helps me make better investment decisions.

    I hope that makes sense.
    Nov 9, 2011. 01:27 PM | Likes Like |Link to Comment
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