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  • Apple's Downside Risk: $290 Just Based on Cash [View article]
    Yes, I may try something like that. I never play the lottery, but free tickets are another matter. When I am at the supermercado I see a lot of people taking a long time to check out, because they pay for food with food stamps (actually a debit card with stars and stripes) and keep their cash for lottery tickets. Evidently they are lifelong prudent investors.

    I did something somewhat similar of my own device just recently with SIRI. I sold $1.50 calls and bought $2.00 calls and $2.50 puts with the proceeds when the stock was about $2.30. It worked out quite well as the stock tanked, but your strategy looks to be less superior and less risky. Thanks.
    Jun 20 11:37 PM | Likes Like |Link to Comment
  • Apple's Downside Risk: $290 Just Based on Cash [View article]
    Yes, you could do that if you worked out in advance what the credit spreads would be when the stock reached a certain price. I might be fearful of not getting filled.
    Jun 20 11:28 PM | Likes Like |Link to Comment
  • Apple's Downside Risk: $290 Just Based on Cash [View article]


    Note that McIlroy failed to win the PGA tour Rookie of the Year award in 2010 even though he played the tour, won one event setting a course record, and finished 3rd in the PGA Championship. Maybe they thought he wasn't a proper Rookie like Fowler. I adopted the Rookie name to try to attract Rookie followers, but it is not working very well. I guess no one wants to follow a Rookie.

    Yes, I had actually been looking at the sale of the weekly OTM call as an alternative play, but I wanted to stay away from the possibility of getting called away, because I would have to sell some other stock to raise the cash as it would not be economical to use LEAPS to finance the stock without first selling the LEAP to capture the theta and then adding more cash. I guess I could roll out of there was a danger of getting called, but it would mean monitoring it closely on a Friday.

    TradeKing has a setting for conditional orders, so it is actually possible to enter an order to buy back a sold call and roll it higher or forward conditional on another event. For example:

    IF AAPL > or = $220 THEN (roll $220 call to whatever you preselect),

    but being a Rookie, I have not tried this yet.

    I can see that selling the weekly calls may be more profitable and will probably try it in a few weeks when I have made a few adjustments to my portfolio to better accommodate that approach.

    I appreciate the tip about catching the spike on an up day. That had also occurred to me, although not in the same way as you put it, which makes a lot of sense. I did apply it in reverse today, however, when AAPL was $7 down for the day this morning, I bought back a call I had sold a few days ago to book a quick $400 profit, and then sold another lower call to chase more premium.

    I am kind of experimenting with this at the moment, but clearly when you have a volatile stock like AAPL, catching volatility spikes in both directions can hugely enhance returns from just stolidly selling covered calls. Dealing in covered calls might be a better description of the play.

    Yes, I think it is a little bit useful to know about things like iPhone 5 coming out and earnings announcements so as to not get blindsided by sudden swings, but not to get too carried away with the Apple Corporation soap opera story.
    Jun 20 10:26 PM | 1 Like Like |Link to Comment
  • Apple's Downside Risk: $290 Just Based on Cash [View article]
    Doesn't more cash make the company more vulnerable to a hostile takeover, as the buyer could use the cash to pay off part of the cost of the purchase? I think I shall buy AAPL, take the cash for myself, divide the company into iPod, computer, cell phone, and music retailing divisions, and then auction them off as separate companies. Probably the Chinese will buy with the mighty Renmimbi.
    Jun 20 07:57 PM | Likes Like |Link to Comment
  • Note to Apple Fans: Stop Talking About Value [View article]
    Damn good article.

    There ought to be a law that people should have to declare their own interest if they are a customer of a company, or a user of a service and they are discussing the stock.

    OPEN, AAPL, SIRI, Pandora, RIMM, NFLX.

    What do all these companies have in common? They all provide a popular service or product that people want to invest in, and then those investors come on discussion boards as boosters for the stock and try to shout down any voice that suggests these stocks are a tad overvalued or overbought. Most of these investors are probably under 60 years of age. Some of them have been with the company a long time and have made a lot of money. You would think they would cash in while the going is good.

    You don't see a lot of people coming on Seeking Alpha claiming that BP or Arch Coal or Idaho Potato Packers Corporation are grossly undervalued and manipulated by the shorts.

    On the other hand, I can't complain too much, because SIRI, OPEN, and AAPL have all made money for me over the last month or two, though not nearly as much as I made with BP last year.

    Disclosure: Slightly long AAPL.

    Never used OPEN, RIMM, SIRI, NFLX, used Pandora one time, Samsung Tracfone, SansaClip+, Bose, HP Pavilion 2004, Windows XP. Listen to Internet radio daily, BBC, Al Jazeera, Batanga, AOL. Direct TV--Spanish only.
    Jun 20 07:41 PM | 4 Likes Like |Link to Comment
  • Apple's Downside Risk: $290 Just Based on Cash [View article]
    It is certainly an intriguing thought. If this analysis is correct then one could sell the January '13 $290 put for $36 a share with impunity and if the stock IS put to you, then you have net basis of $254 per share, which would be very decent value.

    If you enter your sell order as a spread, buying a $190 strike put for $9, then you would get a credit of $25 and tie up $10,000 of cash or margin for a possible return of 25% over 19 months. Maximum profit $2500 per contract. Maximum loss $7500 per contract, or $75 per share if stock goes down to $190. Not bad.

    If you are long 100 shares the stock and it falls from current $315 to $190, then you lose $12500 or $125 per share.

    Of course, selling the puts limits your upside, but there is nothing to stop you also using going long on LEAPS.

    You could use the proceeds of $25 per share from the sale of the put spread to buy a January '12 $325 call for a net transaction cost of about $0, then if the stock remains between $290 and $325, you just break even. If it goes higher than $325, you make some serious money, and if it goes lower than $290, then you lose $25 per share less than if you were just long the stock.

    It is as close as you will get to a free spin of the wheel.

    Of course, there is no guarantee whatsoever that $290 is the floor and I suspect it isn't.
    Jun 20 05:41 PM | 3 Likes Like |Link to Comment
  • AT&T: How to Use Covered Call Options to Enhance Returns [View article]
    "I'm not sure if it's the IRS, or whether it's particular brokers, that don't permit the use of puts in this manner in IRAs. Are either of you using puts against the calls within your IRAs?"

    No it is not the IRS, but different brokerages may have different rules for IRAs. At mine (Tradeking) you can use either cash covered puts, or if you want, you can sell the puts as a spread.

    For example, if the stock is at $55 and you sell the $50 puts, you would have to have $5000 in cash frozen in your account until the put is exercised or bought back. (In a margin account that $5000 could be invested in a dividend paying stock.)

    A way around this that I use sometimes is to sell a put spread. Say the stock is $55 and I sell the $50 puts for $3 and buy the $30 put for 15 cents (essentially valueless), then they will only freeze $2000 instead of $5000. This would allow me to use the other $3000 for something else, perhaps a dividend paying stock.

    If you sell covered calls against the LEAPS, you will not collect the dividend, but you may be able to get considerable leverage even within an IRA.

    For example you could buy the T January 2013 $17.50 call for a little more than half the current price of the stock, sell "covered" calls against the LEAP and also sell puts or put spreads. As stated, you would miss the dividend.

    IRA investors should however note that while leverage can be achieved in an IRA without margin (which the IRS does not allow) and may provide increased returns, it may also provide increased losses if it all goes bad.

    For example the AAPL LEAP I bought about a month ago for $8000 has already lost about $2000 of its value. On the other hand, I have already recovered about $700 by selling calls against it and rolling my calls downwards. So although I am not exactly celebrating the performance of AAPL stock, up to this point I have lost less than I would have done if I was long 100 shares of the stock, and if the stock stays below $345 by October, I will have booked another $1000. If AAPL hits $380 any time before Jan 2013, I will be very happy, but if it finishes below $300, then I will probably have lost less than if I had bought 1000 shares of AAPL and held them. (Go AAPL!!)

    The optimum way to manage a stock in an IRA is probably to have a mix of long stock, LEAPS, short calls, and short puts or put spreads, and long puts so as to benefit from changing market conditions.

    Of course options is a complex subject, and this discussion is not the place to discuss the delta, gamma, theta, or vega of LEAPS, but anyone who wants to look into these strategies in an IRA should familiarize themselves with all of this.
    Jun 20 12:19 PM | 1 Like Like |Link to Comment
  • The Gold and Silver Bets of Congressman Ron Paul [View article]
    Since gold cannot be used to buy groceries or to get a book from Amazon, all we are really saying is that ownership of any mineral or natural resource that will not degrade is a relative safe haven.

    Therefore investing in oil, coal, timber, gas, stocks etc. should be just as good over the long run.

    If the belief is specifically that the US dollar will decline more relative to some other currencies, then it makes sense to invest in currencies that the investor believes will benefit relative to the $.

    I lived through some periods of economic hardship in the UK (before the discovery of North Sea oil) in the early 70's, and while we even had the "three day week" during the "Winter of Discontent" in which power was cut off and all businesses closed a couple of days a week, life still went on pretty much as normal even if people did have to put on extra clothing. An economy would have to be in total collapse for gold to be worth anything as currency, but it might be worth holding some in a portfolio as a hedge, along with other hedging strategies.

    If you were a wealthy Greek, it might be worthwhile to get hold of some physical gold, but that would have as much to do with hiding assets for tax evasion or preventing your bank deposits from being converted into drachmas overnight, as anything else, otherwise there wouldn't really be any advantage over hiding funds in other major currencies.
    Jun 20 09:20 AM | 1 Like Like |Link to Comment
  • AT&T: How to Use Covered Call Options to Enhance Returns [View article]
    It seems to me that there might be a variety of strategies that could be employed to tweak returns. Certainly rolling options to maximize premiums and avoid being called away as described above would be one such.

    Another could be to divide the way in which calls are sold, for example with 1000 shares selling half the calls slightly in the money and half the calls slightly out of the money to take advantage of any pullbacks if the technical charts suggest that the stock is becoming overvalued.

    Another could be to sell both out of the money calls and puts at the same time, which would be more profitable if the stock stayed at the same level or gained in value, or would result in more of the stock being put to you at a lower price--thus lowering your average basis--if the stock fell in value.

    If for example, you held 1000 shares and sold 5 out-of-the-money calls and 5 slightly-in-the-money calls and 5 slightly-out-of-the-money puts, then movement of the stock in either direction, or remaining static could all be profitable. Of course one would have to take into account the recent behavior of the stock, its standard deviations, proximity of the current stock price to option intervals, and so on, which might be more work than most people would want, but then again, anything that tweaks out a few more percentage points per year is very useful.
    Jun 19 10:39 PM | Likes Like |Link to Comment
  • Can Europe Learn From Mississippi? [View article]
    Huzzah! With the U.K. only fractionally above Mississippi, it is conclusively shown that European musicians like Eric Clapton DO have a right to sing the blues,

    Having lived on both sides of the pond and elsewhere, I would say the overall quality of life would be slightly better in Europe if it wasn't for the weather, despite deficiencies in the GDP.

    In the US health care is much more expensive and much more money is spent on defense (or offense), so that levels the playing field somewhat. Also lack of public transportation in much of the US, and a lack of compact cities, means that a large part of the personal budget has to be spent on transportation costs.

    According to the Happy Planet Index survey of 2009, the good news is that 9 out of the top 10 countries were not from Europe, but from the Americas.

    1. Costa Rica
    2. Dominican Republic
    3. Jamaica
    4. Guatamala
    5. Vietnam
    6. Columbia
    7. Cuba
    8. El Salvador
    9. Brazil
    10. Honduras

    The bad news is that the US came in at #114, though some cheer may be taken from the fact that that the US led in prescription and sales of both antidepressant medications and pain killers.
    Jun 19 03:12 PM | 4 Likes Like |Link to Comment
  • Pandora: The Latest Sign of Tech Bubble 2.0 [View article]
    "I have been a Pandora user for a couple of years now and I am anxiously waiting for a new, better way of listening to music."

    But there are hundreds of free online radio stations, including BBC, Batanga, AOL online radio, and numerous other services of various kinds from all over the globe. All Pandora offers is a computerized algorithm that allows you to enter the name of an artist and you will get somewhat similar music played back at you.

    You can't really call it a radio station at all.
    Jun 19 12:34 PM | Likes Like |Link to Comment
  • Facebook Decline: Canary in the Coal Mine for Social Media Companies [View article]
    I agree with that. For a while I followed the tweeting of golfers like Westwood, Poulter, and McIlroy, but it soon gets old. They are great golfers, but only mediocre twitters.


    June 8th

    "Anyone know any good places to eat in Bethesda?"
    Jun 19 10:38 AM | Likes Like |Link to Comment
  • AT&T: How to Use Covered Call Options to Enhance Returns [View article]
    This is a very nice article that lays out the numbers very clearly, however I might disagree on this point:

    "That's perhaps the biggest risk - the potential loss of the capital appreciation on the stock."

    Selling covered calls is actually a short, or mildly bearish position, that gives some protection of capital in a mild decline, but it provides no protection against a sharp decline in the price of the underlying stock, say 20% or more. The risk is not in selling the call but in holding the underlying.

    For this reason it is really important to use a stock that you are willing to hold for the long term or buy more of. If the price of your T stock falls 20%, but the dividend remains the same, you should want to increase the holding. If not, you may be in the wrong stock.

    Selection of the right stock for the covered call strategy is essential, because it is easy to get suckered into looking for extra yield by using stocks that have more expensive options, but those options are more expensive for a reason, higher risk.

    You could, for example, buy 100 shares of AAPL right now for $32,000 and sell the January '12 $320 strike call for $3200, for a quick 10% yield in 8 months (15% annualized on a stock that has no dividend), but if the stock falls to $290 by expiration, it will all have been in vain, and if it falls even lower then woe is you. Is that worth the risk? It is a close call, but I think there are better ways to use money.
    Jun 19 09:14 AM | 1 Like Like |Link to Comment
  • Just How Sick Is This Market? [View article]
    "Govt already pays 51% of each healthcare dollar, sets the rules, and lowers their payments which causes private payer costs to go up to pay the difference."

    It's true that Medicare, Medicaid, Veterans Administration, Indian Health Service, and military medical services account for a large percentage of the spend. To this you might add that many state employee insurance plans are self insuring. However the problem area is the insurance of employees and their families, which handicaps US corporations and historically has hindered employee mobility. Of course General Motors is the poster child for corporations sunk by the health care cost of their own employees and retirees.

    Additionally, many individuals are discouraged from starting up their own businesses, because while they might be able to support themselves, they cannot afford health insurance.

    In fact I am retired myself and do not have any health insurance in the US at this time, (though I may revisit that after I return from spending the rest of the summer overseas.) As nearly all my assets are in protected retirement accounts, in the event of catastrophic illness the equation of paying the maximum deductible with health insurance versus keeping the maximum allowance in bankruptcy is one that has to be calculated!

    "Insurance companies get an anti trust exemption and so do not have to compete across state lines allowing for poor cost control."

    I agree this is wrong and should have been wiped out in the health care reform legislation.

    "Lack of tort reform, unreasonable and costly regulations, and mandating non productive changes in medical practice are expensive burdens that take physicians from the bedside."


    "The US govt has currently mandated the switch to electronic medical records which costs billions of dollars and millions of man hours. Sounds good, but unfortunately, they are a mechanism for easy fraud (falsification of E&M), and the various systems cannot communicate with each other for data transfer."

    E&M (Evaluation and Management) is not used as a basis for payment in every health care system. It is actually part of the government mandated documentation system. These days even my dog has electronic medical records with SOAP (Subjective, Objective, Assessment, Plan) charting. However computer automation and macros make it possible for findings that are WNL (Within Normal Limits) to be entered by macros with a keystroke or two.

    Electronic medical records seems to work well in France where each citizen has a credit card with their health system ID that the physician swiped into any terminal to bring up their unified health record and breaches of security don't seem to be a huge issue. However I don't know enough about this to be sure.

    "Statistics have been maligned and made fun of for a reason. How statistics in healthcare are kept changes from country to country."

    This is true. Sometimes we are comparing apples to oranges.

    I do agree absolutely that the US has the best health care in the world in terms of the quality of hospitals and of the training and quality of physicians and ancillary personnel, but it is the financing of health care that is the issue, not the quality of the product.

    I would have hoped that during the health care reform process that Congress would have studied and adopted the best practices and systems from all over the world, regardless of where they may have originated.
    Jun 19 08:20 AM | Likes Like |Link to Comment
  • Just How Sick Is This Market? [View article]
    "Solutions to most problems including our economy are painfully simple, and there is great agreement on these solutions."

    So what are these easy solutions and would they really work? I am pretty nonpartisan and don't really favor either party, but I think we ought to have some sort of measurement systems in place to measure the economic well being of our society as a whole. As your bio states you are a physician, you will be well aware of these issues.

    We could take a measurement like average life expectancy. If your economic solutions lead to longer average life expectancy, then they are successful. However we immediately run into problems once we start looking at some of our neighbors. For example the average life expectancy in Cuba is almost the same as the USA, yet it is much lower in Haiti, which is right next door to Cuba. Why? From Wkipedia:

    "Deficient sanitation systems, poor nutrition, and inadequate health services have pushed Haiti to the bottom of the World Bank’s rankings of health indicators. According to the United Nations World Food Programme, 80 percent of Haiti’s population lives below the poverty line. Consequently, malnutrition is a significant problem. Half the population can be categorized as “food insecure,” and half of all Haitian children are undersized as a result of malnutrition. Less than half the population has access to clean drinking water, a rate that compares poorly even with other less-developed nations. Haiti’s healthy life expectancy at birth is only 54 years. The World Health Organization (WHO) estimates that only 43 percent of the target population receives the recommended immunizations.

    In terms of health care spending, Haiti ranks last in the western hemisphere. Economic instability has limited any growth in this area. Per capita, Haiti spends about US$83 annually on health care. There are 25 physicians and 11 nurses per 100,000 population. Only one-fourth of births are attended by a skilled health professional. Most rural areas have no access to health care, making residents susceptible to otherwise treatable diseases."

    To those who say that "big government" is the problem I would always say be careful what you wish for, because Haiti shows what you get when you have effectively no government.

    Obviously there is a middle ground. We do want children to get vaccinations in sufficient numbers to build herd immunity. We do want pure drinking water so our children don't die of waterborn diseases. We do want all our women to have prenatal care and professional assistance at birth. Women in Cuba have this, but we are a much more wealthy country than Cuba, so surely with our superior system we ought to be able to live twice as long as the Cubans!

    With all our brilliant financiers and research medicine, we must have the best system in the world. But here is another mysterious thing. When we look at the average life expectancy statistics our country is well down the table, and all the developed nations that have universal access health care systems are ranked higher than us, except for Russia and Ukraine where drugs, alcohol, and HIV AIDS are running completely out of control.

    So what is a politician to do?

    I would agree about the excessive regulation that makes life difficult for business, but actually this seems to play into the hands of big corporations that can afford compliance departments and massive liability insurance programs, all of which the consumer has to pay for in the end.

    For example MCD is one of the most profitably corporations in the world, and yet their hamburgers and fries are about the worst in the world. I can (and do) easily make both fries and hamburgers that are infinitely better, which is not hard to do. So why don't I just set up in competition with MCD and beat the pants off them?

    Well, if I lived in the Dominican Republic, I could pretty much find an empty lot with a street lamp, or rent a shack at the beach, bring my broiling equipment and a gasoline powered generator, set up a couple of plastic tables and chairs, and I am in business for an outlay of $100 or so.

    If I tried the same thing here I would immediately run foul of the infamous zoning laws, would be required to carry liability insurance, workers comp., provide men's and women's bathrooms with running water, maintain records of fridge temperatures, have certificates in food hygiene, and so on ad infinitum until I decided to forget the whole thing.

    I would love to set up a snack stand at the Interstate highway rest stations where there is nothing for the hungry traveler but automated snack machines selling garbage. In the Dominican Republic, on the other hand, if a bus stops for a moment, vendors will jump on selling snacks to passengers. Can you see that here, because that is what real deregulation means? (Incidentally there is no unemployment benefit, social security, or food stamps in the DR).

    But I don't think that either party would actually want to remove any of these regulations to encourage people to fend for themselves economically. They would actually prefer to hand all the power to the corporations and give people food stamps, than give people the power to self support without food stamps.
    Jun 18 03:45 PM | 5 Likes Like |Link to Comment