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George Acs
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I am a simple individual investor who believes that the playing field is level, but may require active management of one's holdings. I've devised a series of steps that constitute a highly defined covered option strategy that most anyone can follow and that I've described in Option to Profit... More
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  • Weekend Update - April 30, 2012 0 comments
    May 1, 2012 2:06 PM | about stocks: CAT, CHK, FCX, GMCR, GS, HAL, INTC, MCP, MS, RIG, WFC, ZSL

    Although I'd spent about 20 years in graduate education, I swore long ago that I would never do homework again.

    I always liked the idea of accumulating education and knowledge, I just didn't like the process and I especially hated homework.

    And don't get me started about examinations. I won't even take an eye exam, out of protest, having the chart from the DMV memorized. That comes, despite the fact that I used to help construct national certification examinations.

    So it comes as a surprise that each Friday I begin my homework task to figure out how to spend the money that I'm going to have sitting in the account after assignment and expiration.

    It begins with a spreadsheet that tallies up how much cash there will be on hand when the market opens for the week. Then I look at which positions will be lost to assignment of calls and which positions will be added following assignment of puts.

    This week, I will add Chesapeake Energy (NYSE:CHK) and MolyCorp (NYSE:MCP), while losing some of my Halliburton (NYSE:HAL) and Freeport McMoRan (NYSE:FCX) holdings, as result of a couple of crumbs trades that went awry in the last hour of the week's trading.

    I then look at what opportunities there may be to re-purchase the shares lost, specifically looking for price levels below the assigned level. If it doesn't happen on the Monday after assignment, it will happen some other time. It jut becomes a question of having the cash on hand to pick up a bargain when it appears.

    Then I look for shares from among my list of "Old Reliables" (refer to Chapter 17 of "Option to Profit" for an explanation of the concept).

    In general, when it's time to add new positions I look to those stocks that I've owned in the past, have captured options premiums on their behalf and have subsequently been assigned from me.

    Sooner or later, it's time for each of them to come home, when the time is right. The time is predicated on the price.

    From among my "Old Reliables" I look to see which companies may be reporting earnings in the next few weeks.

    Finally, I look for companies going ex-dividend in the coming week.

    It's still homework, but I don't mind this kind of homework.

    If you followed the past few weeks of advice as a subscriber, you've fared pretty well, and in all likelihood, even better than the 2.1% upward move of the S&P 500.

    But first, let's look at the losers that I recommended each of the past two weeks and now recommend yet again, because they are in the price range that for me is indicative of a short term floor.

    Goldman Sachs (NYSE:GS) and Caterpillar (NYSE:CAT).

    If you purchased shares of either when first recommended on April 16, 2012 and sold near the money calls on both, you'd still have your shares, right around the purchase prices and would have received premiums for each of those weeks equal to about 1% of the share price.

    Did I mention that you also got Caterpillar's dividend?

    Amazing, here are shares that really didn't move at all, but still met the S&P 500's giant 2.1 % move in just two weeks. And the way the world works, the financial sectors and heavy machinery sectors, which lagged the market the past few weeks will then be poised to outperform the market at some point down the road.

    I don't make the rules. I just follow them.

    So this week, if you haven't added Goldman Sachs or Caterpillar, just go for it.

    If you have, do not add additional shares at this point.

    Instead, add Transocean (NYSE:RIG).

    What's that? You added Transocean last week and are up the $0.45/share and the premium of $0.67 and ready to sell new calls on Monday? In that case, don't add additional shares.

    Instead, add Wells Fargo (NYSE:WFC) and Intel (NASDAQ:INTC). They also happen to be this week's Double Dip Dividend Plays, going ex-dividend on Wednesday and Thursday, respectively.

    The option premium return on the $34 May 4, '12 strike is not as much as I ordinarily like, but add to it the dividend and the likelihood of assignment as the financial sector rebounds and you have the makings of a 1.9% return, based on a $33.77 purchase price.

    Want better bang for your buck in the financial sector? Go with Morgan Stanley (NYSE:MS) at $16.95 and a weekly call premium at the $17 strike price of $0.30/share.

    Just don't overweight yourself with the financial sector, though.

    The Intel play is a bit different, as Intel's Friday close is in a netherland, between $28 and $29. Ideally, whenever you sell options, it's nice when the stock price is near a strike price.

    At $28.38 and a $0.21/share dividend, I would sell a $28 weekly call if Intel is pointing lower prior to going ex-dividend. Since its ex-dividend date is Thursday, you can wait to see the direction. If it seems to be heading higher, I'd go with the $29.

    Now, if you're "stuck" with assigned shares of MolyCorp and Chesapeake Energy, just sell calls at the assigned price.

    Simple.

    In my case, I sold $29 MolyCorp, although I suggested in last week's Weekend Update that subscribers might want to consider the $28 level and trade off less premium for less risk.

    If you did that, just sell the $28 calls.

    But even if you're stuck with $29 shares, at Friday's $27.75 close, the May 4, '12 $29 call option still gives a $0.30 premium for the week. Add that to the $0.70 you got for selling the put and you're talking some good return.

    On the speculative side, Green Mountain (NASDAQ:GMCR) reports earnings after the close on Wednesday. See "My Personal Green Mountain" which I posted on Friday. Green Mountain is always a big mover on earnings, but this tie I'm expecting an upward spike and I sold the $52.50 calls near the closing bell on Friday, after buying back my expiring $48 calls.

    If you read the DM's and Tweets for the week, you also know that in a few weeks I unveil "The SIlver Speculator". This past week we sold puts on ProShares Ultra Silver, as well as sold puts and sold calls of ProShares UltraShort Silver ETF's (NYSEARCA:ZSL).

    Get ready for more of that if you like excitement, but without quite as much of the unnecessary risk.

    Here's the summary to begin the week.

    Traditional Stocks: Caterpillar, Goldman Sachs, Transocean, Wells Fargo, Morgan Stanley, Intel

    Momentum Stocks: Green Mountain

    Double Dip Dividend: Wells Fargo, Intel

    Happy Trading.

    Disclosure: I am long MS, CHK, FCX, HAL, RIG, GMCR, MCP, ZSL.

    Themes: income-investing-strategy Stocks: CAT, CHK, FCX, GMCR, GS, HAL, INTC, MCP, MS, RIG, WFC, ZSL
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