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Market Shadows: Group of writers and investors: Paul Price, Lee Adler, and Ilene.
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  • DARK HORSE HEDGE – Rock and ROLL (those IM buy/writes) 11 comments
    Dec 12, 2010 5:23 PM | about stocks: IM
    Rock and ROLL (those IM buy/writes)

    By Scott and Ilene at Dark Horse Hedge 

    40372, GLASGOW, SCOTLAND - Sunday May 9 2010. Kiss perform at the SECC in Glasgow as their Sonic Boom Tour comes to Scotland. Photograph:

    You’re looking fancy and I like your style
    You drive us wild, we’ll drive you crazy

    You show us everything you’ve got
    Baby, baby that’s quite a lot
    You drive us wild, we’ll drive you crazy
    You keep on shoutin,

    I wanna rock and ROLL all night – KISS

    It is a wonderful season of the year and my personal favorite time of the month.  Next week is options expiration week, and we need to rock and ROLL our options another quarter, turning a quality stock into a nice yield in our VIRTUAL Dark Horse Hedge portfolio.  The DHH portfolio was created using a combination of Sabrient's research and Phil's Buy/Write strategies. 

    On July 26, 2010 Dark Horse Hedge bought ½ position of Ingram Micro (IM) at $16.81 in its virtual portfolio.  We used Phil’s Buy/Write strategy to get into the position with a 15-20% discount as follows:

    Sold the Dec $17.50 call at $1.60 - now trading at $1.00

    Sold the Dec $17.50 put at $.90 - set to expire worthless

    This reduced the net purchase price to $14.31. 

    IM has been looking strong and we like its style -- earnings of $.41/share in the last 3 quarters. It's forecasting $.66 in the 4th quarter.  IM is trading at $18.55 today and so we will let the Dec $17.50 put expire next week ($.90 profit) and buy back the Dec $17.50 call for approximately $1 ($0.60 profit).  Now we can roll our Buy/Write strategy to March and earn another $2.30 lowering our net cost basis in IM to $13.01. 

    Buy to cover, IM Dec $17.50 call, next week at approximately $1

    Sell: IM March $17.50 call, next week at approximately $1.65

    Sell: IM March $17.50 put, next week at approximately $.65

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Comments (11)
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  • Got a little change in my pocket, going jing a ling a ling. Backing up the truck to fill with mo money. Just to be sure, has anyone heard Cramer say a word about this stock, IM? I can't find any mention on Goog so I am in. CHA CHING!
    13 Dec 2010, 05:18 PM Reply Like
  • I have been in this postion since the start Cramer Factor and it is a keeper in my humble opinion. They announced the shipments were ahead of schedule a few weeks ago which could mean a beat in Q4.
    13 Dec 2010, 05:20 PM Reply Like
  • Kewl write up little lady. I have been a little slow to pull the trigger after your IOC pick. Any update on your thoughts there? I am on my knees praying that it doesn't hit $85. This looks safe enough but I prefer to catch the cheaters and IOC has put the panic in me.
    13 Dec 2010, 05:33 PM Reply Like
  • Who do you have to kick in the can around here to get an answer from the author?
    14 Dec 2010, 01:25 PM Reply Like
  • Author’s reply » We really haven't changed our thoughts on IOC. We hope it doesn't hit $85 too! Our analysis wasn't on the technical behavior of the stock, the charts, etc., it was a fundamental analysis, which has the problem of not changing based on stock price - for risk management purposes, getting out when a trade moves against you is a reasonable strategy, but its not one that DHH follows because the portfolio is set up as a long/short virtual portfolio - it will always be the case that about half our selections are going against the market's trend when the trend is strong. This is a very LONG TERM strategy that underperforms during periods when the market is shooting straight up or down.
    15 Dec 2010, 01:51 PM Reply Like
  • Why would a long/short strategy under perform when the market is shooting straight down? Can you explain that? Seems to me like if you are short you would make money when the market is shooting down and let you outperform the market.
    15 Dec 2010, 07:50 PM Reply Like
  • Author’s reply » We're balanced with about half VIRTUAL short and half VIRTUAL long positions, so if the market is going straight down, it's good for the short positions, but not the long ones. Theoretically, it's better if the market is trading in a tight range.
    16 Dec 2010, 05:13 PM Reply Like
  • What the bullfrog? You are half short and haf long yet you underperform when the market goes straight down? Do you even understand what you are saying? Try to follow this, the market goes straight down so for easy math (needed for me) lets say the market goes down 10%. Half of your positions are short and just go with that you have no clue on the picks so the shorts go down (up for you) 5% and the Longs down (down for you) 10%. Then your 1/2 and 1/2 would outperform the market (-10) with (-7.5). If you actually know what you are doing and the shorts go down 15% and the longs only 5% then you would out perform the market (-10) by being (+10). I don't understand how you can have a long short deal that underperforms in both up and down markets. That seems self defeating to me. Are you sure you know what you are doing?
    18 Dec 2010, 10:41 AM Reply Like
  • Author’s reply » I'm explaining this poorly. If you were all long and the market is going straight up, you would likely (not necessarily) perform better than if you were half short and half long.
    19 Dec 2010, 02:54 PM Reply Like
  • Obviously, but you said it underperforms when the market is shooting straight down as well. So if you were all long and the market is going straight down, you would likely perform worse than if you were half short and half long. The idea of being long and short is to make money in all markets but realizing that you may trail in a straight upward moving market. I think you just don't quite grasp your strategy. You underperform in straight up and overperform (theoretically) in any other market situation. You mistakenly included underperform in straight downward markets, when you overperform, or should..
    20 Dec 2010, 09:26 PM Reply Like
  • I think it goes without saying that if the market is going down and you have short positions in the portfolio you should outperform the market. Only scenario I can imagine that would underperform in that situation is if you are long the worst performers and short the best performers then you could actually lose more than the market. I hope you are better at picking stocks than that though.
    30 Dec 2010, 03:12 PM Reply Like
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