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Market Shadows: Group of writers and investors: Paul Price, Lee Adler, and Ilene.
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  • DARK HORSE HEDGE – Here We Go Again 5 comments
    Sep 13, 2010 4:04 PM | about stocks: HUSA, GME
    Amusement park ride at night

    Here we go again
    Here we go again and again
    Wond'rin' how it all began
    Wond'rin' will it ever end

    Round and round we go
    Where it's going, nobody knows
    Though I know we've been this place before
    Someone keeps on moving the door

    So I say hello again –John Lennon

    HUSA is giving us another bite at the apple over $10 per share so we feel obliged to recommend another SHORT at the market.  DHH called for a short on HUSA July 1, 2010 at $9.91 and covered on August 12, 2010 at $8.72.  We hit replay again on August 18, 2010 at $10.54 for a quick cover 2 days later at $9.35.  The reason behind the short is the same as in the past. (See Dark Horse Hedge -Covering HUSA, Dark Horse Hedge - Shorting HUSA, Again.)

    We also would like to demonstrate the practice of rolling options on covered positions for further yield enhancement.  GME was recommended as a purchase on July 23, 2010 at $19.92 and a covered $20 call option was sold for the October 15, 2010 strike date, bringing in $1.31 on August 17.  The reason for selling calls at the time was that we believed stocks which we want to own for the mid-term were going on a road to nowhere, so options allowed us to create a yield enhancement (earning time premium) while holding the shares.  GME is trading at $18.60 today and the Oct $20 call is down to $.31, so we made $1/share in option premium while holding a quality stock the last 27 days.  It is a good idea to roll these options to a future strike date when the premium gets under $.50. We thereby lower our cost basis again, generating additional yield enhancement on the stock.  The January $20 2011 calls are $1.19 (GME110122C00020000) so we recommend buying back the October $20 call for $.31 on GME and selling the January $20 2011 call for $1.19.  This transaction brings in an additional $.88/share. However, we're now committed to sell GME for $20 on January 21, 2011.

    We will continue to monitor the market, positions, opportunities and options for further recommendations.

    SELL SHORT HUSA (7.5% of portfolio) at the market, Monday September, 13, 2010.

    BUY (back) GME OCT $20 call (sold on August 17, 2010) at the market, September, 13, 2010.

    SELL GME JAN $20 2011 call at the market, September 13, 2010. 




    Disclosure: none
    Themes: stocks, stock market , options, selling calls Stocks: HUSA, GME
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  •  
    Making money again on HUSA. I love it. Been following your advice for a while Ilene and I am impressed.
    14 Sep 2010, 05:48 PM Reply Like
  •  
    Thanks CF, I have to give the credit to Sabrient's Scott Brown though because he's doing most of stock selection. I may have had a little influence in keeping him slightly more on the short side, since I read economic news all day...
    15 Sep 2010, 03:02 PM Reply Like
  •  
    Are we still short HUSA? - Is it a naked short, or is there a hedge to the trade?
    12 Oct 2010, 02:13 PM Reply Like
  •  
    Brett, You should go back and read the series of posts on this hedge portfolio. The entire portfolio is a hedge as she has recommended long and short positions which in my opinion is a smart way to look at this. You have to manage risk on the entire basket or portfolio to where no one position is naked or effects the perfomance by itself. There is no reason to focus just on HUSA when she has many other long positions which provide hedges. My personal strategy is to short enough positions that are clearly overvalued and will sink the fastest in a falling market. At the same time I try to hold the most undervalued stocks long in hopes they rise faster in an up market. If you are going to follow this hedging strategy you need to follow most, if not all, the positions and you won't have to worry about single situations like this unsubstiated run up in HUSA. Notice that JOE which is also a short in the recommendations is down over 10% today providing plenty of hedge against any minor short term move in HUSA.
    13 Oct 2010, 01:49 PM Reply Like
  •  
    Not to be redundant but it is "FAVRE"
    13 Oct 2010, 02:12 PM Reply Like
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