Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

DARK HORSE HEDGE – Here We Go Again

|Includes:GME, Houston American Energy Corp. (HUSA)
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 HUSADark 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
Stocks: HUSA, GME