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[Weekend Summary]
Dear Member,
Well, the direst of my fears for the bulls hasn't come to pass but the bears are definitely still in the woods. Volatility spiked at the end of last week and whipsawed this week. Uncertainty continues to reign.
In spite of a pretty severe case of jitters in the markets, I managed to make some money again this week. I sold May 10 calls against my Jan '07 12.50 calls on Siebel Systems and brought in 25 cents a share or a 38.4% return for the month before commissions on my initial investment of $0.65. I sold May 35 calls on EBAY against my Jan '07 40 calls and brought in $0.45 a share. In each of these instances, I was able to generate income and at the same time reduce risk.
I only added one trade this past week. I entered a bull put spread on Eog Resources (EOG), an independent oil and gas company in the relatively strong energy sector. I sold the May 45 Puts and bought the May 40 Puts for a $1.10 a share credit. The purpose in buying the 40 Puts is to limit risk in the position since, if the stock fell dramatically, it could be put to me for $45, but I, in turn, could put it to someone else for $40. That, of course, would be a $5 a share loss, but the market has already given me $1.10 a share so my maximum risk in this position is only $3.90. Bringing in $1.10 on a $3.90 risk is a 28.2% return for the month before commissions as long as the stock stays above $45 until May expiration. It closed at $47.35 today.
The 11/12 bear call spread on AMR is looking just fine. Initially, I got a 35 cent a share credit selling the May 11 call and buying the May 12 call. That represents a 53.8% return on risk before commissions as long as the stock stays below $11 until May expiration. It was down 40 cents today and closed at $10.21.
Yahoo (YHOO) gapped up this week and now is dealing with a little resistance around 35. I own the '07 35 calls. If the stock can break through resistance, that's great. If it stalls for a while, I'll sell short term calls against the postion, again, to reduce risk and bring in some more income.
Nextel (NXTL) is still channelling. It hit support and bounced up. I hold the Aug 30 calls and am looking for a break out of the channel.
Nanometrics (NANO) is a little disappointing as it continues to slide sideways. I have been looking for a good place to sell May calls against my June 12.50 calls, but haven't yet found the right place for me. I would like to see some upward movement or a pop in volatility.
Micron (MU) is plodding along a support. At least I was able to generate some income against my '07 10 LEAPS call position when I sold the May 10's.
Briggs & Stratton (BGG) gapped down this week and now appears as though it may be ready to turn around. In any event, I am short the July 40 puts. I like having that time on my side for now.
Frankly, I don't know what the market is going to deal next week. I am still very wary of a downturn and am staying mostly in cash and just trying to pick my spots.
Have a great weekend.
Bill
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