The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Wednesday, April 13, 2005
Email – #242
** Earnings Season
There is no more volatile time for the markets than during earnings season.
At times like this, it pays to sit back and watch how things unfold. We are heavily invested in the market, both on the long side and the short side. Our Daimler Chrysler put LEAPS are back in the money, with the offer above $4 per LEAP. The shares broke below a critical level last week. The current price is misleading, since they paid out a dividend of $2 per share. So, the share price actually fell by $2 but did not impact the option price. In reality, the shares (although trading at $41.12 today) are really at $43.12 adjusted for the dividend. However, the break below $44 is what we were looking for, and that has happened.
The next stop is $40. If that level is breached within the next few weeks, then our options will begin to move much faster than the shares. For now, raise your MENTAL stop loss on this position to $3 on the offer. This means if the options show $3 on the offer on any exchange, you should sell. If the shares rally from here, then it will be a much harder climb back up a second time.
GE will be reporting soon and the numbers should be in line or better than expected. We are more interested in the outlook, which has been very bullish – look for that theme to continue. We are looking for a 10% move in GE’s share price by year’s end to clean up on our position.
Comcast shares have been very good performers lately, and our options have been in the money for a while. Since we have so much time left on this one, I am in no hurry to take short-term profits until we reach the 40% plus range – a week ago we were up more than 30%.
Our AngloGold options were a hair away from becoming another bull spread before the price of gold corrected. Please remember, we are betting on the price of gold moving above $450 over the next two years with this play. The AU leaps will be volatile just as the price of gold is volatile. But, unless the U.S. does something to quell fears of higher borrowing and lower savings, the outlook for gold remains robust.
Our other positions are spreads. Each one (except for Nokia) is profitable, as they should be. Lexar is still too early to call. As for CHK, INTC, IACI, and XLE – we are sitting pretty with very good risk reward potential.
We have made changes to the portfolio page to reflect two portfolios. One is our “normal” portfolio and the other one is our spread portfolio. This is to eliminate any confusion in our positions.
I am looking at a couple of trades right now, but pulling the trigger prior to earnings could be unwise. I will most likely wait until earnings are released for these companies, so that I am better able to gauge the longer-term perspective for the companies. I will also be traveling to China next week. There is a company that trades in China and the U.S. market which offers LEAP options. I have been following it for two years and now I will get a chance to see in person whether we should go long or short!
In the meantime, I will be monitoring the portfolio regularly and communicating with you from Asia if necessary. Please keep an eye on your MENTAL stops.
Regards,
Karim Rahemtulla
Current Portfolio:
Company / Symbol: Comcast (Nasdaq: CMCSA)
Option / Symbol: Jan. 07 $35 call (VPK-AG)
Date Purchased: 2/16/05
Current Price: $4.00
Comment: Hold. Mental sell stop is $1.95.
Company / Symbol: AngloGold/Ashanti (NYSE: AU)
Option / Symbol: Jan. 07 $40 call (VKE-AH)
Date Purchased: 1/5/04
Current Price: $4.10
Comment: Hold.
Company / Symbol: General Electric (NYSE: GE)
Option / Symbol: Jan. 07 $40 call (VGE-AH)
Date Purchased: 1/4/04
Current Price: $2.05
Comment: Hold.
Company / Symbol: Daimler Chrysler (NYSE: DCX)
Option / Symbol: Jan. 07 $40 put (VLN-MH)
Date Purchased: 11/30/04
Current Price: $4.05
Comment: Hold. Raise your mental stop loss to $3.00 on the offer.
Company / Symbol: S&P 500 MITT (AMEX: MCP)
Date Purchased: 7/18/03
Current Price: $10.56
Comment: Buy under $10. No TS.
Bull & Bear Spreads:
Company / Symbol: Lexar (Nasdaq: LEXR)
Option / Symbol: Jan. 07 $5 call (VRF-AA)
Date Purchased: 3/29/05
Current Price: $2.20
Comment: Hold
Company / Symbol: Lexar (Nasdaq: LEXR)
Option / Symbol: Sell Jan. 07 $7.50 call (VRF-AU)
Date Sold: 3/29/05
Current Price: $1.50
Comment: Hold. Sold call against Jan. 07 $5 position.
Company / Symbol: Energy Select SPDR (AMEX: XLE)
Option / Symbol: Jan. 07 $39 put (ORJ-MM)
Date Purchased: 3/1/05
Current Price: $3.00
Comment: Hold.
Company / Symbol: Energy Select SPDR (AMEX: XLE)
Option / Symbol: Sell Jan. 07 $37 put (ORJ-MK)
Date Sold: 3/30/05
Current Price: $2.40
Comment: Hold. Sold put against Jan. 07 $39 position.
Company / Symbol: Intel (Nasdaq: INTC)
Option / Symbol: Jan. 06 $22.50 call (WNL-AX)
Date Purchased: 10/19/04
Current Price: $2.55
Comment: Hold.
Company / Symbol: Intel (Nasdaq: INTC)
Option / Symbol: Sell Jan. 06 $25.00 call (WNL-AE)
Date Sold: 11/2/04
Current Price: $1.40
Comment: Hold. Sold call against Jan. 06 $22.50 position.
Company / Symbol: Interactive Corp. (Nasdaq: IACI)
Option / Symbol: Jan. 07 $25 call (VSW-AE)
Date Purchased: 9/14/04
Current Price: $3.40
Comment: Hold. No TS.
Company / Symbol: Interactive Corp. (Nasdaq: IACI)
Option / Symbol: Sell Jan. 07 $30 call (VSW-AF)
Date Sold: 12/10/04
Current Price: $1.55
Comment: Hold. Sold call against Jan 07 $25 position.
Company / Symbol: Nokia (NYSE: NOK)
Option / Symbol: Jan. 06 $22.50 call (WIK-AX)
Date Purchased: 8/29/03
Current Price: $0.05
Comment: Hold. No TS.
Company / Symbol: Nokia (NYSE: NOK)
Option / Symbol: Sell Jan. 06 $30 call (WIK-AF)
Date Sold: 2/9/04
Current Price: $0.10
Comment: Hold. Sold call against Jan. 06 $22.50 position.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Jan. 06 $12.50 call (WZY-AV)
Date Purchased: 7/28/03
Current Price: $9.00
Comment: Hold. No TS.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Sold Jan. 06 $15 call (WZY-AC)
Date Sold: 11/6/03
Current Price: $6.20
Comment: Hold. Sold call against Jan. 06 $12.50 position.
Bio:
Karim Rahemtulla is the former Investment Director of The Oxford Club. The editor of The Smart Options E-Report, The Income Trader – A Covered Call Strategy and The LEAPS Option Trader, Karim is also a regular contributor to The Oxford Club Communiqué. His highly successful trading systems use covered calls and LEAPS to boost returns on blue chip stocks, and during the bear markets of 2000 and 2001, his picks outperformed the major market averages. Educated in England, Canada and the U.S. and fluent in several languages, Karim travels the world to find the best investment opportunities for our members.
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