The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Tuesday, December 21, 2004
Email – #220
** An Interactive Holiday Season
Shares of Interactive Corp. (NYSE: IACI) are up sharply today. Heck, they have been up sharply since we bought them. Today, the company announced that it is splitting off its Expedia travel unit into a separate publicly traded company. This news boosted the shares by almost $2 in the pre-market. For us that means we are closer to achieving success with our spread.
As you recall, we just took action with our IACI position by either selling for $2.40 (a 63% profit), or entering into a bull spread where our final “at risk” money is a miniscule $50 per contract. For every 10 contracts you have at risk, you WILL MAKE $5,000 if Interactive closes at or above $30 at expiration – talk about exponential returns! Hold tight here and let’s see how this plays out. Right now we are off to a pretty impressive start!
Last week, we sold our Pfizer calls much sooner than I wanted. Be aware that all of our track record numbers come from real customer trades at our recommended full-service broker, Gunn Allen. They tell us what price their LEAPS Options Trader clients got in and got out of their positions. In the case of Pfizer, their average was $2.25, resulting in a $0.40 to $0.50 loss on the position depending on your entry price. Invariably, some of you will have received a little more or a little less from the sale.
I would like to point out the advantages of owning LEAPS in the Pfizer case.
1) If we owned the shares, we would have lost $4,000 instead of $450 for each 1,000 shares controlled.
2) Our LEAPS fell in value, but because of the more than two years of time left, they could not fall “that” much. In fact, our entire position, if it were lost, would still have resulted in a smaller dollar loss than Pfizer shareholders experienced that day.
3) If you owned a short-term option that expired within three to four months – that option would be worth ZERO.
In my opinion, LEAPS, if they are available, are the ONLY way to control shares. They provide the best risk-reward profile of any type of strategy I have seen – as long as your time horizon is three years or less. The Pfizer setback was unfortunate, but minor compared to our win the week before with Interactive. At the end of the day it’s not about one trade, but all of them.
Right now our portfolio is sitting in a very good position. In addition to the many winners we have had this year – along with some losers – we have a portfolio packed with huge potential returns thanks to our use of bull spreads on Intel, Chesapeake and Interactive. Our other open positions are holding their own with more than a year or two left to go. In the new year I will continue to concentrate on sector and individual opportunities where we can maximize our exposure to profits while minimizing our dollars at risk.
Happy Holidays and here’s to a prosperous 2005.
Regards,
Karim Rahemtulla
Current Portfolio:
Company / Symbol: Daimler Chrysler (NYSE: DCX)
Option / Symbol: Jan. 07 $40 put (VLN-MH)
Date Purchased: 11/30/04
Current Price: $3.90
Comment: Hold.
Company / Symbol: Nortel Networks (NYSE: NT)
Option / Symbol: Jan. 06 $5 call (WNT-AA)
Date Purchased: 11/15/04
Current Price: $0.45
Comment: Hold.
Company / Symbol: Intel (Nasdaq: INTC)
Option / Symbol: Sell Jan. 06 $25.00 call (WNL-AE)
Date Purchased: 11/2/04
Current Price: $1.95
Comment: Hold. Sold call against Jan. 06 $22.50 position.
Company / Symbol: Intel (Nasdaq: INTC)
Option / Symbol: Jan. 06 $22.50 call (WNL-AX)
Date Purchased: 10/19/04
Current Price: $2.95
Comment: Hold
Company / Symbol: Interactive Corp. (Nasdaq: IACI)
Option / Symbol: Sell Jan. 07 $30 call (VSW-AF)
Date Purchased: 12/10/04
Current Price: $3.60
Comment: Hold. Sold call against Jan 07 $25 position.
Company / Symbol: Interactive Corp. (Nasdaq: IACI)
Option / Symbol: Jan. 07 $25 call (VSW-AE)
Date Purchased: 9/14/04
Current Price: $7.70
Comment: Hold. No TS.
Company / Symbol: Lucent (NYSE: LU)
Option / Symbol: Jan. 06 $5 call (YXL-AA)
Date Purchased: 5/25/04
Current Price: $0.35
Comment: Hold. No TS.
Company / Symbol: Nokia (NYSE: NOK)
Option / Symbol: Sell Jan. 06 $30 call (WIK-AF)
Date Purchased: 2/9/04
Current Price: $0.05
Comment: Hold. Sold call against Jan. 06 $30 position.
Company / Symbol: Nokia (NYSE: NOK)
Option / Symbol: Jan. 06 $22.50 call (WIK-AX)
Date Purchased: 8/29/03
Current Price: $0.25
Comment: Hold. No TS.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Sold Jan. 06 $15 call (WZY-AC)
Date Purchased: 11/6/03
Current Price: $3.50
Comment: Hold. Sold call against Jan. 06 $12.50 position.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Jan. 06 $12.50 call (WZY-AV)
Date Purchased: 7/28/03
Current Price: $5.20
Comment: Hold. No TS.
Company / Symbol: S&P 500 MITT (AMEX: MCP)
Date Purchased: 7/18/03
Current Price: $10.63
Comment: Buy under $10. No TS.
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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