The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Tuesday, August 2, 2005
Email – #264
** Bulging With Profits
Earnings season is almost over for most of our LEAPS positions. Over the next day or so we will hear from Chesapeake. I expect the news to be stellar, as the oil/gas business has been booming. Our spread gains more value each day and we would need a 50% collapse in CHK’s share price by January for us to be in any danger of losing money.
Today, Interactive Corp. (Nasdaq: IACI) reported strong earnings, easily beating estimates. Our IACI spread stands to make us $5,000 for each $50 at risk by the end of next year – not a return to sneeze at in my books. Next week, the company will spin off its highly successful Expedia division. I am researching how that will affect our options position. I believe we will end up with a set of options for each company, or one set that trades as if Expedia were still a part of IACI.
Today, Comcast (Nasdaq: CMCSA) also reported its numbers and handily blew away estimates. It also confirmed that it was on track to deliver 20% annual cash flow growth for the foreseeable future. We bought Comcast on the heels of a massive purchase of shares by Warren Buffett and on the promise of growth and pricing power in an industry that is “in every home.” Comcast has delivered, and I expect the deliveries to continue in the months ahead.
Our Comcast January 2007 $35 call options (VPK AG) have been weak of late. This would be a good opportunity for new members to buy at levels of $2.25 or better, and for existing owners to average down their cost.
Doral Financial (NYSE: DRL) has still not restated its earnings. But, it has provided a glimpse into its operations. And that glimpse is very positive. The company’s business is in excellent shape and continues to show good momentum. Of course, the wild card here is how the market reacts to its restatement. The potential for 500% gains or more exists with this position. This is a highly speculative situation, but one with explosive upside. The shares could easily be in the $30 range this time next year.
I am recommending that you buy the Doral January 2007 $20 call options if you don’t already own them, and to average your cost lower if you do own a position. The options, (OVL-AD) are trading at $1.85 on the offer – do not pay more than $1.90.
As a note, we rarely average down in a position. When we do, as we are doing with DRL and Comcast, we will adjust our entry price to reflect the average of the two buys.
Regards,
Karim Rahemtulla
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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