The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Friday, October 28, 2005
#286
** Earnings and More
Microsoft (Nasdaq: MSFT) reported excellent earnings yesterday. The company is on track to deliver much faster earnings growth than the market and its peer group in the year ahead. Yet, the shares still trade below the multiples of the technology sector and its peers in the software/gaming sector.
The company is also accelerating its $19 billion share buyback. It aims to finish the buyback by the end of 2006. Next month, the company will release the much-awaited X-Box 360, followed by its new Vista Operating System. The company is also making steady headway into the backyards of its competitors by heavily investing in communications and search technology.
Our Microsoft January 2008 $30 call LEAPS (WMF-AF) remain a buy at current prices.
Lexar (Nasdaq: LEXR) also reported its first profitable quarter in a long time. In addition, the company has strong momentum on its side on the legal front. The Toshiba legal battle is going their way with a fat $450 million dollar settlement as the prize. In the meantime, the company will collect more than $10 million a quarter in interest from Toshiba until a settlement is reached or the appeals process reaches closure.
Target Corp. (NYSE: TGT) shares have fallen in the days since our short recommendation. Our Target put LEAPS are up more than 20% in about a week. Now, I know that many of you were able to get into the trade – several hundred contracts traded at or below our entry price – but not all of you were able to get in.
It is a very rare case when a stock moves sharply within a day of the recommendation, putting the LEAPS over our limit price. But it happens. I do not give absurd limit prices or “market” order instructions because I am not interested in moving the LEAPS market.
When I issued the Target pick, the options were trading at $4 and $4.10, skipping back and forth. The limit price was $4.20. In truth, the value of the option using my options pricing model was less than $4. If you were not able to get in, sit tight, it may come back down. Stocks usually do not move in a straight line… up or down.
In the, “Damn, I Knew I Was Right” category, housing shares have collapsed. Our DR Horton pick, that we made 10% to 20% on a few months ago, is now flying high. The stock has fallen below $30 – we shorted it when it was above $40. But, as you may recall, the market maker was playing tricks on us and not moving the options price up in tandem with the share price falling.
Well, I am happy to report that it is still NOT happening. The shares have fallen more than $7 from the point at which we sold our options, and for that additional $7 fall in share price, the options have increased just over $1 – with more than two years to go.
Regards,
Karim Rahemtulla
Current Portfolio:
Company / Symbol: Target (NYSE: TGT)
Option / Symbol: Jan. 08 $50 put (WDH-MJ)
Date Purchased: 10/20/05
Current Price: $5.00
Comment: Hold.
Company / Symbol: Microsoft (Nasdaq: MSFT)
Option / Symbol: Jan. 08 $30 call (WMF-AF)
Date Purchased: 8/8/05
Current Price: $1.70
Comment: Hold.
Company / Symbol: Sun Microsystems (Nasdaq: SUNW)
Option / Symbol: Jan. 08 $5 call (WSU-AA)
Date Purchased: 7/27/05
Current Price: $0.75
Comment: Hold.
Company / Symbol: Doral Financial (NYSE: DRL)
Option / Symbol: Jan. 07 $20 call (OVL-AD)
Date Purchased: 5/6/05
Current Price: $0.50
Comment: Hold.
Company / Symbol: S&P 500 MITT (AMEX: MCP)
Date Purchased: 7/18/03
Current Price: $10.77
Comment: Hold.
Bull & Bear Spreads
Company / Symbol: Placer Dome (NYSE: PDG)
Option / Symbol: Buy Jan. 08 $17.50 call (YDI-AW)
Date Purchased: New
Current Price: $3.45
Comment: Hold
Company / Symbol: Placer Dome (NYSE: PDG)
Option / Symbol: Sell Jan. 08 $25 call (YDI-AE)
Date Purchased: New
Current Price: $1.80
Comment: Sold call against Jan. 08 $17.50 position.
Company / Symbol: International Game Technology (NYSE: IGT)
Option / Symbol: Buy Jan. 08 $30 call (WGG-AF)
Date Purchased: 9/6/05
Current Price: $3.45
Comment: Hold
Company / Symbol: International Game Technology (NYSE: IGT)
Option / Symbol: Sell Jan. 08 $40 call (WGG-AH)
Date Purchased: 9/6/05
Current Price: $1.30
Comment: Sold call against Jan. 08 $30 position.
Company / Symbol: Lexar (Nasdaq: LEXR)
Option / Symbol: Jan. 07 $7.50 call (VRF-AU)
Date Purchased: 10/7/05
Current Price: $2.00
Comment: Hold
Company / Symbol: Lexar (Nasdaq: LEXR)
Option / Symbol: Sell Jan. 07 $12.50 call (VRF-AV)
Date Sold: 10/7/05
Current Price: $0.85
Comment: Hold. Sold call against Jan. 07 $7.50 position.
Company / Symbol: Energy Select SPDR (AMEX: XLE)
Option / Symbol: Jan. 07 $39 put (ORJ-MM)
Date Purchased: 3/1/05
Current Price: $1.75
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: $1.70
Comment: Hold. Sold put against Jan. 07 $39 position.
Company / Symbol: Interactive Corp. (Nasdaq: IACI)
Option / Symbol: Jan. 07 $25 call (VSW-AE)
Date Purchased: 9/14/04
Current Price: $4.30
Comment: Hold.
Company / Symbol: Interactive Corp. (Nasdaq: IACI)
Option / Symbol: Sell Jan. 07 $30 call (VSW-AF)
Date Sold: 12/10/04
Current Price: $2.40
Comment: Hold. Sold call against Jan 07 $25 position.
Company / Symbol: Nokia (NYSE: NOK)
Option / Symbol: Jan. 06 $22.50 call (NAY-AX)
Date Purchased: 8/29/03
Current Price: $0.05
Comment: Hold.
Company / Symbol: Nokia (NYSE: NOK)
Option / Symbol: Sell Jan. 06 $30 call (NAY-AF)
Date Sold: 2/9/04
Current Price: $0.05
Comment: Hold. Sold call against Jan. 06 $22.50 position.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Jan. 06 $12.50 call (CHK-AV)
Date Purchased: 7/28/03
Current Price: $18.50
Comment: Hold.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Sold Jan. 06 $15 call (CHK-AC)
Date Sold: 11/6/03
Current Price: $16.50
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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