The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Monday, January 23, 2006
#299
** Notch Another Big Win From Chesapeake
Over a year ago, we entered into a BULL SPREAD on Chesapeake Energy (NYSE: CHK). It was a legged spread, meaning we did not enter the trade as a spread like we did on Placer Dome, IGT and Lexar. On those trades, it is easy to calculate the returns since the spread was entered into at the outset.
With Chesapeake, we first bought the call LEAPS and once we were highly profitable, we took most of our money off the table by selling the options at the next strike against our position. While we limited our returns, we also limited our risk. In the case of Chesapeake, we ended up with an adjusted risk of just $0.05 per contract (5 cents). Our upside, if Chesapeake closed above $15, was $2.50 per contract for a net gain of $2.45 per contract. The return would be ridiculous on a percentage basis, and so on LEGGED SPREADS we will just quote the returns on a dollar basis based on our cost and return.
While January has brought us a windfall of winners, there was also a loser that expired worthless on Saturday. We were close, but not close enough to make a profit on another spread – Nokia. We lost money on this one, but that loss was eclipsed by the gains on Chesapeake and Interactive Corp. (we took profits on this one earlier this month.)
Right now, our portfolio is well balanced to take advantage of this market decline with two short positions in Target and American Airlines. Our target for Target is $50 on the downside, and on AMR – we are looking for $15 or lower.
One a side note: I would love to hear from those of you who engaged in the Chesapeake spread. It was a unique trade and I want to know your results and whether you are interested in doing more spread trades. Please send your comments to: customerservice@monumentstreetpublishing.com .
Regards,
Karim Rahemtulla
Current Portfolio:
Company / Symbol: Tiffany (NYSE: TIF)
Option / Symbol: Jan. 08 $35 put (WTF-MG)
Date Purchased: 12/19/05
Current Price: $3.40
Comment: Sell.
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: $1.90
Comment: Hold.
Company / Symbol: Doral Financial (NYSE: DRL)
Option / Symbol: Jan. 07 $20 call (OVL-AD)
Date Purchased: 5/6/05
Current Price: $0.40
Comment: Hold.
Company / Symbol: S&P 500 MITT (AMEX: MCP)
Date Purchased: 7/18/03
Current Price: $11.38
Comment: Hold.
Bull & Bear Spreads
Company / Symbol: Placer Dome (NYSE: PDG)
Option / Symbol: Buy Jan. 08 $17.50 call (YDI-AW)
Date Purchased: 9/19/05
Current Price: $8.50
Comment: Hold
Company / Symbol: Placer Dome (NYSE: PDG)
Option / Symbol: Sell Jan. 08 $25 call (YDI-AE)
Date Purchased: 9/19/05
Current Price: $4.50
Comment: Hold. 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: $9.00
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: $4.10
Comment: Hold. 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: $2.30
Comment: Hold
Company / Symbol: Lexar (Nasdaq: LEXR)
Option / Symbol: Sell Jan. 07 $12.50 call (VRF-AV)
Date Sold: 10/7/05
Current Price: $0.80
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: $0.60
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: $0.45
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: $5.80
Comment: Hold.
Company / Symbol: Interactive Corp. (Nasdaq: IACI)
Option / Symbol: Sell Jan. 07 $30 call (VSW-AF)
Date Sold: 12/10/04
Current Price: $2.55
Comment: Hold. Sold call against Jan 07 $25 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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