The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Thursday, February 2, 2006
#301
** Protecting Our Puts On AMR
American Airlines (NYSE: AMR) shares are edging back up, putting pressure on our put position. This should be temporary, as the environment for airline companies is far from stellar. But stranger things have happened, and sometimes more money than brains does win in the short term.
As you know, I do not institute stop losses anymore; rather, I will communicate to you entry and exit points in real time. Here is how you should trade this position:
For your AMR puts (WAR MW), you should cover the position IF – and only IF – the underlying shares CLOSE above $23.53. This means if the shares close above that price, you should cover (sell your puts) on the following day. Of course, please use limit orders for all your trading, and not market orders. Market orders in a LEAPS options market will do nothing more than get you a lower price.
In other news, Target (NYSE: TGT) announced earnings today. They were good, but they did not include any overly optimistic forward-looking guidance – something investors want when they are paying 20 times EPS for a company NOT growing its bottom-line at 20%-plus annually. I will be keeping a close eye on this short position, as well.
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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