The LEAPS Trader
105 W. Monument Street
Baltimore, MD 21201
Wednesday, July 12, 2006
Email – #327
** No End in Sight for the Summertime Blues
The market’s volatility continues unabated. And we are upon earnings season, which promises even more ups and downs in the days ahead. Our positions are holding up well, considering the current sentiment. Our advantage is time and low entry cost – hallmarks of a successful LEAPS trading strategy.
While we closed out two significant winners recently, we do have some more positive action going on in the portfolio. Our timely Goldcorp investment is paying nice dividends as the price of gold and Goldcorp have both rallied nicely since my recommendation.
Additionally, we are seeing good action in Chesapeake Energy. Even though natural gas prices have declined, the company’s strong hedge position and the continued insider buying by top management is bolstering share price. While the tropical hurricane season is quiet right now, it will start to heat up at the end of July, and peak sometime in late September – just in time for people to start thinking about winter. This is the time frame in which natural gas should see a nice spike.
Two of our recent positions, AMD and Teva, are facing short-term struggles that are depressing share prices. Teva is being affected by sentiment in Israeli markets, which are under pressure after the recent military action in the region. AMD is facing price pressures in the short term from Intel – something we anticipated when we made the play. The company recently reported record numbers, but warned of lower profits in the upcoming quarter – due in large part to price competition. The semiconductor industry is cyclical, and there are signs of a bottoming process in the cycle as some companies are beginning to report a better demand picture. Once the sector turns, we should see an extremely nice upward move in shares of all semiconductor companies.
One of the reasons I like using spreads is for cases like AMD and Teva. By using spreads, we lowered our cost basis since both side of the spreads declined on the way down, with one side hedging the other. And we have time – lots of it – for the cycles and markets to turn, whenever that may occur.
Our Sanofi position is setting new highs daily, and our out of the money LEAP is up over 20% from our entry price, even during a general downturn. The most recent pick, the Equity Office Properties LEAP put, is finally solidly in our buying range, and you should have gotten filled at or below our entry price. The economy is slowing, and just as the residential property collapse did not happen right away, neither will the downturn in office properties occur immediately. There is a lag effect, and it will happen in time. And, time is something we have a lot of.
I am looking researching a couple of picks right now and should have one for you in a few days.
Good trading,
Karim
Current Portfolio:
Company / Symbol: Equity Office Properties (NYSE: EOP)
Option / Symbol: Jan. 09 $30 put (OLH MF)
Date Purchased: 6/22/06
Current Price: $2.60
Comment: Hold.
Company / Symbol: sanofi-aventis (NYSE: SNY)
Option / Symbol: Jan. 08 $60 call (WFK AL)
Date Purchased: 4/17/06
Current Price: $3.70
Comment: Hold.
Company / Symbol: Microsoft (Nasdaq: MSFT)
Option / Symbol: Jan. 08 $30 call (WMF AF)
Date Purchased: 8/8/05
Current Price: $0.75
Comment: Hold.
Company / Symbol: S&P 500 MITT (AMEX: MCP)
Date Purchased: 7/18/03
Current Price: $11.35
Comment: Hold.
Bull & Bear Spreads
Company / Symbol: AMD Micro Devices (NYSE: AMD)
Option / Symbol: January 2009 $35 call (VVV AG)
Date Purchased: 6/21/06
Current Price: $4.00
Comment: Hold.
Company / Symbol: AMD Micro Devices (NYSE: AMD)
Option / Symbol: January 2009 $45 call (VVV AI)
Date Purchased: 6/21/06
Current Price: $2.45
Comment: Hold. Sold call against January 09 $35 call position.
Company / Symbol: CBOE Volatility Index (WCB: ^VIX)
Option / Symbol: Feb. 07 $15.00 call (VIX BC)
Date Purchased: 5/3/06
Current Price: $3.35
Comment: Hold
Company / Symbol: CBOE Volatility Index (WCB: ^VIX)
Option / Symbol: Feb. 07 $17.50 call (VIX BW)
Date Purchased: 6/14/06
Current Price: $2.40
Comment: Hold. Sold call against Feb. 07 $15 position.
Company / Symbol: GoldCorp (NYSE: GG)
Option / Symbol: Jan. 09 $30 call (OPJ AF)
Date Purchased: 6/9/06
Current Price: $11.00
Comment: Hold.
Company / Symbol: GoldCorp (NYSE: GG)
Option / Symbol: Jan. 09 $40 call (OPJ AH)
Date Purchased: 6/9/06
Current Price: $9.45
Comment: Hold. Sold call against January 09 $30 position.
Company / Symbol: Teva Pharmaceutical (Nasdaq: TEVA)
Option / Symbol: Jan. 08 $40 call (WTX AH)
Date Purchased: 5/23/06
Current Price: $2.85
Comment: Hold.
Company / Symbol: Teva Pharmaceutical (Nasdaq: TEVA)
Option / Symbol: Jan. 08 $45 call (WTX AI)
Date Purchased: 5/23/06
Current Price: $1.80
Comment: Hold. Sold call against January 08 $40 position.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Jan. 08 $35 call (WZY AG)
Date Purchased: 4/25/06
Current Price: $4.10
Comment: Hold.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Jan. 08 $45 call (WZY AI)
Date Purchased: 4/25/06
Current Price: $1.70
Comment: Hold. Sold call against January 08 $35 position.
Company / Symbol: Energy Select SPDR (AMEX: XLE)
Option / Symbol: Jan. 07 $39 put (ORJ MM)
Date Purchased: 3/1/05
Current Price: $0.35
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: $0.25
Comment: Hold. Sold put against January 07 $39 position.
