The LEAPS Trader
105 W. Monument Street
Baltimore, MD 21201
Tuesday, August 22, 2006
Email – #333
** Time… Is On Your Side…
One of the most comforting aspects of investing using a LEAPS strategy is the ability to withstand all manner of negative events and still continue to survive and fight another day. Most recently, two of our LEAPS positions were hit hard.
First, we got knocked on our AMD spread, watching the shares fall from the mid $20s down to $17 – a point at which most stock investors would have been stopped out, if they were using a reasonable stop.
For us, there was some pain, but the LEAPS that we own did not lose all of their value. Why? Because with so much tine left on the options, anything could happen. And, it did. AMD has recovered to the mid $20s, and is gaining momentum on the heels of several analyst upgrades and the company’s announcements that they would attain close to 30% of the market within two-and-a-half years. If they continue on that track, and affirm guidance in coming quarters, this position will deliver.
The second situation is Teva Pharmaceuticals. We got into this position right before the Lebanese-Israeli war. What timing! Yet, even through the war, where Teva shares fell by 20%, our LEAPS survived nicely. Now Teva is on an upswing, with better-than-expected earnings and improved guidance. Barring a full-fledged Israeli crisis, our Teva spread will make us money, as well.
I have said many times at conferences that a LEAPS strategy works because time is on our side. We can, in most cases, withstand many short-term crises that would knock ordinary stock investors out of the game. And, with 10% to 15% of the capital required initial for a position, our dollar risk is also limited.
Good Investing,
Karim Rahemtulla
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Current Portfolio:
Company / Symbol: Energy Select Sector SPDR (Amex: XLE)
Option / Symbol: Jan. 09 $50 put (ORJ MX)
Date Purchased: 8/14/06
Current Price: $4.30
Comment: Hold.
Company / Symbol: Equity Office Properties (NYSE: EOP)
Option / Symbol: Jan. 09 $30 put (OLH MF)
Date Purchased: 6/22/06
Current Price: $2.65
Comment: Hold.
Company / Symbol: Microsoft (Nasdaq: MSFT)
Option / Symbol: Jan. 08 $30 call (WMF AF)
Date Purchased: 8/8/05
Current Price: $1.45
Comment: Hold.
Company / Symbol: S&P 500 MITT (AMEX: MCP)
Date Purchased: 7/18/03
Current Price: $11.61
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: $5.20
Comment: Hold.
Company / Symbol: AMD Micro Devices (NYSE: AMD)
Option / Symbol: January 2009 $45 call (VVV AI)
Date Purchased: 6/21/06
Current Price: $3.10
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: $3.30
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: $2.55
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: $10.15
Comment: Hold.
Company / Symbol: GoldCorp (NYSE: GG)
Option / Symbol: Jan. 09 $40 call (OPJ AH)
Date Purchased: 6/9/06
Current Price: $6.70
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: $3.20
Comment: Hold.
Company / Symbol: Teva Pharmaceutical (Nasdaq: TEVA)
Option / Symbol: Jan. 08 $45 call (WTX AI)
Date Purchased: 5/23/06
Current Price: $1.90
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: $4.35
Comment: Hold.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Jan. 08 $45 call (WZY AI)
Date Purchased: 4/25/06
Current Price: $1.65
Comment: Hold. Sold call against January 08 $35 position.
Company / Symbol: Energy Select Sector SPDR (AMEX: XLE)
Option / Symbol: Jan. 07 $39 put (ORJ MM)
Date Purchased: 3/1/05
Current Price: $0.15
Comment: Hold.
Company / Symbol: Energy Select Sector 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.
