The LEAPS Trader
105 W. Monument Street
Baltimore, MD 21201
Friday, May 25, 2007
Email – #376
** Time… Is Not On Our Side
It’s time to go out to 2009 on some of our positions.
If you’re not in these positions at all, please take this update as a new recommendation. Here’s what you need to do today to extend your maturities to 2009 from 2008, while at the same time not aggravating your cost basis.
The markets are getting very volatile. When this happens – especially to the downside – the shorter-dated options like the ones we have expiring in 2008, tend to have slower recovery times.
Here is what you need to do with three positions expiring in 2008: Chesapeake, Teva, and Microsoft.
Chesapeake: Sell the CHK-AG, January 2008 $35 calls at current levels of $3.20. Our cost here was $3.80, so we’ll take a slight loss.
Then buy the CHK January 2009 $35 call options (VEC-AG) currently trading for $5.80.
Against this position, sell the CHK January 2009 $45 call options (VEC-AI), currently selling for $1.80. This will bring your cost down to $4, with a $10 upside and 18 more months. New members should execute this trade.
Microsoft: Sell the MSQ-AK at current levels around $2.45. Our current cost is $2.70 for the $30 calls (MSQ AK) expiring in January 2008.
Then buy the Microsoft January 2009 $32.50 calls (VMF-AZ), currently trading at $2.90.
Against this position, sell the Microsoft January 2009 $40 call options (VMF-AH) currently selling for $0.65. This will make your cost around $2.25 with an upside of $7.50, and another 19 months until expiration. For new members, treat this as a brand new trade.
TEVA: Our cost of the current January 2008 $40/45 spread is $1.80. The current price of the spread is $2.30, so we are up about 30%.
Teva is showing nice strength right now and for the small risk involved ($1.80) and the current upward momentum in the shares, we’ll keep this one as is for a couple of more months. The $45 calls are still quite expensive and should really begin to lose some time premium soon. For new members, TEVA is not a new recommendation.
Good Trading,
Karim
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Current Portfolio:
Company / Symbol: Coeur D’Alene (NYSE: CDE)
Option / Symbol: Jan. 09 $2.50 call (ZYB AZ)
Date Purchased: 4/17/07
Current Price: $1.65
Comment: Hold.
Company / Symbol: Nasdaq 100 Index (Nasdaq: QQQQ)
Option / Symbol: Jan. 08 $40 put (WD MN)
Date Purchased: 11/27/06
Current Price: $0.65
Comment: Hold.
Company / Symbol: Microsoft (Nasdaq: MSFT)
Option / Symbol: Jan. 08 $30 call (MSQ AK)
Date Purchased: 8/8/05
Current Price: $2.45
Comment: See instructions above.
Company / Symbol: S&P 500 MITT (AMEX: MCP)
Date Purchased: 7/18/03
Current Price: $13.50
Comment: Hold.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Jan. 08 $35 call (CHK AG)
Date Purchased: 4/25/06
Current Price: $3.20
Comment: See instructions above.
Company / Symbol: Advance Micro Devices (NYSE: AMD)
Option / Symbol: January 2009 $35 call (VVV AG)
Date Purchased: 6/21/06
Current Price: $0.25
Comment: Hold.
Bull & Bear Spreads
Company / Symbol: Freeport (NYSE: FCX)
Option / Symbol: Jan. 09 $60 call (OMT AL)
Date Purchased: 3/5/07
Current Price: $21.20
Comment: Hold.
Company / Symbol: Freeport (NYSE: FCX)
Option / Symbol: Jan. 09 $70 call (OMT AN)
Date Purchased: 3/5/07
Current Price: $16.00
Comment: Hold. Sold call against January 09 $60 position.
Company / Symbol: GoldCorp (NYSE: GG)
Option / Symbol: Jan. 09 $30 call (OPJ AF)
Date Purchased: 6/9/06
Current Price: $2.50
Comment: Hold.
Company / Symbol: GoldCorp (NYSE: GG)
Option / Symbol: Jan. 09 $40 call (OPJ AH)
Date Purchased: 6/9/06
Current Price: $0.95
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: $3.75
Comment: Hold.
Company / Symbol: Teva Pharmaceutical (Nasdaq: TEVA)
Option / Symbol: Jan. 08 $45 call (WTX AI)
Date Purchased: 5/23/06
Current Price: $1.55
Comment: Hold. Sold call against January 08 $40 position.
