Email – #416
When the market tanks, it often brings with it great opportunities. Fear makes everyone think twice or even three times about investing. Often compelling opportunities are laid by the wayside because it is just too uncertain to invest. We have figured a way around this conundrum by adopting a strategy that allows us to profit while limiting our risk. And we are doing it with time on our side.
Yesterday, you witnessed the strength of a rally when sentiment changes just a little. The market will likely gyrate for some time to come. But, when it does make that final turn back up, yesterday’s gains will look trivial. Financial stocks rallied by 10% or more across the board – something that is unheard of, until this year. Why? Because the volatility in the market and in individual shares is so high right now and the short positions are at record levels.
We are gong to dive into possibly the highest-quality company in the U.S. today. This quality is made up of several factors:
Foreign and Domestic growth
Innovation
Strong profit growth
Strong Cash flow
Triple A Credit
Technology
Industry
Energy
Consumer staples
Only one company can offer all of these things… and one more – very strong insider buying by the CEO. The company is General Electric (NYSE: GE), a worthy, quality addition to our portfolio.
The options on GE are expensive, so we will use a bull-spread to lower our cost. In the past few weeks, Jeff Immelt, GE’s CEO, has bought several million dollars worth of shares; and he’s continued to reaffirm guidance and growth in the years ahead.
Remember, GE is a global player involved in just about every country and every segment of the economy from wind turbines to medical devices. And it is a monster cash and profit generator. So while the dollar may be tanking, and the U.S. may be in recession, there is money to be made elsewhere and GE is taking advantage of this fact.
Here’s what you should d
BUY the General Electric (NYSE: GE) January 2010 $35 calls (WGE-AG), currently trading for $4.50. Against this position, SELL the GE January 2010 $45 calls (WGE-AI), currently trading for $1.35.
Your net cost for this trade will be approximately $3.15 for this trade ($4.50 minus $1.35) with an upside of $10 for greater than 3 to 1 potential return. Execute this trade as long as your cost is no more than $3.30. This means the difference between the price you buy the call and sell the put should not exceed $3.30. The current price is $3.15. This would mean that your breakeven price on GE shares would be just over $38.
Current Portfoli
Company / Option: General Electric – bull spread
Jan. 2010 $35 calls (bought)
Jan. 2010 $45 calls (sold)
Option Symbol: WGE AG
Option Symbol: WGE AI
Current Price: New
Comments: See instructions above
Company / Option: Unisys Jan. 2010 $5 calls
Option Symbol: WUI AA
Current Price: $1.55
Comments: Hold
Company / Option: Pfizer Jan. 2010 $25 calls
Option Symbol: WPE AE
Current Price: $1.50
Comments: Hold
Company / Option: Bank of America Jan. 2010 $55 calls
Option Symbol: WBA AK
Current Price: $1.50
Comments: Hold
Company / Option: Fifth Third Bancorp Jan. 2010 $30 calls
Option Symbol: YJF AF
Current Price: $2.95
Comments: Hold
Company / Option: Sun Microsystems Jan. 2009 $5 calls
Option Symbol: XOG AA
Current Price: $0.38
Comments: Hold
Company / Option: Mylan Labs Jan. 2010 $20 calls
Option Symbol: WYQ AD
Current Price: $0.85
Comments: Hold
Company / Option: Cirrus Logic Jan. 2009 $10 calls
Option Symbol: VUR AB
Current Price: $0.15
Comments: Hold
Company / Option: Coeur D’Alene Jan. 2009 $2.50
Option Symbol: ZYB AZ
Current Price: $2.45
Comments: Hold
Company / Option: Powershares QQQ Trust – bear spread
Jan. 2009 $43 put(bought)
Jan. 2009 $39 put(sold)
Option Symbol: OZC MQ
Option Symbol: OZC MM
Current Price: $4.08
Current Price: $2.81
Comments: Hold
Company / Option: Microsoft – bull spread
Jan. 2009 $32.50 call(bought)
Jan. 2009 $40 call (sold)
Option Symbol: VMF AZ
Option Symbol: VMF AH
Current Price: $1.90
Current Price: $0.36
Comments: Hold
Company / Option: Tenet Healthcare – bull spread
Jan. 2010 $5 call (bought)
Jan. 2009 $7.50 call (sold)
Option Symbol: YTX AA
Option Symbol: ONZ AU
Current Price: $1.80
Current Price: $0.45
Comments: Hold