Email – #442
Some of you may have wondered why we instituted spreads in Motorola and USAir, or even Tenet for that matter instead of letting them run. But it is precisely because of times like these when the market is so uncertain that only volatility is in vogue. Taking money off the table, risking only 10% or 20% of the underlying share price as we do with our LEAPS, are two ways to deflect some of the pain.
The market is behaving extremely irrationally right now, throwing out everything it can in every sector possible. This type of schizophrenic investing usually signals that we are approaching a massive climax that will set the stage for better times ahead. I Know, it’s hard to even think that the financial sector will survive, let alone thrive. But, the bad seeds are being culled daily and the remaining players will have more market share and be able to increase margins on their products.
Oil prices have cratered, just as I thought they would, and the significance of this cratering has been totally ignored. It will come back as a positive influence in the months ahead, especially for our holdings of MGM.
As for the financials that we hold, the picture is brighter, but you wouldn’t know it today. BAC pulled off a coup and signaled the strength of its balance sheet by buying Merrill for stock. It picked up a huge accretive asset – the question that remains is whether the market will recognize this prior to our options expiring in 2010.
There are some interesting situations developing, but because of the current volatility, premiums are extremely high right now. When things settle down, there will be a lot to choose from, especially now as the 2011 options are being released.
For now, please suspend the stop-loss on our newest position; Sanofi-Aventis.
Karim
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Current Portfoli
Company / Option: Sanofi Jan. 2010 $30 calls
Option Symbol: WFK AF
Current Price: $6.50
Comments: Hold.
Company / Option: Valero Energy Jan. 2010 $60 calls
Option Symbol: YPY AL
Current Price: $1.30
Comments: Hold.
Company / Option: Blackstone Group Jan. 2010 $25 calls
Option Symbol: KJL AE
Current Price: $1.10
Comments: Hold.
Company / Option: Unisys Jan. 2010 $5 calls
Option Symbol: WUI AA
Current Price: $0.25
Comments: Hold
Company / Option: Pfizer Jan. 2010 $25 calls
Option Symbol: WPE AE
Current Price: $0.47
Comments: Hold
Company / Option: Bank of America Jan. 2010 $55 calls
Option Symbol: WBA AK
Current Price: $0.95
Comments: Hold
Company / Option: Fifth Third Bancorp Jan. 2010 $30 calls
Option Symbol: YJF AF
Current Price: $0.60
Comments: Hold
Company / Option: Mylan Labs Jan. 2010 $20 calls
Option Symbol: WYQ AD
Current Price: $0.55
Comments: Hold
Company / Option: MGM Grand – bull spread
Jan. 2010 $45 call (bought)
Dec. 2010 $60 call (sold)
Option Symbol: YDM AI
Option Symbol: YDM AL
Current Price: $3.51
Current Price: $2.45
Comments: Hold
Company / Option: Motorola – bull spread
Jan. 2010 $7.50 call (bought)
Dec. 2010 $10.00 call (sold)
Option Symbol: WMA AU
Option Symbol: WMA AB
Current Price: $1.52
Current Price: $0.81
Comments: Hold
Company / Option: USAir – bull spread
Jan. 2010 $10 call (bought)
Dec. 2008 $12.50 call (sold)
Option Symbol: LUL AB
Option Symbol: LCC LV
Current Price: $3.70
Current Price: $1.45
Comments: Hold
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: $1.12
Current Price: $0.35
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: YTX AU
Current Price: $2.40
Current Price: $1.20
Comments: Hold