Dykstra: Buying Volatility

For those of you just awaking from a three-day sleep, the stock market plummeted Friday, with the Dow losing 213 points. The slide can be attributed to a few factors, not the least of which is the expanding uncertainty concerning Iran.

Undeniably, I am not an expert on Iran. However, it is abundantly clear that there is mounting concern over Iran's nuclear program, and the volatile climate surrounding the actions of its president, Mahmoud Alimadinejad. The fact he met recently with leaders of Hamas and Islamic Jihad would at least suggest the likelihood of increased defiance on his part. This heightens fear of a showdown between the West and Iran, which could have a significant impact on oil reserves and prices.

I will leave more in-depth analysis to those more educated in those matters. However, this air of uncertainty leads me to believe that the "buy and hold" strategy of investing has to be seriously questioned. It lends further credibility to my strategy of deep in-the-money-calls as a sound philosophy for successful investing.

Real Trades, Real Profits

When you trade deep in-the-money calls, volatility is your friend. Quality companies went on sale Friday as "panic" was everywhere. Days like Friday are the kind that allow you and I to get an "edge" by using our deep in-the-money calls strategy. For example, we were able to buy the deep in-the-money calls for General Electric (GE Quote); I went out to June and bought the $30 dollar strike, for $4. To be clear, we paid $4,000 dollars to control 1000 shares of one of the best companies in the world!

Everyone thinks GE had a "bad quarter;" what a joke! Excluding items, the results matched Wall Street estimates. It's just how the operators on Wall Street want to spin it.

To watch an interview with Lenny Dykstra about his investing strategy, please click here.