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Dykstra: Take Time to Readjust

The time element is crucial to my deep-in-the-money call options-picking system. With Tuesday's win on Cameron International (CAM - Get Report), my system -- which you can follow through my Nails on the Numbers newsletter -- has a win rate of 96-1.

I'm very proud of that record, which should cross the 100-win finish line in the next month or two, depending upon market behavior.

Nails on the Numbers

Time allows me to adjust a position to market conditions. My picks are not set-it-and-forget-it investments. If a pick's underlying price goes down, I must adjust through re-buys at lower prices.

By adding to my position, I lower the average price per contract. This repositions me for a better chance at a win. It helped with my Jan. 6 win on Corning (GLW - Get Report), which was a $7.50 call option that stayed in play for 62 days before paying out $5,800.

During that time, we added 50 contracts to the initial 10 -- building on our position but lowering our average cost. We had until January 2011 to close out the Corning call. But in a recession, we want as much cushion as possible against an extended bear market. We're all waiting for that bottom.

The same Corning position we've already closed on is now going for $5.45 at the mid-point -- more than $1 above my average cost per share on those 60 contracts. But in a volatile market, we pay more for that extra year of cushion: The January 2010 $7.50 call position is going today for $4.80. So in choosing my position, I balance higher cost against the safety cushion of more time.

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SYM TRADE IT LAST %CHG
CAM $51.87 -1.20%
DD $70.29 -0.71%
CSCO $29.07 -0.65%
GRMN $45.64 -0.67%
GLW $21.25 -1.20%

Markets

DOW 18,121.11 -110.91 -0.61%
S&P 500 2,122.04 -4.02 -0.19%
NASDAQ 5,076.1230 -13.2390 -0.26%

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