Days like Monday -- when markets dropped nearly 4% -- don't bring wins in my deep-in-the-money options-trading system, which has a record of 99-1. But plunging prices help us fill our positions.
And that's exactly what happened yesterday. We landed our position in my pick Archer-Daniels-Midland (ADM), which on Friday had looked possibly beyond our reach, at the price I specified.
My subscribers often take wins on open positions on the market's up days. Some big-movement days last week brought quick wins of $1,000 apiece on Microsoft (MSFT) and Hewlett-Packard (HPQ) -- proving that good tech companies at value prices can pay off for us.
We also scored a $3,900 payoff on our position in Cisco (CSCO) on March 23, after 103 days in play.Over recent weeks, we've laid the groundwork for comparing a company's return on capital to its cost. When picking stocks, I want to know if the company puts its capital to good use. I determine this by comparing its ROC to its cost of capital. On March 17, I reviewed how to determine a company's cost of its debt -- one of two components in the cost of capital. We did that by seeing how much the company pays its bondholders. In this case, I determined that Halliburton (HAL) had an estimated after-tax cost of 2.6% on its $2.6 billion in long-term debt at the end of 2008. I also showed that long-term debt made up 13.8% of total capital. Our next step is to multiply these two percentages, giving us a weighted cost of debt of .00359. But that number is meaningful only in the context of Halliburton's total capital. Equity made up the other 86.2%.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV