Today I would like to take a look at
, a stock I last
wrote about on July 20th. As the symbol will tell you, Anheuser-Busch is the brewer of the Budweiser line of beers, two of which, Budweiser and Bud Light, are the among the world's best sellers.
The company operates 12 breweries in the U.S. and abroad. If history tells us anything, it's that stocks like Anheuser-Busch perform particularly well during tumultuous times.
In the early part of this decade, the company's share price steadily increased in value, while the broader market indices slumped terribly. (There seems to be a correlation between a tumultuous macroeconomy and increased beer consumption.)
In July, Anheuser reported profits in line with expectations, and in September management declared that it expects stellar earnings growth for the second half of 2007. The company now expects to beat earnings for the remainder of the year.
Now is the right time to use deep-in-the-money options to trade Anheuser-Busch. The stock's share price is trading just above both its 21-day and 200-day moving average; these metrics should provide solid support for the company's stock and allow an excellent entry point for prudent traders.
Today, I will place a limit order at $7.50 to buy 10 contracts of the March 45 Budweiser (BUDCI) DITM calls.
Now, as I do every Friday, let's take a look at your emails.
Also, I would like to take this time to say that I truly appreciate all of the support each and every one of you has shown. All of you give me the inspiration to write every day.
As always, thank you for your kindcoaching! Would you please address theMXIM delisting situation in your Fridaycolumn? I am concerned about the largebid-ask spread now being quoted forthese options, and would like moreinformation.
Understand Maxim (MXIM) has beendelisted from Nasdaq. Fidelity advisesthat Maxim Feb $25 (XIQBE) calls can betraded to "close the position" only,which makes it impossible to averagedown the XIQBE position. Is thispolicy industrywide or specific toFidelity?
Can you address thedelisting of Maxim from the Nasdaq andit's impact on our Feb. 25 calls. As Iunderstand it no-one can purchaseoptions only exit existing positions. The stock was upgraded by Goldman SachsThursday but the recent rise in thestock price is having no impact on ouroptions. Any advice would be greatlyappreciated, I for one am completelyconfused. Thanks.
Numerous questions regarding the delisting of Maxim have been pouring in this week. I understand your concern, as this is not a common occurrence. However, we need to keep a level head and not panic.
According to Reuters yesterday: Goldman Sachs replaced National Semiconductor Corp (NSM) with Maxim Integrated Products Inc (MXIM) in its conviction buy list, and said it expects Maxim's earnings growth to substantially accelerate in calendar year 2008. National's distributors are continuing to lower inventories, and appear likely to do so into year-end, which pushes out a key catalyst for the stock, driving its removal from the list, the brokerage said in a note to clients.Goldman retained its "buy" rating and a $30 price target on National Semiconductor.
Goldman, which raised Maxim to "buy" from "neutral," said the stock's delisting from Nasdaq, stemming from its stock option backdating investigation, created an attractive entry point.
What does mean for me and followers of my DITM calls strategy? It means we sit tight and let things play out for a while. It's a short-term delisting until they file papers by the first quarter 2008.
The current options will trade until they expire, but no new option series will be opened until they clear up the paperwork. So there will be no new opening transactions, only closing transactions.
This means we must suspend trading in the option, as we cannot add to our open position, but we can sell it to close the position. Both the stock and option have jumped a dollar since the announcement late Monday, so I will wait to see if our position will increase in value. We have time.
First off, just for the record ... I was10 years old in 1986 and was a die hardMets Fan ... even though I grew up inBoston (the Mets were my first littleleague team and we had WWOR on cable).You were my favorite player because ofyour aggressive style of play, and Itried to emulate your stance, head firstslides and always wore #4. Thanks forall the fun (not to mention bruises andbusted fingers).I now work for a major Internet company,but actively trade stocks as a hobby andto supplement my income. I've beenfollowing your'in the money' call optionsstrategy, but there are a couple ofaspects I don't fully understand yet.
1: I realize that the option strikeprice being lower than value of thestock price means that the option is "inthe money." Other than that, what is thesignificance of the number? If thestock price drops to the strike pricewhile I own the call option, will itautomatically trigger a sale of theoption at the current option value?2: What happens if the optionexpiration date arrives and I have notsold/closed the option. Does itautomatically sell at the current option value, or does it expire and leave mewith a different value?Thanks for taking a look at myquestions, and I understand if you don'thave time to answer. I still can'tbelieve they traded you for Juan Samuel.
The reason for sharing emails on Fridays is to provide a learning experience for followers of my DITM calls strategy. In response to your questions:
When the stock price drops below the strike-price the option will just be considered as "out-of-the-money." It doesn't trigger a sale, or anything else, just a change of how the option is now termed in relationship to the underlying asset.
An option gives its holder the opportunity to buy 100 shares of the common stock at the set strike price. When the stock is trading above the strike price, it is "in-the-money" because upon exercising the right to buy shares, the value of the stock would be worth more than the cost to buy.
If you hold onto the option until expiration day, an out-of-the-money option will be worth nothing. This is so because one could buy 100 shares on the open market for cheaper than the option strike price allows. When the stock is in the money, it would be worth exercising in order to own those shares. That said, I never hold my positions long enough to reach that point. Exercising options would cost a lot more money than I like to place in my positions.
I read your article and I just wantedto say thank you for writing about myson, Andy Buff. I thought your articlewas beautiful. Andy is fine and backat school. He can't play baseball fora couple of months but at least he canwatch his favorite team, the New YorkYankees, play my favorite team, theCleveland Indians, tonight on TV. Itwas truly a miracle Andy survived and Ihope and pray this brings awareness tothe sport and to parents to protecttheir young children. Thank you.
Thank you for your kind response to my column about Andy. I am sure that all my readers will be pleased to hear that Andy is doing fine.
At the time of publication, Dykstra had no positions in stocks mentioned.
Nicknamed 'Nails' for his tough style of play, Lenny is a former Major League Baseball player for the 1986 World Champions, New York Mets and the 1993 National League Champions, Philadelphia Phillies. A three time All-Star as a ballplayer, Lenny now serves as president for several privately held businesses in Southern California. He is the founder of The Players Club; it has been his desire to give back to the sport that gave him early successes in life by teaching athletes how to invest and protect their incomes. He currently manages his own portfolio and writes an investment strategy column for TheStreet.com, and is featured regularly on CNBC and other cable news shows. Lenny was selected as OverTime Magazine's 2006-2007 "Entrepreneur of the Year."