Last week was my first week off in the six months I have had the privilege to write columns for
. Have no fear, as I am back, dedicated to accomplishing our goal: making money!
The bottom line: If you want to use options to invest, you better do your homework. If you do not understand what I am recommending, then you need to sit this one out -- you will be playing with the big boys of the investment world. Rest assured, these are the pros. Please do not forget that when real money is on the line, they will go after it with a vengeance. Remember, you are not buying some guaranteed bond; you are swimming with the sharks.
That said, assuming you have been following my disciplined strategy, which isn't hard, remember this: Take your profits when the opportunity presents itself. In other words,
don't be a pig
Intel Is a Gift
Moving on to this week's pick, guess what we are buying? If you guessed "a stock," you're wrong! We are buying
in-the-money calls. We are going all the way out to October, with a $17.50 strike price. The cost for us to control (in reality: own) Intel stock for the next seven months will be $2.90, or better.
To simplify: Let's agree that we want to own, or control, 1,000 shares of Intel stock until the third Friday in October, which is Oct. 20 (the third Friday of the month, no matter what month, is always the expiration date). The cost for you to have this choice, or option, is about $2,900. You now ask yourself, why would the Chicago Board Options Exchange, which is No. 1 in volume among U.S. securities exchanges, let me control 1,000 shares of a stock that costs $19,540 on the
New York Stock Exchange
, for only $2,900? The answer: premium.
The premium is very easy to figure out.
Our strike price of $17.50 plus the exact cost we paid for our in-the-money call, which is $2.90, equals $20.40. (Stay with me, we're almost there.) To get your real premium, take $20.40 minus the actual real-time price of the stock, which closed Friday at $19.54. So our premium would be 86 cents. Anything under $1, for the ability to control the stock for seven months, is just plain awesome! Remember this: About 90% of the public who plays options lose. Isn't it nice to be on the winning side? Let's put it this way: I am the CBOE's worst nightmare, and I love that! Last thing, please use a limit order; this will stop those operators from carving you up.
So why Intel? Although
Advanced Micro Devices
has been everybody's favorite, evidenced as the price was soaring toward Pluto, it peaked at $42.70 on March 3. Even with this company on its way back to earth, it is still overvalued. On the other hand, with Intel, everything I read or hear is negative. If I didn't know any better, it almost sounds like Intel has "thrown in the towel" and called the game off. Wrong!
These headlines reveal some of Intel's latest developments, with more being created every day:
Intel, Micron Tech to Build New Plant
Mac, Meet Windows
Intel Boosts Energy-Efficient Performance with First Dual-Core Low-Voltage Xeon Process
Intel Discloses Technologies to Make the Internet More Personal and Mobile
Intel Aims for Increased Market Share in China.
The semiconductor industry (as measured by the SOX) has been moving sideways to down since January, defying market strength. This is a warning, as semis are supposed to be leaders, and they are not. The only company that makes sense in a defensive environment is the world's largest chip company -- industry leader Intel -- which is so undervalued it's a joke!
If this were a study on in-the-money calls, Intel would be a "case study" as the perfect candidate. While we wait for our move (it won't take seven months, believe me!), $19.66, Intel's semiannual pivot, should provide a magnet. But with shares trading at a 52- week low coupled with Wall Street operators in full swing with their classic move to drive the stock lower so the public will panic and sell, don't be surprised if Intel trades down near the quarterly value level of $17.30.
If this does happen, consider buying more Intel calls, because the stock should bounce right back. All you need is one move up, a 2- or 3-point spike
in the next seven months
, and you make money! I can tell you that when the stock price gets low enough, the "sharks" on Wall Street will start buying after having driven the stock down. Most likely you are asking yourselves, "Why would they do that?" The answer is readily apparent:
to get your money!
The only reason anyone wouldn't buy this Intel October $17.50 in-the-money call for $2.90 was if they didn't like money! Lock and load!
Enjoy the Madness
March Madness is upon us. Sixty-five college basketball teams were selected to compete for the national championship; 49 have been eliminated, while the "sweet 16" remain. Perennial favorites are still alive, as are some potential Cinderellas. Regardless of who eventually is crowned national champion, the young athletes on display, with their unabashed enthusiasm and unbridled passion, are a wonderful sight to behold.
A precious few will play in the NBA; the vast majority, to paraphrase the NCAA's commercial, will pursue careers outside of basketball. Nonetheless, the memories of participating in March Madness will create a lifetime of folklore.
Recently, Jason McElwain created a real life story that is so extraordinary it should be memorialized and used as a motivational tape. For those of you who missed it, Jason is the manager of the varsity boy's basketball team at Greece Athena High School in Greece, N.Y. Jason is also autistic. The coach asked him to "suit up" for the last regular season game, no doubt to let him truly experience what it is like to wear the uniform. With five minutes left in the game, the coach told Jason to go in. He promptly launched a three pointer, which resulted in an air ball.
Then, the inexplicable happened. With teammates feeding him the ball, Jason proceeded to hit six three-pointers and finished with 20 points, the high scorer on his team. At the conclusion of the game, the fans stormed the court, and carried Jason off on their shoulders. His story was the top ESPN highlight, and was carried on news broadcasts across the country. Ultimately, Jason spent time with President Bush recently as a result of his incredible night.
Unequivocally, a relatively small number of players who participate in March Madness will "cash in" with multimillion dollar contracts as a result of their tremendous talent. However, their achievements pale in comparison with Jason's triumph. Undeniably, Jason McElwain is "in-the-money"!
Life is a journey, enjoy the ride!
At the time of publication, Dykstra was long Intel calls, although holdings can change at any time.
Nicknamed "Nails" for his tough style of play during his Major League Baseball career, Lenny Dykstra was an integral member of the powerful Mets of the mid-1980s, including the world champion 1986 squad, and the Phillies in the early 1990s.
Today, Dykstra manages his own stock portfolio and serves as president of several of his privately held companies, including car washes; a partnership with Castrol in "Team Dykstra" Quick Lube Centers; a state-of-the-art ConocoPhillips fueling facility; a real estate development company; and a new venture to develop several "I Sold It on eBay" stores throughout high-demographic areas of Southern California.