March 15 column, I highlighted the strengths of
and explained how deep-in-the-money calls could be used to control 1,000 shares of the stock for a fraction of the price of the underlying stock, with minimal premium. Sure enough, within three trading sessions the
options reached their good-till-cancel (GTC) sell price and a $1,000 profit was locked in.
That win serves as a great example for my reasoning behind placing a GTC sell order $1 above my purchase price immediately after I buy the
calls. At the time of my first column, the stock traded around $64.75; on Wednesday, the stock closed at $64.08. Without placing the GTC sell order, that gain could now stand as a loss and the profit might never have reached our pocket. Although this practice may limit potential gains on a stock that takes off, far more stocks settle down or fall in price after an initial gain, rather than going through the roof.
By selling immediately for a gain, we can also move our money into potentially more profitable picks, and should the stock's price decline, we have a second opportunity to make a profit.
UTX is such a stock, as the company has once again reached an excellent level for us to implement my deep-in-the-money calls strategy.
The company operates six principal segments -- Otis, Carrier, UTC Fire & Security, Pratt & Whitney, Hamilton Sundstrand and Sikorsky -- and draws 60% of its revenue from abroad. This provides increased stability should the domestic economy slow down.
Furthermore, this company has $3.58 billion in
free cash flow and an outstanding balance sheet that places it in excellent condition to compete with bigger rivals like
Analysts have also been favoring this stock. Since March, Credit Suisse has raised its
rating to outperform from neutral, citing the company's emphasis on quality control and its ability to maximize profit margins. In the same report, Credit Suisse raised United Technology's projected price target to $79 from $73.
At its $64.08 close yesterday, UTX sits very close to its 200-day simple moving average. Each time within the past year that the price has approached this average, the stock has gotten a significant boost shortly thereafter. I will place a limit order to buy 10 contracts of the August 55s (UTXHK) at $10.00 or better.
Game of Life
Although the NBA changed its draft rules last year, an 18-year-old has declared his intention to enter the NBA draft in June. He is perfectly within his rights to declare for the draft, as he has played the requisite one year in college.
Arguably, Kevin Durant possesses the greatest skill set of any freshman who has decided to forgo the last three years of college to turn pro. Durant swept all six college player of the year awards in leading the University of Texas to the second round of the NCAA tournament. He is expected to be the first or second pick in the NBA draft, with the promise of lucrative paydays ahead.
In addition to Durant and the four University of Florida juniors who declared for the NBA draft, UCLA All-American Arron Afflalo will forgo his senior year to enter the draft. On the other hand, Tar Heels fans are reveling in the fact that Tyler Hansborough, Ty Lawson and Wayne Ellington are returning to the University of North Carolina next year. But their teammate, ACC rookie of the year Brandon Wright, has not announced his decision yet.
In NFL news, Commissioner Roger Goodell suspended the Titans' Adam "Pacman" Jones for the entire 2007 season, and the Bengals' Chris Henry for eight games. Goodell also announced a new policy that will provide the latitude for larger fines and longer suspensions for players as well as potential penalties against teams. This broader policy with stricter penalties emanated from a meeting in February between Goodell, Gene Upshaw, the executive director of the NFL Players Association, and a group of NFL players.
Meanwhile in baseball, Boston's Daisuke "Dice-K" Matsuzaka's home debut in Fenway Park was spoiled by his Seattle counterpart, Felix Hernandez, who pitched a no-hitter for eight innings, finishing with a one-hit shutout. Despite the loss, Dice-K only gave up three runs in seven innings. In Yankee land, A-Rod hit homers in four consecutive games, and leads the majors with 6 home runs and 16 RBI.
In case you did not notice, the Stanley Cup playoffs began last night, absent the defending champion Carolina Hurricanes, who did not make the postseason. The NBA regular season will conclude next week, with the final playoff seeding still to be determined.
Always Remember : Life is a journey, enjoy the ride!
At the time of publication, Dykstra was long UTX and GE.
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.