Tuesday was a perfect example of why we buy deep in-the-money calls. It was the Dow's worst point decline since Sept. 17, 2001, the first trading day after the terror attacks, and intraday, the market was down as much as 546 points.
Standard & Poor's reported that the drop across the major U.S. exchanges hit every industry, and that a total of $632 billion in value was lost on the exchanges Tuesday.
This sort of day exemplifies why I keep my strategy simple. Buy quality stocks that are undervalued, without margin. By using my deep in-the-money call options, I don't have to panic when a crazy day occurs. Traders who use common stock must endure stock market swings that can be very painful. Deep-in-the-money calls, on the other hand, give us a significant time frame, usually four to six months, and we put very little cash at risk to control 1,000 shares.
Remember, this is not a "buy and hold" operation. Our goal is all about making money. We want to reap at least a $1,000 profit after we purchase our calls. To help us do that, we set a good till cancel (GTC) limit sell order, typically 1 point above our buy price.
That way, I protect my investment and don't have to watch the tape every second the market is open. If the stock makes a nice move and spikes up during the trading day, the order will automatically get filled because you set a GTC limit sell order. This allows me to capture that $1,000 gain without making a phone call or watching the computer all day.
That all said, let's get to today's trades, where I'll add in-the-money calls in one company and increase three other positions.
will be the new stock.
I am going to buy 10 August 30s (APCHF) at a limit price of $10.50. APC recently sold off 11% of its 2004 reserve base, and in 2006 the company acquired Kerr-McGee and Western Gas Resources for a combined $23.3 billion. At the end of the day, Anadarko will be roughly the same size company in terms of proven reserves that it was before the transactions.
The key difference between the old and new Anadarko is the fact that the firm is now significantly more leveraged to the deepwater Gulf of Mexico and Rocky Mountain regions. Bottom line: Anadarko is making a big bet on natural-gas prices, while placing great faith in its ability to convert Kerr-McGee's and Western Gas' probable reserves. The stock is oversold and near its 52-week low here. All of which leads me to say: Lock and load!
Now for the additions to my existing positions. I currently own 10
55s (YAAGK) at $12.70, and I am going to buy 10 more deep in-the-money calls at $11.20. Assuming this order gets filled, it will bring my average cost to $11.95.
I also own 10
June 75s (MOFO) at $10.50, and will now buy 10 more at $9.20. Assuming this order gets filled, it will bring my average cost to $9.85.
needs a special note this week. The stock split 3-for-2 on Feb. 21. So the calls were adjusted. The 10 calls now control 1500 shares, and the strike price of 35 is now 23.375. Now I am going to buy 10 more in-the-money July $23.375 (CWNCW) for $3.30. If this order gets filled we'll have control of 4500 shares at an average cost of $4.57 average.
Beyond the Tape
As the Boys of Summer prepare to play the first games of spring this week, there are some rumblings and grumblings making the rounds. Jimmy Rollins' proclamation that the Phils were the team to beat in the N.L. East drew some friendly banter from the Mets' David Wright. At this point, the exchange of opinions is gentlemanly and respectful. Perhaps, as the season heats up, the words will become a bit more tense, thereby creating a true rivalry between my former clubs.
Speaking of gentlemanly, what's happening in The House That Ruth Built? Mariano Rivera, the Jack Bauer of closers, is intimating that he may not finish his stellar career as a Yankee. Moreover, A-Rod and Derek Jeter must be asking themselves, "Why can't we be friends" so the media will stop asking us?
Seemingly, people are perplexed as to how two superstars who patrol the same small parcel of land on the left side of the infield can excel if they are at odds with each other. Rest assured, they are professionals, and they will get the job done.
Meanwhile, on the college hardwood, the Buckeyes of Ohio State eked out a one-point victory over Big Ten rival Wisconsin to stake claim to the top spot in NCAA hoops. Two potential No. 1 seeds in the tournament, Florida and North Carolina, both lost this weekend, which will make the conference tournaments that much more interesting. Duke, under Coach K, has righted the ship, such that they have steered their way into another NCAA berth.
The big news on the NBA front is that the Miami Heat, despite the return of Pat Riley from his medical leave, may not have a chance to repeat as NBA champions. Unfortunately, just as the Heat were beginning to heat up, with Shaq rounding into his usual dominating form, they lost the incandescent Dwayne Wade to a shoulder dislocation. It is uncertain what Wade's status is for the rest of this season. However, it would appear as though surgery will be necessary at some point.
Despite Lasik surgery several years ago, the eyes of Tiger were unable to detect an imperfection in the green, which cost him a potential match-ending putt in the third round of The Accenture Match Play Championship, against Aussie lefthander Nick O'Hern. Tiger Woods merely needed to bag a 4-foot birdie putt on the first hole of sudden death to cap a comeback from four strokes down after seven holes.
Failing to notice a ball mark in his line, Tiger slid the putt over the right edge of the cup, which rendered the commentators and viewing audience speechless. He proceeded to lose the match on the next hole when O'Hern holed a clutch 12-foot par putt, thereby becoming the first player to beat Tiger twice in professional match play. So ends Tiger's pursuit of Byron Nelson's 11 consecutive PGA tour wins, or more appropriately, forces him to start over again.
Over the weekend, I learned that a group of former NFL players has filed a class-action lawsuit against NFL Players, Inc. claiming that they did not receive licensing fees they were promised. Again, situations such as these, regardless of the outcome, reinforce the need for athletes to have a source of guaranteed recurring cash flow.
The Players Club was formed in order to make that a reality. We are dedicated to doing whatever is possible to ensure the financial well-being of athletes. The film,
, and its director, Martin Scorsese, both won Oscars on Sunday night, symbolizing excellence in their craft. Hopefully, The Players Club will gain acclaim for embracing athletes and their financial needs. If that occurs, the happiness and fulfillment of the athletes and their families will be our Oscar!
Always remember: Life is a journey enjoy the ride.
At the time of publication, Dykstra was long Anadarko, Amgen, Altria and Comcast.
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.