Before I get to your questions, I would like to continue hammering home an effective investment strategy that I have been pushing all week: Great deep in-the-money (DITM) plays don't always involve finding and buying new stocks.
Instead, it's always worthwhile to keep track of companies that you have traded successfully before and that you still like at appropriate buy levels after a drop in price. Just because a stock has fallen, it doesn't mean there's not a reason to buy it -- in fact, look at these opportunities as chances to make money.
Recently I have done that with
Bank of America
Today I will do so with
With this week's mini-correction, Pfizer has once again become ripe for a DITM play. All of the characteristics of this company that made it an attractive buy when I first wrote about it in my
column on April 17 are still there. It is an incredibly profitable company that invests extraordinary amounts of money in R&D in order to remain at the cutting edge of the pharmaceutical industry.
Pharmaceuticals is a sector that's heavy on R&D. With exclusive monopolies constantly disappearing via patent expirations, it's important for companies to keep a steady flow of new drugs coming to market and expanding the uses of existing drugs. Pfizer does so in such a way that has brought great benefits to society and to its shareholders.
The FDA is now evaluating a first-of-its-kind AIDS drugs that keeps the HIV virus from actually entering immune cells, rather than simply suppressing the virus. This offers great hope to many who have not responded as successfully to current treatments.
In order to profit again with Pfizer, I will place a limit order for the December $22.50 calls (PFELX) at $4.30 or better. This allows us to control 1,000 shares of the pharmaceutical giant until December for a mere 59 cents in premium. The stock was recently trading at $26.38.
Now let's field some reader questions.
Thanks for your ideas and insight. About Comcast, with the stock seeming to go lower every day and time running out on our options, when is it time to start thinking about cutting losses and getting out?
Thank you for your question. I know many of you have
already taken your profits
, as the stock has been right at, or near, the good-till-canceled sell price numerous times. Nonetheless, I have not yet officially closed out this DITM call in this column. As I have said from the beginning, I take this business very seriously, and being accountable is the single most important thing to me.
Now, let me address your question. My approach has been to go out four to seven months with the cost of the premium of about $1 or less. There are times that can vary, but in general I try to stay at or below $1.
I typically set a sell target 1 point higher with a GTC order. However, if a position moves against me, you will notice in my weekly "Stat Book" column (which runs every Wednesday) that I set the next buy at a near-term support level. When I dollar-cost average down into a position, I then adjust my GTC sell order down accordingly. When a DITM call gets to this point -- meaning about 30 days from expiration -- I adjust my sell target ( i.e., Comcast ) to offset the time, while still capturing a nice solid profit. Stay tuned!
Hi, Lenny. I have caught your articles from time to time and am intrigued. Ihave been looking for a way to invest and do not know much about it, but feel that institutions that invest have their company's best interest at heart, not mine. I do not have a lot of cash, but it looks like your investment strategy yields cash with the lowest risk. Can I get on your mailing list? Or can you share your strategy with abeginner in mind?-- Brenda
Thank you for your interest in my DITM strategy. Every day I share my investment success strategy right here at
; please take the time to review my past articles for more information. Additionally,
has a wealth of information regarding investment strategies; I recommend you look into what
has to offer for investors, from the person that's just beginning to the most seasoned veteran.
I missed your options column today. With the market turning down, it would be interesting to hear your advice, and also to know what to do with the options that have been discussed. I hope everything is fine with you.
Thank you for the kind words. My column is so late because of computer problems. I was traveling last night, and when I arrived at my destination, everything was fine. This morning, their Internet connection was down -- I was shocked and upset, to say the least. I was so upset, I drove to the nearest business (I believe it was a real estate office) I saw open, and just jumped on an open computer -- all this while the owner of the business is yelling in my ear, "I am going to call the police if you don't leave."
Bottom line: I take complete responsibility for this delay. I do not want to make excuses, so I can only say that I will try my hardest so this does not happen again.
At the time of publication, Dykstra was long BAC, YHOO, PFE and CMCSA.
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.