Updated from 7:54 a.m. EST
It's starting to get pretty bloody out there. Volatility and uncertainty persist and investors are struggling with what to buy and what to sell. Numerous great companies --
Bank of America
, just to name a few -- either flirted with their 52-week lows or established new ones in the past week.
The present situation provides terrific opportunities to ultimately benefit from proper utilization of the
winning strategy I espouse each week. Deep in-the-money calls give investors the ability to lock in prices and control much more stock for several months at a time (if needed). Therefore, when stock prices dip or establish new lows, locking in these bargain prices make deep in-the-money calls even more attractive.
Although there's a multitude of companies I could highlight, it is important to note that regardless of the prevailing stock or stock price, deep-in-the-money calls make it far easier to participate.
provides a perfect example of why a good-till-cancel (GTC) limit order of a quality company is so important when your investment strategy focuses on deep in-the-money calls. Less than four days ago, Chevron closed just below $61. On Friday's weakness, I was able to cherry-pick 10 (CVXFJ) deep-in-the-money calls, with the strike price at $50, going all the way out until the third Friday in June, for $8,600.
The symbol in parenthesis is what identifies our particular option. The common stock symbol is always first. The letter "F" stands for the month -- June is the sixth month of the year, and F is the sixth letter in the alphabet. The letter "J" is the strike price. The code for the strike prices works the same way as the month, by the alphabet. Every letter is 5 points apart. J is the tenth letter of the alphabet, so in this case we are buying the Chevron June $50 strike, which is: (CVXFJ).
Because Chevron is a world leader in its industry and just reported stellar earnings, I figured it would be a good time to explain all the little things, the things some of us are afraid to ask for fear of being labeled uneducated.
I will have a GTC order in to sell the Chevron June $50 calls (CVXFJ) at the opening bell Monday. There is a good chance my order could get filled at $9.60, which would be $1 above my purchase price on Friday, or a $1,000 profit.
The next deep-in-the-money call I must share with you is the Intel July $17.50 calls, which last traded for only $3.90 on Friday. Talk about a
! The only reason you
do this trade is if you don't like money! I am serious. We are going out six months: Can you envision Intel not trading up to $23, $24, or $25 in six months? I can't!
Before we think we have this symbol convention for options it all figured out, there is something you need to be aware of: There are six non-standard strike price codes. They are as follows:
$7.50 Strike Price - Code is "U"
$12.50 Strike Price - Code is "V"
$17.50 Strike Price - Code is "W"
$22.50 Strike Price - Code is "X"
$27.50 Strike Price - Code is "Y"
$33.00 Strike Price - Code is "Z"
This helps explain why the symbol for the Intel July calls is "NQGW." (Why it's not "INTCW" is something that will have to wait for another discussion.)
But let's not get bogged down in minutiae: Intel is still the best in the business. The company's development of a new static random access memory chip, designed to conserve energy and space, looks very promising, from what I am told. Intel is the N.Y. Yankees of the chipmakers. It possesses so much firepower, the question is not if but when it reassumes the No. 1 position.
By the way, Intel's most recent earnings were still 21% higher than the previous quarter. Intel's annual earnings were also 21% above 2004 results. Intel's most recent earnings may have let Wall Street down, but it is now trading at 17 times projected earnings for 2006, less than the multiple for the
as a whole. It's the same game these operators on Wall Street have been playing for years: Run them up, so they can get everybody talking and feeling good about the market again. Then, when the market is high enough, the operators start selling,
just like they are right now
! Stick with our game plan -- we will win!
Buy the July $17.50 strike for $3.90 or better. This is definitely a lock and load situation!
Remember, life is a journey. Enjoy the ride!
At the time of publication, Dykstra was long Chevron, GE, Intel and Bank of America 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.