Dykstra: Money Player

A moment in CNBC's spotlight shows the power of the deep-in-the-money call strategy. Plus, the case for Dell.
Author:
Publish date:

It was not an appearance destined to earn an Academy Award, as Cuba Gooding Jr. won for his supporting role in

Jerry Maguire

. But last Tuesday, Jan. 24,

CNBC

was kind enough to allow me to "show

you

the money!"

Being recognized by

CNBC

, the most prominent financial news television network, for my business and financial acumen was incredibly gratifying. But most importantly, my time on camera provided a great example of just how powerful my low-risk, high-reward

deep-in-the-money calls strategy can be.

Indeed, on

CNBC

last Tuesday I recommended buying 10 of the June $35

Dow Chemical

(DOW) - Get Report

deep-in-the-money calls. Anyone who followed my advice was then in control of 1,000 shares of Dow Chemical until the third Friday in June for only $7,400 vs. buying the common stock outright, where you would have had to shell out approximately $42,540.

Then on Wednesday, the day before Dow Chemical's earnings, the stock traded as high as $43.95 intraday. Obviously, if you had been reading my columns, you would have sold your June $35 calls that day, and locked up your profit -- anywhere from $1,000 to $1,900 on a $7,400 investment

in one day !

Then, on Friday, between the profit taking and the operators on Wall Street , I got to buy back the same June $35s Dow calls for around the same price I recommended them on Tuesday! With deep-in-the-money calls, you can take advantage of the price swings in short time horizons by taking advantage of the volatility. Buy on weakness and sell on strength!

Before I get to this week's pick, I would like to thank

CNBC

for the opportunity to "get in the box" with Ted David, Liz Clayman and my good friend and colleague at

TheStreet.com

, Richard Suttmeier.

This Dude's Getting a Dell

As a reminder -- or for those new to the column -- we are looking for great companies that have been oversold.

My theory is that the Street often overreacts to bad news (perceived or actual) and this overreaction will eventually correct itself as the value of quality companies reasserts itself over time; those who buy deep-in-the-money-calls in advance will be rewarded.

At current levels,

Dell

(DELL) - Get Report

definitely

fits into that category.

First, recognize Dell is not just a PC maker. The company also provides products and services to build information-technology and Internet infrastructures, including servers, storage, workstations, software, printers and other devices for corporate networks. On the consumer front, Dell's offerings include plasma and LCD televisions, MP3 players and other handheld devices.

Dell is expected to report earnings per share of 41 cents on Feb. 16. A wildcard in this report could be the announcement that new products would use chips from

Advanced Micro Devices

(AMD) - Get Report

. Another reason a turnaround bet should work is the fact that the company should not have three disappointing quarters in a row.

The May $22.50 deep-in-the-money calls at the price of $7.20 (right in the middle of the $7.10 bid-$7.20 ask as of Friday's close) should put us in position to control 1,000 shares of one of the greatest companies in the world for only $7,200 if you buy 10 calls. Remember, if you are not in position to constantly monitor your investment, please put a good-til-canceled (GTC) limit order in to sell your 10 calls at $8.20 or better. That would be a nice win: $1,000! Especially when you are only at risk for $7,200 as opposed to almost $30,000 to buy an equivalent amount of the common stock.

The Game of Life

Undeniably, the pursuit of money drives many of us on a daily basis. In fact, the purpose of this column is to help you to create more wealth. My column is merely a microcosm of

TheStreet.com

, which is heavily invested in enhancing your wealth.

Speaking of microcosms and investments, the airways and the print media have been abuzz with the controversy surrounding James Frey's supposed memoir,

A Million Little Pieces.

For those of you unfamiliar with the situation, Frey's book about his addiction and subsequent recovery from drugs was lauded by Oprah Winfrey in her television book club. Soon thereafter, Mr. Frey was "in the money," as his book has sold over 2 million copies to date.

Unfortunately, the veracity of some of Frey's assertions in the book has given a different meaning to

A Million Little Pieces

. Apparently, he took little pieces of different events, embellished them, and ultimately molded them together to create his "memoir." After being admonished by Oprah on national TV and coming "clean," it remains to be seen how this will affect future sales of his book.

Kudos to Oprah, my wife's favorite talk show host, for helping to set the record straight. Clearly, Oprah was misled prior to recommending

A Million Little Pieces

to her viewers. When the inconsistencies in Frey's "memoir" finally came to light, Oprah, on national television, rectified the situation with Frey's

mea culpa

. Her ability to so gracefully remedy an incredibly difficult situation is quite admirable. That helps to explain why she is so trusted by her viewers.

In the microcosm of this and every column, I hope to similarly earn your trust.

Remember,

life is a journey, enjoy the ride!

At the time of publication, Dykstra was long Dow 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.