One thing to remember with the deep-in-the-money (DITM) strategy is that it's not necessary to pick a new stock every day. What I mean by that is that after a win using DITM calls, if the stock comes back down to opportune buying levels, it can be very profitable to reinvest in that company once again.
As you can see from my Stat Book at the end of today's column, I have successfully done this using
. It's also a strong strategy to look at present DITM positions and either dollar-cost average into larger positions or reach further out in time and buy more calls.
Yesterday's column brought us back to the most profitable DITM trade of the year,
, a pick that exemplifies both the dollar-cost averaging strategy, and more recently, the idea that coming back to winning plays at proper buy levels may be better than reaching out to new stocks altogether.
Today's column looks at two similarly solid companies --
Bank of America
. These stocks were both on the buy list within the last couple of weeks, but our limit orders did not fill on either and they were taken off the board.
Yahoo! had a very difficult run in May, but I believe June and the summer months beyond hold the potential to turn around this company once again. The company has a strong balance sheet and may soon begin reaping the benefits of the Panama advertising system.
Many folks highlight May through July as the weakest period historically for technology, yet this year seems different. The market continues to be resilient, and the
said yesterday that the economy will resume growing at its long-term trend in the latter half of the year.
For a while now I have touted Yahoo! as one of the stronger takeover or merger targets in the Internet field. While I do not invest in companies solely on their potential for takeovers, I do believe that this enhances the value of the company. Using DITM calls, I will place a limit order for 10 contracts of the January 20s (YHQAD) for $9.00 or better.
With Bank of America, we currently hold 20 contracts of the August 42.50s (BACHV), but the time is right with this company. The August holding is still a strong play. However, today I am going to reach further out and aim for 10 of the November 40s (BACKH) by placing a limit order for 10 contracts at $11.30 or better. The stock receives strong technical support at the $50 level.
In addition, the 200-million-share repurchase program provides built-in support against further negative movement. At yesterday's close of $50.66, the giant bank is just too cheap. Fellow banking giant
trades with a P/E of 12.9, yet Bank of America, which is under better management and growing at a faster rate, trades with a P/E of only 10.8.
And now, let's take a look at this week's Stat Book.
At the time of publication, Dykstra was long BAC.
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.