I have received a tremendous amount of email from readers recently, and I want to emphasize how much I appreciate the feedback. Like most humans, I am not perfect, and I make mistakes every once in a while. I'd like to make a few corrections to past columns that have been pointed out in these emails.
Roger Federer is indeed Swiss and not Swedish; Gene Sarazen is remembered for his double eagle at 15, not a hole in one; and I apologize for leaving
off of the stat book. I strive to deliver quality investing advice to my readers, and I can only hope to be as reliable in my delivery as my pick for today,
Most everyone in the U.S. has done business with UPS at some point, which is evidenced in the fact that the company grew 11.2% this past year. But at its close yesterday of $70.38, the stock now sits at 16% below the 52-week high achieved last May as its shares, and those of rival
, have been battered lately.
Although UPS did lower its outlook for this current year, the slowdown in growth should only temporarily hinder this rapidly evolving company, and the stock remains a solid investment. UPS generates $3.23 billion in
free cash, and pays shareholders a solid 2.40%
dividend, providing extra incentive for investors to take note.
This week UPS disclosed plans to open a new hub in Shanghai, China. The company's profit growth has been aided in part by the increase in deliveries to China, as well as the rapid expansion of the Chinese economy. The plan calls for the hub to open in 2008, and it will help UPS cater to a market that grew by 14%. UPS now ships to 330 cities in China and has a significant amount of room to grow along with the ever-expanding Chinese economy.
The scope of the company's operations is truly amazing: In 2006, UPS delivered nearly 4 billion packages, which is nearly 15.6 million packages a day; it receives 15 million online tracking requests daily; it qualifies as the eighth largest airline company in the world, with nearly 300 planes.
On April 25, UPS will announce first-quarter
earnings for 2007, and I expect the company will deliver a solid quarter. But I always like to have back-up, and that's why I am going to place an order in October calls, which will give me all the way out until the third Friday in October.
Further boosting its investment promise is the fact that
in the company. In order for us to profit along with Warren Buffett, I will place a limit order to buy 10 contracts of the October 55s (UPSJK) at $16.30, or better.
Now let's get to the emails.
Hi Lenny, I follow the markets from Norway, where I work in the oil industry. I, too, have through trial and error gradually come to the conclusion that if you play options, DITM is the way to go. But I firmly believe that you have to make mistakes (such as playing OTM options) in order to learn from them. I had a quick question on your recent Peabody (BTU) - Get Report calls on March 5 and March 19. I'm curious as to why you picked a lower price on the 19th of 9.00, and 9.90 on the 5th. Of course, hindsight is always 20/20, but it seems that if you had stuck with the same price the second time you would have gotten in and made a thousand in the same two days as you did the first time.
Mistakes definitely help advance a person's learning curve, particularly when losing money is involved. Many people are just unaware of the profit potential that deep-in-the-money calls hold. Hopefully I have helped some people take a step forward without the painful learning experience that out-of-the-money calls bring.
You are right on when you say that hindsight is 20/20. The technicals in Peabody changed between March 5 and March 19, with the 10-day, 50-day and 200-day simple moving averages all continuing to move downward. At the time, based on the charts, I believed BTU would fall slightly more before making a push back up.
However, the push happened before our order to buy was filled. As much as certain factors help gain a better understanding of the movement of stocks, it is impossible to actually predict the market.
Mr. Dykstra, as a native-born Philadelphian, I want to thank you for the great memories provided during your time in the city. The 1993 season, in particular, was the most fun of any season.In regards to your latest column concerning Amgen (AMGN) - Get Report, there is a large divergence from your normal strategy of buying deep-in-the-money calls. July 55s were in this category when you initially purchased them, but obviously that is no longer true. Can you expand on your rationale in general in cases such as this?
Many readers have had varying remarks about the Amgen July 55 calls this past week. The reason I believe it prudent to average down on these calls while they are near the money, rather than deep in the money, stems from the technical position of the stock price. At $55, Amgen enjoys considerable support, as that represents the low level of the company from 2004. Since that time, Amgen has grown considerably and will continue to do so. As a result, I believe that the $55 level will provide significant support and spur Amgen to regain some lost ground. During volatile times, the market tends to overexaggerate extremes, with stocks reaching for higher highs and lower lows than
fair value would dictate.
Hello, can you give me a simplified explanation of how you place your calls and then sell them for a quick $1,000 profit? Do you have a sell strategy to limit downside risk? I have a lot of experience buying stocks long, but no experience with puts and calls. Thank you for your time.
You ask some excellent questions that provide a great opportunity to re-emphasize the theory behind my deep-in-the-money calls strategy.
The first step for me is to find a stock with strong fundamentals that is also in a technically strong trading position. Once I have such a company, I choose deep-in-the-money calls that range from four to six months in the future. This provides downside protection, as stable and technically strong companies are subject to short-term weakness; so long as the right companies are selected, a gain will be reached within that time period.
I make my purchase using a GTC limit order at a price I believe to be a proper entry point. As soon as I purchase my options, I immediately place a GTC to sell the options for $1 more than my purchase price. This ensures that the gains I achieve on paper will reach my wallet and allow me to move on to my next investment.
My approach in investing is much the same as my approach to hitting: I would rather take a walk or single and reach first than shoot for a home run and strike out swinging.
Hello Lenny, I have been following your column for several months now, and I must confess that the option game is still beyond my grasp. However, I have a corollary question. It sort of seems to me that the companies that you select for deep-in-the-money plays are also candidates for outright purchase as either trades or investments. Would you care to comment on this?
You are exactly right. Since I look for calls with a strike date months in the future, it is essential that companies I select not only have the potential for short-term gains, but also are strong, stable and fundamentally sound corporations, much the same way a stock investor looks for investments. Any option that I will trade must also be in a company that I would feel comfortable investing in, as I look for the same key factors.
Always Remember: Life is a journey, enjoy the ride!
At the time of publication, Dykstra was long AMGN and INTC.
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.