Last week was my first week off in the six months I have had the privilege to write columns for TheStreet.com. Have no fear, as I am back, dedicated to accomplishing our goal: making money! The bottom line: If you want to use options to invest, you better do your homework. If you do not understand what I am recommending, then you need to sit this one out -- you will be playing with the big boys of the investment world. Rest assured, these are the pros. Please do not forget that when real money is on the line, they will go after it with a vengeance. Remember, you are not buying some guaranteed bond; you are swimming with the sharks. That said, assuming you have been following my disciplined strategy, which isn't hard, remember this: Take your profits when the opportunity presents itself. In other words, don't be a pig.
Intel Is a Gift
Moving on to this week's pick, guess what we are buying? If you guessed "a stock," you're wrong! We are buying Intel ( INTC) in-the-money calls. We are going all the way out to October, with a $17.50 strike price. The cost for us to control (in reality: own) Intel stock for the next seven months will be $2.90, or better. To simplify: Let's agree that we want to own, or control, 1,000 shares of Intel stock until the third Friday in October, which is Oct. 20 (the third Friday of the month, no matter what month, is always the expiration date). The cost for you to have this choice, or option, is about $2,900. You now ask yourself, why would the Chicago Board Options Exchange, which is No. 1 in volume among U.S. securities exchanges, let me control 1,000 shares of a stock that costs $19,540 on the New York Stock Exchange, for only $2,900? The answer: premium.