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.
The premium is very easy to figure out. Our strike price of $17.50 plus the exact cost we paid for our in-the-money call, which is $2.90, equals $20.40. (Stay with me, we're almost there.) To get your real premium, take $20.40 minus the actual real-time price of the stock, which closed Friday at $19.54. So our premium would be 86 cents. Anything under $1, for the ability to control the stock for seven months, is just plain awesome! Remember this: About 90% of the public who plays options lose. Isn't it nice to be on the winning side? Let's put it this way: I am the CBOE's worst nightmare, and I love that! Last thing, please use a limit order; this will stop those operators from carving you up. So why Intel? Although Advanced Micro Devices ( AMD) has been everybody's favorite, evidenced as the price was soaring toward Pluto, it peaked at $42.70 on March 3. Even with this company on its way back to earth, it is still overvalued. On the other hand, with Intel, everything I read or hear is negative. If I didn't know any better, it almost sounds like Intel has "thrown in the towel" and called the game off. Wrong! These headlines reveal some of Intel's latest developments, with more being created every day:
Intel, Micron Tech to Build New Plant Mac, Meet Windows Intel Boosts Energy-Efficient Performance with First Dual-Core Low-Voltage Xeon Process Intel Discloses Technologies to Make the Internet More Personal and Mobile Intel Aims for Increased Market Share in China. The semiconductor industry (as measured by the SOX) has been moving sideways to down since January, defying market strength. This is a warning, as semis are supposed to be leaders, and they are not. The only company that makes sense in a defensive environment is the world's largest chip company -- industry leader Intel -- which is so undervalued it's a joke! If this were a study on in-the-money calls, Intel would be a "case study" as the perfect candidate. While we wait for our move (it won't take seven months, believe me!), $19.66, Intel's semiannual pivot, should provide a magnet. But with shares trading at a 52- week low coupled with Wall Street operators in full swing with their classic move to drive the stock lower so the public will panic and sell, don't be surprised if Intel trades down near the quarterly value level of $17.30.
If this does happen, consider buying more Intel calls, because the stock should bounce right back. All you need is one move up, a 2- or 3-point spike in the next seven months, and you make money! I can tell you that when the stock price gets low enough, the "sharks" on Wall Street will start buying after having driven the stock down. Most likely you are asking yourselves, "Why would they do that?" The answer is readily apparent: to get your money! The only reason anyone wouldn't buy this Intel October $17.50 in-the-money call for $2.90 was if they didn't like money! Lock and load!