Deep-in-the-money calls are the perfect investing tool for a volatile stock market. For those of you who have been using my deep-in-the-money calls strategy, you know I prefer to go out four to six months with our strike price. Because of the time we give our picks to make a move up, our chances of executing a winning trade are improved tremendously, thereby improving the risk/reward profile.This week, we focus on General Dynamics' ( GD - Get Report) November $55 deep-in-the-money calls, which I'm looking to buy for $11.50 or better. For the simple reason that this particular option hasn't traded in a while, I am only going to add a small "premium" to the stock price. General Dynamics closed Friday at $66.12; let's see if it comes in. There is no reason to chase anything in this roller-coaster of a market. Until things calm down, we need to find companies that will alleviate the daily pain we have been experiencing with these massive market swings. This market is so volatile right now, it's downright scary! That is why we are going to buy the General Dynamics deep-in-the-money calls. When market conditions are this unpredictable, a company needs to have a weapon to keep the "operators" from taking their stock down. Otherwise, it will get pummeled in an environment like this. In other words, we need to find companies that are buying back their stock. General Dynamics plans to buy back up to 10 million shares, or 2.5% of its outstanding stock. Also, let me add that General Dynamics is arguably the premier defense contractor in the world. Bank of America recently boosted its profit estimates and raised its price target to $73. This is a company that has about 72,000 employees; it produced about $22 billion in revenue in the past 12 months. General Dynamics has a forward P/E of 14.31, return on equity of 18.87%, and to top it off, it has $1.70 billion in free cash flow. Remember, that's after it pays all its bills. This is the definition of a "major league" company!
Characteristically, we remember the winners and their miracle shots. Who can forget Tom Watson holing out from off the green on the 17th hole at Pebble Beach to beat Jack Nicklaus 24 years ago? Perhaps unfortunately, we sometimes remember the losers and the calamitous shots that led to their downfall. This year was one in which the course dominated, but there was the usual plethora of captivating story lines. Colin Montgomerie denied yet again on the 18th hole of a major. Phil Mickelson's inexplicable collapse on the 18th hole, when he was poised to win his third consecutive major. Geoff Ogilvy, the young Aussie, who won his first major. Nevertheless, this U.S. Open will inevitably be remembered for the ultimate competitor, who was unable to compete over the weekend. For the first time in 40 majors, for the first time in his storied career, Tiger Woods did not make the cut. As monumental as that may seem, that is not the story. No, the story is the essence of Father's Day. Throughout the U.S. Open, Nike aired a 60-second spot which memorialized a father-son relationship that is arguably the most famous in all of sports. Priceless footage of the young phenom, Tiger, under the watchful eye of his mentor, Earl. Father and son, intimately linked through transcendent accomplishments, whereupon a prodigy has actually lived up to his expectations. Earl prepared Tiger to translate his golf prowess into a universal language that has the ability to transform conventional thinking. Thus, even though Tiger was conspicuous by his physical absence this weekend, his figurative presence speaks volumes about how successful Earl was in his mission. Earl imparted invaluable wisdom to his son. One thing he could not teach him, however, was how to dull the pain caused by a hole in his heart that is not amenable to surgery. Tiger, like all of us mortals, will have to figure that one out on his own. Earl Woods was a mentor, a protector, a confidant, a friend to his son. Most importantly, Earl Woods was a father. Like most fathers, he will be sorely missed. Remember: Life is a journey, enjoy the ride!