Now, as I do every Friday, it's time to look at your emails. First, I must take this time to thank all of you for your widespread support; thank you!
Kudos to you on Massey Energy. I paid a large price to learn that options are good until time runs out. What an education it was looking at today's prices. I have been following your picks and deep-in-the-money calls strategy for about a year, and Massey taught me that you just cannot panic. If you have not guessed yet, I sold early at a price lower than my breakeven point because I feared time was running out. Thanks for all the great information you share with your readers. Thank you for your kind words. You are right: As expiration looms closer, it gets harder and harder not to be swayed by the hand of emotion. The lesson you learned due to anxiety and impatience may come with a cost, but as such, it becomes a lesson you won't quickly forget. All too often, investors never truly learn this lesson, and they consistently buy too late and sell too soon. Remember this: not all games are won or lost in the final minutes of the game, but there are times when they are. Keeping a level head at all times is very important and easy to master if you arm yourself with information and have a clearly defined strategy as expiration approaches.
What happened to your EDSCT $5.00 limit order in the unfilled section? This order was not filled during the week, and the order to purchase was canceled. Too many followers of my DITM calls strategy were leaving their good-till-cancelled buy orders in too long, resulting in questions about what they should do with options that were never filled and not listed in the Stat Book. To simplify things for the reader, the Stat Book now lists orders that were not filled during the week. Recommendations listed in the Market Watch section have been canceled.
Sometimes I read your column later in the day, and the price at which I buy the DITM call is lower than the price you paid earlier in the day. In that situation, should I set my GTC sell at $1 above where I bought my position, or $1 over where you opened your position? I love your column. As an investor, you are in the driver's seat and only you decide the GTC selling price of the trades you make. You have a better chance of a win if you place your GTC sell order at $1 above your buy price, but with weekly advice on buy levels, you have the opportunity with these trades to earn extra profits that might be possible setting your GTC selling price with me. With 30 consecutive wins, I'd have to say that whichever choice you have been using, it has been working for you. It's always a good idea to stick with methods that yield consistent wins.
Lenny: We really enjoy your trading style. However, I am curious how you chose FedEx (FDX), because we paid well over $1 in premium, according to your rules. Could you please explain your reasoning for this departure, or am I missing something? Thank you. You aren't missing anything. As in life, there are exceptions to every rule. FedEx is a great company, with superb financials to back it up. As such, however, their options carry a steep premium, so you have to allow for some leeway. As you continue to trade in DITM calls, experience will tell you when a small departure from the rules is acceptable, and when it is not. And, common sense tell us that when a stock is trading over $100, a higher premium can be expected and accepted, if all other conditions are met.
It's so interesting when one looks at the numbers. After I read your article, I did some research and decided you are right. Then Wyeth's (WYE) kids' cold remedies are pulled and the downward spiral began (look at the last five days). No matter how hard we investors try, news can kill a good idea in a matter of minutes. The classic knee-jerk reaction to negative news is always expected, but news such as this doesn't kill a good idea, it makes it better. This isn't a story about cyanide in your Extra-Strength Tylenol; this is parents failing to read directions. Wyeth and Johnson & Johnson ( JNJ) are wise to pull the products in question, because situations such as this will cause the stock to dip down, but it is rarely cause for long-term concern. Investors soon realize that they have over-reacted to the situation, and the stock will go from untouchable to undervalued. I am still confident about the Wyeth recommendation.