Portfolio e-Conference Transcripts
Jack Teaster was the e-Conference Moderator.
Transcript from the October 11, 2007 e-Conference.
Jack Teaster
Hello, and welcome to this afternoon's Investors Observer e-Conference. Today our guest is Vic Wisemann. Before we begin this event, I'd like to give you some tips. This is a text only chat. There is no audio. To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer. Be patient, there will be many questions so it will take time to get to yours. Vic, your opening comments?
Vic Wisemann
Well, thank you, Jack. It is good to be doing another one of these e-conferences and it is nice to have a market that is going up. What does everyone think about the market recently? And please enter all you questions.
Qubit
A little concerned.
zoroz
Good.
Clarance
Interesting.
B-MAC
I like it.
ed
Juicy.
Lee
Ok.
zoroz
Is it over the hill.
Vic Wisemann
It is interesting to stop and look at the big picture. It was not all that long ago when everyone was concerned about the sub-prime loans and the market has done an amazing comeback since then. A few more comments.
Joe
A very dangerous blow-off topping rally
TERRI
Should we be nervous?
sh
Good, but the foreign markets are even better - BRIC especially.
cfc
More sub-prime issues.
GeoMax
Challenging.
breakman10
Will Google hit 700?
sh
Good, but the foreign markets are even better - BRIC especially.
tls
Suspicious.
Vic Wisemann
Well, it is interesting. There is a little more skepticism than I expected. It pays to be cautious as October is a volatile month, but I think the market is doing good, and I think we will have a nice little run up into the end of the year. Watching it is good but we do not need to be too nervous.
breakman10
Should I buy Google; will it hit the 700 mark?
Vic Wisemann
You know I still like Google. It is the best thing out there for a search engine right now. I think it still has a lot of upward potential. The products are easy to use and the marketing is great. No one else is any real competition right now.
Joe
How long do you think the indexes (esp. NDX and SPX) can continue climbing at such a steep slope?
Vic Wisemann
Well, I think there may be some resistance now that it has hit new highs. That means a slow down in velocity but still think there is some upward potential
pucho
What are the products that we are talking about?
Vic Wisemann
We will be talking about the Double or Nothing portfolio and first and foremost though, one needs an accurate view of the market.
TERRI
What do you think about the GM climb when their sales keep going lower?
Vic Wisemann
I think that the union deal was big news for GM. Usually unions and companies fight but getting the health care stuff off GM’s books and into union hands is a big win/win. That is a lot of money that will come off thebooks.
TERRI
But GM had to make some costly concessions.
Vic Wisemann
But it will benefit them long term.
Mac
We've all seen advances in Chinese stocks lately. Is the run over?
Vic Wisemann
Great question. No, I think they have room to continue. Olympics will be a big deal and a lot more money can still come in after that but I am always suspicious on official number. I don't trust the government completely.
TC
Thoughts on Apple; has their run peaked?
Vic Wisemann
I still like Apple. iPhone has more market share and will continue.
KB
What about RIMM?
Vic Wisemann
I like RIMM. We will get to that one later.
B-MAC
I know the market trend will produce more up trends but isn’t it true stocks go both ways in any market, depending on the company’s fundamentals, profit and growth?
Vic Wisemann
Well that is true, and part of the reason we have two sides in the Double or Nothing portfolio and we reserve the right to play the puts as well. If we think the market is going to head down on the speculative side, for example, we can buy a put and so a put spread.
Qubit
15K by the end of the year?
Vic Wisemann
That is quite possible... it is only 6% away.
Guest
What is your current stock recommendation?
Vic Wisemann
We will be looking at several stocks that are on our radar and we have a special bonus trade at the end -- one stock we really like. I will give you a hint now; it is on an uptrend. Which brings us to how we pick stocks for the double or nothing. We have had a nice little track record over the last 9 months and we like stocks that are good companies that are uptrending, that have good earnings, needed or innovative companies, or that make a product in high demand and then we put on a position using options; two trades -- one speculative on one for a little more conservative.
B-MAC
Would you explain briefly a PUT SPREAD?
Vic Wisemann
A put spread is when you buy one put and sell another. A call spread is when you buy one call and sell another. In some of the other portfolios, the original perfect trade portfolio, I use put spreads, typically bullish put spread. In the Double or Nothing portfolio we use call spreads so we buy one call on a stock we think is going to go up and then we sell another higher one.
Jack Teaster
Vic Wisemann runs three portfolios in the Perfect Trade series. Today we're discussing his Perfect Trade/Double or Nothing Plus Portfolio. For more information on the other portfolios in the series, along with all the IO portfolios, see the portfolio summary page here: port_summary.asp.
Vic Wisemann
This costs us some money like 4.10 on a 5.00 spread and then when expiration comes, hopefully we get the full 5.00 target.
NJC
Always nice to hedge your bet.
Vic Wisemann
It is, and that is why you do spreads. Now, on the speculative side, we just buy a call where if you have a $100 stock, the call can be $10, which gives 10 to 1 leverage, but in that case you need the stock to go up to make some money.
Joe
How do you turn .90 on 4.10 into "double"?
Vic Wisemann
That is on the hedged side, and that is a 0.90/4.10 21% return but 21% over 21 days is a 3655 annual return so most of the hedged trades are double on an annual basis. And we always shoot for double on the speculative side, but that is a target. Shoot for the moon; if you miss, you will be a star.
Joe
Ah, so you target an annualized 100% return--still very nice.
Dave V
Annualized returns are nonsense.
Vic Wisemann
All annualized returns are for comparison purposes only. Should have mentioned that earlier. And that is just to compare them to other returns. See these trade have low holding periods; usually less that a month.
filbert
Which sectors do you favor?
Vic Wisemann
You know I like technology. As I was getting ready for the bonus trade, coming in a few minutes, there were a couple of companies I really liked and I wanted to mention them. I like MON (Monstanto). It is doing really well, in part because of corn and ethanol and the high oil prices.
filbert
Didn't MON disappoint?
Vic Wisemann
Yes, a little, and that is part of the reason it didn't make the final cut. And another one I like is GME. Game Stop has been going wild recently -- from 25 to 60 in the past year and with all the new games coming -- and the popular Wii -- I think they will continue to rise.
mac
Speaking of games, what do you think of ATVI (Activision)?
Vic Wisemann
Positive; I like the industry.
tiki
What would be a good entry point for MON and GME?
Vic Wisemann
Well, if I were doing plays on them I would be looking at the options and structure a trade like we do in the double or nothing.... looking for a hedged trade about 5% in the money or a call slightly in the money out about two months.
sh
How to play GME ? What options to buy?
Vic Wisemann
Well, we are not getting into specifics on that one. I have another tech company I like better and I have specifics in a few minutes.
walt
I prefer to jump on options for CIEN.
Vic Wisemann
Nice looking chart on that one... It has been gaining.... stock does some nice up moves... but lets get a few more general questions ... and then we will jump into the bonus trade.
walt
I rode CIEN for great gains the last time around. CIEN looks to be going to re-gain the momentum it once had.
Vic Wisemann
It looks like it still has it.
Joe
What's your rationale for a continued uptrend in oil prices (and other factors affecting ethanol/corn)?
Vic Wisemann
Well, there is still a lot of demand for oil and with the US dollar being so weak, oil prices for us are going to be high for some time. It takes a while to build new oil rigs and unless there is a economic crash (that cuts down demand) oil will be up.
BEAU
With the weak dollar, can you recommend a way to play gold?
Vic Wisemann
Well, a weak dollar buying the gold miners or even a tracker will do well.
tiki
Do you prefer the oil service stocks or the companies?
Vic Wisemann
Both should do well.
filbert
Which sectors do you favor now?
Vic Wisemann
Tech is good; so is oil...
Hockey
You use "I think” quite often.
Vic Wisemann
You know I do because I have to admit I do not know what is going to happen tomorrow... and there is risk. In the market anything can happen and that is one reason some like to play the hedged side.... but others like the risk and high returns of the speculative side and you can always switch but it is better to play one side or the other. I don't recommend doubling up and playing both sides in the same stock.
Guest
What stocks are good to buy for the next 6 months?
Vic Wisemann
In this one we like to play the short term. That is what we do in the perfect trade.
Joe
Do you see much risk of further credit-market turmoil?
Vic Wisemann
I think the fed has it neutralized for now. It can re-emerge... and there will still be issues but since the fed gets it I think the worst is past.
sergipet
Sentiment readings are becoming extremely bullish. Isn't it time to be cautious?
Vic Wisemann
Always a good thing to keep an eye on.
TERRI
What is your best pick right now?
Vic Wisemann
Yeah, I do have bonus trade. Are you ready for that trade? ow we looked at several different stocks including MON, GME and RIMM And the winner is RIMM.I said I would get back to that one. This is a solid tech company that has serious growth potential. The stock has been on a great uptrend. It has gone from 40 to 120 over the last year. Now that is a powerful uptrend. Just this morning I was reading about it, signing an agreement on "predictive text technology in ambiguous keyboards." That means typing on cell phone pads.
dowjoe
Sounds like a Greenspan comment!
Vic Wisemann
"Ambiguous Keyboards" sounds sort of cool. Yeah, dowjoe, it does but let’s get back to the trade. We are looking at the October 105/110 call spread for a debit of 4.50 and actually when we picked it this morning it was up... now it is down a little. That does not worry us. Volatility is normal right now. I think you can get it for 4.40, but let’s go with 4.50 for these numbers. That is buy the RIMM OCT 105(RUL JL) while selling the RIMM OCT 110 (RUL JB) for a 4.50 debit. This morning the 105 call was going for 11.90 and the Oct 110 was trading around 7.40 for a 4.50 debit. The prices do not matter so much as the debit itself. So if you get filled at 11.80 and 7.30 that is fine. And if you get filled for less than 4.5 that is good, too. Using at 4.5 debit so this trade has a 11.1% return.
dowjoe
Which months?
Vic Wisemann
October, over a little over a week. It expires October 20th. So that is 10 days from now. So if you annualize it, that is a 405% annual return (for comparison purposes only) only about $6 or around 6%. It has to stay above 110 so it can fall about 6%. But that would be the hedged play. On the speculative side, we are looking at the November 110 call (RUL KB) for a 12.00 or better debit entry. We picked that this morning. Right now the ask on that is 11.35 on the call that is the natural.
Joe
Just got the spread filled for 4.25.
Vic Wisemann
Awesome.
tiki
So any time would be a good entry point if buying the stock?
Vic Wisemann
Sure. We expect to hold the call for a week or two as RIMM rises and hope to sell it for a profit.
walt
Volatility is our friend.
Vic Wisemann
Well, it can be and it can stab you in the back too. It is like boating; some times it cooperates some times it doesn't. We have a link don't we?
Jack Teaster
Why, yes.
Vic Wisemann
So you can sign up, cool.
Jack Teaster
You can subscribe today for Vic Wisemann's Perfect Trade/Double or Nothing Plus Portfolio for the discounted subscription price of $499 for the year when you sign up at this link: PTDNOC1. You can get a monthly subscription at the regular price of $49.95 per month when you use this link: PTDNPS6
Vic Wisemann
Thanks Jack.
Jack Teaster
Both subscription types are covered by our money-back guarantee. Find details here: guarantee.
Vic Wisemann
But let’s talk about the risks a little more.
Jack Teaster
Remember, only portfolio members will get Vic's continuing commentary and exit orders for today's bonus trade.
Vic Wisemann
There is a reason it is called the double or nothing, and that is why you want to be a portfolio member... to know when to get out. The call side, that can be riskier because if RIMM does not go up, you will lose money on the call. But we are doing a November call. Is RIMM guaranteed to go up? Well, no; I can't predict the future. I think it represents a great risk/reward ratio though and the stock has been going up. But past performance does not guarantee future results, and that is what we look for in the Double or Nothing portfolio. Allow me to use the poker analogy... we say this portfolio is a little riskier like the Las Vegas Casinos. When you are dealt a good hand in poker, you have to play it. When you get a pair of kings you try to win as much as you can. You have an edge, but you still have to hope that the other guy does not have all the aces. So over the course of the night you may be up or down but by the end of the night you hope to leave with more than you came with. Well, we have been doing ok in the Double or Nothing... If I can blow my own horn a second. We show the results on this page... port_summary.asp and so you don't have to go far. January ‘07 $1,025 February ‘07 $585 March '07 No trades April '07 $1,900 May '07 $25 June '07 ($225) July '07 $2,480 August '07 ($2,730) September '07 $2,600 Total $5,030. That is the speculative side. So over the last 9 months on the speculative side we have hit 21.2% a month. Some months we win, some we lose, but over the long haul this is doing great. And it does not require a lot of money to play the portfolio -- less than $4,000 on the speculative side. January ‘07 $1,500 February ‘07 $1,300 March '07 No trades April '07 $1,270 May '07 $2,100 June '07 $900 July '07 $2,050 August '07 ($7,500) September '07 $1,900 Total $4,150. That is the hedged side. We are looking at 6.7% average return a month. And some of that is due to the big hit we took in August. Hey, it was a rough month but we are still up for the year. Now, I can't guarantee all winners. I think over the long run we have a winning game plan.
Jack Teaster
127% on the speculative side so far in 2007.
Vic Wisemann
We have some really cool, proprietary tools too that I can't tell you about and I think we have a unique edge on the market. And if you take a look at our past trades I think you will be pleasantly surprised. So, how is this month doing so far? Well, for most of the months the stocks were flat. Now they have moved into the positive. Both the current stocks in the portfolio are having an awesome day; the speculative side is up 34%, one stock is up 4.2% today and the other is up 2.6%. But you need to sign up to see those trades. What was that link again?
Jack Teaster
You can subscribe today for Vic Wisemann's Perfect Trade/Double or Nothing Plus Portfolio for the discounted subscription price of $499 for the year when you sign up at this link: PTDNOC1. You can get a monthly subscription at the regular price of $49.95 per month when you use this link: PTDNPS6. Both subscription types are covered by our money-back guarantee. Find details here: guarantee.
Vic Wisemann
A couple of days ago they were down that much. But that is part of the excitement. Ok we are almost out of time.
dowjoe
What if one leg gets filled -instead of both? The sell was filled!
Vic Wisemann
If you put it in as a spread, both will be filled at the same time. You can try legging in, but that is at your own risk. Sometimes you get a better price. Sometimes you have to wait a while or get a lower price.
qbit
How much is the initial investment for each?
Vic Wisemann
For the RIMM trade, the hedged side is 4,500 if you do 10 contacts. And the speculative side is $1,200 for 1 contract, which is about right.
Hockey
I got fill at 4.30.
Vic Wisemann
Good.
TERRI
Mark a box that AON (all or nothing).
bob
Do you ever suggest credit spreads?
Jack Teaster
You can find credit spreads in Vic's original Perfect Trade Portfolio. For more information, see the summary page here: port_summary.asp.
Vic Wisemann
You can do that too.
Hockey
Not knowing what I'm doing, do I just pray till the 20th?
Vic Wisemann
And stay tuned to my commentary. I want to thank everyone for all their questions.
Hockey
OK.
sergipet
Enjoyed your seminar very much, and the format used. Hope you do again in the future.
Vic Wisemann
Thank you. Sorry I wasn't able to get to every question. There were some great ones though.
Jack Teaster
For Vic's continuing commentary on today's bonus trade, you'll need to subscribe to his Perfect Trade Double or Nothing Plus Portfolio. Thanks, Vic. I'll post the links one last time...
Vic Wisemann
And there is risk, but we have an edge and commentary to guide you through if you sign up... Please do, Jack.
Jack Teaster
You can subscribe today for Vic Wisemann's Perfect Trade/Double or Nothing Plus Portfolio for the discounted subscription price of $499 for the year when you sign up at this link: PTDNOC1. You can get a monthly subscription at the regular price of $49.95 per month when you use this link: PTDNPS6. Both subscription types are covered by our money-back guarantee. Find details here: guarantee.
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions.
Clarance
thx
Jack Teaster
Unfortunately we have run out of time for this e-conference. A transcript of this afternoon’s event will be on the site within a few days. http://www.investorsobserver.com. If you have any more questions, please send them to support@investorsobserver.com, where our analysts are always available to help you. Have a good afternoon everyone!
Transcript from the October 3, 2007 e-Conference.
Jack Teaster
Hello, and welcome to this afternoon's Investors Observer eConference. Today our guest is Warren Stanley. Before we begin this event, I'd like to give you some tips. This is a text only chat. There is no audio. To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer. Be patient, there will be many questions so it will take time to get to yours. Warren, your opening comments?
Warren Stanley
Good afternoon and thank you for joining us. We have been hard at work here and would like to share a bit of what we have learned. There are quite a few analysts who believe investors taking advantage of the weak dollar drove oil prices to record levels.
Peter Stone
Hello everyone, I am Peter Stone. I run the Investors Observer InvestorsKeyhole/Highretrun Quick Exit portfolio and when I heard there was an econference I thought I would crash it and give Warren a hand. That way if he gets any tough questions... Just kidding.... you can have the hard ones Warren.
Warren Stanley
Thanks Peter, and welcome.
Shae
Do you think oil will keep going higher now that it's topped $80?
Warren Stanley
The supply and demand fundamentals of the oil market simply do not support such high prices. That being said, prices could jump to new records on news of a hurricane or a bullish government petroleum inventory report. In our oil income portfolio we try to play the companies that will go up or at least stay flat... And pay a nice dividend. We have had some plays on Canadian oil trusts, major oil companies and others in related industries.
John D.
Why is oil so expensive?
Warren Stanley
Supply and demand is part of it, but as I mentioned earlier, the falling dollar plays its part.
Peter Stone
I heard that the US dollar is so weak it is now equal to the Canadian dollar. The US dollar has lost about 30% of its value over the last 5 years. That means oil is going to be about 30% more expensive just on the weak dollar.
Warren Stanley
That’s right, and don’t you know those Canadians are upset about the higher prices despite their stronger currency. It has been a bad thing for the oil trusts as well.
Peter Stone
But it is not just oil that has been showing the weak US dollar value. Gold is up; steel is up, corn is up, a lot of the commodities are rising in prices due to the weaker dollar.
Warren Stanley
The dividend they pay is soon to be taxed before it leaves the country (or so some of their politicians are saying).
dowjoe
Is it true that the Canadian govt will increase taxes on Oil sands product?
Warren Stanley
That is my understanding but it still has a few governmental hurdles before it becomes fact.
RickB
I like oil but, play the shippers - also paying nice dividends.
Warren Stanley
This is one of the areas we do look at. Back in Dec of 2005 we put out a trade on FRO. They transport crude oil, as well as a few other raw materials like coal and iron ore. The trade generated a nice little profit from the covered call and picked up a good bit in dividends as well.
Jack Teaster
For Warren's latest oil trade, use this link to sign up for just $1: OilOC07. Get a potential 13% return with his latest trade, and also get access to all the other portfolios at Investors Observer, daily news updates, and daily trade ideas from all of the IO analysts.
RickB
That will change when they change to pricing oil in Euros.
Peter Stone
That is a good question. I know there are some real concerned about it. I personally think that what it is priced in is less important that the strength of currencies. If you look at the price of oil in Euros it appears more stable than dollars because the dollar has been weak. It is real easy to buy and sell millions of dollars in foreign currencies in minutes (or micro seconds) on the foreign currency exchange boards. But there is the pride element too.
winjefres
Is there more wisdom in playing the oil services, such as NOV & TDW & RIG plus the crude shippers rather than the integrated oils themselves?
Warren Stanley
I don't know if there is wisdom in playing the services but they do not always have the best dividend payouts.
Guest
What is consensus rating on FRO?
Peter Stone
FRO should be good. It has a 5 star S&P rating. The stock ships oil. Unless the oil prices plummet (not real likely), it will do well.
Warren Stanley
In the oil income portfolio, dividends are an important component of our trades. Back to the FRO trade, the covered call had an assigned return of just 6% but with the dividends included the trade generated a 20% return. Our last trade was also a shipper, NAT, with the covered call generating an assigned 4.5% but with the dividends we should get better than a 10% return.
winjefres
What are your thoughts about the "game" being played with high crude orders, which are then not accepted for deliver but folded over into the next month thus giving the appearance of higher future demand and therefore higher prices? It sounds like a "game" to artificially raise demand & price??
Peter Stone
Well that is true and always has been true of commodities... Very few things traded on the futures market are actually delivered. The benefit that it has is it allows for the financial risk to be shared, i.e., the bean counters are able to make things match. Producers will sell at the spot rate, but offset the risk through the futures market. I am not concerned with contracts that are rolled. They could make big money or lose big money; but it order to play the game they have to be able to handle the risk.
RomanianPrince
Was actually CIBC that predicted 100 oil.
Peter Stone
Yeah that is only 25% away. Couple of hurricanes and we could be there. In fact there is a storm brewing in the gulf so we will need to watch the news for the next couple of days. I read 4 of 6 weather models predicted a storm so it is possible that it could head up the gulf which would cause oil to rise or spike initially and stay up if it destroys infrastructure but it is way too early to worry about that.
RomanianPrince
He’s talking more about oil permanently staying over 100... not a short-term spike.
Peter Stone
Well, if the US dollar continues to fall, that is a short term possibility. I think long term there are a lot of factors pushing oil down but all the demand right now exceeds supply so prices will stay up but if you get too much oil.... prices can fall quickly they have in the past like when the Asian financial crisis hit in the late 90's we had cheap oil then.
Drake
With oil so high, do you think it's a good idea to start looking at oil-alternative stocks? Can you name any companies worth looking at?
Peter Stone
Well there are some plays out there; ethanol has been hot, and one of my favorite ethanol plays is John Deere (DE). With the high corn prices, farmers need tractors to plant the corn. It is hard to invest in farming directly since a lot are family- or small company- owned farms but DEERE is a good play that way.
Mike
How does alternative energy play into this (i.e. ethanol or solar)?
Peter Stone
Well, I like ethanol... Although I have to say I would watch the legislation closely. If ethanol does not have government support, it will not do so well. Solar -- I don't think is quite there yet. I see some encouraging developments in that area; but not quite there yet.
Guest
Of course, if dividends in what one wants the shippers, FRO, NAT, VLCCF & others have pretty high dividends, but do the oil service stocks represent a higher growth potential for the stock price than the oil companies??
Warren Stanley
We typically look to hedge our trades. With the covered call we would not be able to participate beyond a certain point. With the covered call we also are able to minimize the cost to enter the trade.
Peter Stone
Yeah, the call you sell actually cuts down the amount of the initial investment and that helps returns.
Warren Stanley
Growth potential over the next year or more is good but the trades in this portfolio are generally less than a year.
Peter Stone
And shorter term play in oil can be good because it causes you to reevaluate your investment and that is good in a changing market.
Guest
That’s was also because OPEC upped its production tremendously in the few months before the "Asian flu"... we will never have too much oil again.
Peter Stone
Well there are those that feel that way and I have to say oil is still the best way for the world to go ‘round. I would be glad to see more cleaner alternatives; but sheer economics means oil will be strong for a while.
Shae
How often do you put new trades in the Oil Income Portfolio? How much capital is needed for these trades?
Warren Stanley
There are a limited number of stocks that fit into the criteria for the portfolio. With this being the case we usually put out 1 trade at a time. We like to get trades out about one every month. Conditions in the market don't always allow for that, though. Usually 15 to 20,000 will keep you in all the open trades.
cmg
Historically, October is bad for airlines stock because of high oil prices, am I right?
Peter Stone
Yes, high oil prices are bad for airlines. October can be a rough (volatile) month for the market as a whole. Oil prices rise with winter demand, but I haven't charted out the airline stocks to know if they really go down in October. Would be interesting to look at. Airlines were in tough shape for a long time and are now doing better. Yeah one nice thing about investing in the oil stocks is it hedges your prices at the pump.
Jack Teaster
For Warren's latest oil trade, use this link to sign up for just $1: OilOC07
jamer
How far out is cellulose ethanol rather than corn as the source? And do you think it will be a viable energy?
Peter Stone
Well I hope it is but I am doubtful. I am not so sure that ethanol would actually be used if not for government subsidies. The people who are most successful with ethanol is Brazil, and they use sugar cane which is several times more efficient than corn. I heard one statistic that if every acre of ground were planted in corn in this country we could still not produce enough ethanol to cover our energy needs. So while I remain optimistic that cellulose ethanol will come about, I would have to see some successful operations before I invest. It is safer to stick with the tried and true drilling and shipping of oil.
Warren Stanley
To be honest, until they come up with an alterative that is as efficient and as cheap as oil and fossil fuels in general, the dinosaur will still be king.
Peter Stone
Yeah, that is true.
Mike
Is it true about oil even with all the interest and investment in alternative energy?
Peter Stone
We had interest in this back in the 70's and it didn't pan out so that is why oil is safer or the dino is safer.
conrad
Corn is used just to give out farm subsidies. It will never be economically viable to replace oil.
Warren Stanley
Probably not, but at least we are trying.
txinvestor
What strategy would be appropriate for nuclear energy, speaking of 'alternative' energy?
Peter Stone
Yeah, I like nuclear; there is some talk of opening some new reactors. I will be watching to see if they pan out. Look at the CCJ for uranium mining.
jamer
How about wind, wave, or tides as sources of energy for investing?
Peter Stone
In my opinion, it is not there yet. Wind is almost. But there are other concerns cited. Some call them bird blenders.
Warren Stanley
But my car still does not have a reactor or a sail, so I will keep playing oil.
Peter Stone
:-)
Warren Stanley
And the oil has to get here somehow.
Peter Stone Yeah, and the ships can avoid the hurricanes better than the rigs and shipping is really a great thing when you get to rent out ships by the day. And since we are still importing so much oil, the shippers will be really strong.
Warren Stanley
Our new trade is on one of those shippers and will generate a nice return on the covered call and nearly twice that on the dividends.
Peter Stone
And with a covered call the stock does not need to shoot up to make money. It can stay flat when you collect the dividends.
Jack Teaster
For Warren's latest oil trade, use this link to sign up for just $1: OilOC07. Get a potential 13% return with his latest trade, and also get access to all the other portfolios at Investors Observer, daily news updates, and daily trade ideas from all of the IO analysts.
Peter Stone
Thanks, Jack. You can sign up to see the latest trades with Jack’s link.
Guest
Where do you think the price of natural gas is headed?
Peter Stone
It should remain strong since it is a great substitute for oil.
conrad
What is the best play for solar, since all the stocks are so way up in prices like SPWR (SunPower and others); they went up higher than most oil stocks.
Mike
The technology is a lot more advanced now than in 70s.
Peter Stone
Yeah, SPWR is in the running for that race. The stock is on a nice trend but the tried and true is still safer. Leave SPWR for speculative part of your portfolio while you invest in real oil for dividends and offsetting the oil at the pump. I think we may be running out of time Warren.
Warren Stanley
It is getting to be that time again. Thanks for joining us this afternoon.
Peter Stone
Yeah, thank you everyone...
Peter Stone
Great questions.
John D.
Thanks guys.
Mike
Thank you.
conrad
Thanks Warren and Peter.
jamer
Thanks.
Peter Stone
We will do one of these again sometime. Watch your email.
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions. Unfortunately we have run out of time for this e-conference. A transcript of this afternoon’s event will be on the site in a few days. http://www.investorsobserver.com. If you have any more questions please send them to support@investorsobserver.com. Have a good afternoon everyone!
conrad
Thank you too, Jack.
For Warren's latest oil trade, use this link to sign up for just $1: OilOC07.
Transcript from the May 16, 2007 e-Conference.
Jack Teaster
Hello, and welcome to this afternoon's Investors Observer eConference. Today our guest is Peter Stone. Before we begin this event, I'd like to give you some tips. This is a text only chat. There is no audio. To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer. Be patient, there will be many questions so it will take time to get to yours. Peter, your opening comments?
Peter Stone
Well thank you, Jack. How is everyone doing today?
katie
Good.
Peter Stone
Good to hear.
Gary
Good.
Earl
How high do you see gasoline prices going?
Peter Stone
Wow! That is a good question. They have been creeping up recently. I am guessing the people doing good today didn't have to fill up the car on the way in because those gas prices can ruin a budget, but I spot some opportunity in this sector. Everyone has been complaining about the price of gas recently. I thought the national Don't Buy Gas Day emails were very interesting. How many of you have seen those emails? Well, the idea is that if you don’t buy gas one day, the price will come down.
Jim
Seen it; thought it was worthless.
cathy
We were hoping they would do some good!
mike
I did.
Michael
They were all lies.
Peter Stone
They are interesting but they won't work. But I think there is more to it than a lot of people realize. It is not so much the price of the gas rising as it is the value of the dollar falling.
Michael
To boycott something you have to totally wean yourself from it, not just change what day you buy... was stupid.
Peter Stone
Yes, and I still need to get to work.
rayk
With the amount of float in gas tanks, one day would have no impact.
Peter Stone
Yes, and I think they would raise the prices the next day, when we all have empty tanks. Let me explain the dollar thing. As you go to the gas pump you put in a certain number of gallons of gas and you expect that every gallon has four quarts of gas. You would be alarmed if suddenly the gas station started selling gallons of gas that had only three quarts and then you give the man your hard earned dollars and you think there is a certain amount of value in each dollar and that is where people get fooled. There isn’t any gold behind those dollars. Yes, one dollar has 100 cents but the dollar is weak against foreign currencies and that is why the price of gold has skyrocketed. It is not the price of gold going up or the price of gas going up, it is the value of the dollar falling. Let’s compare the dollar to the Euro. Right now if you take one dollar you can buy .73 Euroes; years ago you could buy 1.10 euroes -- 5 years. Over the last 5 years that is a 34% drop in the purchasing power of the dollar to buy Euros. Or to buy oil, and we are on a world market and that means the price is higher at the pump. So, since we compete on the international market for everything including oil, demand is high for oil. Oil capacity is still off line after the hurricanes now the refiners are shutting down for maintenance (which is very important), but about 40% of the rise in oil has been the weak dollar.
Earl
What other things does a weak dollar hurt?
Peter Stone
There are side effects to this too. If you travel overseas you will feel the pinch when you convert your dollars too.
Michael
They hurt your wallet when you go to Wal-Mart and buy those "cheap" Chinese goods.
Peter Stone
Yes, that affects it too, and those cheap goods will only remain cheap as long as China keeps the dollar rate pegged to their currency, and that is that the US economy products are cheaper to export if the dollar here is cheap. Our products are cheaper to overseas buyers and that makes it easier to keep our economy going, which is good.
Jim
Okay, I do not trade currencies or futures - how do you suggest we address the problem?
Peter Stone
There is a play coming; we have a nice trade on this, without using currencies but let’s look at a few more ways this affects things. So the price of lots of things has risen; take the price of corn -- it has jumped about 40% in the past year. Part of that is due to the weak dollar. Part of that is due to the Ethanol and alternative energy looking for other sources besides oil.
Michael
Too bad the US has ruined its manufacturing base over the last 20 years.
Peter Stone
We still make some stuff here.
shark
Michael forgets that the Chinese are using a large amount of oil to provide those Wal-Mart goods.
Peter Stone
And yes, oil is expensive for the Chinese too. We live in an interconnected world; as strange as it sounds, the high corn prices were causing poor Mexicans to riot several months ago. Tortillas -made from corn- make up to 40% of their diet. As a result of the high corn prices the tortilla prices were rising. So that made for some hungry and rioting Mexicans. But high corn is good for agriculture here; something we still grow here. So that mean companies like Monsanto and John Deere are doing really well. After all, the price of corn is up 40% in the last year. Who do you think supplies all the seed to grow the corn?
Earl
With refining capacity down, is there another energy play besides the oil companies?
Peter Stone
Yes; it comes from Monsanto. So that brings us to the trade of the day. You guessed it on Monsanto (MON). As I was researching it even saw Cramer made a recommendation to buy it yesterday.
mike
But we do not have as much corn planted this year. It is late.
Peter Stone
There is a lot more planted than last year.
ChaseR
The big question I have regarding ethanol is what if the US government cuts the subsidy?
Peter Stone
That is a big risk. I don’t think anyone is planning to do that this year in Washington; there is too much talk of global warming. I think the company has a strong future as long as oil prices stay high and corn demand is up.
shark
Are you aware that there are oil shale deposits available in Colorado and Utah and a Federal Judge in San Francisco will not permit those with government leases to extract the oil because of a Clinton executive order preventing the building of roads in national protected lands?
Peter Stone
Great point shark, but I don't think the country has the political will to develop them.... or drill in Alaska or build more nuke plants. I wouldn't sell you oil stocks yet. Long term 3-10 years; I think eventually oil prices will come down. The US dollar will appreciate and ethanol will again be forgotten; but I don't think that is about to happen soon.
gil
What does Monsanto do, and what are the technical reasons you are recommending it? Also - long term or short term play?
Peter Stone
Monsanto grows and sells the seed corn, and it has a nice steady uptrend but I would put on a shorter term play. That is what we like to do in the Investors Keyhole and shorter term trend are easier to predict at times. So, on to the trade. Look at a Monsanto July 55/50 credit spread. Specifically, sell the July 55 put (MON SK) while at the same time buying a July 50 put (MON SJ) And so this for a 50 cent credit this is a bull put credit spread and as long as MON stays above 55 by July the trade is ok. MON is at 60.96 right now; should mention that so that the stock can fall up to $5 and the trade is still ok. That is about a 9.7% cushion on the trade.
pete
What about ADM??
Peter Stone
ADM should be good too, but like this hedged trade better. So you pick up 50 cents and your total risk is $5.00. Well, actually your risk is 4.50 because you got the 50 cents up from 5.00-.50=4.50 so the return rate is 50/4.50=11.1% but that is only over 66 days, which if you want to annualize it is about 61.3% annualized (this is for comparison purposes only.)
bradice
Running late, just got here. Probably missed everything important.
Peter Stone
We are looking at MON, specifically sell the July 55 put (MON SK) while at the same time buying a July 50 put (MON SJ) for 0.50 credit and there will be transcript posted in a few days.
Jim
2 months is quite a while for a bull put – IMO, especially for $.50.
Peter Stone
Well that is a good point, Jim, and one you always should look at carefully. When we pick trades there are three things we always like to look at. 1. The volatility of the stock; 2. Long term trend in the industry; 3. Risk to return of the trade. Lets talk about #1 more. When you pick trades you are betting the stock is not going to fall more than 9%.
Jim
And support of the stock, MON has good support at $57.
Peter Stone
And that is good, so you want support and you want to look at past historical moves to make sure it didn't move too much and you want to look at the beta. MON has a beta of 1.7 so it is not 3 or more so it is going to move about 70% more than a typical market as a whole, which is an acceptable risk and earnings -- the reason we look at earnings is they affect the movement of the stock so much and can cause it to fall. And we always like to avoid drug companies... too volatile. So volatility is one of the 3 most important things to watch out for and then look at long term trends. Here we have a weak dollar; we have high oil prices, people looking for alternative fuel supply. The environmental (Al Gore) movement all providing support for ethanol of which MON will benefit from. And then the third thing we always look at is the return to risk ratio. That is hard to quantify, but you need to get enough return. Here we are looking at 61% annualized return or 11% over 66 days.
gil
What about a "summer slump" in the market; that might take MON with it?
Peter Stone
Great question. Yes, it might. I cannot predict the future, but it seems like there are a lot of forces pushing up rather than down, and MON is not a big mover. If you think MON is going to drop more than 10% in the next 70 days, this is not the play to do.
Jim
You always need to stay on top of credit spreads.
Peter Stone
Yes, it is good to watch and sometimes we like to close them out early.
gil
Trade sizing on credit spreads - what do you recommend? Too small and it is not worth your time; too big and you are in trouble if it ends in-the-money. Any comments?
Peter Stone
Our standard recommendation is 10 contracts; seems about right for most people. It depends on how much you have to play with. And we do plays like this all the time in the Investors Keyhole. Last month we had 97% success on credit spreads. It has been a good market. You can get a peak at this here.
Jack Teaster
http://www.iotogo.com/Free-AllHL
Peter Stone
Thanks, Jack.
gil
How do I find performance stats on Investors Keyhole, and how many (on average) recommendations /month?
Jack Teaster
http://www.iotogo.com/iksummary
Peter Stone
There is a link there that will show you the past picks.
Jim
Good question, Gil.
Guest
Thanks for the class - I have to leave now.
Peter Stone
Wow! Time is flying. I have a few more secrets I promised to impart, which actually brings us to another answer we promised you in the email. Is your portfolio really protected? If you are all in US stocks you probably have more risk than you realize. When the US dollar depreciates, all US assets fall in value. That is why gold and foreign stock holdings and can be so important in your portfolio. Don't just diversify across industries and sectors, diversify across countries. Or look at companies that will do better with a weaker dollar, which brings us back to the Monsanto trade. When the dollar is weak, Monsanto does better so it is good to consider this when you are looking at your portfolio. I do not expect the dollar to be permanently down, or the world to run out of oil or corn to be able to replace all the oil we use, but when I see these trends in the market place I want to be on the right side of them. It makes it easier when I have to fill my car up at the pump, and then I don’t need to forward all those emails. If you have questions send them in; I want to answer as many as I can.
Guest
Hi Peter, good morning, how do you start your day? Direction wise? Do you look at what sector is moving?
Peter Stone
Well, we always like to start out by looking at foreign markets and see what they are doing. That is one of our first reports in the IK. And if you subscribe to us you get it in an email at 9:15 every morning. Sorry; the question was what do you look at in the morning?
Guest
PCU and ATI have been acting great; do you think they can keep going?
Peter Stone
Other companies that can be good for investing in are metal or miners; the US dollar doesn't hurt them as much.
gil
Does IK do mostly credit spreads, or are there other types of trades, as well. Also - for those of us who have salaried jobs - are any of them "immediate trades" (where I have to exit a meeting and place the trade in the next few minutes) or can they mostly wait 'til evening?
Peter Stone
Yes, mostly credit spreads and you can usually get fills on them for several days. We also have some portfolios.
Jack Teaster
http://www.iotogo.com/Free-AllHL
Peter Stone
You can see them at the link and we auto trade those, for those of you at work.
katie
What do you think of buying Nvidia stock? Does it have a chance to go up?
Peter Stone
NVDA -- it has made a nice base and is headed up. I would be mildly bullish; might look at a credit spread on that one, like a June 32.50 30 bull put.
katie
Yes.
Peter Stone
At first glance, 30 cents on a 2.50 spread is about a 13.6% return. So this is really the secret to how we do it in the IK. We look for hedged plays where the stock can drop up to 10, 15 or 20% and put on conservative credit spreads. They let us manage our risk. We watch the volatility and pay close attention to trends in the market and then when you get multiple trends -- high oil, high corn prices, weak dollar -- we get a hedged play where we know the risk.
geomax
Do you also use bear credit spreads?
Peter Stone
We do, but not nearly as many as the bull put credit spreads. Our research indicates stocks typically rise and in a market like this it can be risky. But we are cautious as the market typically slows down in the summer so we like to have good companies and we watch the trades.
gil
I went to your link, reviewed the trades - looks good - but, if one auto-trades them and it is a heavy month - one might get extended past your accounts' margin capabilities - comments?
Peter Stone
We auto trade the portfolios, not all the trades in the IK. Very few people have that much capital. Most like to read our commentary then pick a few to do and look into them themselves.
gil
I agree on the "markets slow down in the summer" comment.
Peter Stone
Sell in May and go away is one Wall Street saying. We have portfolios -- the Investors Keyhole portfolio, Hedged International portfolio and others -- available to see here.
gil
A little confused - what portfolios are you talking about?
Jack Teaster
http://ww.iotogo.com/Free-AllHL
Peter Stone
And you can look at the past performance on those on the site as well. Well, I believe my hour is up already. I want to thank you all for coming to the econference today. If you need links again, here they are....
Jack Teaster
http://www.iotogo.com/Free-AllHL
Peter Stone
And for stats…
Jack Teaster
http://www.iotogo.com/iksummary
Peter Stone
Thank you.
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions. Unfortunately we have run out of time for this e-conference. A transcript of this afternoon’s event will be on the site in a few days. http://www.investorsobserver.com If you have any more questions please send them to support@investorsobserver.com. Have a good afternoon everyone! If you would like to look at our free preview please go to this link: http://www.iotogo.com/Free-AllHL
gil
tnx
Thank you, and good bye everyone.
Transcript from the May 9, 2007 e-Conference.
Jack Teaster
Hello, and welcome to this afternoon's Investors Observer eConference. Today our guest is Warren Stanley. Before we begin this event, I'd like to give you some tips. This is a text only chat. There is no audio. To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer. Be patient, there will be many questions so it will take time to get to yours. IMPORTANT NOTE: Warren Stanley is an Investors Observer analysts/portfolio manager. The views, comments, and bad jokes in this eConference are solely his and do not reflect those of Standard & Poor’s or Fresh Brewed Media. Warren, your opening comments?
Warren Stanley
Wow, am I the only one having problems because of Microsoft Updates? My computer did not want to play nice today... We have a worry that Microsoft might be sending out updates to slow down Win XP so we all buy Vista...
Jack Teaster
To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer. Be patient, there will be many questions so it will take time to get to yours.
Warren Stanley
No personal questions please... Nothing about the picture of me and you know who on the cover of the Wall Street tattler.
harvy h
What do you think about this market? Is it going to continue to go up?
Warren Stanley
We are very cautious at this point... At the end of the week we will be publishing a series of articles about what could happen and what you could do about it. Those articles will appear on our regular Investors Observer site. One thing that scares us is that the May - July period was a problem last year... After this big run up there is a lot of room for a drop. Also, investors may be overweight in stocks at this point. People need to check how much money that have in stocks now and consider rebalancing.
ricky
Have you found a way through shorting stock and buying calls or puts to lock in profit?
Warren Stanley
There are always ways to lock in profit. One way is to sell stocks, but people always feel bad when the market continues up. The best strategy is to always be in stocks that are rock solid. Even if there is a drop, these will usually come back. Examples of these are in the S&P 5 STARs list. But one of the problems with buying a stock on one of these lists is that you are totally exposed to losses. If the stock goes down $1, you lose $1, so that's where hedging comes in. When you do a covered call on a stock you are partially protected from a drop in the stock. Apple (AAPL) is on the 5 STARs list now. Maybe you or one of your customers is considering buying AAPL. The first thing you need to determine is how far the stock is going to go in say 70 to 80 days. Right now in our 5 STARs strategies there is an AAPL covered call listed. You can snag APPL at 98.56 with a 105 JULY covered call. The stock is now at around 105.63. So when you do a trade like this you are covered until the stock drops past 98.56. That's 6.19% in downside protection, and if the stock stays above 105, that’s a 6.53% return over 73 days. For comparison purposes that's a 32.67% annualized return. So this trade is safer than just buying the stock and has a nice high return if the stock holds up. The big problem is if the stock goes above around 110, you would have been better off just buying the stock. So these kinds of trades are for that more conservative side of your portfolio.
conundrum
Do you prefer LEAPS or regular options, or both?
Warren Stanley
You can also do a version of this trade where you buy a LEAP instead of the stock; this saves you money. Instead of buying the stock at around 105, you can buy the Jan '08 65 LEAP for 42.95. The whole debit for the trade is 36.45 or about 1/3 of the covered call cost. There are other risks with these kinds of trades but the return rate can be higher. This one has a 9.74% return if the stock stays above 105, or a 48.7% annualized return (for comparison purposes only). So while the guy next to you can only make money if the stock goes up, you can make money even if the stock drops a little.
ramesh
Just got here, could you please give stock symbol. Thanks.
Warren Stanley
We have been talking about AAPL. You can see the trades in the 5 STARs Stock hedged strategy table.
Guest
How to adjust short options when they are at iTM?
Warren Stanley
Not sure what you mean by adjust, but I will assume you are asking how to "fix" the situation. First of all, the trades you will see on this service are all usually in the money.
Jack Teaster
IMPORTANT NOTE: Warren Stanley is an Investors Observer analysts/portfolio manager. The views, comments, and bad jokes in this eConference are solely his and do not reflect those of Standard & Poor’s or Fresh Brewed Media.
Warren Stanley
We want them to get called away. This is more conservative but let’s say you don't want to lose a stock; I am in a situation like this now for MSFT. I sold some 30 calls a few months ago. I thought 30 was going to be the short term resistance level for the stock. I was wrong, but here's what I did: I had some May 30s out there; I could lose the stock next Friday if the stock stays above 30, I don't want to lose the stock so what I did last week was I rolled the options. In one trade I bought back the May 30s and sold June 30s for a 30 cent (per share) credit. I think we might see a drop in stocks before the next expiration. The stock is now at 30.79, so I picked up 30 extra cents. I have rolled options for over a year in some cases continually picking up cash along the way. It can delay the loss of the stock. But yes, there is always the risk you can get the stock taken away, especially with dividend paying stocks.
ramesh
Your upside is limited and, while you have downside protection, an event-propelled significant down move hurts you. You get a nice % return if the stock is range-bound or goes up. Are you effectively selling volatility in individual stocks?
Warren Stanley
Yes, that is one way to look at it. For this MSFT stock I only sold calls on about 20% of my holdings -- stock I have wanted to unload for a while to balance the portfolio. So, that is another key -- only sell option on stock you are ready to lose. The alternative is to just buy the option back.
Jack Teaster
To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer.
Guest
What's the cheapest site for options trades?
Warren Stanley
Cheap is relative. You can do options trades for pennies in some places but you get no service. Other places you pay a lot but they treat you well. That is really a personal question that only you can answer. Try a few out and see what fits the best.
conundrum
Do you ever do Bull Call Spreads?
Warren Stanley
In other portfolios we do them, not on the S&P site. These are more speculative but they can be nice trades if a stock is on the way up. Be cautious on these around this time of year. Later in the summer, if the market cools a bit, look at the September bull-call trades.
Granola
Do you approve selling naked puts, with the understanding that such issues may be put to you?
Warren Stanley
Technically, a naked put is the same risk as a covered call -- can't get into why here. But you can get more details at the Options Industry Council site. Lots of good education there and all free. A place to use this strategy is where you are interested in buying a stock but want to capture some cash. Let’s look at Apple again for an example. Right now AAPL is trading at 105.71. You sort of want to buy the stock but maybe you want to capture a few dollars instead. You could sell a July 95 put for 1.90; for 10 contracts you pick up 1,900. Nice amount! If the stock stays over 95 you are cool. If it drops you will be forced to pay 95 for the stock or buy the put back -- Ouch! If the stock goes to 70 you will have some real pain. You could set up some triggers to buy the put back, say if it hits $4 or something. But a better way might be to do a spread trade where you would buy a 90 put for $1. At the same time you sell the 95, you cut your profit but sleep better at night.
ron
What are the criteria to select from S&P the candidates?
Warren Stanley
Good question. Let me talk about the Key Ratings first; stocks have STAR ratings that the smart people at S&P rate the stocks.
Jack Teaster
IMPORTANT NOTE: Warren Stanley is an Investors Observer analysts/portfolio manager. The views, comments, and bad jokes in this eConference are solely his and do not reflect those of Standard & Poor’s or Fresh Brewed Media.
Warren Stanley
1 STAR to 5 STAR, and we use that rating along with about 14 other components to identify a risk rating (Keys) for the option trade. The higher the number of keys the less risky and of course risk and return are related. The Keys can give you a quick read on the potential odds that the trade will perform. Of course anything is possible in the market but the Key rating is an indicator. There are 4 tables of trades on the service. Take a look at them when you get a chance: 5 STAR, 4 STAR, Power Picks, and Best 10. For each S&P rated stock we identify a conservative potential Covered call and Hedged (Calendar Spread) trade. All the stats on the trade are shown along with the key rating. These trades will mostly be in-the-money, so if you are super bullish on the stock you probably don't want to do these trades. Your upside is capped. The feature we just added was the sort/search. Before you had to scan through the tables to find the trades that worked for you; now you can enter your criterion and only the trades that meet that criterion will be shown. Example... Let’s say you want a 4 Key or better 5 STAR stock with a 25% or better annualized return...
Jack Teaster
IMPORTANT NOTE: Warren Stanley is an Investors Observer analysts/portfolio manager. The views, comments, and bad jokes in this eConference are solely his and do not reflect those of Standard & Poor’s or Fresh Brewed Media.
Warren Stanley
Hold on; we are running the scan. Nice! About 6 possible trades came up when we ran it. How about GRMN Garmin? It found a GRMN July 55 for a 52.32 debit. This has a simple return of 5.12% or 25.6% annualized (comparison purposes only). 6.1% downside protection. Go on out to the sort search and check it out. These trades are nice in a time when people might be looking for a little less than total exposure in the market. One more question here then I have to jump.
vern
What do you do if the 95 puts are exercised before expiration?
Warren Stanley
This is on that AAPL trade we talked about. For the trades shown on the tables we want them to be assigned. That just means that the trade closes out and we get our profit earlier. That raises the annualized return.
Many thanks, everyone. I need to jump into another meeting. Jack will give your an e-mail address so you can send any other questions.
Jack Teaster
support@investorsobserver.com
Warren Stanley
Bye.
Thank you all for coming this afternoon! If you would like to look at the free preview: spiofreeA4. There were so many good questions. Unfortunately, we have run out of time for this e-conference. A transcript of this afternoon’s event will be on the site in a few days. http://www.investorsobserver.com. If you have any more questions please send them to support@investorsobserver.com. Have a good afternoon everyone!
Transcript from the April 11, 2007 e-Conference.
Jack Teaster
Hello, and welcome to this afternoon's Investors Observer eConference. Today our guest is Warren Stanley. Before we begin this event, I'd like to give you some tips. This is a text only chat. There is no audio. To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer. Be patient, there will be many questions so it will take time to get to yours. Warren, your opening comments?
Warren Stanley
Hello everyone. It’s good to be back here talking about stocks, the markets, the world and anything else that comes up
stan
Hi.
Warren Stanley
Today, I will be focusing on portfolio weak spot; specifically, how to patch the holes in your portfolio and also how to play the markets safely while still being able to make a good sized profit. It looks like the questions are slow coming in so far today, so I'll just jump right into the main topic. As a reminder, just type your question into the chat box and send it along. We will answer as many as we can in the hour we have together. One more detail before we really start; Jack looks like he has something to say.
Jack Teaster
Just a reminder: at the end of today’s eConference we will be giving away a prize – a book entitled “Ordinary People, Extraordinary Wealth" by Ric Edelman. Stick around to see if you are the winner.
Warren Stanley
Sounds like a classic to me and hey.... I’m an ordinary person! Maybe I'll read the book before we mail it off to the lucky winner!
John B
Pick me; Pick me. I could use something free!
Warren Stanley
Well, let me assure, you... we are using a random number generator to pick, so there is no way I know who will win.
hcc0466
Do you react to news such as FOMC Minutes today? thx
Warren Stanley
Great question! Today's market this morning has been lethargic to say the least. Every news website says that "investors are waiting for the Fed minutes" before taking any action, but if you ask me, it’s just an excuse to take the morning off; maybe get a quick nine holes in before actually starting work for those New York investment banker types. But back to the question at hand... do we trade regarding the FOMC minutes and other big market events? Yes, but we do it in a somewhat unorthodox manner. Throughout the morning today, we were sending out trade ideas on individual stocks that looked good to us. This morning was a great time for trades, because there were so many people waiting for this afternoon’s minutes that the premiums are high in the options market so that way, when we sell options, we are getting more money.
stan
Can you name a few?
Warren Stanley
This morning we posted trades on AVID, BBY, PALM and also QCOM, JNJ, MS, and SNDK.
hcc0466
Do you sell spread (vertical or time), or naked? thx
Warren Stanley
We like to sell vertical credit spreads, that way our downside is protected in case it turns out that we were wrong.
ron
RIMM is reporting the earnings after 4PM today; how would you plan a trade before earnings as well as another one after earnings for tomorrow? Since RIMM moved to a new high region, could we assume the earnings expectation is included in today’s trading price?
Warren Stanley
RIMM earnings are another chance to play the extra volatility of an expected announcement. I'm no expert on RIMM, (that is another guy here in the office) so I won't try to tell you which way the stock will go tonight but what I can do is say that usually the options end up way overpriced on stocks like RIMM, which allows us to place a trade where even if we are wrong, we could still win. Currently, RIMM is about 146.50. If you think RIMM will go up at earnings, you could sell a 130 put and buy a 125 put both for April then, if RIMM goes up, you make a quick 5% return in less than 2 weeks. If RIMM stays flat or even drops as far as to 131, you would still make that full 5% return. By the same token, if you think RIMM might fall on earnings, you could sell a 165 call and buy a 170 call. That trade would make a 4% return as long as RIMM is below 165 next Friday and this is my personal favorite... combine them both; sell the 130 put and the 165 call buy the 125 put and the 170 call then, if RIMM is between 130 and 165 next Friday, we would make a 9+% return in less than 2 weeks. Wow... that was a long answer to just 2 related questions. Let’s get back to the main topic.
The Observer
Our Hedged International Portfolio Manager will discuss the strategy that raked in over a 30% return in 2006, and we’ll talk about how to beat that in 2007.
Warren Stanley
I run the Hedged International Portfolio; we had a great year last year. This portfolio uses a credit spread strategy focusing on stocks with international exposure -- stocks like FCX, ABX, and even RIMM. Other favorites of mine include MO, QCOM, and GSK. Each month just after expiration, we (the other portfolio managers and myself) scour the markets for hedged credit spread trades that can take advantage of these kinds of stocks. Just like with the RIMM trade, we build in protection between 5% and 15% on every position. This is because I have never met anyone (including myself) who is right more than 75% of the time in the stock market. So we set up our trades so that we can be wrong about which direction a stock is moving and still make money. One of my favorite things to see is when a stock stays absolutely flat over the time our trades are open. Anyone who bought that stock would have had dead weight in their portfolio that whole time. But when we place a hedged spread trade on it, we make 10% or more when the stock hasn't moved at all.
The Observer
So, what is your criteria for adjusting or getting out once the stock does move in one direction against you?
Warren Stanley
If we have a sold 70 put position in XOM (and we do), when the stock dropped down just to 70 in March, we looked at our different choices. We could close the trade and keep a small profit in the portfolio, or we could hold the trade open and see if XOM recovered. We thought that the oil market had a chance to recover, so we held on to the trade and it turns out that was a good move. However, sometimes we make the opposite decision. For example, back in the December portfolio, we had a ECA position that was getting into trouble. We did not like the looks of that trade, so we closed the trade early, but managed to keep a $500 profit for that month’s trades. And we always comment on what we think and why we are taking certain actions on our portfolio pages; we aren’t here just to make money, but also to educate our subscribers.
Wookie
Do you always use front month positions?
Warren Stanley
Actually, we use options that are 2 months away from expiration when we place the trades. So, for example, next week is April expiration; on Monday, April 23rd, we will be looking for new trades. In the May portfolio these trades will expire on June 16.
Guest
How do you see the Latin America and China markets for the rest of this year? Are there other foreign markets you like better?
Gord
What do you think about the trade war they are starting with China?
Warren Stanley
These are markets that we look at as a way to hedge internationally. This is the patching of holes in your portfolio that we were talking about. Most likely your portfolio is full of some stocks and maybe some mutual funds; if you are "diversified" then maybe you have an energy stock, a tech stock, a drug company, and a financial company but the hidden trap here is that most of the stocks that are available are highly focused in the US. Sure, globalization has helped expand the reach of most companies, but if the US economy tanks, then you might be up the proverbial creek. The Hedged International Portfolio is one way to patch these holes by placing hedged trades on international companies. You get doubly hedged; one hedge against the US economy, and the other against the individual stock
Jack Teaster
I almost forgot we have a prize to give away. The prize is a book entitled “Ordinary People, Extraordinary Wealth" by Ric Edelman. Today’s winner of the book is.... Drum Roll Please.... Stan you are our winner; congrats to Stan.
Warren Stanley
I’m pretty sure if that book we send you is creased on the spine, it was definitely not me who read it :-)
The Observer
So, is 10% your goal for two month period, giving 5% average monthly expected returns?
Warren Stanley
That’s right, and every once in a while we get a trade that doesn't go so well but if we catch that position in time, we can usually still keep a 3-4% return for that two month period, which isn’t too bad when you consider the holding period also. There are two sets of trades open at once, so we try to get 12 sets of trades in every year.
jim
How many positions do you put on each trade?
Warren Stanley
Each month we do 3 - 6 individual trades that are either 5.00 or 2.50 spreads; we go with 10 contracts per trade, so that is a 2,500 or 5,000 requirement in capital for each. The most that the portfolio has ever had at risk at one time in its history is 31,000 and if that seems like too much, these trades can easily be done with only 5 contracts which would cut the requirements down to 15,500 (we use 10 contracts because it makes the arithmetic easier).
The Observer
And when it does not go well, expected loss %?
Warren Stanley
Well, technically we could lose up to 100% for any given trade if the stock really tanks but... when we use our quick exit strategy, our biggest loss in any month's portfolio is 14.7% sorry... strike that... 18.4%, but the cash loss in those months was only $1,950 and $1,250 respectively and each month that goes well, we usually bring in a profit between $1,100 and $1,500. In the more than 2 year history of this portfolio strategy, we have had 23 months with a profit and only 4 months with a loss and 15 of those profitable months were more than $1,000 profit.
John B
Is your quick exit an automatic stop or are you watching the markets all the time?
Warren Stanley
We do not set stop losses, because in the options market we find the bid-ask spread too wide to use them properly so we have complicated computer programs running all day that alert us to big drops or big rises in stocks.
The Observer
So, 5 - 1 ratio.... risk 5000 and bring in a 1000 per month.
Warren Stanley
The risk is closer to $12,500 per month on average and the typical target profit is $1,300; I would say we start with at least a 10% target return every month.
stan
How do I get information on your service?
Warren Stanley
We are currently running a free preview of the Hedged International portfolio. Jack could you provide a sign-up link?
Jack Teaster
http://www.iotogo.com/Free-HIIP
Warren Stanley
All we need is your email address and you will get access to all our trades that we have ever made in this portfolio service, including the ones that are currently open; however, this free preview closes on 4/25, and then you will have to subscribe to continue receiving this information.
Gord
Should we buy them or just watch?
Warren Stanley
That is up to you...but if you did get into these trades, they won’t close until after the free preview is over so you will probably need to subscribe in case we need to exit a position.
das
Can you display the link again? Thanks.
Jack Teaster
http://www.iotogo.com/Free-HIIP
Warren Stanley
Thanks Jack, and I want to thank everybody for coming out today. I’m starving and I have a pizza that I just sent my intern out for!!
Jack Teaster
Thank you all for coming this afternoon!
The Observer
This has been helpful. Thank you for your time!
stan
Thank you for all the info.
Jack Teaster
There were so many good questions. Unfortunately we have run out of time for this e-conference. A transcript of this afternoon’s event will be on the site in a few days. http://www.investorsobserver.com If you have any more questions please send them to support@investorsobserver.com. Have a good afternoon everyone!
ron
Thanks, it was very informative.
Transcript from the April 4, 2007 e-Conference.
Jack Teaster
Hello, and welcome to this afternoon's Investors Observer eConference. Today our guest is Warren Stanley.
Warren Stanley
Hello.
Jack Teaster
Before we begin this event, I'd like to give you some tips. This is a text only chat. There is no audio. To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer. Be patient, there will be many questions so it will take time to get to yours. Warren, your opening comments?
Warren Stanley
Good morning everyone. We're having some lovely weather here on the East Coast and I can only hope everywhere else is the same.
jorgew
Good morning to all from Colorado.
Warren Stanley
Today's main topic will be about ways to minimize risk in the markets. But...if you have any questions at all about any topic, go ahead and submit them and we'll try to get them answered. I’m always looking for ways to minimize my risk in the markets, especially after the big up and down swings we’ve seen in the past month or two. One of the things we will talk about is the Hedged International Portfolio. Some of you are currently trialing this service, but for anyone who isn’t, you can use this link to sign up for the free trial. Go ahead Jack.
Jack Teaster
http://www.iotogo.com/Free-HIIP
Warren Stanley
Thanks. This trial runs through the end of April and gives you a free look at our Hedged International Portfolio service.
John F
So what do you think about this market?
Warren Stanley
Good question, John. It’s rocky right now, but after the big dip in February we think that we will see a sideways to slightly up market throughout most of the summer. Big-name, large cap stocks could be very flat but we don’t anticipate too much downside, especially with the Fed thinking about cutting rates sometime in the near future. Coming into the fall we are looking at the election cycle heating up...
SteveO
And then.....? (after summer/3rd-4th Q)
Warren Stanley
…which will often mean that stock will enjoy a bullish run.
Miked
So you think the correction is over?
Warren Stanley
While I do think that the drop a month ago was just a correction, I don’t see a huge upward movement in the markets soon. And, as we all know, there can always be unforeseen circumstances that can really push the market down fast, which brings me back to our topic today; how can we reduce risk but still stay in the game?
jflo
Would you be playing covered call on flat to upward bios in the market over the next few months?
Warren Stanley
That is definitely one choice that I could get behind. For many of the mega-cap stocks, this can be a great strategy, especially those that pay a hefty dividend too, but there are other ways to reduce you risk in the market. Obviously you want to diversify so that one stock or one sector can't kill your whole portfolio and you can also look to international markets, especially if you see the economic data coming in from the US that the economy is slowing down. Mr. Bernanke and his Fed pals are doing their best to hit this soft landing and while it looks like they are on the right track, the economy is a tricky thing to get a hold of. So, I like to plan for the possibility that the US stocks could see some trouble.
dbensontx
Aren't we more globalized/connected these days?
Warren Stanley
Quite a few stocks do indeed have large international exposure and these are the companies we focus on with the Hedged International Portfolio. But with this service, we don’t just point out companies to buy stock in; we set up option trades where we can make a sizable profit if the stock goes up, stays flat, or even falls a bit. Currently we have positions on FCX, a copper mining company with operations in Indonesia. Also we have a position in MO, which is a big seller of tobacco both in the US and internationally. GSK, a drug company based in the UK is another one we have a trade on.
John F
How can you make money if a stock falls?
Warren Stanley
Every month we set up options trades where we sell an out-of-the-money put and buy another put farther away. We make a credit on the first day, and as long as the stock doesn’t drop below our sold put by expiration, we keep the original credit.
John F
So how much can it fall? How far?
Warren Stanley
Usually, we set up these trades so that they can fall by 10% and we would still make our full return. For the FCX trade, that stock could have dropped by 11.5% and we still would have made a return of 13% over two months.
hm
Should it go against us, do you make adjustment?
Warren Stanley
If the stock does happen to fall a great deal, we will try to make an exit that keeps a profit in the overall portfolio, which is why we diversify into 4 positions usually each month.
Michael
What's your secret that let you gain over 40% last year????
Warren Stanley
I’m glad someone is looking at our old portfolio months. Actually, that 40% number is on the average capital invested. If you look at the maximum capital required, we only made 30.3% over the 2006 portfolio year. Our secret is the holding period of these trades; they are only 2 months in duration, so we end up shooting for a 10% return over 2 months and then we get to reinvest that capital as soon as the positions close.
rufustheredfox
Why not 1 month or less?
Warren Stanley
Our research shows that the sweet spot for these trades is selling options about 2 months away.
gord
Are these in-the-money options?
Warren Stanley
Nope; we sell puts that are out of the money. That way, if the trade is profitable, the put we sold disappears and we keep the cash. Even though not all of our trades are winners, we managed to be profitable in 11 out of the 12 months in 2006. Some trades we had to exit early but by doing so we kept a profit in that month overall.
JC
Why just selling single vertical credit spreads instead of iron condors?
Warren Stanley
Iron condors can be a good strategy, but in the second half of 2006 we might have gotten burned on the bearish side of some of those trades.
hm
Do you (use) sell Calls to make money in the bear market?
Warren Stanley
We can set up the same type of trade for a bearish position; but, with the prolonged bull market (plus the general upward slope of the markets), we like to make bullish trades better than bearish. There should always be some stocks that stay flat even during a bear market.
Carl
Owned.
Warren Stanley
Is everyone still there? It seems we had someone try to play a joke on us. I think it is fixed now. Mr. Carl was not very nice. It seems we had a joker play a prank on us; are we back now? It seems we had a joker play a prank on us. Sorry about the interruption.
John F
April fools was a couple of days ago...
Warren Stanley
That’s what I thought.
chuck
Can you "rewind" a few sentences back?
Warren Stanley
Sure...Hm asked if we sell calls to make bearish positions. My answer: we can set up the same kind of trades for bearish positions but with the prolonged bull market last fall, we probably would have gotten burned on some of those bearish trades. In an unsure environment, we like to look for stocks that could stay flat or go up in a bearish market.
gord
Just signed in to the web site; a lot there. What should we look at first?
Warren Stanley
If you are using the trial log in, then the only thing you have access to is the Hedged International Portfolio. If you click on that menu item, then you will see the Hedged International Portfolio menu. The April and March 07 portfolios have currently open trades and the other portfolios below will show you all the previous trades in the service, all the way back to February of 2005. Then, down at the very bottom is the performance table, which shows the overall performance of all the trades…and our lawyers make us say this....you must read the Portfolio Information, Explanations and Warnings; that is also at the bottom. All those items have some good information in them, but if you want to follow along with the current trades, take a look at the March and April pages once a week or so.
miked
How often do you add new trades, and when do you close trades?
Warren Stanley
We add new trades once a month the week after expiration, which is usually the last week of the month, and we close trades once a month on expiration Friday, which is the third Friday of every month. Almost all the time there are two cycles of trades open.
hm
How much is your subscription?
Warren Stanley
The subscription is $49.95 per month. Go to this link that Jack will give you to sign up for the portfolio.
Jack Teaster
HIPsignupA
Warren Stanley
Thanks again, Jack.
steinmancloud9
What are the "two cycles" of trade?
Warren Stanley
Since the trades stay open for 2 months and we have new positions every month, there is one set of trades that just started and one set about to expire. The March portfolio is closing in just about 2 weeks and the April just opened two weeks ago.
SoSahara
What makes your service different from others that charge so much more?
Warren Stanley
I’m not sure... maybe they spend money every month to mail out gold plated account statements or something.
dbensontx
How much margin is required for this type of trading?
Warren Stanley
These are cash trades, so no margin, but the typical month uses about $15,000 in capital with the goal of making at least $1,000 return.
hm
Normally you don't actually "close" the trade, they just expire; is that true?
Warren Stanley
Yep; we only have to close them ourselves if something goes wrong. We lost a little time with the prankster, so I’m going to go into overtime a little bit. If you have to leave and go back to work though, I understand.
steinmancloud9
Can one begin with less than $15,000 for this type of trading?
Warren Stanley
To do half the contracts would only require about 7,500, and that would still be reasonable, or one might only do two of the trades each month; however, when you do that you get less diversified.
chuck
Are you managing each client's funds in a separate, segregated account?
Warren Stanley
No; our service shows just the trade ideas. You can either implement them on your own or you can set up something called autotrading with your broker. For more details on auto-trading, shoot an email to support@investorsobserver.com.
scott pugh
When is the next event, so I can listen in?
Warren Stanley
We have another e-conference tentatively scheduled for next week.
hm
You only do 10 contracts each; is it too risky to do more than that if we want to have an income of, say, 5,000 a month?
Warren Stanley
It is more risky, just in the amount that you could lose if things went bad. For a moment I want to get back to another way to manage the amount of risk in your holdings, since that is supposed to be our topic. Many of us here in the office are big believers in gold as the ultimate hedge. Even if things go terribly wrong, gold should be seen as the universal currency and sometimes we like to play gold stocks in our Hedged International Portfolio. If you are logged into the InvestorsObserver site, check the January 07 Hedged International Portfolio. ABX is a gold mining company; we placed a trade in mid December when ABX was at 30.18. As long as ABX was not below 27.50 on Feb 17, we would make an 11.1% return. Gold and ABX dipped down a little in January, but at February expiration, the stock was at 31.29. If you held the stock over that time, you would have made $1.11, so at Feb expiration, our 27.50 puts expired worthless and we kept the original credit. If you annualize our 11.1% return, just for comparison purposes, its a 67.6% annualized return...not too shabby if we say so ourselves. Even if ABX had fallen by 8%, we would have made that solid profit. This is how our trades are set up to work.
steinmancloud9
Why gold? Does our federal reserve still back itself with gold? It seems that there are several other precious minerals that could yield high returns also.
Warren Stanley
Your point is true, but gold is the easiest one for us to think about. Alrighty, I’m getting pretty hungry, so I think it’s time to wrap things up. Jack will give the free hedged international trial link one more time
Jack Teaster
http://www.iotogo.com/Free-HIIP
Warren Stanley
And if that portfolio looks like something worthwhile, then you can use this next link to sign up for the service.
Jack Teaster
HIPsignupA
Warren Stanley
…because the free trial ends around April 25th. Sorry, all good things must come to an end. The portfolio subscription is covered by our money-back guarantee, so if you aren't satisfied, you can cancel any time and get your subscription cost back.
steinmancloud9
Thank you for your time today, Warren.
sosahara
Thank you!
Guest
Thanks!
Warren Stanley
Thank you all for "listening".
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions. Unfortunately we have run out of time for this e-conference. A transcript of this afternoon’s event will be on the site in a few days. http://www.investorsobserver.com.
If you have any more questions please send them to support@investorsobserver.com.
Transcript from the February 27, 2007 e-Conference.
Jack Teaster
Hello, and welcome to this afternoon's Investors Observer eConference. Today
our guest is Vic Wisemann. Before we begin this event, I'd like to give you
some tips. This is a text only chat. There is no audio. To ask a question, simply
type your question into the chat box below the main chat screen and hit enter.
Your question will be held in a queue until our guest is ready to answer. Be
patient, there will be many questions so it will take time to get to yours.
Vic, your opening comments?
Vic Wisemann
Was any body surprised by the market today? We have needed some of this down
action for a while. The market needs these minor blowouts from time to time
to remind people that plunking your cash in an S&P 500 fund is not the same
as putting it into a bank CD. There's risk in them there markets. Investors
who manage that risk will most likely do better over the long term.
jerry
Long overdue.
Vic Wisemann
I agree.
marek
Actually it helped me so far.
beezer
When I heard that the Chinese market hit 10-year low, I wasn't surprised of
today's action but is it a buying opportunity today or do we sit a while?
Vic Wisemann
Good question. We will be doing our set of weekly articles on the exact subject.
Those articles will come out Friday. To get a look at some of our past articles
you can use this link to get in for free:
Jack Teaster
Free-PTALLEIP
Vic Wisemann
Thanks Jack.
Cemi
How can we take advantage of this downturn?
Vic Wisemann
Another great question. That's exactly what we try to do. As stocks drop, the
put options will get more valuable. We will find some stocks that look like
they have about hit bottom, then set a level about 10 to 20% lower and try to
pick up some cash on those trades. I will go over more of the details on that
a little later. With Warren Buffet releasing his annual letter on Thursday,
we thought it might be good to look at how we are different and why in many
cases we have less risk than Mr. Buffet has.
BHWarren
Risk is relative.
Vic Wisemann
Yes it is. First let’s look at a specific stock. Most people will just
jump in when they see a stock they like. The only way they can make money is
if that stock goes up. And for every $1 that the stock drops, they lose $1 and
losing is painful. Also, there is the ability to sleep at night. Since we build
hedges into each trade, the stocks can move (to a point) and it does not affect
us.
BHWarren
Days like today make you need to think about investing for the long term.
Vic Wisemann
Sure; long term is good, but at times people hold a stock too long and come
up short. A perfect example of this is Microsoft. Us long term holders (me included)
remember when that stock was nipping at $100 a share. Let me come back to a
specific example. Let’s look at SLB -- an oil services company. Back on
Sept 20 we did a hedged trade that bet the stock would stay above 50. We picked
up a quick 8.7% return, but the stock only went up 4.5%. The stock price when
we put the trade in was 58.03, so we had 8.03 cushion built in to this trade
-- not to mention that it was a credit spread and we picked up $200 on the first
day of the trade.
BHWarren
Buy good companies with sound financials.
Vic Wisemann
But even those drop sometimes. Today is a good example. Back to this SLB trade.
It is very representative of the type of trades we do -- low cash required.
Heavily hedged. Nice solid return; less than 30 days. Perfect.
glover
What exactly were the spread numbers on SLB?
Vic Wisemann
For the SLB trade we sold a 50 put and simultaneously bought a 47.50 put as
a hedge. Our research showed that the stock was stable to up for the next 30
days. But anybody's research can be wrong; that's why we build in the hedge.
BHWarren
What kind of trades are these you are doing?
Vic Wisemann
Technically they are called credit spreads. That's because you get your cash
on the first day of the trade. Accountants call that cash a credit -- you just
need to sit around for about 30 days to see if you keep the cash. If the stock
does not go way against you, the cash is yours. Back to this Buffet concept
of investing.... It all works well and good if you have the 105,450 to buy a
share of BRK/A, but that also seems a little undiversified. With our trades
we try to be sure they are spread out in different sectors. Even though there
are only 4 to 8 trades a month, we try to diversify them. Safer that way.
BHWarren
I like companies like American Express, Coca-Cola, Wal-Mart, Proctor and Gamble,
and Wells Fargo.
Vic Wisemann
We can do trades on stocks like those also; not always. Plus, because of the
way we trade with hedges, we sleep better at night
glover
Are all your trades hedged, or do you also go just long or short?
Vic Wisemann
They are all hedged. Today when most investors took pain (meaning losses), that
Berkshire Hathaway stock is down around 1.2% so far today. Looking at our current
portfolio.
Jack Teaster
Free-PTALLEIP
Vic Wisemann
You can go there to see it. Our worst position today is POT (a fertilizer company),
which is down 3.2%, but our position is fine. Originally we built in 13.1% cushion
and we a lot of that left just in case it drops more. So, on a day when all
your golf buddies are moaning about losses, you can just smile. Don't tell them
about this service because we don't have many more spots left.
charles
Sorry, arrived late. Have we received the new perfect trade yet?
Vic Wisemann
Not yet. My right-hand man is sifting through the numbers.
leo
Would you recommend also covered calls?
Vic Wisemann
Those are expensive, and you can still take losses. Be sure you love the underlying
stock. Covered calls is a great way to build core holdings in your account,
but I don't think the buying opportunity is out there quite yet.
Michael
Do you think we will see a market correction tomorrow, or should we expect today's
losses to hold for the short term?
Vic Wisemann
Tomorrow is a little hazy in my crystal ball, but I would not be surprised to
see a flat market between now and summer.
mbur
Wouldn't you call what you do trading rather than investing? It would seem to
be separate from "Buffet" investing, which can be done at the same
time.
Vic Wisemann
No matter what you are doing in the market, you are technically trading. We
are definitely not day trading; we put positions on, then let them sit for about
a month.
glover
When you put on a hedged position, do you do it the begging of the 30-day trading
cycle or are you waiting for less time?
Vic Wisemann
We do it at the beginning of the trading cycle; usually the 4th week of the
month. Then you are out by the end of the 3rd week of the month. That is the
3rd week of the following month.
c21ed
What sectors/stocks would be most effected if the housing recession spills over?
Vic Wisemann
It may sound funny, but watch for some erosion in consumer retail -- especially
building products. Fewer new houses sold means fewer trips to Sears for new
refrigerators, and you know how you can never leave the store without something
else. One good thing has been that with oil prices down, people have had more
money to spend. But they still seem to be putting those new purchases on their
credit cards. And credit card debt is getting more expensive and banks are getting
tighter with credit. Perfect trade coming; get your pencil and paper out. We
are short term bearish on those building stocks. We think that the bad news
is not done coming out of that sector. So our trade for today is on TOL -- Toll
Brothers Builders. These builders have to plan so far out ahead that they may
have expenses built into their biz model that have not come up yet. Expenses
headed up and sales headed down or flat. Not good. Plus, how about all the people
out there with current (used) homes to sell? Those for sale signs just seem
to be out there longer and longer.
c21ed
I own a C21 office in central NJ that averages over $1 million revenue/year--We
HAVE NOT seen the bottom by any stretch.
Vic Wisemann
Agreed. That's why this TOL trade is bearish but hedged. We are looking at a
TOL April 35/37.50 bear-call credit spread for a 20 cent credit; that's what
you should write on your crib sheet. But stay tuned for the risks because this
is the stock market and anything can happen. Losses are always a possibility.
marketmole
So, TOL down 3-5 in the next 10-20 days?
Vic Wisemann
Yes, but it doesn't need to drop. It just can't go up past 35. The stock is
now at 30.44 and dropping. We have over 15% protection built in to this trade.
We get a simple 8.7% return over the short 52 days of the trade. We went over
30 days this time to get a better trade. It still has an annualized (for comparison
purposes only) return of 61%. Let's see that guy from Omaha beat that one.
bill
The bid/ask spread is now 0.15/0.25.
Vic Wisemann
Yes; the trade will probably fill on a bounce.
Guest
Down 3.97% today.
Vic Wisemann
They sometimes bounce toward the end of the day.
BHWarren
So how many years have you been doing this?
Vic Wisemann
In the market for over 25 years. Yes, I've seen markets like this a few times.
Ken_D
Filled at ox.
Vic Wisemann
I guess that means that someone got a fill on that trade. Thanks Ken_D; hopefully
you know the risks. More on the risks now. If over the next 52 days that TOL
stock shoots up 15%, you could lose a little money.
Ken_D
I have been doing this for some time, but appreciate the direction.
Vic Wisemann
This is for the others out there and just in case one of those regulators is
in the crowd. And who knows -- my mom might be out there. If that stock shoots
up past 37.50, you could lose $2,300; that assumes you do nothing. You don't
try to exit or repair the position. Repairs are a whole other discussion. Too
much for now.
Ken_D
Yep.
manut
How many contracts do you trade: 25, 50, or 100?
Vic Wisemann
Well, normally we just do 10 contracts. That represents 1,000 shares of stock.
It is an economical sized order for commissions. WARNING: Please don't do more
than 10 contracts unless you are a billionaire.
Ken_D
I was filled on 10.
Vic Wisemann
Good for you; you picked up a quick $200 instead of going to lunch.
manut
Why not more (apart from greed is bad or good)?
Vic Wisemann
More risk, unless you are a billionaire and this represents a small part of
your portfolio.
BHWarren
So I can do a few more?
Vic Wisemann
You should probably restrict these kinds of trades to no more than 10 -20% of
your risk cash.
bill
What do you think about legging in on the Apr 37.5 call now, and when TOL gets
a bounce, sell Apr 35 call for a better price?
Vic Wisemann
That is up to you. Even when I leg in I try to do them within a few minutes
of each other, but I am the original belt and suspenders guy.
Jack Teaster
There is only about 5 minutes left for today’s eConference. Please get
your last questions in.
BHWarren
A good stock, sound name, by a well-managed company and at a fair price is very
important.
Vic Wisemann
Yes; those are the ones we play. But we also build in a hedge and juice up the
returns. If you are curious about the trades we do:
Jack Teaster
Free-PTALLEIP
Vic Wisemann
You can go to that link above.
bill
Sorry, how do you calculate the annualized return?
Vic Wisemann
You divide the simple return (8.7%) by the number of days (52) then multiply
it by 365. This is just so you can compare investments with different time frames.
BHWarren
This sounds to exciting for me; I like buy and hold.
Vic Wisemann
Actually it is very boring. When you buy and hold, you lose $1 every time the
stock drops a $1. POT dropped $6.17 so far today and we have not lost one cent.
marketmole
Will we do this again tomorrow?
Vic Wisemann
We do these about once every week or two. But, if you have signed up for the
free trial, you will get an email with all the trades whenever they come out.
Jack Teaster
Free-PTALLEIP
Ken_D
Will this trade show up in the April portfolio?
Vic Wisemann
We will move it into the proper portfolio with the correct expiration.
BigJer
Got here late. Will you summarize the trade, please?
Vic Wisemann
A TOL April 35/37.50 bear-call credit spread for a 20 cent credit..
alabob
Hopefully its ok to jump in here; my first time on conference. On a trade such
as this, what kind of margin would you have to put on with the broker?
Vic Wisemann
This does not use typical margin where the broker charges you interest. You
just need to have enough assets (cash, bonds, stocks) in your account to cover
the worst case situation. For this trade it would be a $2,300 loss.
jd
Do you buy calls or puts on your bear call spread?
Vic Wisemann
You buy a call and sell a call simultaneously; this trade is going into the
trade table as we speak
Jack Teaster
Free-PTALLEIP
Vic Wisemann
You can go there to get access, but give them a few more minutes to get the
page updated with the info.
millie
What is the hedge?
Vic Wisemann
The hedge is the amount that the trade is out-of-the-money. For this trade,
the hedge is 15%. The stock would have to move 15% against us to hurt the position.
When you do a normal stock trade, you have no hedge.
Guest
Just got filled also. 7.48% after commissions.
Vic Wisemann
Good for you, and that is over 52 days.
mbur
Why do you want a good, well-managed stock if you're doing a credit spread?
It's not a problem if the stock tanks.
Vic Wisemann
We also do bull-put trades that bet the stock will stay flat or go up. The point
is that our strategy works in up, down, or flat markets.
Guest
Just got filled for .20. 7.48% after commissions if expires worthless.
daddylou
Still no fill at Fidelity; anyone use them and like them??
Vic Wisemann
Give Fidelity a call and tell them people are getting fills at other brokers.
It’s called a "nudge."
Ken_D
Will you follow the RIMM trade from last week?
Vic Wisemann
Always.
Dan
Got filled at TradeKing for .30.
Vic Wisemann
Lucky dog.
Guest
So we understand the trade, but why your right hand man selected TOL is not
part of the explanation?
Vic Wisemann
Basically we are negative on the sector and the stock.
Carlyle
$2,300 is what it costs to put the position on your books. That is why that
is all you can lose, right?
Vic Wisemann
Correct. And someone who was long on TOLL lost $1,190 and it's only 1:10 in
the afternoon.
Thanks for coming; I gotta go get this TOL trade in my account before you guys
take all the action. Bye.
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions.
Unfortunately we have run out of time for this e-conference. A transcript of
this afternoon’s event will be on the site in a few days. http://www.investorsobserver.com.
If you have any more questions please send them to support@investorsobserver.com.
Have a good afternoon everyone!
Transcript from the February 15, 2007 e-Conference.
Jack Teaster
Hello, and welcome to this afternoon's Investors Observer eConference. Today
our guest is Vic Wisemann. Before we begin this event, I'd like to give you
some tips. This is a text only chat. There is no audio. To ask a question, simply
type your question into the chat box below the main chat screen and hit enter.
Your question will be held in a queue until our guest is ready to answer. Be
patient, there will be many questions so it will take time to get to yours.
Vic, your opening comments?
Vic Wisemann
Hello everyone, and thanks for coming. The markets are doing a seesaw today.
Experienced investors probably have seen this pattern before. It usually means
there are a lot of people sitting on profits and ready to bolt at the first
sign of trouble -- always a worry -- and one of the reasons the trade we are
putting out today will be on the bearish side; hedged but bearish. We think
there are some possibilities that we will see a mini correction in the next
few weeks. The market does not need to drop for us to make money off this trade.
Let me jump on a few questions while people are still finding there way to this
room.
DrTom
Does this trade involve options?
Vic Wisemann
Yes; this is the only way to hedge in this market that makes sense. If you are
investing without a hedge, you might be the same people that drive your car
without insurance.
prandj
How do you find the perfect trade?
Vic Wisemann
Lots of hard work and research. We start with a big list of stocks and use our
criterion to narrow down to the best trade.
Econf1
Do you recommend straddles, strangles or single-sided calls and puts for earnings?
Vic Wisemann
Hard to make money consistently with these strategies. Lightning will hit once
in a while but these are big gambles We like trades with the highest probability
of profit. Maybe not a huge profit compared to more speculative trades, but
the odds are on our side
ronbad
Does it involve a spread?
Vic Wisemann
Yes; by using a spread we can keep our risk to the absolute minimum. Low risk
= reasonable returns; highest probability of winning.
m
What is trade/duration?
Vic Wisemann
Get your pencil and paper ready. We are about to give you all the details.
joe kay
Are you selling premium?
Vic Wisemann
Most certainly.
Elwood
As you say, "lightning will hit once in a while." Since individual
stocks are subject to significant overnight moves based on news, do you consider
applying your approach to indexes and ETFs?
Vic Wisemann
We do sometimes, but not that often. These are in our list to consider, but
the numbers seldom work out.
Sammono
I have never used options before. How do I get started without losing my shirt
to learn the ropes?
Vic Wisemann
Watch and learn. A good way is to go back and look at all our past trades. You
can see the exact mechanics of these trades. And you can see all my comments
too. Better than reading a book, I hope. And I will let you in for free -- for
a while.
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
Vic Wisemann
If you go to that link.
damond
What is your target return on investment per trade?
Vic Wisemann
We like to make a minimum of 4% over 30 days. Doesn't sound like much but that's
over 40% when you annualize it. Last year our portfolio did 46.87% return, so
I guess we did okay.
ric
Is criteria based solely on technical analysis or what else is involved?
Vic Wisemann
Good question. We use both technical and fundamental analysis along with rigorous
detective work.
Quick
When do you get into the trade?
Vic Wisemann
Now. First of all, the stock we are doing the trade on is RIMM -- Research in
Motion. We think the next few weeks for this stock will be not so great. Lots
of new competition coming in to the space; contracting margins, plus not a lot
of news coming out.
Chad
Certainly has been trading in a range for the last few months!
Vic Wisemann
Yes it has; for this trade, selling a March 160 and buying the March 165 calls
for a 20 cent credit. If the stock stays below 160 between now and March 16,
we get to keep the cash. For ten contracts, you bank $200 today. Now hang around
for a few minutes to hear about the risks. We call these perfect trades. But
this is the stock market and anything can happen. These can lose money. Nothing
is for sure. Have I scared you yet? Okay so now you need to listen to the possible
down side. It can happen. Let's say RIMM goes higher than it has ever gone --
it goes to 165.01 On March 16th -- then if you did 10 contracts and do not exit
the trade earlier, (or do a repair), you could lose $4,800 on this trade. We
will typically do what we call a repair on the trade if that happens. These
don't always work. But a repair can minimize or eliminate that loss. But (you
know I have to say this) nothing is for sure; if you think RIMM is going to
bust through 165, then don't do this trade.
DG
Chart looks bearish; head and shoulders pattern forming.
Vic Wisemann
Exactly; that's one reason why this is perfect. Another reason is that the company
has already reported earnings.
davdi c
I came in late. What is the stock?
Vic Wisemann
RIMM. A 160/165 March Call credit spread.
doc7469
Is this a bear call spread?
Vic Wisemann
Yes, it is.
jayne from Fairfax
Why only 10 calls?
Vic Wisemann
You can do as many as you want, but remember there is some risk involved.
Stan
Downside is 4800.
Vic Wisemann
Yes, if the stock goes to 165.01.
Guest
Weems like large risk to reward!
Vic Wisemann
Yes, it might, if you don't factor in the probability. When you buy a stock
it has to go up $1 for you to make $1. If the stock drops $1, you lose $1. For
this trade to go bad, the stock would have to jump up $27.50. If the stock drops,
we are just fine.
jsevans
Is a repair the same as a safety net?
Vic Wisemann
No; the "safety net" is built into the trade. That's the $27.50 cushion.
lonnie
What are the typical margin requirements?
Vic Wisemann
The difference between the strike prices. It's not margin like stock margin,
though. There is no interest charge. 165-160 = 5.
Toby
That seems like an AWFUL way to make $$. Let's see, I can make $200, possibly
lose up to $4800?!
Vic Wisemann
That is true. But factor in the probability. You could put that $5,000 into
a stock and your probability of losing is much higher. If you look at our past
trades you will see what I mean..
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
Vic Wisemann
Take a look; it's free for now.
DrTom
Both calls??
Vic Wisemann
Yes, for this trade both sides are calls.
Sammono
For those of you coming in late, you can simply scroll back to the top and very
quickly catch up.
Chad
52 week high is 145.23 - so it would need to go 15 points higher than its 52
week high!
Vic Wisemann
That's right. What do you think the probability is of that happening? Low.
Rich
What is the potential upside if it drops below 160?
Vic Wisemann
On this trade you get all your upside on the first day. For 10 contracts you
make $200.
Guest
Ok, and what about the upside now?
Vic Wisemann
That's it. The max you will make is $200. These are boring trades. That's how
we like it.
Vic
Exit strategy?
Vic Wisemann
You do nothing. At expiration, the positions just disappear if the stock is
below 160.
Guest
And between 160 and 165 we are still losing money?
Vic Wisemann
Yes. Not total loss, but some loss.
Gemstocks
$4,800 risk to pick up $200 doesn’t sound very good,
Vic Wisemann
Take a look at the past trades. You can see how our last 24 trades went. Some
were more than $200. But that was at least $4,800 cash on some pretty low probability
of loss trades. And that is only 10 contracts each.
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
Vic Wisemann
Take a look; it's all there. Lots of boring perfect trades that made some nice
money. Also, you have to consider the time frame. All but one was less than
30 days, so that 4% is really 48% annualized.
doc7469
Why not just purchase a single put option? Less risk!!
Vic Wisemann
If the stock does not drop or even stays even, you will lose money. That is
not a good strategy. For our trade the stock can go up, stay flat or go down
and we make money.
Guest
Did a condor on GOOG once. Right between the lines for 2 weeks. Lots of white
hairs from that, but good profits.
Vic Wisemann
So did we -- several times.
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
Vic Wisemann
You can go there to see how that one worked out. We play both sides of the stock.
perf
How did you get the $4800?
Vic Wisemann
165 - 160 - 0.20 = 4.80 x 1000 = 4800 (Maximum possible loss).
Dee
Please explain how you would do a repair.
Vic Wisemann
Too hard to give all the details here, but we roll the position out farther
in time to give the stock more time to fall. Sometimes we pick up more cash
this way. Some times we roll the positions up also.
raffy
Eo they expire worthless like the bull put spread and you keep the premium?
Vic Wisemann
Yes.
jazzlove
At what price would you repair this trade and how do you repair?
Vic Wisemann
That depends on how the numbers look closer to expiration. It is a moving target,
but we have lots of tricks in our bag.
chet
RIMM is now trading a little over $137. It seems too far a reach to go much
higher.
Vic Wisemann
Exactly; a perfect trade.
Guest
Where can I see the last 24 trades?
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
Konnie
On this RIMM spread, wouldn't I make more putting 5K in money market?
Vic Wisemann
You have to look at the time. Right now money markets are paying about 5% a
year. This trade makes 4.2% over 29 days; that comes out to an annualized rate
of 52.8% (for comparison purposes). So you get almost a 10x return rate.
bullflag
Sounds reasonable but do you do other strategies too?
Vic Wisemann
Yes; you can see our past trades at:
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
daddylou
Have you had no losses??
Vic Wisemann
Not yet, but losses are always a possibility.
lonnie
Was just filled on the trade at 20cents.
Vic Wisemann
Good to hear it. We will be tracking it at:
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
Vic Wisemann
So, if it does go bad, we will be ready with a repair.
AP
Vic, I am really sorry (IE froze), but am wondering if a moderator could paste
the discussion after you typed in the spread 165-160 line.
Vic Wisemann
They post the entire econference in a few days.
lonnie
I have made money on each perfect trade I have entered.
Vic Wisemann
Good to hear it; so have I. That's right; I autotrade these right along with
you.
Guest
Tough group today; not many interested in picking up basically $200 for free.
Well, okay, on a $.20 credit you will probably only get $170 ($30 commissions).
Vic Wisemann
Thanks Guest.
Konnie
On the RIMM spread, couldn't I make as much with 100% certainty in Money Mart?
Vic Wisemann
Exactly. Last time I checked, 50% > 5%, but the 5% is no risk. There is definitely
risk in these trades.
brad
What are commissions on buying 10 calls and selling 10 calls; isn't this significant
against the $200 gain?
Vic Wisemann
Probably around $30 or less, but think about the probabilities.
david5
You have not yet talked about the repair.
Vic Wisemann
More on the repair. The simplest repair would be to reverse out these positions
and move them to the next month. It would give the stock some time to drop.
You might even pick up more cash on that repair to lower the loss.
AP
So even if it is between 160 and 165, we lose money right?
Vic Wisemann
Yes; you will lose something. But take a look at the RIMM chart. Is it going
hit 160 in a month? RIMM also has an S&P 2 STAR (out of 5) sell rating.
Anything can happen, sure, but if this one jumps 16%, we should all be surprised.
jazzlove
At what price would you consider repairing this trade?
Vic Wisemann
160.21.
Guest
Most roll ups cost you more money.
Vic Wisemann
Most rollups do, but if this stock moves up that fast, don't be surprised if
you can take some cash off the table.
Phil O
What are the chances of being assigned on one of the sides?
Vic Wisemann
If the stock is below 160, that chance would be 0%.
daddylou
Do you advise subscribers on when to consider a repair?
Vic Wisemann
We publish repairs on the trade page when needed, and we email subscribers to
be sure they know about it. If you are autotrading, the repair goes right to
your broker for execution. It's all on the page:
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
bigd
Why not use the 165\155 for a .65 profit?
Vic Wisemann
More risk in that one, but some subscribers do just that. They see our belt
and suspenders trades and decide to take on more risk and make more money. It
happens often but then you will need to track that trade. If it goes bad, no
repairs for you (from us anyway).
AP
Hello! Is there an upside besides the $200 in pocket?
Vic Wisemann
Yes, you will sleep much better knowing that the stock can go up, down or stay
flat and you make some $.
CuriousG
Is a company buyout likely?
Vic Wisemann
The market cap is so high, I'm not sure who has that much money. And we feel
that this is an industry that could be on the decline for a while. Great products
for sure; lots of customers but lots of competition, and that means eroding
margins.
bman
How often have your perfect trades actually lost?
Vic Wisemann
Never (so far). You can see all the past trades at:
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
bullflag
What do you call this strategy?
Vic Wisemann
This particular one is a Bear-Call credit spread.
jayne from Fairfax
Please clarify margin requirements on a credit spread -- 165-160=5, so 500 per
contract??
Vic Wisemann
That is correct.
chet
How do I trade this?
Vic Wisemann
Check with your broker.
Guest
How much is a perfect trade subscription?
Vic Wisemann
Free for a few more weeks. But after that it is $49.95 a month.
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
Vic Wisemann
Go there to get in for free.
AP
Is there an upside beyond $200 here?
Vic Wisemann
Only sleeping better at night.
david5
Why not go with a 150-155 spread and make more money? That is still above the
52-week high and you said you believe the stock is only going down here after
earnings.
Vic Wisemann
Be my guest. As I said, that is how many subscribers use our service. We find
the least risky trades and they go for more risk and reward.
brad
Don't you lose more money with the repair if the trend continues against you?
Vic Wisemann
Not typically, but if the stock goes above 165 and stays there, you could lose
some $. There is always risk, but less than holding the stock at these prices.
That's why we like to do trades on GOOG -- very expensive stock. You can see
all our GOOG trades at:
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
Vic Wisemann
We made lots of $ on GOOG.
chuck
A 10% jump would be a big surprise.
Vic Wisemann
Yes, and it would have to jump over 16% to hurt us, and that is in less than
30 days.
jazzlove
Will you be sending out updates on this trade?
Vic Wisemann
Every week, if you sign up at:
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
Vic Wisemann
You will be on the list and get updates until the trial ends.
bob
How are you playing GOOG now?
Vic Wisemann
Oh yeah, playing both sides and looking great. Go here to take a look at it:
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
lonnie
Will this trade be entered in the perfect trade chart?
Vic Wisemann
This trade is considered a bonus trade and goes in the commentary not the table.
But we still track it.
jayne from Fairfax
Who comes up with your trades? Is it you or a team of people at IO?
Vic Wisemann
Yes; me and my team. Great bunch over here. I gotta run into another meeting.
Bye for now.
AP
Thanks, Vic.
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions.
Unfortunately we have run out of time for this e-conference. A transcript of
this afternoon’s event will be on the site in a few days. http://www.investorsobserver.com.
If you have any more questions please send them to support@investorsobserver.com.
Have a good afternoon everyone!
perf
Thanks.
Jack Teaster
A transcript of this afternoon’s event will be on the site in a few days. http://www.investorsobserver.com.
Transcript from the February 8, 2007 e-Conference.
Jack Teaster
Hello, and welcome to this afternoon's Investors Observer eConference. Today
our guest is Vic Wisemann. Before we begin this event, I'd like to give you
some tips. This is a text only chat. There is no audio. To ask a question, simply
type your question into the chat box below the main chat screen and hit enter.
Your question will be held in a queue until our guest is ready to answer. Be
patient, there will be many questions so it will take time to get to yours.
Vic, your opening comments?
Vic Wisemann
Hello all; thanks for stopping by today. I hope not too many people get cold
feet with today's market drop. A good question just came in so I think I will
launch into that. Please do type your questions in.
ED
What should be done with stocks like Torchmark Insurance and Forrest Labs when
they miss earnings and fall off a few dollars?
Vic Wisemann
When you take a position in a stock or option, you do so based on a set of assumptions.
They may be product, people, or earnings related to name a few, but you put
your cash on the line. The way I work it is as soon as the stock goes against
my assumption, I am out. I pull the trigger as fast as I can. I also usually
build a hedge into the trade so I can be wrong and make money anyway. That works
best for me.
bill
The market is toppy. When and how deep of a decline do you expect?
Vic Wisemann
There has been talk about a "correction" for a few months now. Last
November I even made some bets on it in my own portfolio. Me and a lot of smarter
people took some pain on our down market bets. A correction could be 5% to 10%
and it could come after more of these earnings are out. There is also a normal
volume lull around April 15th as investors have to take some cash out of the
market to pay Uncle Sam. This could be significant this year since there was
a big run up last year. People will be getting that bad news from their tax
preparer around April 2nd. Depending on how much profit they took last year,
they might owe more taxes than they can cover with cash on hand -- only way
to pay is to sell more stock. They will probably sell some losers. So stocks
that have been down since Jan 1 will probably take a hit. Watch for those.
nud
Is there any one sector that tends to do well during a "market crash"?
Vic Wisemann
Look at smokes and food -- maybe entertainment (not ad revenue dependant type).
More on that later.
LAJ
What do you see in the near future like in March after most of the quarterly
earning announcements are over?
Vic Wisemann
See comments above. The wild card here is that we are at the start of the presidential
election cycle. No one in D.C. wants a bad economy. They tend to lose their
jobs first if the economy is down. People vote from their wallets first.
nud
Is it true that with a ROTH an investor can buy and sell as often as they like,
with no restrictions -- and no capital gains?
Vic Wisemann
A good question for your accountant or broker. You don't ever want to over trade.
Too much commissions, depending on the type of ROTH. You pay no taxes now but
you will when you take the money out. Big windfall coming for Uncle Sam on that.
ED
If a stock is at an all time hing in this market, is it time to get out?
Vic Wisemann
I assume hing = high. Nice to see someone as bad a speller as me. What I like
to do is set a trigger. If a stock falls a certain %, I am out. Right now, that
is set at 5% for most of my non-core holdings. I will talk about core holding
in a few minutes. If it is a more volatile stock, that trigger could be 10 or
15%. Core holdings stocks are the ones that you are determined to hold on to
no matter what. These are the real solid players. You will get a list of mine
in a few minutes. With a core holding stock, you are pretty sure that any drop
will probably recover, at some point.
Guest
AMEN!!!
jerry55
Where do you see UPS going?
Vic Wisemann
Disclosure: This is one of my core holdings. If the economy grows, these guys
will grow. It is a well run company; maybe one of the best. The stock may go
down but it will come back. It has a nice 2.1% dividend and I sell covered calls
on it to generate more cash.
raymatt
I am assuming that when you said you hedge your long positions, you mean you
buy puts. Assuming I am correct, do you buy 1 put for every 100 shares of stock
or more, and do you buy in or out of the money and how far away from the stock
price?
Vic Wisemann
In general, I don't buy puts for specific stocks. They can get very expensive,
sort of like car insurance for a maniac teenage son. If the kid is an A student
and at the top of his class and an altar boy, the car insurance is cheap. But
then you don't need it. Typically, I will sell calls to bring the cast basis
down. The sold calls may even be lower than the current stock price (in-the-money).
But I do buy puts for HOLDRs and ETFs; I do a play once a year on the SPY (S&P
500 index). I sell calls and buy puts.
jerry55
What stocks do you consider safe in this market?
Vic Wisemann
Okay, get your pencil out folks. MO – Altria; BUD – Budweiser; GE
- General Electric; LVS - Las Vegas Sands; KO - Coca Cola; ABX – Gold.
I am having my guys try to dig up a good trade for today on one of these, so
keep your pencil and paper out.
al
What do you think about the Canadian oil trusts like PGH and CNE?
Vic Wisemann
Disclosure: I own PGH. This is one of those love/hate stocks. I love the high
dividend but I hate the way the stock can drop sometimes. I'm sticking with
it because I think oil has about floored out for a while. I also like it because
if something "lights up" in the Middle East; Canadian oil may get
more expensive and fast, and we get the dividends. But don't play this with
more than about 3% of your portfolio. How about a hedged trade on MO? Almost
a perfect trade. Get your pencil and paper out.
Rich
I missed the first ten minutes. Anywhere to catch up?
Jack Teaster
A transcript of this afternoon’s event will be on the site in a few days. http://www.investorsobserver.com.
Vic Wisemann
Thanks, Jack. Fore MO – Altria -- DISCLOSURE: I own this one too. The
stock is now trading at 85.04. S&P gives this stock a 5 STAR rating. You
can probably put your grandma in this one. But to hedge this even more, do a
covered call. Look at the September 85 covered call. You can get 4.70 for it
right now. Sure, you lose the stock if it stays above 85, but you will pick
up a 9.5% annualized return, plus part of its 4% dividend. So this is a way
to make a great stock just a little safer. That MO could drop about 4.7% and
you are just fine. For a 5 STAR stock to drop like that would be odd. With the
covered call return and dividends, you will be in the 13.5% annualized (for
comparison purposes only) area. Not bad for a hedged trade. Give me a sec to
look at some of these questions.
alan
Looks like support for MO is ~$84.
Vic Wisemann
That's right. That's why it is one of my core holdings.
jerry55
UPS has consistent good earnings, yet after they report the stock usually goes
down. Do they not know how to report?
Vic Wisemann
This happens with certain stocks that have a lot of employee shareholders. The
same thing happened with GOOG. Here's why: with these companies, everyone from
the CEO to the janitor owns stock. Basically, they got that stock for free as
part of their compensation package. But unlike you and me, at 4 times during
the year they cannot buy or sell that stock. That is the "quiet period"
in the weeks before earnings announcements come out. Stay with me here because
there is a way for you to potentially make money off this. Then, after earnings
are announced, they can all sell their stock again. A lot of employees consider
the stock like a pay check and automatically sell on that first day. It can
be a lot of selling pressure. The stock drops -- these are mostly people with
"sell at the market price" orders -- that stock can drop like a stone,
even if the earnings news is not that bad (or even good). Sound like something
you've seen in the last few weeks? This can give investors like us a buying
opportunity. Let's look at UPS; the day after their earnings release the stock
dropped (looking for the number). The stock dropped 95 cents that day. These
guys on the loading dock and in the brown trucks had sell orders on the books
waiting for the open. They can't pay their Xmas credit card bills with the stock;
they need cash. The stock is now up 1.46 from the day before earnings -- that's
almost 2.5 up from the low. Nice time to jump in right? Remember you heard it
here first.
BillyRay
If we don't currently own MO, why not buy the 80-85 call spread? Less downside;
greater % return if it stays above 84-85.
Vic Wisemann
You can do whatever fits with your risk/return profile. We see MO as a core
holding and like the dividends. We may do that spread trade too, but with certain
stocks it's not a bad idea to own a few shares; could be better than putting
the cash in a money market account. Not as safe, but you can make more money.
y207
Do you have to have the stock in your portfolio when you buy /sell covered call?
Vic Wisemann
Yes; for a covered call you do need to own the stock. With MO, you need to own
the stock to get that 4% dividend.
johnb
You could sell the Feb 85 MO calls for .85 with only 6 days left.
Jack Teaster
There is only 15 minutes left in today’s e-Conference. Please get your
questions in.
Vic Wisemann
That can work but you will lose the stock and churn a bunch of commissions.
alan
Back to MO -- how do you think the spin off of KFT will affect the PPS going
forward?
Vic Wisemann
Definitely going to drop. Check with your broker on the details, but all adjustments
to the stock and options will basically work out the same.
pavlo
MO price would drop.
Vic Wisemann
Correct; see comment above. That MO price drop may act like a split and the
stock may go up a bit.
James
Why wouldn't you consider a straight put play the close of ER day prior to the
employee sell off?
Vic Wisemann
Another good possibility, but you never know when that price may zig instead
of zag. Short term plays like that can hold a lot of risk.
DFX
What happened to DIS? Overnight it was up over 2% from earnings release. Is
it just today's market pulling it down?
Vic Wisemann
DISCLOSURE: I own this one. The after-hours market can be an indicator of the
next day but the trading is so thin; price can get exaggerated. Just a general
down day today -- profit taking. You should expect to see more days like today,
and if the S&P 500 dips below the Jan 2 level, expect to see a lot of scared
selling. People just will not want to give up last year’s gains in a few
days.
michael
Analysts are afraid that DIS won’t be able to continue the sizzling growth
it had in 2006.
Vic Wisemann
Thanks Mike. Hold on a sec while I go and dump my 1,000,000 shares; just kidding!
I'm holding tight for now. On DIS, that is not too worried yet, since that one
is covered by a Call sale. Gives me some cushion.
gord
MO up .30 since you mentioned it.
Vic Wisemann
Nice; must be some powerful people here.
strick
How many stocks do you maintain in your portfolio?
Vic Wisemann
For disclosure purposes: I count both the stock holds and pure option holdings.
There are hundreds; lots of positions; lots of diversification. Bearish and
bullish 85% hedged. I sleep well at night.
pavlo
What about grow? My nightmare.
Vic Wisemann
We don't follow this one.
Jack Teaster
If you would like to take look at our perfect portfolio, please go to: http://www.iotogo.com/Free-PTAllEIP for a free preview. There is only 5 minutes left for today’s e-Conference.
strick
Most brokers are pushing mutual funds more than individual stocks.
Vic Wisemann
Might be smarter to look at the ETFs and HOLDRs. Many similar to mutual funds
but cost less. People forget that a mutual fund pulls money out of your account
for fees every single day. When you buy an ETF, HLDR or stock you pay only one
commission. Not a big deal if you are investing $10,000. But if you have $100,000
sitting in mutual funds, you’d better be getting your $ worth for the
fees you pay every single day.
alan
How can anyone really keep track of hundreds of positions?
Vic Wisemann
I have a great team and amazing computer systems. You can try it out for free.
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
Vic Wisemann
Try that link.
yawner
On your perfect trade portfolio, do you recommend auto-trade for option dummies?
Vic Wisemann
First of all, don't trade it if you don't understand the concept. You need to
understand the risk and reward involved. Once you get that, then auto-trading
is the best way to go. I auto-trade it just for simplicity. My trades go in
at the same time as yours, and we have some considerable power in the market.
And if I'm sitting on some beach (I get two weeks vacation and take them), and
one of my analysts needs to get out of a trade, it's all automatic, and if they
screw up, you can bet I will be on them. We have heavy chairs here and they
can expect one flying by their heads if they make a mistake. They don't make
mistakes.
cc
Do you do mostly spread option trades and use protective puts on your stock
holdings?
Vic Wisemann
Spread trades for the PT portfolio. To see the protective put trade, go to this
link:
Jack Teaster
1Trade2007
Vic Wisemann
There is a nice belt and suspenders trade in there.
jer
Jack, is that Perfect Portfolio just the spreads, or is it other trades as well?
Vic Wisemann
Spreads only.
Jack Teaster
http://www.iotogo.com/Free-PTAllEIP
alan
Okay, I think I will. Thanks
yosef
Any way to get a transcript for this later? I had to leave in the middle.
Vic Wisemann
Transcripts will be posted in a few days. I gotta run. There is a conference
room filling up next door and I’m running the meeting.
yosef
Thanks!
Guest
Thanks.
Vic Wisemann
Bye. It's all yours, Jack.
JHHNYC
Thanks, Vic!
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions.
Unfortunately we have run out of time for this e-conference. A transcript of
this afternoon’s event will be on the site in a few days. http://www.investorsobserver.com.
If you have any more questions, please send them to support@investorsobserver.com.
Have a good afternoon everyone!
Guest
Thanks, Vic. Great job.
Guest
Thanks, Vic; any recommended stocks for 2moro?
Guest
Thanks, Vic.
Transcript from the November 7, 2006 e-Conference.
Jack TeasterHello, and welcome to this afternoon's Investors Observer e-conference. Today our guest is Peter Stone. Before we begin this event, I'd like to give you some tips. This is a text only chat. There is no audio. To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer. Be patient, there will be many questions so it will take time to get to yours. Peter, your opening comments?
Peter Stone
Hello, and welcome to the e-Conference. If you haven’t gotten out to vote
today, I encourage you to. We all know after the 2000 election that every vote
counts, and this mid-term election is particularly important as the power of
Congress in supposedly in balance. There is the possibility of a democratic
takeover. Polls are still leaning towards the democrats, if you can trust the
polls. What does this all mean for the market? That is the big question Well,
the Republicans are more investor friendly. But the markets do not like uncertainty.
So the market may rally whoever wins. It will remove the uncertainty.
radman
Yep, we need a change.
Peter Stone
Well, some feel that way and Gridlock in Washington is not necessarily a bad
thing. If all the politicians are busy fighting they can’t mess things
up more.
Randy
How true!
Peter Stone
One factor that is strongly in the Republicans’ favor is the economy;
unemployment just hit a 4.4% a five-year low. Talking about how good things
are doesn’t sell news as well as how bad things are, so I don’t
think the media really covers this.
sue
The war is not in their favor.
Peter Stone
That is true. Most Americans vote on how good they are actually doing, and with
the successful conviction of Saddam yesterday is good news too. That is a big
successful step for a new democracy. So what is the outlook going forward? We
are definitely more bullish than bearish in our perspective. One report we saw
said in the third year of presidential terms the market is up like 17% on average.
jake
But retail sales are slow; economy must be softer than it seems. Housing of
course is down; cars are soft. How can economy really be good?
Peter Stone
Unemployment numbers are strong; housing is down, but that is normal for after
interest rates are higher. Cars should be soft after $3 gas. The market is definitely
set for that kind of potential advance. We have a strong economy; oil prices
that are moderating, with lots more supply coming online soon. We have good
security at home with major tax hikes unlikely. There is a lot of innovation
and new products and services coming out all the time; it is a great time to
be alive. Of course, even with a good big picture you always have to be ready
for a pullback, which is why we like the idea of hedged investing. Just because
the markets are likely to go up doesn’t mean they will always be going
up. They can take a temporary downturn, which is one of the reasons that hedged
investing comes in so handy -- in case things don’t work exactly like
we expected. Many times sectors or industries may see a correction.
Traderman
Investors Keyhole Daily Service team will talk about what they look for in trades
chosen for their service that has exceeded a 90% investment success rate.
Peter Stone
Good point, which will bring us to how we put select and pick trades. Now, for
the October expiring month that just closed, we did 72 trades. 66 of them were
good, that means we had a 71.2% hit rate. I mean 91.7. Silly fingers! So we
had 6 that lost money; not bad overall.
Jack Teaster
ik_summary.asp
Peter Stone
You can see the results up there, and we want to talk a little about the trades.
Of the 72, 60 were bullish and 12 were bearish. Typically we are more bullish
on the market; there is a reason for that. Long term there is an unmistakable
trend in the market. Look at a 100 year chart; it is up. We have down around
3000 trades; 2935 that have closed so far and we have found the bullish ones
typically do better than bearish. And another thing is that low priced stocks
are a little riskier. They have a tendency to move more than higher priced stocks
and if they move too much against you, that can hurt you.
Randy
Are these trades primarily using equities or options?
Peter Stone
These trades are using equity options; mostly bull put credit spreads or bear
call credit spreads.
Randy
Ok, thank you.
Traderman
Gotta love options.
Peter Stone
yes we do love those options
diver
Very few of us can play every one of these trades. Are you going to talk about
how to select?
Peter Stone
Well lets look at an example of a trade and we will then talk about how select
them.
Traderman
Great leverage.
Peter Stone
WE seem to be having some technical difficulties
Jack Teaster
Peter is having technical difficulties
Traderman
I think I lost you.
Peter Stone
Yes; I was having some technical difficulties.
sue
How many trades do you recommend in a month?
Peter Stone
We usually do about 60-80 trades a month. So back to that trade
Randy
Which trade?
Peter Stone
We are going to give you an example of a trade we just did in the IK less than
40 minutes ago. 11:58 AM EST Upgrades and downgrades... Hilliard Lyons upgraded
Interdigital Comm (IDCC) from Underperform to Neutral. Friedman Billings downgraded
AnnTaylor (ANN) from Outperform to Market Perform. CE Unterberg Towbin downgraded
Netease.com (NTES) from Buy to Market Perform. Oppenheimer downgraded OSI Restaurant
Partners (OSI) from Neutral to Sell. Morgan Stanley initiated Adobe Systems
(ADBE) at Equal-weight. Credit Suisse initiated WellCare Group (WCG) at Outperform.
IK-> The technicals for WCG ($63.63 up 1.01) are bearish with a possible
trend reversal. The stock is under distribution with support at 56. Look at
the December 55/50 bull-put spread for a 35 cent credit. That's a 7.5% return
and the stock has to fall 13.6% to cause a problem. [InvestorsKeyhole, various
news and data sources]. That is a big chuck... but that is the latest trade
we did. Every day we look at all the upgrades and downgrades in the market and
we look for a trades that make sense, and in this particular case we like WCG.
If you look at a one year chart of Well Care health Group, it is a very nice
upward trend. The entire industry has been very healthy. OK bad pun, but it
has been in a nice uptrend. What they do... Provides managed care services targeted
exclusively to government-sponsored healthcare programs, focusing on Medicaid
and Medicare. Is a business that should be strong for years to come and they
were just initiated at a Outperform. One more secret: more coverage is actually
good. Just the fact that the broker is initiating coverage means that they are
going to be calling clients and telling them to buy the stock and it was at
a out perform so it is a strong rating.
iverskid
Peter, are the trades you're talking about the ones that appear in InvestorsKeyhole
updates?
Peter Stone
Yes; they come out every day and we send them out in two emails -- one in the
morning and one in the afternoon.
sue
What is a bull-put spread?
Peter Stone
Yes it was. So what we did here, look at the December 55/50 bull-put spread
for a 35 cent credit. We sold the 55 put while we bought the 50 put; that was
our hedge. Our max risk is $5, the difference between the prices. But actually
we picked up $0.35, so the actual amount we had at risk was 4.65 since we get
that 0.35 today and that come up to a 7.5% return. That's a 7.5% return and
the stock has to fall 13.6% to cause a problem. So as long as the stock stays
above 55 on December expiration we will be ok. See this is the secret to our
high win rate; we hedge them and 7.5% doesn't seem bad, but that is simple return.
There is only 39 days till expiration in December, so that actually has a 70.1%
annualized return rate. That is for comparison purposes only.
sue
So you don't have to close out the trade?
Peter Stone
At expiration both sides of the trade expire.
toyshop
Do you put in a stop loss on your $55 PUT, just in case they counter tank?
Peter Stone
If the stock falls $50 or some extreme amount, the 55 put we bought protects
us.
sue
What if you have a broker that won't let you do spreads - can you do both sides
of the trades by themselves?
Peter Stone
No; you will need to talk with your broker about that.
iverskid
I've generated some nice returns just with those trades, thank you!
jd
You put out so many trades, if its auto traded it would take a lot of money
to do all, or does the brokerage only do some?
Peter Stone
The trades that come out in the daily service are not autotraded; we do select
some to autotrade but those go in the portfolio.
Randy
What kind of contract volume are we talking about here?
Peter Stone
On a typical trade we think 10 contracts is a good number, but you can potentially
vary that depending on your circumstances. 10 contracts will bring in 350 dollars,
less commissions.
skip
How do you set your stop loss?
Peter Stone
But doing a spread trade we have our stop loss built in.
diver
I pointed out before that not many of us can do all these trades. Are you going
to discuss selection?
Peter Stone
We like to point out the top 3-6 a day. If you want to narrow it down, look
at companies that are of interest to you. Look at the sectors you think are
good.
mel
The Investors Keyhole history shows "average Hedge" = 16.3%. Please
explain what the average hedge number is.
Peter Stone
The average hedge is the average % out of the money. On this trade it was 13.6%;
it tells how far it can fall.
sue
How many trades do you recommend in the portfolio?
Peter Stone
In the portfolios we do about 4 a month. Some people like to autotrade those.
That is one way we narrow it down for you. We look at all the trades we do each
month and pick 4 that go in the portfolio. We narrow it down to the best four.
hl
Margin requirement limits how many trades you can do.
Peter Stone
The margin requirements are about $5000 for one $5 spread; for 10 contract $5
x 10 contracts x 100 shares.
sue
What is the % of win rate in the portfolio?
Peter Stone
There is a portfolio performance page that shows stats on all our portfolios: port_summary.asp
Randy
So, you are picking a stock that you think is going to go UP between now and
expiration, then doing a Bull Put Spread on it that is 16% or so out of the
money. Is that right?
Peter Stone
Yes, but the stock can actually stay flat or fall a little. We of course pick
ones we think are going to go up but sometimes we are wrong and that is when
it is a great comfort to actually have the hedge in there.
Randy
Is that 16% based on the higher or lower number of the spread?
Peter Stone
The higher.
allpars
What is the difference between what is being discussed and the "portfolio"?
Peter Stone
What we are talking about today is we send out 4-6 trades every day -- it is
our basic service and it has a lot of great ideas. Doing hedged trades like
these are great; you can get high return rates but it takes a lot of time to
find them. Our team is always looking for them and will highlight them for you.
Randy
One more, if I may. On average, how far out do you go with expirations? That
one is not current month but second out. Is that the norm, or do you have a
certain minimum/maximum time?
Peter Stone
We average about 60 days. This past month was 55.7. We found that to be a sweet
spot to write premium because we want to see them expire worthless and then
we write some more.
sue
Can you do spread trades in an IRA?
Peter Stone
Yes, you can do them in an IRA.
Randy
Yet in this one it is 39 days, right?
Peter Stone
Yes; 39 days.
patcat
Do you close some of them before expiration or does that not prove as profitable?
Peter Stone
Typically we like to let them expire, that way we have no closing transaction.
We don't like to pay more commissions than needed, but we will at times typically
if it is going against us. If the stock falls, depending on a lot of things
-- like what we expect it to do -- we may close it early about the time it hits
our sold put to limit losses.
diver
Pointed out before that the premiums for these trades are frequently no longer
there by the time IK is posted. Since there is no follow up, how do we know
which ones are filled for IK?
hl
In your previous example, the trade has downside of $5000 and max upside for
$350. Will alerts be sent out prior to expiration (if it goes terribly wrong)
to minimize loss even though I am aware there is already built-in hedging for
the spread?
Peter Stone
Yes, we will hedge it multiple ways.
Jack Teaster
If you want to see more of these trades go to this link: EndOfYearOffer
Peter Stone
I want to thank everyone for coming out.
Transcript from the October 31, 2006 e-Conference.
Jack TeasterHello, and welcome to this afternoon's Investors Observer eConference. Today our guest is Warren Stanley. Before we begin this event, I'd like to give you some tips. This is a text only chat. There is no audio. To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer. Be patient, there will be many questions so it will take time to get to yours. Warren, your opening comments?
Warren Stanley
Thank you Jack. We will be hearing more from Jack later. Thank you all for coming.
Just in case some of you have not signed up for the free trial to the S&P
service, Jack will shoot you the link.
Jack Teaster
spiofree.
This is a text only chat. There is no audio. To ask a question, simply type
your question into the chat box below the main chat screen and hit enter. Your
question will be held in a queue until our guest is ready to answer.
Warren Stanley
We have been doing these eConfereces once a week for the last few weeks covering
different subjects in each, but the goal is to help investors navigate the market
using a combination of S&P stock research and hedged trades. And yes, those
hedged trades do use equity options but probably some different strategies than
you have seen before. This week we are going to talk about our S&P/Investors
Keyhole daily service. We will be taking questions on anything on the service,
too. The S&P/Investors Keyhole daily service generates 2 to 3 unique trades
a day. These tend to be relatively more conservative trades. We also provide
not trade related biz news, like pre-market reports and foreign market news
in the morning. Our favorite report is our 2:59PM report. We all put our heads
together and try to give you some sense of where the market is going in the
last hour. We get it right very often. We have a good crystal ball.
JPC
How do we get these trades?
Warren Stanley
The trades in the S&P/IK are posted on the web site and sent out to you
by email, but you have to go to the "eMail alerts signup" menu item
on the menu and tell us you want to get the emails and where to send them. It's
important that you do that.
Yash
What do you think would happen when a trade goes out, and thousands place orders?????
Warren Stanley
Good question. This is a situation the bean counters here would love us to have
a problem with. We have actually been running a similar service in our regular
IO service for over 4 years. This has not been a problem so far. There are so
many trades that one investor could not really do them all. People pick the
ones they like, and remember: this is a fee service, not like a report that
might show up on some free news service. Relatively few people see the reports;
not the millions that read Yahoo finance. If it does become a problem, we will
generate more trades during the day.
Yash
You said you send out only 2 or 3.
Warren Stanley
Yes; that's right now. It depends on what the markets are doing and the information
flow out of S&P on the stocks. S&P stock reports are what initiates
our research for a hedged trade.
Yash
How many subscribers you expect to have??
Warren Stanley
Good question. Our crystal ball does not have that channel though.
A E
What is the average holding period?
Warren Stanley
For the IK trades, that is less than 60 days for the credit spreads. Or 4 months
for the covered calls.
JPC
How much is this service?
Warren Stanley
There will be a signup deadline for you in mid-November. I think it is $50 a
month if you make the deadline; $100 a month if you miss the deadline The Marketing
Geeks here will send you a few email reminders once we get closer. This trial
period is so you can determine if the service is right for you.
steven
Do you have a limit on the number of subscribers?
Warren Stanley
If fills become a problem, we will limit subscribers. We monitor it closely.
Ronin
What kind of track record have you had? What percentage of trades are winners,
and what is the average gain per trade?
Warren Stanley
Good question. We have not tabulated that yet for the S&P/IK service, but
in the next few days we will have those numbers and we will get them out to
everyone. The IK service in our regular service has over a 90% hit rate on the
trades. When you look at the actual trades you will see why that's so high.
We build cushion into each trade. The stocks can go against us in some cases
up to 20% and we still make the full profit.
JPC
Is that the 1$ month then $50 after that?
Warren Stanley
That's for our regular service. The S&P service (targeted to advisors) is
just $50 a month if you make the deadline.
Yash
Does S&P recalculate its numbers every day?
Warren Stanley
S&P reviews its stocks daily. Our trades are based on those numbers, but
we do not change a trade that was put out a week ago. Once a trade pops up in
the S&P/IK, that's it, which is important to remember. The S&P/IK service
is opening trades only. Closing trades are not given. The portfolios that you
see at the bottom of the service menu provide both opening and closing trades,
but more on those next week. Anything to add, Jack?
Jack Teaster
Important Note: This eConference is operated and staffed by analysts and equity
option specialists from Investors Observer. No representatives from Standard
and Poor’s will be responding to your questions. All content in this eConference
is for education purposes only and in no way is an offer to buy or sell any
securities. For more complete disclaimers go to disclaimer.asp.
Warren Stanley
He is a fast typer. I guess we will hear more from him later.
chuy
Can you show examples of what kind of trades that we are talking about?
Warren Stanley
Sure. First of all, you can go to the S&P/IK menu items and see the past
and current trades. There is much detail in the reports. The decision to give
more detail on these trades seemed right for advisors A recent trade we did
was an all option trade; we did not have to go to the expense of buying the
underlying stock. That's a big cost savings. The good part about these types
of trades is that they can allow someone with limited resources to spread their
money around different sectors.
me2
Do you index trades?
Warren Stanley
Typically not, mostly because we base the reports on S&P stock coverage.
Cooper
Do you ever close out the trades before expiration?
Warren Stanley
Again, for the S&P/IK daily service, you decide when to close them. We do
not issue closing trades. Typically, for a credit spread you want them to go
into expiration and become worthless.
Yash
You mean you do not monitor your trades?
Warren Stanley
Exactly. We do keep track of the trades to measure success, but we do not issue
closing trades. A recent trade example: on 6/16 we send this one out -- an MCD
SEPT 30/27.50 Bull-put credit spread for 20 cent credit; that would be $200
on 10 contracts. You can do the math for more contracts. That would be an 8.7%
simple return over 91 days. For comparison purposes, that is 34.4% annualized.
That is just a comparison number, and these numbers do not include commissions,
taxes, etc. The actual S&P/IK report includes a lot more info on the trade
and the underlying stock. The idea is to provide as much as possible so you
know what the trade is about and the risks involved. On 6/16 the MCD was at
33.35, so on day one the trade had 10% cushion built in. MCD could have dropped
10% and we would have been fine. That is a typical hedged trade. We also throw
some covered calls in there, too.
babul
It is mostly credit spread.
Warren Stanley
And covered calls.
mimi
I'm new to option trade. How to manage risk for option trade?
Warren Stanley
Good question. Let's look at the MCD trade. For ten contracts on that one, we
actually had $2,300 at risk. If the stock would have gone down below our bought
put price, we could have had a full $2,300 loss. And, don't forget what the
market looked like back in mid June -- not good. But MCD was upgraded from a
4 to 5 STARS stock the day we put this trade in. That's how we try to leverage
S&P research.
KIRI
How can you measure success or ROI if you do not issue closing trades.
Warren Stanley
For the S&P/IK service, we just track winning and losing trades. If the
trade makes money, they are winners. For our tracking we assume they are not
closed. But in practice, you will close trades that require that action. Doing
the reporting our way will be a more conservative way of tracking the trades.
If they were actively closed, the results should be better.
KIRI
Was MCD upgraded before your trade?
Warren Stanley
Yes, it was. Our trade went in within a few hours of the upgrade At times the
trades can get out even faster. The concept is that maybe an investor doesn't
have the $33,000 available to play the stock but they still want to do something.
For this MCD trade they only needed $2,300 in their account to do the 10 contract
trade. 10 contracts = 1,000 shares.
gramps75
Do we trade with you or on our own?
Warren Stanley
We just supply the information. Do the trades as you normally would do them.
mimi
How to manage risk for this trade?
Warren Stanley
Good question. Each trade in the S&P/IK will have a "Key" rating
attached to it. For stocks, you have a "STARS" rating. But for these
option trades, you have a "Key" rating. This will give you a sense
of the relative risk of the trade 1 Key = Very Risky. 5 Keys = relatively lowest
risk. It gives you a quick read on the trade’s built in risk at the time.
Anything to add, Jack?
Jack Teaster
Important Note: This eConference is operated and staffed by analysts and equity
option specialists from Investors Observer. No representatives from Standard
and Poor’s will be responding to your questions. All content in this eConference
is for education purposes only and in no way is an offer to buy or sell any
securities. For more complete disclaimers go to disclaimer.asp.
Warren Stanley
Thanks. You are a man of many words.
steven
What key rating was given to the MCD trade?
Warren Stanley
Checking. At the time, we gave that a 4 Key rating. You need to read the reports
and determine if the trades are right for you. The key rating is a nice guide.
JPC
How does this service differ from perfect trade?
Warren Stanley
The Perfect Trade is a service in our regular IO site. This S&P Options
Strategies site is targeted to Advisors. The regular IO site is for individual
investors. This S&P site leans heavily on S&P stock research and ghe
bean counters are not going to like that I said this: the S&P site is an
incredible value. $50 a month gets it all. As far as the perfect trade goes,
that is run by a different analyst here. It is a separate service.
babul
Thanks a lot guys.
KIRI
Do you issue trades with 1 Key or only safer trades?
Warren Stanley
You might see some with 1 Key from time to time in the S&P/IK service, but
I have not seen one yet. We shy away from risk as much as possible.
V
Silly question, but what is your recommended time horizon for holding positions
in general?
Warren Stanley
That depends on the type of trade. We like to keep Option Only hedged trades
to under 60 days. That is a sweet spot.
Guest
I write covered calls pretty much exclusively; any guidelines on when/when not
roll them up and out?
Warren Stanley
That's a good question. We do not do rollouts in this service but here's how
I do them in my own account. I calculate the return rate of the trade assuming
that the stock is going to stay above the sold call strike price. If it is at
least 2 times the current money market rate, I do the trade. So, if I can make
about 10%, then I do it. I also have to be positive on the stock. It should
have a 3 - 4 -or 5 STARS rating. Rollouts are a great way to keep cash coming
into a portfolio and keep risk low. A few years back I was running rollouts
on EBAY and hitting something near an 18% annualized return. This was when the
market was rough, too.
TED
Do you keep track of what you recommend in case the market turns against you?
Warren Stanley
For the S&P/IK, we do keep track of the trades but we do not issue exit
trades. You need to watch these trades. If you are looking for someone to bounce
ideas off as far as exits (get ready to write this number down), you can call
the guys at 888-OPTIONS. That is the OIC (Options Industry Counsel). They can
help with strategies but don't wait until expiration day to make your moves.
PLS
I am confused: is the S&P/IK service available to individual investors or
is it exclusively for advisors?
Warren Stanley
It is only available to advisors, brokers, etc. -- basically professional investors
who manage accounts for others. If you are an individual investor, you can check
out the regular IO site. There is a free trial at:
Jack Teaster
free-All.
steven
What is a roll out?
Warren Stanley
That is one of the strategies for racking in more cash on a covered call. I
will use my EBAY trades of past as an example. I can't remember the exact numbers
so these are all rough. When I initially got into the trade, EBAY was trading
in the 60 area. The stock has split a few times since then. I bought the stock
at 60 then sold a 50 call against it, which brought my cost basis down. This
was an in-the-money trade. Yeah the stock was on an uptrend, but this was for
the lower risk part of my portfolio. A few months later, as expiration neared,
the stock had gone up. I would have made nothing more on this trade if it went
into expiration, so I rolled it. I bought the 50 back and sold another 50 farther
out in time and picked up another bag of cash. And the stock was still way above
my sold call price, so even if the stock dropped, I was okay. I just kept doing
that buy/sell trade before every expiration. I probably could have made more
if I had held the stock, but the risk on this was much lower. That was the tradeoff.
You trade upside for risk, but an 18% return was fair.
bell
As the stock had risen, didn’t it cost you a lot more to buy the call
back than the premium you originally received?
Warren Stanley
Yes, but I sold the farther out one for even more. Every cycle I came out farther
ahead. But eventually the trade did not give me the return I wanted, then I
just let it close and went out after another trade. Lost of work, but the risk/reward
profile makes it worth it. That's about it for today. We will have another eConference
next week. Anything to add, Jack?
Jack Teaster
spiofree.
Warren Stanley
You can go to that link to get the free trial if you have not signed up yet.
And you can always ask us questions at Support@InvestorsObserver.com. Many thanks
for coming.
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions.
Unfortunately we have run out of time for this e-conference. Have a good afternoon
everyone!
Transcript from the October 24, 2006 e-Conference.
Jack TeasterHello, and welcome to this afternoon's Investors Observer e-conference. Today our guest is Vic Wisemann. Before we begin this event, I'd like to give you some tips. This is a text only chat. There is no audio. To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer. Be patient, there will be many questions so it will take time to get to yours. Vic, your opening comments?
Vic Wisemann
Hello all; thanks for dropping by. It seems like the buyers are out there again.
We've been expecting some down days -- I mean really down days -- but these
earnings keep coming in and people just keep adding to their portfolios. We
see stocks going up that always surprise us. Not just that they are going up,
but how far they go up.
Jack Teaster
To ask a question, simply type your question into the chat box below the main
chat screen and hit enter.
John3
Which way is the market going?
Vic Wisemann
Well, in the past few quarters we have seen the markets down during earnings
then up once people figure it out that things aren't so bad. We may be heading
into the opposite effect now. We are also nearing end-of-year tax selling and
some profit taking. Fear needs to trigger that and greed has been in control.
John3
What about the election?
Vic Wisemann
We are watching that closely. Our trades going forward may look for opportunities
the election may throw at us.
jwiley
What do you feel is a comfortable down side loss or protection in your trading
strategy?
Vic Wisemann
Good question. We are going for relatively shorter term trades. A few we did
last week were less than a couple of days. We can play earnings like that. We
may have another earnings play for you here today so get your pencil and paper
ready.
Guest
I just signed up today on the one month trial period; can you walk through the
services I'll receive?
Vic Wisemann
Sure; It's not just a trial (I am responding to someone’s question about
what they get for the $1 subscription). You are getting the full benefits of
regular subscribers. You will get our trade emails as the trades and comments
come out. The trades are in a table. You will get weekly articles that can help
you whatever you are trading. Not only do you get the entry trades but you get
the exit trades too. Plus you can set up autotrading with your broker so you
don't have to watch your email 24 hours a day. You will get an email with more
info on autotrading. So the first month is $1. Then we hit you with the $49.95
monthly subscription price after that. It's always funny to me when a few people
unsubscribe. Last month the trades in our table made $800 and the "free
trades" in the comments made an additional $1,100. The free trade may not
happen every month; those are something that our marketing people ask us to
do, but that guy who bails to save himself the $49.95 missed out on a $800 payday.
And that's just if he did the minimum number of contracts.
vintage
Is that for everything?
Vic Wisemann
Yes; the $49.95 a month gets you everything. Everything = The Perfect Trade
Portfolio.
Mikey
Do you do any short selling?
Vic Wisemann
We only short sell as a hedge against another position. You will see those as
paired trades in our table. We don't like to take big, big risks and this pairing
of trades reduces the potential loss if things do go bad.
YMTrader
How much was at stake to make the $800?
Vic Wisemann
Good question. Since these were all credit spreads you would not have to put
out any real cash, but to do the trades you would need to have $16,700 in assets
in your account.
jwiley
Do you do put spreads and what is at stake?
Vic Wisemann
We do both put and call credit spreads The maximum risk on the trades is the
difference between the strike prices minus the credit you get. Those numbers
are shown in the table. Look at the bottom; the total line.
sschwenker
So what is the risk – total?
Vic Wisemann
It varies from month to month, but for all the trades we will generally try
to keep it below $20,000. We usually build in some cushion for the trades --
an amount the stocks can move against us and we don't get hurt. Example: we
had built in 22.7% cushion for our IMCL trade; that stock could have really
moved and we would have been fine. That's one reason we call them perfect (and
one of our secrets). Build in a big cushion when you can.
fred
Are you also a broker?
Vic Wisemann
No; just a lowly analyst.
vintage
Do you need to have that amount, i.e. $16,700, in a cash account?
Vic Wisemann
You can have stock or bonds in there, but there is risk on these trades. Don't
forget that. And it depends on what broker you use. If you are with Uncle Charlie’s
Corner Store and Brokerage, he may not know how to do these trades or know the
rules.
lg
There is risk because you are doing some naked selling?
Vic Wisemann
Nothing is naked here -- not yet anyway. Because many of our subscribers do
these trades in their IRAs, we have to follow certain rules. No naked trades.
The short positions are paired with long positions.
YMTrader
Is there a past history of trades we can examine?
Vic Wisemann
Yes; we list all our trades in the table. Good and bad. All good so far.
Gord
Covered Calls?
Vic Wisemann
Not in this portfolio; doesn't fit the timing and risk profile. We use covered
calls in our Conservative Covered Call Portfolio.
Spence
How about an example?
Vic Wisemann
Sure. We had a trade in IMCL last that expires last month. When we put the trade
in, the stock was at 28.52. We simultaneously bought a 40 call and sold (short)
the 35. We were betting that the stock would not go up past 35. We picked up
a quick $200 (if you did the minimum amount of contracts) At expiration last
Friday the stock went up to 29.74; we kept the $200 bucks. When it works, that's
how it works. Then we all go out for beers.
Terry
Sold the 35 call?
Vic Wisemann
That's correct.
YMTrader
Nice trade; good risk / reward ratio!
Vic Wisemann
Yes, and that was over less than 30 days for an annualized return of 47.9% (for
comparison purposes). That was actually 31 days.
Mikey
Bear Call Spread?
Vic Wisemann
Yes.
jwiley
What about a bad example and how did you get out of it?
Vic Wisemann
We have not had any in the portfolio yet, but I have had a few in my own portfolio.
There are a few things we can do; we call them "repairs." When they
are possible we do them. Sometimes we can even make a little more money. Sometimes
we lose a little. And there is always the possibility of a full loss.
vintage
How about in another portfolio?
Vic Wisemann
You asked for it... Last Friday we put a 460/490 GOOG Bear Call Spread in and
picked up $750. This was not in the Perfect Trade Portfolio, but you asked for
an example. The stock hit 460 in the morning then settled down. We entered the
trade at about noon or so. About an hour later the stocks starts to spike up
(these times are from my cloudy memory) so our trade was in danger. We could
have lost $9.25 a share if that stock really headed up. And worst of all, there
is a guy here in the office who wanders around saying "Never bet against
GOOG." I would have to listen to that for years if we lost on this trade.
Fate worst than death. GOOG hit close to 460 in the last 30 minutes of trading.
We teed up an exit trade and got ready to fire it off. At around 5 minutes before
the market closed, GOOG went over 460 -- our pain area .We fired off the exit
trade. It cost us 10 cents to exit, so we only made $650 on the trade. Long
story, but a good example.
Spence
What was the trigger for the IMCL and GOOG trades?
Vic Wisemann
Good question. IMCL – first, there has been a lot of speculation on the
company lately. That drives up the option prices. When prices are up you want
to be the seller. The potential changes at IMCL (Icahn) would probably not have
happened during the timeframe of our trade. GOOG -- since this stock is so high
priced, there is a lot of action in the options. Why pay 460 for a stock when
you can get into a call option for $20? On earnings day, before earnings are
announced, those call prices spike up. After earnings they crash. That’s
whey we put in those two free GOOG trades a day before earnings.
Spence
Vic, so my understanding is you put up $500 in equity to net $200 on the IMCL
trade?
Vic Wisemann
No; more than that -- $5,000 minus $200 = $4,800.
vintage
What portfolio was that in?
Vic Wisemann
If you are asking about the 460/470 GOOG Bear Call Spread, that was in the “Vic
Wisemann Gotta Retire Some Day or My Wife Will Kill Me” portfolio.
Spence
Well, GOOG is down today; would you do the trade again, say 500/510?
Vic Wisemann
We have another on. Get your pencil and paper ready. GOOG -- when you look at
the options on this one, it has shot up so fast that they don't have enough
call options out there yet expect to see those soon. But at this point in the
month, you want to be farther away to do that trade. We are looking at the November
GOOG 560/570 Bear Call Spread for a 20 cent credit -- $200 for 10 contracts
-- and we always like to play both sides of this one because it is a $10 spread.
So look at the NOV GOOG 400/390 Bull Put Spread for 20 cents; that trade is
alive for 25 days. You will probably see trades elsewhere with higher returns,
but in my opinion they are less than perfect.
calloption
Help me out: The 460/490 Bear Call Spread is selling the 460 and buying the
490?
Vic Wisemann
Typo; it was a 460/470 but the 470 call sell the 460 call.
Guest
What was the exit trade?
Vic Wisemann
That 460/470 comment was on the example from last week. Be sure to get your
notes correct. You don't want to flunk this class. The exit trade (from last
Friday): I quickly bought back the Oct 460 for 10 cents. It was the prudent
thing to do. The stock closed below 460 last Friday, but when it crossed 460
I fired off the exit and it filled. That's how the game is played here.
hiway
When you recommend a trade, do we put it in with a market order or do we use
limits?
Vic Wisemann
The limits will always be shown in the table. Stick to those limits, and here
is a secret: it's better if you autotrade with your broker. Why? Because when
your broker can go out with hundreds of contracts they can push for a better
fill price. We see it happen every month. I personally autotrade this portfolio
for that reason. Sure the bid/ask may look like 15 cents, but throw a few hundred
contracts at that market maker and with a broker who can put the push on for
you, you can get a fill.
vintage
Do you have many intraday trades?
Vic Wisemann
Not normally in this portfolio, but just in case there are it's a good idea
to autotrade. The trades will normally come out before the market opens and
you will get an email. For autotraders we send the trades to their brokers.
Spence
Do you monitor volatility?
Vic Wisemann
Always.
Spence
So Vic, how closely do you monitor volatility?
Vic Wisemann
We are on it constantly. For the most part volatility is our friend.
Guest
Was this chat going to be on Topic: 5 Secrets To Finding Perfect Trades?
Vic Wisemann
Yes; Joe I think I let out about 7 secrets so far. Get your pencil and paper
handy. We are looking at another nice trade. Is it perfect? You be the ultimate
judge. GM -- it is up 89 cents today to 36.08. This stock has had a great run;
No one is probably dumping it this year to take a tax loss. But they may dump
it to take profits. With earnings tomorrow those calls are up there in price.
Those earnings come out before the market opens. Ford had bad numbers and dropped.
GM has not been above 40 for two years. Unless GM figured things out in the
last few months we don't expect the stock to go much above 40. Look at the GM
NOV 40/42.50 Bear Call Spread for a 20 cent credit; that stock will have to
shoot up another 3.91 or 10.8% to hurt you. Now I'm going to rapid fire try
to answer some of these question here.
Mikey
Which brokers do you have for autotrading?
Vic Wisemann
They are on the portfolio page -- Man, Think or Swim, optionsXpress. Ask your
broker if he will do it. If they pass our tests of fire we will set them up.
jwiley
What about a debit on the same?
Vic Wisemann
Debits cost money to exit. We are about making money, not spending it.
vmt
Do you know if brokers like Fidelity and Charles Schwab autotrade?
Vic Wisemann
Ask them; if enough people ask, they will start to do it.
Terry
Who would you recommend for an IRA account for autotrading this strategy?
Vic Wisemann
That's where I trade it, and I'm an old man, but that is a decision that only
you can make for your case.
jwiley
What is the max contract you would trade?
Vic Wisemann
We put 10 contracts in the table. That totally depends on the size of your portfolio
and how much risk you are comfortable with.
Terry
Since these are credit spreads you are looking for them to expire worthless,
I take it.
Vic Wisemann
Yes; exactly. No exit trade, no extra commissions.
jwiley
Do you feel that either debit or credit spreads are safer? Which offers less
risk?
Vic Wisemann
It all depends on the trade and the stock.
HM
I would like to know when a portfolio is proposed, it mentions that there is
a defined exit point for trades that go against us and that a trigger is built
in to the trade to minimize losses. Can you expand how it works and which are
the triggers mention above?
Vic Wisemann
It varies based on the stock and how close we are to expiration. I pulled the
trigger on the GOOG exit 10 minutes before the close.
YMTrader
For 1 C on IMCL, wouldn't it be $500 risk vs $200 credit?
Vic Wisemann
No; $500 risk for $20 (before commissions).
highfive
You gave us the Bear Call Spread for GM; will you also do a Bull Put Spread?
Vic Wisemann
Probably not on this one. Hey guys, my nearly arthritic fingers are getting
stiff and nature is calling so I gotta run. We will email you when the next
e-conference is happening; maybe in a week or two. Thanks for stopping by.
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions.
Unfortunately we have run out of time for this e-conference. A transcript of
this afternoon’s event will be on the site in a few days. If you have
any more questions please send them to support@investorsobserver.com.
Have a good afternoon everyone!
Guest
Thanks, Vic. It's been very informative. Thanks.
Transcript from the October 12, 2006 e-Conference.
Jack TeasterHello, and welcome to this afternoon's Investors Observer e-conference. Today our guest is Warren Stanley. Before we begin this event, I'd like to give you some tips. This is a text only chat. There is no audio. To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer. Be patient, there will be many questions so it will take time to get to yours. Warren, your opening comments?
Warren Stanley
Many thanks for attending today. I hope a few of you were able to download the
sample HIPR report. HIPR = Hedged Income Portfolio Review. This report/service
has been in the works for about a year. People who have stock in their portfolios
were asking for a tool to help them find a way to generate more cash from their
portfolios. The concept of selling covered calls has been around for a long
time, but the investor still has to go through the stress of identifying which
call to sell, the optimal covered call. With the hedged income portfolio review,
you still have some decisions to make, but the report provides good solid information
so you can make those decisions quicker. Anyone who is holding stocks in their
portfolio can potentially benefit from this new service/report. Here's how it
works. First you type in a stock symbol, number of shares, and your purchase
price. You do this for all the stocks in your portfolio. Since we are doing
covered calls, the ones that do not offer call options will not show up in the
report. After all your stocks are entered, you click on the "Generate Report"
button.
trueblue
Is the date relevant?
Warren Stanley
The date of purchase is not relevant. The date the report is generated is not
relevant either.
The report is created when you click the "Generate Report" button.
Based on what you have entered, the HIPR report consists of a table of cash
generating trades you can do right now.
But that table is about 5% of the report; the rest of the report tells you how
to use it and has warnings and other things you need to know. The table is the
big thing here, along with the trade. A series of analytics and indicators are
shown to give you more information to help you decide if the trade is right
for you. The goal of each cash-generating trade is to put some money in your
pocket now but not lose the stock. To help you see the risk involved, the risk
of losing the stock, a "Key" rating is attached to each trade. This
shows how relatively risky the trade is. One Key = Strong possibility you will
lose the stock; 5 Keys = Relatively slight risk of losing the stock. What you
want to happen is…the stock goes up but not as high as the call you sold.
You keep the cash and you keep the stock. Then you run the HIPR report again
to get another call to sell = more cash. In the sample HIPR report, close to
an extra 10% in cash income was generated. Not bad! This was on stocks like
CVS, ERTS, HOG, IBM, MO, and AAPL. All the kind of stocks most investors might
have as core holdings. The concept is...Yes, hold on to the stocks you love,
but as they sit in your portfolio, have them kick off some cash for you. Fingers
resting; now would be a good time to key in some questions.
red baron
Short term buys??
Warren Stanley
Nope. You are holding the stock. You are selling a call option to generate the
cash. One of the example trades from the sample report: CVS is at 29.72 and
you sell a January 32.50. You get 90 cents a share for this. CVS has been down,
so this call sale is close to the current stock price.
buck
How about doing "puts' also?
Warren Stanley
Not part of this strategy.
raga
What month call expiration do you use?
Warren Stanley
It depends on the stock. The system actually hunts down the optimal one to sell
based on the specific stock.
JoeH
You refer to these as "covered calls" but they are really puts aren't
they?
Warren Stanley
Nope. You are selling call based on the stocks you currently have in your portfolio.
This is technically equivalent to selling a naked put... But that's for the
advanced class.
whatnot
I assume the system picks a % down which is unlikely to occur based on near
term history.
Warren Stanley
That is correct, but not just based on the history. There is more (much more)
going on behind the scenes on this. Two things that are used are the S&P
STAR rating and 12 month projected stock price for the stock. Many other parameters
are used but these two are really important. A higher rated stock will usually
show a covered call farther out of the money
francine
How do you determine the premium is good enough for you to sell call? What month?
And what strike price?
Warren Stanley
Good question! The system is set so it does not sell a call that is less than
50 cents a share.
Just not worth your time. The strike price is determined based on the STAR rating,
12 month projected price, and several more parameters. The month is usually
the shortest amount of time to get a reasonable return. The annualized return
is used as one of the selectors looking for the optimal trade. The sold call
might get you less money, but since it is over a shorter time period you can
sell more of them each year.
Joseff
Covered call writing exposes you to risks in a market decline. You may be better
off selling outright vs. holding through the decline.
Warren Stanley
Yes; that is very true. If you don't like a stock, you should sell it. This
is only for the stocks you want to own. It is always better to just sell stocks
you think are on the way down
jb
What if you own the stock at a really high price -- like I own 300 IBM at 105;
should I buy more to average down?
Warren Stanley
You might want to talk to your accountant. This may be a case where you can
try to take a loss and save some taxes. Be careful of the wash rule.
blue
What’s the cost/commission on the trade?
Warren Stanley
That depends on your broker. Those costs are not shown in the table. They should
be a small % of the sold call price. Example... If you have 500 shares of stock
and sell a call for 50 cents, you pick up $250. Your commission should not be
much more than $15 for the trade.
whatnot
Is strategy best with stocks which do not have big swings in value? Consider
something like ACAS which returns 15 - 20% including dividends. A great hold.
Would not want to lose.
Warren Stanley
You can look at the Key rating to get a sense of the risk of losing the stock.
But only you can decide how much risk is too much for you. We just ran a quick
report for ACAS and it looks like a Feb 35 is what pops out of the report and
it has a 4 Key risk rating. But only you can decide if the trade is right for
you.
raga
What criteria do you use to determine the month to sell?
Warren Stanley
The system looks for the trade with the highest annualized return. It's not
just about doing this one time. It’s how many times a year you can sell
the calls. A lower amount 6 times a year may be better than a higher amount
only twice a year.
whatnot
One contract per 100 shares?
Warren Stanley
In most cases this is correct, but some stocks may have an odd number of contracts
because of splits and mergers.
rick
What if the stock keeps going down?
Warren Stanley
It really depends on how far down. If it just goes down a little, then you have
that extra cash as a hedge. You only want to do this on stocks you want to keep.
You don't have a real loss on that stock until you sell it. If it is a solid
stock it will most likely recover. Even weak ones can surprise you.... Think
GM!
rick
Can it be autotrade?
Warren Stanley
Nope. But if you work with an advisor, this is something you need to tell them
about. It's a great way to boost the returns on your portfolio. If you are paying
someone to manage you portfolio, they need to know about this.
whatnot
Will system suggest that a trade not be made? In other words, risk is not worth
the cash. ACAS for instance already returns 8% in dividends.
Warren Stanley
It won't say don't do the trade, but it will show a lower Key rating. Actually,
for that ACAS, it showed a 4 key rating - lower risk. That's an interesting
stock - ACAS ... Lower Beta. Has historically been flat but the up trend is
there. Be careful using this strategy on that stock unless you think it is topping
out for a while.
Joseff
Can you use this system for a portfolio of necked puts?
Warren Stanley
For the advanced class.
jb
How is this equivalent to selling a naked put, Warren? I can't get the copy
of the report so please give an example. Am I selling naked puts below support
and selling calls above support in amounts greater than I own?
Warren Stanley
Definitely for the advanced class, and in this market you might get stuck with
some of those stocks when a drop comes.
Ranger
Don't brokerage commissions eat up a large percentage of the profits?
Warren Stanley
It depends what you are calling large. And how many shares of stock you own.
If you have a smaller portfolio with 200 or 300 shares of each stock then yes,
commissions could hurt you.
But if you are looking at over 500 shares of each stock then this could work
for you.
Joseff
Do you use a rate of return objective in your program?
Warren Stanley
Yes; in fact that rate is shown in the report. We give you a lot of information
to help you decide if the trade is right for you. The report is just providing
the information; you still have to make the hard decisions.
Gary
How is a stock's Beta factored in?
Warren Stanley
Several ways. The system uses it to determine the optimal call, then it is one
of the components used to determine the risk rating for the trade. That is what
threw off the ACAS trade we saw.
It has a pretty tame beta but recently it has shot up, which is another risk
with this strategy. ACAS example: The system tells us that the optimal covered
call for the stock is the Feb 45. If the stock goes to 45.01, you could lose
the stock. There are ways to maneuver out of this and those are covered in the
HIPR report. Also with an 8% dividend you could get called out early by someone
who wants that juicy dividend. But if you are called out, you will get the $45
a share.
buck
What is my cost?
Warren Stanley
For the report or for the trade? Report - You can jump in and start for $1.
For the trade, that depends on your broker. Commission could be $10 to $20.
Jack Teaster
HIPRdollar
Warren Stanley
If you go to that link you can start running the report with your own portfolio
stocks. But be sure to read the whole report -- warnings and all.
dave
Instead of buying the stock, why not buy a LEAPS, and then sell covered call
on the LEAPS?
Warren Stanley
Brilliant. That is not covered in the HIPR but it is exactly what we do in two
of our portfolios.
Jack Teaster
HIPRdollar
Warren Stanley
You can get a look at those when you go to the link above too.
Guest
That is right, you sell calls only if you want to keep the stock, but sometimes
it got called away, so it is not so easy.
Warren Stanley
There is always the chance that the stock could be called away and the HIPR
report provides a Key rating to give you a quick indicator of how probable that
could be.
bob
What do you do to keep from getting called out if you want to keep the Stoci?
Warren Stanley
The HIPR gives you some ideas on what to do in this case. It's called rolling.
I have been doing it for years on some of my stocks. It happens.
sorceror
How long will this service be available to us for free?
Warren Stanley
It's not free. Sorry. But until we can convince our landlord to stop making
us pay rent we have to charge.
Jack Teaster
HIPRdollar
Warren Stanley
It will cost you $1 to try it for two months.
Guest
At optionsXpress the commission is only $14.95 for a 10 lot.
Warren Stanley
Yes. So if you have 1,000 shares of a stock and you can get $1 for a covered
call. You get $1,000 but it costs you 14.95 in commissions. The Tax Man is another
story. You will pay taxes on this cash if it is in a taxable account.
al
If you see you are losing the stock, you can sell a naked put to get the stock
back.
Warren Stanley
That might work.
whatnot
With a strike price at 35 for the ACAS call, and ACAS at 41. the premiums must
be over 6.00. Isn't that right? Otherwise, the contract holder would pay.
Warren Stanley
Correct. But the system will always pick a sold call price higher than the current
price.
dave
What about MSFT?
Warren Stanley
This has proven to be a tough one to sell covered calls on lately. You probably
want to avoid those covered calls for a while. Back in the old days I used to
sell covered call on MSFT every month.
jb
When is the advanced class on naked puts?
Warren Stanley
Not here...not now anyway.
whatnot
You say be careful with ACAS but the report shows 4 Keys. That indicates to
me that you are saying that if a stock is showing better than STARS for some
reason, that it is not a good candidate for this. Need to be further aware of
divergence from expectations.
Warren Stanley
Yes, that is because the Beta is pretty tame.
Guest
What is the cost of using this report?
Warren Stanley
$1 for the next two months.
Jack Teaster
HIPRdollar
blue
What does it cost for continuing access to your program.
Warren Stanley
See the link above.
geo
Can we try 1000 shares of NT for example?
Warren Stanley
Trying it now. NT would not work; it's too cheap and there are no options offered.
GE might be a better one than MSFT.
raga
So, 5 Keys means it's a good trade and 1 Key means it is not?
Warren Stanley
Correct. The key rating is just an indicator. You have to decide if it is right
for you.
Thanks for coming. I have to run to a meeting. To try out the report you can
go to...
Jack Teaster
HIPRdollar
Warren Stanley
Bye.
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions.
Unfortunately we have run out of time for this e-conference. A transcript of
this afternoon’s event will be on the site in a few days. Have a good
afternoon everyone!
raga
Bye and thank you.
Guest
Thanks Warren and Jack.
Transcript from the July 19, 2006 e-Conference.
Jack Teaster
Hello, and welcome to this afternoon's Investors Observer e-conference. Today
our guest is Hannah Slater. Before we begin this event, I'd like to give you
some tips. This is a text only chat. There is no audio. To ask a question, simply
type your question into the chat box below the main chat screen and hit enter.
Your question will be held in a queue until our guest is ready to answer. Be
patient, there will be many questions so it will take time to get to yours.
Hannah, your opening comments?
Hannah Slater
Just catching my breath. Been a busy morning. We were caught by surprise on
this market jump. Had to get out there and rake in some cash.
Raza
Hi.
Hannah Slater
Hi back. Thank you all for coming. For now it looks like the gas prices at the
pump have leveled off, but we are long term bullish on the oil sector. With
China and India starting to compete for oil with us, we think oil prices will
remain around the current levels -- at least through the end of the year. One
thing that could derail oil is a recession. If the US economy tanks, the world
economy will follow then oil demand will drop, along with prices. So that is
something to keep an eye on.
Don
What do you see as the best way to trade oil for maximum return with minimum
risk?
Hannah Slater
That is at the core of our Oil Income portfolio.
rich
What's your favorite dividend play in the oils?
Hannah Slater
We have several but today we will be talking about one of those.
JD
CERTAINLY there are other investments besides oil, right?
Hannah Slater
There are many ways to play the sector, and we have considered those. The key
is that we were looking for something this time that would not get whacked if
this Middle East situation goes red hot. Most oil companies get some of their
oil from that region. The company we are looking at for today's trade does not.
In fact, if Middle East oil is disrupted this company will do even better.
Sulley
Are you talking about Royalty Trusts?
Hannah Slater
That's a fancy name for what we are looking at. Basically royalty trusts are
companies that must pay out their profits as dividends.
Fast Eddie
The oil tanker companies have huge dividends.
Hannah Slater
We looked at those also, but if Middle East oil is disrupted then those companies
will have empty boats.
michael
Oil tanker companies will get killed if this hurricane season is as active as
the weather service is predicting.
Hannah Slater
Good point. And in both those cases the company we have picked will do even
better. So, get your pen and paper ready. To start off, our subscribers were
alerted to this trade at around 9AM this morning and we have seen fills. But
the trade is still fillable.
paps
I'm ready!!!!!
Hannah Slater
Okay. We are looking at a company called... DRUM ROLL PLEASE… Penn West
Energy Trust, Symbol: PWE.
Rocksteadyeddy
EPL EPL EPL EPL EPL EPL EPL EPL EPL
Hannah Slater
Not this time. Here's the trade. Then I will talk about the risks. Be sure to
hang around for the risks. Buy PWE and sell December 35 Call (PWE LG) for a
$34 debit. Write that down.
NAT
I already own 1000 shares. What do I do in addition?
Hannah Slater
If you want a hedge you would sell the Dec 35 call. First, the positives...
Sulley
PWE just merged with Petrofund.
Hannah Slater
Yes, that trade gives you 9.6% downside protection. The stock can drop 9.6%
and you will not lose any money. Plus you will get the dividends. The last dividend
was 30 cents a share.
NAT
Selling calls is pretty risky.
Hannah Slater
I will get into risks later. But this trade is actually less risky than buying
the stock.
MikeC
I have owned PWE since before it was listed on the NYSE.
Hannah Slater
Then you have made some nice money on it. More positives.
TomT
How frequent are the dividends?
Hannah Slater
The dividends are paid out each month. That's why we like this one for the oil
income portfolio. If you think oil prices are not going to drop then this is
a nice way to put some cash in your pocket. This trade gives you an annual div
yield of 10.6% and the stock can drop 9.6% and you will not lose money. That
is exactly why this trade is safer than just buying the stock. If you just held
the stock, a dollar drop in the stock price cost you a dollar. But not with
this trade. The stock could drop 3.60 before you feel any pain. While your buddies
who just bought the stock will be racking up losses, you will sleep well at
night.
Profiteer
What premium did you look for in the covered call?
Hannah Slater
3.60
TJol
What is the trade again?
Hannah Slater
Buy PWE and sell December 35 Call (PWE LG) for a $34 debit.
BillyRay
You can drive a truck through the options spread, though. What about liquidity?
Hannah Slater
We got fills this morning at 34; this is a good trade
zeke
Do your yield figures account for the 15%Candian tax deduction?
Hannah Slater
No, we do not account for taxes or trading costs.
Mike
OK, what does this deal have to do with oil prices? Just for the dividends or
what? Never mind the up/down in stock price.
Hannah Slater
If oil prices drop, PWE will get less for their oil and the dividend will drop.
And expect the stock price to drop too.
NAT
Do you see this as a multi-year hold?
Hannah Slater
No; we are cautious. After the mid term elections we could see some softening
in the economy and oil prices, so ask that question again just after Christmas.
Fast Eddie
The theoretical value on those options is $4.90. That tells me that they are
worth a lot more than the $3.70-$3.90 we could probably sell them for.
Hannah Slater
Did you figure the dividends into your calculation. This company could pay out
3.60 a year in dividends.
Profiteer
Time frame please?
Hannah Slater
On this trade, we are out of it on December 15th.
al r.
Why not sell the Aug 35 for 2.65?
Hannah Slater
We looked at the August but the December looked like a better deal. Fewer commissions....
Catch more dividends.
paps
What is the expiration date for this covered call?
Hannah Slater
December 15th, but you can do what ever you want.
solwel
What about the risks?
Hannah Slater
The main risk is that oil prices crash. You know, people stop driving cars and
the Chinese decide they don't want to grow any more. If you think that is in
the cards, then don't do this trade. Another risk is increased oil volume. If
they discover oil in Wisconsin, then oil prices will drop. So, the biggest risk
is that the stock drops more than 3.50 a share. Below that you are not hedged.
Another risk is that the stock shoots up in price. Let's say it goes to 50;
if you just owned the stock you would pick up all that profit when you sold
it, but with this trade you won't get more than 35 a share when you sell. But
this is just a play for the income -- a hedged play.
zeke
So then the effective yield is 10.6% less 15% Can Tax or 9% - correct?
Hannah Slater
Your math is correct. Still not a bad return.
Hank
Do you expect to buy back call fairly soon?
Hannah Slater
Nope; just let it go and move on to another trade.
NAT
So you see unwinding the trade just before the call expires?
Hannah Slater
Nope; we are in it just for the dividends.
colorado craig
What is your motive for making this information public (to non-subscribers)?
Do you stand to profit from a substantial interest if this information moves
the market???
Hannah Slater
Good question. We make the info public to give you an example of the kind of
trades we like to do. We get nothing if this stock volume shoots up. I can tell
you that we did do this exact trade this morning just to be sure it was fillable.
We like to assure that the trade can be done before we talk about it. But we
will not unwind that position until expiration. No monkey business here.
al r.
Why not sell the front month. Aug 35 is $2.65, and then sell the front month
again next month.
Hannah Slater
Because you will probably be called away and lose the stock. All those trades
to keep it going will rack up commissions.
manut
I joined late; could you be kind enough to repeat what stocks you are talking
about?
Hannah Slater
Buy PWE and sell December 35 Call (PWE LG) for a $34 debit.
Fast Eddie
I figured .34 quarterly, which is how it came up on Optionsxpress.
Hannah Slater
That could be in Canadian.
kamaaina
I came in late - what is the name & symbol of the company you're discussing?
Hannah Slater
See above.
Profiteer
Holding or sell PWE as well?
Hannah Slater
We hold the stock. That's how we get the dividends.
robertb
What are the scheduled dividend dates?
Hannah Slater
Monthly; but I'm not sure of the exact dates. You can check on the PWE web site.
Dale
If you sell the August, you could sell the December also, after August expiration.
Hannah Slater
You will get called away in August.
Fast Eddie
What is this type of trade called?
Hannah Slater
A covered call, but this is to catch the dividend and have a little "insurance"
on the side.
Gord
What about buying this on Canadian market and picking up the dollar gain and
sell option in USA?
Hannah Slater
Check with your broker on that. I don't think there will be any benefit.
michael
No way oil is dropping below 70 again this year.
Hannah Slater
We think it could drift down a bit but not much.
paps
So, if the oil prices drop, it's a great opportunity to buy put options.
Hannah Slater
That is speculation.
kamaaina
Hannah, what's the name/symbol of this company?
Hannah Slater
Penn West Energy Trust (PWE)
Gord
If not called away, redue it again?
Hannah Slater
Yes, or unload the stock... fast, because it has dropped.
zeke
What's the 40 call going for? If oil stays high you could get both dividends
and gain on stock? Opinion?
Hannah Slater
That trade has more risk in it (downside risk), but only you can decide what
risk is right for you.
AndrewQ
Do you have some similar trades like PWE in your OIL portfolio services? I'd
have that right now.
Hannah Slater
Yes there are other trades in the portfolio.
Jack Teaster
www.investorsobserver.com/oilincomeIP
Hannah Slater
If you go to that link you can get in and see the portfolio.
Profiteer
If oil Px increase and the stock Px goes up past 35, you are likely to get called
and lose any future divs. I haven't looked at the Stock Px. How close is the
strike?
Hannah Slater
The 35 is below the current price and that is always a risk. When you sell an
option, the holder of that option can elect to pay you the $35 at any time for
the stock but if he did that tomorrow, we would make $1 on this trade, $1 on
a $34 investment in one day -- that's 2.9% return overnight. I would do that
trade every day. But losing the stock is always a risk. You walk away with some
cash but you lose future dividends.
al r.
Why wouldn't it get called away with your strategy? You are exposed longer.
Hannah Slater
It very well could get called away, then we reload.
Fast Eddie
Did you look at other energy trusts (like ERF) before recommending this trade?
Hannah Slater
Yes.
Profiteer
Are divs @$3.60/mo or annual
Hannah Slater
If they stay at 30 cents a month, that would be the annual. So here's the point,
take this one over to the water cooler when we get done. If you are doing four
$50 fill ups a month to keep your SUV running, you do this trade to the tune
of 1000 shares then you will be getting $300 a month in dividends, while the
guy next door is complaining about gas, yours is being paid for plus you have
enough cash left over for dinner out.
Guest
What about the protective put, Hannah?
Hannah Slater
It just costs money. If you think oil is not going to drop, it is a waste of
cash.
MikeC
My last dividend was on 7/14.
Hannah Slater
Thanks Mike.
klm
So you think it will go above 35 then drop back down?
Hannah Slater
We are cautious. We don't expect the stock to drop but we like the protection.
Don
If the Royalty Trust stays where it is or higher, and the option is exercised,
then the profit would be $35-$34 + 4*$0.30 = $1 + $1.20 = $2.20 if the div stays
the same - correct?
Hannah Slater
We would probably get one more dividend, one in December. But remember, that
dividend amount can change -- up or down.
Fast Eddie
If you are bullish on PWE, then why not sell a strike just out of the money?
Hannah Slater
We like safer trades, but like I said before, you can do what ever you want.
Only you can determine your risk level.
paps
I don't understand. Why could the stock be called away in Aug. and not in Dec?
Hannah Slater
It can be called away any time at the direction of the owner of the call you
sold. That is what they paid for.
Guest
Then why not buy and write the 40 pick up a $1 and the div and the gain if it
goes up, or rewrite if not?
Hannah Slater
Higher risk trade.
Guest
That's not counting commissions.
Hannah Slater
We don't count commissions.
altrades
But it's not likely to get called away as long as there's time premium left
in the option.
Hannah Slater
It can get called away at any time.
Fast Eddie
Are most of your Oil portfolio trades covered calls?
Hannah Slater
Yes; that is the only way to get the dividends.
STEDDI EDDI
80% of call options expire worthless. Besides, it is better for the buyer of
the option to sell the option if it is in the money. I think there is an electronic
drawing of straws to see who gets exercised.
Hannah Slater
Typically the stock is not called away early. It can happen, especially with
these dividend-paying stocks.
Jack Teaster
Please get your questions in. We will be wrapping up in a couple minutes.
Scott
Is there any chance that, even if I sell the December calls, the stock will
get called away from me BEFORE the December expiration?
Hannah Slater
Yes, it can happen.
chaz (Jul 19, 2006 12:42:53 PM)
I signed in late. What security are you discussing?
Hannah Slater
Penn West Energy Trust (PWE)
Gord
If they lower the div, then stock will go down.
Hannah Slater
Yes, that is a risk.
Guest
Oil down 7.00 today.
Hannah Slater
We see it down 1.34 for August contracts. Not much. But prices were bid up because
of this Middle East thing. Oh yeah, that's another risk, that everyone in the
Middle East decides to play nice. They all make friends. If you think that is
going to happen before December, DO NOT do this trade.
Profiteer
Shouldn't we expect to be called?
Hannah Slater
Yes, at or before December expiration.
Guest
Looks like I'll swap some HD to do this trade.
Hannah Slater
Probably a good move at this point. If you still like HD, buy some calls.
paps
Why would I want to be in such a trade when there's a risk that my stock can
be called away from me any time? What's more risky than that?
Hannah Slater
If it gets called away, you make an extra $1.
Profiteer
As I understand your logic, you expect oil to dip, but not enough to effect
PWE's Px movement between now & DEC?
Hannah Slater
Anything is possible. But this trade has a built-in hedge to protect us from
a portion of the drop.
chaz
Are you suggesting buying PWE at market, then the covered call?
Hannah Slater
Do it as a single trade. Talk to your broker about how to do it.
paps
This THING in the Middle East goes back 4000 years. Why do we expect it to end
now?
Hannah Slater
We don't.
cupcake
What does it mean to have an options assigned?
Hannah Slater
The holder of the option buys the stock from you for $35 (You only paid $34
for it).
Shof
Do you know things about the CTL market (coal to liquid market)?
Hannah Slater
We do look at those markets too.
Eldon
Would buying a Put or Call work on this stock? I cannot buy the stock to write
covered calls.
Hannah Slater
Then this trade is not for you. Many thanks for attending.
Jack Teaster
oilincomeIP
Hannah Slater
You can go to that link above for all the details on this trade and the other
trades in the portfolio. Bye! I have to jump back into the pool....
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions.
Unfortunately we have run out of time for this e-conference. A transcript of
this afternoon’s event will be on the site in a few days. Have a good
afternoon everyone! http://www.iotogo.com To sign up for our service go to this
link: oilincomeIP.
Transcript from the July 13, 2006 e-Conference.
Jack Teaster
Hello everyone, and welcome to today’s e-conference. As market volumes
start to increase, now might be the time to make some moves that could make
this a better year for your investment portfolio. Today you can learn how to
make the moves that could help you improve your investment portfolio in unsure
markets. They will also answer your questions about our portfolios and about
anything else you throw at them. A few notes before we begin: To ask a question,
type your question in the box below and hit "Send." Your questions
will go into a queue and our portfolio managers will answer the questions as
he gets to them. Be patient! It may take a while for him to get to your question!
That having been said, enjoy the e-conference!
Warren Stanley
When is it my turn Jack?
Jack Teaster
Before we get into that, I want to introduce Warren Stanley, our Portfolio Manager.
Warren, how are you guys this afternoon?
Warren Stanley
Watching the markets. We have a side bet going on when the market will bounce
today. Today we are going to give out another "Perfect Trade."
jack
Is there sound with this?
Jack Teaster
No, there isn't sound. This is a text-only conference
Warren Stanley
These are nice little trades that pop up on our radar at times. Earnings season
is always a little tricky. A company that is about to report earnings is not
what we would normally classify as a perfect trade. Earnings can sometimes cause
a stock to move wildly in either direction. There are ways to play that kind
of movement but that is for another eConference.
C.H.
What do you mean by "Little Trades"?
Warren Stanley
These are typically trades that only make a limited amount of money. Over a
shorter time frame. But the risk is low for a few reasons. We will get into
those shortly.
DodgerFan
Are you talking about options?
Warren Stanley
Yes, we usually hedge the trades with options. This helps us to limit the amount
invested and protect our downside just in case the trade goes bad.
ash
How?
Warren Stanley
Details coming.
cesco
A perfect trade for my broker is one where he gets a great commission.
Warren Stanley
Ha...
curious
When do you think the market might take a turn for the better?
Warren Stanley
That is a short and long term question. Some of us here are expecting an upturn
today. But, over this earnings season expect much up and down action. There
is a major factor coming into the market later this year which should "guarantee"
an up market. In around January you will start to see the next presidential
election rev up, along with many other election campaigns.
Investor
Is this session being captured to be later posted (for reference) on your web
site?
Jack Teaster
Yes. It will be put on the site in a few days.
Warren Stanley
Expect the economy to improve. By then interest rates should be flat or on the
way down again....
DrDino
So we are basically doing spreads or butterfly plays?
Warren Stanley
We like to stick with simple trades -- lower commissions and less complicated
to track.
Profiteer
Warren, this market started off the year looking like last year and I was looking
forward to a summer rally. It did briefly in techs and other sectors. Do you
see buying opportunities beginning around mid-August?
Warren Stanley
I am out buying right now; a little bit every week. It's hard to time the market.
dougie
Did you cover the trade yet? I signed in a little late.
Warren Stanley
We have not covered the trade yet, although our subscribers we sent the trade
today at around 9AM.
Profiteer
Yes, difficult to time. I guess I try to bottom fish within a longer time frame/outlook.
Warren Stanley
A few shares every week. Average in. OK, on to the perfect trade. Get your pencils
and paper ready. A few ground rules. 1). Even though we call these "Perfect
Trades," this is the stock market; anything can happen. Losses are always
a possibility. There is no sure thing, but you all know that. 2). What we look
for in a perfect trade: stocks that are higher volume; lots of shares traded
every day. This stock has already traded around a million shares so far today.
As I said before, we like to avoid stocks that are about top report earnings.
Dave1
Can you define higher volume?
Warren Stanley
See above. We like at least 1 million a day. That is the low end. For the stock
for today's trade, the 90-day average volume in 1.4 million a day. Respectable.
Spike
Please explain "about top report earnings."
Warren Stanley
Typo.... "about to report earnings" Sorry about the typos -- fat fingers.
For this stock we saw a lot of recent insider selling. Always a red flag for
us. Who knows a company better than company management and it's board of directors?
Why would a person sell a stock today if they thought it would be worth more
next week? Smart people usually won't do that.
Susan
If there is so mush insider selling, why buy it?
Warren Stanley
We aren't buying it. The trade will be betting that the stock is not going up
(too far). It is a bearish trade.
Profiteer
Soooo... you "shorted" the stock?
Warren Stanley
No. That can be risky. On this trade we can make money even if the stock goes
up.
solwel
Unless they believe they will be able to buy it cheaper tomorrow!
Warren Stanley
Exactly.
DodgerFan
Sounds like a short or a put buy.
Warren Stanley
Nope...
Susan
So you're going to short the stock?
Warren Stanley
Nope...
Steve
A Bear Call Spread?
Warren Stanley
Exactly....
ici
What is the trade ?
Warren Stanley
The stock we will be playing is GRMN. We will not be buying or shorting the
actual stock. We will be using two options to put a hedged play in place. We
can win no matter which way the stock goes (to a point).
Susan
OK, you have my attention.
Warren Stanley
So here's the trade.... There are two parts to it. We buy at July GRMN 115 Call
and sell a GRMN 110 Call Both at the same time for a 20 cent credit; 10 contracts
on both sides puts $200 in our pocket today. If the stock stays below 110 between
now and close of trading next Friday, we win. Something interesting about GRMN:
It has not hit 110 for a long while.
BLTN
Wyb GRMN? I thought they were kickin' some butt.
Warren Stanley
Take a look at the chart.
Susan
How many shares must we trade to make $200?
Warren Stanley
Not shares, Contracts. Ten on each side.
Socks
Is there any margin required to do this?
Warren Stanley
You will need to have at least $5000 in your brokerage account. But this is
not a margin trade. It is a credit spread.
stevearino
My broker is going to put a hold on $5000 in my account for 8 days just to make
$200? No thanks, I have better things to do with $5000.
Warren Stanley
Great then go do it. But look closer at this trade first, $200 in 8 trading
days, with limited risk.
solwel
Is the 110 Call also July?
Warren Stanley
Both positions are in July.
Profiteer
Is this trade net of your transaction fees?
Warren Stanley
We do not count transaction fees. That depends on your broker.
marky18
Am I correct that the downside risk is limited to $5000? And the very likely
result is we make $200?
Warren Stanley
The downside is actually 4800 since you get the $200 today.
bobc
Is the margin 5,000 for each multiple of 10 contracts?
Warren Stanley
Yes.
Dave1
4% in 8 days ain't bad.
Warren Stanley
Exactly, and don't forget this is a hedged trade. The stock can go against us
up to around 11% and we still make our money.
campy
$200 over 8 days is about 4% or more than 200% a year.
Warren Stanley
Yep, you know your math campy
tonyy
Wouldn't the margin be $5000- the credit of $200 = $4800?
Warren Stanley
Yes, but it is not margin. You pay interest on margin. There is no interest
involved here.
Steve
I see the Jul 110 GQRGB @ .20 and the Jul 115 GQRGA @ .15. That's only a .05
credit??
Warren Stanley
We have had fills on the trade already today. Once the trade goes in, as the
stock moves there should be more fills.
tonyy
Correct, but the amount you need to put on this trade is $4800 not $5000.
Warren Stanley
Yes, but this is not cash out of your pocket. You just need that amount (or
stock) in your portfolio. Check with your broker about the details.
Mark
Do we exercise or let them expire next Friday?
Warren Stanley
To minimize the commissions just let them expire next Friday.
tonto
Can you really get both trades off for .20 credit?
Warren Stanley
Some have gone off already today.
mcsnoopy
I don't understand trading with options.
Warren Stanley
Check with your broker or go to the Options Industry Council for more information.
jimbo53
You are one smart cookie.
Warren Stanley
We have a great team over here. I can't take the full credit for this one. We
had three analysts working on it. We threw out a lot of possible trades and
this one was the winner.
Steve
Can we STO the Jul 105 GQRGA @ .75 and BTO the Jul 110 @.35? That'll give us
a .40 credit spread.
Warren Stanley
Too risky for us, but only you can decide what is too risky for you.
Susan
This is really complicated; where can I go to learn how to trade like you Warren?
Warren Stanley
The easy answer is www.iotogo.com. You will get all the details on all our trades,
real-time. But to learn more about hedged trades in general you can go to the
Options Industry Council Page. I will see if we can get you that web address.
MikeM
Could you repeat the trade?
Warren Stanley
Sure.
Jack Teaster
To see more about options risks, visit: www.888options.com/.
Warren Stanley
Buy the GRMN July 115 Call and Sell the GRMN July 110 Call for a 20 cent credit.
Spike
Is there a preferred order to place trades (just in case the values move while
in play)?
Warren Stanley
They should be place at the same time. Less risky that way.
burt jr
You can scroll up to see trade.
Warren Stanley
Thanks.
winner
How about bull put spread also?
Warren Stanley
That is always a possibility. But we were seeing a lot of downside pressure
on the stock. These perfect trades are designed to be as safe a possible.
wfg
My broker (Morgan Stanley) has to place 2 trades. Always buys first, then sells
the 2nd leg.
Warren Stanley
Ask him to place it as a spread trade. He may have to call his trading desk
to do it.
themaz
When do they report earnings?
Warren Stanley
Checking... Scheduled for August 2nd. Well after the date this trade expires.
Should help to get a few more fills.
Jeff
Risk is $4.80 and Theoretical Breakeven is at 109.80 and 115.20 is that correct?
Warren Stanley
Break even is 110.20. Only one breakeven for the trade. The stock goes over
110.20 and you start losing money.
Spike
How many ways can this trade go bad?
Warren Stanley
Good question. Only one way: if the stock goes over 110.20 by the end of trading
next Friday.
Dave1
So, you only mentioned three criteria today for a perfect trade - high volume,
no earnings report imminent, and insider transactions. Is that it or are there
more criteria?
Warren Stanley
Many more that we use, but people were pushing to see the trade.
Profiteer
Is the conference over?
Warren Stanley
We will be here for 10 more minutes.
Dave1
Can you share any?
Warren Stanley
Some other criterion we use are: profitability. We like to make at least 4%
simple return --that is over the period of the trade. And over 10% annualized
return. We like shorter term trades in general. Less than 60 days.
K
Why? Do you want more fills to be made. What is the significance of that?
Warren Stanley
That means that the trade actually happened. If you are familiar with our services
you know that we verify that a trade can actually happen or we mark it as unfilled
and do not count it in our results.
lew
If stock goes over 110.2 but closes below on Fri, do you still lose?
Warren Stanley
Probably not, but it is always a possibility.
al
Ameritrade has the spread trade feature but it still goes as two trades.
Warren Stanley
The main thing is that both trades go in at the same time for one credit.
zullyd
I just logged on, can you repeat the trade?
Warren Stanley
Buy the GRMN 115 July Call and sell the GRMN July 110 Call for a 20 cent credit.
10 contracts = $200 in your pocket.
DrDino
Is this the week you place most spread trades with only a week before expiration?
Warren Stanley
It depends on the market. This was a tough trade to find. But we wanted one
that expired next Friday.
hp
So with Ameritrade then, it's best to phone it in, right?
Warren Stanley
Not sure.
ajcondo
What broker do you recommend?
Warren Stanley
That is a personal question. You have to pick the broker that fits your needs
best.
campy
All should fill now. Last Spread trade was .10/.30.
Warren Stanley
Yes.
Jack Teaster
We'll be wrapping up in five minutes. So, send your final questions in!
billyboy
What was your buy and sell premiums?
Warren Stanley
We just put in the credit for the entire trade.
ajcondo
How do you measure the risk/reward parameters for this trade? You are risking
$4800 to make $200. In other words, this trade must win more than 24 times for
every loss in order to be profitable. How do you measure this ratio?
Warren Stanley
Good point. But we will not be doing this exact trade 24 times. The "Perfect
Trade" looks for trades that fit a specific criterion. GRMN will probably
not fit the criterion in the future.
Scott
What circumstance(s) will create the opportunity to take profit before the contracts
expire?
Warren Stanley
Probably won't happen. It's best to just let them expire; saves commissions.
REDINK
Will the buy or sell trade change in the next day or two?
Warren Stanley
Nope. That's the trade.
Jack Teaster
Warren, thank you so much for joining us today and thank you ALL for attending
our e-conference.
Ray
Describe the "specific criterion."
Warren Stanley
More on that in future e-conferences.
Jack Teaster
A transcript of today's chat will be on the site in a few days.
Dave1
How often to "perfect trades" happen?
Warren Stanley
It could be once week or so.
Jack Teaster
Remember, if you still have lingering questions, you should visit the IO website:
PerfectTrade499.
Mark
When is your next conference?
Warren Stanley
We do not know exactly. But we will email you the day of the e-conference if
you are on our list. Our subscribers get the trade before the market opens in
the morning.
Dave S
Are they generally Bear Calls?
Warren Stanley
It depends on the market.
mcsnoopy
Thank You!
Warren Stanley
Bye; gotta jump back into the pool.
Mark
How do we subscribe and how much does it cost?
Jack Teaster
Yes. To subscribe: you should visit the IO website: PerfectTrade499.
hp
Thanks mkw!
mako
Thanks; entered trade W/optionsxpress.
Jack Teaster
The e-conference is now unmoderated.
mkw
Thanks Jack and Warren- I have entered the trade, but not filled yet.
Mark
Thank you.
Jack Teaster
Feel free to stick around and chat. Don't break anything though!
Transcript from the June 9, 2006 e-Conference.
Jack Teaster
Hello everyone, and welcome to today’s e-conference. As market volumes
start to increase, now might be the time to make some moves that could make
this a better year for your investment portfolio. Today you can learn how to
make the moves that could help you improve your investment portfolio in down
markets. Our portfolio managers will be here to cover the five things you can
do right now to position your portfolio for the next few months. They will also
answer your questions about our portfolios and about anything else you throw
at them. A few notes before we begin: To ask a question, type your question
in the box below and hit "Send." Your questions will go into a queue
and Warren or Peter will answer the questions as he gets to them. Be patient!
It may take a while for him to get to your question! That having been said,
enjoy the e-conference! Before we get into that, I want to introduce Warren
Stanley and Peter Stone, Portfolio Managers. Warren, Peter, how are you guys
this afternoon?
Peter Stone
Thank you Jack.
Warren Stanley
It's Friday; what can I say....
Peter Stone
I have to agree; Friday is a good thing...
Warren Stanley
I am going to take the first part of the conference and Peter will take the
last section.
Peter Stone
Especially after this week....
Warren Stanley
Peter has said he is going try to get to all of your questions before he takes
off. But please start shooting us questions when ever you can. First, let's
talk about the markets in general. Let me sum it up from our perspective. Things
are looking rocky. The buy and hold crowd (which includes mutual fund investors)
are taking major pain. Even days like today, where the opens are strong, seem
to be ending in the red. Those rising interest rates and a strong economy that
could be slowing down are taking the buyers out of the market. The daily patterns
lately point to a serious lack of buyers. So what's an investor to do? As the
rates go up those money markets and bonds start to look better, but the problem
is that those paltry returns will not keep up with expenses. But watching your
stocks go down and your portfolio get hurt is not good either. A question for
you.... How many people here are holding stocks in their portfolios right now?
Just type your response and click send and I will see it.
Michael
Holding and hating.
Warren Stanley
Interesting response. I will use this as a segue. Get your paper and pencil
out. Some good stuff coming. 1) You need to look at each of your stock holdings
with a critical eye. Is this stock going to improve or lose more value? Get
the losers out -- right now. How do you know if they are losers? A quick way
is to check something like the S&P rating. One and two star stocks do not
have anywhere in your portfolio --.especially now. If you think the stock may
have some upside, sell the stock and buy a call option at a fraction of the
price. If the stock goes up then you get the upside. Goes down and you don't
lose much. Example coming... WalMart (WMT). Let's say you own some WMT. The
stock is at 47.19 now. This is one that could win or lose in markets like these.
But for this example you sell the stock and take your 47.19 off the table. But
just in case... You buy the January 2008 47.50 LEAP for 6.30. If the stock tanks
all you lose is 6.30. If you were holding the stock, you could lose much more
than that. And if the stock goes up over 53.80, you get to pick up some profit.
This goes for the maximum time available and should get us through an economic
down draft. You could do this with most widely held stocks that might be in
your portfolio. But it really works best with the ones you might not want to
sell because you are not sure. If this doesn't look good to you, talk to a few
people who held on to stocks during the last tech crash. Their losses could
have been less with this strategy.
stlstndng
Why not hold the stock and sell the $50 call option for $5.00?
Warren Stanley
There are many ways to play stocks in this kind of unsure market. But using
the sell call strategy does not protect you from a major downdraft. There is
something nice about sitting on a pile of cash in these markets. Then the next
thing to do is decide when is the right time to buy again. When have things
settled down. With a presidential election coming soon, we think markets will
be up in a year or so. Let's cover some stocks we like. I will hit two of these
then hand the conference over to Peter. I have to go to my daughter's 8th grade
graduation. Stocks to play are those good old building stocks. What? You are
probably thinking these would be the exact wrong stock to play when interest
rates are headed up and employment is slipping, and you would be right if you
were thinking about buying these stocks. Let's consider BZH first. Beazer Homes.
Again, get those pencils and paper ready. The stock is at 47.46 today. Actually
up a little. We are looking at a bearish play on the stock If it goes down,
stays flat, or even goes up a little we can win. I will show you the most conservative
one first. Look at the July 55/60 Bear Put Debit spread for a 4.30 debit. You
pay 4.30 to make 5 for a 70 cent profit (16.3%) if the stock does not go over
55 before the third week of July. That's 42 days. If the stock goes over 60
you will lose all you 4.30 unless you exit earlier. If you look at the numbers
this shows that the stock would have to jump up 15.9% to hurt you. And even
if it goes up 15% you still walk away with your full profit. I gotta run. Ask
Peter all your questions. This is a great trade. I may do it later today.
Peter Stone
Thanks, Warren, for starting us off. Yeah, that is a nice trade Warren, with
the interest rates rising and with the housing "bubble" slowing down.
The likelihood of the stock shooting up isn't that high and by doing a spread
trade, that is by buying the one option and selling the other, you limit your
downside on it.
samlnr
Sorry for being late, but what is the stock or the ticker symbol previously
discussed? Thanks.
Peter Stone
BZH - Beazer Homes.
samlnr
Thanks.
Peter Stone
Look at the July 55/60 bear put debit spread of 16% profit. Please send your
questions in. That is what we like to do at Investors Observer, hunt up specific
trade ideas that show a very nice risk/reward ratio. Now on to some questions.
apz
Did you get my question regarding Apple?
Peter Stone
Yes.
apz
I have a specific question regarding Apple which has taken quite beating in
the past few weeks. A new product line has been announced (including the ability
of every Apple machine to run Windows as well as the Apple operating system),
and the iPod continues to dominate the mp3 player market (and the video iPod
is simply amazing). So, as both a sector (technology) play and a specific stock
selection, Apple would seem to be a good buy. It would also seem that given
Apple's entry into the "consumer electronics" world (as opposed to
computers alone), that increasing interest rates wouldn't hurt much as the price
of Apple gadgets is only in the few-hundred-dollar range. Your thoughts?
Peter Stone
I have been waiting for this one. I think you might get the longest question
award. I do like Apple and think it will be a strong player going forward. iPod
owners just love the product and as they expand out they are in a very good
position to get into video as well. If Apple is able to do for video what it
has done for music, the sky could be the limit. I think part of what you are
seeing now, though, is the realization of some of the difficulties. Being a
consumer products company is not easy and consumer products become commodities
then they have less margin. Now apple is still ahead on the iTunes but it will
face some serious competition because there are a lot of other companies that
are competing in that sector as well. There are some other ways you can play
it. If you are looking long term and really love Apple, buying a leap call would
be an easy way to take advantage of the upside. For the highly bullish, we usually
like to hedge our bets though and go for profit over shorter time periods. For
example, you might go for a 50 45 bull put spread for a 30 cent credit; that
is a 6.3% return over the next 43 days or a 53% annualized return, for comparison
purposes only, and as long as the stock AAPL 59.86 doesn't drop to more than
19%, you would make money.
Guest
Can you talk more about VIX and how we could use to hedge for a down market?
Peter Stone
Sure. For those who don't know, the VIX is a volatility index. It is called
the fear index because it goes up when investors are afraid of the what might
happen.
Jack Teaster
If you're interested in seeing some more of these trades, visit: http://www.iotogo.com/xpo3.
Peter Stone
We use the VIX around the office a lot as an indicator of what is happening
in the market. Thanks Jack.
Jack Teaster
You can get two months of service for $1. Good deal isn't it, Peter?
Peter Stone
It is, and it is good to throw that in Jack. I get carried away. What you can
do is see all of our trades and portfolios for two months for a $1 and we put
a lot of hedged trades out, explain when to get in and when to get out.
Jack Teaster
Everything you need to know to invest successfully.
Peter Stone
In easy to read portfolio tables. Back to the VIX. In order to trade the VIX,
it is a future and you need to have a lot of money and it has some peculiar
contract specifications. It isn't like a normal stock, so we aren't going to
go into trading it directly but it is important to note what it does in the
market after sliding downward for a long time -- it hit the 12 range and has
jumped up to around 18 recently. The VIX is actually a measurement of the implied
volatility of the stock in the index. In other words, it measures how much more
above theotical values the stocks are.
Michael
What is your #1 pick for a stock for the next 6 months?
Peter Stone
Wow, well we have several stocks we really like right now and I am not going
to get to address all of them, but here is a list of stocks we like: CAH, NVS,
GRMN, MCHP, MO, and WAG. I will touch on a few of them and why we like them.
GRMN is Garmin they make GPS units like the one I am going to use on my weekend
getaway this weekend. Guidance units are a growing area and they have just released
some new units on the market. MO -- I know making "death sticks" isn't
popular, but the company pulls in a lot of money and pays a nice dividend and
in uncertain times and not knowing what is happening with the market, it is
a good core holding but look to hedge the trade when you go into it like some
of the other examples we have shown.
nate
How is the market doing today?
Peter Stone
Well, looks like the market is giving up some more ground. All the indexes are
in the red.
Jack Teaster
Warren, Peter -- thank you so much for joining us today and thank you ALL for
attending our e-conference.
Peter Stone
Yeah, that is a good point Jack. Thank you so much for coming everyone.
Jack Teaster
A transcript of tonight's chat will be on the site in a few days.
Jack Teaster
Remember, if you still have lingering questions, you should visit the IO website:
http://www.iotogo.com/xpo3.
Peter Stone
What was that link for the signup Jack? Thanks.
Jack Teaster
Take care, and happy investing! http://www.iotogo.com/xpo3.
apz
Thank you!
Transcript from the June 2, 2006 e-Conference.
Jack Teaster
Hello everyone, and welcome to today’s e-conference. Today you can learn
how to make the moves that could help you improve your investment portfolio
in down markets. Our portfolio managers will be here to cover the five things
you can do right now to position your portfolio for the next few months. They
will also answer your questions about our portfolios and about anything else
you throw at them. A few notes before we begin: To ask a question, type your
question in the box below and hit "Send." Your questions will go into
a queue and Warren or Jack will answer the questions as he gets to them. Be
patient! It may take a while for him to get to your question!
Jeff Clinton
I might answer too!
Jack Teaster
That having been said, enjoy the e-conference!
Jack Teaster
Before we get into that, I want to introduce Warren Stanley and Jeff Clinton,
Portfolio Managers. Warren, Jeff, how are you guys this afternoon?
Jeff Clinton
Hello everyone. Warren got held up doing a trade so he's actually not around
yet.
Jack Teaster
To ask a question, type your question in the box below and hit "Send."
Your questions will go into a queue.
Jeff Clinton
He's very dedicated like that.
Jack Teaster
Yes, probably getting a snack.
Jeff Clinton
Today we are going to talk a little bit about the ways we prepare our portfolios
to weather rough markets.
Jack Teaster
So, Jeff what is happening with the market this week?
Jeff Clinton
This week hasn't been too bad, but everyone knows what most of May looked like.
Kind of like jumping off of a small cliff.
Jack Teaster
So, April showers didn't bring May flowers?
Jeff Clinton
Not exactly. At least not this year.
Jack Teaster
Any thoughts on RIMM for the coming month?
Jeff Clinton
Oh boy, that's a tricky one.
Jack Teaster
Start the day off right!
Michael
RIMM = disaster.
Jack Teaster
Hey...
Jeff Clinton
I like to keep my hands clean of that stock and let some of my more aggressive
colleagues play that one. I stick to managing the conservative covered call
plus portfolio, where we try to play stocks that might be a little safer.
Jack Teaster
Jeff, how about some of these questions?
Jeff Clinton
We use two different strategies in the conservative covered call plus portfolio,
and they have treated us pretty well even over the past month. One of those
strategies is probably something most of you have heard about: covered calls.
But the other one is a type of covered call that allows us to spend a lot less
capital while still getting the benefits of selling calls.
kermitp
Do you consider buying a leap and writing call against it a valid Covered Call
strategy? If not, why not?
Jeff Clinton
This is exactly what we do; we call them Hedged trades.
Michael
What is the main reason you used hedged trading strategies?
Jeff Clinton
We can control a lot more stock for the same amount of capital this way, and
hopefully help boost our returns.
TJ
Please give some examples of more conservative plays.
bruce
Please give us an example of a leap cover call.
Jeff Clinton
First off, we scour the market for solid stocks. Our goal is to find stocks
that aren't moving too much. Then, once we have our candidates, we buy an in-the-money
LEAP, out about a year in advance. At the same time we sell a short term call,
usually about 2 months away. As an example, back on 4/27 we played C. We bought
a January 35 call and sold a June 47.50 call for a total debit of 11.85.
bruce
Are the calls in the money or out of the money?
Jeff Clinton
The bought call is in the money by about 10 dollars and the sold call is right
at the money.
mark
What do you do if you get called?
Jeff Clinton
If we go into expiration and the sold call is in the money, we will usually
unwind the trade and close the position, sometimes for more profit than we were
originally going for. Going back to that C trade... C has bumped up a couple
dollars since then and our sold call was in the money. So this morning, we saw
an opportunity to close that position and make our full target profit two weeks
early, plus we ended up getting a extra $100 on top of what we were aiming for.
That extra cash could go toward commissions, a nice dinner, or maybe just to
fill up your gas tank halfway so you can get to work next week.
Karen T
I am exclusively doing covered calls using stock or LEAPs for cover, and making
money on the ups and downs by selling, buying back, and re-selling calls. I
like using the LEAPs instead of stock because of the leverage; however, they
tend to move around a lot more and require more management.
Jack Teaster
I like that!
Jeff Clinton
I like Karen's style.
Jack Teaster
I was talking about the GAS!!!
Jeff Clinton
I know Jack; I know. But as Karen was saying, these trades require some management,
especially around expiration, which is where we come in. If you are auto-trading,
you don't have to pay attention to the market at all if you are at work, or
with your kids, or even out on the back nine of the local country club. We're
constantly monitoring the trades so you don't have to.
Chuck
What's the downside?
Jeff Clinton
The downside is twofold: one, if the stock shoots to the moon (figuratively),
then we lose out on most of the upside.
Karen T
Yes, that is the issue for me. I work full time and sometimes miss opportunities
to make money because I cannot always be at a computer. I subscribed recently
to one of your autotrade portfolios, the 3-way managed risk portfolio. I'm waiting
for the June trades to come out... then my broker Options Express will receive
the trades and execute them on my behalf for no additional commission. This
seems ideal, but I have no experience with it as yet.
Jack Teaster
Yes, that's why it's helpful to use Autotrade! Jeff, could you tell us how Auto-trade
works?
Jeff Clinton
Auto-trading is an agreement between you and your broker. You can tell them
that you want to follow one of our portfolios, and then we send the trades right
to them.
ali
Can I buy autotrade? Please give details.
Jeff Clinton
It works with any of our broker partners such as OptionXpress, Think or Swim,
or Man Securities. We don't charge any extra for autotrading and to my knowledge
neither do the brokers.
ali
Can you do this trade with puts?
Bobby
What are your thoughts on writing covered calls on down trending stock, etc.
home builders stocks?
Jeff Clinton
These two questions are similar... we can structure this same trade on a stock
that we think will fall using puts, but it isn't something that we like to do.
It always seems that we are hearing of "miracle turnaround" companies
that rise from the ashes, and we don't want to be caught holding the bag with
that one.
duke
Did you mention the 2nd downside risk?
Jeff Clinton
I think I might have gotten sidetracked. Sorry. The second downside is if the
stock falls, which again is why we aim for solid, steady companies that are
highly rated. But every once in a while, even one of those has a rough stretch.
If the expiration comes and the sold call is above the stock price, then we
get a chance to sell another call and reduce our capital on the table. We find
that usually within a few months most stocks we pick bounce back and then we
end up making even more.
kermitp
When buying the leap, do you look at the open interest, volume, or what do you
use to confirm it is a good opportunity?
Jeff Clinton
The thing we look at first is whether or not we like the company, then we try
to buy LEAPs that do not have too much premium.
mark
Like which stocks might be a bit safer?
Jeff Clinton
Just this week, we placed a new set of trades with picks on MO and XOM. We are
aiming for a 7.5% return in less than 2 months for a total return of $2100 for
those two hedged trades. Plus, if you are more into covered calls, there are
matching covered call trades on each stock.
Jack Teaster
If you're interested in finding out more about this portfolio, visit this link:
http://www.iotogo.com/CCCPOffer. If you sign up now, you can get a rebate for
two months of free service.
mark
I can live with that.
Jack Teaster
Just in time to find out the new trades, right?
Jeff Clinton
All of our historical picks can be viewed once you are signed up, and of course
you are covered by our money-back guarantee.
Jack Teaster
That's true. There's really nothing to lose.
Jeff Clinton
Now let's get back to some of those questions.
Guest
When using leaps, what happens if you are called out?
Jeff Clinton
If we end up having our sold calls assigned, it's a good thing, and it locks
in our target profit, but sometimes we have to do some fancy footwork to close
the positions. That is why we are here though. If it were very simple, then
everybody would be doing it and wouldn't really need our help.
Jack Teaster
What kind of fancy footwork?
Jeff Clinton
It's kind of boring, but we would end up with a short stock position, a bunch
of cash, and a long LEAP position.
Jack Teaster
Phew, makes me glad I'm not a portfolio manager!
Jeff Clinton
We would probably use the cash to buy stock to cover the short position and
then sell the LEAP to make our profit, or we might just exercise our LEAP, depending
on which was more profitable. Aren't you glad you asked, Jack?
Jack Teaster
Well, that depends on what the meaning of "is" is.
Jeff Clinton
Ha ha.
ali
Stock trades at $50. Analysts say target price 1 year $75. Would you buy $60
LEAP & write calls?
Jeff Clinton
We would probably buy a 40 LEAP and sell a 50 call about 2 months out. We think
that sometimes analysts are a little too optimistic. We are more conservative.
mark
Are the leaps always in the money?
Jeff Clinton
Always. Once you get out of the money, every penny it costs you is premium and
if the stock doesn't go up, then you lose all your money.
bobby
Is it more profitable to buy stocks or leaps, which are in the $30's or lower?
Jeff Clinton
We like to use LEAPs on all stocks $15 and up. If you buy a $30 stock and sell
a 30 call, it will probably cost 28 bucks to do so. If you buy a 20 LEAP and
sell a 30 call, then it will probably cost something like $9. So now you have
$19 sitting around that you could put somewhere else, or even just stick in
a CD and have a guaranteed return on (of course we usually do 10 contracts so
that $19 is really multiplied by 1,000).
kermitp
If you are autotrading my TOS account, does that mean I can't trade it as well?
Jeff Clinton
Nope; all it means is that the trades for the portfolio will be taken care of
with no action required on your part.
bobby
What kind of average monthly returns do you shoot for?
Jeff Clinton
We typically aim for a 6%+ return on the hedged trades over 2 months.
mark
If the solid stock happens to turn down hard with the market, do you use protective
puts?
Jeff Clinton
Not usually. If the stock turns down we have a few options open to us.
Jack Teaster
What are those?
Jeff Clinton
1) We could close the whole position for a loss if we think things are really
bad; 2) we could sell more calls if we think the stock will bounce back. In
essence, we have a free protective put in the form of our LEAP. Imagine my previous
example with a $30 stock and a sold 30 call.
mark
Ah!! Brilliant!!
Jack Teaster
Yeah, we're lucky to have Jeff on board!
Jeff Clinton
Someone who has a covered call, if that stock goes to $10, then they lost $20.
Since we have a 20 LEAP, if the stock goes to 10, then we lost around $10.
bobby
With the hedged trades, do you have a track record on returns?
Jeff Clinton
(And that extra $19 is still sitting in the CD or under the mattress.) We do,
and I'll give you the link right after I remind everyone that past performance
is no indication of future performance.
Jack Teaster
You can find out all about this portfolio by visiting Conservative_CC_portfolio_info.asp.
Jeff, thank you so much for joining us today and thank you ALL for attending
our e-conference. That's all the time we have for today. A transcript of today's
chat will be on the site in a few days. Remember, if you still have lingering
questions, you should visit the IO website: http://www.iotogo.com/CCCPOffer.
Thanks again for stopping by!
Jeff Clinton
Thanks, Jack, for being quick with that link.
Jack Teaster
No problem!
Jeff Clinton
And thank everyone else for taking their lunch breaks to hopefully get some
good information.
Jack Teaster
Thank you, Jeff.
Jeff Clinton
My pleasure.
mojo
Thanks a lot.
Transcript from the May 24, 2006 e-Conference.
Jack Teaster
Hello and welcome to this afternoons Investors Observer e-conference. Today
our guests are Warren Stanley and Jeff Clinton. Before we begin this event,
I'd like to give you some tips. This is a text only chat. There is no audio.
To ask a question, simply type your question into the chat box below the main
chat screen and hit enter. Your question will be held in a queue until our guest
is ready to answer. Be patient, there will be many questions so it will take
time to get to yours. Gentlemen, any opening comments?
Jeff Clinton
Hello and welcome.
Warren Stanley
Thanks for stopping by our e-conference. First of all, just so you know where
we stand, we are very cautious about this market. Going into summer we are not
optimistic about the majority of stocks. There are lots of reasons that this
market could drop another 10% and we still feel the sting from the tech blowout
a few years back. We have no interest in taking those losses again. So today
we will "talk" about some strategies you can use in these "unsure"
markets and we will give you five stocks we think could get through this in
the green. First let me take a look at some of the questions you have been sending
over.
henry2
Why are all the stocks falling these days?
Warren Stanley
Easy question. The stock market is pretty simple. There are two forces that
move prices -- greed and fear…and, more sellers than buyers. Over the
last few weeks we have been in fear mode and we are amazed that it took so long
for fear to set in. The markets started out frothy this year.
henry2
Is a crash coming?
Warren Stanley
A full blown crash? Probably not, but some stocks may drop another 20%. Some
will go up.
Sky Pilot
Would you get me a beer?
Warren Stanley
We will be talking about beer a little later,
Ken S
What do you see in the near future for alternative energy stocks?
Warren Stanley
Near future is probably not the place to play these stocks. In the near future
look at those good old high dividend oil stocks. They share the wealth. Let
me go over one way to get through this market. Rule 1: Don't put your head in
the sand. No matter how painful it is, you need to look at your portfolio. You
need to be happy with all your holdings. If you have a weak player in there,
dump it. Make a list of stocks you want to add. They may be bargains now. We
will share our list with you a little later. RULE 2: Don't panic! This is probably
not the right time to sell all your holdings unless you are not diversified.
A good diversified portfolio is a must. Check the numbers (stock price x number
of shares you own) and be sure you don't have too much or too little of a sector.
Mara
Do you advise selling big losers & sitting with cash?
Warren Stanley
If those losers are low rated stocks. No one has enough time to dig in and learn
everything about a company. See how the analysts rate the stock. Look at the
technicals. If the company seems out of sync with the market, then dump it.
Don't be afraid to sell but don't sell because you are afraid.
Mara
Do you advise selling big losers & sitting with the cash--or buying bonds
or reits?
Warren Stanley
Bonds are not the right place now. With rates going up, best to hold off for
now with that cash. REITs could get hurt. We like hedged plays on high dividend
oil stocks. Or, just park the money in a money market fund that's around 5%.
alfeee
Why are we afraid?
Warren Stanley
Look at the charts
Guest
Where is all the idle cash invested today?
Warren Stanley
Probably a lot of it is sitting in real estate. Get your pencils out; we are
about to give you one of the stocks we like. We will also give you a way to
hedge the position so that even it drops you can win. We like defensive stocks
in this market. KFT - Kraft Foods. People gotta eat. But don't just buy the
stock. It's paying a 2.9% dividend, which is some nice cash. A hedged play on
this would be a December 32.50 covered call. If the stock goes above 32.50 by
December, you make 7% return on the investment in addition to the dividend.
That is over a 12% annualized return. KFT is only a 3 STAR stock but it has
held up over the last few days as other stocks have dropped.
george12
How can I make 12% a day, not per year?
Warren Stanley
Go to Vegas. The drinks are free.
money10
What do you think of computing high tech and hardware/software?
Warren Stanley
Those will rebound next year.
Tek
Where is the down side protection KFT, with the fear and the market going down?
Warren Stanley
You get about 1.75 for the sold calls. So the stock can drop a bit and you are
covered.
tc
What about the satellite radio? Is it worth investing in?
Warren Stanley
A little chancy. In these markets those speculative stocks could get hit the
worse. Those are the ones that could go down another 20%.
Doug
What about using a collar?
Warren Stanley
Collars can get expensive. But, if you are dealing with a $5 million account,
the insurance might be a good move.
Pat
What's a collar??
Warren Stanley
Check with the people at 888-OPTIONS. They can give you the details.
pitbull
How do you buy a covered call?
Warren Stanley
Check with your broker.
diva
At what price would you sell the call against the KFT and how do you enter a
covered call order at the same time?
Warren Stanley
Check with your broker. We like the December 32.50.
happy cat
Which brokerage firm should be the best?
Warren Stanley
Only you can decide that.
Texas Annie
Aren't you saying to "sell ' a covered call, not "buy"?
Warren Stanley
Covered call is = Buy the stock sell the call.
july
Which are the other stocks?
Warren Stanley
Another stock we like is WMT (Wal-Mart). Not too popular with people lately.
But as the market slides, this one should hold up. Get your pencil ready and
I will give you more details on a possible hedged trade. Take a look at the
Dec 50 covered call. You can sell it for around 1.85. Simple return is 8.9%
and the annualized return is 15.8%, if the stock is above 50 in December. A
big risk on this one could be those Xmas sales numbers. If you are worried about
those sales numbers, do a July or September covered call. WMT also pays a 1.4%
dividend. I think if you pin your share certificates to your shirt the store
greeters will hug and kiss you when you walk into a store.
stratego
Warren, what are your thoughts on stocks currently in the medical industry?
Hold or sell?
Warren Stanley
Healthcare has been taking some pain but probably not ready to buy yet. How
about another hit on dealing with this market. Look at a down market as a time
to add stocks to your portfolio. It's like Wall Street has put the stocks on
sale. So, make a list of the stocks you want to buy and the prices you are willing
to buy them at and jump in when the price is right. Or, here's the bold strategy;
get your pencils ready. Checking the numbers on that WMT. Sell a Sept 42.50
put, you get around 30 cents a share for that. 10 contracts (1000 shares) puts
$300 in your pocket right now. And if the stock stays above 42.50, you keep
the money. Below 42.50 and you got the stock at the price you wanted. The stock
will have to drop another 11.2% to make trouble for you on this play. Last year
WMT hit the 42.50 range just briefly.
Sun
What are the stocks again?
Warren Stanley
So far, KFT and WMT.
stratego
Warren, any thoughts on Defense or Energy stocks? Buy or Sell?
Warren Stanley
A defense stock is coming up.
twink
What do you think about ITM leaps for WMT?
Warren Stanley
You need to make sure you can actually make money on those. Check the numbers.
We are dealing with a stock that may not have much upside. Buying LEAPs require
some big upside to make money.
vintage
Any suggestions for how the chart should look before jumping in?
Warren Stanley
We are looking for stocks that have stayed stable while the others have dropped.
We like solid stocks with a good biz model; low hype. The kind of stocks Warren
Buffet might buy (one of those is coming in a few minutes). But we hedge the
positions so even if the stock drops we can make some money. We have a lot of
examples of these kind of investments in our Conservative Covered Call Plus
portfolio. You can get in for free and get a look.
Jack Teaster
http://www.iotogo.com/Free-CCCOil.
Warren Stanley
Thanks Jack.
Don
Is it premature to get into the Ethanol companies at this time?
Warren Stanley
So far there has not been a lot of proof that this technology is cost effective.
Sorry to say but the real gain in our lifetime will probably come from conservation,
not some miracle fuel. Think hybrid cars.
Doug
What is the thesis for WMT?
Warren Stanley
The store sells everyday items, the kind of stuff that people will buy in most
economies. They have been moving overseas. They are always finding ways to make
more money. They have incredible buying power.
taydavj
Why not buy puts on QQQQ as protection?
Warren Stanley
This may be the right thing to do in some portfolios -- large portfolios --
but you will need to be 100% correct with this strategy. We like trades that
you can do and make money even if you are wrong. See the trades we showed you
earlier.
Guest
What is your recommendation on MSFT?
Warren Stanley
No recommendation on MSFT. We like the company and like the stock. Right now
things may not look great for MSFT (this is not one of the 5 stocks for today),
but they just released a beta of the next operating system and that has given
people a little more confidence. We watch this company closely. There is a perfect
trade in our "Perfect Trade" portfolios that looks great. You can
see that and our MSFT report for $1.
Jack Teaster
http://iotogo.com/premium_sub_serv.asp.
Warren Stanley
We have to do something to keep a lot people out. The $1 seems to work. I need
to run into a meeting so I will hand this off to Jeff to give you the other
stocks on our list. Bye for now. Thanks for dropping in.
Jeff Clinton
Thanks Warren.
Warren Stanley
Go get 'em Jeff.
Jeff Clinton
We've actually had some people guess correctly some of our other stocks, so
I'll start with one of those.
rqyx
Any advice on working with Altria Group (MO)?
Jeff Clinton
Altria is a pretty steady ship in a storm, plus it pays a nice dividend -- 4.5%
to be exact, and if you look at the past few weeks, it has stayed well within
its previous range. As we've seen, covered calls are a great way to take advantage
of stocks that aren't moving too quickly. For MO, we are looking at the DEC
70 covered call. It gives us some downside protection -> 6% plus the expected
dividend.
ic
How about BUD?
Jeff Clinton
Anheuser-Busch was another stock that was on our list that one of our guests
brought up. That company's expected dividend is about 2.3% annually and it has
stayed pretty stable over the course of the recent downturn. Warren Buffet recently
bought a 6% stake in the company as well, so that is a pretty good sign, too.
For BUD, we can get into a DEC 45 covered call and right away take 3.40 off
of our cost basis. If the stock stays where it is, goes up, or falls slightly,
we will make a decent return, and if it drops then we lost 3.40 less than someone
who just bought the stock.
presto
I've never understood selling in the money covered calls. Don't you get called
as soon as the stock moves up slightly? (MO at 71.77, selling 70 call)
Jeff Clinton
This isn't the case because if you were the one who bought the call, then you
could just sell the call for more profit than exercising it.
twink
What are your thoughts playing vertical spread on MO?
Jeff Clinton
With the option premiums on MO, there are some good trades out there on credit
spreads and debit spreads. Of course you won't get the dividends, but you can
get more downside protection. One credit spread to look at for MO might be the
September 60/55 for a 55 cent credit on 10 contracts. That would be $55 up front
cash that you get to keep as long as MO does not drop by 16% by September.
vintage
Jeff, I'm confused. Are we buying or selling covered calls?
Jeff Clinton
Buying the stock and selling the call.
fay
We've been here an hour. Weren't you going to give us five names?
Jeff Clinton
So far we've gotten 4: MO, WMT, BUD and KFT, with covered calls for each. The
final one is on its way, and we hinted about it earlier. This one is a little
smaller company that not everyone may know already. It's in the defense industry
and also supplies ammunition to local police forces. Neither of those things
are really going to slow down in our opinion -- at least not for quite some
time. ATK. There are 2 choices for plays for this stock: one is an in the money
covered call at 75 out in November. That one provides a 6.6% assigned return
and downside protection of about 9%. However, if you look at that company's
chart, it is down a little bit recently, so it might be a good time to sell
an out of the money one. The NOV 80 is pretty expensive and it allows us the
opportunity to possibly sell another call come expiration.
Guest
You guys listened to Cramer last night :)
Jeff Clinton
I promise that I didn't, but now that you mention it, we picked these stocks
yesterday during the day, so he might have gotten info ahead of time. We'll
have to check up on our security.
golferie
Wow, this stock has dropped 9 of the last trading days. It doesn't look like
a steady conservative stock to me.
Jeff Clinton
This one is more along the lines of a company on a steady uptrend for over a
year. It has some ups and downs, but we like the space it occupies in the market.
We offer more of these kinds of picks in our Conservative Covered Call Plus
portfolio, and we have a free preview of that service set up right now: http://www.iotogo.com/Free-CCCOil.
Follow that link and enter your email address to get the free preview. A password
and logon link will be sent to your email. Current picks in that portfolio include
C and CVS. Also, new picks will be coming out in the next few days or early
next week and remember to get our updated MSFT and technology sector report.
Follow this link that is coming up: https://www.investorsobserver.com/secure/subscribe.htm.
For just $1 you will get that report which includes several trade ideas plus
you get trial access to all our open portfolios.
Lynn
How long does the subscription last?
Jeff Clinton
$1 for the first month, and there is also a rebate that can make your second
month free. Alrighty, I think it's time to wrap this eConference up. My lunch
is here and I can smell it and it's driving me crazy.
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions.
fay
Thanks, Jeff.
Jack Teaster
Unfortunately we have run out of time for this e-conference.
Lynn
TY.
Jack Teaster
A transcript of this afternoon’s event will be on the site in a few days.
Have a good afternoon everyone!
Guest
This has been a good experience. Enjoy your afternoon!
bobiggles
Thanks to both you and Warren
Jack Teaster
To get a free preview of our Conservative Cover Call Portfolio, go to this link:
http://www.iotogo.com/Free-CCCOil.
Guest
Thanks, Jeff.
RandL1
Thank you.
Jeff Clinton
Good bye everyone; It's been fun.
Jack Teaster
When you sign up for our $1 offer you will receive our Microsoft report: https://www.investorsobserver.com/secure/subscribe.htm.
This room is now unmoderated; feel free to chat amongst yourselves!
Transcript from the May 10, 2006 e-Conference.
Jack Teaster
Hello, and welcome to this afternoons Investors Observer e-conference. Today
our guest is Warren Stanley. Before we begin this event, I'd like to give you
some tips. This is a text only chat. There is no audio. To ask a question, simply
type your question into the chat box below the main chat screen and hit enter.
Your question will be held in a queue until our guest is ready to answer. Be
patient, there will be many questions so it will take time to get to yours.
Warren Stanley
Not stock tips yet.
Jack Teaster
Warren, any opening comments?
Warren Stanley
Many thanks for spending your lunch with us. I will try to make it worth your
while. Be sure you have pencil and paper handy. We know this is a good trade
since our subscribers got it this morning and we saw fills. It is still very
fillable at this point. We will primarily be talking about this trade and NOT
answering a lot of the questions about other stocks. I would like to, but there
is a piece of pizza with my name on it in the conference room. There are three
components to this trade (at least), so be sure you get all three before you
run off. We will also be talking about the risks involved. That is very important;
know the risks.
lis
Would this be a good place to have my IRA?
Warren Stanley
This trade is probably ideal for an IRA This trade is not a high risk trade
and the return is probably capped to only 13.3% a year. Not bad for an extremely
low risk trade.
Kongkong
What is the trade? I missed the beginning.
Warren Stanley
I haven't given out the trade yet. It's coming.
Charley
If you had $25,000 to invest, what would be your first trade?
Warren Stanley
Depending on what else you have in your portfolio this could be a good one.
First of all, we are talking about the oil sector. Oil futures are down just
a few cents today and supplies are probably high, so we might see those oil
prices drift down.
PAT
What is the name of the stock?
Warren Stanley
The stock is PGH -- Pengrowth Energy Trust. Hold on because we need to give
you the hedge on this one. We want to use a hedge because oil prices could drop
a bit in the short term. First let me tell you a little about PGH. This is one
of those Canadian Oil trusts. They send all their profits back to the shareholders
every month. PGH is now paying a 25 cent dividend a month. That's around a 12.1%
dividend yield. Not bad! But by hedging we can do better. We also like Canadian
oil because It should not be disrupted because of politics as middle east oil
could be.
mosby
I own it and have for 18 months. It's great.
Warren Stanley
Stay tuned, because you will see how to hedge it and get even more cash out
of it.
bud
I own PTF and it pays 10%.
Warren Stanley
PGH looks even better right now.
focus
What distinguishes PGH from any other low cost ENERGY stock?
Warren Stanley
The dividend is nice and high.
richhuff
Isn't that Canadian oil sand expensive and hard to process?
Warren Stanley
Yes; the risk is that oil prices could fall.
laup
How do the taxes on Canadian Trusts affect the yield?
Warren Stanley
As all taxes they do take a bite.
nickie
Can I use my stock for the hedge?
Warren Stanley
We will get into that in a few minutes.
jazzman
How does the hedge work?
Warren Stanley
Get your paper out; that is coming. Okay. Since oil could drop, we want to protect
ourselves. To do this we are going to make a bold move. You will have a lot
of comments on this I'm sure. The stock is currently at 24.75. The hedge is
that we will sell an October 22.50 covered call when we buy the stock and here's
the good (or bad) part: we will do it for even money. We are going to pay 22.50
for the stock/covered call combination. By doing this we lock in the dividends
and cover our downside a bit. But, if the stock goes up, we do not get any benefit
from that price increase. Come October we will probably get called out of the
stock. We just checked those dividends. The annual rate if you just bought the
stock is 10.5%. By using this strategy you bring your cost down to 22.50, so
you boost the div rate up to 11.6% and the stock can drop about 10% and you
are totally protected.
star
Big Charts shows only a 10.6% yield, not 12. What gives?
Warren Stanley
See above. Our numbers are pretty close.
Bert
What stock (got here late)?
Warren Stanley
PGH.
Edward
Warren, I don't understand what you're asking us to do. I use Fidelity. What
kind of trade should I be making?
Warren Stanley
This is a covered call trade. You are buying PGH and selling the Oct 22.50 covered
call for a 22.50 debit. Since you will hold the stock, you will get that nice
dividend every month.
Charley
The dividend is Canadian dollars!
Warren Stanley
The 25 cent one is in Canadian = 21.9 cents US dollars.
mallard
How about commissions (2 stocks sale + option)?
Warren Stanley
Take that up with your broker.
ddd
What if the stock drops 20%?
Warren Stanley
Good question; always a possibility. If you did not do the covered call then
you would lose 20% on the stock. Since you have the covered call in place, then
you will cut your losses in half on a 20% stock price drop.
Zack
Couldn't you get called out early and not receive all the dividends?
Warren Stanley
Always a possibility. That is a risk. That's why we sold the October. We should
catch a few dividends.
Terri
What happens if the stock goes up?
Warren Stanley
The most you will get for the stock is 22.50 -- just what you paid for it. Sort
of like buying a bond at face value.
buck
If you are called out in Oct., how can you keep it the rest of the year?
Warren Stanley
There are ways to roll the sold call to hold onto the stock. Our subscribers
will see that strategy if it makes sense.
sweety
Couldn't you just roll down to a lower strike in the calls?
Warren Stanley
Lower strikes at this time cause a loss at expiration.
hddoc
If we just played the stock only and bought 1000, are you saying a dividend
on 12 months of 2628.00?
Warren Stanley
That's right. This is why these stocks are nice. Depending on how much you spend
on fuel these dividends could pay the entire bill. And if oil goes up, you might
even get a higher dividend.
jungo
What is the price earning on that stock?
Warren Stanley
I'm seeing 12.8 x.
allan
What if you want to get out of the trade earlier, either because the stock is
dropping, or you can find a better trade to do?
Warren Stanley
You can just unwind the position. Buy back the call and sell the stock.
Trader Jer
Is it wise to buy back the covered call to hold the stock if the stock is higher?
Warren Stanley
That's up to the trader. When we go into a trade, we go in with a profit goal
and we try to stick to that. This is for the part of your portfolio that you
want moderate risk and nice returns. Nice in an IRA. You will pay some Canadian
taxes, but your US taxes are deferred (or not paid at all).
ddd
How much does it cost to buy back the call?
Warren Stanley
It depends on the prices in the market and the price of PGH at the time.
ajcondo
Where can I get a div schedule on this stock?
Warren Stanley
http://www.companyboardroom.com/company.asp?ticker=PGH&client=cb
Mori
What stock are you talking about?
Warren Stanley
PGH with an Oct 22.50 sold call.
sillyfox
Aren't you paying double taxes in an IRA?
Warren Stanley
Good question for an accountant. I'm not an accountant.
Alf
What are the mechanics of paying Canadian taxes?
Warren Stanley
From what I have seen, they are deducted before you get the dividend.
Mori
What about PWI, PTF, and PVX?
Warren Stanley
All good stocks. PGH is the one we like the best right now.
mallard
What if div is cut by 10%, stock price goes down.
Warren Stanley
Always a risk. Could happen if oil prices drop or PGH's oil supplies dry up.
Charley
Correct. Canadian taxes are deducted before you are paid.
Warren Stanley
Thanks. Are you an accountant?
aihoa
If we own the stock, is the company going to give us dividends automatically
and the Canadian will tax us automatically?
Warren Stanley
Yes; you probably need to check with your broker and accountant on the mechanics
of this and possibly getting the money back.
nickie
Let's get on with the trade. I have to go back to work!
Warren Stanley
See above for the trade. I will show it again. Buy PGH and sell an October 22.50
Covered call for a 22.50 debit.
gary
What about buying a put. I realize it increase the cost and reduces the dividend,
however you have an opportunity for a greater total return and you are really
protected on the downside.
Warren Stanley
You might want to do this as an extra hedge, but you will not get the dividend.
zena
What ratio of stock vs calls do you recommend, 1:1?
Warren Stanley
Always 1 to 1. For every 100 shares of stock you sell 1 contract.
FLYMAN
Thank you for the advice; think I'll buy the stock straight up.
Warren Stanley
The risk is that the stock could fall. For every dollar the stock falls you
will lose a dollar. If that risk is okay for you, then great.
mosby
As I asked before, what if I already own the stock at a much lower price.
Warren Stanley
Then great. Your cost basis is even lower. You can rake in some extra dollars
by selling the call but you will cap your return if the stock continues up.
JP
The stock appears to be at the top of the 5 year cycle (up from a low of $8);
does that cause you any concern?
Warren Stanley
Yes. That is why we are hedging with the call sale. Oil prices are also up.
We don't think they are going down for a while. We have a big concern about
the folks in China and India. When they move from bikes to motorcycles (or cars),
they could be bigger fuel users than us.
Bob E
Warren, great trade, but will work even better in a non-IRA account because
the taxes withheld will be a credit on your US 1040.
Warren Stanley
Good point, but take that up with your accountant.
scubes
Does the political friendship between Iran and Venezula concern you?
Warren Stanley
Yes, very scary.
sillyfox
Will the coming hurricane season negatively effect oil prices?
Warren Stanley
If the supply chain is disrupted, expect oil prices to go up.
pblansing
What do you think about a collar trade? Buying a put also?
Warren Stanley
May cost too much. At an 11.6% annual yield rate, this is about at our limit
for risk reward. To bring that down would make the trade undoable in our book.
jazzzman
Do you have a symbol for the call? I am only seeing May and June calls and puts
on MSNBC [.pghex for example].
Warren Stanley
Hold on; get your paper and pencil.
Warren Stanley
PGH JX; you might want to get your quotes from your broker. Free and probably
more reliable.
dmh
Why not sell the July 22.5 call? They are the same price as the Oct. then roll
over to Oct.
Warren Stanley
The risk of losing the stock before you capture a few dividends. We try to keep
the number of trades down too, to save on commissions.
chulbula
They already have in India. From selling 43000 cars in 1972, they sold 4.3 million
cars in 2000-2005
Warren Stanley
Thanks for those facts. Now you see why we like oil.
Guest
In 1989 Tiananmen Square was choked with people on bicycles. In 2006 Tiananmen
Square is choked with automobile traffic!
Warren Stanley
Interesting observation. If we don't watch it we will be the ones riding bicycles.
Scary.
nickie
Forget China and India. Worry about Iran and Venezuela shutting us off.
Warren Stanley
It is a supply / demand trap. With this trade you get to put some money in your
pocket every month to pay for your fuel.
Joe
What is the estimated life of the reserves.
Warren Stanley
Longer than October. But watch this closer if you decide to extend past October.
zena
Typically, when selling calls against stock, how far below the stock price do
you sell as a rule of thumb?
Warren Stanley
It depends on the stock and where it sits in the portfolio. This trade was designed
for nice returns and relative safety.
bobalooah
If the market price of PGH were to increase, would not the buyer of your call
exercise at 22.5 and limit the upside of the stock? Do you have any strategy
for rolling the covered call?
Warren Stanley
Yes that is a risk. But they paid over $2.20 for the option so the stock has
to go up a bit. We know we are getting called away at some point. We just want
to capture that dividend and cover ourselves in case the stock goes down.
Guest
China (and India) are at the beginning of a huge expansion. Oil, copper, aluminum,
steel, gold, silver are all headed much higher.
Warren Stanley
Think about what can derail that expansion. Were you around when the Asian tigers
hit the wall?
Guest
If you're satisfied with a minimal profit, that's ok too.
Warren Stanley
We are. For this part of the portfolio the risk / reward is just right.
Pete
Is this stock traded also in the US Stock Exchange and, if so, what is the US
symbol?
Warren Stanley
PGH.
commander
Why would you not want to sell the Oct 20 call? Now your basis is $20, not 22.50,
and you could now withstand a price drop to $20.
Warren Stanley
It was the October 22.50 call that we sold.
Freddie
How about the ethanol sector? I listened to a story from Brazil where cars are
made to run on several fuels and has lessened Brazil's dependence on oil.
Warren Stanley
They get cheap ethanol from sugar. They have a lot of sugar.
Jack Teaster
There is only 7 more minutes. Please get your last questions in.
Warren Stanley
Our ethanol comes mostly from corn. It cost a lot to produce (not a solution
right now).
Guest
PGHJX.O for OCT 22.5
Warren Stanley
PGH JX is the symbol fort the sold call.
Guest
Being the dividend is so good, would this be a good hold for 10 years or so?
Warren Stanley
No such things as holding a stock for 10 years. Things change. Supplies could
dry up for PGH or oil prices could drop.
JOSE
Still interested in your thoughts on the best rolldown procedure.
Warren Stanley
Always a good thing to look at. This is probably not the best place to go over
that though. This trade is in our Oil Income Portfolio and if we decide to roll
it, the trade will show up there.
Guest
What happens in October as the option expires? You still own PGH if the option
has not been bought?
Warren Stanley
If the stock is over 22.50, the person who bought the call from you will take
your stock away and you will get your 22.50 back.
Guest
"Made in China" bikes.
Warren Stanley
Scary.
Guest
1.3 billion people in China, and most becoming middle income.
Warren Stanley
Last comment on China -- get your pencil and paper out again. Read this book:
Collapse. I hope the folks in China and India are not reading it.
Jeff Clinton
By Jared Diamond.
Guest
Do you have this stock in your portfolio?
Warren Stanley
Yes. We will not be selling until October. We do the trade to prove that the
trade is fillable.
Tennis girl
Why not buy the PGH JE call at 25?
Warren Stanley
No dividend. We are in this for the dividend.
dickc
I just got here. Can I read earlier posts?
Warren Stanley
This will be posted on our site.
duke
I came in late. Could you briefly recapitulate the strategy?
Warren Stanley
Buy PGH and sell the October 22.50 covered call for a 22.50 debit.
bobalooah
Are there other players who might be players in this regard, including XOM and
COP, both at low p/es?
Warren Stanley
Yes, but we like the high dividends on this trade.
oilhog
What is the dowside risk?
Warren Stanley
That the stock drops more than 10% then you will start to take losses. Okay,
write this down or click on this link: https://www.investorsobserver.com/secure/subscribe.htm.
You can see all the details on this trade and on our other portfolios for $1
for the first 2 months. Or, you can check out our Conservative Covered call
portfolio for free at http://www.iotogo.com/Free-CCCOil. That's the right URL
for the free preview. Many thanks. Got to go. Bye all!
Jack Teaster
Thank you all for coming this afternoon! There were so many good questions.
Unfortunately we have run out of time for this e-conference. A transcript of
this afternoon’s event will be on the site in a few days. Have a good
afternoon everyone! This room is now unmoderated; feel free to chat amongst
yourselves!
Transcript from the May 1, 2006 e-Conference.
Jack TeasterHello, and welcome to this afternoons Investors Observer e-conference. Today our guest is Warren Stanley. Before we begin this event, I'd like to give you some tips. This is a text only chat. There is no audio. To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guest is ready to answer. Be patient, there will be many questions so it will take time to get to yours.
Jack Teaster
Warren, any opening comments?
Warren Stanley
First of all if you leave this eConference you will probably not be able to
get back in. We only have spots for 200 and we have hit that limit. This is
not like our typical eConference. We will not be taking general questions. We
just want to get you the info on this trade. We spotted it late Friday. Get
your pencils out. I will just give you the trade then we can talk about it,
answer your questions. First of all the trade involves options. There is risk.
http://www.cboe.com/Resources/Intro.asp. Be sure to see all the warnings in
this little book. So let me lay out the trade now. Look at the whole thing before
you form an opinion. The stock is Microsoft (MSFT). We will be playing the Jan
2007 options. We will be doing a Jan 2007 20/22.50 Bull-Cal debit spread for
a 2.05 debit. If Microsoft is above 22.50 on Jan 20 2007, then we make 45 cents
on the trade, for a 21.9% return rate. The break even is 22.05. With a debit
spread you are taking a hedged position in the stock and limiting your downside
risk and upside profit. But a 21.9% return is not bad. Now I will start to answer
the question in the queue.
Tamra
Why would you go out so far?
Warren Stanley
Because we want to give the company time to show wall street that they can do
the job. The time is a trade off for the return. You can get out of the trade
earlier if you want. But your profit will be less.
shirasagi
Why not choose a "better" company?
Warren Stanley
This is a great company with solid profits. Last week MSFT stock holders got
spooked....they ran. But today as expected they are coming back and the stock
is up. You can't get these kinds of trades every day. This was a special situation.
Observer
Will Vista be out by then?
Warren Stanley
No one knows for sure. It may not be out, but they will be filling the pipeline.
And that drags along a big part of their products = product line.
Terri
When you say "these kinds of trades" what did you exactly mean?
Warren Stanley
High return + Low risk + on a solid stock. Also a heavily traded stock. That's
why we are not afraid to tell 200 people about this. Full disclosure => Our
paid subscribers got the trade this morning.
Daddio
What about the anticipated earnings Microsoft said will be declining?
Warren Stanley
Did you ever see how MSFT sand bags? They always try to manage expectations.
It may be true, but take a look at their past announcements. The same story.
jesurles
Heavy traded -- is that a good thing???
Warren Stanley
Yes; more liquid. Easier to get your price.
dbrig
I am seeing a 1.90/2.10 Bid/Ask right now, would it be out of line to try and
buy @ 2.00?
Warren Stanley
Try what you want. It filled this morning at 2.05.
Barbara
This stock has been trading around 28, so you feel it will fall in the longer
term?
Warren Stanley
No; we think it's solid. But we like to hedge our trades. We like a cushion.
Emma
If Vista at present is not scheduled out until at least next March, why not
go further out with the trade?
Warren Stanley
January should be good. Too far out ties up cash too long.
RogerF
INTC did a dead cat bounce, going back down today, what makes you think MSFT
is a 1-day event, the 500 mill shares Fri?
Warren Stanley
We don't know for sure. The reason the stock is up today is on an announcement
from Balmer a few minutes ago and just maybe all the sacred money is out.
maggot
Warren...so sorry--got knocked off line at beginning. Will you please provide
a summary at the end? Thanks, MagWheels
Warren Stanley
This eConference will be posted on the site in a few days.
marty
The stock is now at 24.41 -- up .26, so you expect to see it drop before it
starts going up again?
Warren Stanley
It could drop but we are pretty confident at this point that the stock will
be above 22.50 come January.
Ash
How do place the trade?
Warren Stanley
You will need to talk with your broker about that. It varies by broker. I will
repeat the trade. Pencils ready. First, if you are not familiar with all the
risks of options, please read this: http://www.cboe.com/Resources/Intro.asp.
MSFT Jan 2007 20/22.50 Call Debit spread for a 2.05 Debit (or better - Means
less than 2.05).
stormy
Just got on; what stock are you talking about?
Warren Stanley
See above.
herff
Why choose a bull call spread versus other types of plays if you believe 22.50
come January will be below market?
Warren Stanley
We looked at the other trades and this stacked up the best. The best risk return
stats.
That's what we do.
jw
I just closed a MSFT Jan'07 30 put - more than a 100% profit. Why not continue
that since many of the large companies like MSFT, in the tech sector, have reported
lower expectations for the succeeding quarters? Or, since you believe that MSFT
will be above the 22.50 mark, why not take an ITM call with a Jan'07 leap?
Warren Stanley
We like to hedge our bets. Congrats on the 30 put. Too risky for us.
bobc
I entered late. This "perfect trade" is apparently some MSFT option
trade. Please repeat exactly what the trade parameters are?
Warren Stanley
See above; you can scroll up. I will repeat it later.
Freddy
What is needed for you to get debit spread option level?
Warren Stanley
You will have to check with your broker. Since this is a long way out, it may
be available for a few days.
Observer
Is it also known as a bull put spread?
Warren Stanley
No. It is a Bull Call spread.
Vas
Just wondering -- did you look at near month credit spreads to take advantage
of the higher volatility now?
Warren Stanley
Yes, but we expect some potential near term price downdrafts. We like this trade
because it gives more time for the stock to go up. But of course it could go
down too. MSFT has set low expectations at this point so we think the long term
is up for the stock.
oracle
Explain a leap.
Warren Stanley
It is just another name for a Call option, but farther out in time.
Juliano
The JAN $24 put is $1.30.
Warren Stanley
Risky. It's smarter to do spread trades to limit your maximum loss if the thing
blows up.
Frostie
How long will it be before we know how many "insiders" bought more
MSFT on Friday?
Warren Stanley
We don't know for sure. The insiders are loaded down with stock. But if the
company sees a bargain price, they may snap up the stock to use for employee
options.
fixpipster
Did I write this down wrong? 20/22.50 spread?
Warren Stanley
That is the short hand way to describe the trade. You will buy the Jan 20 call
and sell the Jan 22.50 call. That brings your overall cost of the trade down
to 2.05. But the maximum you will get back is 2.50. That's per share.
DRT
Where can I go to learn how to options trade?
Warren Stanley
Go to the www.888options.com.
sam
Do you have any formula to arrive at this spread?
Warren Stanley
Yes; we have many tools to find these.
ragfish
How does the Bull put spread look in comparison? It puts cash in hand right
away.
Warren Stanley
This is one that you pay for on the first day. On day one you pay 2.05 for the
trade. Then on January 20, if the stock is above 22.50, over the weekend the
positions will disappear from your account and you will find a lump of cash.
fixpipster
My broker does not have Jan 2007 $20 call; is this a 2008 leap?
Warren Stanley
You need to bug your broker. Tell him these symbols: Jan 20 VMF AD Jan 22.50
VMF AX.
sam
And this bull call spread is the best you found out from your formula?
Warren Stanley
Yes; a good balance of risk and reward. But as we have said many times, there
is no absolutely sure thing in the market. A total loss is always a possibility.
biker
I assume we're talking COVERED calls.
Warren Stanley
No; this is a Bull-Call debit spread. The covered call return would probably
be less and it would cost you much more to do the trade. The return would be
around 5% for the covered call. This is over 20% return. It costs less.
sam
Do you have trial period to access your website and do some back testing?
Jack Teaster
Yes, we do. Just go to this link http://www.iotogo.com/IOSignup.
Warren Stanley
You risk less capital.
biker
OK. No underlying stock ownership required. THX.
Warren Stanley
Correct.
dad
What is the risk/reward ratio considering breakeven is 22.05, or am I missing
something?
Warren Stanley
The maximum risk is that you would lose 2.05. The reward is that you get 0.45.
All per share. And the stock is at 24.39 right now.
Roscoe
I think this is the same spread strategy as your double-the-money with $10,000
program. How is that doing?
Warren Stanley
That is going great. This is a similar strategy but those trades are in already.
They can not do this one.
jesurles
Is there a way I can do this through Etrade account?
Warren Stanley
Talk to your Etrade broker.
Ray
Right now, the ask is 2.20.
Warren Stanley
It's starting to drift away. But since this is out in January, there is some
time. Don't pay more than 2.10.
Marko
The volatility has spiked to over 36% on MSFT. Shouldn't we wait for some of
that to bleed out before buying the spread?
Warren Stanley
Then we would have to pay more.
GEEK
What's price should I buy in? What do you expect it could go up to? I do not
know how to do the option; should I buy it straight? Thanks
Warren Stanley
If you don't know options then this may be some motivation to learn. Check at
www.888options.com for some great education resources. All free.
MikeK
Logged on late. What is the symbol for the underlying stock in your Bull call
spread?
Warren Stanley
MSFT JAN 2007 20/22.50 Bull-Call debit spread for a 2.05 debit.
nightowl
Any other bull spreads you like?
Warren Stanley
There are some, but we save those for our portfolios.
jv
What stock are we talking about? I came in late.
Warren Stanley
MSFT.
GEEK
Anything I can do to take advantage of this today?
Warren Stanley
Sure; talk to your broker. Tell him the trade you want to do. See above. But
you need to be aware of the risks. Come January 20, 2007, if Microsoft is below
22.05 you can lose some money. And if it is a lot lower, then you can lose your
entire invested amount.
rickh
If MSFT goes down in the next few days, will the spread narrow to a better price
than $2.10?
Warren Stanley
It could, but the volatility will probably come out and those option prices
with start to contract.
ragfish
Any reason not to do the Bull put spread at the same strikes? Pocket the cash
right away and earn some interest?
Warren Stanley
Same risk; lower return. We looked at that one. We make an extra 5 cents here.
The nickels can add up.
mallard
So 22.05 is the breaking point?
Warren Stanley
That is the break even. Below that you start to lose money. Unlike the case
if you bought the stock. If the stock goes down a penny, you lose a penny. With
this trade the stock can go down and you lose nothing. Down to 22.05.
Frostie
Yes, but in Bull Put Spread you get the money NOW and don't pay taxes until
the contract expires. Next Year. So maybe the "nickels" are in Bull
Put favor?
Warren Stanley
Nope. For this one the Bull-Call makes a little more. Same tax situation by
the way.
steve
What stock are we talking about here?
Warren Stanley
MSFT.
Gramps75
Could you repeat the original instruction?
Warren Stanley
MSFT Jan 2007 20/22.50 Bull-Call Debit spread for a 2.05 debit.
zz
What is the trade recommended?
Warren Stanley
See above for the idea.
nina
How long is this session?
Warren Stanley
We need to take off at 1PM so get your questions in.
mallard
How about create strike 17.5 and trading 17.5/20.
Warren Stanley
When we looked at that one, the return was low. We wanted to get a trade off
today before the bottom fishers came in and bid the stock up.
Richard
Good job. Easy to understand, clear presentation, with the risks identified.
Warren Stanley
Thanks. It's a simple trade.
Daddio
If you have other trades that you are saving for your portfolio, why give us
this trade today for free?
Warren Stanley
Because most of our portfolios are out for the month. And this trade will probably
not be there in a day or two.
DRT
So on Jan 20, 2007 MSFT closes @ 28.30, how much did I make?
Warren Stanley
You make 0.45 a share. 0.45 / 2.05 = 21.9% return. The stock would have to go
up over $5 to make a similar return.
jv
What are you saying this stock might do?
Warren Stanley
We are betting that it will not be below 22.50 on January 20th 2007.
Emma
If I buy it but decide to sell earlier, say in 3 months, and the stock is at
around $25, what kind of gain or loss can I expect?
Warren Stanley
It's hard to tell. You should only get out if the trade is going bad.
des
I just jumped in and don't really know what this is about; is there an info
link?
Warren Stanley
No; this is a special eConference. We don't do these very often, focusing on
one stock one trade.
Gipper
Do you expect to hold this till expiration or is there a good chance you will
get out early?
Warren Stanley
Probably hold until expiration. But we monitor the positions and if we can get
out for a higher return, we are out.
hello
As long as MSFT is above 22.05 on Jan 20 2007, there will be a gain on the trade?
Is that right?
Warren Stanley
Correct. All these calculations do not take into account commissions and taxes.
Ted
Looks good for someone who has a lot of money that wants to capture only 21.9%.
Warren Stanley
Only 21.9%? That's a nice return. It only takes $2,050 (plus commissions) to
do 10 contracts of this trade.
mallard
Get we get .45 before expiration?
Warren Stanley
It can happen, but not very often.
bobc
If the stock did go up over $5, what would the return be?
Warren Stanley
If you hold to expiration the most you can get out of this is the 0.45.
zz
What happened to MSFT; why did it drop?
Warren Stanley
The company told Wall Street that they were going to spend more on R&D.
That could drive short term profits down. People sold on Friday.
steve
So, to clarify, you're recommending a call at 22.5 on MSFT for Jan 07?
Warren Stanley
Write this down; this is a spread trade. To do it you buy one option while selling
another. Your broker can help you with this. MSFT January 2007 20/22.50 Bull-Call
debit spread for a 2.05 debit. Show that to your broker.
Spader
I like it. But, Jan 2007 is too far out. I see potential just above $26.00.
I don't think MSFT closes that window by 2007. Playing the straight upside on
a leap is the same return.
Warren Stanley
This is a hedged trade. We spend less to get into the trade and if we are wrong
(it can happen), we lose less. The return rate is the key.
steve
What percent return are you projecting?
Warren Stanley
21.9%, if Microsoft is above 22.50 on 1/20/2007.
Ted
You would have sold the call, so what happens if it gets called?
Warren Stanley
That would be perfect. Then we use our bought call to close the trade early.
Maverick
Don't understand options; how do I learn more fast?
Warren Stanley
www.888options.com. Here's another link worth remembering: www.iotogo.com. There
is a $1 offer for 60 days of service that include all our portfolios. Look at
the top of the page.
nina
What happens at expiration, i.e. jan/20/2007, and the stock is up -- do you
sell to close?
Warren Stanley
That will be automatically taken care of by your broker over the weekend. Option
positions gone; cash in your account.
bobc
Can you make more than 21.9% on this trade?
Warren Stanley
Probably not going to happen.
Guest
You then have expense to close trade if it gets to .45 before expiration.
Warren Stanley
Not a big expense. Brokers have to eat too. And so do I. Many thanks for coming....
maggot
At expiration, or before, will we need to un-wind the position? Or do we hold
THROUGH expiration and it un-winds for us automatically, and our account will
receive the $0.45per share (If, of course, MSFT is at $22.05 or better!)
Warren Stanley
Hold it through expiration.
Jack Teaster
Thank you all for coming this afternoon!
Warren Stanley
Bye all.
Jack Teaster
There were so many good questions. Unfortunately we have run out of time for
this e-conference. A transcript of this afternoon’s event will be on the
site in a few days. If you want to take a look at our service go to http://www.iotogo.com/IOSignup.
Have a good afternoon everyone! This room is now un-moderated; feel free to
chat amongst yourselves!
Transcript from the March 7, 2006 e-Conference (morning).
Jack Teaster
Hello everyone, and welcome to today’s e-conference.
Warren Stanley
Time to start.
Jack Teaster
As market volumes start to increase, now might be the time to make some moves
that could make this a better year for your investment portfolio. Today you
can learn how to make the moves that could help you improve your investment
portfolio. Our portfolio managers will be here to cover the five things you
can do right now to position your portfolio for the next few months. They will
also answer your questions about our portfolios and about anything else you
throw at them. A few notes before we begin: To ask a question, type your question
in the box below and hit "Send." Your questions will go into a queue
and Warren will answer the questions as he gets to them. Be patient! It may
take a while for him to get to your question! That having been said, enjoy the
e-conference!
Before we get into that, I want to introduce Warren Stanley and James Anderson,
Portfolio Managers.
James Anderson
Hello, all.
Jack Teaster
Warren, James, how are you guys tonight?
Warren Stanley
I'm fine but it's noon.... You need a window in your office...
Jack Teaster
You're right...How are you today?
Guest
When will my gold stocks turn around????
Warren Stanley
Our Gold stock expert is not here right now. I'm fine today... Jack. But I will
take a crack at this one. I really try to stay away from gold. But I like to
play the gold producers sometimes. ABX and NEM are a few of these. A big part
of their stock price is about the value of the gold they have in the ground.
Later on we will talk about ways to play these stocks and try to make some $
even if the stocks drop.
James Anderson
But can you really complain after the run-up these stocks have had?
Warren Stanley
We can always complain...
Joan
Where do you see the trends going now that the economy seems to be cooling?
Warren Stanley
The key thing keeping the economy afloat now is probably employment. As long
as the employment numbers don't cave in, the market should be okay. But, those
interest rates are starting to look better to investors. As they start to move
money out of the flatish div stocks into money markets paying 5%, expect those
stocks to start the decline. The rest of the market could follow. Watch the
employment numbers. I like to could Help Wanted pages in the newspaper as an
indicator of future trends.
Joan
What will interest rates do to utilities and the financial sectors?
Warren Stanley
Since utilities are more dividend driven, expect those utility stocks to weaken.
Financial sector should be okay for now. They still charge much higher interest
than the fed rate. They should not drop as fast as the div paying utilities.
JC
Is Barrick Gold a producer?
James Anderson
Yep... it runs mines all around the world
alovelace
I have an interest in Celgene. Do you know of CELG or have any plays regarding
it?
Warren Stanley
We watch the news on this one but since it is a biotech we stay clear of it.
These can move quickly and unexpectedly.
Joan
How will rising rates in the US affect international stocks?
Warren Stanley
If the USA goes into a recession, the international stocks may weaken That monthly
trade deficit is proof that we are the #1 consumer of their goods.
Joan
What about silver?
Warren Stanley
This is the material for a 25th wedding anniversary.
JC
While oil is down and it looks like the energy run is over, what do you think
about alternative energy sources as a long term investment?
James Anderson
It's kind of funny that at 62 we think of oil as down. As long as oil stays
expensive compared to historical prices, alternative energy should be a good
place to be.
rick
What is your take on Google; is it a short?
Warren Stanley
It's down $6 so far today to 361. It seems that there are always investors ready
to step in and buy more of this stock. Don't be surprised if GOOG drifts down
for a few years punctuated by some days with steep drops. I am playing GOOG
put credit spreads as low as I can go. Under 320 for next week expiration.
sirius
Could you please be a bit more specific in your answers?
Warren Stanley
Hard to be more specific than that.
r. jeremy
I avoid Google... too secretive.
Warren Stanley
See example trade above.
Joan
Are there any oil plays in Canada?
Warren Stanley
PTF has always been a favorite stock of mine. (Disclosure - I own this stock)
These stocks pay a big dividend around 10% and with an in the money covered
call at around 17.50, you can get partially protected from a drop in the stock.
r. jeremy
PGH is in Canada; they have a similar dividend :)
Warren Stanley
Yes; another good one.
j
I've been buying puts with both hands since $460.
Warren Stanley
On GOOG...You should do well on those. Those were smart trades. Unfortunately
we got burned on the initial GOOG run up from 200 to 300. Gun shy.
j
I think siri is another good leap put and have been buying since 6.50.
Warren Stanley
Another LEAP put to look at is in the auto sector. Look at the GM LEAP PUTS.
But instead of just putting all the cash to buy the put, do a debit spread.
Buy the put you want but then sell one a strike price or two down. It limits
your risk.
sirius
Are you suggesting that spread trading is the best way to work the market, at
this time?
James Anderson
We like the way it protects you to the downside while still allowing you to
have reasonable returns.
Lyn
Do you have to be careful of the dividend if you are using a cover call on the
stock?
James Anderson
You might end up getting called away on the day before the dividend pays out
if the dividend is big enough, but that just locks in your profit, so it isn't
a big problem as long as you set up your trades correctly.
j
What about airlines?
Warren Stanley
These sort of look like Biotech stocks to us these days. They have been a little
strong lately but if oil goes up or another one goes BK, those stocks could
weaken. I'm not sure if these companies will ever make money again. Consistently.
1Ellis
Do you auto trade your port?
Warren Stanley
We trade our portfolios They are autotraded so our trades go in with yours.
No favoritism there.
alovelace
Talk about gun shy; I have done the worst with airlines than any other sector.
Warren Stanley
Good example.
Jack Teaster
Now, gentlemen, isn't about time we got to the 5 tips??
James Anderson
Good point.
Warren Stanley
I think we covered #1... The market in general, employment numbers are key there.
People working = People with cash = strong economy.
James Anderson
What about # 2? How can investors safeguard their portfolio right now?
Warren Stanley
Well, look a little bit harder at cash, bonds, and money markets. Those rates
are coming up. You may want to dump some of your more questionable stocks and
go with a nice 4.5% return. This may be a good time to consider riding things
out. The day you start to short is probably a day the market will go up. The
stocks you do play, try to hedge them. All of our portfolios have great examples
on how to hedge into stocks. A good example trade might be MRO in our Divs plus
portfolio. A 1.7% dividend and when we put the trade on we were hedged for 19.8%
downside protection.
JC
I thought the bond market was down?
Warren Stanley
Probably best to wait for the rates to stabilize before going into bonds.
roo
Do you trade your own money in the portfolios?
Warren Stanley
Not sure of any other type of money.
James Anderson
How about the third question on our list: What simple monthly steps do most
investors forget?
Warren Stanley
James - try typing with both fingers next time
James Anderson
Sorry.
Warren Stanley
Simple steps.... 1 - Watch the news on your stocks. Don't be alerted to a stock
problem when it drops 13%. Try to watch the news and anticipate problems. If
you are lucky you could get out before the drop. Then buy the same number of
shares later for less money. 2- Check for earnings before you invest. Just because
a company has a stock symbol doesn't mean they make money. The corner gas station
might be making more profit than that company. Unless you are a speculator,
stay away from companies without earnings. Example: XMSR losing money –
a speculator's stock. Nice service. Questionable stock.
James Anderson
3 - Listen to the conference calls for stocks you own. There's a lot of useful
information that can be found in that call.
Warren Stanley
Any examples James? Those are so scripted.
James Anderson
I like to listen to the tone of voices of the CEO and CFO specifically.
Warren Stanley
How about that ERTS call?
James Anderson
That particular stock had a call where the officers were pretty negative, but
hey - at least they were telling the truth, right?
Jack Teaster
We have 20 minutes more to go, so this will be the last call for questions.
The drawing for Ric Edelman's new book will be in 5 or 10 more minutes.
Warren Stanley
On that simple steps question, this is one that is on the farther edged of simple.
There are many ways to play a stock besides buy or sell short. The most important
thing is to have a stock and an outlook in mind. That information is widely
available. Standard and Poor's has a lot of this kind of information. You pick
a stock and their star ratings can give you an indicator on which direction
it could go. So if you have a five star (very strong) stock in your sites –
Example: Get your notepads out. AET, an insurance company, instead of taking
all the risk and buying the stock, try a covered call. You get all the dividends
and can weather a down draft in the stock. Try to think before you jump in.
alovelace
Aetna, you bet strong stock, up a buck and change today.
Warren Stanley
Nice.
James Anderson
And speaking of jumping in…
Warren Stanley
There are many examples of these strategies on our site, but the best example
in this crazy market is our 5->20B portfolio. One strategy is to put more
money in money markets and then be a little more daring with a small amount
of your portfolio. This portfolio works with an initial cash amount of $5,000.
Jack Teaster
If you're interested in previewing the 5->20 B portfolio, you should check
out this link: www.iotogo.com/520bfree3mo.
Warren Stanley
That's the most you can lose unless you do it multiple times. I do it twice.
This portfolio goes for a set of hedged trades that can win even if the stocks
drop. Example: a recent AAPL trade; If you would have bough the stock you would
have lost money. Big money. But our trade was hedged. We made money even though
the stock dropped. There is a limit to this. We can protect from an Enron situation
but your investment would be much less. You could spend tens of thousands of
dollars to play the stock but with hedged trades you will have no more than
$5,000 at risk. Nice return rates too. I think we make over 10% return on that
AAPL trade. That was over 60 days.
Jack Teaster
Sorry guys---I have to interrupt. It's time to give away the book!
Warren Stanley
Yes... And I need another drink.
Jack Teaster
Now it’s time for the free give-away of Ric Edelman’s new book “Ordinary
People Extraordinary Wealth.” We’re putting all of the names into
a hat. We’re pulling a name out of a hat….And the winner is r. jeremy!
Congratulations, r. jeremy!
Warren Stanley
Congrats r.
r. jeremy
Eureeka.
James Anderson
Congrats.
Warren Stanley
I was just corrected on that AAPL trade. We made just over 19% on it. We only
have about 6 minutes left.
James Anderson
Did anyone else notice how market volume really dropped while we were doing
this eConference?
Warren Stanley
Yeah; I just got an IM from a friend of mine on the trading floor asking that
we don't do these during the day any more. It distracts the traders.
Lee
Dumb question: What is a hedged trade?
Warren Stanley
Many examples on our site. .Basically, Hedged means you attempt to reduce your
risk (dollars invested) and try to make money no matter which way the stock
goes...Anyone who wants another example please raise your hand. Okay, I guess
I need to give you another one. One of our favorite stocks – RIMM -- Instead
of buying this stock like the pack did yesterday, only to lose 2%, today I did
a 90/95 bear call spread a week ago. I bet that the stock would not go above
90 before next Friday. I was worried over the weekend but it looks safe now.
The most I could have lost was 5,000. Limited losses, limited investment. I
make money even if I am slightly wrong; sometimes even if I am totally wrong.
Those people that buy or sell stocks short, they have to be 100% correct.
Jack Teaster
www.iotogo.com/520bfree3mo.
Warren Stanley
That would be a good place to go for some great examples. And the first three
months are free. The big problem is when too many people try to get into these
trades. That's why we have to close the portfolios. Any thoughts on too many
people James?
James Anderson
Too many people trying to do these trades and the market can't handle the volume.
Warren Stanley
My pizza is getting cold. What was that link again Jack?
Jack Teaster
www.iotogo.com/520bfree3mo No non-sequiturs this time.
Warren Stanley
I gotta get back to the market. Now they are calling about the low volume. Will
you guys get back to trading? Come by at 8PM for our late show. More laughs.
Bye.
Steve
Trading now.
el
Thx.
1Ellis
TY.
Jack Teaster
If you come back at 8pm, we'll try to answer more of your questions. Warren,
thank you so much for joining us tonight and thank you ALL for attending our
e-conference.
Jack Teaster
I mean today's! A transcript of today's chat will be on the site in a few days.
I'm having a Warren moment! Remember, if you still have lingering questions,
you should come to our eConference tonight from 8pm to 9pm Eastern Time. Now,
I'm going to put it onto unmoderated, so you can talk amongst yourselves.
Jack Teaster
Welcome everyone to tonight's chat. Feel free to ask questions.
They will not appear right away. But will wait till our expert has
a chance to answer them. Our expert tonight is Jack Teaster.
Warren Stanley
Come on Jack....
Jack Teaster
I mean I am Jack Teaster and I want to introduce our guest tonight.
Warren Stanley
One too many Buds with your Chinese food?
Jack Teaster
Warren Stanley. Yes, It is that Chinese. After the market action today. Everyone
feel free to start sending in your questions. So what do you think about the
market Warren?
Warren Stanley
Well, after last night's negative earnings surprises we all knew today was going
to be a down day. But I thought there might be more of a recovery later in the
session. But with tonight's bad news from Apple, expect another down day tomorrow.
AAPL is already down 3% in after hours trading.
In general, we sort of expected this downdraft.
Bob45
Is the market going up or down?
Warren Stanley
Currently it's on the slide; sort of a mini correction. But overall we think
the trend is up for the year. Continued high employment rates should fuel spending
for a while and we should be nearing the end of the fed rate hikes.
Looneydawg
How low will Google go?
Warren Stanley
That is anybody's guess. But I am not too proud to tell you I traded Google
today. But of course, I hedged the trade. I did a 350/360 debit spread for a
nice 6% projected profit in about 40 days. If the stock stays above 360, that
is.
Jack Teaster
I ought to disclose it to Warren I have some bullish GOOG positions in my account.
Steve Jones
As do I.
Warren Stanley
But I think things are safe above 360 for now. Steve has a tougher stomach than
I do. What trade did you do Steve?
Steve Jones
Yes, I'm in a 410-400 bull call debit spread. Put in the trade when GOOG was
at 465 for a 8.80 debit, which would give me a 13.6% return in about 30 days.
James Anderson
A lot of today's fall came in sympathy to the negative news out of Yahoo! last
night, but look for the stock to regain its footing once investors start to
look ahead towards next earnings that will come on 1/31.
Revbo
I'm unsure of what your system is and how it works. Can you give me more information?
Warren Stanley
Still a nice GOOG trade, Steve.
Steve Jones
The InvestorsObserver website is a provider of a few options investing-related
services. Thanks, Warren. We'll see in a month.
Jack Teaster
I should also introduce -belated- Steve Jones and James Anderson. They are other
portfolio managers here.
Steve Jones
First, the site itself has many different functions. There are several daily
stock and news analyses that have hedged options investment suggestions. There
is also a stock research section where you can research stocks and determine
appropriate hedged options trades from them.
Warren Stanley
We can get into that later. Let's get to some of these questions.
arabella
Why was there such a slaughter in AAPL and Ebay?
Steve Jones
Also, there are portfolios where our crack analysts come up with hedged options
trading suggestions.
James Anderson
That's a good question Arabella. When the apple numbers first came out it looked
like the stock had really surprised to the upside so it was a little surprising
to see the stock initially fall 7%. The short answer to the question is shrinking
profit margins.
Cathy
Folks, is this the "E-Conference" -- 60 minutes of "chat"
or am I supposed to be seeing something else? A little technical clarification
would be wonderful!!
Jack Teaster
Good question, Cathy, and this E-conference is all chat.
James Anderson
How could that happen with 90+% revenue growth? Simple; they produced a ton
of iPods but in order to keep up with demand, the expenses also sky rocketed.
Apple is still a nice long term buy.
Steve Jones
Also, Steve Jobs lowered EPS expectations for next quarter, although scuttlebutt
is that he is doing that so that he can make another earnings surprise announcement
like he did at MacWorld.
phoenix
Do you think oil is going to maintain its uptrend much longer?
Warren Stanley
I am cautious on oil at this point. So far it has been a mild winter and these
political issues could get resolved quickly. As far as oil goes, look at the
dividend paying stocks and use covered calls to protect your downside. A nice
5% dividend and 5% upside on the stock with some protection looks like a smart
trade any day.
James Anderson
Technically, the precious crude could be set for a slight pullback. If so, expect
support right around the 62.50 level.
Revbo
Any idea where gold and oil is heading?
Warren Stanley
James always seems to have something to say about gold.
James Anderson
Well, I do like gold When gold recently hit 550, the precious metal hit a crucial
point of resistance. If the metal can develop support above that level then
we could see a nice shot up. Call me crazy, but I would not be surprised to
see gold ticking up towards 700 within the next 12 to 18 months.
skaredy
Explain what happened. Yesterday, I put a limit order in to buy MMUS for $7.75,
but it was filled at $6.63. That was great; however, it was never shown as the
low of the day; called.
Steve Jones
We currently have a profitable NEM calendar call trade in the HedgePro portfolio.
NEM is a gold mining company.
Warren Stanley
This is something you should talk to your broker about.
Rghrider
Can you explain "covered calls"?
Steve Jones
A covered call is when you own shares of a stock and sell a call on the same
stock. So, for example, if you own 100 shares of XYZ, you can sell 1 call contract
of XYZ. If the price of XYZ at expiration is higher than the strike price of
your sold call, you can use the 100 shares to cover the call contract. Hence,
it's a covered call. www.888options.com is a great site to learn the basics
of options trading.
Guest
Noticed not much trading in the Oil Income portfolio though.
James Anderson
We have been looking for a little more pullback in crude before placing another
trade. We thought that we were going to be seeing that this week before concerns
in Iran drove the prices up. This is free portfolio to all our subscribers,
and hopefully we will see a pullback shortly.
sam
To the managers, what is your outlook for tech stocks in general in 2006?
Warren Stanley
After this question we are going to cover some attitude stocks. But first, the
2006 tech stock outlook. The big event this year is Microsoft's intro of Vista.
This new operating system is the next revision of XP. These bad INTC numbers
were no surprise to us. Corporate America has stopped non-essential hardware
purchases, but expect them to start ramping up again the quarter before Vista
is released. We are working on a report that studies this big event and what
it will do to tech stocks. But what about those "attitude" stocks?
First off, stocks with attitude are the ones that seem to go up no matter what
happens in the market. The thing to remember is that these stocks can change
from time to time. Until today we thought GOOG was one of those attitude stocks.
If it doesn't spring back soon we may have to take it off our list. AAPL was
also on that list On a bad day like today, we look for stocks that are going
up when all the others are going down. AMD would fit that description.
James Anderson
AMD is definitely going to be strong moving forward as recent reports show it
gaining on INTC in market share. Here are a couple stocks that have been up
each of the last 10 years, and there are only 17 total, but to point out a couple…
Expeditors (EXPD) Brown and Brown (BRO) Graco to name one more (GGG).
Warren Stanley
How about AMGN, Jim?
James Anderson
AMGN is one that scares me. As far as pharmaceutical plays are concerned, it
is on the safer side, but the recent 6-month chart on that chart looks scary
to me.
Lee
How does an analyst keep his jobs when he downgrades a good stock, it takes
a hit briefly and comes back stronger than ever!
Warren Stanley
That's one reason why we don't down or upgrade stocks. We play them to win no
matter which way they go (to a point).
Buster
Do attitude stocks also keep going despite bad fundamentals?
Warren Stanley
Yes, at times they do. If enough buyers like the stock it will still go up.
We have been fooled by these in the past. Who would have thought GOOG would
be in the 400s?
Revbo
How would you find an attitude stock in a stock screen?
Warren Stanley
You really need to look at a chart. Look for stocks that have weathered bumps
in the market, but play them short term (60 days). Things can change and you
want to have some profit in your pocket if they decide to go south on you.
Eric
I'm afraid some time from now we'd be saying, "Who would have thought GOOG
would be below 200."
James Anderson
Well, I think you are not alone in that fear. One of the underlying "fear
factors" with GOOG is that people are just unsure what is driving it. It
has not had a real history as far as Wall Street is concerned. One good miss
could really rock the stock. There is no way to really tell as of yet how resilient
the stock is. One of the real questions with GOOG will be the success of the
anticipated Google Pack, which they are hoping will challenge MSFT's desktop
dominance.
Alan
AMD responded well to earnings news, closing a little under 38 in after-market
trading. Would you make a prediction on its ability to hit or pass 40?
Warren Stanley
I don't like to make stock predictions. WARNING: I own some AMD. But to play
this stock here's what you might do. This is where you might want to get a pencil
and paper out, instead of just buying the stock. Look at an April spread trade.
(Had to check the numbers.) If you did a 27.50/30 debit spread, you could probably
get it for $2 on a push. If the stock stays above 30, you collect 50 cents a
share for a 25% return (commissions not included). So, this trade has a nice
hedge built in to it. To make the same return rate that stock would have to
go up to 41.71. Think about what makes more sense in this crazy market -- betting
that the stock will go up or betting that a strong stock won't go down too much.
What so you think Jim?
James Anderson
I do love to hedge, although sometimes I don't take my own advice and always
regret it, especially as volatility returns to the market.
Rghrider
You lost me now. Debit spread? Push?
Warren Stanley
Debit Spread = you pay a much smaller amount for a hedged trade. There are many
examples on our site and your broker probably has more details too. Push = you
try to pay less that the ask shown. With these kinds of trades you can usually
do better than what is shown on the quotes. It's like buying a hat at a Mexican
bazaar.
Scott
What is a good exit point for a debit spread like this?
Warren Stanley
Usually if the stock stays above your pain level (the sold position) you just
let them go into expiration and pick up the full profit. Most of these trades
end that way.
Revbo
How can you pull off a push?
Warren Stanley
When you enter the trade (for a debit) offer less than the ask. Think of that
Bazaar.
yeoung
Are you suggesting that we use option spreads as the play for all the attitude
stocks?
Warren Stanley
That is always the smartest way to trade in my opinion, especially in a market
like this. A string of modest profits beats occasional big losses any day.
k9fxr
So you exercise the options, or do you close the spread?
Warren Stanley
Your broker will automatically close it over the weekend after expiration and
you will find the cash in your account on Monday.
ben
How is a spread trade different from options?
Warren Stanley
These are options, but you simultaneously buy and sell options.
Jack just yelled over that he wants to give away a book or something.
Jack Teaster
OK folks we have some prizes to give away....
Warren Stanley
Pick me... Pick me...
Jack Teaster
First... We have a book to give away....No, Warren, you don't qualify. The book
is "The Number- A Completely Different Way to Think About the Rest of Your
Life." It is a book that everyone young and old should read.
Warren Stanley
Full Disclosure: I am reading this book now so it may take a few days before
they send it out to you.
Jack Teaster
It gets you thinking about all those questions a financial advisor probable
won't ask you. Ok, got all the names in our hat.... We are shaking them....
Drumroll please...
Warren Stanley
I saw you take my name out...
Jack Teaster
and the winner is.....
Warren Stanley
Twice
Jack Teaster
Phoenix! Congratulations!
Scott
Congrats!
phoenix
Cool
Jack Teaster
Take some questions guys...
Revbo
Should we buy and hold GLD, or trade in and out based on support/resistance?
James Anderson
That's a good question. It really depends on why you think gold is a buy. For
me personally, I think gold is a good buy right now because of the massive debt
this country is running. I think most people would agree that the twin deficits
are pushing gold higher. Operating under that assumption I am buying gold and
not even thinking about selling, if we are truly about to enter the third phase
of the current bull gold market then the upside is substantial.
Scott
How far below the pain level is a good rule of thumb to get out of the debit
spread? Are you assuming your whole spread is your risk amount and just riding
that as your bet? Beer mugs are under settings.
Warren Stanley
I'm glad you are asking these great questions. 1) If the stock drops to your
sold call level then the trouble lights should be blinking for you. But all
is not lost. If you think it will continue to drop, get out. One of my buddies
did this today on a YHOO debit spread he had. He recovered 90 cents on that
trade. He would have lost big if he had just played the stocks or a more traditional
option play. He lost money but got something back.
More prizes on the way, I hear.
Jack Teaster
And we also have one free year of elite service to InvestorsObserver to give
away. These are services that are valued at over $3,600. And were are shaking
the hat again.... Drum roll please.... And the winner is...
Warren Stanley
I won this last month...
Jack Teaster
Revbo! Congratulations!
Warren Stanley
Lucky guy....
Warren Stanley
Revbo, be sure to ask for the pizza delivery option.
sam
Do you know when Vista is due to be released?
Revbo
Thanks!
Jack Teaster
You're welcome.
Warren Stanley
Back to work.... The last I heard it should be before the end of the year. But,
there have been some recent rumblings that might indicate that could slip a
bit. It seems that they are moving more programmers to the project to try to
make the release.
Revbo
Should we short GOOG?
Warren Stanley
Be careful with that; earnings are coming out at the end of the month. They
may have stolen biz from YHOO. Play it cautious.
phoenix
Gold on options or outright stock?
James Anderson
Being a long term bull on gold, I am currently playing just the stocks, but
the same can be accomplished playing some long-term LEAP plays.
lurker
What exactly is the third phase of the bull gold market?
James Anderson
The third phase of any bull market is when the media starts to get involved
in the move. It is sometimes called the "have to have this" phase
during the second phase, which we are still in. In my opinion, the market insiders
start to pick up the idea. But have you noticed, up until recently you haven't
heard much about gold that is changing and now you hear more and more about
it. Once it becomes a "must have," then the last and final phase will
take us to previous highs... in other words... 800.
Warren Stanley
Last question, I guess. I don't want to miss my train this time.
Eric
MSFT: tho' it does not look bad, has been in a range for years. It's gotta be
traded carefully.
Warren Stanley
As far as Vista goes, MSFT will probably not be the biggest winner. Expect the
stock to tick up a few % points. But look at stocks like DELL and HPQ to be
winners as the hardware orders stack up -- monitors, printers, network equipment.
phoenix
I agree.
Jack Teaster
I would like to thank everyone for coming tonight. I would like to thank our
experts, Warren Stanley and James Anderson.
Don't you have to catch the 9:17 train warren? I am going to open up the site for a general chat now. Feel free to chat amongst yourselves.
Transcript from the December 6, 2005 e-Conference.Jack Teaster
Hello, and welcome to tonight's Investors Observer e-conference.
Tonight are guests are O.L. Wisemann and Anderson. They will be
discussing the Investors Keyhole daily service. Before we begin
this event, I'd like to give you some tips.
This is a text only chat. There is no audio. To ask a question, simply type your question into the chat box below the main chat screen and hit enter. Your question will be held in a queue until our guests are ready to answer. Be patient, there will be many questions so it will take time to get to yours. Stay tuned until the end when we will draw for the book or the free service!
Gentlemen, any opening comments?
OL Wisemann
Welcome everyone and thanks for having me. That pizza sure was good.
James Anderson
I appreciate everyone coming tonight. So, Oliver, what do you think
of the market?
OL Wisemann
That is a good question. I am flat to wildly bullish.
James Anderson
Wildly bullish??
OL Wisemann
Yes, but let's hit that flat part first. I would not be surprised
to see a continuous sideways trend in the market. There are still
some pressures on it like energy prices. But overall, this economy
is doing really well.
James Anderson
You couldn’t tell that by watching the evening news.
OL Wisemann
Good news never makes good headlines. But let's talk about the numbers
that came out today.
For the third quarter we saw productivity advance at a 4.7% annual
rate. That means we are making almost 5% more stuff than last year
without working any harder. We are working smarter.
Let's look at the numbers that came out last week.
James Anderson
GDP?
OL Wisemann
Yes, Third Quarter Gross Domestic Product rose at 4.3% rate.
James Anderson
Yes, those were good numbers; I was a little surprised to see them
that high.
OL Wisemann
And that was when the hurricanes hit the US and devastated New Orleans.
We could go on and talk about job numbers but they are strong, too.
Basically, the good times are here. I pulled up the last 50 years
of GDP numbers the other day. We have had about 17 straight quarters
of positive GDP numbers.
James Anderson
When was the last time that happened?
OL Wisemann
It happened only three times in the past 50 years -- in 1995, 1986
and 1965. I think we all remember how good the economy was back
then. In Reagan days the market just went up and we didn't know
why, and it did really well in the late 90's with Clinton.
BUBI
How long may they last?
OL Wisemann
Those periods of consecutive positive GDP numbers ran for 30 quarters
apiece. So we could have a couple more really good years ahead of
us. And I think it is that positive economic growth that is powering
the market now. We have more people working, and working more productively
making more stuff.
WYZERD
Too bad the trade deficit is so uneven.
OL Wisemann
Yes; it isn't all perfect, but all those people working have money
to spend.
James Anderson
We should point out that even if this is a major bull market like
the 80's or late 90's, we can still have pullbacks and corrections
along the way.... what do you think has caused the recent strong
numbers we have been seeing?
OL Wisemann
Good point. Reduced taxes from Bush's tax cuts.
Wow that was a really long opening comment. Ok, well lets take some questions.
Joe
Do you think interest rates will keep going up in the New Year?
OL Wisemann
I think they will keep going up for a while.
win
Can the difference in price of SPX or OEX options, i.e. calls much
higher than puts or visa versa at essentially the same strike price,
be a predictor of market direction?
OL Wisemann
Sometimes you can, but be careful about reading too much into it.
There are a lot of different ways to hedge these. Sometimes it can
be deceiving. The overall market indicators are a pretty good tool
though. We have seen a lot of volatility selling going on in the
indexes with spreads pushing down the VIX and VXN.
angeljoy
I think the war in Iraq and all the tornados have helped the American
economy.
James Anderson
It is true that wars are going to provide a near term boost to the
economy as will the hurricanes as companies rush to produce more
and correct damages. But in the long term picture, neither even
is good for our economy. As someone noted earlier, we have historically
high trade and budget deficits, both of which are growing at an
alarming rate. What we have seen this year is only adding to those
economic pressures.
Dave L
What do you think of the possibility that we are in the first corrective
wave up of a major bear market?
OL Wisemann
It seems the economy is too strong for that. Like I was saying,
the GDP and jobs numbers -- we are doing really good right now.
There will be short term bearishness along the way; there always
is, but long-term markets like to go up and earnings are improving,
powering the market.
ChrisG
What impact do you think the new credit card minimum payments (going
up to 2% of the balance) is going to have on the economy?
OL Wisemann
I don't think it is going to do much to the banks. I think it will
be good for the card holders. Having people paying 21% interest
on a balance for 30 years isn't good for their personal finances.
Joe
What stock screener would you recommend?
James Anderson
Check out the one over at MSN Joe: http://moneycentral.msn.com/investor/finder/customstocks.asp.
Let's take a look at one of tonight's questions.
OL Wisemann
What sectors could have the biggest stock market losers in 2006?
The answer is: housing.
WYZERD
What do you think is going to happen between higher oil and the
housing bubble?
OL Wisemann
Well, the housing bubble is going to ease up as the interest rates
make houses more expensive. Oil will likely stay high through the
winter, with tight supplies.
James Anderson
By ease up, you mean burst.
OL Wisemann
But then should begin to ease a little. Well, yes; in a way. I don't
know that it is going to be catastrophic, unless you were one of
those that took out way too much creative financing on interest-only
adjustable rate loans. Most people stay in houses for a few years
but there are areas of the country like California where only about
20% of the people can "afford" a house.
James Anderson
So, housing...and what else? I look for continued volatility in
the oil industry.
money
Do you have any thoughts on the DC/VA housing market?
OL Wisemann
DC is one that might be a little hot, and interest sensitive stocks
can also be a secot that will be the biggest losers. Interest rates
are going up and we have been saying they were going to stop raising
them in 2-3 months for 9 months. They may go up a little more than
people expect right now, especially if the economy is as strong
as I suspect it is.
WYZERD
I think the retail sector is going to take a big hit.
OL Wisemann
It might, but the Christmas numbers have looked good so far. A strong
economy will help retail.
bucamon
AU is ripened for profits, but what about forecasts?
James Anderson
Disclaimer: I own some AU. I continue to like this play. The technicals
on the company are holding up very well, and future estimates are
increasing.
Dave
Tell me which stock is going to go through the roof.
OL Wisemann
Good question, Dave. My guess is Google. It seems unstoppable. It
is a great productivity enhancer.
Big Block
What's an AU?
James Anderson
AU is a gold company. You can see more on the stock here: http://finance.yahoo.com/q?s=au.
SuLande
Do you think Google in 5 years will still be able to command that
price?
James Anderson
Google at some point will have to cool off, but the stock has a
very bright future. I don't pretend to know too much about computer
programming, or any of that, but I just today overheard our IT guy
comment on the company having the best programmers in the world.
That has to mean something.
OL Wisemann
Let's get to a few of those questions we promised answers to.
1. What are the three steps losing Investors skip over when picking Investments?
A. Money management; B. no defined exits; and C. diversification. It is important to manage the amount and where you put your money. When you put on a trade, you need to know when you are going to get you out. Diversification is very important. If one stock or sector goes down you don't want other stock in your portfolio to go down.
sailone
Have you purchased bonds from Iceland?
James Anderson
Iceland has some very strong government bond offerings. The main
problem is that they are extremely thinly traded, and since they
are somewhat difficult to find, commissions sometimes can eat up
your profits. But they are definitely worth taking a look at.
sailone
Do you believe in stop loss on all stocks or just some?
James Anderson
I believe in stop losses on all my positions. The % of the stop
will vary, however, depending on the underlying security.
money
What do you think about learning companies (education companies)?
Clas
Long term, I like them -- CECO, APOL and such -- but they are still
a few issues to work out with some of them like the CECO.
2. How are hedged investments built so you make money even when the stock goes down? That was one we promised to answer. That is part of the reason I like credit spreads. I can design a trade and not be completely right on the market direction and still make money. For example, the Investors Keyhole trades we put out had about a 16% average hedge in them. So the stock could go down and we still made money. You can see the results at premium_sub_serv.asp.
angeljoy
I have a lot of trust units in Canada paying 11% and more. Do you
think they are safe to hold for the winter?
James Anderson
Disclaimer: I own PTF. You are correct, there are some really nice
Canadian trusts that you could feel safe holding through the winter.
Best thing about these companies is that they actually own the oil
which is a diminishing asset. Two companies you may want to take
a closer look at are PGH and PTF. I own some PTF and there is no
better feeling that getting that dividend EVERY MONTH. This is also
a great stock to check out if you are into covered calls. It lends
itself pretty nicely to that particular strategy.
OL Wisemann
And actually also here is the direct link for all the IK results:
http://www.iotogo.com/ik_summary.asp.
BUBI
What is a credit spread?
OL Wisemann
A credit spread is an option play. We sell one option and buy another
at the same time. We keep the premium difference and hopefully they
both expire worthless. It is my favorite strategy; that is why we
do it all the time in the IK daily service.
sailone
I own PGH for two years with SJT.
James Anderson
Disclaimer: I have owned PGH in the last 2 months. You are correct
on SJT. I have never personally played it, but just ran a quick
check and it is currently showing a 9% dividend yield. Not too bad.
mr smith
You mentioned stops on stocks; how do you feel about trailing stops
and what % would you use on an option play?
James Anderson
It gets a little tricky using options and trailing stops. First,
let's look at the easy question. Stops on stocks -- a good rule
of thumb on stock plays is to set up an 8% stop loss on the original
position. This can be adjusted higher as the stock moves in your
direction. Now to options -- it's a little more difficult because
with the nature of the bid/ask spread you could get into a position
and automatically show yourself down 20% or so, so it is a little
more tricky. What I like to do is concentrate on the underlying
security and use a gauge on that to determine when you should look
to get out of a position. It's a little easier if you are spread
trading.
edwatt
I was hoping for examples of option plays.
OL Wisemann
We have a lot of those in my column on the website.
Bob
I suppose you should look at support and resistance and place a
stop about 3-4% below support. Check out where you are in entering
the position and make sure you are in the lower portion between
support and resistance to provide more opportunity for profit; less
risk for loss. Bob
OL Wisemann
About right, Bob.
SuLande
Will the airline industry ever rebound; i.e., JBLU?
OL Wisemann
Eventually; might need to see a few of them go dissolved. Supply
and demand. Too much supply. But of the airlines, I like JBLU. It
actually makes money.
Dave
What do you look for in choosing a stock?
James Anderson
There are a couple things I tend to pay close attention to. First,
I always check the company's chart. I tend to be more technical
oriented than most, but even the strictest fundamental trader can
value the importance of a chart. Then I like to check the S&P
ranking on the stock. As a side note, if anyone knows a free place
to find star rankings, let us know. Had someone asking the other
day and I couldn't find anything. But I like to look at the chart,
S&P ranking, and then go over to earnings.com and check out
historical earnings. Have they been matching? Beating? And what
impact has that had on the stock in the past? Check out company's
free cash flow from operations financial ratios, debt to equity,
and P/E.
risky
If the stock is rising, should you still have a planned upward exit?
OL Wisemann
Yes, or use a trailing stop. That is a stop loss you keep raising
every time it goes up.
What 15-second step before buying a stock could save you thousands? It is always important to know why you are buying the stock and what your exit goals are. It is very easy to invest in a stock and forget about it or not take your profits. You need to know what your exit strategy is. That is one of the nice things about options; they expire, so we are forced to deal with the position and reevaluate it.
Guest
What is SJT?
James Anderson
We have had a couple people send in questions on this one. You can
get a better look at the company here: http://finance.yahoo.com/q?s=sjt.
OL Wisemann
You know James, when you went off on what do you look for in picking
a stock, you blew right through the answers to my next question.
"Five Secrets To Picking Investments That Can Win In Any Market". The only thing I want to add is look for leaders in the industry. Have a buddy review them with you. And one more thing: document your trades in a journal to help learn from your success and losses. I think that was a few more than five, but you got a couple of bonus ones. Don't get too emotional with your trades. And always see what you can learn.
WYZERD
How do you forget about an investment?
James Anderson
Forgetting a trade is simple to do. We spend a lot of time looking
for trades and then once we make them, it's natural to shift your
mind to thinking about your next trade. It's easy to forget to keep
up with all your current positions. I try to make sure once a week
I review all or most stocks to make sure every one is still behaving
as expected. Another way I find to stay on top of several positions
is when I look up a future date such as earnings or upcoming press
releases, I set up reminders in my Outlook program to remind me.
Almost all mail programs will let you do that.
OL Wisemann
We got so many good questions. This is great, but let's give out
that book.
Jack Teaster
Thank you. I put all the names in a hat and I'm about to draw one
out for the free book. And the winner is....
OL Wisemann
Drum roll, please.
Jack Teaster
Gordy!
SuLande
One good tip to stay on top of positions is AOL -- their finance
section let's you set up a portfolio and have stock alerts.
James Anderson
Thanks for that tip, SuLande.
OL Wisemann
3. How can investors formulate realistic portfolio goals and achieve
them? One good thing to do is to write down your specific goals.
Look at your portfolio and know what you are trying to accomplish
at this point in your life. If you're young, you can afford a lot
of risk. But if you are older, you may want to be conservative with
the bulk of the portfolio and just play around with a small part
of it.
SuLande
How often do you do these e-conferences?
James Anderson
Typically once a month, depending.
Vas
With credit spreads, since you're risking a lot more, isn't there
a danger that you could lose a lot if the market turns on you quickly,
especially during expiration week?
James Anderson
Not exactly. You aren't really risking more than you would in a
debit spread and, like the debit spread, you are always going to
have a max capital at risk. In my experience, credit spread trades
that go bad -- I can typically get out of the trade with less of
a hit
gordy
Is the P/E ratio the best way to tell if a stock is over or undervalued?
OL Wisemann
It is useful, but earnings -- I like earnings growth as a little
more important indicator. Some stocks like Google or MSFT in the
90's will always have a high P/E ratio.
bucamon
Sounds a lot like life! Planning!!!!!!
OL Wisemann
Yes, planning is important in both.
You had another prize there to give away tonight, right?
Jack Teaster
Yes, I do have another prize! And that is…
OL Wisemann
Drum roll, please.
Jack Teaster
A free one year Equity Member Subscription! And that prize goes
to TubaSam!
frank
Hi, how do you think the oil and natural gas stocks? Thanks
OL Wisemann
We covered that earlier. Cover them with a covered call.
Liz
Thanks to all, and congratulations to our winners.
Jack Teaster
Do we have any more questions?
refrigdoc
What do you look for in the chart?
deborah
Can you resend the stock screener URL again?
James Anderson
Yes, it's at MSN. Make sure you go to install the DELUXE SCREENER.....
http://moneycentral.msn.com/investor/research/welcome.asp.
OL Wisemann
I like to see a strong uptrend without too much volatility in a
chart, but it always depends on the play. For dividend play stocks,
flat is sometimes fine, especially if I cover it with a call.
Guest
What about paper trading?
OL Wisemann
It is a great thing to do if you are not comfortable trading right
off. Very educational, especially if you are trying new strategies.
Guest
Invite me again; I enjoyed it.
OL Wisemann
We will.
Val
Options seem to be becoming more popular - agree?
OL Wisemann
Definitely. That is because they are such a great tool and allow
you to control your risk level. The volumes of oll options traded
on the exchanges have been hitting all time highs recently.
frank
Is there any other charts besides MSN charts we can use for free?
OL Wisemann
Yahoo! has some nice ones.
Vas
Do you have any tips or pubs on finding good credit spread candidates?
OL Wisemann
Yes; that is what our Investors Keyhole service does. It send out
4 ideas every day and has a very nice success rate. The results
are here: http://www.iotogo.com/ik_summary.asp.
James Anderson
We had a lot of people asking about gold, and we couldn't really
get onto the subject as we would like, but here are our basic thoughts:
Gold right now is being used as a hedge against the inverted yield curve. For the first few months of the year, the Fed is going to keep raising interest rates. Bernanke has to prove that he has the ability to raise rates. As foreign hot money keeps coming in, it will keep the bond prices in check. Money will move to gold. It's already hit a 26-year high. I expect it to go higher for the first quarter to half of '06 and then cool off.
Vas
Your opinion of ThinkorSwim as a broker and trading platform?
OL Wisemann
They are a good broker. A friend of mine swears by it.
Brad
Stockcharts.com has been good for me.
James Anderson
Thanks, Brad; that is a good service.
Brad
ThinkorSwim is good but geared mostly to options.
OL Wisemann
Yes, have some very nice interfaces, too.
gordy
Bigcharts.com is good.
OL Wisemann
Yes, we like them.
Harry
Do you teach options?
James Anderson
Harry, if you ever have any questions on options you should call
these guys; they will walk you through anything for free: 888-OPTIONS.
Hope that helps.
Vas
What makes you all unique compared to the hundreds of folks doing
similar things out there?
refrigdoc
Where can I learn more on trading options?
James Anderson
888-options.
OL Wisemann
We like to let our results speak for us.
Chuck
Thanks for the info tonight; very informative.
OL Wisemann
I want to thank everyone for coming out tonight. You had some very
good questions.
Jack Teaster
Unfortunately we have run out of time for this e-conference. Thank
you all for coming! A transcript of tonight's event will be on the
site in a few days.
Transcript from the September 20, 2005 e-Conference.
Jack TeasterThank you for joining our e-conference this evening. Our guests are Hannah Slater and Reid Stratton. Hannah Slater is a Senior Portfolio Manager for several of the Investors Observer services. She also writes occasional articles but does not write greeting cards. Sometimes they are so sweet they make her teeth ache.
Reid Stratton is a consultant that works for Investors Observer on special projects. He helped with the strategy and concept for the 5->20 Portfolio. He has no sense of humor. That's why he's a consultant.
Hannah, any opening comments?
Hannah Slater
Yeah; let's get to these questions. I see one here right off that
I'm going to dump on Reid.
skip
What is your opinion on overstock.com? Will it reach the high of
$77.00 it reached in December last year?
Hannah Slater
What do you think Reid?
Jack Teaster
That's the way to delegate Hannah :)
Reid Stratton
The stock does not look to have too much upside potential.
Hannah Slater
You should see him juggling his pizza.
Reid Stratton
Very volatile with little upside - two things I try to avoid.
Hannah Slater
The technicals look bad for this OSTK. There are a lot of other
better names to play in that sector.
If you are holding it, consider a tax loss sale. If you aren't holding
it, look for something better.
skip
Has Walgreen's peaked?
Hannah Slater
WAG has weakened lately. But this is a solid company. There is some
competition coming into the sector.
Reid Stratton
The company will report earnings on the 26th.
Hannah Slater
And that online drug purchase thing and insurance company pressure
is probably not helping.
Reid Stratton
Last quarter they missed their estimate. Look for some volatility
headed into this earnings release.
Hannah Slater
WAG is probably worth holding onto but no new purchases.
Reid Stratton
If they miss consecutive quarters, that could signal some trouble
ahead. I'd watch out for that.
jtofabc
Recently purchased insurance stock recommended by Motley Fools hidden
gems, 1000 MRH and 1000 UFCS. In light of Katrina, was that a mistake
or should I add on now?
Hannah Slater
No one could have predicted Katrina. I was holding an ALL position
and dumped it. I don't think all the bad news is out of that sector.
Any thought's Reid? On insurance that is...
Reid Stratton
I have some ALL as well. I agree that the worst of the news is probably
still resting under the surface. I'm holding, but definitely not
adding at this time. Give things a time to work themselves out.
Hannah Slater
You're more brave than me, Reid.
skip
Will Oracle begin its climb with its second acquisition in the past
12 months or do you think it will still remain someone stagnant?
Hannah Slater
You are probably someone who has not faced the fact that it's not
1997. We don't expect much growth from this sector at all. ORCL
is a leader, but when there is no growth in the stock, expect people
to unload it. Checking to see if ORCL is paying a dividend. Nope.
chrissg
Is it too late to buy oil stocks, since they have run up so much
in price?
Hannah Slater
There are people around here who have strong opinions on this sector.
Reid Stratton
I love the sector personally.
Hannah Slater
But here's a nice secret that should make your visit tonight worth
it. Love = making money. Look at the oil stocks that are paying
nice dividends, and when you buy them, sell a covered call on them
to give yourself some insurance. Try to make all your money off
the dividend. FULL DISCOSURE: I own this one. Take a look at PTF.
I know Reid likes this one.
Reid Stratton
I also own some PTF, personally.
Hannah Slater
8.6% annual div rate, paid out monthly.
Reid Stratton
And yes, I have had success with this stock. The dividend alone
is worth getting involved with the stock.
Hannah Slater
With the right covered call you can get that up closer to a 10%
annual rate. If you have pencil and paper, now is the time to jot
that one down. But the stock has to drop back a bit before it's
ready to buy again. What do you think Reid?
Reid Stratton
I love the company; its solid with solid dividends.
sorceror
Oil is good, but what about some of the alternate energy stocks?
Hannah Slater
Those alternate energy stocks are speculation now.
Reid Stratton
It's had a nice upward move, and now it's testing the 19 level,
so still relatively inexpensive. If it breaks 19, it's off to the
races.
Hannah Slater
Sorry Reid. Good point on PTF. The problem with oil is that the
high prices could cause a recession, then demand and prices will
drop.
mater
Make sure you buy PTF on a pullback.
Hannah Slater
Very true.
Reid Stratton
You should get your chance while it's testing support.
Hannah Slater
But there have not been many pull backs lately.
Reid Stratton
The low 18s would pull me back in.
Hannah Slater
Let me know when you're done on the oil sector.
Reid Stratton
Finished.
mater
I bought on the pullback in mid August.
Hannah Slater
Very smart.
Wayne
Are we seeing the beginning of a decline in QQQQ?
Hannah Slater
Investors have to get the tech stocks off their minds for now. There
are many tech stocks in the QQQQ. There is another nice secret on
the way. Like most all sectors, the techs (DELL, MSFT, HPQ, ORCL,
etc.) run in cycles. Those cycles are probably tied to the release
of a major new op system by MSFT. People will hold off on tech purchases
until that new op system comes out. So, watch for some of these
techs to bottom just before that new release in about a year.
Wayne
I'm thinking of buying Put Option on QQQQ?
Hannah Slater
Be sure to give yourself enough time -- 4 to 6 months would be good.
And here's another great idea. At the same time you buy that put,
sell another one to bring your cost down. Example: ..waiting for
the numbers to pop up on my screen. There's a lot of data on this
one.
Smiley
Bear Call Spread?
Hannah Slater
I was actually looking for a bear-Put spread. Probably the best
thing to do would be to buy a put that is about 5% above the price
now and sell the next strike down. It limits the amount you need
to invest and you should have a better chance of making some money.
Just a quick one would be a 40/35.
Zia
BP40 Jan and SP38 Oct or Nov.
Hannah Slater
Exactly, but do the math to be sure it makes sense. And don't be
afraid to bail out early and take a profit.
Smiley
Right.
kathy
Are we in for a crash?
Hannah Slater
That's anybody's guess. What do you think, Reid?
Reid Stratton
I think we could definitely be looking at some trouble. I don't
think the total impact of high oil has been completely felt. I think
oil will continue to rise higher, causing additional downward pressure.
And if that is the case and the hurricane impact is larger than
anticipated, it could be ugly.
Hannah Slater
The key is how long we can get those other countries to keep buying
our bonds.
Hannah Slater
Very ugly. We are being very cautious.
Reid Stratton
It's up in the air right now.
Hannah Slater
Nice lead in to talk about the 5->20 Portfolio for a few minutes.
Reid Stratton
Foreign investors are definitely keeping us propped as you mentioned,
but for how long is the question.
Hannah Slater
Reid, can we talk about the 5->20? Ok....
Reid Stratton
Sure.
Hannah Slater
The idea is to be very conservative with most of your portfolio.
Reid Stratton
Exactly.
Hannah Slater
CDs, Money markets, AAA Bonds -- very cautious. But dedicate a small
portion to a strategy that can (over time) give nice results. We
ran this through our models looking for the right amounts and a
$5,000 starting amount seemed right -- not a huge part of most portfolios
and in our models it seems possible to build this to $20,000. Not
over night; it could take up to 24 months.
Reid Stratton
Still not too bad to take 5 and turn it into 20.
Hannah Slater
We would use a series of hedged trades and progressively build the
value. Hedged = relatively safe and higher returns. The summary
spreadsheet is on our page.
mater
Can you talk about the 5 -> 20 Portfolio? How many times have
you started and completed a cycle, and did it get to $20,000 each
time?
Hannah Slater
Great question. We have not literally set up an account with $5,000
in it and pushed it up to $20,000. What we have done is identified
the kind of trades we would use. We have been running test trades
for some time now. Those are also shown on our page. The key is
that it is a steady growth. Occasional loses will not kill us
rw
I did not see a portfolio or any proposed trades yet?
Hannah Slater
I will get you the link for a free preview. Reid, can you take over
for a sec while I go get that link?
Reid Stratton
Sure.
Hannah Slater
And another slice of pizza.
Reid Stratton
The 5->20 Portfolio basically is going to using hedged spread
trades looking to capitalize on conservative investments bringing
in about 11% a trade. Unlike most portfolios here, the 5->20
is unique in that there will only be one open portfolio at any time
using trades bringing in a little over 10% each 2 months. It is
possible to take that initial 5,000 and bring it to 20,000 in about
24 months. I like to think of it as compounded interest, using the
same strategy over and over, but each time putting the money you
just made to work for you, constantly raising your returns.
Hannah Slater
www.investorsobserver.com/Free-520EC. This link will get you in.
Click on the 5->20 portfolio then click on the details link.
Jack
How do we go about investing in this portfolio?
Hannah Slater
The trades will start coming out in mid October. You will need to
subscribe before then. The actual trades are sent to you by email
and posted on our site Or you can auto trade with your broker. FULL
DISCLOSURE: I am investing in this portfolio. FULL DISCLOSURE #2:
This is risky stuff - No guarantees on the returns.
rw
I did not see any portfolio holdings or even proposed trades on
the site yet?
Hannah Slater
Yes; we have not started trading it yet. We are giving people time
to get things set up. It's a limited loss situation.
sorceror
What type of hedged trades do you do? Debit spreads? Credit spreads?
Hannah Slater
For this portfolio we will be using debit spreads – a small
number of contracts over several sectors at first.
mater
Will you limit the amount of people that get in? In-the-money options
usually don't have large volumes, which will make it difficult to
get the correct spreads.
Hannah Slater
Yes; we will be limiting the number of people, and once the portfolio
starts trading, no new people will be allowed in. Much easier to
manage the positions that way. This will also give us the power
of large block trades.
Shaun
Cost for this management?
Hannah Slater
You will pay commissions, of course. Our subscription fee is 49.95
a month, but I think there are rebates for the first few months.
barbara
Is this a good portfolio for a "beginner"?
Hannah Slater
Excellent; but be sure to talk to your broker to be sure these type
of trades are right for your personal situation. All the trades
are listed on the site with analyst comments. It is like a course
in trading. I think it's book time Jack.
Jack Teaster
Yes, it is. Let me get all the names in a hat.
Hannah Slater
Nice book too.
Jack Teaster
Stirring them around. Yes, let me tell you about the book.
Hannah Slater
We will be answering more questions after the drawing.
Jack Teaster
WHAT TO DO WITH YOUR MONEY NOW. With their trademark irreverence
and plain English approach, those original Motley Fools the Davis
and Tom Gardner answer this critical question and recommend ten
important yet quick steps readers can take to survive economic uncertainty,
secure their personal finances, and fortify their portfolios. And
the winner is… Smiley! Congratulations Smiley!
Hannah Slater
Congrats. Back to the questions.
Shaun
Any contracts or bindings for membership time frame?
Hannah Slater
NO. You can get out any time and we will close the portfolio when
it hits 20K or if we see the pot dwindle too low.
mater
In the examples, they are showing all call spreads. I am assuming
that in a down trending market you will be doing put spreads also.
Hannah Slater
Yes; there will be put and call spreads depending on the stock and
the market. We can play this in any market and because they are
hedged, we don't have to be 100% right to make our money.
Shaun
I like this; I think I will be signing up. I have never traded options,
but am an active equity trader. Thanks for the introductions; I
will be checking often for sign up details.
Hannah Slater
Thanks Shaun. You will need to watch the trade tables and comments
-- a good way to learn.
rw
Industry Question: The housing and REIT sectors look (at least to
me) to have peaked in late July/early August. Should we be shorting
these stocks or buying Leap puts now? They could rebound some, but
I think a long term downtrend may be about to lock into place due
to huge overbuilding and extreme overvaluations in many areas.
Hannah Slater
Sorry about getting off subject. We are looking at real estate as
a long tern bearish sector.
abby
Do we do all the trades recommended - just pay $49/mo for the advice?
Hannah Slater
Back to the 5->20. You will pay commissions to your broker, taxes
to Washington, and subscription fees to us. But if you look at the
model you will see that even after the commissions and our fees,
you could hit the 20K mark. Taxes are a different question.
Smiley
How do you set up the Autotrade system?
Hannah Slater
Talk to your broker. There is a list of brokers on our site. If
your broker isn't there, let us know.
mater
Nice; we feed everyone in the food chain, lol.
Hannah Slater
But in the end, if it works, you win.
JoeG
Is my math right? At $49 a month, that is nearly $600 per year or
$1200 for the 24 month term on $10,000 investment. That's over 12%.
Hannah Slater
Your math is correct. But as the portfolio grows, that % goes down.
Plus you should use the rebates for the free months in the beginning.
rw
Are all of the debit put or call spreads done ITM?
Hannah Slater
Yes; we try for at least 10% = Hedged.
LAZIALE
Is the fee for every month for the duration of the portfolio?
Hannah Slater
That's $49.95 a month for the duration of the portfolio.
Shaun
Before you end, could you suggest some good tutorial for options
trading?
Hannah Slater
Go to www.888options.com. That's the Options Industry Council.
manhattan
AAPL? THIS IS MY FOURTH ATTEMPT!
Hannah Slater
Hold on; Reid is an AAPL expert.
Reid Stratton
I love apple.
Hannah Slater
Let me find the question.
manhattan
What can you say about AAPL?
Reid Stratton
It's solid.
Guest
Please give me your opinion on Apple Computer! (aapl)
Reid Stratton
Has had a great run up lately and still trading right at its 52
week high. It has additional room.
Hannah Slater
Do you think it has a lot of room? Reid?
Reid Stratton
I think it has room up to the high 50s.
Hannah Slater
It closed today at 53.19.
Reid Stratton
It has a more room to go.
mater
Probably a great time to write a credit call spread on it!
Hannah Slater
You are braver than me on this one, Reid. I see the Asian manufacturers
ready to come in with their own iPods.
Reid Stratton
Well, maybe because I'm younger. Apple is constantly adapting and
moving forward.
Hannah Slater
Remember what happened to TV sets and radios. I'm not a buy at these
levels; just my opinion.
Reid Stratton
The key is can Apple continue to innovate?
Hannah Slater
But I'm not a seller either. If we don't wrap this up in about four
minutes, I'm going to miss my train.
mater
I'm writing an Oct 55-60 call spread tomorrow on it for $1.20 credit.
Hannah Slater
Bold.
Reid Stratton
Very.
Hannah Slater
Get out if your credit drops below 50 cents.
iv
TOLL Brothers - what do you think?
Hannah Slater
Long terms (24 month) bearish.
manhattan
Thank you.
Hannah Slater
Jack, I think it's time for the thank yous.
Jack Teaster
Ok.
Hannah Slater
I'm out of here. Your pizza is on my desk.
Jack Teaster
Thank you, Hannah and Reid, for your help this evening.
Hannah Slater
I rescued it from the piranhas.
Jack Teaster
Thank you all for joining us tonight!
Reid Stratton
Thanks for having me. Anytime!
Jack Teaster
A transcript of tonight's event will be on the site in a day or
two.
Hannah Slater
Bye.
Jack Teaster
Thanks, Hannah, for saving me some pizza; I'm starved.
mater
Thanks Hannah and Jack. Watch my AAPL spread make money.
rw
Thanks leaders.
mater
Good advice, Hannah. If I make that in a few days, I will.
iv
Thanks.
Jack Teaster
Night everyone! This room is now unmoderated; feel free to chat
amongst yourselves!
skip
Thanks for an interesting evening.
mater
is there an email address for you Jack or Hannah?
Jack Teaster
support@investorsorbserver.com. Night everyone!
Transcript from the May 24, 2005 e-Conference.
Jack Teaster
Hello, and welcome to tonight's e-conference. Our guests tonight are James Anderson,
Portfolio Manager at InvestorsObserver, and Peter Stone, Manager of the High
Return, Quick Exit Portfolio. Tonight they will be answering questions about
the market, credit spreads, and the High Return, Quick Exit Portfolio. James,
Peter -- any opening comments?
James Anderson
Good evening.
Peter Stone
Hello! Thanks, Jack.
Jack Teaster
Sure.
James Anderson
Want to thank everyone for coming tonight. So Peter, what do you think of the
market?
Peter Stone
Well, the market may still be a little oversold right now. In terms of movement,
there seems to be more potential to move up than to move down. This summer,
though, we should see a flat to slightly up market.
James Anderson
What about oil prices?
Peter Stone
It is nice to see them moderate. And pay less for gas at the pump. A little
more moderation before the summer driving season starts to push them back up
would be nice.
James Anderson
What about interest rates?
Peter Stone
The rate increases should end soon, with one, maybe two more. The stock market
may rally some when the rate increases end. From the fed minutes today, they
don't want to lock up their options but should stop raising rates soon. Maybe
3.0-3.5%
James Anderson
We’re going to cover the basics of the High Return Quick Exit Portfolio
with Mr. Stone first, and then get on to the questions. Feel free to send in
your questions any time. The High Return Quick Exit Portfolio -- how does it
work?
Peter Stone
The High Return Quick Exit portfolio is a stock portfolio that shoots for a
10-15% return every 60 days.
James Anderson
How does it do that?
Peter Stone
By using stock options.
James Anderson
Refresh us - what is an option?
Peter Stone
A call option gives the buyer the right (or option) to buy a stock at a set
price.
James Anderson
Isn’t that risky?
Peter Stone
Well, stock options do have a reputation for being risky and rightly so. When
many people start trading options, they buy them and lose money. Buying options
can be a risky business because many expire worthless. You need to be able to
pick which stocks are going to go up, if you buy the options. Instead we like
to sell options.
James Anderson
Isn’t that expensive and risky too?
Peter Stone
It can be very expensive to sell naked puts or covered calls. You have to own
all the stock or keep the margin in your account. The way we like to do it is
to sell one option and then buy another and by buying another option, we can
control exactly what is at risk. We can know the risk before we get into the
trades.
Mike
On a scale of (low) 1 to 10 (high), what level of risk would you say the High
Return Quick Exit Portfolio is?
Peter Stone
Six.
James Anderson
So, it is sort of like selling a covered call, but using an option instead of
stock to cover it?
Peter Stone
Yes, by selling an expensive call and covering it with a cheaper one. It limits
our risk to the difference in our strike prices. Usually $5.
James Anderson
How did the last portfolio do?
Peter Stone
Last Friday, the April portfolio closed with a $1,650 or 9.1% gain. We exited
one position early, because it was really close at expiration.
sid
How can you sell options without buying them first?
Peter Stone
Buy using spread; you buy one then sell another at the same time.
wall1313
If you had to choose between GOOG, SHLD or MO, which one would you pick?
James Anderson
It doesn't seem like anything can slow down GOOG. After the recent news that
they may be joining the S&P, the stock could still have a lot of upside
potential.
ryno
Why do you think the market is oversold?
Peter Stone
Because the economy is still strong.
Brad
How much capital is required?
Peter Stone
$20,000. Typically, we do 4 trades at $5,000 apiece each month. And trades are
open two months, in a typical month.
Mr.Market
What about those housing stocks; when will they finally drop?
Peter Stone
Well, they seem to be holding on for now; rates need to get higher to really
put the pressure on.
bert
As a long term investor, I'd like to know when it's the proper time to dump
a stock? I've had some that have gone down 15% then up 50% and then there's
those that have gone down and keep going.
James Anderson
When we enter trades, we always determine our stop losses up front. For stocks,
I like somewhere around 7 or 8% down as a stop. Once you watch a holding cross
that line you are more likely to start following emotions than your investment
plan.
bert
As a long term investor, I've been told (read) when is the proper time to sell
losing stocks. What are your feelings on this?
Peter Stone
Well, in our positions we like to put in a quick exit to limit our loss.
James Anderson
Can you give an example of a trade?
Peter Stone
Sure! In the May High Return Quick Exit portfolio we did a trade on Whirlpool.
WHR was at 64.53 and we sold a June 60 put option for $1.25 and then bought
a June 55 put option for $0.55. That left us with a 70 cents credit. We typically
recommend doing 10 contracts and each contract is 100 shares so we net out $700
and risked $5,000.
James Anderson
What return is that?
Peter Stone
16.3%. We got 700 dollars up front and we risked 5,000. Because we get our money
up front, we actually have less $4300 (5,000-$700) at risk.
James Anderson
Does the stock have to move up to make money?
Peter Stone
No. If the stock stays flat, we will make money as well. Because we are a net
seller, the time value decays a little bit every day until expiration. In fact,
the stock can even drop some and still make money. It just needs to be above
our sold strike at expirations and stay above our quick exit.
James Anderson
Interesting. Is there a technical name for this kind of trade?
Peter Stone
Yes, it is technically called a bull-put credit spread. We typically just refer
to them as credit spreads.
James Anderson
And how long does the trade typically last? And how is it doing now?
Peter Stone
Two months. The trade isn’t done yet, but it is looking good. HR has moved
up to the upper 60’s, but we still have a month to go.
James Anderson
Is there a link to the web page?
Peter Stone
Yes we do have a free preview tonight: Free-HRQEJP.
Go to the link put in your email address and it will send you a sign on. Click
the link in the email; it will take you back to the same screen and put in your
email a second time.
James Anderson
So, as long as the stock either stays flat or goes up you make 16% in two months?
Peter Stone
Yes.
James Anderson
What if the stock falls?
Peter Stone
That moves us from the High Return part to the Quick Exit part of the portfolio.
When the stocks move against us, we like to get out before we suffer a total
loss on our position. We set a “Quick Exit” point which we use as
a sort of a stop loss to get us out. For the above example it was $2.00. We
have a computer always monitoring the trades, but our analyst team makes the
final decision.
Becky
Are you able to get out in a situation where it starts looking bad?
James Anderson
Yes, the early exit limits allow us to get out quick when things start to turn
against us.
Ken D
Do you send e-mails to alert for a trade?
James Anderson
Yes, every trade that is placed is automatically e-mailed to subscribers. Additionally,
any adjustments once the trade is out are also sent.
Rshanbos
Why go out 2 months instead of 1 month on this type of trade? Less risk going
one month.
James Anderson
We can get a little extra time value for the options.
Ken D
Do you exit both legs of the trade at the same time?
James Anderson
Yes. What if the stock falls?
Peter Stone
We had one of our positions (TOL) go bad in the May portfolio and it cost 2.15
to close it out. So we are still making $450 or 2.5% on the portfolio. We try
to design the portfolio that if one trade out of four goes bad, we can still
make money.
James Anderson
Can you just pick one or two trades to do if you don't have the capital to run
with 10 contracts?
Peter Stone
Yes, some people do it that way.
James Anderson
Can it be auto-traded?
Peter Stone
Yes; if you want to follow us and get in and out when we do, you can. It is
called auto-trading and is available at several brokers, including optionsXpress,
at the site. We send the trades to the broker as we do them and they will enter
them in your account for you. That way you don’t have to worry about what
is happening in the market when you're on the golf course.
Rax
How much capital are we talking about?
James Anderson
$20,000 would be sufficient for each monthly portfolio.
sid
How do you determine you stop losses?
Peter Stone
We typically like to get out when the sold call is about to go in the money;
typically it is about 2-3 times our credit.
Bogey
Are you using credit or debit spreads?
Peter Stone
These are credit spreads.
eagle7
Most people don't trade options; can we talk straight stocks?
Peter Stone
Well, we can. One nice thing about options is that you can increase your return.
I think it is time to buy stocks but with a flat market outlook for the summer,
you can rake in extra premium by selling calls on them.
apple
Would you ever consider TZOO?
James Anderson
No, that stock is too volatile for us.
sid
Do you use trade triggers?
Peter Stone
We have analysts tracking it all the time but our computers let us know what
is happening with triggers on them.
sid
Is the market flat every summer, out in May as they say?
SCOTTY
Do you set profit targets and exit trades at that point (or take partial profits)
and let the trade run until you hit a stop point (8% from top)?
James Anderson
Sid, yes; typically the summer months are not positive periods for the markets.
Peter Stone
We typically like to ride the trades the two months into expiration but we will
close out positions early. We did that with VRSN last month.
med
What's your guidance for choosing the expiration month and strike price for
a Call? A Put?
Peter Stone
We have some very fancy computer models that help us with that. It gets really
complicated but takes a lot of analyst work by us as well.
Rax
What about SIRI?
James Anderson
No; too low cost a stock to be included in our universe.
Peter Stone
We almost always sell two months out on our portfolios. We do puts if we are
bullish on the stock; calls if bearish.
Rax
What are the mistakes you were referring to in the e-mail?
James Anderson
One of the biggest mistakes an investor can make is to start trading with emotions
and not sticking with their plan. That is one of the things I like the most
about this portfolio -- the exits are pre-determined and helps eliminate the
emotional aspect of exiting a trade. The hardest part of successful trading
is knowing when to get out of positions that start to move against you.
Rax
Do we have any decisions on how the money is invested?
Peter Stone
Yes; you can look over our trades and only do the ones you want. You can put
them in at any broker you want. if you autotrade, you will usually do all the
trades or a set part of you account.
apple
Can you exit fast if a crisis happens?
James Anderson
Yes. When the positions start approaching an exit point, we start preparing
for it. Once the time is right to get out, we can get out very fast, basically
with an e-mail to our brokers.
Peter Stone
If the stock gaps up or down, we may get caught, though. But we are limited
to the difference in our strike prices.
Barb
Can you do this in an IRA?
Peter Stone
Yes.
Becky
What about buying stocks at a discount? What is that about?
Peter Stone
By selling a covered call at the same time. If a stock is going for $25 and
you sell a $2 call on it, your cost becomes 23 -- about an 8% discount.
Mark
So the best way would be to auto trade?
James Anderson
Auto trading does offer you the benefits of not having to place your own trades.
When we send our trades to our brokers they are automatically done for all subscribers
set up with that broker.
sid
Do you use technical analysis?
Peter Stone
Yes, and lots of it.
jvle
What is the charge for the service?
Peter Stone
$49.99 a month.
Barb
What kind of commissions are these brokers of yours charging?
Peter Stone
It varies by broker.
Peter Stone
optionsXpress charges about $30 for a two legged trade, 10 contracts.
sid
At what price do you buy stock?
James Anderson
We don't have a set rule on this, but typically we find it best to stay with
stocks at least over 20.
seoulman
Is fundamental analysis a part of your analysis?
Peter Stone
Yes, it is. All entry prices are specified on the page.
Butch
Is level 3 required for these trades?
James Anderson
Yes.
Rshanbos
What kind of a stop loss would you use for a more volatile stock?
James Anderson
7 or 8% would still be ok for this sort of investment. With 8% cushion you are
still allowing a position to move against you a little.
spike
Some stocks reach a stop briefly and then increase. How to know?
Peter Stone
Yes; that is one of the hard things about setting stops, you don't want to be
stopped out all the time. They need to be far enough away.
Guest
Are penny stocks good for a starter?
Peter Stone
No. Stay with exchange traded stocks.
I think we have a book to give away.
Jack Teaster
Why, yes we do! I have put all the names in a hat. This book is titled "What
to do with Your Money Now" from those crazy guys at the Motley Fool. And
the winner is.... drum roll please… Barb!
Barb
Yeah!
Jack Teaster
Congratulations Barb!
bob
Way to go, Barb!
Peter Stone
Congrats!
Jack Teaster
Carry on James and Peter.
Lisa
Aren't the volatile ones where all the money is really made?
James Anderson
Yes, but also that can be where a lot is given back to the market. You should
figure out a strategy that works for you and you are comfortable with and use
that each trade. Don't let the trade determine your risk. Let the risk you are
willing to take determine your trades.
paul p
Is the link you gave earlier working?
Peter Stone
Yes; Free-HRQEJP. Tried it out before the conference.
Lanier
The reward to risk ratio of your trades seems to be low; you must have a high
win % to make money.
James Anderson
That is true, but having quick exit strategies helps to reduce the impact of
one bad trade in a given portfolio.
CONWAY
What kind of return would you expect from a $20,000 investment per year?
Peter Stone
We shoot for 10-15% every two months. Of course, we have stop outs so you can
see all the returns at the site.
sid
Do you use a stock picking software?
Peter Stone
Yes, but it only does the first round. As analysts we make the final picks.
Ken D
How long has the portfolio been running?
James Anderson
November '04.
Ken D
Can we see records of closed positions?
Peter Stone
Yes; they are all on the site. All the past portfolios are open to see -- even
those that aren't pretty.
Rshanbos
Winning percentage since November 04?
James Anderson
So far, only one of the months has not produced positive returns.
Rshanbos
This type of trading can be done on margin in an account using existing portfolio
to back up any stock being put to me. Thus, it would just be extra income.
Peter Stone
Yes, you are right. Other optionable securities can be used for capital.
turbo
What site?
James Anderson
index.asp. On that page you will see on the
left hand side Portfolio Facts and Figures; you can go there and see all the
months.
Davel
What happens when one of your options is assigned?
Peter Stone
The other positions will cover us, or we may buy/sell stock and sell the other
positions.
Rshanbos
30 for a two legged trade - is it an additional 30 to get out early?
James Anderson
Yes.
SCOTTY
When exiting stock positions, the advice has been to set pre-set stops with
your broker - these seem to get 'scalped' and I have had much better success
with mental stops - with the added requirement of having to watch the market.
Do you have a position on preset stop orders?
Peter Stone
No, we don't have the orders in with the brokers. Our analysts send them in
after the stock gets there.
Bill
Is VLO a buy or a sell?
James Anderson
S&P gives the stock a 5 star rating; has some bearish technicals, though.
Rshanbos
What about the federal tax consequences on option trades?
Peter Stone
These would be subject to short term capital gains taxes.
joewilly
I need you to contrast the Quick Exit Portfolio vs. the 3-Way Managed.
Peter Stone
The Three Way uses a calendar spread and is a little more conservative than
the High Return.
Rax
10-15% every 2 months? So, you are saying a 50-60% return annually?
Peter Stone
Well, yes; it is possible. It depends on how many positions get stopped out.
Win
Is MO a hold or sell to take some $ off table?
James Anderson
The stock has been on a nice uptrend; nothing alarming technically that would
prompt a sell.
James Anderson
Do you have anything else to add, Peter? We are about out of time here.
Peter Stone
Thanks for coming everyone. If we haven’t answered your question yet,
we are sorry. Just send us an e-mail at Support@investorsobserver.com and we
can give you an answer.
Jack Teaster
Thank you all for coming tonight!
Peter Stone
There were so many good questions.
Jack Teaster
A transcript of tonight's event will be on the website in a few days.
Peter Stone
Thank you everyone.
Transcript from the April 26, 2005 e-Conference.
Jack Teaster
Hello! Welcome to tonight's eConference! As you may or may not know,
I am Jack Teaster, Director of Web Conferences and other Chit-Chats.
With the market back to its old up and down tricks again, now is
probably a great time to chat with a Hedge Fund Manager who has
been beating most mutual fund returns for the last three quarters.
Tonight is your unique opportunity to sit in on an exclusive eConference
with the Hedge Fund Manager who has been turning in some great results
over the last 9+ months, including 24.5% returns in the first quarter
of 2005. Before we get into that, I want to introduce Peter Stone,
Portfolio Manager of the High Return/Quick Exit Portfolio.
Peter Stone
Hello.
Jack Teaster
Peter, do you have any opening comments?
Peter Stone
Yeah. It sure has been a wild ride recently. The market - it keeps
falling or shooting up every day. There has been a lot of volatility
recently. It can be hard to know what is next.
bob238
Where are we in the business cycle?
Peter Stone
That is a good question. If you take time to look at one of the
long term 1-year charts, it looks like it might have hit bottom.
Guest
What sectors do you like best now besides energy and healthcare?
George (not my real name)
I think money will be flowing out of energy into some of the more
defensive issues and sectors such as big pharma or drug stocks and
consumer staples such as Coca Cola and Pepsi.
bob238
When do you think the Fed will stop kicking up rates?
George (not my real name)
I think the ultimate goals is 3 1/2 % on the Fed fund rate. We're
probably looking at the August meeting as the end of the Fed rate
hike cycle.
walt g
You said that you had 24.5 % return in the first quarter; is that
for all transactions or just some?
George (not my real name)
That is for the overall quarter -- that would be for all transaction
in that quarter
skippy
What sectors do you like: energy, healthcare or short positions?
If short, what indices do like?
George (not my real name)
I think the sectors that were previously mentioned, which were energy
and healthcare, actually would be my favorite candidates to short
here, due to their dramatic outperformance.
Scotty
Were the 'slow downs' that have been reported for late March an
abberation or have the interest rate hikes and oil prices started
to slow the economy?
George (not my real name)
The economy is absolutely slowing. I think the market is absolutely
taking into account a slowing growth rate as evidenced by the performance
in April to date. In my opinion, the selling has actually been slightly
overdone since growth has slowed but not disappeared.
Mello
What are the key factors you look for in making trades for your
portfolio?
George (not my real name)
Value and volatility, meaning I like to find comparatively cheap
stocks with expensive options and sell put spreads on those stocks.
Also, I look for comparatively overvalued stocks with low levels
of implied volatility and look to sell call spreads on those issues.
igorigor
Do you have web-site or/and e-mail?
George (not my real name)
Send any questions to the InvestorsObserver.com website (support@investorsobserver.com)
and I will be happy to answer those.
drmarv
Do you use technical analysis?
George (not my real name)
Absolutely; I particularly like Fibonacci and RSI.
Scotty
What is the time period you expect to be in a position?
George (not my real name)
Most of the positions have an expected holding period of three to
four weeks. Although, if an opportunity arises of a shorter term
nature, we may elect to take that.
andy
Do you do a lot of option trading in your portfolio?
George (not my real name)
The Hedge Pro Portfolio is strictly option credit spreads.
walt g
Where do you find the "implied volatility?"
George (not my real name)
Implied volatility numbers can be gotten on almost every trading
website these days. There is another website, www.poweroptions.com,
that can be of great value or www.ivolatility.com.
AGman
What RSI values do you use?
George (not my real name)
My favorite since the expected holding period tends to be of a shorter
nature -- I prefer a 9-day RSI, although a 20-day RSI can also be
appropriate.
Scotty
How far out in the options are you usually looking - current month,
+1 or +2 months?
George (not my real name)
Usually current month until expiration week and then we tend to
look at the following month’s options.
drmarv
Do you use LEAPS for your long term holdings?
George (not my real name)
In this portfolio, no. Although LEAP strategies such as the 3-way
Managed Risk Portfolio can be very appropriate.
bob
Does that mean you're typically using current-month and next month
expiration options?
George (not my real name)
For the Hedge Pro Portfolio, absolutely.
Ace Trader
For the long term part of my portfolio I'm looking for some solid
stocks; do any companies come to mind?
George (not my real name)
I particularly like IBM at these levels - it's trading at a market
multiple not seen since 1995. I also find some of the old high flyers
such as Amazon and eBay starting to actually become value plays
down at these levels.
walt g
Thanks.
George (not my real name)
You're welcome.
ED
Using stop sells on options, what is used for the selling price:
bid, ask, last?
George (not my real name)
For a sell stop order, the stop will be triggered when the option
trades or goes off at that price. For a buy stop, the trigger will
be if the option trades or goes bid at that price.
Ace Trader
Do you like any dividend-paying stocks?
Peter Stone
We do. The Dividends Plus Portfolio shows some of our favorites.
We also sell a covered call on them and that helps to drive up returns.
If it is a longer term holding, 6-18 months, it is not as exciting
as shorter term plays, but for some of the portfolios, boring is
good.
Ace Trader
What is the downside of covered calls?
Peter Stone
The downside is that if a stock really tanks, you still have the
downside; but for stocks that stay in one place, you can drive up
returns.
Charlie
Do you sell covered calls on all positions?
Peter Stone
No. It is good to find the right kind of stock for a covered call
-- one that is not likely to fall.
Ace Trader
Why would anyone subscribe to get covered calls? They are easy to
find, right?
Peter Stone
It can be useful to get stable stocks -- ones with low P/E and high
dividends. They can be found on your own but it can take a lot of
work
drmarv
Do you consider MACD also?
George (not my real name)
Absolutely. MACD is certainly another technical indicator that can
show inflection points in the market.
Mello
Sometimes I notice that buying an opposing debit spread will give
a better return than the credit spread and vise versa. What does
that happen and do you ever buy the debit spread instead of selling
the credit spread?
George (not my real name)
The two spreads combined should equal the spread differential. For
example, on a five point spread, selling a put spread for $1.00
would be the same as buying the call spread for $4.00. From a liquidity
standpoint, it is usually beneficial to trade the less expensive
spread. For those who prefer buying spreads instead of selling spreads,
they may want to look at the 10/10 Portfo