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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: http://www.investorsobserver.com/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: http://www.investorsobserver.com/PTDNOC1. You can get a monthly subscription at the regular price of $49.95 per month when you use this link: http://www.investorsobserver.com/PTDNPS6

Vic Wisemann
Thanks Jack.

Jack Teaster
Both subscription types are covered by our money-back guarantee. Find details here: http://www.investorsobserver.com/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... http://www.investorsobserver.com/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?

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: http://www.investorsobserver.com/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
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!

Top

Transcript from the October 3, 2007 e-Conference.

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: http://www.investorsobserver.com/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: http://www.investorsobserver.com/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.

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.

Jack Teaster
For Warren's latest oil trade, use this link to sign up for just $1: http://www.investorsobserver.com/OilOC07.

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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

Peter Stone
Thank you, and good bye everyone.

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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.

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...

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.

Jack Teaster
Thank you all for coming this afternoon! If you would like to look at the free preview: http://www.investorsobserver.com/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!

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Transcript from the April 11, 2007 e-Conference.

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.

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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
http://www.investorsobserver.com/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
http://www.investorsobserver.com/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.

Have a good afternoon everyone!

Top

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
http://www.investorsobserver.com/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
http://www.investorsobserver.com/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.