Options: Low Cost Investing

[New-born baby]

Tom

greetings NB,

Let me run one past you,

Buy 1000 sh PVX at $12 - $12000

Sell Dec 06 $12.50 calls for .40 = $400.00 credit

Until PVX gets optioned away you also collect .10 per month,or $100.minus 15% Canadian tax = $85

With the income stream,it seems an even better option play,until it gets called away,you collect payments every month.

cordially Tom

Tom,
Well, I think this play offers too small of a reward. Let me tell you why:
$.40 call money +.60 divy=$1.00-taxes of .09=$0.91 profit on $12 invested.
That is a 7.5% return on a stock that the chart says "you'll be lucky if PVX is $11 per share next December."

I hope I don't sound too cruel, but Tom there are many, many option plays that offer a far better return.

Take a look at SU. $88 stock, DEC $90=10.30 or 11.7%.
Or the JAN $90 call is 11.20 or 12.7%. And that is not taking into consideration the $2 between $88 and $90. If you count that, then we are talking about 14% & 15%.

And one more thing: I think that if you plan to write an option, no more than 60 days out is desireable. I really like writing them with just 2 or 3 days to go. I own SU and have written options that expire in May.

I can post a 5% play for you every week. By that I mean a trade that should earn 5% every month.

In summary, your trade, imho, offers too low of a return over too long a time span and may very well put you in an unfavorable position. I think you should seek trades that are no more than 60 days out, preferably just 3 to four weeks out, that offer a minimum of 5% return and have a rich enough option chain to offer you security should the stock price drop.

Best to you, Tom.

[TFred]

Greetings Again NB,

I found one even more ineresting.It involves the dirty word ''ENT''.Can be bought for $15 X 1000sh. = $15000

sell 10 dec 06 $15 calls for $1.20,credit acct. $1200,

If it gets optioned away this month you made almost 9% in less than 3 weeks.every month it doesnt,you collect $180 distribution minus Canadian withholding.

Someones paying a steep premium for this,would a $17.50 call at .40 be better to sell?That would be $2900 plus distribution collection until its called away.

Sorry for picking your brain.

cordiallyTom

[TFred]

Greetings once again,

I see what you mean NBB,looking at SU,buying today under $88,and selling the May 90
will put almost 5% in your pocket should it get called away in 3 weeks.Great lesson,I'm still cutting my teeth on options,but I think they've broke through the ''gums''.

cordially Tom

[New-born baby]

Ent

Greetings Again NB,

I found one even more ineresting.It involves the dirty word ''ENT''.Can be bought for $15 X 1000sh. = $15000

sell 10 dec 06 $15 calls for $1.20,credit acct. $1200,

If it gets optioned away this month you made almost 9% in less than 3 weeks.every month it doesnt,you collect $180 distribution minus Canadian withholding.

Someones paying a steep premium for this,would a $17.50 call at .40 be better to sell?That would be $2900 plus distribution collection until its called away.

Sorry for picking your brain.

cordiallyTom

Tom,
Please-no apologies for asking a question No questions=no reason for this forum to exist.

ENT=I don't trust them at all, and personally, I don't do business with them. But let's look at your play anyway . . . .

I like the MAY $12.50 call at $3.10, that's $15.60 for your shares and a distribution of .18 per (.153 after taxes), or $15.783 for your $15.17 shares=.613 profit for 4% THIS MONTH.

As I said before, too much can happen longterm . . . .
And the option chain is quite poor, Tom. What will you do if ENT goes down to $12. Now you are in the stock at $15.17-.613=$14.557, but if ENT is $12, you won't be able to sell $15 calls for anything more than .05. Now you are stuck with ENT until the .18 divy can bring you up to even. Let's see: $15.17-.61=$14.55-$12 unit price=$2.55 IN THE HOLE or 17 months of distribution to pull yourself back to even. That's a year and a half and you are not making any money with your $15,000. Look at that ugly chart: ENT has made a lot of widows in the past year. $25 down to $15--ugly accting practices, corruption, it could pull off a $12 or a $10 stock price.

So it is not a play I am going to make. What you want is a rich option chain, i.e. one that pays 5% for a month's options and that also has plenty of options beneath you so that, in case things don't work out, you can call option your way out of trouble within one month. I would say Tom that the Cans are no way to go with options. I would also say that a lot of the upside to the Cans is gone now (save COS and possibly PWT), and I would look elsewhere.

Best to ya.

[TFred]

Here we go,

Bought 200 shs EOG 71.60,cost $14322 incl comm.

Sold 2 JUN $75 calls for $3 credit $600,if it gets optioned away,thats another $680.
$1280 = 9% for less than 2 mos.

Its a start

cordially Tom

[New-born baby]

Tom

Here we go,

Bought 200 shs EOG 71.60,cost $14322 incl comm.

Sold 2 JUN $75 calls for $3 credit $600,if it gets optioned away,thats another $680.
$1280 = 9% for less than 2 mos.

Its a start

cordially Tom

EOG is a good stock . . . 4.5% per month is a good start . . . EOG reports earnings today . . . .

You have to get started somewhere, and a little experience will teach you which system best suits your personality. EOG also is going to pay a dividend.

[TFred]

Greetings NB,

Thanks for the help and advice,I hope to be able to repay the wisdom someday.I'm curious why you have ''soured'' on the Cans?

Kurt Wulff,who has called the energy sector as good as anyone sees oil at $150 bbl by 2015.Anyone invested now in an oil trust would have a hard time losing money over that time period,even ENT.

Something must have you spooked,sorry for being off topic.

cordially Tom

[TFred]

Greetings,

I finally changed my avatar,now you can keep your food down while reading my post's.


I've been told I look like the ''Hulk'' from the movie,if only my brokerage acct was that green.

cordially Tom

[New-born baby]

Greetings NB,

Thanks for the help and advice,I hope to be able to repay the wisdom someday.I'm curious why you have ''soured'' on the Cans?

Kurt Wulff,who has called the energy sector as good as anyone sees oil at $150 bbl by 2015.Anyone invested now in an oil trust would have a hard time losing money over that time period,even ENT.

Something must have you spooked,sorry for being off topic.

cordially Tom

Tom,
I am not soured on the Cans. I just want to make more than 1% per month. I don't think you will lose money on the cans. I am looking for 5% per month.

[TFred]

Greetings,

My EOG is up 9% already,actually more since the stock price is above 75.The shares should be called away soon?

I should have played the May calls this AM,EOG traded below 75 for a while,with May 75 at $3,sounds like free money.I didnt want to shell out another 200 shares until my previous shares are settled.

Im sure you could have made a play with your expertise.How would you free up the funds so I dont have to wait till next month?

Thanks again,Tom

[skiracer]

Greetings,

My EOG is up 9% already,actually more since the stock price is above 75.The shares should be called away soon?

I should have played the May calls this AM,EOG traded below 75 for a while,with May 75 at $3,sounds like free money.I didnt want to shell out another 200 shares until my previous shares are settled.

Im sure you could have made a play with your expertise.How would you free up the funds so I dont have to wait till next month?

Thanks again,Tom

TFred,
The exotic option plays become increasingly like kiting checks. Especially the covered call writing when you run out of owning the shares to write the covered calls on. Then the writing of naked calls becomes like kiting checks and the fun begins.

[New-born baby]

Tom & Eog

Greetings,

My EOG is up 9% already,actually more since the stock price is above 75.The shares should be called away soon?

I should have played the May calls this AM,EOG traded below 75 for a while,with May 75 at $3,sounds like free money.I didnt want to shell out another 200 shares until my previous shares are settled.

Im sure you could have made a play with your expertise.How would you free up the funds so I dont have to wait till next month?

Thanks again,Tom

Tom,
I doubt whether your shares will be called away before expiration. That's right: I have only one had my shares called away until AFTER the close on expiration day, and that was because FRO was going ex-divy the next day.
You will most likely be holding these shares until JUN 16. Besides, they paid you $3 for that option, so EOG needs to be about $78.50 for them just to break even. The option buyer is still in the red as of now.

Now, what is the best way to play EOG?

Well, let's figure out a price target. 1. PnF says $87. 2. Dow Theory suggests that a primary target should be double today' gain of $4.86, or let's say $10. That's $81. 3. The chart is showing me resistance at $79 and $81. Keep that in mind. 4. Yeah, EOG popped up today, and will probably rise some more before we get a retest of the gap. EOG is coming back to $74 probably by next Friday.

Now that we have a price target, we need to ask ourselves this question: are you satisfied with $75 + $3=$78? [I would say you should be]. As long as EOG is above $75, you are riding the gravy train. And if EOG ends up at $74.99, you keep the shares and the money, too.

Now, if you don't mind, a few suggestions. 1. Always write the call for the nearest month. Why? So you can roll the option if you need to. I know I said "max 60 days" and "seek 5% per month." Those are good rules. Truthfully I always buy the near call because I want to be able to roll to the next month if I need to.

2. We know how stocks act. Breakout on volume, pullback to retest, then a see-saw to a top. EOG had the breakout today. Next, we are looking for a move up to perhaps $78 before EOG retests the $74 mark. IF you have money to buy more shares, here's a plan to milk the system. Watch EOG, and once she shows signs on the chart of making a top, sell the MAY $80 calls. EOG should then retest the $74 mark, and those $80 calls become worth less money. Then cover those calls for extra dough, or let them expire worthless. IF you sell the calls and EOG continues to bullhorn its way to $80, buy the shares to cover yourself and you still make call money even if you pay $80 for those shares.

Remember that EOG is going to move around alot--up and down-between now and JUN 16.

[New-born baby]

Eog

How would you free up the funds so I dont have to wait till next month?

Thanks again,Tom

Well, you could cover your call at $4.80. They paid you $3, so it would cost you $180 per contract, and you bought at $71.62, so you have a $5 profit-1.80=$3.20 gain.

A better play is patience. Let's watch EOG for awhile and see what she does. IF EOG bullhorns its way higher, we could later roll that $75 into and $80 strike.

[New-born baby]

Eog

EOG retested the $74 marker this morning in the first 15 minutes. I'd be holding on to my $300 gift . . .

[TFred]

Greetings NBB,

I feel I have done something wrong as far as seeling the call.I left clicked ''bid'',entered 2 contracts to cover 200 shrs.Transmitted order,yet I see no credit on acct page.Only shows options security value,which is changing with the cost of the call.

I should have researched this better,since i fear Ive bought the call.Any help would be appreciated.

cordially Tom