Players-
I was listening to some vintage 70’s Lynyrd Skynyrd this morning on the way into work…in between constant radio coverage here of numerous smart guys talking about Turkey and Israel and Gaza. Everybody has a speech to give right now. Seems to me that the smart guy who decided to pile up slingshots and pipes to break an Israeli maritime blockade ought to have several whacks with the idiot stick, whether the Aid Flotilla had the right to be there or not.
Today the smart guys over at Hamas are not accepting delivery of the trucks carrying the aid that was aboard the ships. Today the Israeli smart guys are attempting to slap some lipstick on the pig as they explain to the world why they killed nine aid workers, (not nineteen as we heard here). Today I felt bad for the people in Gaza who are broke and hopeless. It’s a spiritual thing, it must be. How could a sliver of land so small, with trade revenues so insignificant, garner the amount of news coverage they get. Jews and Muslims going at it was going on when I was born and looks like it will be going on long after my children are gone. Killing nine men swinging clubs at military guys is not a story in any other country. Get a smart guy angling to position Turkey as the new “do something” leader of the Muslim world and you may end up with more than one ship getting blasted. Hope not. But summer is here and people do need something to live (or die) for.
“…Sweet Home Alabama, where the skies are s’ blue.” I also felt for the folks in the Gulf Coast and all those whose livelihoods are impacted by this BP oil disaster. But despite all the negatives out there, all is not lost, ever.
The 1989 Exxon Valdez tanker spilled 11,000,000 gallons of oil into the Prince William sound and it took a long time to clean up and recover. But, it did and once again God’s creation is resiliant. I am aware that the BP fiaso may end up being some vast multiple of the Exxon Valdez, but the Gulf is far larger than the Prince William Sound and the South will never die. Neither did the king salmon. I checked, you can book a king salmon fishing trip or tour one of the two canneries doing a great business in Valdez, Alaska.
Though history doesn’t often repeat itself exactly, if you stick around long enough, sometimes it rhymes. Taking advantage of times when the prices of stocks are down and option risk premiums are high can offer pretty rare values and a great opportunity to buy any market. This is a method pros have used forever…nothing new, but again you have to be old enough to remember the last time…I’ll explain in detail in a bit.
From our little slice of the desert, I have to admit that Valdez, Alaska and the Prince William Sound is looking pretty inviting to me…and there is probably a profitable lesson in this.
Some sage words from my good friend Rick in California…one of the nicer wise guys I know:
Started nibbling by writing some puts on BP. Premiums for this June are huge! If I get assigned the stock I will write calls again with huge premiums. Big dividend too. I always wish I would have picked up XOM back in 1989, now we may get the chance for similar outcome.
Quick tutorial:
Puts are the right to sell 100 shares of stock at a certain price (strike price) on or before a certain date (expiration date) in the future. When premium is high, this is an excellent way to “buy” the market. You figure out how many shares you want, divide by 100 and sell that many puts short. You are instantly credited the premium and should the market trade down to the level on the option you will get the stock “put” to you at that price.
Quick example:
BP is at 38ish. Let us say that over the next 6-7 months you think BP would be a bargain at half that price or 19. The option you want is the BP $20 January Put trading near 1.50. You sell that put short. They credit $150 to your account-cha ching!
Should the stock trade under $20 you would be put the stock and you own 100 shares for $2,000. If not, you keep the $150.
If they put the stock to you, your cost is $20/share ($2,000 for 100 shares) less the $1.50 = $18.50, so ($1,850 for the 100 shares). You are then in the stock at half its current level.
Or you just picked up $1.50 per share, without ever having owned the stock. That is 7.5% on $2000. If you do not want to wait that long there is a June 30 Put expiring in 16 days that pays $54 per 100 shares. That would put you in the stock at under $30 in 16 days, 20% lower than today. That is 1.8% for 16 days. Lots of strikes and lots of expirations.
You do not have to pay a vendor to research options. It is all easy to find at: http://yahoo.optionetics.com/yhmain.htm or http://biz.yahoo.com/opt/
This is a great way to make money while you have cash and want to build a portfolio. You can buy almost anything using a short put strategy, stocks, bonds, currencies and commodities. The key is price-the target asset needs to be cheap and the premium of the put option needs to be pricey.
Enjoy selling puts to acquire your target asset each time the market you like gets beat up. Often this happens when a smart guy is talking trash about things like “justice”... This strategy is only optimal at a broad level while option prices are still high and the market is nervous as measured by the VIX index I showed you yesterday.
Selling high in order to buy low provides a nice margin of safety. Love that. Thanks Rick.
All the best,
Leon
P.S. I am becoming unashamedly offensive. And I know today I am offending both my Jewish and Muslim (Israeli and Arab) friends, who all seem to know what is wrong with the other side. My simple advice comes from the revered one that I follow who encouraged us to love God the Father and love each other. I would add…kindly ask your respective village idiots to shut their gaping pie holes. Also, I in no way, mean to belittle those aid workers that truly give their very lives for the cause of peace… unless they were swinging pipes or shooting rocks from their wrist rockets. Then, the axiom applies:sticks and stones may break my bones… but if you bring them to a naval blockade…you’re looking to get your ass whooped. Again, I bid you welcome to the club of those that I have offended.
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