Million Dollar Count Down

Apologies!!!

2007-03-04T00:59:00.000-06:00

My sincerest apologies to all the readers. Due to an unexpected personal situation I could not post over last 2 months and have not checked this email either. Needless to say no investing either.

Life is a bit back to normal and I should be getting back into swing of things one more time...slowly, however.

A Phenomenal Day for Apple Computer (AAPL) and My Portfolio

2007-01-09T18:05:00.000-06:00

The blogosphere is full of the coverage of Apple Computers (AAPL) new iPhone and iTV. I am not going to add to that list by putting my own views here. You can find enough coverage elsewhere.

However, what was exciting from my perspective was the performance of Apple's share price. A 7.1% jump to an all time high of $92.57. I have shares as well as sold put option contracts. The net gain in portfolio has been over 2%. Yes, it could have been more but Apple still represents a small part of the portfolio. I took a hit on NVIDIA recently as well.

Given, this development I hope to close this month on a strong positive note. Keeping the finger crossed.

NVIDIA Corporation (NVDA) Stocks Down on Downgrades

2007-01-05T14:22:00.000-06:00

Not only NVIDIA but it seems like the whole chip sector is down. AP reports

NEW YORK (AP) - Chip stocks fell hard in midday trading on Friday, spurred by a couple of downgrades and reduced financial forecasts.

On NVIDIA they write

Graphics chip maker Nvidia also took a beating after American Technology Research analyst Doug Freedman cut his rating on the stock to "Neutral" from "Buy."

I am not a financial analyst but this report does not make sense. NVIDIA is a key supplier not only to gaming hardware but to Apple Computer and other key computer manufacturers.

Granted that the stock has seen a run up in price in last several months. I will take it more as a consolidation than an outright signal to exit the investment.

I am holding on to my investment in NVIDIA for long haul.

Nokia (NOK) Rumored to Cut Off Best Buy (BBY) in China

2007-01-05T00:26:00.000-06:00

Pacific Epoch has an interesting article

Nokia may stop providing handsets to US electronics retailer Best Buy's store in China, according to a rumor reported by National Business Daily. The report said that Best Buy was selling Nokia handsets at prices lower than the minimum limits set by Nokia. Best Buy is also facing a similar problem with Sony Ericsson, said the report. Best Buy denied rumor. Best Buy opened its first store in China on December 28, 2006.

I am not invested in Best Buy (BBY) but do have investments in Nokia (NOK). My take this is Best Buy's loss. Nokia is one of the most popular mobile phone in Asia (based on my unofficial survey - read people watching and window shopping). However, it would be best if they could leverage each others synergies.

Apple Computer (AAPL) Sales at $8 Billion for Holiday Quarter

2007-01-04T16:02:00.000-06:00

Just saw this post from seekingalpha

The bottom line: I was a piker in my previous prediction of 20 million iPods and $7 billion in sales for Apple's holiday quarter. Assuming that these numbers are somewhat in line, Apple may see a nearly $8 billion holiday quarter, with $4 billion of that revenue coming from the sales of 23 million iPods.

I do agree with his analysis of sales. Needless to say this works well for my Apple Computer (AAPL) investment.

New Trade in NVIDIA Corporation (NVDA)

2007-01-04T14:48:00.000-06:00

In recent weeks NVIDIA Corporation (NVDA) shares have taken a hit. Even today when the market overall is moving up NVDA is going in opposite direction.

Searching through the web I can't seem to find a good reason why this is the case. So given that I like this company I am opening a new trade in NVDA. This one is a bit risky but profit potential is high. Worth taking the rick I guess.

Sold 5 put options with January 2007 expiration date.

Nokia Corporation (NOK) Bluetooth Troubles

2007-01-03T22:19:00.000-06:00

Engadget reports that Nokia, Samsung and Panasonic could be in trouble with patent infringement. Technology involved is Bluetooth.

University of Washington scientist Edwin Suominen apparently obtained a patent in 1999 for a "simplified high-frequency broadband tuner and tuning method," which he now claims is infringed upon by the free Bluetooth standard developed by Ericsson and pals in the 90s.

So, how does it affect my position in Nokia?

I doubt if it will negatively impact the Nokia share prices. If Nokia did violate the patent law then so did just about every other company in this space. If one of them have to pay royalty then so would every other company. On a relative basis I don't think it makes a difference.

Just my opinion and I am not a lawyer. However, I am holding on to my NOK shares.

New Trade in JOY Global (JOYG)

2007-01-03T12:45:00.000-06:00

First day of trading for 2007 and JOY Global (JOYG) is down. I can't seem to find the reason why. To me this company is performing well. They just had a great quarter. Oh well, this is why its called Wall Street.

I just opened a new trade in JOYG by selling put options with Feb 2007 expiration.

Apple Computer (AAPL) Beats Top End Retailers

2007-01-02T13:11:00.000-06:00

One would assume that a top end retailers such as Neiman Marcus and Tiffany would have a much higher sales per square foot than Apple Computer (AAPL). Apparently not! Even the top electronics retailers such as Best Buy (BBY) have sales much lower than Apple.

Way to go Apple. Feels good to own its shares.

Nov and Dec 2006 - A Year in Review

2007-01-01T21:12:00.000-06:00

Wish you a very happy new year !!!

Time flies fast. Its been almost 3 months since I started this blog. It has been a fantastic experience. You have made me a lot more disciplined in investing and trading activities.

So, how did I do in December?
The account now stand at $104,791.91. A 4.79% return in two months. November was a better month with 3.52% return. The return for December are not so great. But still a respectable 1.23%.

The results for December would have been a whole lot better if not for Apple Computer (AAPL) not taking a serious price hit in second half of December. I am still very positive on Apple so no plans to exit it any time soon.

The 4.79% return on investment for this portfolio compares well with key market indicators. For October and November 2006

DJIA 3.17%
S&P 500 2.93%
NASDAQ 2.05%

So it seems like I have managed to better than popular market indicators. Hope to repeat that in 2007.

Seasons Greetings !!!

2006-12-24T21:36:00.000-06:00

Wish you a very happy Christmas and best of holidays.

I would be slow in posting over holidays. Blog is also on vacation :)

Selling Covered calls on Apple Computer (AAPL)

2006-12-20T09:35:00.000-06:00

I acquired shares of Apple Computer (AAPL) as a result of put option contracts getting assigned. My cost of these shares was $88.83 per share.

While I do maintain a positive view of Apple Computer's share performance over long term. I am not convinced that come January it would be $100 or even beyond. Just about all the expectation and rumors are baked in the price. Many of the bloggers believe that Apple Computer will cross $100 by MWSF in January.

The prudent move would be to make money from the Apple stocks that I already own. So I am writing covered calls with $100 strike price and January 2007 expiration date.

If my call options are assigned then so be it. I would have made a good profit on these shares. If these call options are not assigned I will still own the shares in a company that I believe has good long term potential.

Opening Another Trade in Apple Computer (AAPL)

2006-12-19T11:33:00.000-06:00

Apple Computer has taken a beating in last few days. All due to rumors in my opinion. Well, this creates a buying opportunity.

Although I own 200 shares of Apple Computer (AAPL) decided to open another trade. This time selling put option contracts with Feb 2007 expiration date.

I am debating whether or not I should sell some call options on AAPL shares that I already own. Will decide soon.

Is Google Taking Over My Posts???

2006-12-18T22:51:00.000-06:00

Today a reader of this blog send me an interesting web clip. Parts of my posts show up with a link to Google finance. This graph explains it better.

For Apple Computer (AAPL) I wrote this article on Dec 15. Here is what shows up at Google if you search for AAPL. Look at the link url. Its not pointing to this blog.

On exploring it further. I searched for JOYG. The post that I wrote earlier is here. The Google search shows it as

So the text comes from my posts and the link points to Google site.

Very very confused!!!

Any one with any explanation???

Closing Second Trade in NVIDIA Corporation (NVDA)

2006-12-18T14:13:00.000-06:00

I am in a somewhat of a good position today. NASDAQ is down more than 24 points as well as DJIA and S&P 500. However, couple of my stocks are going in opposite direction. positive I mean.

Earlier in the day I closed Joy Global (JOYG). Just now I bought back the put options that I sold roughly 2 weeks ago in NVIDIA Corporation (NVDA). The net profit for this trade is $231 or 2.2%

The purchase price of these put options is $0.65 so one can debate their is still enough money left to let it ride for a while. I agree. However, given that rest of the market is struggling I wanted to be more in cash. After all, my retirement account does not have margin trading capability.

If the market dips in coming days it could give me a nice entry point for couple of stocks in my list.

Great Earnings Report Joy Global (JOYG) - Closing Trade

2006-12-18T10:36:00.000-06:00

What a surprise. Joy Global (JOYG) came out with a $0.71 per share earnings and the shares jump over 10%.

Needless to say that I am excited. I had opened a trade in Joy Global by selling five put contracts. just closed them by buying back at $0.15 per share. The net profit from this trade is $721 or 3.6% in little over 2 weeks.

Have not decided what to do next with JOYG. May be I need to take a breather on this stock .

Apple Computer (AAPL) Stock price and iPods sold

2006-12-16T12:18:00.000-06:00

There seems to be remarkable correlation between Apple Computers stock price and number of iPods sold. I expected some but not this much correlation. It is an interesting analysis none the less.

Apple Computer (AAPL) Put Options Assigned

2006-12-15T15:50:00.000-06:00

It had to happen. After closing 13 successful trades in a row (Last one in Continental Airlines - CAL) I had a decision point - should I let the put options in Apple Computer (AAPL) be assigned or buy them back with near zero return.

What a dilemma!

I opened this trade in Apple Computer roughly 10 days ago by selling put options with Dec 2006 expiration date. The strike price was $90. Given that this is a retirement account I used cash secured puts. So had to put down $18,000 for 2 put options.

My first choices was to buy back put options and at certain times during last week I would have made a small profit. For all practical purposes this would have been a zero return on investment or a small loss.

The second choice was to let these put options be assigned. My cost per share is $88.83. Given that AAPL closed at $87.72 the paper loss is $1.11 per share.

I took second choice and let the puts be assigned. I am very very positive on Apple Computer and would rather take a paper loss. Also it opens up more investment options. More on it shortly in another post.

UAL Corp. (UAUA) and Continnental Airlines (CAL) in Preliminary Merger Talks

2006-12-13T10:25:00.000-06:00

Reuters reports that UAL Corp (UAUA) and Continental Airlines (CAL) are in preliminary talks to merge and create world largest airline.

NEW YORK/PHILADELPHIA (Reuters) - United Airlines' parent UAL Corp. (NASDAQ:UAUA - News) and Continental Airlines Inc. (NYSE:CAL - News) are in preliminary talks about a merger that would create the largest airline in the world, sources familiar with the situation said on Wednesday.

Awesome!!! This airline sector needs some consolidation. Customer service has gone to never never land. Hopefully, with UAL and Continental merger we could see some improvements in this area.

For me the excitement comes from two fronts. First, merging of two frequent flier accounts. Read easy to get to a premier status with all its benefits. Second, I have sold put options on Continental Airlines (CAL) in this retirement account.

Opening New Trade in Continental Airlines, Inc (CAL)

2006-12-12T08:56:00.000-06:00

This morning Continental Airlines (CAL) dropped over 3%. Perfect, thank goodness to all the rumors. I have freed up cash from yesterday's closing of trade in Continental Airlines. So why not reinvest.

Just opened a new trade by selling put options in CAL with Jan 2007 expiration date.

Closing Trade in Continental Airlines Inc. (CAL)

2006-12-11T19:50:00.000-06:00

What a luck! Continental Airlines (CAL) share price shot up over 8% today over merger and acquisition rumors. Just about all the major news sources reported that potentially United Airlines could acquire Continental Airlines or two can merge.

A second accolade to Continental Airlines comes from being selected the best airline in North America in Business Traveler magazine's 2006 Readers' Choice Best in Business Travel Survey. Continental also received awards in 2 more categories.

I could not be happier. I had sold 5 put option contracts last month on CAL. Although, these options were to expire this Friday it no longer made sense to hold on to them. Price was too low -- $0.15 per share.

The return on this investment is $474 or 2.37% in 25 days.

This is also my 13th trade in a row that I have been able to close in the money since start of this retirement investment account.

$310,000 Nokia Corporation (NOK) Phone

2006-12-10T10:39:00.000-06:00

You must be kidding. Unfortunately, it's true. Bloomberg reports that

The precious object is a cell phone from Nokia Oyj's Vertu luxury division, whose offerings start at $4,350 for stainless- steel versions and soar to $310,000 for bejeweled ones. They include a button that connects the caller to a round-the-clock, multilingual concierge service, which costs an additional $2,000 annually after a free first year

Need less to say that the celebrities such as Beckham and Beyonce have these. To me this is borderline insanity. Oh well.

I am happy to own Nokia call LEAPS in my portfolio. Hope that Nokia sells a whole lot of these Vertu phones :)

AMD and NVIDIA Corporation (NVDA) in Trouble with Justice Department?

2006-12-09T20:52:00.000-06:00

Engadget has an article on how AMD and NVIDIA are in trouble with justice department and have been served a subpoena. Apparently, price fixing.

Damn!!! I am invested in NVIDIA Corporation (NVDA).

On one hand I can not and should not panic. But at the same time I should take precautionary steps just in case this matter goes deeper and stock price takes a hit.

This is also a lesson that I need to do more research before I invest in a company. Apparently this is a week old news and I missed it.

Lesson learned.

Buy and Hold or Trade for Short Term

2006-12-09T13:04:00.000-06:00

This question has been raised by many of the readers. Why do I not buy and hold the shares in the company I like. The reasons cited are

Proven strategy - think Warren Buffet
Lower trading costs or brokerage fees
Dividends

I totally agree with all the reasons mentioned above. But that is only one side of the equation. The other side, I believe, is that one has to be able to

Pick great companies
Ability to ride the up and down price wave
Very long term perspective - not affected by short term price swings financially

For me, the long term perspective and ability to ride the wave is not a problem. Especially in the retirement account such as this one. The problem is the ability to pick great companies to invest in. If past is an indicator actually my picks are really lousy in long run. Holding on to these companies is nothing but a disaster. Instead on buying low and selling high I was buying high and selling low.

So, I had to devise a strategy that works with my limitations. In this post I went in more details of various ways I could invest into companies. In my experience a short term trading strategy makes lot more sense.

If I do become convinced that a company is a good long term holding prospect then absolutely I am more than willing to buy and hold either LEAPS or the stocks outright. In fact I did buy LEAPS on Nokia Corporation (NOK) last month.

Another reason is flexibility and versatility of using Stock Options compared to stocks. Options offer me many more choices that can be used in a down market while owning stocks works only in rising market conditions. More on this topic in another post.

I would love to hear your trading strategies.

Round Five Trading in MEMC Electronic Materials (WFR)

2006-12-07T08:50:00.000-06:00

MEMC Electronic Materials (WFR) is turning out to be a good company to trade. So far I have been able to successfully close 4 trades in WFR. Hoping for a reapeat.

The company is a bit over-valued in my opinion given the recent run up. However, the macro conditions are in its favor given the emphasis on solar energy. In any event it is a good company to own in long run.

Selling three (3) put option contracts with jan 2007 expiration date.

Apple Computer (AAPL) Share Price And Cupertino Temperature

2006-12-06T19:33:00.000-06:00

Given that I am invested in Apple Computer (AAPL) wanted to keep up with the news. While surfing the web came across this graph that I could not resist sharing with the readers. Not sure if I can draw much conclusion from this graph. Not ready, just yet, to base my investment decisions on temperature in Cupertino :) However, this web site is a fantastic idea and fun to use.

Clsoing Trade in EnCana Corporation (NYSE:ECA)

2006-12-06T12:36:00.000-06:00

Found myself in a rather precarious situation today. My cash balance dropped to less than $300. Not a very smart situation given that I am planning to be 30-40% in cash as per my asset allocation model for retirement.

The saving grace was my earlier investment in EnCana Corporation (NYSE: ECA). The put options I sold were significantly in the money. ECA has climbed from $51 to $53.8 during this time - last 15 days. Need less to say that in this case it would have been better to own the shares. Oh well, you can't win them all.

The net gain for this trade is $521 or 2.08%. On annualized basis the return on investment would be 51%.

This is also 12th trade in a row that I have been able to close successfully.

Investing in E*Trade Financial Corporation (ET)

2006-12-06T10:35:00.000-06:00

Although I did not select E*Trade Financials as my broker for this blog they are a great company. During my research on finding a broker for the retirement account I found them to be very competitive. Some of my friends that use E*Trade Financials (ET) are very happy with the service. However, I personally like Fidelity. To me they are just a tad bit better in customer service and that made all the difference.

So that being said. I wanted to invest in E*Trade but so far it was on a lower priority. Given that it was moving sideways I thought I could wait. Now seems to be a good time. Overall E*Trade seems to have lot going for it. However, one concern is the free trade phenomena started with Zecco. However, given E*Trade's diversified business line it should be able to adopt well. Other statistics such as PE ratio, growth rate are well within my expectation.

I also believe that with housing market down regular investors should be back in the financial markets. This bodes well for E*Trade as well.

I am selling put option contracts in E*Trade Financial with Jan 2007 expiration.

Closing Remaining Trades in MEMC Elctronic Materials, Inc. (WFR)

2006-12-05T13:07:00.000-06:00

I opened this trade on Nov 16th by selling put options in MEMC Electronic Materials, Inc. (WFR) with expiration date of Jan 2007. WFR shares price has improved significantly since then. It no longer makes sense to hold on to these put options.

I could capture roughly 69% of the maximum possible trade value in 19 days. Good enough. I think it would possible to reinvest this cash in a better trade. I have added few more stocks to my potential trading list that look fairly good now. Also I am worried that WFR may take a price hit here. No technical analysis just a gut feel watching the price movement of this stock.

Net gain from this trade is $306 or 2.91% in 19 days.

Round Two Investing in NVIDIA Corporation (NVDA)

2006-12-05T08:52:00.000-06:00

I successfully closed a trade in NVIDIA Corporation (NVDA) yesterday. This trade was closed as the risk reward equation was no longer in my favor for this particular trade in NVDA.

I still like this company. To me it is undervalued. The new graphic cards are amazing. My gamer friends swear by them.

So why not, decided to open another trade in NVDA. This time selling put options with Jan 2007 expiration date.

Closing Trade in NVIDIA Corporation (NVDA)

2006-12-04T09:54:00.000-06:00

First small milestones for this blog. It is the 10th trade I closed. This is also the 10th winning trade in a row.

It has been an interesting trade. When I sold put options in NVIDIA Corporation (NVDA) it was trading for $36 per share on Nov 13. Today when I closed this trade it was trading at $36.68 per share. Essentially a gain of $0.68 per share over 21 days. The percent gain is approx 1.9% over 21 days if I invested in stocks.

However, in this option trade for an investment of $35 per share I was able to generate $0.95 per share. the trading fees were higher for options than trading in stocks. The difference in brokerage fee, however, is not substantial enough to make a difference.

All in all for this trade it was more profitable to invest in options than in stocks. This is something I will analyze going forward. Could lead to some interesting insights.

Overall, I had a gain of $261 (including all brokerage fees) over 21 days. The return on investment is approx 2.48% for the duration of trade (or 43% if annualized).

Third Round Trading in Apple Computer, Inc. (AAPL)

2006-12-04T08:25:00.000-06:00

It seems that Apple Computer, Inc. has become one of my favorite companies to trade. So far I have successfully managed to close 2 good trades (here and here). The plan is to repeat AAPL trade yet another time.

My confidence in Apple Computer shot up this weekend when I saw Parallels virtual machine working on a Mac. Simply impressive. I think with Parallels Mac is one of the better windows PC out there.

So, inspite of Apple Computer's share price above $90 I am selling more put option contracts in AAPL with Dec 2006 expiration date.

Investment Analysis 3.5% Return - November 2006

2006-12-02T08:39:00.000-06:00

Well this is really more than just November as I started investing in October. However, by the time all the cash was in this blogging account it was Oct 23rd. Also in October I only made 2 investments - here and here. The second trade took place on Oct 27th. I closed no trades in October 2006.

3.5% The bottom line. November was a fantastic month. The net gain is $3,523.08. That is approximately 42% annualized. This beats my first year goal of 20% or little over 1.6% for the month. May be a beginners luck!!!

Some interesting stats:

Opened 12 trades
Closed 9 trades
All trades were winning trades
Average cash generated per trade is $253.22 rest in paper gains and interest earned

I spend on an average 30 min per day on investment activities. Definitely, way more time on updating this blog.

Many of my readers said that I should be able to generate 10-15% per month. May be I can but that day is long away. For the time being I am happy to take 3.5% return for the month.

Re-entering Trade In Joy Global (JOYG)

2006-12-01T11:56:00.000-06:00

Given that JOY Global has dropped to $43 (and lower) today I finally decided to open a new trade in JOYG. I am still positive on this company and I think short term market volatility provides an opportunity. The risk reward ratio is once again I am comfortable with.

So sold 5 more put option contracts with Jan 2007 expiration date.

Closing Another MEMC Electronic Material (WFR) Trade

2006-11-27T11:35:00.000-06:00

I had way too many open positions in MEMC Electronic Material (WFR). Given today's market drop it made me realize that I am not diversified enough. So decided to take some of my WFR trade off the table. It is also one of those days when WFR is up while rest of the market is way down.

The net gain from this trade is $160 or 1.33% over 5 days. I still have some more options open in WFR.

My cash position is fairly strong. So if the market is to take a down turn I should be able to reinvest at some attractive values.

Closing Second Succesful Trade in Apple Computer, Inc. (AAPL)

2006-11-24T21:53:00.000-06:00

Readers (of this blog) seem to think that if I exit a trade I do not like the company. This is not the case. It is just that the risk/reward ratio in this trade is no longer worthwhile. Its time to close the current open trade. Take the profit or the loss. As the case may be. May be open the next one if I still like this company.

Similarly, I do not think that Apple Computer, Inc. (AAPL) is not a good company any more. It is. My last post on Apple's market share further builds the case for Apple Computer. However, the current share price above $90 is making me nervous. I would not be surprised if in short term the price drops. As always, with stock price no one knows for sure but I don't like to loose sleep over them.

Moreover, the maximum I could make on my last trade was $2.59 per share. With today's exit I could lock-in $2.52 per share. So why not. It is not worth while to keep the trade open for last $0.57 or 22% of the trade. Capturing 78% of the trade's value is good enough for me.

Total profitability of this trade is $381 or 2.24% over last 7 days. Just for fun, if I could repeat this return every day it would 117% for year. This could definitely beat 20% goal for first year.

Apple Computer (AAPL) Market Share and Investing

2006-11-23T14:06:00.000-06:00

I have been a fan and a user of Apple Computer for a long time. All the posts on this blog are written on my trusted powerbook.

I am also an investor in Apple Computer (AAPL). I hold Apple Computers stocks or options not only in this blogging account but in regular personal portfolio as well. The company has done phenomenally well across the board. Great execution.

Today, I was curious to check what is Apple's market share. This site shows Apple's market share to be around 2%. Apple matters also has a good discussion of Apple's market share.

But 2%. That's really low. So I decided to do some very unscientific market survey of my own.

First one - visiting coffee shops in my neighborhood. It is a very wifi friendly neighborhood. Just about every other person is on a laptop. Across 3 coffee shops I see more that 50% of people using various models of Apple laptops. It seems that iBook is the most popular one.

This is definitely more that 2%. but then again my survey is not scientific.

Second one - Realized that Google analytics can spit out the statistics on computer systems hitting this blog and what kind of browser they use. Consistently the numbers are around 30% week after week for Apple and 67% for Windows PC. Everything else to me is a round-off error.

More surprisingly the share of Safari is 18%. Explorer and Firefox are tied to 40%. Once again consistent week after week. While, most market surveys and statistics claim Safari's share to be around 3.3%.

OK, I admit that my numbers are not the norm and they are unscientific. They are also for a short time period. But this huge a difference!!! Makes you wonder.

So what does all this mean in general?

- Could Apple users be more inclined to use Personal finance / investing blogs like this one. Or

- Apple users are more internet savvy or just use internet more. Or

- Popular statistics are not portraying the correct picture of Apple's market share. Another blogger also shows 26.5% as the number of Apple users coming to his site.

May be it is a combination of all three reasons above.

So what does it mean from investing perspective?

I am now a little more bullish on Apple. This does not mean that I don't think that current $90+ price is not high. But now I have one more reason to like this stock.

Opened Another Trade in MEMC Electronic Materials, Inc. (WFR)

2006-11-22T12:45:00.000-06:00

It seems like MEMC Electronic Materials (WFR) has become my favorite company to trade these days. Yesterday I exited one trade in WFR only to open a new one today. This time with expiration date of Jan 2007.

I think that my trade entering and exiting strategy is not very good at this time. Looking to our readers for some ideas on what would be a good entering and exiting strategy for option type trades.

Any suggestions would be most welcome. Thanks in advance.

Exiting Trade in MEMC Electronic Materials, Inc. (WFR)

2006-11-21T12:18:00.000-06:00

As positive as I am on MEMC Electronic Materials, Inc (WFR), I had to exit this trade. If you recall I sold 3 put option contracts in WFR last week. The stock since that time has gone up by almost a dollar. Need less to say that I had a small profit on this trade.

Net gain = $186 in 8 days. Roughly 1.77%

My Nov 2006 options on WFR expired worthless. I still have more options on WFR. Hopefully, I will not loose money on these.

Investing in EnCana Corporation (NYSE:ECA)

2006-11-21T11:26:00.000-06:00

I realized that my portfolio is getting too heavy on technology sector. Not enough diversification!!!

This is making me a bit uncomfortable. So decided to expand out the search to some of the other sectors. Given that I exited JOY Global trade, decided to go more main stream in energy sector.

EnCana Corporation (ECA) is a major natural gas player. Very profitable and trading at a low earning multiples. Good quarter and solid earnings performance. However, this stock has been trading sideways between $45 and $55 for a while.

My technical analysis skills are still pretty bad. But then I do like EnCana Corporation and decided to take a position in it. Sold 5 put option contracts with Jan 2007 expiration in ECA. The premium is not so high but good enough to worth taking the risk.

Successfully Clsoing Sold Put Options in Joy Global, Inc. (JOYG)

2006-11-20T10:47:00.000-06:00

This is another quick turn around trade in JOY Global (JOYG). I opened this option trade by selling 5 put option contracts last week with an expiration date of Dec 2006. Since that time the price has gone up to $43.32 as of the closing of this trade.

I sold these options in Joy Global at $0.95 and closed it at $0.5 roughly 4 days later. Net gain after all commission charges is $199 or 1%.

Some times I wonder if I should have used a regular brokerage account instead of retirement account. My returns would have been much higher due to margin trading even after tax impacts. May be I should do that in my regular brokerage account. And no I am not putting trades in my regular brokerage account on this or any other blog.

I think JOYG is a bit too expensive right now. I will have to see if it makes sense for me to trade it again.

Stay tuned!!!

MEMC Electronic Materials, Inc. (WFR) Put Options Expires

2006-11-18T11:51:00.000-06:00

I had sold 3 put options in MEMC Electronic Materials (WFR) on Nov 6. The strike price for these puts was $35 with option expiration date of Nov 18. This was a risky trade but the premium $0.98 was good enough to take this risk for 11 days.

In due course of time I did change my opinion on WFR. It became more positive and as a result sold 6 more put options on Nov 13 and 16 with expiration dates in Dec and Jan. Both with strike price of $35.

With closing price of WFR above $35 on last Friday my sold put option contracts expired worthless.

Profitability of this trade = $0.98 X 300 - $13.2 commission = $280.8

ROI = $280.8/($35*300) X 100 (percentage) = 2.67% in 11 days.

Life would be great if I could repeat this type of return every day ;-)

Investing Again In Apple Computer, Inc. (AAPL)

2006-11-17T08:42:00.000-06:00

What can I say I do like Apple computer, Inc. I was totally bummed when I could not invest in AAPL second time after my last trade. Then Apple's iphone rumored. Which, BTW, I think is a sure thing.

Need less to say that I wanted to be in Apple Computer. However, I am a bit uneasy. This is now a very well known stock. Too much money chasing it.

Decided to reduce the size of position that I take and will build it over time in case Apple does take a price hit. One of my risk management techniques in selling put options.

Selling 2 put option contracts with Dec 2006 expiration date. If price drops then that would be a time for me to invest more in it.

MEMC Electronic Materials, Inc. (WFR) Third Round Investing

2006-11-16T13:08:00.000-06:00

The current trading price for MEMC Electronic Materials (WFR) is above $37. The WFR put options that I sold were at a strike price of $35 to expire this Saturday.

I can safely assume that my 3 WFR put options (sold) will not be assigned. Yes, I know that we still have a day of trading to go but it seems to be a fair assumption.

My opinion of MEMC Eltronic has only improved so decided to sell 3 more put option contracts with expiration date of Jan 2007. This helps me further protect against near term price fluctuations while building up the stock portfolio.

Exited Continental Airlines, Inc (CAL) Trade Way Too Soon

2006-11-16T09:55:00.000-06:00

I exited Continental Airlines trade way too early. But then who would have known that this stock (CAL) will just sky rocket right after you get out. Oh well. This is what makes wall street so much fun.

So I decided to get back in Continental Airlines trade. Just now sold 5 put options again with Dec 2006 expiration date. This one seems less risky and I could afford to hold on to shares if put gets assigned.

Busy Trading Day for Joy Global, Inc. (JOYG)

2006-11-16T09:40:00.000-06:00

It has been a crazy morning trading Joy Global (JOYG). I had multiple open positions (sold) in Put Option contracts for Nov and Dec 2006. Today was the day to buy these put options back and close these two trades.

Profitability analysis

First trade: ($3.7 sold price - $2.95 purchase price) X 2 contracts X 100 shares per contract - $33.9 commission = $116.1

Second trade: ($1.2-$0.2) X 3 X $100 - $24.15 = $275.85

Total gain = $391.95

I am still very positive on Joy Global, Inc (JOYG). Selling 5 more put options with Dec 2006 expiration date.

Closing Sold Put Options In Continental Airlines, Inc. (CAL)

2006-11-13T15:00:00.000-06:00

Love this trade. I sold 3 put options in Continental Airlines (CAL) on Nov 9 for a strike price of $35 and expiration date of Jan 2007. Total premium received was $2.9 per put option contract.

While I still love Continental Airlines but the returns were too good to hold on to CAL put options. Few minutes before end of the trading day I had an opportunity to buy back these put options at the price of $1.9 each contract. Net gain of $1 per put option contract.

Need less to say that I wanted to lock-in the profit. As some smart person (much more so than me) once said "a bird in hand is better than 2 birds on the tree." Or something like that.

Total profit for this trade is $273.6 taking into account all the trading commissions etc. The ROI for this trade is 2.6% over 4 days.

Investing Again in MEMC Electronic Materials, Inc. (MEMC)

2006-11-13T10:27:00.000-06:00

Recently I sold 3 puts with Nov 2006 expiration in MEMC Electronic Materials (WFR). At that time I believed that it was a risky trade. However, I was OK in taking that risk in WFR.

Since that time I have changed my opinion of MEMC Electronic Materials. I think this would be a good company to own. Primary reason for this change of heart is MEMCs leadership position in solar panel segment of alternate energy industry.

So I am selling 3 more put option contracts in WFR with expiration of Dec 2006.

Investing In NVIDIA Corporation (NVDA)

2006-11-13T10:23:00.000-06:00

NVIDIA, I think is a great company with great products like graphic chips used in Apple Computers and I believe in gaming boxes. Although NVIDIA took a share price hit in recent past but clearly on its way up. More details on NVIDIA later...today is a busy trading day :)

I am selling 3 puts with Dec 2006 expiration date with $35 strike price. Even if these puts are assigned I will be glad to own these stocks.

Asset Allocation Model For Retirement Account

2006-11-12T09:37:00.000-06:00

One of the issue that I am struggling with these days is the asset allocation model. Given my situation what percentage of money should I keep in cash in my retirement account. I decided to present my views and seek advise from the readers as to what makes sense in my specific situation.

My situation:

Retirement Account
Desired investment returns in excess of 25%
Investment philosophy - Primarily stocks acquired using options. No Bonds.
Long investment time horizon

Higher the cash percentage lower the risk but lower returns as well. Need less to say that a 100% cash portfolio does not work for my situation.

Similarly a 100% portfolio of stocks and options could provide high returns. But it could also be a disaster from multiple perspectives.

If the market moves in opposite direction I could be wiped out. At least the losses would be substantial
A 100% stocks and options portfolio does not give me freedom to make further trades as the market situation changes. Which it will change with certainty

As I see either extremes are not good! Leads to the natural question.

What should be percentage of cash?

I am leaning towards a 30-40% cash in this retirement portfolio. This number would fluctuate but on average it would be the sweet spot. Overall, I think this asset allocation model offers

Enough flexibility in changing market conditions, and
Reduced portfolio volatility

Also I think it would be difficult for me to pin down exactly what this number would be for next 10 years. My asset allocation model would have to evolve with changing investment philosophies and market condition.

Since I am new at this allocation model for retirement accounts - I will have to lean on the readers of this blog. One, Please share your asset allocation model. Second, are there factors that I have not considered that you would recommend. Thanks in advance.

Investing in Continental Airlines, Inc - CAL

2006-11-09T09:05:00.000-06:00

Airline sector is one of my favorite. In last year or so every flight I have been on (and I have been on some flights) were totally booked. None or very few empty seats. It seems like ticket prices are going up almost everyday. While my traveling life is a mess due to airlines, they do seem to have a good business going.

High oil prices could be a problem for airlines. However, I think they have learned how to live with high oil prices. At least some of them. I think Continental Airlines is one of those who are managing high oil price situation well.

I like Continental Airlines (CAL). First they have good financials and growth. Second (and more important to my traveling life) they upgrade you to business class for domestic flights if you are a premium member. Read lots of frequent flier miles or you have no life. I wish they would start giving extra bags of peanuts in cattle class :)

Just now sold 3 put option contracts with January 2007 expiration date. It had very good premium - almost 10 percent.

Closing Sold Put Options In Apple Computer Inc - AAPL

2006-11-09T08:17:00.000-06:00

Just now I bought 5 put options to close the trade in Apple Computer (AAPL). If you recall I sold 5 put option contracts in AAPL on Oct 27th for a price of $1.18 per put option contract. the purchase price of $0.35 per put option contract gives me a profit of $0.83 per put option contract minus the trading commission.

So how did this trade go? I think good. Let's analyze the returns

Dollar Gain: 5 contracts X 100 shares/contract X $0.83/share - $36.4 = $378.6

Duration: 13 days (that the trade was open)

Percent Gain: 0.95%

So what's next for Apple Computer. I still like the company but have not decided what to do next. Soon!!!

Anatomy Of Selling Put Option Contracts On Stocks

2006-11-07T14:52:00.000-06:00

Many of the readers asked me to write a basic article on how I choose which put option to write/sell. Happy to share my thoughts. Please note that these are just my thoughts - a new comer to finance - feel free to modify them to your own situation and your risk taking appetite.

Yes! writing put options is a risky strategy. You can minimize these risks but they are there none the less. As the old saying goes - no such thing as free lunch!!!

Step 1 - pick a company that you would like to own. I mean shares. I do not write/sell options on the company that I do not want to own shares of. Recently I sold put options on JOYG and AAPL. And I do like both of these companies.

Step 2 - decide on margin trade versus cash secured. The difference being whether or not you have cash to buy the stocks if the trade goes against you. In other words do you have cash to buy shares if put options are assigned to you. One of my cardinal rule is to never buy on margin.

Step 3 - choose an expiration date for put option contracts. This is where the fun begins. It goes hand-in-hand with next step strike price. But for the sake of clarity I would list it as a separate step. The rule of thumb is longer the expiration date more premium you get.

I like shorter term option expiration dates. Two reasons. First, smaller the duration less time I am exposed to the risk of put getting assigned. Second, put options tend to diminish in value rapidly near their expiration date which means higher returns. Still trying to figure out all the "greeks." Will write more on them once I figure it out myself.

This is an important decision variable so give it some thought. You may have completely different ideas and that's OK. Its your money after all.

Step 4 - choose a strike price. This can have significant alter the risk profile of your trade. Rule of thumb - higher the strike price higher the risk. Yes, you get more premium but you better be sure that risks are worth it.

I don't like taking too much risk (Many readers, however, disagree) so most put options that I write have option strike price below the current trading price. Some times significantly lower.

You can choose a strike price based on how big a risk taker you are. Keep in mind this is your money.

Other considerations:

I want to make sure trade is worth the risk. It is a very subjective criteria. You may have your opinion on what returns are worth it
I don't like to sell all put options in one-go. Specially true for same expiration date and for same strike price. There are times when I have violated my this rule but not too often
Can't stress this any more - I do not like to sell put options when I do not want to own the shares in the company. For me it is nothing but a cost effective way of buying stocks

In another post I will go through more details of one of my trades - selling put options. Please define your own game plan. Its important to have your own thoughts, ideas, how, why, what and what not.

Hope this gives your some ideas on my put option writing strategy as of now. I am sure it will change as I learn more. As promised I will share thoughts as they evolve. This is a learning experience for me too.

Your thoughts please!!!

Investing In MEMC Electronic Materials - WFR

2006-11-06T09:19:00.000-06:00

OK, this is a very opportunistic trade in MEMC Electronic Materials - WFR. Overall I like this company but hoped that price would drop even more. Just noticed that I could get $0.98 per put option for Nov 2006 expiration. That's a good return for a company which you like to own. So why not - sold 3 put options.

Why do I like MEMC Electronic Materials - WFR?

Growth
Financials
Wafer - supplying to solar panel manufacturing companies. I think alternate energy is where the future is.
Price has dropped a lot since last high even though they had a good last quarter.

Lastly, due to high volatility it has good prices on call options. Needless to say I could generate some income from that too if these put options were assigned.

When To Buy Call LEAP Options Instead Of Stocks

2006-11-04T15:16:00.000-06:00

My last post on various alternative to investing in a company discussed strategies that I could take than just buying the company stocks that I am interested in. One of this alternative is to invest in LEAPs call options. The question is when would I invest in LEAPs and when would I purchase the shares?

First of all, what are LEAPs? It stands for Long-term Equity AnticiPation Security. They are options with longer expiration date. Typically 9 months or longer. It could be as much as 2 or 3 years.

So when would I buy LEAPs (call) over stocks?

Dividend factor - the stock that I want to buy does not pay out large dividend. Holding an option does not pay you dividend. It does help to get dividends - improved holding power, better cash flow are just couple of good reasons.

Low volatility - going into details of volatility is a topic in itself. Another day. The logic goes - lower the volatility lower the cost of buying call LEAPs. It costs less to buy those LEAPs.

Out-of-favor company - The company is good. I have done my homework. Yes!!! Also I think that it would go higher in long term (12-18 months). However, In short term there could be some fluctuations in stock price.

Want to test waters - I think that this company is good but not very sure. I am debating whether or not invest in it but overall leaning towards it. Instead of buying 100 shares I could buy 1 LEAP call option at a fraction of price. If my instincts are right I could buy more shares or call LEAPs at a later time.

Low on cash - I want to buy that stock. I think this will go up in next 12 to 18 months. However, I am low on cash. LEAPs could be a low cost alternative.

Better returns - Investing in LEAPs could be more profitable than owning the stocks. However, it is more risky. It would be good to see if someone has done risk-adjusted returns comparison of the two.

I recently bought LEAPs on Nokia Corp. (NOK). I did not want to buy stocks because I think Nokia will take some time to go up. It did have decent dividend but loosing that was acceptable to me. Last but not least I was not ready to put all that money there.

Hope this gives you some food for thoughts. As any options they are risky so read up before investing in LEAPs!!!

Down Market Strategy Gets Traction

2006-11-03T14:09:00.000-06:00

One of my article on what to do when market goes south on you seems to be getting lot of interest.

Definitely makes you feel good :)

Political Calculations selected it as one of the best post of the week. Thank you !!!

Next Round Investing in Joy Global - JOYG

2006-11-03T11:28:00.000-06:00

Since I last sold puts on JOYG it has dropped below $40. Should I be worried. To be honest I am worried a little. But then reasons take over. I still think that this is a good company and I do want to own its shares. So what should I do next?

I decided to sold more puts on JOYG. This time 3 put options with Dec 2006 expiration date. if stock drops further I would end up owning 500 shares of JOYG. My overall share acquisition cost would be fairly reasonable, however.

To summarize my logic for this trade

I like the company
Good financials
Growing revenue
I think macro environment is good for it
It meets my diversification criteria

So what are the downside risks

If stock price drops further I will have put options assigned
If stock price stays low the capital will be tied up

I think rewards out weigh the risks at this time. Lets see how does it go.

Perspectives - Sold Put Options And Stock Price Is Going Down

2006-11-01T18:43:00.000-06:00

My first two trades were to sold put options on Apple Computer (AAPL) and Joy Global (JOYG). Since I sold these put options the share price has been on a downward slide. Our first natural reaction would be that these trades were a mistake. After all they violated many rules of technical trading as pointed out by many of you.

So was these trades a mistake? I would have to say NO. At least for the time being. And there are many steps that can be taken to profit from this situation. Some thoughts below.

You can't judge a trade on a few days of downward move. Market goes up and market goes down and so do the stock prices. This would introduce huge amount of noise in decision making process. Need less to say I don't want the stock market price movement to be an indicator of my happiness.

Did I sell put options on companies that I wanted to own. This is my 101 of selling put option strategy. It is a key ingredient of risk management. I do think both of these are good companies and there are no new developments (that I am aware of) that would make me change my mind. It is not being stubborn. being stubborn in my opinion is a recipe for disaster.

Double up - buy more or write more put options at a lower strike price. This could be a good strategy if I still like the stock, have money to buy and it does not violate my diversification criteria. The diversification criteria, I believe, is really important. Without this you could keep on buying up while stock goes down.

Sell call options to make extra money while waiting for stocks to go up. I wrote extensively about this one earlier. No point repeating it again except couple of new thoughts -

Watch out for reduced volatility. This may reduce the rent on stocks
Emotional. Where to put the strike price could be a tough mental challenge

I am sure there are few more tricks. Would love to hear your strategies for dealing with this situation. Cheers!!!

LEAPS On Nokia - NOK

2006-11-01T08:52:00.000-06:00

Purchased 5 LEAPS (Call) in Nokia (NOK) Corp ADR. These Call LEAPS have a strike price $20 with expiration date of Jan 2009.

Why Nokia?

I think it is undervalued
Great product line and improving
Good financials
Market leader
Better brand recognition - first hand unscientific survey in Asia and Europe. Read people watching :)

This makes my third investment after Apple Computer (AAPL) and Joy Global (JOYG). Keeping fingers crossed !!!

Technical Analysis Blunders - AAPL, JOYG

2006-10-29T02:46:00.000-06:00

I received many emails and comments that my last 2 Trades - AAPL and JOYG violated good technical analysis rules.

First of all thanks for all the feedback. I really appreciate it. This is the only way I would learn.

So, why did I do it. the honest answer is that I do not know technical analysis. Recently, Moom posted recommendations on technical analysis books on my request.

I have started reading this Edward and Magee book. Its very good book but long. So, hopefully my technical analysis skills should improve with time but it may take some time.

Now, to the point of these 2 trades. I do want to own Joy Global (JOYG) and Apple Computer (AAPL). Using put options was simply a way to get these stocks a bit cheaper.

Investing In Apple Computer (AAPL)

2006-10-27T08:36:00.000-05:00

I decided to take a fairly large position in Apple Computer (AAPL). Sold five (5) cash covered puts with expiration of Nov 2006.

The reasons to invest in Apple Computer.

Great product line and growing - ipod, iTunes, iMacs and list goes on
Strong brand
Good demand in market place for its products - sales growth in excess of 30%
High caliber management team - read Steve Jobs
Stock price on an upswing
Good financials - profit margins, debt ratio etc

Apple's PE ratio of 36 is on high side but not so bad for a company with this kind of growth. Dell computer (DELL) has PE of around 20 with much lower growth rate and not as strong a product line.

I am violating one of my risk management rules of selling naked put options. But what the heck some time you have to take chances in life and this one seems like a safer bet. Time will tell :)

10 Tips To Minimize Risk In Selling Put Options

2006-10-25T09:46:00.000-05:00

As promised here are my 10 rules-to-live-by for minimizing risk in selling put options:

Write put options only for the stocks you want to buy
Don't sell puts on margin
Don't sell naked puts. Make sure you have enough cash to buy stocks if put is assigned to you - cash secured puts
Set option strike price below the current stock trading price. You make less money but carry less risk too
Don't write all put options at the same time. Do it over time in small quantity to acquire number of stocks you wanted to purchase anyway
Diversify across industries
Diversify across strike dates
Diversify across strike price
Consider other safer option trading strategies in lieu of selling naked puts
Write put options only for the stocks you want to buy - Did I mention it before!!!

What strategies have worked for you?

Risks In Writing Naked Puts Options

2006-10-24T12:10:00.000-05:00

I previously discussed writing naked put options as a way of buying stocks (that you want to own) for less money. Many of the readers emailed me on the issue of risk in writing naked puts. I am no authority but here is my point of view. (Please note that I tend to interchange selling and writing options. They have same meaning.)

Empty Spaces presents a good example of naked calls and puts. However, I disagree with him on one point. He mentioned that "There is unlimited risk in selling naked calls (or puts)."

There is definitely an unlimited risk in selling naked call. Theoretically, stock price could go to infinity (Or very high at least) and with naked calls your losses could be limitless.

For selling Naked puts on the other hand your losses are limited to the share price (to be precise, strike price minus premium received). After all, stock price can only fall to zero. In other words same risk as in owning stocks to start with. So, in my opinion, risks are less than selling naked calls but definitely a high risk strategy.

In another post, I will go in more details of some of the risk management strategies on writing/selling naked puts.

Money Is In The Bank

2006-10-23T11:19:00.000-05:00

Finally, its all there. Deposited remaining $91,000 to the brokerage account. That makes it $100,000 as planned.

Excited !!!

Some Strategies For Down Market

2006-10-22T10:09:00.000-05:00

We all love market moving up. And why not. After all most of our investments in various companies are in stocks and we make money money only when they move up. Agree that there may not be one-to-one correlation between market going up and your stocks moving up. But, that is the case more often than not.

I have been thinking about what to do when market moves down. Which it invariably does. Here is some food for thought. Please feel free to add to this list.

Maintain a Stop Loss Order - This is a no brainer. If you were to maintain a stop loss order then in the event of market going down your losses are limited. At my brokerage account I have 2 choices. One to set the stop loss order by percent and second by fix dollar amount. Either should work fine based on your preference.

This strategy does have one major down side. A day to day fluctuation in stock price could make you sell the stock. None the less this strategy could save you from major market downward moves

Short Sell - A very popular strategy with investment pros. Here you essentially sell the shares you don't own (basically borrow from broker) and buy them later. Hopefully, you buy at a price lower than the price you sold it for in the first place.

On one hand this could yield some handsome profit. It could be very risky. I can imagine losses that can mount if the stock price goes up. I would take this as an option to use sparingly.

Buy Puts - You could buy puts for individual stocks or for index like QQQQ. Here maximum risk you have is the amount of money you invested in buying puts. This could, however, create some very good profits if market or stock goes down.

Sell Covered Calls - Suppose you own certain stocks and don't want to sell them just because market is on a down trend. Classic long term investors. Selling Covered Calls provides you extra income while your stocks are going down. How much money you make depends upon how aggressive you are in writing these covered calls.

There are few more strategies involving options such as spreads that provide protection from down markets. The idea is that you can make money from down markets and not just from up market moves.

Why Am I Not Investing In Bonds

2006-10-20T16:07:00.000-05:00

Lets review the returns from bonds. Following is a chart of treasury offerings from Yahoo Finance

As you can see from chart, the returns (yield) are below 5%. The returns are somewhere in 5-6% for good (A or better rated) corporate bonds. This is too little a return for money and the risk that I would be taking (locking up cash, interest rates moving up/down etc).

Yes, there are many pros of keeping bonds in the portfolio. However, for me at this rate of return it does not make sense. So what are the alternatives:

keep it in money market - returns are lower by 1% or so but have freedom to use money as I wish
High quality stocks with growing dividends like GE. I could make 2.8% in dividends and with dividend growth rate it only gets better. The added plus of security moving up in value. I can earn extra income writing covered calls. Something not possible with bonds (at least I have not learned it yet)

I would reconsider moving into Bonds if the yields were 8% or better for 10 year corporate offerings. At least a part of portfolio to reduce volatility.

Would love to hear your thoughts?

First Trade - JOYG

2006-10-18T15:38:00.000-05:00

While waiting for rest of money to transfer I came across an investment in my selected list of industries that looked promising. The company is Joy Global (JOYG). Joy Global is an equipment manufacturer for mining industry and seems to be out of favor.

With limited cash, I was able to write 2 cash secured puts for Nov 2006. Reason for writing puts over out right buying stocks is that I wanted to get the stocks a bit cheaper.

Would appreciate any comment or info on this company.

Internet Blues - Asia

2006-10-17T13:56:00.000-05:00

Long hiatus. Could not post in last few days in spite of more efforts than ever. Did not realize that a decent Internet connection, that we take for granted, is a luxury in many parts of the world. Yes, this is the experience from my trip to Asia.

But this also spells an opportunity. Many of these countries are trying very hard to play in international market. I believe that they would have to upgrade their communication infrastructure significantly. Is this time to invest into Telecom equipment makers? Add another industry to the list.

Also, I have not been able to work on getting the money in account. Plan is to get back at it as soon as I reach home later this week.

Investing In Companies - Stocks or Options?

2006-10-12T11:55:00.000-05:00

Yesterday, I wrote about the exercise of picking companies. The remaining question is what is the best way of investing in these companies. My assumptions are

These are the companies I would like to own a piece of, and

My projections of how these companies will perform in short and long term. The tough part.

So are my choices limited to owning shares in the companies? Certainly not. I have choices among owning bonds, stocks and options.

I eliminated bonds in this discussion for the time being. Topic for another day. Lets explore other choices.

Buying stocks outright - This makes sense when I am fairly certain that this company has upside potential both in short and long term. This is also the company that pays good dividend to provide me with holding power when stock is not moving up or staying at its place. Good for emotional support anyway.

I find that these are the companies that can form the core of my portfolio. They would help me reduce volatility and could be long term holdings. It could also help with lower taxes but not an issue in my case as I am investing in a retirement account.

Last, it does require fair amount of cash outlay upfront. This could be OK if the stock does not go down in short term else it is tough on emotions of holding power.

Buy short term call options - if I am very sure that stock is on a upswing on a short term and I do not have enough cash then buying call options could be very good strategy. the returns could be huge due to option leveraging.

This, however, could very risky. Sort of loosing 100% if your assessment upward move is wrong. This makes me very uncomfortable unless I am very very sure.

Buy long term call options (LEAPS) - I could also buy longer term call options. Typically known as leaps. This could be a low cost strategy. At least lower cost than owning stocks outright. Once again risk of loosing all your money is there. But then I am assuming that I have done my homework in picking stocks. I could go for this strategy for some of stocks.

Sell put options - In this strategy I could choose a price at which I am willing to buy stocks. If price drops (below strike price) I would end up owning the stock at the price I set. If price moves higher I would not be able to buy stock but would make some money waiting to buy.

I like this strategy when I am not too sure about stocks upside move potential. The negative side - you loose the upside if stock really moves up. Well, as some smart person said - there are no free lunches in life.

So the nest steps is to select a strategy for each of the stocks in my portfolio. Should be fun.

Narrowing The List Of Companies To Invest

2006-10-11T21:33:00.000-05:00

Given that I have selected industries and the account is open (only waiting for money to be there), the next steps were to pick the stocks. So I spend last 2 days narrowing the list of companies that fit my investment criteria.

The good part was that it was not too difficult to find companies that meet criteria. That was also the bad part, too many companies. It became an iterative exercise to tighten up each criteria just a little to further narrow the list. Deciding which parameter to value more over the other was a daunting task. I created a systematic plan for this exercise - heavily influenced by Analytic Hierarchy Process (AHP). This technique was very helpful to take out the emotional aspect of decision making. I will post it here once it becomes little more coherent and stands the test of time.

Final list at last. I now have top 2 to 3 companies in each of my selected industries.

This was a huge learning experience. Not to mention fun. A realization that this exercise has to be done regularly. Hopefully, it would be less time consuming next time around.

The immediate next question - what is the best way to invest in each (or some) of these companies? No concrete thoughts so far. But soon I will have something concrete to report.

New Retirement Account Opened

2006-10-10T11:08:00.000-05:00

Yes. The game begins. I have a brand new shiny retirement account at Fidelity. This is to track the progress according to the goals. This retirement account allows me to trade stocks, bonds, mutual funds, etf and of course options. No commodities.

The bad part is that right now I could only put $9,000 in it. Realized that rest of the money is tied in up in investments. The plan is to put $100,000 by end of this month. I guess will have to revise the first year goal.

Excited!!!

Zero Cost Trading!!!

2006-10-09T15:59:00.000-05:00

There is a new kid on the block - zecco.com with free stock trading. To be fair they are charging money for options and other premium service. Cool site and concept. Look forward to more information on how good they are to use. But for the time being I am sticking with my old broker. Given that I would trade lot more options they would not be cost competitive.

Featured in Carnival

2006-10-09T15:16:00.000-05:00

This is exciting. My first post in Personal Finance carnival #69 :) Thanks Flexo for arranging it.

Another Covered Call Strategy

2006-10-09T10:40:00.000-05:00

What a conincidence. Since I wrote about covered call strategy with Google as an example, the stock has moved up close to $430 in my fictitious example. Hopefully, this illustrates the risk of covered call strategy - you loose out on upside. But it is still a very safe strategy.

A variation - again taking Google (goog) as an example. This is right now trading around $429. In this strategy one buys 100 shares of goog and sells one (1) call. Remeber one call = 100 shares. Suppose you sell one 450 call for Oct 21st (2 weeks out) you could get approximately $6.6 for it.

So if Google goes about $450 by Oct 21st, you will have to sell it for $450. if not, you have the shares and can sell another call after Oct 21st. In either case you keep $660 ($6.6/call * 1 call * 100 shares). That's approximately 1.53% profit on call or 40% annualized (if you can repeat the story).

Need less to say that this is also one of my favorite strategy.

Rent Your Stocks For Extra Profit

2006-10-08T13:47:00.000-05:00

OK. This is a catchy title but the real idea is not too far from it. Consider the scenario - you have certain stocks in portfolio that you are waiting to increase in value. Why not make some money from these stocks while waiting?

The strategy is known as "Covered Call" writing. The idea is simple. You sell a call for the stocks you own. If the price of the stock stays below the strike price of your call by the expiration date you keep the money. Else you end up selling your stocks at the price of the call.

Lets take an example of Google (symbol: GOOG). Suppose you have 100 shares of Google. Last Friday's closing price is $420.5. Now check various options available for GOOG. Suppose you are OK to sell your 100 shares for $430 by Oct 21st. You could sell one (1) call for approximately $10.25 (average of bid and ask for illustration purposes) per share.

Two things can happen

Google goes above $430 by Oct 21st - you have to sell your shares at $430.
Google stays below $430 by Oct 21st - you keep your shares.

You keep $10.25/share or $1,025 (1 call = 100 shares) in either case. That's roughly 2.4% for 2 weeks. Not bad.

Make sure you OWN the stocks before you sell covered calls. Else you will be taking on some serious risk. Consider reading more details at Chicago Board web site.

This is one of my favorite strategy. Enjoy!!!

Low P/E Ratio - Secret of Investing?

2006-10-08T08:43:00.000-05:00

A P/E (Price divided by yearly earnings) ratio represents how cheap or expensive the stock is. Or how much premium market is willing to put on this stock. Value investors live and die by low P/E investing philosophy. This site gives a good over view of value investing.

So, the question - Is buying lowest P/E ratio stocks, the secret of investing?

There are many success stories written around the blogsphere on low P/E investing. Here and here is a good example.

What do I think?

Low P/E is important but not that important. A company may be cheap for a reason - poor performance, poor products, poor growth and so on. However, if you find a company which is not broken then low P/E ratio is a good candidate for investing.

To decide whether a company has low or high P/E ratio - compare it to the companies in the same industry/sector and to the market (NASDAQ, S&P 500 etc). Companies in bottom 20% P/E ratio can be considered cheap.

However, keep in mind you get what you pay for. A low P/E ratio company may not always be a good investment. I prefer low to moderate P/E ratio stock. I would consider investing in high P/E ratio if everything else for a company looks good.

Your thoughts?

Why Not Invest in Futures Market?

2006-10-07T16:52:00.000-05:00

A friend asked me over brunch today - why am I not considering investing/trading in Futures market. Trading things like currencies and commodities like oil.

Good question. Why not?

Simple reason. I am clueless about trading futures. No idea at all. However, I do agree (with him) futures trading could be as risky or rewarding as stock options. But, risk factors goes up exponentially if you don't understand them.

Also need to start somewhere. So stocks, bonds and options is it for now. If I learn more about futures and it makes sense then why not. But not now.

Options 101

2006-10-06T19:56:00.000-05:00

Time to freshen up my option trading skills. I remember being very very confused by what is a "call" and what is a "put." Then the whole "buy" and "sell" part. This little diagram was very helpful. Thought I should share it with you.

Here on vertical axis you have 2 types of options Calls and Puts. On horizontal axis you have buy and sell. This leads to 4 choices A,B,C and D. Lets explore them in more detail in context of stocks. Area of my interest. Pay special attention to words in red color.

A = Buy Call - Gives you the right to buy the shares (of the company for which you bought this option) at the fixed price (that you choose when you buy this option) until a fixed date (that you choose as well). There are variations like "American" and "European" options. They actually have nothing to do with America or Europe. For all practical purposes you can exercise your options up to the date you selected.

C = Buy Put - Gives you the right to sell the shares at the fixed price until a fixed date. very similar to case A above. One key difference - make sure you get that right.

B = Sell Call - You now have obligation to sell shares at the fixed price until a fixed date. Watch for the word obligation. This one you are forced to sell your shares (You better have them). That means if price goes up you loose out.

D = Sell Put - You are obliged to buy the shares at the fixed price until a fixed date. You better have cash to fork out. Remember if price drops you are still buying them at the price you agreed to.

These strategies are simple but have all sorts of risk associated with them. I lost money on many of my trades in the beginning. Hopefully, this gives you some idea. Please read up before trading these. Web has lots of information. Chicago Board is a good starting point.

My Top 5 Industries To Invest

2006-10-06T09:19:00.000-05:00

I decided to pick 5 industries to diversify. Here they are

Internet and High Tech - I believe this is what the future is. Also probably the companies I am most familiar with. The companies here seem to be a bit out of favor at this time but that's OK.
Metals and mining - Although there is a lot of talk about economy slowing down, this group still makes sense. Most companies are global and rest of the world is not slowing down.
Travel related - Every flight that I took in last one year has been crazy. Not a single empty seat. This group better make money.
Software companies - If companies have made a lot of money then they must upgrade their software. I mean Enterprise level stuff.
Retail - Neither I have reduced my shopping nor anyone I know of. We are the credit card driven country after all :)
OK the title says 5 but when I wrote 5th one realized the credit card point. So the 6th one is Financials. The companies that issue credit cards.

Now the next goal is to pick some good stocks in these industries.

Scattered Retirement Accounts

2006-10-05T20:18:00.000-05:00

What a mess!

Since I finalized the broker thought I should open the account according to goals. This is when I realized I have multiple retirement accounts with multiple brokers. Ignored accounts. Paying fees for nothing. Cash sitting in money market accounts.

Moreover, there are old 401(k) accounts that I have not even looked at. These are the companies I worked many years ago. One of them is even acquired by another company.

I must be an idiot.

Well, there is a silver lining in all this after all. I have more money than I thought. I know this is a twisted logic.

Finally, I will be cleaning it up and for good. Flip side, it would take another few weeks before I could open the new account (and put money) for this blog. New time line by end of October.

Lesson learned.

Selected a Broker

2006-10-05T10:08:00.000-05:00

And the winner is - Fidelity

The difference between various brokers I was considering was minimal. They all seem to have most of what I was looking for

The key differentiators were

Familiarity. I have some other accounts with them as well
Good research. I think they had an edge here
Physical location. Important!!!

Also, I never had a trouble with them in last many years so why change.

Trader or Investor?

2006-10-04T22:15:00.000-05:00

Which one am I?

Spend whole day thinking about it. Definitely a day trader but I seem to fall in both camps.

Is this a bad thing? Should one be either investor (long term) or trader (short term)?

I think this duality may be my defining strategy. Keep an investor perspective for good companies and a trader perspective for OK or even not so good companies.

Any perspectives?

And DOW Goes Even Higher

2006-10-04T22:09:00.000-05:00

DOW 11850.61 - It seems like my not being worried worked out OK today. But, more interesting question would be what would I do differently if Dow started going down. Would I sell the stocks. Not really. However, if it was options I might have.

Dow All Time High - Should I be Concerned?

2006-10-04T10:24:00.000-05:00

Yesterday Dow reached all time high of 11,758.95. Definitely a good news. But it also makes me worry if we are reaching another high where if I buy I may end up loosing again.

Exploring further, Reuter reports that 18 of 30 Dow components are lower today than on Jan 14, 2000. When Dow made the last high. If names like General Electric, Intel and Home Depot are lower today, I guess I should not worry much.

Waiting to see when NASDAQ and S&P will reach their highs as well. I may get worried then!

My Stock Picking Philosophy

2006-10-03T18:31:00.000-05:00

To be honest. I don't have one. Ooops! Never gave it much attention but can't avoid it now. Can I?

So, how would I pick my stocks for this journey. For now, this is what my plans are

Company with good products that I know of. For example Apple. I love their products like iPod, iMac and iTunes
Should not be very expensive. Low to moderate P/E ratio
Good growth rate
Good financials. Low debt and enough cash so that they don't go belly up
Favorable Macro climate. Don't want to buy a housing company when real estate market may be iffy
No tips. All stocks must be studied. I have seen people go crazy when Cramer mentions a stock on CNBC TV show Mad Money
Last but not least, no crazy legal stuff like options scandal or accounting fraud. I don't understand it - Not a lawyer or accountant for that matter

Lets see how does it go. I am sure this list will evolve as I learn more about this thing called stock market.

Investing Goals -- 20% For Year 1

2006-10-03T10:40:00.000-05:00

The common wisdom says that my investing returns from stocks, bonds etc would be no better than that of S&P 500. In long term most frequently used return is 8 to 10%.

I am going on a limb here. Firm believer in stretch goals. Lets set a target return to 20% for year 1. This means I have to make $20,000 from investment. Grow the total to $120,000.

Of course, I will report progress and the trades regularly.

Damn...need to hurry up with broker selection and money transfer.

What Am I Looking For In A Broker?

2006-10-03T07:38:00.000-05:00

So far I am some what familiar with trading stocks, bonds and stock options. Don't know how to trade currencies, commodities or other exotic stuff. So my criteria for broker selection is

Ease of use - Given that I am not a pro it should be designed for novices like me
Good research - Hey! need to find things to invest into
Low trading fees - It seems like everyone has low fees so this may not be deciding factor
Good customer service - I would even prefer if they have physical locations. Nothing beats walking into a brokers office and giving them a piece of your mind :)
Online trading capability - Goes without saying
Good execution capabilities - In the past I had trouble with one of the broker. They bought instead of sold my stocks. This one was scary!
No hidden fees stuff - I would like to know upfront what am I getting into
Stocks, bonds and stock options trading - this is what I want to trade

I realize that making an ultimate selection criteria list would be impossible. So will go for something reasonable now and if need be switch later.

Any recommendations?

More Decisions - Which Broker?

2006-10-02T20:38:00.000-05:00

The easiest answer is to stay with my current broker - Fidelity. But, then there are so many other choices - etrade, Ameritrade, Scottrade...

A friend suggested optionsxpress. Could be interesting given that I do like trading options.

Time to do more research.

Retirement or Regular Account?

2006-10-02T20:32:00.000-05:00

I am leaning towards retirement account. Few good reasons

No tax hassles. Keeps life simple
I don't need this money for a while. Guess it pays to start early.

Ah! One major negative depending upon perspective - can't trade on margin. May be its not such a bad thing after all.

Retirement account it is then!!!

An Ambititious Journey!!!

2006-10-02T19:56:00.000-05:00

Got tired of all the investment gurus saying that a regular person like me can not be a good investor. They can not consistently produce good results.

Really!!!

So I decided to put my money where my mouth is. The goals for this blog are very simple.

Put $100,000 in a separate account
Invest in publicly traded things (stocks, bonds, options and so on)
Grow this to a cool million. And do it faster than Investment Gurus

This is not meant to be an investment advise. Don't buy, sell, trade anything because I did it. You will be doing it at your own risk.

I don't know how, what etc. But will figure it out as time goes on. Please join me in this journey. Let the fun begin :)