Daily Investment Interpretations

February 5, 2011

2011-2-5 (Saturday) To continue with last night's story, I should probably confess that not only was it foolish of me to repurchase on Thursday at a higher price calls on the stock that Mr. Meiers had featured on Wednesday morning, after I had sold them at a profit on Thursday... it was also foolish of me to have bought the 20 calls on Wednesday morning in the first place rather than just one call. I'm not yet certain how well Mr. Meiers' stock trading service is going to work over the long haul, and I'm raising the risk level by immediately switching from buying the stock itself to buying calls on the stock. It won't hurt to spend a week buying and selling just one call on the stocks that he is endorsing before graduating to two calls and then three and then four, and so forth. I let my greed trump my fear. And to be successful as an investor, one must be dispassionate and rule-based about what one does.
    Second, starting on Monday, I'll begin purchasing March 19 calls rather than February 19 calls. The reason is that (a)  February calls will turn back into pumpkins on February 20th, and (b) as we get closer to February 19th (which is a week from Friday), the prices of the options will fall as their risk premiums shrink to zero. To illustrate this point, at the time that I sold my $31 calls, the price of the stock was $32.25. That means that the intrinsic value of each call was 100 X ($32.25 - $31) = 100 X $1.25 = $125. The value of my call at that time was $151, of which $125 was intrinsic value and $26 ($151 - $125) was the time-decaying risk premium value of the call. By a week from Friday (the February 19 options expiration date), the value of that call if the stock were at the same $32.25 price it was at yesterday's close would be only a trifle more than $125. 
    Third, starting on Monday, I'll buy calls that cost at least $200. They'll rise and fall almost as much as the $100+ calls, and they'll be less susceptible to dips in the stock price.
    Fourth, about ⅔rds of Mr. Meiers' suggested stocks aren't suitable for margin purchases. This is a tricky subject, and unless someone is well-versed and experienced in options strategies, I'd recommend sticking to Mr. Meiers' script. If it can return 25% every two months, it would quadruple every year. And if a way can be found to keep one's money fully invested, it should allow quadrupling every two or three months.
    I'm just getting warmed up, but once again, I've run out of time. If I can arrange it, I'll write more tomorrow.