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Archive for January, 2012

GNW Earnings on Feb 2, 2012! Buy Call Options and Sell Put Options on Stock Weakness Today!? By: Tim Bolger

I discussed the big run up in Genworth Financial(GNW) over the past few weeks in a previous post on Optionshoney.com.  The broader stock market indexes are all in slightly negative territory this afternoon as gold and silver continue to march higher!!! What is the play on GNW into earnings next week!? I am personally sticking with my bullish call on GNW and want to have long exposure going into earnings next week.

What is the Options play?

Options Trade#1: I would think about buying the GNW March 17, 2012 7 and 8 strike Call Options. Gnw shares are trading down around 4% today and I would be a buyer of these options at 1.08 and .50 cents a contract. I can purchase 10 contracts for a $1.08 ($1.08 x 100 shares per contract x 10 contracts=$1,080) and 20 contracts for .50 cents (.50 x 100 shares per contract x 20 contracts=$1,000) for a total cost of $2,080 plus trading fees. For a few thousand dollars, I will get long exposure to 3000 shares of GNW going into earnings next week.  That is called leverage with purchasing Call Options. Buying 3000 shares of GNW stock today would cost me close to $23,100. If they beat the street and give any positive signals about a rapid decline in mortgage defaults or a housing recovery, this trade will be very profitable. If they miss and the stock tanks, I could lose a total of $2,080 plus fees on this trade. Remember options are very risky and extremely volatile.  Please remember to consult your investment advisor before making any stock or options purchases.

Options Trade#2: I would also be a seller of the Feb 18, 2012 7 strike Put Options for .30 cents a contract. If I sell 20 contracts I will credit $600 to my brokerage account. Worst case scenario, I get exercised on the shares and I have to purchase 2000 shares of GNW at $7 for $14,000 plus fees. By selling the Put Options I will reduce the cost of buying the 2000 shares by the $600 credit to my brokerage account.  Best case scenario, they blow out earnings next week and I keep the $600 without having to buy the shares…However, my long term outlook and price target on the stock is 17, so I like owning the stock at these levels.  The book value of GNW shares is close to $28 a share…Good luck Longs!! Till next time on Optionshoney.com.

5 Year Chart on GNW courtesy of Fidelity Investments:

Chart

Hecla Mining Rallying on Big Volume!! March $5 Call Options!? By: Tim Bolger

I previously posted an article/options play on Optionshoney.com regarding the huge sell off in Hecla Mining (HL) shares and argued that the sell off was overdone. Read more at http://optionshoney.com/2012/01/11/hecla-mining-pounded-on-huge-volume-lets-mine-the-honey-with-options/.  I was looking for a bounce in the shares in the short term and that has come to fruition in the past week.  HL is rallying over 4% this afternoon and is moving much higher alongside several other metals stocks and rare earth mining stocks.

What are my Options Honey??

I still like the HL Mar 17, 2012 $5 strike Call Options for around .30 cents a contract. Stay tuned for more and go bulls on HL!! Check out the 10 day chart below on Hecla Mining (HL) and you can see the big bounce in the shares after a huge sell off.  Also in the chart, is Silver Wheaton (SLW), which is another top metals pick for me. I will discuss SLW in greater detail in posts to come shortly on Optionshoney.com.

Chart Courtesy of Fidelity Investments:

Chart

Rare Earth Miners Up Big in Late Trade!! Options Active on Molycorp and Avalon Rare Metals!! By: Tim Bolger

After a pullback the last few days, Rare earth miners are staging a late day rally.  Why is this happening? Several possibilities, including big Tech earnings by Apple. These rare earth minerals are vital for building technology products like the ipod, disk drives, Mp3 players etc.  Another very likely reason for the spike in shares is the Fed pledging this afternoon to keep interest rates at historic lows through late 2014…that is a formula that spells a weak U.S. dollar and rising metals prices to me…that all equals rapid inflation to me…Keep an eye on a few of my favorite stocks in the rare earth space, which include: Molycorp, Avalon Rare Metals, and Lynas Corp. Tickers MCP, AVL, and LYSDY.pk.  All of these stocks are up over 5.5% on big volume today. MCP is up over 7% and Lysdy.pk is spiking 10%…Show me the money honey!!!

 

Remember my previous post on buying the Call Options on AVL…that trade is still in full effect and I like the Call Options on Molycorp(MCP) as well. I would think about buying the MCP Mar 17, 2012 30 strike Call Options for 2.35 a contract, with a slight pullback in the shares of Molycorp.  I am also still a big fan of the AVL Mar 17, 2012 3 strike Call Options for .25 cents.  Rare Earth Miners have room to run much higher in my opinion. So, Stay tuned to Optionshoney.com for more news on the Rare earth miners and options plays!!

 

Chart Courtesy of Fidelity Investments:

Chart

Technology Giant “Apple” Spikes Higher on Blow-Out Earnings Report!! What are my Options Honey?? By: Tim Bolger

Apple Inc.(AAPL) blew out Wall St. Analyst expectations with its quarterly earnings report released last night. Steve Jobs thank you…you were a legendary business player and the most innovative technology pioneer that ever walked the planet. And now thanks to all of your hard work Mr. Jobs, Apple has just surpassed Exxon Mobil as the largest and most valuable company on planet earth by market capitalization. WOW!!!! [$$] Apple Again Becomes Most Valuable Company, So What’s Next?at The Wall Street Journal(Wed 10:06AM EST)

Who bought shares of AAPL in 2000? Well if you invested just $10,000 on the stock back then, you would be a multi-millionaire today.  The ipod, iphone, mac-books, ipad, etc have been one blockbuster innovative technology product after the next…Consumers around the globe have been buying all of these AAPL products like hot cakes and just can’t get enough of them. The halo effect has helped AAPL continue to dominate and sky rocket higher!! Everyone that I know with an iphone absolutely loves it…Sorry Blackberry and RIMM…Hello iphone and Android…And now there are over 500,000 mobile apps for that sleek, trendy mobile phone.

Let’s take a closer look at a few amazing financial statistics on Apple.  It is currently sitting on over $97 billion in cash and securities!!! What should Apple do with all that cash??  Well, I would argue they should have bought back millions of shares(treasury stock) the last few years and that would have been the best return on their capital for shareholders as AAPL shares continue to sky rocket higher!!  Well, they missed that boat and now is time for the company to consider paying out a special dividend to shareholders and consider acquiring smaller technology companies that they see fit to add more value to shareholders.  Apple is sitting on $103 in cash per share.  AAPL now has  a market capitalization of over $418 billion and hit an all time record intraday high of $454.45 a share today. Will AAPL hit a $1 trillion market cap in the next decade? Maybe the next 5 years?? It is starting to feel very realistic and only time will tell the rest of this amazing Tech story…

What is the Options play? Well, clearly buying the Call Options now are very expensive and that should have been done prior to this blow out quarterly report by AAPL and big spike in the shares…I would wait for a big pull back in the shares before buying any out of the money calls on AAPL.  I do feel that the longer term trend in AAPL shares is still much higher and think the stock could hit $525 in 2012.   The law of large numbers tells me that the stock may pull back to around $415, before surging to $500+ though and would wait for a pull back in the stock to buy Call Options or shares of the stock.

However, for the short term trade, I would consider selling the $440 Feb 17, 2012 AAPL Put Option for $12.70.  Yahoo Finance Options Chain: http://finance.yahoo.com/q/op?s=AAPL&m=2012-02. Keep in mind that in order to sell 1 Put Option contract on AAPL at a $440 strike, I will need $44,000 in cash in my brokerage account in case I get exercised on the AAPL shares. By selling this Put Option, I will receive $1,270 and I am comfortable with the worst case scenario of being exercised on the shares at $440. Best case scenario, the shares remain above $440 through the Feb expiration date and I pocket $1,270 without having to buy the shares as well. For longer term AAPL investors, I would wait for the shares to pull back to the $400-415 range before loading up on the shares or adding to already existing core positions in the stock.

Stay tuned to Optionshoney.com for the next big opportunity to buy some Call Options on AAPL, if the stock pulls back 10-12% from its current stock price level of around $447. I will be waiting patiently on the side line for an opportunity to buy these Call Options if AAPl stock pulls back to around $415.  If it continues to go straight up, I may have missed the boat on this trade and will just have to watch it keep flying higher.

Buying Call options after a big spike in a company’s shares is always a high risk trade and not one that I want to put my money on very often. Patience and timing are both very instrumental in making money and winning Options trades.

Chart Courtesy of Fidelity Investments:

Chart

E-Commerce China DangDang Inc(Dang) Soaring in January! Call Options Active! By: Tim Bolger

Chinese E-commerce company DangDang Inc(Dang) has been soaring in the past month and is up big this week on heavy volume. Dang profile: http://finance.yahoo.com/q/pr?s=DANG+Profile. The shares may continue to see huge upside over the long run and is a high growth/high beta stock.  It was recently announced that famous institutional money manager Tiger Global Management has increased there holding in Dang and is the largest institutional shareholder of the company. Clearly, they are betting on the long term growth of Dang as well and have an extremely successful track record of making money in the global equity markets.  Check out this recent article by Seeking AlphaDangdang: Like Rolling Back Time To Buy Amazon At $6at Seeking Alpha(Tue, Jan 17).                                                        

So what is the Options play on Dang??

Options Trade#1:  I like selling the Dang Feb 17, 2012 7 strike Put Options for .65 cents a contract. If I sell 10 contracts I will collect a premium of $650 minus trading fees. If the stock closes above $7 at expiration, I will make $650 minus fees. Worst case scenario, I get exercised on the shares and I am comfortable being long the stock at $7 a share.  By selling the puts it will help finance the potential purchase of 1000 shares of Dang at $7.  Ten contracts x 100 shares per contract=1000 shares. To put on this trade, I will need $7,000 in collateral in my brokerage account in case I get exercised on the shares of stock. Here is the yahoofinance options chain http://finance.yahoo.com/q/op?s=DANG&m=2012-02.

Options Trade#2: For the big Dang bulls, I would think about buying the Dang Jun 15 2012 8 and 9 Call Optionshttp://finance.yahoo.com/q/op?s=DANG&m=2012-06 I like the 8 strike Calls at .95 cents and the 9 strike Calls at .45 cents on a pullback in the stock to around 6.75.   I also like buying the 1o strike leap call options on Dang.  I would think about buying the Dang Jan 17, 2014 10 strike Call Options for around 1.90 a contract.  http://finance.yahoo.com/q/op?s=DANG&m=2014-01. If Dang stock trades back to over 30 in the next few years, these leap call options will be worth big money!!  Stay tuned for more action on optionshoney.com.

http://finance.yahoo.com/q/ta?s=DANG&t=6m&l=on&z=l&q=l&p=&a=&c=

Chart forE-Commerce China Dangdang Inc. (DANG)

Genworth Financial(GNW) Roaring Higher! Does Housing Bottom in 2012? By: Tim Bolger

Genworth Financial is a financial holding company, with its core business focused on selling insurance and additionally provides wealth management, investment, and financial solutions for individuals in the U.S. and around the World.  The three main facets of the business are: Retirement and Protection, International, and U.S. Mortgage Insurance.  See the full profile at http://finance.yahoo.com/q/pr?s=GNW+Profile.  The company has been very profitable historically, but the black swan events of the U.S. housing crisis and an unprecedented amount of defaults on mortgage loans that the company had insured led to alot of bleeding for GNW shareholders the last few years.  I have been following the stock for four years and I am beginning to see alot of value in the stock.  I believe that GNW will make it out of this housing mess alive and that it is well positioned to profit from a recovery in housing.  I strongly feel that long term investors buying more GNW shares on this temporary weakness in share price and peaking number of mortgage defaults will be rewarded in 2-3 years when the storm blows over.

GNW has been crushed over the past few years and has a high beta of 2.9 for all those momentum players out there.  I think that housing bottoms in the next 12-15 months and a significant decline in U.S. and European mortgage defaults would be great news for GNW investors.  Once the Mortgage insurance unit at GNW stabilizes and starts making money again, this will be the major catalyst and turning point for GNW stock to soar much higher.

From a deep value investor standpoint, currently GNW trades at $8.22 with a .24 Price to Book, .37 Price to Sales, and has a forward Dec 31, 2012 Price to Earnings of 6.5.  Those are extremely cheap stock valuation numbers that greatly support my thesis for buying GNW shares for the long term.  This stock could trade back to $24 a share and still be trading at only .75 book value. Wow!! Good luck to all of you Bulls…

GNW has rallied over 20% in the past 30 days.  I think the party for GNW shareholders has just begun.  Several financial stocks are rallying this week.  Check out my post yesterday on Goldman Sachs here https://optionshoney.wordpress.com/2012/01/18/goldman-sachsgs-call-options-active-on-q42011-earnings-beat-by-tim-bolger/ . Any traders that bought GS call options on my previous note made lots of money overnight as GS continues to rally higher today. Bank of America and several other financial stocks are up big again today as well.

GNW reports earnings on Feb 2, 2012.  Remember it is always a gamble to buy a stock before earnings releases, but I think GNW will beat Wall St. Analyst expectations and therefore, I want to own the stock and Call Options prior to the earnings release.  If they beat the street, the stock could sail 10% higher on positive news, especially on any positive report on a decline in mortgage defaults for their Mortgage Insurance business.  What is the Options Play on GNW?

Options Trade#1: If you are bullish on GNW going foward and would like to get long exposure to a continued rise in GNW shares, I  would think about buying the Mar 16, 2012 9 and 10 strike Call Options.  If GNW blows out earnings on Feb 2, 2012 these contracts will double or triple in value very quickly.  Remember that if GNW has a poor earnings report, these contracts will likely lose 30 to 50% on a bad report.  Alot depends on the EPS for the quarter and any forward looking comments by management that the housing mess could be nearing an end and any improvements in there mortgage insurance business. Attached are the Options Chains for this hypothetical trade courtesy of YahooFinance.  http://finance.yahoo.com/q/op?s=GNW&m=2012-03  I like the March 9 strike call options at a price of .30 cents and the March 10 strike call options for .09 cents.

Options Trade #2: For a more conservative and longer term trade, I also like buying the GNW Jan 18, 2013 7.50 Call Options for 1.90 a contract. Good luck to all and stay tuned for more news on GNW and the financials. Trading involves inherent risks and please consult your financial advisor before buying or selling any stocks/options. Optionshoney.com disclaimer.

http://finance.yahoo.com/q/ta?s=GNW+Basic+Tech.+Analysis&t=3m

Chart forGenworth Financial Inc. (GNW)

Goldman Sachs(GS) Call Options Active on Q42011 Earnings Beat!! By: Tim Bolger

Goldman Sachs(GS) is arguably the most powerful and innovative investment firm on planet Earth and runs Wall St. in my opinion.  Run by Wall St. legend Lloyd Blankfein (CEO of GS), they are at the forefront of several capital markets deals, stellar traders, have an amazing advisory services business, investment management, investment banking, etc.  Many of the smartest financial professionals in the world flock to Goldman for an opportunity to make millions of dollars.  If you work at Goldman, in my opinion you are the creme de la creme of financial services pros…When Goldman talks, investors listen…whether they like the news they are hearing or not. GS can move markets with their fundamental research and analysis of the markets.  GS is also brilliant on the technical side of trades as well and I think they are among the best trading firms in the world…they definitely have a spectacular track record in that department…

Despite their brilliant fleet of financial wizards, GS stock had a terrible year in 2011 alongside a majority of financial stocks and declined over 45%. Today, they beat Wall St. earnings estimates and the stock is up over 5% on big volume. GS earned $1.01 Billion in Q4 2011 and had Earnings Per Share(EPS) of $1.84 for the quarter. Fourth quarter EPS beat the street by a whopping 60 cents a share and investors are reacting very positively to this quarterly news report and piling into both the shares of stock and options contracts. Is the slide in GS shares over?? Is it time to get in the shares for the long term??  I would argue that owning the shares anywhere around a $100 is a great buying opportunity for longer term investors who believe in both the survival of Wall Street and the global capital markets…I certainly do and GS will be one of the biggest and most powerful whales in the sea. Businesses need capital for growth/survival in difficult economic cycles and to compete in this ever fast changing world…

GS Call Options are very active today and might be time to load up…Check out the front month GS 105 strike Jan 20,2012 Call Options being bought like hot cakes today as investors pile in to position for a bigger move up in the shares over the next few days.  Here is the options chain for Jan 20, 2012:  http://finance.yahoo.com/q/op?s=GS+Options. This is a very risky but potentially lucrative trade for those traders with a hunger for risk and is a trade being executed by many professional options traders and savvy investors today.  A more conservative play would be to think about buying the April 20, 2012 110 or 115 strike Call Options on GS to position yourself for a continued rise in the shares. Here is the GS April 20, 2012 Options chains:  http://finance.yahoo.com/q/op?s=GS&m=2012-04. GS traded close to 175 last year and definitely has alot of room to run if the stock continues to gain momentum and more positive investor sentiment. If a few analysts upgrade the stock as well, that would be very favorable for GS shares and could easily send the shares higher to 125+ in the next couple of months…We shall see and only time will tell the story… On a bearish note, the markets may be nearing a short term top and if the market falls, GS may decline with the rest of the equity markets…We might want to wait on the side line for a pullback in the shares and the overall markets before jumping into this trade on GS. Remember patience and timing is key to making successful Options trades…And yes alot of luck is involved in making money with Options as well…No investor or trader has a magic crystal ball that will tell for certain what actually will happen on Wall Street or to any individual stocks for that matter. Check out the 5 day chart on GS courtesy of YahooFinance below. Big volume today and the shares are spiking to the upside!! Optionshoney.com disclaimer.  Until next time folks. Stay tuned for more…

—Tim Bolger

http://finance.yahoo.com/q/ta?s=GS&t=5d&l=on&z=l&q=l&p=&a=&c=

Chart forThe Goldman Sachs Group, Inc. (GS)

Can You Say Goldilox is Soaring?? Flight to Safety? This Shiny Metal is Hott in January!! Gold Options Honey? By: Tim Bolger

Who does not love Gold?? Well, maybe not everyone because it does not pay a dividend to investors.  But, I love this shiny metal!! Like Gold or not, it has been a big winner for many investors over the past few years and has provided alot of alpha to investment portfolios that would have otherwise suffered severely from high exposure to financial stocks, the sovereign debt crisis, volatile global stock markets and high unemployment around the globe.

We all know that thus far, the Federal Reserve’s monetary policy has involved printing way too many U.S. dollars to fight this recession, has kept the Federal Funds Rate at historic lows, and the result has been a very weak U.S. dollar… I translate the current economic scenario as one that makes me want to buy lots of Goldlilox!! I love gold coins and love owning the Gld.  Getting long exposure to Gold is easiest to get with the Gld (SPDR Gold Trust).  Gold hit a high of over $1,900 per ounce in 2011 and then got hammered along with several other precious metals in the month of Dec 2011. Gold fell close to $1,500 an ounce…that was painful for many Gold bulls in the money of Dec and led them to flee to the sidelines, many of which were forced to sell because of big margin calls on this commodity. Margin gives you great leverage at times, but it is very risky for volatile commodities in the short and long run…Margin calls can wipe you out of cash and trading on Margin is not recommended for many retail or institutional investors.

The sharp sell off in Gold in the month of Dec 2011 spooked alot of Gold bugs out of this shiny precious metal. Was the massive gold sell off just a huge head fake or is the bull run in Gold over?!…I think it was more of a short term correction in the shiny yellow metal…the sell off I believe was further exacerbated by lots of profit taking, margin calls and a short term phenomena. I am a firm believer in owing Gold for the long term and as a means to protect wealth…I believe Gold is a great safe haven from all of the macro-economic uncertainty prevailing around the globe!! Gold protects us against a weak global equity market and a weak U.S. dollar(which means high inflation).  Gold is a great hedge against major global economic issues(eg sovereign debt crisis in Europe), but I also believe that Gold can still run to $2,100 an ounce even if the global equity markets continue to move higher…Over the past 3 weeks we have seen Gold spike higher and I think the Gold train continues to run higher baby!!

Options trade#1: Yahoofinance Gld Jun 15, 2012 Options chain: http://finance.yahoo.com/q/op?s=GLD&m=2012-06.  I would consider buying the Gld 165 Jun 15, 2012 Call Options for $6.00 a contract. 5 contracts will cost me $3,000 plus trading fees and get me long exposure to Gold(500 shares of the Gld SPDR Gold Trust at $165 a share). If Gld trades to 175 before this options’ expiration date, this trade will be worth $5,000+. Take a look at the yahoofinance chart below on the Gld. Gld has moved significantly higher after being crushed in the month of December and I believe the longer term trend is to the upside. Good luck longs and remember that this is just a hypothetical scenario for everyone. Consult your financial advisor before making any trades…see the Optionshoney disclaimer. Options trading is not for all investors and is very risky!! Do not play if you cannot afford to lose all of your money invested in the contracts you may decide to purchase. Optionshoney  disclaimer.

The more conservative play is just buying these lovely American Eagle Gold Coins exhibited below and hold them forever!! Several other Gold Coins and Gold Bars are available for purchase from vendors such as Monex.com. Photo is courtesy of http://www.monex.com:

American Gold Eagle Coins - Buy Gold American Eagles

Chart forSPDR Gold Shares (GLD)

Rare Earth Miners Moving Higher Today…Options Play on Avalon Rare Metals(Avl)!! By: Tim Bolger

Rare Earth Miners mine rare earths deposits and mineral resources that are used in the production of everything from magnets to hybrid vehicles, flat panel televisions, digital cameras, disk drives, ipods, Mp3 players, etc. Over the last few years the supply concerns of Rare Earths have been a major catalyst for the exponential price increase in the cost of these rare earths deposits that are so vital to the continued production of many technology products and devices sold around the globe.

A few of the Rare earth miners that I follow closely are Lynas Corp(Lysdy.pk) , Molycorp(Mcp), General Moly(Gmo), and Avalon Rare Metals(Avl).  Avalon Rare Metals will be our rare earth miner in focus for today and is soaring 8% higher on big volume.

A brief bio on Avl courtesy of yahoofinance: http://finance.yahoo.com/q/pr?s=AVL+ProfileAvalon Rare Metals Inc. engages in the exploration and development of rare metals and minerals in Canada. The company primarily explores for the rare earth elements, such as neodymium, terbium, and dysprosium; and other rare metals and minerals, including lithium, tantalum, cesium, indium, neodymium, terbium, dysprosium, niobium, gallium, zirconium, and calcium feldspar, as well as tin. Its principal property includes the Nechalacho Rare Earth Element project located at Thor Lake, Northwest Territories…(yahoofinance)

Check out the Avl mining projects in the works: http://avalonraremetals.com/projects/ This is the Thor Lake project: http://avalonraremetals.com/projects/thor_lake/thor_lake_intro/

Over the past 52 weeks, Avl has traded in a range of 2.29-10.11.  Despite the huge pullback from Avl highs, I think rare earth deposits will continue to be scarce over the long term and this will drive  both rare earth prices and these small cap miners much higher in value…As you can see from the yahoo finance chart below on Avalon Rare Metals and Molycorp, both of these stocks hit all time highs in early 2011 before getting crushed. I think in 2012, we will see a big bounce in these rare earth miners and several other miners.  We also may see some M & A in this space as the bigger players gobble up a few of the smaller competitors.  Another one of my top picks is Australian Miner Lynas Corp. Check out Lynas at http://www.lynascorp.com/.

Options Trade#1: Here is the yahoofinace Avl options chains for April 20, 2012 http://finance.yahoo.com/q/op?s=AVL&m=2012-04.  If I were to try and capitalize on a move higher this spring on Avl, I would look at selling the Avl $3 April 20, 2012 Put Options for .55 cents. If I sell 20 contracts, I will collect a premium of $1,100 minus trading fees. Keep in mind, I need $6,000 in cash in my account in case I get exercised at $3 per share and have to purchase 2000 shares of Avl stock.  Best case scenario, I collect the $1,100 premium and do not get exercised, but I am very comfortable getting long 2,000 shares of this stock at $3 if I do get exercised. I will get exercised only if Avl shares close below $3 at the April 20, 2012 expiration date. The net purchase fee of Avl if I am exercised will be $6,000-$1,100 premium collected for selling the Put Options. That means I will get my 2,000 shares of stock for only $4,900 plus trading fees. That is one of the beautiful things about selling Put Options on a  stock that I already want to go long on.  I think Avl could run back to 7-8 dollars in 2012 if the Rare Earth Miners continue there move higher after get crushed last year. Over the next decade we could see a huge move higher in the value of these Rare Earth Miners and especially a few of my top picks: Avl, Gmo, Lysdy.pk, and Mcp.

Options Play#2: Here is the yahoofinance options chains on Avl for April 20, 2012 http://finance.yahoo.com/q/op?s=AVL&m=2012-04

If I were to buy Call options and take a speculative play on a continued move higher in Avl shares over the next 3 months, I would consider purchasing the Avl $3 April 20, 2012 Call Options for .50 a contract or $50 a contract(.50 x100 shares per contract=$50). If I buy 40 contracts, that will cost me $2,000 plus trading fees and no matter what the stock does, my total capital at risk is the cost of the options contracts plus trading fees. If I just buy to open the Call Options contracts, I do not have to hold $12,000 cash in my account as collateral to purchase the actual shares in case of getting exercised.  So, for 2k plus fees, I would get long exposure on 4,000 shares of Avalon Rare Metals at a strike price of $3 (40 contracts x 100 shares per contract =4,000 shares). If Avl runs to $5 in the next few months, the contracts will be then worth $8,000 plus depending on how much time value is left before the expiration date of the Call options. Remember the “Premium paid for buying Call options is three fold”: the time value premium + the intrinsic value (how much the option is in the money)+ volatility in the stock= Options Premium paid.

Fyi, A “Call Option is in the Money if the actual stock or asset we are purchasing the contracts on is trading higher than the strike price of our Call Options contracts that we may own. For example, if we own $3 strike Call Options on Avl and the stock is trading at $3.15. The stock is .15 cents in the money or $15 per Call Options contract we own on the Avl stock. Therefore, in this example the intrinsic value of the Avl $3 strike Call Options contract would be .15 cents or $15 per contract. It is also important to remember that if our Option at expiration is even 1 cent in the money our broker has on obligation to exercise the shares on us. Therefore, if you do not want to purchase the shares, you need to call your broker and tell them to let the options expire worthless.

http://finance.yahoo.com/q/ta?s=AVL&t=5y&l=on&z=l&q=l&p=&a=&c=Mcp

Chart forAvalon Rare Metals Inc. (AVL)

Larry Ellison and The Global Enterprise Software Giant: Oracle Corporation!! What is the Options Play Honey? By: Tim Bolger

Oracle (Orcl) is one of the most powerful software companies on the planet and we all know the man behind the helm who has been most influential in taking this business software powerhouse to where it is today…Yes, that remarkable man is billionaire Larry Ellison (Co-Founder and Ceo of Oracle) and a business legend (In 2011, Forbes ranked Ellison as the 5th richest man in the world) that I admire for his brilliance, innovation, and competitive nature.  Ellison has built one of the most successful Technology companies in the world and he has a continual hunger to get larger, more powerful, and more profitable all the time.  Oracle’s Ellison has spent over $40 billion in the last decade acquiring and gobbling up both competitors and smaller companies to add to the stellar suite of Oracle companies and software products.  Currently, Ellison is attempting a hostile takeover of Peoplesoft and is always mining for additional acquisition targets that he sees fit for Oracle’s continued growth and gaining a competitive advantage in the marketplace.

Ellison is not only extremely competitive in the business world, but in “all other walks of life,” such as his love for racing sail boats. Ellison and his team were the recent winners of the America’s cup and brought the cup back to his hometown yahting club in lovely San Francisco.   Competitive sailing, just like running one of most successful technology companies in the world, is a way of life for this Tech mogul.  Ellison is determined to win the next America’s Cup being raced in San Francisco…To attempt achieving this goal, he built a custom $100 Million sailboat.  Yes, he built a pretty nice boat by all standards.  And, he likes to win and win alot…winning makes him and other powerful players alike feel good and he loves the adrenaline rush. After all, when you have over $30 Billion, you can buy whatever you want on earth(he owns fighter planes, helicopters, the second largest yacht in the world(The Rising Sun and is 452 ft 8 inches), sports cars, several gorgeous estates/mansions around the world, a beautiful place on San Francisco’s Billionaire’s row, etc.) and it is more the game of continual winning than needing any more cash…But, who can blame the guy if he wants to surpass Mexico billonaire Carlos Slim‘s wealth someday and be worth $80 billion someday.  I definitely know that if he more than doubles his current wealth in his lifetime, that will be very good for both long term Oracle shareholders and Ellison’s personal Oracle fortune (Ellison is by far the largest Oracle shareholder, with a majority of his wealth held in the company’s shares).  As of Jan 5, 2011 Ellison owned over 1.1 billion Oracle Shares. Wow!! It is always important to know how large the stakes of insiders are and the institutions that own the shares of the companies that we might invest in.  I especially like to see when a founder, such as Ellison has a majority of his wealth on the shares. It is usually a bullish signal for longer term investors and means that Ellison feels the best investment is investing in himself(the quarterback) and the future of his company Oracle…

Say Hello to Larry Ellison’s Private Mega Yacht the “Rising Sun”:

Rising Sun

Courtesy of:  http://www.wirecyber.com/2009/04/18/world-class-luxury-cruise/

One of Ellison’s favorite quotes was by Genghis Khan: “It is not sufficient that I suceed – all others must fail.” That is clearly a quote that Ellison has lived his life by and this business mogul continues to divide and conquer to achieve his personal goals and business goals for Oracle shareholders.  Personally, I have been monitoring Oracle’s stock for over 3 years and think there is definitely great upside potential in the stock and equity options for Oracle investors.

The opportunity for our Options play just got even better for us in Dec 2o11.  Oracle’s stock plunged 10% on high volume(over 180 million shares traded hands) after missing Wall St. analysts top line revenue forecasts in its latest quarterly earnings report in Dec 2011.  I believe the revenue miss and share pullback was just a temporary bump in the road for Oracle shareholders and presents longer term investors with a great opportunity to add to their core position in the shares.  So let’s look at the Options alternatives here:

Options Trade#1:  I like selling the Orcl Mar 16 2012 25 Put Options for .75 cents.  Keep in mind that the ask right now on these contracts is .51(the ask is what a seller is willing to sell them for currently) and a bid of .49, so we need the stock to decline 4-5% in order to get the Put options to a level at which I am looking to sell them to collect the options premium. As I will continue to educate on Optionshoney.com, selling or buying Options at the current Market price is often not a good idea and we need to be patient for the best time to make our trade.  If the Put Options increase to .75 cents and I were to hypothetically sell 20 contracts, I would receive a credit of $1,500 to my brokerage account.  I love Oracle shares for the long term and I am comfortable getting long the stock at 25, if I get exercised on the shares. I will get exercised only if Oracle shares are trading below $25 at Mar 16, 2012 expiration.  If I wanted to place this trade, I would first need $50,000 in cash in my account as collateral in case I get exercised($25 share price x100 shares per options contract=$2,500, so if I get exercised on 20 contracts, that equals 20 x $2,500=$50,000). I like this trade, because I think the recent big sell off in Oracle shares was overdone to the downside as a result of a weaker Dec 2011 quarterly report than Analysts had forecasted. I believe Orcl shares will trend higher or sideways over the next few months and anticipate a stock price close higher than $25 by the March expiration of the contracts. If I get exercised on the shares, selling the 20 Put contracts will reduce my gross purchase cost of 2,000 Orcl shares at $25 per share from $50,000 to $48,500($50,000-$1,500 premium collected for selling the 25 strike Put Options).  If Orcl shares trade to 40 in the next 18 months and I get exercised on the Orcl puts I might sell, this trade hypothetically costing me $48,500 will be worth $80,000 at 40 a share.  I would be very happy with those potential returns and believe Oracle is well positioned in the global Technology arena to continue its growth and profitability.  Of course, Options are very risky and I do not have a crystal ball as to the future of the markets or any outcome of my hypothetical Options trades, so please make sure to consult your financial advisor before buying/selling any options or making any stock investments. The Optionshoney.com  disclaimer.

Options Trade#2:  If I were to make a more bullish longer term bet on Oracle shares, I would think about purchasing the Orcl Jan 18, 2013 30 Call Options for $1.65 on a pullback in the current levels of Oracle stock. Oracle closed Friday at $27.34 and the ask on these Jan 13 contracts was $2.44.  Remember timing and patience is key to setting up the perfect options trade.  We need Orcl stock to decline from current levels to around $25 to be able to purchase the Call options for my desired price…The beauty of this trade is that I do not need any money as collateral to purchase the shares and just need the money to purchase the Call Options. As I demonstrated in Options Trade#1, we needed tens of thousands of dollars in collateral to execute the trade.  In options trade#2, my total financial risk is that the contracts could expire worthless at expiration and I would lose $1,650 plus trading fees. So, If I were to purchase 10 contracts at $1.65, it would cost me 1.65 x 100 shares per contract=$165. $165 x10 contracts=$1,650 plus trading fees.  For $1,650 plus fees an Orcl bull can get long exposure to 1,000 shares of stock at an exercise price of 30 and we have almost a year for the shares to rise. If Orcl runs to 40 in the next 12 months, our $1,650 trade will be worth over $10,000. Well, that would be excellent in a perfect world and be over a 600% return on our initial $1,650 invested in the Call Options…The beauty here is that we only risked $1,650 to potentially make $10,000.  Now let’s put the actual cost of purchasing 1,000 shares of Oracle stock, which have no expiration date in perspective. For us to purchase 1,000 shares today, it would cost us $27,340 plus trading fees.  This is an example of how Call Options can give you great leverage for only a small fraction of the cost of purchasing the actual stock to get in the game!!! Optionshoney disclaimer.  Check out the five year chart on Oracle Corp below, courtesy of YahooFinance. Notice the huge volume at the bottom of the chart on Oracle’s recent quarterly earnings report. Till next time.    —Timmy B

Chart forOracle Corporation (ORCL)

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