"A Big Fat Succulent Bone Dripping With Juice"...
One thing I can't do here (especially for free) is to
"front-run" myself, or those in my trading group.
And there are entire classes of trades, and even
sectors that I don't (won't) talk about here, because
the trades can easily become too crowded very quickly.
During this correction in PM & Commodity stocks, the single
best risk:reward class of trades has been to "sell" puts
into the brutal sell off days - on stocks you WANT to own.
The retained premiums on stocks that settle above the strike
price has been incredibly profitable.
Today FCX is getting killed. I won't go into the fundamental
story, as you should already know it, given that it's a
flagship stock, and one of the most highly covered commodity
stocks by the media, both online and in print.
Here's the bone...
You can sell the May 2009 $10 puts for a $1.95 premium.
finance.yahoo.com
And here's the drill...
Best case:
If FCX closes over $10 upon the May expiration - you pocket
the $1.95 premium.
Worst case"
If FCX closes under $10 upon the May expiration - you own
the stock $8 bucks or less...
Want a little meat on your bone?
Okay, here's the meat...
If you want to buy more time, and want less risk, then
check out the Jan. 2011 $7.50 puts.
finance.yahoo.com
$2.36 premium!
... worst case?
You get your arm twisted and you own FCX for $5ish.
...I mean come on?
$5 FCX ?!?
...think about it.
Pick the strike price and time frame of your liking.
Obviously you only do the trade, if you WANT to own FCX.
Instead of chasing a falling knife here, you sell the puts.
Joe's - chase the falling knife.
Pro's - sell the puts.
And from here on out in gold stocks... use this same concept
to wash, rinse, and repeat.
It is the single best way on a risk to reward basis, to make
your money back -- if you've taken some hits during this
downturn.
The single worst way to make your money back, is to chase
EITHER falling knives, or breakout rallies.
The bad news is now out on FCX, it's a triple digit down day
in the DOW, commodities are selling off, and today's
meltdown is a "sell now" urgency event for tax loss
sellers.
If you don't like FCX - nolo problemo.
...transfer this strategy to the stock and sector of
your liking.
SOTB
PS: This bone's not only dripping with juice,
it's still got a lot of meat on it - so seize
the opportunity before those premiums start
shrinking.
I'd consider at least a 1/2 position here,
and perhaps sit @ $12-14ish if we see a final
crescendo of tax loss selling before month
end, and the market takes FCX considerably
lower.
Good Luck, as always, do your own DD, and do
NOT make the trade if you are not already
experienced in options and put sales in
particular.
And if you are inexperienced, or new to options,
paper trade it... use it to learn.
PPS: And how 'bout that SLW?!?!
Can you say V-O-L-U-M-E ?
When you see strength like this, on a day like this,
on volume like this... do NOT be in too much of a
hurry to take "too many" profits off the table.
"Some" is O.K. - always is, and in this environment
it's ALWAYS better to sell too soon - rather than too
late.
But, you might want to give this dog some leash..
because it's acting like a Rottweiler running through
a herd of Chihuahua's today.
Mo later. |
