Behrouz-ECI had been trending down (from around 40 I think), and had bottomed out (it appeared). The book value was around $3, and earnings and equity had increased for several quarters running. When I see P/E substantially under growth rate, thats a candidate for me, and ECI fit the bill. IMHO very under valued.
To find an under valued stock implies others are ignoring the value you see, and the point is you want them to recognise it right after you buy, but the market may dis your valuation for ever!
For that situation (cost ~10.5) I probably would have a stop at $8.5 and if it executed, sell another put @ $7.5 or $5. (or both).
The point is I liked this stock wen it went below $20, owned it at $12.5
but cost me $10.5, I had a lot of room to maneuver. If I wanted to be safe I could have put a stop at $11. and not lose a thing (ex commissions), but I wanted to accumulate this issue.
<< Some sites will list cc options based on rate of returns -
beware of this strategy! >> What sites and what strategy?
On SI you can try this site, some references there;
Subject 12574
The stategy is called writing covered calls (for the premium).
If you buy a stock that has a 1 mo. call with a premium > say 12% then you can collect 12%/ mo.selling the call. If you do it every month it's a big return after compounding!!
The problem is you have to buy (AND HOLD) the stock. You can't sell the stock if it goes down, because then you're short a naked call, and your broker won't allow that (except in very special cases). So you must buy the call back before you can sell the stock for a loss!
Try this site (Chicago Board of Options Exchange) they have great information, they'll send you free info. and they hold free seminars in major cities. They also have a video (free) on option strategies as well as much education on site.
cboe.com
Don't just calculate the numbers simply, but get an understanding of what is a fair option premium, I'll try to post references next time. The point is optium premium (like everything else) is frequently over or under valued, so like stocks you want to be selling dear and buying during a sale. If you don't have a way to value premium, your in a crap shoot, with the other guy's dice. So just as for equities du dilly.
What does your broker require to write naked put?
You need option account to do any options. A naked put has the same profit profile as a covered call, therefore the same risk (but some brokers won't allow a naked option of any kind!). You must have the buying power in your account to purchase the stock if it is put to you.
Sorry for the long post.
Ricardo |
