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Strategies & Market Trends : Value Investing
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To: Madharry who wrote (38893)10/1/2010 4:36:45 PM
From: E_K_S  Read Replies (3) of 78627
 
Hi Madharry-

Re: Magnum Hunter Resources Corpora (AMEX: MHR)
GMX Resources Inc. (GMXR)

Added some more shares of Magnum Hunter Resources Corpora (AMEX: MHR) to my current holdings. Yesterday I sold some covered calls and plan to do the same for my GMX Resources Inc. (GMXR). My strategy is to buy shares of each on any sustained sell off and then sell covered calls on at least one half of the position 5-6 months out. I will stagger my Buys and covered call option Sells for several months.

Hopefully, beginning February & May of next year, I should have steady option income and/or have my original funds (w/ small capital gain) returned to me (ie stock will be called away). This way I can generate some income every option cycle and also have a possible source of funds for new buys.

The option premium is huge for both of these companies (37% for an 8 months covered call ie. MHR May $5.00 calls). I plan to leave 1/2 of the shares uncovered so on any significant run higher, I can book some capital gains too.

The big looser would be a significant loss in one or both of these names or even a BK. The biggest risk is a secondary issue done to raise more capital. This would result in share dilution and possibly a significant hit to the stock price.

EKS

FWIW - Peeled off some shares of my ANGLO AM PLC ADR (Other OTC: AAUKY.PK) (bought shares in 1/2009 for $10.50/share) to implement my O&G Buy/Write strategy. AAUKY has a lot of natural resources but many of these O&G companies have valuable resources "in-the-ground" too.
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