Greg,
Do you think Michael reads Voltaire?
Check this strategy out, courtesy of the AOL thread. Thanks Voltaire...Steve
To: Technician
From: Voltaire
Absolutely, hold on to your shares and do not be scared out of them.
My theory has always been it is not companies that make you rich but numbers of shares in those companies. Although I share your attitude about AOL being extremely strong going forward, you must remember and after looking at your profile, I am sure you do, Newton's famous law, ( for every action, there is an equal and opposite reaction ). The point I am making is that if your scenario played out, AOL would have roughly THIRTY THOUSAND MILLION SHARES outstanding and that is a lot of shares that would require unbelievable volume just to keep the stock price from falling. That being said, it is my belief that AOL will be the most widely held stock in the world within the five year period you speak of. As I stated earlier, it is shares that will make you rich and I find this is the area that most investors fail miserably. I realize most people abhor the use of Margin and if you do then I respect that but I find it to be my greatest weapon along with deep in the money calls in my quest to continue building wealth.
For example tomorrow I will deploy the following strategy because it is time for me to accelerate my strategy on AOL for the run to earnings. DISCLAIMER - I DO NOT SUGGEST ANYONE DO THIS WITHOUT FIRST KNOWING ABOUT CALL WRITING AND THE CONSEQUENCES OF SUCH - this is just an example of increasing your shares and therefore your return. This can be done on a much smaller basis.
I will take 15,000 shares of AOL and write 150 Oct. 2000 6.6 contracts for an estimated premium of $115 per share or a total Premium deposit in my account of $1,725,000. I will then take that amount along with the margin they loan me for approximately five weeks and buy $3,450,000 of AOL at say $120 per and instead of having 15,000 shares working for me I will have approximately 28,750.
A couple of points- One, I do not have to worry about the original 15,000 shares because they will move pretty well in lock step because the calls are pretty well in parity with the price of AOL and therefore my backside is protected.
second - I do not worry about AOL retreating because if it does I will simply write in the money calls all the way down and just keep buying back, writing more calls and keep picking up shares of AOL at cheaper prices. Using this strategy an investor should never be afraid of a Margin Call if he is in a quality stock.
Glad to see your stop is considerably below the market price of the stock. Too many investors keep their stops too close to the price and stand there stupefied as to how they could have possibly been stopped when the price was trading no where near their stop for most of the trading day. GAMES MARKET MAKERS PLAY.
Good luck,
Voltaire
P.S. - Try this with Charles Schwab and you will end up in the LOONEY BIN!
|
