Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Bill/WA who wrote (117995)	3/16/2009 11:59:55 AM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

Bill, I can't find them either, so I'll just cover the concept in a summary. This is the safety/income version. There is also a growth and income version, which I'm not playing right now. This one is more safety first. 1. Buy the stock of a company with solid finances (in this environment, mainly, no huge debt), with products that are in demand and with a dividend yield greater than 10 year Treasury rates. Some I am currently watching are ADI, ADP, PEP, KO, LLY, ECA, BHP, UPS and RTP. 2. Buy the stock on a down day. That's the reason I haven't jumped on any of these, as they have been doing well since I wrote the note about re-opening this portfolio. No cause and effect there. <G> 3. Sell a Leap Option as deep in the money as possible. At the moneys and out of the moneys are for growth and income. An example will follow in the next note.

To: Bill/WA who wrote (117995)	3/16/2009 12:25:40 PM
From: Knighty Tin	2 Recommendations Read Replies (1) \| Respond to of 132070

Here is an example using today's prices. Buy UPS at $40. Sell Jan 2011 calls at strike price $40 for $9.80. Sit back and collect the dividend. 1. What can go right: If UPS is above $40 on expiration date in 2011. You will make 13.4% on the pure premium, which is $9.80 less the $5 you are in the money. This equals 7.3% annually, given just 22 months to expiration. The dividend is $1.80 and you only put up $35.80 to make the trade, which is equal to 5.14% dividend yield. Totally, this is 12.44% annually, which is taxed at a preferred low rate versus bonds. That's not important for IRAs or 401Ks, but very important in a taxable account. 2. What can go wrong: You are price protected to $35.80, but once you dip below that, you are losing on your principal. UPS can cut or eliminate their dividend. You can lose more than you can win. So, you have a bond substitute with a great rate, but more risk than with AAA bonds (try finding some of those. And, if you do, remember that AIG and GE were AAA last year, so they are low risk, not no risk.) Caveat Emptor. After decades of huge success with buy and writes, I have been cold on this strategy in the 21st Century. I am now convinced that the large premiums offset the downside for many stocks at this price level, but it is within the realm of possibility that I could be wrong again. <G>