BACK TO REALISM AFTER OPTIONS EXPIRATION DAY

Well, I paid more attention to my portfolio during the past week because I had plenty of covered calls out on my stocks that are in my retirement account. Some were close to being "in the money" so there was a chance they could have been "assigned."

I know there is a lot of jargon in that first sentence so let me explain a little. In retirement accounts, a trader has the capability of selling a covered call (click on this link to learn more about covered calls). I use them when a stock has made a nice run and I expect the stock to stay neutral meaning I don't see much upside or downside movement. I will gain a lot of money if the stock trades in this neutral fashion. WHY? Well, a covered call loses value over time. WAIT, if a covered call loses value over time, how does that make me money? Simple math, two negatives make a positive right? I SOLD a covered call and the covered call will LOSE VALUE over time. Those two negatives make me positive money. It takes a little getting used to to realize that you can make money if a stock stays neutral so click on this link for covered call strategies.

I already owned 500 shares of ICE in my retirement account that I bought on September 29th at $75.40. Here is the proof:
9/29/2006 ICE BOUGHT 500 SHARES OF ICE AT $75.40
Commission ($7.00)
Cost basis: ($37,707.00)

On 10/5/2006, I then sold a covered call on ICE as follows:
.ICEJP
SOLD TO OPEN 5 CONTRACTS OF OPTION .ICEJP AT $5.50
Commission ($13.34)
Cost basis: $2,736.66 (No parentheses means I received $ in my pocket.)

The day before the options expired, I wanted to avoid having my stocks bought off of me in a process called "assignment". If I would have kept the contract and NOT BOUGHT it back, my ICE stock would have been bought off of me at $80 since that is what the covered call said I had to do. So to avoid assigment, I bought back my contract/covered call. Here is what I bought it back for:
10/19/2006 .ICEJP
BOUGHT TO CLOSE 5 CONTRACTS OF OPTION .ICEJP AT $1.75
Commission ($13.25)
Cost basis: ($888.25)
So, I made $1848.41 on that contract in 14 days AND I still hold the stock. ($2,736.66-$888.25 = $1848.41 after commissions) I expect the stock to continue a slight upward bias and not much movement so I plan on selling another covered call soon.

That $1848 amounts to a 68% return!!!! (OK, I had to do that because it just shows you how those flyers you receive in the mail proclaim 400% RETURN IN 6 MONTHS!!! are crap. I too made 68% in one month on this one trade [$5.50-$1.75 = $3.75 thus, 3.75/5.5 = 68%.] Sure I made 68%, BUT that $1848 profit was nothing compared to how much the stock is worth. It is just a little added bonus to my portfolio and I wanted to point out how statistics can be used to manipulate you and your emotions).

I am still liking OVTI so I plan on holding on and keeping a stop loss order around $14.38.

ENTG has slid back to a proper buy point. Why would I buy a stock that is retracing? Well, there is not a lot of selling as noted by the decrease in trading volume and a decreasing price. What I don't want to see is a DECREASING price with INCREASING trading volume.

TRAD is an oddity. A lot of shares traded and it is treading water. Not sure of its next movement.

ADM has had equal up weeks versus down weeks for the past 6 weeks, AND the price has held steady around the 200 day moving average. Still waiting for direction on this one.

ANDE - I am seeing more accumulation in this stock. My indicators say "buy" but since I don't have the $ to trade it, I am going to paper trade it to make sure that my indicators are still working for me.

HSR - Well, it's holding at $8 again. I still have half my shares from when I bought around this price before the last breakout. I don't think I am going to buy in again. Remember, I said this was a risky trade.

PACR may float around its 200 day moving average for a while. I played this stock too by selling covered calls on them about 7 days before the options expired. Here are the details:
10/13/2006 .QZTJF SOLD TO OPEN 5 CONTRACTS OF OPTION .QZTJF AT $0.85 Commission ($13.34) Cost basis: $411.66
Here is an example of the covered call "expiring worthless" meaning that I sold the contract so someone could buy the stock off of me for $30 last Friday (options contracts expire in the third Friday of every month) Since the stock closed below $30, I got to keep the whole premium of $425 minus commissions. Don't think that is a lot of money? Try doing that 12 times a year. That's an extra $5,000 in your retirement account just on this stock alone. Add in the covered call from ICE and this month put an extra $2,200 into my account for this month alone.

BTW, watch DXPE. I believe it is bottoming out. I am ditching DEIX for DXPE.

I am also waiting for TSCM to pop. I believe it is creating a bull pennant.

Good luck trading. JD