Dumb luck. I would be completely full of shit if I answered differently. Guessing where the Dow will be next week is nothing but dumb luck, but it is fun.

I don't pretend to know what the market will do in the short term. My trading strategy consists entirely of buying stocks that represent good value, have healthy balance sheets, and pay a good premium, and then writing in-the-money covered calls against them.

It's been working out well so far - I adopted this strategy in July, and despite a couple of bad trades, so far, I am up 16% in a shit market. I learned a lot about this method from Ben, even though my selection criteria is a little different from his. A few of Ben's specific trade ideas also helped a great deal, such as QCOM, ARXX, and CRXA. Don't run out and buy these stocks - they were ideal covered call trades at a specific moment in time, but aren't anything I would put money in at the moment.

Here's my idea of a great trade - on Dec 23, I bought 1000 shares of PMCS at 5.48, and sold the Jan 5 calls for a buck each. Not counting commissions, here is the worksheet:

1000 shares of PMCS at 5.48 5,480
Premium received for options (1,000)
Total risk 4,480

PMCS closed Friday at 6.01. So long as it closes above 5 on Jan 17, I will be forced to sell the 1,000 shares for $5 each, for a net profit of $520, or 11.6% in 28 days (151% annualized return). Counting commissions, these numbers are reduced to $469, 10.4%, and 135% respectively. If you are familiar with the concept of compounding returns, the possibilities should be readily apparent.

If it closes below 5 on expiration day, the options will expire worthless but I will still own the stock, and can turn around and sell the February calls. If the stock closes above 4.48 but below 5, I could also choose to sell it and take a small profit. PMCS also has a tangible book value of about 3.5, plenty of cash on hand, no long term debt, and a reasonable amount of convertible debt in relation to its assets. A nice trade all the way around.

This strategy not only offers downside protection, it also offers the chance to make great compounding returns. Not all trades are as good as this, but many opportunities exist, if you are willing to spend the time to look.

I'm in 10 different stocks this month, in the interests of diversification. Only two stocks are trading below the strike price I sold the options at, and even those aren't down very much.

I'm going to start posting my "covered call of the month", starting on the 20th. It will be interesting to hear Ben's thoughts on them, should he decide to comment.

Damn Kendricks,

You have really figured this stuff out. I sincerely mean it.

In the past year I was down less than 5% on all stocks/equities I owned or currently own. If you include commission charges which I get to keep I am probably about break even.

I still have a large position in muni bonds which has been a life saver for mr over the past three years. I am concerned about the bonds and stated liquidating about a year ago, but still have 40% of my investments in three closed end bond funds.

For those seeking a good long term investment you might consider PCA, MYC, and MCA and if you don't need the monthly cash flow most brokerage firms will reinvest the monthly dividends commission free.

Ben and Ken,

I wish I understood all those moves you are talking about. I have never had the time or money to jump into the market. All I have is in San Diego real estate and some tax sheltered mutual funds, and Tijuana chicas.

Since I'm retiring at the end of this month from my primary profession with a decent pension, I expect more time for study and experimentation. I have to wait until after July this year (59 1/2 rule), when I could possibly get some money out of my mutual funds and practice what you guys are doing, if it makes sense. Think I can learn enough by then if I keep reading your posts and guessing the DOW? Doing the proper research and having an appropiate time frame for holding investments seems to be the mystery for me.

I'd love to know more and try it out, but due to my secondary profession I won't have much time until after April 15. Unfortunately, the Tijuana chicas wouldn't even be receiving much of my capital during the next two months.

After you retire, why not liquidate your mutual funds inside your 401k or what ever and roll your liquidated funds into an IRA. Then take the money and invest inside the IRA and avoid all taxes until you take out funds.

That's the plan, and it's kind of what I've been doing now. But what if I have loses, like everyone else? I can't write them off inside of the IRA. I've already lost $45-50k over the last three years with the mutual funds, and if I'm not knowledgeable enough to avoid that, how am I going to do if I do the picking. I need more help and guts to do it on my own.

Kendricks 8784 for next week, you sons of bitches.

T_Bone Dow 8585

8485 for ben.

Nayarit Ok I'll take it 8385. Ben when's the birthday bash?

Uh, I guess I will not be here tomorrow to post Dow guesses as SugarPie needs me in the morning.
Just think of me in bed with those sweet strong legs wrapped around my waist. Man what a tight little pussy!!

If you are in Ensenada tomorrow please don't say hello.

Talk to you guys Monday night.

Thanks, Ben. By the way, the Feb PMCS 5 options are looking pretty good for a deep in the money option.

What a great day. Everything is in the money!

It was a great day as the market was up in the U.S. and I was up in Ensenada.

Maybe, I should post this somewhere else?

Bush's Tax Plan:

OK everybody get rid of their political bias. I will read as much as possible on the details and give my unsolicited opinion, but I also seek other unbias opinions. Please no politics and no soap boxes.

"Is this going to be good for the stock market?" is the bottom line for this topic

I think it will have little to no effect, and is mainly a propaganda tool.

What about dividends being tax free?

The perfect investment would have a tax free dividend, totally liquid, with a growth rate of 10% over the long term or some rate 3-5% above inflation.

This dividend thing, if passed, will become more appreciated in the long term when compared to interest on a savings account which of course is taxable.

I also estimate it will save me severalthousand dollars a year in addition to the dividends being tax free. Of course the money saved in taxes will probably not be earmarked for the U.S. economy, but Mexico will be happy.

By the way they need to cap dividends so guys like Jack Welch have to pay taxes on his GE dividends after say the first $50,000.

I would assume he and his ex-wife receive millions each year in dividends.

Ben, just think of all the employment you are providing when you spend money on the chicas in Mexico. Of course this would further help the immigration problem that Ahora007 says we have by keeping the puta in Mexico. (Sorry for the political comment).

I also think the non-taxable dividends will help investors, but it will tax a lot of people to wake up and see the better investment in dividends than interest. Most people I know just don't adjust. So I agree with Kendricks about that. The big rollers like yourself yes.

Big Roller?

I think this tax free dividend will be a very large benefit to people getting ready to retire. Typically a retired person receives a tax of 25% on all dividends above $200 (I think).

I have several clients who make less than $50,000 a year and receive at least 5-$6,000 in dividends. This would give many of them an extra $100-$150 a month. Multiple that money by several million people a year and i think it might have two effects.

One people would come back to the more traditional way of investing for BOTH the long term growth of the stock and of course the enhanced income and secondly the extra money going into our economy woud help the growth of our economy.

I own several stocks that pay a dividend of 2 1/2- 3% per year based on current prices of the stock and because I invested in some of these companies years ago the dividend is really much higher based on my cost. Maybe I am wrong, but I am looking right now at companies that pay dividends and have a history of increasing their dividends. Look at Bank of America as a good example.

I'll admit that I could be wrong, but I think Nayarit's analysis is correct. Most people won't change their plans or habits to accomodate this change (I know that I won't), so I don't see it having much of a noticeable effect.

What if AB offered a free shot of tequila for every puta you fucked. Would this have an appreciable effect on their business? I doubt it.

What if you had limited money and AB offered you 25% back for every puta you fucked. Would you fuck more puta's?

It would seem to me that would create more jobs?

I am just musing as i really don't know if the tax bill is good or not.

In the short run it is going to increase the government debt which may raise interest rate as the Fed government will have to borrow more money.

It may have some limited effect. Still, since I have to drive over two hours to get to Tijuana, and since panocha is pretty cheap in TJ anyway, I doubt that a 25% rebate would effect my habits much.

For guys who spend all of their available recreational time and disposable income whorefucking, it certainly would have an effect.

As you pointed out, though, any benefit this bill may have will also have an offsetting negative effect. Which makes me think it is not really that big a dedal, unless you are in the small percentage of people that it benefits directly (which I am not, since I do not invest for dividends).

The more I look at this tax bill the more I dislike it. I think it should zero in most of its benefits to people making above $50,000 and less than $100,000. It does this under the current proposal, but not enough.

The Dems focus more on the low and middle income groups, but their idea of tax savings it really insignificant as to helping the economy jump start. If the Bush proposal would use the same dollars, but distribute more money to the middle income groups and eliminate savings people making more than say $250,000, I think it really could help create some spending ie, ceate some new jobs.

Ben,

I am not much of an economic expert. And you know I am not a big Bush fan, So I wont say anything about the political aspect. But I think that eliminating the tax on dividends will be a good thing. We are one of the few industrial nations that double taxes dividends. In theory this could give a small boost to the market and make it a little more stable.

Under the current regime companies have more incentive to raise money by incurring debt rather than issuing stock because interest payments on debt are deductible. I am not saying that is the primary reason some companies are so higly leveraged, but it is one of the reasons. I saw a recent study about what happened when New Zealand( real economic powerhouse there, eh)eliminated their double dividend tax. In a failry short time overall corporate debt dropped. Having less debt helpd th ecompanies better weather economic downturns etc.

The double taxation on dividends can also have the effect of motivating some companies to sit on large hoards of cash. It may stimulate the consumer side of the market a little to have this money paid out to shareholders. This policy may have also caused some artificailly depressed dividends. That deprives investors of a tool that can be used to track the stability and earnings of a company.

Is it mostly politics? YEs. Will it do much for the economy? Probably not a lot. Will it hurt the economy? Almost assuredly not. So why not do it?

Thats just my uneducated opinion. I usually have nothing to say on this board because:

1. You guys are on a level way over my head.

2. Since my divorce I have not had a friggin penny to invest.

batsterthehighlyopinionatedandimpoverishedidiot

I've been following economic events for just the past 5 years or so I guess I'm sorta new to this. I have a question, has the Government ever really done anything to significantly help or hurt the economy or are business and market cycles which ebb and flow largely independent of Gov. policies? I would guess and hope for the latter.

Glad to hear that unemployment claims are down again for the 4th month. That's probably more important than any puny tax rate, vote getting gimmickry.

The Federal Government did allow individuals to borrow 90% on margin accounts during the 1920's which many believe had a greatdeal to do with the market crash of 1929.

Also New Zealand decided to shuck socialism in the 80's including privatizing their postal system which probably had more to do with their economic sucess than just eliminating double taxation of dividends.

Anyway the Federal government, I believe, can have a major, but normally very slow impact on our economy.

Typically Government programs to "help" the economy arrive long after the problems have resolved themselves. And they work equally poor in the other dirrection when trying to slow the economy down or take advantage of the good times. Our worthless governor here in California is learning the hard way that it really is a very small group that pays most of the taxes and that when this group is going poorly the well tends to dry up.

Ben, regarding borrowing 90% on margin accounts, my broker is currently offering around 200%. If you have 100k your "purchasing power", as they like to label it, is 200k plus. That's unreal. It's too bad they won't let me borrow that in a cash withdrawl. Hey, I could take the money and let them have my account. What a deal. Credit should be so simple everywhere.

Just remembered. A neighbor pulled a version of this several years ago during a refi. I never got all the details but basically they took a loan for more than the value of their home during a time when home prices were rapidly escalating. Their grocery store then mysteriously burned to the ground. After that they declared bankrupcy, keeping the cash out from the home loan of course. The house sat for nearly a year basically abandoned but the bank could never seem to get possession. The owners (in name only by now) eventually did sell it but I don't know who was left getting screwed in the end.

Tight Fit, when Ben says the Feds allowed individuals to borrow 90% on margin accounts, he means that $100 would allow you to buy $1,000 worth of stock.

This is a huge multiplier, as a 10% move up would double your investment, and a 10% move down would wipe you out. If you buy a 1,000 shares of a $15.00 stock on 90% margin, your initial investment would be $1,500. If the price of the stock fell below $13.50, you would have to deposit more money to keep up with your losses. By the time it got to $12, you would owe your broker another $1,500, an amount equal to your original investment.

Even greater leverage can still be obtained in today's futures markets, if you are feeling froggy. As far as stocks go, though, your margin account would be considered 50% margin, not 200% margin.

As far as your neighbors go, we're doing fine. We had to pull that stunt, as too many perverts were starting to move into our neighborhood, so we really needed to cash out and move.

200% margin is illegal and I think you may be a little confused.

Most firms will require you to have a certain deposit in your account before you can use margin. Usually at least $5,000 and then you can borrow up to 50% of the purchase price when buying a stock. This is your "initial margin." . Also, know that there are some securities that cannot be purchased on margin and some that require more than 50% cash. Many times they will only loan 1/3 on certain biotechs and if any stock is below $5 it typically is not marginally.

After you buy a stock on margin, you are required to maintain a certain level of "equity" in your account. The equity in your account is the value of your account less the margin debt you owe the brokerage firm. Generally, you must maintain equity of at least 25% of the value of your account. This 25% is called the "maintenance requirement." Many firms require more, depending on the size of the account and type of securities owned.

Of course you have to pay interest on the money you borrow on margin.

Margin investing is a two way street. If I buy 100 share of a $40 stock and pay cash and it goes up to $50, I of course make 25% less selling cost when I sell it. If I borrow $2000 and pay out of pocket $2000 and my $40 100 shares goes to $50, I make 50% on my money less selling and Interest expense.

The problem is that if my stock goes from $40 to $20 I lose 100% of my money.

All this being said, there were several other factors including stock fraud, prices of stock over valued, prices of real estate over valued (sound familiar) and the government reversing its self in the 30's and actually raising interest rate which all probably contributed to the depression. Also other international events helped to lead us down this road.

Man did I ramble, but the point is you can not borrow 200% on stocks.

Man,

As I was typing my comments, Kendricks answered Tight Fit in a much more concise manner that my above ramble.

Just think, if 90% margin was still allowed, $100k would allow you to buy a million dollars worth of stock!

Just think, you could not only be wiped out in one day, but wind up oweing the brokerage firm money after you lost your $100k

LOL. I avoid margin like the fucking plague.

By the way, I hit the DOW precisely on the head this week. AGAIN. 8784, you sons of bitches, read it and weep.

8532 for next week.

Kendricks, got you. I still don't understand why 90% means $100 will buy you $1000. I would think that would be 900% but then I only got through calculus 1 because I promised the teacher I wouldn't take any more math classes.

Ben, I just double checked my on line broker (TD Waterhouse) and they show my account as being able to borrow two times the present value of my holdings. In other words, if my account was worth $10 I could borrow $20 for a total value of $30. I remember about a year or so ago the amount available was about 1.85 times the value of your holdings. Before the crash, and perhaps today also, it depended upon the specific stock. High tech was about 1$ for $1 in holdings although some were simply not marginable at all. Old line companies had a much higher ratio for obvious reasons.

If you can buy $1,000 worth of stock with only $100, 90% of the stock ($900) is purchased with borrowed money.

I'm thinking the DOW at 8930 to 8950 by Friday. Down a little Tuesday, but rebounds...

8731 for Ben

Congratulations to Kendricks who humbly proclaimed himself winner

Ezeamante I'm thinking the DOW at 8930

8731 for Ben

Kendricks 8532 for next week.

Belated DOW of 8333

Ezeamante I'm thinking the DOW at 8930

8731 for Ben

Kendricks 8532 for next week.

T_Bone Belated DOW of 8333

Excellent T_Bone, but why not 8432 as you are the last one to pick?

Good Point Ben - I guess I basically gave Kendricks another 50 points to work with. All you 150 point range people pretty much took up the possibilities.

Put me down for 8801 for next week.

Yeah,

We don't need to give Kendricks help.

Options Account
Corixa
Price
Date Description Price Per Share

12-05-02 Bought 1000 Shares CRXA $8,145.00 $8.15

12-05-02 Sold 10 Jan. 7 1/2 Calls ($1,595.00) ($1.60)

12-05-02 Net Cost Per Share $6,550.00 $6.55
CORX currently at $6.21. I sure fucked this up.

Damn

TBone chould not be rewarded for making a late Dow pick, If anything, he should be forced to pick more than 200 points below me, or disqualified this week.

With respect to CRXA, you should have sold the December options, as they were still paying a very nice premiums on December 5. Always try to sell options that are not too far out, as selling the closest option is usually more efficient and allows you to maintain better control (provided the annualized return from the closest month option makes the trade worthwhile, of course).

Fuck You Kendricks

Why the hostility? Can't we all just get along???

I didn't even think to look at the god damn December 7 1/2 Calls as I just happened to have a guy in our trading room say "wow look at the premium on those Jan. Options" when I was purchasing 500 shares of CRXA for one of my clients. Trader knows I write a lot of options and when he said that I just did the math in my head and said thats a 20% premium for 42 days and "buy me 1000 shares at the market and sell 10 January 7 1/1 Calls Open Covered."

I was happy until you had to mention what the smart move was you bastard.

Funny I was writing options on stocks when you were learning to shoot a M 14 or 16(by the way i used a M-1 and I loved that weapon. Gas operated, clip fed yada yada

Never even thought to look at the December's. Hell i don't know why i didn't look, because of course they were the ones to write.until you had to br

I knew you knew that, Ben, I was just rattling your cage a little. I wouldn't want you to think I had become a big pussy or anything.

Ha

This is the first time you acknowledged that post.

Option Friday coming up quick this month.

The market ranging back and forth over the past few months certainly helps in writing options, but it is getting difficult to find good stocks with good premiums.

Pretty much everything I have is poised to get assigned, other than a couple which are close. It's been a very good month. I plan on spending some time this weekend planning my trades for next month.

I was hoping for a down day today as I had some options I wrote on three stocks which were deep in the money. I would like to see the Dow down at least 100 today. Probably will not happen as the market is actually starting to show some strength.

My stocks are looking good, other than NVDA, which I wrote the 12.5's on. I think I'll write the Feb 10's against my NVDA shares next week.

If the Dow stays where it is, I will win the Dow pick again!

I hope you win as the market is about perfect for me right now.