Friday, May 4, 2012


Does it just seem that way (cognitive dissonance), when I publicly recommend an investing position it falls off a CLIFF?
At the monthly SF Options Group meetup I shared my CLF in-the-money call trade with the group, which I had put on a few days earlier at $70. It being $67 at that time, I suggested dropping it a strike. In my last blog I also recommended putting on a put spread if it continued down - which it is doing. Going on vacation this week, I put on a May 18: Buy 57.50, Sell 55.00.
Here is a possible outcome:
Bought 200 -$13804, put spread (3 X 3) $100 - total outlay: $13904
Even if CLF goes down to and stays at $55 by Oct. (doubtful, as it has vascillated 6 times since last Oct.) , it would still be profitiable:
Sell 200 at 55 - $11,000; 2 div'ds - $250; Calls sold initially-$2310, put spread profit-750: Total $14.310. Net $400. If it drops below $55 for a lengthy time, I'd bail out, as I did in 2010 with BP. Or hedge with more puts.
Fundamentally (!) UBS rates CLF a BUY with a $100 target; S&P has it at 4*s. The whole energy complex is struggling - hopefully by next winter/ election season markets should improve.  Still - no strategy (yielding an average 10%) is perfect, but if CLF can drop from 70 to 55 and the investor still profitable, it seems justified.

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