DARK HORSE HEDGE - Rock and ROLL (Those IM Buy/Writes)
By Scott and Ilene at Dark Horse Hedge
You’re looking fancy and I like your style
You drive us wild, we’ll drive you crazy
You show us everything you’ve got
Baby, baby that’s quite a lot
You drive us wild, we’ll drive you crazy
You keep on shoutin,
I wanna rock and ROLL all night – KISS
It is a wonderful season of the year and my personal favorite time of the month. Next week is options expiration week, and we need to rock and ROLL our options another quarter, turning a quality stock into a nice yield in our VIRTUAL Dark Horse Hedge portfolio. The DHH portfolio was created using a combination of Sabrient's research and Phil's Buy/Write strategies.
On July 26, 2010 Dark Horse Hedge bought ½ position of Ingram Micro (IM) at $16.81 in its virtual portfolio. We used Phil’s Buy/Write strategy to get into the position with a 15-20% discount as follows:
Sold the Dec $17.50 call at $1.60 - now trading at $1.00
Sold the Dec $17.50 put at $.90 - set to expire worthless
This reduced the net purchase price to $14.31.
IM has been looking strong and we like its style -- earnings of $.41/share in the last 3 quarters. It's forecasting $.66 in the 4th quarter. IM is trading at $18.55 today and so we will let the Dec $17.50 put expire next week ($.90 profit) and buy back the Dec $17.50 call for approximately $1 ($0.60 profit). Now we can roll our Buy/Write strategy to March and earn another $2.30 lowering our net cost basis in IM to $13.01.
Buy to cover, IM Dec $17.50 call, next week at approximately $1
Sell: IM March $17.50 call, next week at approximately $1.65
Sell: IM March $17.50 put, next week at approximately $.65