RIO Covered Call

I'm putting my stocks to work for me by selling covered calls against my RIO position. I sold Feb $14.00 calls for $1.15. I honestly was not thrilled to put this trade through, however its price trend is a tad bit below the $14.00 strike price, so I am banking on this continued trend.

Latest and Greatest

Finally got into Vasco Data Security INC (VDSI) via an options play. I bought a Sep 10 call for $3.70 and I like the fact that I have until Sep to let this trade play out, which is the great thing about options. I am still a newbie to the world of options and still have plenty to learn. In this volatile market, it has been my investment in calls/puts, which has earned my the most money this year. If you are an investor interested in learning more about the options, I would recommend checking out this book: "Understanding Options" by Michael Sincere. He lays out the basics in very understandable terms and it has been the book I reference the most.

Just wanted to bring everyone else up to speed on some recent trades. I have added to my position in Sterlite Industries Limited (SLT) and re-entered into Companhia Vale do Rio Doce (RIO) in after market hours trading. HAGO Justin

Options Expiration

As the mantra in my blog states, "lessons learned good and bad," Tomorrow I have a bunch of put options that are going to expire worthless because I was over zealous with my purchases. I fell into the classic trap of buying "out of the money" puts because they were cheaper when compared with their "in the money" counterparts. One thing to always remember, when you are a buyer of puts/calls time is your ENEMY and conversely when you are a seller of puts/calls time is on your side and you want that option to expire worthless, so you can pocket that premium and then turn around and sell another option against the same 100 shares of stock. I actually find myself in this situation because back in Nov I sold a Dec 25 call on VDSI for $1.20, so looking at the price right now it is likely to expire worthless tomorrow. I am also currently contemplating selling some covered calls against my position in RIO.

My First Options Trade

Well today I was full of apprehension because over this last weekend after the market took a drubbing, I decided to make my first options trade ever! I have been doing research and read a great book "Understanding Options" by Michael Sincere. It takes a very common sense approach to beginning options and is extremely user friendly. Anyway back to our regular programming. I have been following Vasco Data Security International INC (VDSI) for awhile and have even previously blogged about it being on my watch list.



On 25 October 2007, after doing my due diligence I finally picked up some shares on a pure momentum play and based on earnings at $30.02. The analysts were a bit disappointed with VASCO's earnings and valuations at the time, so the stock took an immediate tumble the very next day. Of course this sucked quite a bit and I was initially put off, but the more research I did the more I realized how this company has true worldwide exposure and are a true leader in their respective marketplace. I decided to hold on for the ride and watched it tumble down to the low 20's. On 8 November, I picked up more shares at $20.05 to shrink my cost basis realizing this was a great buying opportunity and that VASCO was being punished based on the overall marketplace not on the value of the company.

Now to the main point of my post. Today I took my first giant step into the options market by placing a covered call sale via my brokerage at Scottrade.

At first, I was a bit nervous thinking I was going to mess up my first options trade and end up costing myself a ton of cash. My main decision was what was my time frame and strike price for the covered call. I decided that since this was my first trade I did not want to space this trade out for many months, so I needed a strike price that if exercised would still allow me to earn a little profit. Based on my previous price points (mentioned earlier) I entered a sale for the December calls with a 25 strike price. My order was filled and I received a premium of $1.20. As you can see, I could have probably got a higher premium, but the NASDAQ started dropping this afternoon and I did not want to lose out on a trade just over a few bucks.



Lessons Learned: Don't get nervous it's just another trade, so it's not like I'm selling naked puts or calls where the risk is extremely great. All-in-all, I'm pretty happy with the trade and hope that the option does not get exercised because I still believe that VASCO will go higher just not sure if it will accomplish this in this volatile market by December. I guess I will have to wait and see.

On a more important note: A happy Veteran's Day from one veteran to the hundreds of thousands out there worldwide.