Weekend Review

I’m trying to get this in early this week before taking on one of my alternative identities. At some point tonight I will change over from mild mannered suburban dad to the Easter Bunny. Alternative identities are great until the kids catch on. Luckily my kids remain in that blissful stage of life where the Easter Bunny still exists.

Investor’s Business Daily

The Options Institute recently started working with the good people from Investor’s Business Daily on developing education that combines their stock picking system and trading options in place of purchasing (or selling) shares. Since the Monday issue of IBD comes out Saturday morning I plan on getting a head start on the week by diving into IBD on Saturdays. If I’m going to read it I may as well pass along any good ideas that I find. 

This week one of the featured companies in IBD was O’Reilly Automotive (ORLY – 92.65). The stock ranks very highly on the IBD system, but is up 58% year to date. I spent some time with Tim Reazor who is an excellent educator with IBD a couple of weeks ago. One of the strategies we discussed was selling a put on a stock for income or possibly an entry price. If you read through the analysis on ORLY and would be a happy owner of shares a little lower the ORLY May 90 Puts may be sold for 1.90. Selling these contracts would result in an obligation to buy shares of ORLY at 90 over the next six weeks. If you are assigned on this obligation the result would be purchasing 100 shares of ORLY at 90.00 so you do need to make sure you have $9000 on hand to purchase the stock. If you want to lump the 1.90 of income from selling the put into the equation you might end up long 100 ORLY with a net effective price of 88.10 (90.00 – 1.90). On the other side of the equation, if the stock continues along the uptrend that appears to be in place the option would expire out of the money and the 1.90 of income would result in a realized profit.


Steven Sears’ Striking Price column discusses getting long quality stocks if there is any sort of market pullback that brings stocks to better purchasing levels. The same strategy discussed above for ORLY. The column suggests selling puts as an entry strategy on stocks you may want to own for the long haul. Names mentioned are Procter & Gamble (PG – 67.31), ExxonMobil (XOM – 84.82), Pfizer (PFE – 22.34), Merck (MRK – 38.88), Johnson & Johnson (JNJ – 65.34), Altria (MO – 31.36), Verizon Communications (VZ – 37.66), and AT&T (T – 30.94).

Option’s Action

It appears the guys took Friday off so we’ll check with them again in a week. I hope all have a nice holiday weekend!