For starters, HPQ was the second of the two stocks that you publicly recommended on this board in April or May of last year. At the time, HPQ was a $35 stock and you were recommending 34/35 bull spreads. How would that have worked out if you had continued following it down?
I never got involved with the stock until it got into the teens at which time I couldn't resist taking positions at what was about 5 times the 2013 estimate.
On Sept. 21 with the stock at $17.61, I sold 80 Feb. 13-strike naked puts for $25 each. I took in $1,955 on a cash margin requirement of $12,560. If the stock held its margin-safe price of $14.65, my nominal return for five months would have been 15.6% which is at the pace of 38.3% for twelve months.
The stock recently broke below its margin-safe price but I'm continuing to remain with the current position instead of rolling because I have plenty of margin availability and also because $14 now represents just four times the company's projected 2013 trough-year earnings of $3.50. That PE is even lower than the lowest closing PE for Tyco which was 4.6 based on the 7/25/02 close of $8.25 with 2002 fiscal year earnings destined to be $1.79. HPQ is hardly in the position that Tyco was in mid-2002.
For those NOT having sufficient margin availability to hold, my methods would call for the contracts to be rolled out to the 10-strikes for Jan. 2014 which entail a new margin-safe of just $11.25. The rollout is available for $16 per unit CREDIT which would add $1,175 to the coffers after commissions.
So now if the stock can just hold $11.25 which is barely THREE times next year's expected earnings, I would end up with PROFITS of $3,130 on a $12,560 investment for 16 months. That's a nominal return of 24.9% for 1.33 years which is still over 17% annualized.
Compare my nominal return of almost 25% for 16 months with where a buy-and-hold investor would be if he bought at $17.61 and the stock went down to $12 and then recovered just slightly to say $14. Even after five quarterly dividends of about 15 cents each, that buy and hold investor would be sporting losses of about 17%. The difference is like night and day.
My methods turn the routine losses of others into great percentage gains in the fullness of time as long as the stock isn't just an absolute bottomless pit - and few of my investments are that.
The one downside which I have never denied is that if there is a big short-term drop in the stock price such as what happened recently with HPQ, my SHORT-TERM losses will be somewhat greater than a buy and hold investor. Right now for example, I'm down by $4,340 or 34.9% on my investment versus a buy-and-hold investor at $17.61 being down by 19.1%. However, I don't at all mind having this kind of short-term loss when I know how well I'll still do unless the stock is a bottomless pit.
You have seen on numerous occasions - with the likes of BAC, F, CSCO,and PBR how the need to roll out is hardly a disaster. In the over two years that I have had naked put-writing portfolios, I can honestly say that I haven't lost on a single underlying stock in the fullness of time. In fact, the only investment where I failed to walk away with double-digit ANNUALIZED returns in the fullness of time was F which fell from the high 16's to the high 9's during the time I was in it. But incredibly enough, that was STILL good enough for me to walk away with a high single-digit annualized gain.
Thanks for the post that provided me the opportunity to show the board just how good my methods really are in the fullness of time.
HPQ ($24.49) hasn't sold below $19 in over seven years. They have 15-strike puts expiring in January currently quoted at $41 bid, $45 asked. If sold at my brokerage using cash as collateral, the nominal ten-month return would be 20.7% and probably more like 23 or 24% with an early out. Do you realize that you wouldn't even earn that much on AAPL if that one goes from $585 to $700? And which do you suppose is more likely - AAPL getting all the way to $700 by January expiry or HPQ merely being able to hold on to the margin-safe price of $16.90?
I very much do consider it to be a travesty when a company like HPQ which is expected to earn $3.50 a year in its trough year sells at just FOUR times earnings. What other company do you know of not headed for bankruptcy sells at that kind of PE? Even Tyco at its worst never sold at the PE that HPQ now sells at.
I love to be involved in stocks that are just hated by the Street when valuations are this absurd. Because unless the stock is destined to plummet a lot further, I will make out like a bandit in the fullness of time even if I have to roll a time or two.
"And which do you suppose is more likely - AAPL getting all the way to $700 by January expiry or HPQ merely being able to hold on to the margin-safe price of $16.90?"
and the answer is:
aapl got to 700 in sept and hpq went below 16.90 in oct.
when PINOCCHIO made his STUPID statement aapl was only around 585 and hpq was around 24.
in that same msg he also said:
"Investors will really be chortling if AAPL should near $700 within the next year while I quietly go about the business of earning even a higher percentage which would occur even if the stock were to lose nearly a third of its value from here."