The Blue Collar Investor WeBlog

How would you feel if your best friend and next door neighbor was metamorphasizing into a monster? A Dr. Jekyll and Mr. Hyde if you will. Could that be happening to our old friend, the Exchange Traded Fund? The historical definition of an ETF is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. They provide the diversification of an index fund so for those looking to get started in covered call writing with limited cash, this may be an avenue to explore. I have been selling covered call options on the Qs (QQQQ) in my mother’s portfolio for years generating hundreds of dollars per month into her account. [Read more →]

There are several factors that allow us to estimate the risks associated with our option positions. Together, they fall under the heading of the “greeks” because most of them are named after Greek letters. Let’s first look at the major forces that impact a call option’s price:

• An increase in volatility will increase an option premium
• An increase in time-to-expiration will increase the premium
• An increase in the underlying share price will increase an option’s price
• A decrease in the above factors will result in a decrease in option value.

The major Greeks: [Read more →]

When it’s time to buy a new car we analyze the reliabilty and safety of the automobile. A comparison is made of the price of the car to the value we are receiving. We contrast that value to the worth of other vehicles. At some point, after all the analysis, a decision is made…..”that’s the car I will buy”. Next we must make another decision…when do we buy?  In the summer, the next year models are coming out and dealers want to clear their showrooms, creating great deals for us. Around Christmas, there always seems to be sales and promotions galore. The parameters we use to select a car are different than the ones we use to determine when to purchase.

It is much the same with stocks and covered call writing. We screen stocks fundamentally and technically via the IBD 100, SmartSelect Scan and MSN Scouter. We make sure we have industry diversification and cash allocation equality. Earnings reports and same-store-monthly retail sales reports are avoided as are companies that trade in low daily volume amounts. Ultimately, we create a watchlist of the greatest performing stocks in the greatest performing industries. What’s left? Certainly calculations are critical as are earnings reports dates. But knowing when to buy or sell a stock is so important to our success, just as it is when you purchase your car. That’s where technical analysis comes in. [Read more →]

Executive Decision with Bucyrus International

Hello to all Blue Collar Investors. On May 15, Jim Cramer welcomed Bucyrus International CEO Tim Sullivan to the show. Cramer has been bullish on (BUCY) for all you home gamers, for a while now. And he’s been right: The stock is up over 28% to $29.14 since his call on Dec. 9, 2008, and up over 84% since he reiterated the call on March 4 of this year! Cramer thinks this up-trend will continue. 

First, before we get into what the CEO thinks, let’s see if this Cramer stock pick is good for our Blue Collar System:  

Fundamentals: 

IBD SmartSelect Scan is all Green, and a go! 

Scouter rating of 8 

The E/R is due 7/23, all clear so far.  [Read more →]

The first time I looked at an options chain it reminded me of the first examination I took in Organic Chemistry…..I thought I was prepared for it but boy was I wrong! However, like most challenges (except perhaps organic chemistry), these hurdles can be overcome by simply doing your due-diligence and via repetition. For many experienced cover call writers, the knowledge gleaned from the options chain has become second nature and a source of information for our lucrative returns. Knowing how to read an options chain is an essential prerequisite (what’s with all these college references?) to writing covered calls or any form of options trading. [Read more →]