12:45pm (EST)
Berkshire Hathaway Class B (BRK/B, $77.44, up $3.69)
February 74 calls (BVQBX, $4.50, up $2.25)
Entry Price: $1.50 (1/21/10)
Exit Target: $3.00 (closed half at $3 on 1/29/10), raise to $5+ on other half
Return: 150%
Stop Target: None, set one at $3.00 for the other half
Action: We said to close half the trade at $3 but many of you have been writing in asking questions. The calls hit $3 then traded lower a bit before running back to new highs. We had a feeling this would happen but we wanted to lock in gains to protect profits.
The return is figured out like this. If you had 10 contracts at $1.50 and sold half at $3 you would get back $1,500. The other 5 contracts are valued at $4.50 which gives us $2,250. Some of you have done better, so great! But remember, protect some of your profits even if you only close a quarter of the position.
EMC (EMC, $16.70, down $0.34)
April 19 calls (EMCDS, $0.18, down $0.10)
Entry Price: $0.55 (1/19/10)
Exit Target: $1.00+
Return: -67%
Stop Target: None
Action: These options have 77 days until they expire and these are cheap out-of-the-money options. A 10 contract trade was only $550 and that was our bet that EMC trades $20 by then for a double.
We do not buy 50 or 100 contracts on trades like this because sometimes they work out and sometimes they don’t. While we target 200%-300% or more for these types of trades, we also know that we can lose 100% of our investment if we are wrong.
If EMC can make it to $21 then the trade would return 265% from our entry price. If the stock stays under $19 you would lose 100%. This is why we “bet” $500 on cheap options and not $5,000.
However, we love EMC’s story…
Shuffle Master (SHFL, $8.97, up $0.09)
May 10 calls (SFQEB, $0.65, flat)
Entry Price: $0.85 (1/19/10)
Exit Target: $1.70+
Return: -24%
Stop Target: 40 cents
Action: Continue to hold.
Research In Motion (RIMM, $63.81, down $0.79)
Feb 60 puts (RFYNL, $0.85, up $0.10)
Entry Price: $1.50 (1/6/10)
Exit Target: $2.20
Return: -43%
Stop Target: 75 cents
Action: We got a little lucky as RIMM did not trade above $66. We thought the strong open would force us out of the trade so we will hold it over the weekend.
]]>