Option Investor


Printer friendly version
The DECEMBER Monthly Cash Machine ended up with a Profit of $2,120.

However, a very expensive lesson should have been learned from the last day of trading.

Lesson: When an issue is on the WATCH list and drops to a price of $0.05 on the day before expiration, you need to close it out for the $0.05 and the commission. A lot of subcribers do not heed the reminder that I give out periodically during the last week reminding them that them might want to consider closing out positions that are down to a $0.05 - $0.10 to buy back.

In this case, every position going into today could have been purchased for a $0.05 close out yesterday. Of course the neccessity to close out all of them was not necessary, however there was one issue on the WATCH list and during the last three days commentary was made regarding watching the price of the underlying and also moving down the price of the STOP. Many subcribers heeded the message, some closed out the BID position, others at least lowered the STOP. As you can see by today's action, Murphy;and his Law paid us an unsuspected visit. Many subscribers were ready for him, some more so than others. While a few decided to face his wrath. The bottom line is anytime you have a chance to close out a position for $0.05 especially on the next to last day or last day, you have to seriously think hard about not taking it. ( in this case it would have cost you $65.00 - $85.00 including commission depending on your broker-dealer. The alternative to not closing out the position, is having to cover a option like the December 40 Bid call for $0.70, $0.80, $0.90 or even a $1.10 ,etc ( costing $700 - $1,000 plus commission to cover). A few subcribers have written to me to ask, Why they should buy back an option that is out of the money with several days remaining and pay commission on top of that, that is a waste of money and reduces my return." I think the action in BID today answers that question in spades. Once again, remember it was the only issue on the WATCH list, eventhough it was out of the money that I suggested to keep an eye on. In fact it was the most difficult position of the month if you go back and watch its appearance on the WATCH list. Anyway, I never like to harp on a month's performance good, mediocre or bad, but I think this month we should take away the concept of minimizing greed and carefully consider seriously taking 95% of the cash off the table when we have the opportunity. Enough said, Let's take our $2,120 profit for December to end the year and go on to January.

I have attached the FINAL PORTFOLIO RESULTS for DECEMBER 2007 below for your perusual. In addition it can be seen in the portfolio section for the remainder of the weekend until Monday when the JANUARY 2008 PORTFOLIO will be seen.

Monthly Cash Machine Newsletter Archives