New computer specs

I've begun purchasing components for my new computer! I'm getting very excited. It will end up very similar to this one: Ultima. I've purchased the ram and power supply in order to take advantage of mail-in rebates that expire on the 15th or so. I will purchase the rest in my next credit card billing cycle, most likely.

Qty.	Image	Product Description	Unit Price	Savings	Total Price
1		Thermaltake W0116RU 750W Complies with ATX 12V 2.2 & EPS 12V version Power Supply - Retail	$189.99	-$20.00 Instant, $50.00 mail-in	$119.99
1		SAPPHIRE 100243L Radeon HD 4870 512MB 256-bit GDDR5 PCI Express 2.0 x16 HDCP Ready CrossFire Supported Video Card - Retail	$284.99		$284.99
2		OCZ Reaper HPC Edition 4GB (2 x 2GB) 240-Pin DDR2 SDRAM DDR2 800 (PC2 6400) Dual Channel Kit Desktop Memory Model OCZ2RPR800C44GK - Retail	$99.99	-$8.00 Instant. $35.00 mail-in	$113.98
1		Intel Core 2 Quad Q9450 Yorkfield 2.66GHz LGA 775 95W Quad-Core Processor Model BX80569Q9450 - Retail	$329.99		$329.99
1		LITE-ON 20X DVD±R DVD Burner Black IDE Model DH-20A4P-04 - OEM	$21.99		$21.99
1		LIAN LI PC-7B plus II Black Aluminum ATX Mid Tower Computer Case - Retail	$119.99	-$30.00 Instant	$89.99
1		Western Digital Caviar SE16 WD6400AAKS 640GB 7200 RPM SATA 3.0Gb/s Hard Drive - OEM	$94.99	-$5.00 Instant	$89.99
1		DFI LANPARTY DK X48-T2RS LGA 775 Intel X48 ATX Intel Motherboard - Retail	$234.99	-$20.00 Instant	$214.99
Subtotal:					$1,265.91

Update: The HD4870 has fallen in price to $284.99! $25 saved so far just by waiting!

Plea for help

In case you haven't noticed, the stock market hasn't been doing so hot in the last few days/weeks/months. But you know what's cool? You can help! You can go out and buy something right now and improve the economy. You want to help even more, you say? Well, you're in luck! You can go buy something, break it right away, and buy it again!

Recommended products to buy: Garmin GPS devices, AMD/ATI computer parts, E*TRADE financial services/products.

Thanks guys!

Earnings Strategy: The Aftermath

So, Earnings for Google (GOOG), Apple (AAPL), Garmin (GRMN), AMD (AMD), Amazon (AMZN), and Akamai (AKAM) were all done by August 1. I've delayed writing about my findings because I've been highly distracted by Harry Potter. I'm done with that now, though, so here it goes.

Even though GOOG moved down 30-40 points after earnings, no reasonable combination of 540-560 strike price options make money. For AAPL, I tried looking at further out of the money options. Once again, the movement wasn't large enough to make money. GRMN was interesting in that it had a spike up after earnings, but then kept rising another 10 points. I don't think I would have made money off the initial movement, though. I didn't do any real analysis of AKAM, but after the fact, I think it's movement of 20% would have resulted in some profit. AMD barely moved at all (meaning a large loss in strangle options), which I found surprising given it lost another $600M last quarter.

So, what did I learn? First, I learned a bit of new terminology. When you buy a put and a call option at the same strike price, that's called a straddle. When you buy a put and a call, both out of the money, it's called a strangle. Second, I learned that a very large price change is required to make either of these work through earnings. Third, my previous talk of increased volatility was mostly wrong. It turns out that statistical volatility will indeed increase, but implied volatility (IV) will plummet. Thus, options tend to lose half their value right after earnings, everything else being equal. Bummer.

In the future, then, I'm going to analyze longer-term options, which tend not to have such high IV shifts because of earnings. I'm also going to look at what is required to write both a put and call option to take advantage of the IV crush. Normally, to write a call, you have to have the 100 shares in your account. To write a put, you have to have the cash available to buy 100 shares at the strike price. I'm not sure what assets I need, exactly, to buy both, as I'd think they'd cancel each other out to some extent.

For now, my overall earnings strategy is GET THE HELL AWAY! Things are just too wild around earnings season. Now I just need the overall market to improve so I have money to invest again.

AMD Options Assigned

As I discussed in an earlier post, I bought 300 shares of AMD at $13.00 each, and wrote 3 options contracts to sell at $14.00 with a $0.30 premium. Well, on Friday AMD closed at $14.16, which is more than $0.05 in the money (the most common automatic exercise threshold). Not surprisingly, then, my contracts were assigned.

So, I automatically sold 300 shares of AMD at $14.00 with a $20.06 commission. I'm not sure how the commission is computed, honestly. But, I made $300 - $20.06 in the sale, plus $90 - $15.24, minus the original purchase commission of $12.99. All together this is a profit of $341.77, which is an 8.76% profit on my initial $3900 investment under a month ago. Not too bad.

Even better, I really do think AMD will go down in price again, and I don't think I would have sold my shares otherwise. So, I'm locking in some profit that would otherwise have been likely to disappear in the near future. This is a short term capital gain, however. Also, I'm more impressed with the rate of return than the actual dollar value of the profit. Still, $350 is most of a washing machine.

Stock Options

I've been thinking about writing some covered calls, lately. I've been trying to figure out the general strategy I'd like to take, running a few numbers, and asking a few questions of the Internet.

Let's take AMD, for instance. AMD's closing price today was 14.13.
The two main choices I was considering were monthly calls, or yearly. If I wrote a covered call every month, I could make about 1.4% per month in premiums. For instance, April $16.00 calls are $0.23/share. 0.23/14.13 = 1.63%. Then take off a bit for the fact that there are 37 days left instead of 30 and that I'd have to pay a commission. But, 1.4% per month is not a bad return. That ends up at 17% for the year. This is in addition to any stock appreciation!

A January 2008 $17.50 call is 1.29/share. 1.29/14.13 = 9.13%. This looks substantially lower than 17%. There are still other things to consider, though. Let's say AMD releases their Barcelona CPUs and R600 graphics cards early, and Intel doesn't immediately have an answer. AMD could shoot up in price and my option contract may be exercised. In the monthly case, I will make the 0.23/share premium, plus 1.87 in stock appreciation. A nice round $2.10/share. In the yearly case, I'll make the 1.29/share premium, plus 3.37 in stock appreciation. We now have a $4.66/share profit. Still, this is only a fair comparison if AMD surpasses $17.50 in the first month. If it doesn't, the monthly option writing catches up pretty quickly, depending on stock price movement.

It's far less likely that an AMD option will be in the money within a month than it is that it will be in the money within a year. So, writing monthly call options makes me more likely to hold on to my underlying shares. I also have more flexibility to adjust to changing market conditions. Some of the links below also mention that covered calls are more conservative than outright stock ownership.

The premium received does offer some downside protection. With AMD, I see a company that will eventually have a higher stock price. I feel comfortable owning AMD shares long term. I view it as making shares appreciate more. Instead of just getting stock appreciation, I also get option premiums. And I risk the loss of huge profits should AMD skyrocket. I don't see that happening, though. Practically speaking, I'm gaining income, gaining downside protection, and at the worst, only making a significant profit on stock appreciation, rather than a huge profit. I have made it more likely that AMD will be a moneymaker for me. I don't have access to many probabilities, but intuitively, I see my expected return going up at the expense of potentially missing an unlikely surge in stock price.

I'm think I'm going to do it, once I figure out what my AMD target purchase price is.

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E-trade options tutorial
Options
Options and Leverage (old and short)
Options and Leverage (new and long)
Covered Calls