Date updated:08-24-2007
Dividend paying companies to write long-dated calls against, deep value, event-driven situations such as buyouts or other catalysts, other arbitrage opportunities.
Portfolio seeks equity investment ideas, and option ideas come second. Bottoms-up approach to stock selection. For instance, if I find a definite investment that I would own under any circumstance, I will try to enter the position through selling puts to lower the cost basis.

-
JOYG
Joy Global Inc - $37.24
- +0.05%
- $35.32
2/21/07: bought back the Apr$45's for $9.10 apiece and sold Jan08 $50's for $10.20. Made a small profit on the options trade and lowered cost basis to $42.62. Total IRR on the trade remains roughly the same (~22%) but overall $ profit increased by nearly 4x for slightly less risk. 2/14/07: bought at $47/share and sold Apr $45's against the position for $4.30 apiece. Cost basis: about $43.25. Will make $1.75 / share (plus a dividend) in about two months time so long as the stock stays above $45. Annualized returns in the 24% range. Lots of implied volatility in the options on this stock. If things turn sour, not a stock I would hate to be stuck holding (although I took an abnormally large position this time through).

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MRK
Merck Co Inc - $30.04
- -5.48%
- $31.29
Cost basis: about $25.60 (adj for reinv divs). Bought near the bottom during the Vioxx debacle and have just let the dividends reinvest. Getting stretched in valuation, just letting it ride. MRK & FPL are core, long-term holdings that I don't do much work on anymore.

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GNK
Genco Shipping - $22.12
- -14.99%
- $24.51
Cost basis: about $17 (unadjusted for dividends). Have not reinvested divs on this stock. Preferred metric for valuing is Price / Net Asset Value. Also monitor Baltic Dry Index of freight rates. Long term contracts were locked in at decent rates, and any expiring contracts will be at new, higher rates.

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ZMH
Zimmer Holdings I - $56.75
- -4.89%
- $59.00
Cost basis: about $58. Got very lucky, kept a close eye on this stock and jumped all over it when it got a DOJ subpoena, taking it down well below fair value. Long-term demographic fundamentals in favor of business. Would add more in the 70's.

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DISH
Dish Network Corp - $18.06
- -3.94%
- $18.59
Cost basis: about $26. Exiting soon... 2/12/07: Exited @ around $41.50. HPR of approx. 58%

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WR
Westar Energy Inc - $21.81
- -3.50%
- $22.23
Cost basis: about $22.

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TUP
Tupperware Brands - $24.86
- -2.16%
- $24.79
Cost basis: about $21.50. Bought initially due to Barron's piece, doubled down when stock fell into the upper teens. Collect a nice dividend and write calls against this stock.

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DHR
Danaher Cp - $61.50
- -1.80%
- $61.26
Costs basis: about $60. Bought on recommendation from Barron's and company's exposure to water-treatment/filtration products.
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03/05/2007 14:28 PM CST Asked by Eric McCarthy
On NEW...
Well then. I suppose this would define "what's the worst that could happen"....
I've ponied up the premium to buy some $5 puts. I doubt I'll make much money on the position, and it certainly won't erase my losses on the long position.
02/21/2007 11:41 AM CST Asked by Eric McCarthy
The news around Novastar Financial today (down 40% +) caused a bit of a stir in mortgage REITs and a few of my friends and other people have asked about my NEW trade.
Frankly, I'm not very concerned. Despite today's drop, NFI is still trading around stated book value. There may be more write-downs to come. In addition, they disclosed approximately $150 million of available cash & liquidity.
In contrast, New Century is trading below 0.5x stated book value with over $340 million in liquidity.
While NEW will undoubtedly writedown some of its assets, and the stock will fall that day, there is a considerable cushion supporting NEW's current price.