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August 8th, 2007 at 2:51 am
SBUX – my only issue with that trade (as with all bull call spreads) is that anything can happen in a short-time-frame. I suppose if the market maintains itself during Aug then I could relax about the rest of the year but even pre-beaten SBUX would not be immune to a major crash. For the same $1.60 at risk I can sell the same Jan $27.50s against ’09 $30s, giving me 12 additional months to be right but, of course, my favorite is always to take the same leaps and sell the Sept $27.50s for $1. While there is, of course an appeal for low-budget investors to tie up less money, the sale of 3 $27.50s at $1 yields 25% more over 4 months which equals 100% more over the course of the 16 months you hold the leap ($2.40) which is exactly what the expression penny-wise and pound-foolish means!
China I don’t take too seriously. It’s kind of like you have a store and your number one customer (about 1/3 of your business) threatens to take his business elsewhere if you don’t fix some policies he doesn’t like so your response is: “Oh yeah, well I’ll show you, I’m going to throw the money you gave me down the toilet, knocking off perahps 20% of my total wealth (which is held in that money) and I’m going to make sure that any additional money you give me or owe me buys 20-30% less for me than it did in the past. Then I’m going to slow your entire economy, which can knock another 20-30% off half my future sales while I foolishly hope my erratic behavior doesn’t cause you to seek more reliable suppliers.”
There are close to 1Bn Africans who dream of one day having a fraction of China’s standard of living and the Chinese need to be mindful of the ancient wisdom I just made up which goes: “People who live in grass huts will work for stones!”