After reading once again message from Ken, it’s time to update my investment exploration journey. After a year or so, I wasn’t stunned by Lehman Brothers, I was just stunned by the Chinese 3G launch and of course spent the only time I had with my family’s new member, and here I am again.

2008 was quite a planned bomb after all, unfortunately I wasn’t hard working enough to read the “Currency War” during Olympics, but a year after that. My eyes are opened and let alone my anti-IMF emotions, I changed my strategy once again. Our world now is just too fast, any industrial cycle is just a matter of years, markets are liquidity ratio are high and even Berkshire Hathaway needs to split for more money. Oil price can swing from $140 to $30 within 6months, every company, every country can go broke in a week. Here is where we are, the money sucking machine from bankers are in full run, only risk takers or risk taking company can have high revenue yield, this is why countries need protectionism or will become colonies of IMF or World Bank.

Anyway, to be here, I am still keen on what I want to do. I would not pick a penny in front of steaming train, instead, I sell insurance of the stock. Yes, it is very important to be careful and normally you are very well protected with the firm you trade with. As stock owner, you would like to sell your stock in high price, however, what is high is very tricky. However if you are a person who gets satisfied easily, you can always sell your stock higher than what it is now some time later. The practical way for this is selling call options which is same amount of your stock. Not only selling the price for the intrinsic value, you are selling it with time value. Time value for Call options is normally higher when the stock surges, low when it sinks. There you go, if only the time value which you care, you really do not need to worry as a late actor, instead you can always observe and move like a chess player.

Let’s find an example of today~
RIMM was upgraded so stock jumped 5.6% to $73.39. The call options are up as well for certain. If you are not stock owner, buy you think this stock is good, you can think about the buy the stock and sell the call at $70, the call price is $4.1 and the expiry date is next week (3rd week of the month). So after these 8 trading days the stock has not fell under $70; your call will trigger it sell at $70. Hence, you bought at $73.39 and sell at $74.1, a moderate $0.71 ($70 USD) return. The catch is IF the stock falls below $70, the Call will not execute and you have to keep the stock, of course the $4.1 is yours. Hence as long as it is not lower than $69.29 ($73.39 - $4.1), you are not losing anything.

Of course, to throw $7339 USD for the return of 1% ($71) is not what I really prefer. Let’s look further, for the April $70 call, which is $6.4 and it means a return of %4 for a month (is not very high but good money already). As the time value of that is $3.01 (6.4+70-73.39), which should eventually fall to null on expiration would give you a very good protection against a sudden change of environment.

Tips, the higher the VIX, fear index, the time value would become higher, and that’s time to bundle the stock with call options and throw to the market.