Option Mondays: Playing Momentum Names While Limiting Risk

At my core, I am a long-term value investor. I work an 8-6 job, have a family, go to school at night and honestly don’t have time to be an active trader. I enjoy doing fundamental analysis, buying undervalued dividend paying stocks and investing for the future. Obviously, this limits the universe of stocks I invest in to a handful of companies. There is nothing exciting about investing in McDonald's (MCD), Johnson & Johnson (JNJ), Coca-Cola (KO) or Procter & Gamble (PG). There is no need to check your brokerage account every day -- or even every week, for that matter. One can sleep at night confident that one's money is safe. I’ll admit it’s boring, but it’s a dependable march towards financial freedom.

As a (relatively) young investor, I have the luxury of taking risk. While the majority of my portfolio is dedicated to broad-range ETFs and long-term stable dividend growth stocks, there is always a little slice of capital allocated at chasing the momentum companies. You know the ones I’m talking about: Netflix (NFLX), NetApp (NTAP), Apple (AAPL), Chipotle (CMG), Baidu.com (BIDU), Amazon (AMZN) and the like. These are the "castle in the sky" companies, the ones that jump 10 to 20 points depending on the mood of the market, where investors buy high and hope to sell higher.

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McDonald's: A Fairly Valued Dividend Champion

Like any disciplined long term investor I have a ‘wish list’ of stocks that I purchase on pullbacks. For me, McDonalds has always been one of those companies.   Not only is the food cheap and delicious, the stock is fairly valued and yielding a substantial dividend. Plus I’m an American. It’s engrained in our DNA to eat Big Macs. 

Whether you like it or not, McDonald’s hamburgers are as American as apple pie (which coincidentally you can get from its dollar menu). I know there are headwinds to the company, the health risks, rising input costs, market saturation, bad publicity, etc.  Heck, even I saw Super Size Me.  I’ll admit that guy put on a little weight, but he looked healthy enough… in that 17^th century European Royalty sort of way. 

Hey, any press is good press. But no matter how you feel about the golden arches, McDonalds possesses one of the strongest brand equities of any company worldwide and will continue to expand its empire into emerging markets.

What it does:

Just in case you live in a cave, McDonald’s sells cheeseburgers, chicken products, French fries, breakfast items, soft drinks, shakes, coffee and desserts. It also derives a considerable amount of revenue from the rent of its properties to franchisers. But mostly, it provides double cheeseburgers for my family on road trips.

The Fundamentals:

Fundamentally, MCD is a sound stable investment. It has provided its share holders with an impressive 21% Return on Equity over the last 7 years, and a ROE of 18% for the past 15....

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Option Monday: Buy when there is blood in the streets

I am up huge on AAPL today. Like I stated in last weeks article, I sold 75% of my Options on Friday for well over 100% gain. This morning on the gap down I Dollar Cost Averaged back into my Jan 335 and halved my cost basis. Additionally, I purchased 10 Feb 330 at around 227.

AAPL was off 6% on the day, and I am up $6000.

Buy when theres blood in the streets!

I am still only holding  5 of the Feb 330 Call into earnings.

Best of luck,

C