Friday, May 24, 2013

How would you play Mattel Inc. today?

I like Mattel Inc. I think it is a solid company which has has good earnings, and I happen to believe that the 2013-2014 Christmas season could do well this year since there are a few economic factors which lead me to believe Christmas sales in particular should be up. Mattel Inc. happens to one of the companies that could see benefits from this. My expectation for Mattel in the 3rd quarter is somewhere between $47-$48 per share.

My plan for Tuesday, May 28, 2013 is to put in a limit order for 100 shares of MAT at $45.63 per share. After a $9.99 comission I will pay for this transaction, my cost basis will be $4572.99, or around $45.73 per share. I will also put in a limit order to sell an OCT 19 2013 $44 cash secured put for $1.80 per share, which would give me a premium paid to me of $168.26 after comissions and expenses. This reduces my cost basis to $4404.73, or $44.05 per share. Once I have the 100 shares filled, I will immediately sell an OCT 19 2013 $48 covered call for $1.25 per share, or $113.26 after comissions and expenses. My cost basis has now been reduced to $4291.47, or $42.91 per share.

The premiums are mine to keep no matter what happens.

If the stock reaches $48.01 when the covered call expires, my call will be assigned and I will sell my 100 shares for a total of $4800.00. I will pay expenses of approximately $20 on the assignment of the call, plus $9.99 for the sell. My total proceeds will be $4770.01, or a profit of $478.54, taking into account the premiums already received. The cash secured put expires worthless, but I still get to keep the premium I was paid by the buyer.

If the stock drops to $43.99 I am forced to buy 100 additional shares of MAT at $4400 plus $20 plus $9.99, or a total of 4429.99. In this scenario I am showing a paper loss of $138.52.

If I had simply bought the stock at $45.63 with comissions, and the stock dropped to $43.99, my loss would have been $164 with comissions factored in. BUT, during this time I also received a dividend of $36 on my 100 shares. This means that in the worst case scenario, by selling the cash secured puts and covered calls and buying the stock via the limit order, my loss is reduced to just $128.

Of course, if the stock gains not only did I get to keep my premiums, but I also made more money on the stock than had I simply bought it, held it, and sold it. In the scenario where the stock did better than $48, my covered call was assigned, and I made the $478.54 profit from the entire process, AND also still received my dividend increasing my total gain to $514.54.

I should point out that it is just a matter of my own personal strategy and preference that I NEVER buy puts or calls. I only sell them. This is how I would play MAT at this moment. The ONLY caveat that is if MAT does better than $48 you lose out on those additional gains. But that is the nature of the beast when employing this strategy.

I will write a follow up in October to see where this wound up, so do check back then to see how we fared.

Sunday, May 5, 2013

Are the educated really all that educated?

I suppose it would have to be more defined in order to really come to an ultimate conclusion on this question. Is a doctor highly educated? Sure. I'll go with that. A psychologist? Now we may be stretching things a bit since the whole world of psychology is really kind of a strange place these days when you start to listen to how these people analyze, or try to analyze human behavior.

At the end of the day what I do think is that a formal education does not usurp the power, nor the benefit that a personal education can provide. If one has the aptitude and the interest to learn something, there are volumes of books and other resources available all around us to get at what it is we want to learn and better understand. Of course, one must also have the power to interpret and sift through the garbage information.

Being successful should require no formal education—with a few exceptions, of course. Here we can cite back to whether or not you want to become a brain surgeon. This is one of the obvious ones. Still, what will make you a great brain surgeon? A fancy medical degree? Or will it be aptitude, interest in the subject matter, a passion for brain surgery, and one of the most important aspects of all. Talent. Anyone can learn where to make the cuts. But someone with extraordinary talent will know how to make the cuts more delicately, and may even go on to develop new technologies in the field.

College degrees do not make people 'educated.' That is only something that one can acheive all on their own. College graduates are what I like to call seekers of credentials and accolades. People who are personally knowledgeable, whether or not they also have a degree are what I like to call seekers of knowledge. These are the educated people. And how they get where they are, and how they have become knowledgeable and personally educated, is acheived in a way no single classroom in a college can ever hope to provide.