written by reader stansberry Alpha newsletter

By jnksak, December 19, 2012

does anyone know if this is another naked put newsletter again?

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Terry McCall
Guest
January 18, 2013 11:39 am

Sorry, the table did not paste well. Let’s try that again.
Date Price Trades Credit/c P/L Rate of Return
12/17/12 $41.80 STO Dec 12 41 Put
BTO Apr 13 50 Call $ 3 $170 3.9%
1/20/12 $45.49 STO Jan 45 Put $118 $128 1.5%
1/17/13 $48.79 STO Feb 48 Put $216 $320 3.5%

Terry McCall
Guest
January 18, 2013 11:41 am
Reply to  Terry McCall

Yikes! If the moderator can fix the table by adding spaces I’d appreciate it.

petrohog
Member
petrohog
January 18, 2013 7:57 pm

Do we have any clear winner to this Tease?

I am interested in the ideas and theory behind Stanberry’s Alpha strategy. I don’t mind paying for the report but $1300 just to educate myself!?!! Also, I do not want and would not use the 12 stock tips Porter is offering. IMO, those who follow promoted ideas are often too late to dinner, or worse… the main dish.

Does anyone know what the Anomaly is? What about a proper name or general description of the strategy to point Irreggulars like myself in the right direction for FREE. If this information is not proprietary, (and I have a strong belief it is not), I would hate myself for buying the Special Report… even if the idea made me as much money as Stansberry & Associates are advertising.

Anyhow, this is my first post and wanted to say a quick thanks. I think Stock Gumshoe is a great forum and the only one I use. I am extremely impressed with all the intelligent minds we have on here, the open minded and diverse POV’s, the exposure to free new investment ideas and most importantly I love watching the team breaking down these challenging Teases . I have never bought a subscription to an investment newsletter and with efforts of all the members here… I will never need to.

Great Job!

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Travis Johnson, Stock Gumshoe
January 18, 2013 9:50 pm
Reply to  petrohog

I posted some guesses about this strategy in a Friday File for the Irregulars a few weeks ago, my conclusion was that he’s selling year-out puts and using some of the premium you get to buy calls at the same expiration. Following is an excerpt from that Friday File, the full note is here:

It sounds very much like he’s recommending you both sell puts and buy calls at the same expiration, with presumably different strike prices to create some income.

And no, you’re not going to generate 20% returns (or 18.5%) in a year with this strategy unless you’re using margin to cover your put selling – you can’t consistently make that kind of money from a great company if your put selling is backed by cash, particularly not if you have to use some of the income to generate more upside potential.

But still, I think this is what he’s doing — he must be using some sort of margin calculation, figuring what your broker will require you to hold in cash to back up the puts you’re selling and then considering that amount (and not the margin that you have tied up in the puts) to be your investment. That’s fine if the margin doesn’t get called, but if the stock falls by 20% because the CEO is bribing the President of Mexico and stealing money for his drug habit (wild example, I suspect nothing of the sort from CBI) then there is a downside risk that has you using that margin account.

Here’s an example, with some guesses as to the kind of trades Porter could be suggesting:

CBI does have LEAP options trading for January 2014, and all of the ad language talks about returns in a year, so I assume he’s doing these kinds of long-term options with these trades — both to give you some real put selling income and to provide more time for a call option to play out and become profitable. So you could, for example, sell a put option on CBI at $35 and get income of about $2.20 for that … so that’s $220 for each options contract of 100 shares.

Then you could buy a call option on CBI for some upside exposure at that same expiration, but if you want net income to put in your pocket right now you have to spend less than $220 on it (we’re ignoring commissions to make it simple) — so let’s say you buy the $60 call options for $1.60. That’s $160 per contract, so your net income is $60 per paired contract.

What happens to the stock? It’s at $45 now, if Porter’s right and the stock goes up by 20% this year it would get to the mid-$50s, and both contracts would expire worthless, you keep your $60 and that’s it.

If the stock falls below $35, which would be a loss of more than 20%, you have to buy it (or buy back that put option you sold, and do so at a loss). If it falls below $34.40 at expiration, you’ve lost your net income of $60 and more.

So if I’m right about what Porter is suggesting, this is really just a bullish strategy to leverage your returns without committing your full capital to a position in the stock — and if you’re right about the stock doing really well you’ll make tons of money because of the leverage of those call options and the fact that you offset the cost of your call options by selling puts.

This is presuming that your broker will let you sell a put backed by margin and only set aside a portion of the cash to cover that margin, which, as Porter said, not all of them will do — and you can’t do it in a retirement account, because those accounts can’t use margin.

How much capital would it take to do this? Well, for each contract of CBI you would need the capacity to buy 100 shares of CBI at $35 to back up your sale of the put contract, so that’s $3,500. If your broker makes you set aside 50% of that you need $1,750 in cash, if he requires 20% it’s $700. I have not done this kind of trade, but I’ve seen margin quotes in that neighborhood from “regular” brokers so that’s a decent guess.

So that’s how the income numbers start to look impressive — if you start with the assumption that you’re only “investing” the $700, then $60 in income plus the potential upside from the call options (if the stock does well) sounds pretty awesome. And it’s probably a bit more than $60 in net income for the kinds of trades he’s suggesting, since he talked about 18.5% “up front” income … maybe because his recommendation has impacted the options prices, or because I guessed at the wrong contracts prices for my example.

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a1maestro
Member
a1maestro
January 30, 2013 8:39 pm

I believe his ALPHA strategy is really quite simple, but am open to other ideas. Back in December when I first received this teaser, I played around and came close, but not quite there. Having been a Stansberry subscriber for a number of years, I am familiar with his ideas. CBI was at $41.75 when I ran my exercise. I believe the inefficient market anomaly he is talking about is where ATM calls and puts at the same strike price are out of whack. Efficient market theory says that they should both be nearly the same as the probability of the stock going up or down should be the same. CBI’s were out of whack, My notes are a little sloppy, but here goes: I believe he definitely sells an ATM PUT. He likes to sell puts on great stocks that he wouldn’t mind owning. He likes to say if it goes down a little and you are put the stock, you have your up front payment as a cushion, plus you now own a stock you wanted, at a better price. You can now turn around and sell covered calls against that stock if you choose. This is exactly what Eifrig and Clark do with the few stocks that they are put. Obviously, you wouldn’t implement this strategy on a stock that just had a nice run-up as there is too much risk of a correction or pull-back. This strategy is definitely for stocks you expect to rise over the next year. I think he then buys the ATM CALL. What I tried next was selling a higher strike CALL for additional income. In my example, I sold the 2014 JAN 40 PUT for $4.90 and bought the 2014 JAN 40 CALL for $6.60 and lastly sold the 2014 JAN 45 CALL for $4.40. I had a net DEBIT of $3.30, which based on 20% margin worked out to 39.5% upfront income which I believe at the time was what he was advertising. If the stock is at $45 or better come JAN 2014, you make an additional $500 for another 59.8% or a total of 99.3% return on your 20% or $836 margin. That is pretty close to his 100% in a year. If you can open a margin account and only have to put up 20% to make this trade, it looks like a GREAT deal. For myself, that isn’t possible. I’d like some feedback if people agree or disagree with my guess as to what exactly the ALPHA strategy entails. BTW, I’ve subscribed to many newsletter over the years, and overall I find Stansberry’s the best of the lot, understanding that some are better than others. His is the only one I am aware of that gives a report card on its publications. I respect that. Regards, Joe M.

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tanshoe
Member
tanshoe
February 9, 2013 2:36 pm

In the file for Irregulars you wrote that the stock price is $45. Then you wrote: “…So you could, for example, sell a put option on CBI at $35 and get income of about $2.20 for that…” I may be missing something but how could you get 2.20 for a sSell Put that is way out of the money?

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Arlene
Member
Arlene
February 28, 2013 10:25 am

I viewed the teaser and then recieved a call from a rep at S&A who inadvertantly told me that the Alpha Strategy is buying OTM Calls and selling OTM Puts. He also said that Eifrig’s strategy involves naked Puts. I decided it was over my head at this time and did not subscribe. But Joe Maestro’s explanation sounds very much like what the caller described to me.

Tim Hanks
Member
Tim Hanks
March 1, 2013 8:46 am

Travis Johnson and Joe Maestro have it right.
Fundamentals of the underling stock has to be a winner to make the returns stated.
First you have to do your home work on the underlining asset CBI.
Chicago Bridge & Iron Company N.V. was founded in 1889. 124 years in business.
I guess I’m showing my old age now.
CBI has the expertise in building the LNG Export terminals and CNG worldwide.
Huge speculation that this is next BOOM in energy industry. With speculation comes greed.
Everybody wants CBI to build their Export terminals. They have more work than they can handle which means great earnings = stock appreciation. No regulators holding up Australia from their huge expansion projects.It’s all about who can deliver first and most.
CBI will be around another 100+ years. Try to get a list of publicly traded companies founded in 1800’s. Their are maybe 10 at most. P&G founded in 1837.My point is these companies made it through the great depression and have had to deal with every disaster. They continue to thrive and survive. That will continue and their stocks will continue to appreciate. Yes this is an extremely bullish strategy and will only work with a stock that will report better than expected earnings. I believe CBI will achieve this because nothing stops these cash rich oil companies from going after more market share of an explosive new niche within the oil industry. This is my final post on CBI Alpha strategy.
I’ve done my homework and made my decision and I’ll live with any consequences if any it will be little. I have a 87% batting average. I look to hit singles not home runs.
God bless

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