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Button Up Your Stop on TPP
The Income Tripler
Monday, February 02, 2009
By Louis Basenese
Email – #7
** Button Up Your Stop on TPP
We get earnings from TEPPCO Partners, L.P. (NYSE: TPP) tomorrow morning. Considering we’re up 37% in 33 days, and entitled to the dividend of $0.725 to be paid on February 6, let’s button up our stop. Raise it to $21. And I’ll report back with my recommendation after I dig into the report.
Speaking of stops, a few of you questioned why in the world I would recommend stops on stocks we write calls against. The fear being, that if we stop out, we’ll be caught naked. So let me clarify…
Many of you only buy the stocks. So the stop is necessary to protect your principal. But even for those of you writing calls against our positions, I recommend using stops. And here’s why…
I will never raise the stop above the strike price before expiration. Accordingly, you should never be in the situation where you stop out of the stock and the option is trading at a premium to the price you sold it for. Instead, you’ll always be able to buy it back (and close out your naked position) at a lower price.
Let me stress this is an example only – if we stopped out of Medallion Financial Corp. today, you could buy back the February $7.50 call (TQX-BU) for $0.35, 10 cents less than we wrote it for. You can even set this up to happen automatically and almost simultaneously – sell the stock when it hits our stop loss and buy back the call option. Just speak with your broker about the specifics, as some insist you buy back the call first, then the sell the stock.
I know it all sounds confusing, but it’s really not. Just know this, I’ll never leave you exposed. And if you have any questions, please feel free to contact our VIP Trading Services representatives at 888.570.9830 (toll-free) or e-mail: viptrader@oxfordclub.com . Or call Pillar One Advisor Aaron Brabham at 800.329.1984
Here’s an answer to another question I’ve fielded several times, regarding our newest recommendation, StoneMor Partners, L.P. (Nasdaq: STON). Many of you questioned the recommendation, based on a sky-high price-to-earnings ratio of 93.75. But remember, it’s structured as an MLP, so PE ratios are useless.
Instead, we need to look at its valuation ratio based on distributable cash flow (DCF) – how much cash the company has on hand to pay out distributions. And when we do that, StoneMor trades at a much more reasonable valuation of seven times DCF.
That’s it for now. I’ll be in touch shortly regarding TEPPCO’s report and a possible new recommendation.
Good (and safe) investing,
Lou Basenese
P.S. Be one of the first to participate in our new, intensive Oxford Club Private Wealth Summit at the AAA Four Diamond winning Windsor Court Hotel in New Orleans, LA on April 28 and 29, 2009.
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Medallion Financial Corp. (Nasdaq: TAXI)?
Current Yield: 11.2%?
Entry Price: $5.83?
Current Price: $6.79?
Unrealized Gain: 16.5%?
Income Received-to-Date (dividends + option premium): $0.45 or 7.7%. ?
Total Potential Return (unrealized gain + income RTD): 24.2%?
Recommendation: HOLD until the February $7.50 call options (TQX-BU) we wrote against our position expires. If shares aren’t called away, we’ll look to generate additional income by writing another covered call option. Sell stop is $6.
StoneMor Partners, L.P. (Nasdaq: STON)
Current Yield: 15.0%?
Entry Price: $14.50
Current Price: $14.80?
Unrealized Gain: 2.1%?
Income Received-to-Date (dividends + option premium): $0.00
Total Potential Return (unrealized gain + income RTD): 2.1%?
Recommendation: Buy up to $15 and set a protective stop at $11. Options are not available to write any covered calls. Remember, the dividend of $0.555 will be paid on February 11 and we get earnings on March 16 at 11:00 a.m.
TEPPCO Partners LP (NYSE: TPP)?
Current Yield: 11.7%
Entry Price: $18.03?
Current Price: $24.82
Unrealized Gain: 37.7%
Income Received-to-Date (dividends + option premium): $0.00?
Total Potential Return (unrealized gain + income RTD): 37.7%?
Recommendation: HOLD. And raise your stop to $21. The company reports earnings tomorrow morning.
All Income Tripler recommendations are posted on The Oxford Club website – www.OxfordClub.com Just click on ‘The Income Tripler’
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Bi Louis Basenese is the Senior Analyst for The Oxford Club . He began his career structuring asset protection programs for private business owners and later joined one of Wall Street’s leading investment firms as a top analyst and trading expert. Louis specializes in non-traditional investments such as hedge funds, managed futures, takeovers, IPOs and various other alternative investments. He has an MBA from the Crummer School of Business at Rollins College and draws upon both his academic and professional experiences to edit four elite trading services: The Takeover Trader, The Long and Short Alert , and The Income Tripler . Louis also is a regular contributor to the Oxford Club Communiqué and the Oxford Insight e-letter and is a top-rated speaker at financial conferences around the country.
Copyright – 2009 The Oxford Club, LLC. The Oxford Club does not act as a personal investment advisor or advocate the purchase or sale of any security or investment for any specific individual. The Oxford Club provides its members with unique opportunities to build and protect wealth, globally, under all market conditions. The executive staff, research department and editors who contribute to The Club’s recommendations are proud of the reputation The Oxford Club has built since its inception in 1984. We believe the advice presented to its members in our published resources and at our meetings and seminars is the best and most useful available to investors today. The recommendations and analysis presented to members is for the exclusive use of members. Members should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Likewise, past performance does not assure future results. Recommendations are subject to change at any time.
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