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Food For Thought – The Kroger Company

March 24, 2010 | About:
Kroger is America’s largest grocery store chain (by sales) and ranks #1 or #2 in 38 of its 44 major markets. Headquartered in Cincinnati, Ohio, Kroger (NYSE:KR - $21.20) posted record fiscal 2009 sales of $76.7 billion.

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Dr. Paul Price
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Rating: 3.0/5 (6 votes)

Comments

fcharlie
Fcharlie - 4 years ago
Kroger is probably the closest I've ever seen to a sure thing in a long time. I can't see any possibility of losing money with what you've presented.

Paul, you write a lot of these articles marrying short option positions with stock ownership. I'm curious, what amount of your portfolio is tied up, on average, with margin requirements? And at what level of implied volatility does it just not make sense to continue this strategy? I have been short KR puts for many months now, and continue to be, but in general, it seems like the easy money is already made.

Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


FCharlie,

If you think Kroger will be higher in the future there is still money to be made by writing puts.

I sell lots of puts on a regular basis while always keeping a reasonable cash reserve to allow for the occasional exercise. Most of the margin requirements are met with stocks I'm holding already in my margin-type account.

When interest rates were not near zero I used to get great income just from the float on the money I generated from selling both calls and puts. The premiums still provide great cash inflow while locking in shares at lower than market prices or getting paid "not to buy stock".

fcharlie
Fcharlie - 4 years ago
Paul,

I do think Kroger will be higher, certainly not lower in the future, therefore I still remain short KR puts 2011 and 2012.

I guess what I'm asking is, and perhaps I worded it incorrectly before... What level of equity do you maintain in your account? It's just that you appear, based on your writings, to be short many options on many stocks, and I assume based on the above comment, the proceeds are used to purchase additional shares. This has been a fantastic strategy as the VIX declines from 79 to 17...Were implied volatility to ramp up, how does your strategy change? Did you apply this same strategy before and during the crash or is there a point where you flip it and begin to sell mostly call premium?

Dr. Paul Price
Dr. Paul Price premium member - 4 years ago
I sell both calls and puts whenever I think the premiums look attractive.

Often I sell both calls and puts on the same underlying shares for the same expiration date. That sets up a wide band of profitability if the shares go up, stay level or even if they decline slightly.

The startegy works well in any market environment except a huge bear such as 2008 through early 2009. That was a very bad period for me.

That said, my account was up over 140% for all of 2009 showing that consistent usage of the techniques will work as long as you don't bail out (in fear) at the bottom.

You can see more than 100 of my buy/write combinations from the period June 2008 - August 2009 and their final results by going to www.BeatingBuffett.com . Every trade [good or bad] through August of 2009 is followed up (in the comments section for that article) as to the results through January 15, 2010.

***********************************************************************************

In my IRA I buy good stocks and write covered calls regularly. My IRA was just over $301,901 as of December 31, 1999 and is now back above $1,000,000 and near its spring of 2007 highs again.

I feel very proud of this result with an unlevered account during 10 years of putrid stock market results for the DJIA and S&P 500.


Dr. Paul Price

www.BeatingBuffett.com

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