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I am new at PRO. I just read Catch-up Report #3 which recommends buying SBUX - price at the time of report around $57. The fair value shown in the PRO Recommendations Table is $55. What are we supposed to do? Wait for SBUX to come down to fair value or just disregard fair value and buy at today's price of $58.25.
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Hi RetiredEE,

Well, this is very apropos with another thread here about price.

Starbucks was below $55 on Monday (as the report was being put together) and it's pushing $59 now. That's quite a difference in one week. That said, we still rate the stock a Buy right now, believing that investors will earn a worthwhile return with reasonable risk from this price. That said, it may move to hold if it runs much higher, since it would appear to be about a year or more ahead of itself then...

Here's what you can do. A few choices that may depend on your portfolio, how invested you are, cash, etc:

1. Buy the other stocks we've recommended so far (there are 11 in total). And make a note to buy SBUX on a dip closer to $55, $56.

2. Buy SBUX now, as recommended, knowing that it's just half of our desired position. We'll be looking to add to our stake if we get lower prices again.

3. Write puts instead of buying right now. SBUX puts pay well. You could "sell to open" puts (1 for every 100 shares you could buy) at the strike of your choosing (say, $56, $55) and target your desired buy price. At least you'll make income if the price doesn't come, and you can write puts again.

Selling May or July $55 puts, or May or July $57.50s (more aggressive) could both work. Either one.

Finally, keep in mind that fair value is the price from which to expect a desired rate of return. It's still a good buy price. Of course, it's an estimate, with easily a few-dollar leeway (although that cuts both directions).

Does this help?

Best,

Jeff
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Thank you Jeff for answering my post. Also, for giving me some great choices to choose from to get my SBUX shares. I think I will take the 57.5 PUT approach.
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Thanks for the advice on this post. I sold the May 55put for 1.15$ today making some cash while waiting for a better buy price.

Dan
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This is helpful. Let me know if I understand correctly and please feel free to fill any blanks.

Sell May 55put for 1.15$
Each contract you buy pays $115 right away, minus the commission. Its a quick ~2% on your money in under a dozen weeks, annualizing towards the North Star. You commit $5,500 on each contract- The whole amount up front for the with cash or only $2,250 with margin. On a specific day in May the option expires and your broker updates your balances. No further obligation to do anything. You could buy the same contract again or do something else

Does using margin on this kind of trade affect the return with borrowing rates?

I missed a flight in Orlando on Saturday Night. When I stumbled on a Starbucks a half a mile from my airport hotel and it couldn't have been a sweeter sight
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Let me know if I understand correctly and please feel free to fill any blanks.


You are close. You are selling the contracts, not buying. The specific day in May is the 18th which is the third Saturday which is always the options expiration for every month using monthly options.

Your broker will reflect your balances every day with the written contracts showing as a short. You have received the cash up front so the only thing that can happen except expiration is assignment if the stock price drops below your strike price $55 and the time value has gone to zero. Facing this it is possible to roll out and/or down for either a net credit or debit depending how far in the money you are. Such a roll should not be your plan going in as you should always plan to take the stock at your strike upon assignment.

Regards,

Bob
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when I first joined Pro, I jumped in and bought what I could not understanding the importance of the allocations. I am way over in AIG and DGS and a little under in others. (I have held SBUX since before joining). Should I sell of a number of shares of the ones I am over and buy a number of shares of the ones I am under to help align the portfolio? I will never have enough to buy AAPL. Thanks for the advice. nancke
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nanke,

" I am way over in AIG and DGS and a little under in others"

Better than just trying to match the Pro Port, sell the ones you don't know why you own, or like less. Buy according to current recs the ones you have a good reason to own (or, if you like the Pro strategy for that recommendation.
Sell at this high point (if tax considerations not a factor) to hold cash to match Pro's 20% now. That is a good hedge (Safety factor, and opportunity cache.) , and this market is breaking records right now.

Gene
Always keeping the strategies in my log for each stock for review before I do any move. {I get "senior" selective memory at times}.
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Hi, Gene- I think I was feeling a little overwhelmed. I am going to wait until the March suggestions are all in and then look at the total picture. There is so much to consider and sort out. Thanks for your help- I am more "centered" and I appreciate the "senior moment". Am pretty confident about calls and puts but am not sure about the advantage of the synthetic long. I am a newbie; other members knowledge about investing is awesome! Nancke
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Minor clarification,

Although it's usually true, monthly options do NOT ALWAYS expire on the third Saturday of every month. For example, June options don't expire on the 15th (the third Saturday in June) but instead expire on the 22nd, the fourth Saturday of the month.

What is always true according to the CBOE website is that for monthly options..

"The expiration date for equity options is the Saturday following the third Friday of the month."

Don't mean to be picky, but neither would I want somebody to do something that they might have chosen not to do if they knew they had another week...

Best Regards,

Ralph
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