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By emiller8988
October 26, 2004

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It's interesting to watch these things unfold. I've got to admit I like Eliot Spitzer. If there were call options on careers, I'd be buying LEAP's on Spitzer.

With MMC, I believe his intent is to punish the principals while trying to leave damage to shareholders minimized. I believe that is why he refused to negotiate with MMC while present management remained.

With Greenberg's resignation the risk to MMC drops considerably. The other day I laid in a "synthetic long" option play for MMC. I guess this is one of my favorite ways to buy stocks. Here's how it worked. When MMC dropped to 24 the other day... a November04 $22.5 call sold for 4 bucks. The November04 $22.5 put sold for 3 bucks. Let's say I wanted 1000 shares of MMC (or 100, divide by 10). I sold (a short sale of an option) 10 November04 $22.5 puts for $3000. I then turned around and bought 5 November04 $22.5 calls for $2000 and pocketed, at least for now, the extra $1000. Here's what that accomplished.... I know if MMC hits 22.5 or below, I'm going to buy 1000 shares. Therefore the put sale actually holds very little true risk for me. I've got the money set aside and I've decided I'm in at 22.5, period. But... I want MMC at 22.5 So, I use 2/3 of the money I get from the put sale to buy the 22.5 calls... this means that no matter what happens, I'm going to get at least 500 shares of MMC for 22.5.... if it goes right on back to 30 I exercise those "free calls"... if it drops to 15, someone will make me buy their MMC at 22.5. If a fellow should try this with a single put or call... it is, of course, critical that you seek out a broker that charges absolute minimum fees for options. This sort of "play" is only appropriate for taxable accounts, as the tax-advantaged account cannot fool with puts.

The synthetic long created a virtual position in MMC without having to lay out any cash. I fully participate to the upside to the tune of 500 shares... and fully participate to the downside of 22.5

Remember I knocked a couple of points off my $25 target buy price after reading Ro's article. Well... my Epiphany about the danger of "Greenburgs" has now been assuaged and I think MMC is a great purchase. I wonder if this company is terminally wounded, I doubt it but you never know. They have one whole lot of financial might to withstand and storm.

You don't get to buy great companies at bargain prices when everything is rosy. For me... over the years... this type of situation is the easiest place for the individual investor to find the value play. It's hard work to seek out the great hidden value company. Since I don't really have the time to devote to the search I've hired my man, TMFAdmiral, to do that sort of legwork. My job will be to simply stand on the street corner and wait for terrified investors to beg me to buy their shares in big companies in a world of trouble... companies with big dividends and lots of financial ability to withstand a storm.

Between the two of us... me and my man TMFAdmiral... I think my little portfolio is gonna sail through the next ten years in a wonderful fashion.

e


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