Today I bought more FPL at $52.90. I already had 2% of my portfolio in this stock; this purchase brings my position to 5%. FPL is an electric utility company with two parts; one a regulated public utility and one an unregulated private energy producer. FPL has not participated in the broader market rally, up only 12% from it's March 2009 lows.
I also bought January 2012 $50 calls on JNJ for $14.70. Since I bought the calls, this means I have the right to buy JNJ at $50 per share any time between now and 2012. JNJ is currently trading at $64.
If I exercise these calls, I'll be buying JNJ for $50 + $14.70 = $64.70. The calls will increase in value if JNJ rises. I'll break even if JNJ is at $64.70 at the expiration date. If JNJ is below that price, my loss on the position will increase until JNJ drops to $50, for a maximum loss of $14.70 per share (i.e., the calls expire worthless). If JNJ is above $64.70 per share, I make a profit. There is no cap to the profit on this strategy. Since JNJ could theoretically increase to infinity, my profit is theoretically infinite, too. In practice, JNJ's record high is around $70 and I'd be surprised (if delighted) to see that height again. In that best case scenario, my profit would be around $15 per share ($70 - 50 - $14.70) if I exercised the contracts.
I could also resell the contracts, later. The price would depend on the time remaining until expiration, and JNJ's price at that time.
