One of my bargain basement stock picks (thank you Sir John Templeton) is flying off the shelf today and has been for a month. Newcastle Investment Corp. (NCT) was one of last years successful picks. It is trading up today almost 10% as I write this at 3:30 PM, EDT

I have written before about picking up this as a penny stock for 60 cents a share amidst the market panic of days gone by, now sitting on over 500% gains, and still counting as the stock is currently trading at $3.77 -- yikes! . (update: $3.84 +11.95% final)

I rarely dabble in penny stocks but Newcastle is a CMBS player with very diversified real estate interests that I have been following since it was trading near $20 per share and paying a double digit yield.

Since the early spring, when the government announced it would start selling its shares of Citigroup, Inc. (C) stock, there has been downward pressure on the shares. At the time of the announcement it was reported that all of the government's 27% stake in the company will have been sold off before the end of the year. There is no certainty of that, after all it is the government, but it would not likely be too long after that.

This raises a lot of questions as to what will happen in 2011. Perhaps Citigroup will start buying back shares: there sure are a lot of them floating around. At last count, 28.97 billion of them with a cap rate floating around $115 billion. For comparison, Bank of America Corporation (BAC) only has 10.03 billion shares outstanding with a cap rate near $137 billion.

Investors are running scared again and that always means that stock bargains are not far behind. Apple Inc. (AAPL) dropped another $5.87 Tuesday, landing at $239.93, and another 8 cents was lost after-hours. For most of the year I have felt that Apple was not cheap and was not going to hit $300 per share, contrary to almost anyone else with a voice. Now I feel it is worth watching as things might get silly to the downside.

Apple rose to a high of $279.01 before pulling back 14%. That is not enough of a margin of safety for me, but it has become interesting again. It clearly has earned a spot on my watch list.

A few weeks ago, a good friend asked me for a stock recommendation that he might add to his Roth IRA. Three stocks with high yields came to mind that would be great in a retirement account. Note that I do not advise others what they should do, but share what I am doing or contemplating doing.

I recently included Merck (MRK) in a review of the granny portfolio, and discussed Royal Dutch Shell (RDS.A) in Chasing Value™: Buffett Must Be Buying Oil. I own Merck in all of my portfolios and have made Shell the largest holding in the largest portfolio. The third stock that I thought of I don't yet own -- Telefonica SA (TEF). I looked at it last May, and it currently pays a whopping 7.13% yield.

Earlier today, I posted Whose Best Interests Are Served If BP Is Pushed into Bankruptcy? where I disclosed having taken a position in BP p.l. c. (BP), and for better or worse my first test will be the market close on July 16, 2010.

Over the past year, I have started reporting on various put options that I have been doing. In today's example, I sold to open BP at a July strike price of $22.50 (a naked put), receiving $0.50 per share.

My break even is $22.00, and the stock opened today at $27.65 with three weeks to go.

There has been little time to write lately because I have been wheeling and dealing in my investment world. However, I thought I would share one of the trades I did this week that seems like free money to me, and although the opportunity has faded a little I might do it again and you might want to examine this trade, too.

At the market open on Tuesday March 9, a good-til-canceled order filled -- selling to open Citigroup Inc. (C) January 2012 'puts' at a strike price of $7.50 -- paying $4.05. This transaction is commonly called a "naked put". The return on investment is 59% over the remaining 22-month period.

This is nuts because my break even position is $3.45 -- 20 cents a share less than it was the time of the trade and 60 cents less than the $4.05 (ironic isn't it) Citigroup is trading at now, as I type away.

Yesterday my 2009 portfolio closed up 201% for the year. It has been an interesting journey, and while it is rather self congratulatory to discuss it, there are lessons to be learned.

Before I review some of the reasons I was able to do this I want to make it clear that I do not think this can be easily repeated; I look at the portfolio every day thinking this is too good to be true, and we all know what that usually means.

Let's face it, all those things you heard about efficient markets over the years were hogwash. In the short term, markets are not efficient and as we have learned on too many occasions, not even rational. If everything was always priced just right you would not have winners and losers and everyone would live happily ever after. For some things the short term might be as long as five to ten years.

Three years ago I lost out on the purchase of a property close to my office when someone decided it was worth 40% more than I did. At the time I told the broker the buyer was nuts and would lose money, if not more. I remember the broker telling me that the property was worth what someone is willing to pay. That is not true, but far be it from me too convince a broker that just made a terrific deal for his client that people often pay more than something is worth. To make a long story short, the property is now in default and I am trying to buy the note from the bank that made a bad loan accepting a silly valuation.

In April, I did a series of posts on Williams Companies (NYSE: WMB) starting with Chasing Value: Williams has the pipes and it's not blowing smoke.

I have also been writing about my investments in naked puts.

Now, I want to share one of the things I have done this year that has helped me obtain over a 100% return for 2009 at one point last month, which has since fallen back to 82%. This is not something I could have predicted, but I am not complaining.

This is a continuation of a theme I have been writing about this year involving stock options referred to as naked puts.

This allows investors to take a position in a stock, most often below its current price, but depending on market sentiment. That sentiment remains relatively negative so the spreads are attractive.

I have been following BHP Billiton Ltd ADR (NYSE: BHP) the largest mining company in the world, with headquarters in Australia, for a while but I do not own the stock today. I view all mining companies as an opportunity because I think the diversified raw materials they control are the best hedge against inflation. I do not think inflation is imminent, but with the extreme increases in money supply and debt being created I do not think it will be avoidable a few years out.

For those of you who are able to trade options, I have been writing more and more about naked puts, "selling to open" stock options that I have been doing all year with great returns due to an overabundance of fear.

Yesterday I reviewed one example in Chasing Value: GE -- maybe not eating out of trash cans after all, and today I review some of my favorite ways to make money and improve my portfolio.

Let me start with United Parcel Service Inc. (NYSE: UPS), a company with a great balance sheet, strong management, and trading 29% off its 52-week high, about where I sold it last year. I bought it earlier this year at the bargain basement price of $44, and now wished I had bought more.

This week I closed out an option on General Electric (NYSE: GE) I had discussed four months ago regarding the absolute fear in the market place that I felt had driven investors off a cliff (see Chasing Value: Will we be eating out of trash cans?).

At the time I had noticed that GE naked puts, a "sell to open" put option, would pay me, on the spot, 52 cents a share if I would commit to buying the shares if they dropped below $2.50 by January 2011. This meant that my break-even position was $1.98 a share when GE was selling for five times that.

Over the past few weeks the market has been playing a favorable tune but that does not mean that all bad news and negativity have been wrung out of it. There is plenty of fear and suspicion creating volatility.

In many cases this past quarter I have been doing naked puts, in stocks I would be happy to own anyway. I first mentioned this opportunity about seven week ago in Investor fear puts me 'naked' on Wall Street. The actual option position is a "sell to open" put where you get paid today, to pledge to buy something at a later date. These options are available at different strike prices and monthly intervals depending on the company stock.

There are people in the investing world right now that are so down on the market that they are hedging against an absolute market collapse.

As an example of this view I just sold naked puts in General Electric (NYSE: GE), the only original Dow Jones Industrial Average stock for January 2011 at a strike price of $2.50, and collected $0.52, per share. My break even therefore is $1.98, not counting the interest over what is almost a two-year term. Or looking at it another way, I got paid 20% on my money.

In reading recent stories that Warren Buffett continues to increase his stake in Burlington Northern Santa Fe (NYSE: BNI) -- now standing at 22.4% -- I started to wonder if some day the name might be changed to "Berkshire" Northern Santa Fe RR?

'My pal Warren' is no doubt looking long term, and for most of the past two years has been up on Berkshire Hathaway's (NYSE: BRK.A) BNI investment. However that is not the case today as his most recent purchase at $75.00 per share (not bought in the open market) is under water; the shares closed at $66.04, down 12%. He is losing even more on his average purchase price.