The Money Tree

Safely Generating Income in Retirement

Archive for May, 2009

No New Trades – Portfolio Update

Posted by mounddweller on May 18, 2009

Well guys and gals another month is behind us.  Not much to report at this juncture.  I have no plans to open any new positions this week.   However, as always, that is subject to change based on Mr. Market.

I did, however, sell another round of calls against my position in Forest Labs.  (FRX).  I sold 4 JUN $25 calls for $0.30.  You may recall I originally established a position in FRX back in January, buying 200 shares at $25.60.  Since then between selling CC and NP, and picking up an additional 200 shares I now have a net cost basis of $21.93/share.  If assigned at June expiration I will have a ROIC of 11.99% (28.24% annualized).   This is a much better return than the overall market.

Also, wanted to update you on the status of XLI.  My shares in XLI were called away at May expiration.  Because of an error in predicting the future direction of the market (go figure) I was only able to eek out a very small gain on this position.  My ROIC was a whopping 0.44%.  Yes, you read that correctly, it was less than 1%.  In hindsight, I believe my mistake was made back on March 23rd when I chose to sell the MAY $20 calls.  If you’ll recall the market had bottomed just a couple weeks before around March 5/6.  Fear and uncertainty still prevaled a couple weeks later and I believed the market would soon turn back down.  As we all now know, that didn’t happen.  We are now 10 weeks into this bear market rally.  XLI, like most everything else has continued to rally. 

Now some of you may be wondering why I didn’t roll-out in this position by buying back my MAY $20 and selling either the JUN $20 calls or roll-up into the JUN $22 or $23 calls.  I did give this some consideration and if the economy and market were more sound I probably would have done it.  However, with this rally looking a little long in the tooth and the economy in shambles I decided to take some money off the table and be happy with my very small gain. 

A couple more quick updates.  First, my AFLAC (AFL) MAY $26 put expired OOM.  This was an excellent trade as I made 2.21% in less than two weeks.  I may sell more AFL puts later this month if the opportunity presents itself.  Also, my JEC JUN $35 puts continue to look good.  Of course, we have over 30 days left to expiration so Mr. Market still has plenty of opportunity to make me look foolish.

Finally, as I noted above, I don’t have any immediate plans to open any new positions.  However, I did want to alert you to what I feel is an excellent opportunity.  Fluor (FLR) is currently trading around $44.82 with the JUN $45 call selling for around $2.35.  If called the ROIC is around 5.6%.  An excellent return for a very solid company.  I also like the JUN $40 puts.

Best of luck to all of you in your trades this month.

Regards,

Troy

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Posted in Portfolio Updates | 2 Comments »

New NP Trade

Posted by mounddweller on May 11, 2009

All,

I jumped the gun a little this month.  Instead of waiting for May expiration before writing any new options I saw an opportunity in the pricing of June JEC puts and decided to take advantage of it.  You may recall JEC was one of the four stocks I analyzed and considered for a May trade.  Since then the stock has reversed course and lost about 15% from where it had been trading.  Previously when I was considering JEC it was trading at $46.60.  Today it is trading at $40.25 or so.

I like to write NPs when the stock has sold off some.  So today I jumped on the opportunity to sell the JUN 35 puts (JECRG) at $1.25.  Here’s what I like about this trade…First, as I mentioned earlier the stock has already sold-off around 15% from where it was about a month ago.  JEC has to fall an additional 13.15% before hitting my strike price and 16.25% before hitting my break-even price of $33.75.  Second, my ROIC is 3.57% with a holding period of just under 5 weeks.  Third, if JEC continues to decline and I end up owning them at $33.75 I will be holding a stock with strong prospects for future earnings growth (it has a record backlog of orders), an excellent balance sheet (over $6/share in bare cash), and it’s cheap (around 11 times predicted earning at my net cost of $33.75).

Below you’ll find my trading plan evaluation criteria spreadsheet for JEC and a Groenke Vision V price chart.

JEC eval criteria

JEC price chart

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New NP Trade

Posted by mounddweller on May 4, 2009

This morning I executed a NP trade on AFLAC (AFL).  I came across this opportunity over the weekend after running a scan using Visions’ Scout Express.  After finding AFL in the scan I spent some more time reviewing the opportunity.  It seemed too good to pass up.  Fundamentals look good.  AFL has already announced 1st QTR earnings.  They were good.  Like everything else it has rebounded nicely since the market bottomed in early March.  

However, I must note that this trade falls outside of Ron’s parameters for an ideal set-up.  The TAI is at WT (wait), the Buy Rank (BR) is negative, and the stock is above it’s Buy Limit (BL).  The lone positive is the Put Factor (PF) of 4.34.

At the end of the day though, I still like this trade.  IMO, the risk/reward ratio is favorable.  With the MAY 26s I get 11.32% of downside protection and a ROIC of 2.31% with only 10 days remaining to expiration.

Thus, at the open this morning I pulled the trigger on the AFL MAY 26 puts (AJOQT).  I sold 5 puts for $0.60. The MAY 25s (AFLQE) also looked good at $0.40. 

AFLAC is a high quality stock so, worst case, if I get assigned I’m OK with owning it.

afl

Posted in Troy's New Picks! | Tagged: , | 2 Comments »