The Money Tree

Safely Generating Income in Retirement

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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