New NP Trade – TK

All,

First and foremost let me be very clear, this is unlike any of my recent NP trades.  For the past several months all of my NP trades have had the following objective and risk profile:

Objective: Achieve > 2.5% ROIC by selling NPs at a strike price where I feel there is little probability of having the stock put to me.

Risk Profile: (1) > 10% downside protection, (2) strike price < 52-wk low or significant level of support.

This TK trade is different.  This is not a short-term trade.  I want to own TK long-term.  However, I think the current price is a little high so I’m going to sell naked puts at a strike price where I wouldn’t mind owning the stock.  My objective is to accumulate 700-900 shares at an average cost of around $15. 

So today I sold 2 TK JUL $17.5 puts at $0.70.   The stock has fallen sharply over the past few days from a recent high of $23.48.  This follows an equally rapid rise from a low of $15.55 back on June 3rd.  The sharp increase in price was due to a short squeeze.  I suspect the sell-off reflects a return to the previous trend.

This is not my first NP trade in TK.  TK originally caught my eye back on June 3rd.  At that time I sold 2 JUN $15 puts for $0.70.  During the subsequent short squeeze I bought them back for $0.05.  My thought was I might have another opportunity to sell them again prior to expiration if TK fell.

So, I’m guessing some of you might be wondering why I didn’t originally post my first trade here on my blog.  Well, quite simply because it didn’t fit my earlier trade pattern and I thought it might ‘muddy the waters’ so to speak.  But, in rethinking through my goals of this blog I decided that if I used Ron’s VISIONS approach and software to identify the opportunity and time the trade then I should record it on the blog.

Below you’ll find my complete trading history in TK and a copy of the TK price chart.

 

 

 

Update – FRX

Guys / Gals,

Since I had to be away from my computer today and since FRX had jumped to within $0.50 of my strike price I decided to not take a chance on assignment and instead executed a rollout to the JUL $25 for a net credit of $0.75.  If assigned on July 18th, this will bring my total ROIC to 15.72% (31.18% annualized).

Regards,

Troy

Update – UNG NPs

All,

Was able to sell the remaining 7 contracts on my UNG NP trade today for $0.35.  Now have 10 open contracts on the UNG JUL $13 puts.

Regards,

Troy

New NP Trade – UNG

Guys & Gals,

I executed a new trade today; well, OK partially executed.  I entered a trade to sell 10 JUL $13 puts at $0.35 or better.  By the end of the day I had only gotten a partial fill on 3 of my 10 contracts.  It was very frustrating to say the least.  UNG went down all day but yet I couldn’t get filled.  Never mind the fact that others were periodically getting filled at $0.35.   Yesterday, the JUL $13 contracts traded at $0.35 when UNG was as high as $15.80.  Today, I got my partial fill at $0.35 while UNG was trading around $15.45.  UNG closed right at its low of the day of $15.29 and yet still noone wanted to pay $0.35.  The bid on the option closed at $0.25.

While I was very much wanting to blame the market makers I know that’s not the real reason.  It’s all about supply and demand.  We’ll wait and see what tomorrow brings.  Hopefully I’ll get filled on my remaining 7 contracts.

Anyway, enough about that.  Here’s why I like this trade. 

(1) UNG has never closed below $13.  It’s intra-day trading low is $12.69.  Thus, low probability of being assigned at this price.
(2) UNG is currently attracting a lot of attention. Look at the increase in volume in just the past few months. I think this means the ‘smart money’ knows the bottom is in for natural gas and thus are ‘placing their bets’.
(3) UNG closed today at $15.29.  That gives me 15% of downside protection.
(4) My ROIC is 0.35 / 13 = 2.69%.  That’s 32.76% annualized.

Note: When studying the below price chart you’ll notice this NP trade does not have a TA (i.e., ‘take action’) rating.  Rather, the stock is still trading well below the bottom leg of the VISION V and thus only rates a GR (i.e., ‘get ready’). 

So why did I go ahead with the trade? Well, primarily because as I get more comfortable trading NPs I’m finding that, depending on your objectives, many good NP trades can be found on GR rated stocks.  My objective in these type of trades is to NOT have the stock put to me.  Thus, I’m looking for stocks that have bottomed and ‘turned the corner’ so to speak but haven’t gotten very far away from their 52-wk low.  Other criteria I look for are a minimum of 15% downside protection, and a strike price near, preferably less than the 52-wk low.  I also look for trades that give me a decent ROIC even though I’m selling a put with a strike price > 15% below the current price.  My target is 2.5 – 3.0% for the near month expiration.

Position Update – JEC

I closed out my position in JEC this morning by BTC JUN $35 puts for $0.05.  Why did I do this?  Simply because the risk in the stock falling was higher than the additional return to be gained ($0.05/share) with another two weeks remaining to expiration.  Doing so also releases another $7000 (these were cash secured puts) for any other trading opportunities that present themselves over the next two weeks.

So how did I do on this trade.  Well, let’s look at the numbers.  I sold 2 puts back on 5/11 at $1.25, netting $239.53 after commissions.  I bought them back on 6/5 at $0.05, paying $20.45 total with commissions.  Thus, I ended up making $219.08.  Since this was a CSP transaction my ROIC was ($219.08/$7000.00) or 3.13% in 25 days, yielding an annualized ROIC of 45.69%.  The table below presents these numbers in a more organized fashion.