The Money Tree

Safely Generating Income in Retirement

New NP Trade – TK

Posted by mounddweller on July 29, 2009

I sold a new round of naked puts on TK this morning.  Below are the pertinent details.

STO 4 TK AUG $15 puts at $0.30

ROIC = 2.00% (.3 / 15), Annualized 29.2%

Downside protection to strike price = 10.93%

Since I have traded NP on TK previously I will not bore you with a long-winded discussion on why I like TK or this particular trade.  Instead, if you’re interested in these details, I recommend you go back and read my earlier post regarding TK dated June 22.

NOTE:  For those of you who are new to my blog or don’t recall the details of my earlier trades in TK, I want to make it clear that I’m not selling these puts as a short-term trade.  I want to own TK long-term and am trying to accumulate a position in TK.  Thus, my trading strategy for TK is somewhat different than that of my other NP trades.

Here is an updated chart of TK.

VISIONS - TK Updated Chart

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5 Responses to “New NP Trade – TK”

  1. Rich said

    Troy, I just looked at a visions chart of TK. the current price is above the buy limit price and the action indicator is “take action” I was under the impression that one should not purchase if this is the case. Is this why you are doing naked puts?

    Rich

  2. mounddweller said

    Rich,

    Yes, but not exactly. You’ll notice the current trend for TK since peaking in early June has been down to flat. Because of this and the overbought condition which exists in the overall market, I believe I will have an opportunity in the near future to buy shares at less than they are today. Thus, I am selling NPs at a strike price that I would be comfortable owning TK. This allows me to generate income while waiting for the TK stock price to come to me.

    Please recall in my blog posts for TK I said TK wasn’t a short-term trading opportunity for me. I want to own TK over the long-term. Thus, I can afford to be patient and sell NPs
    until the shares come down to a price that I’m comfortable with.

    Since the stock is above the BL, if this were a short-term trade for me I would do one of two things. I would either sell the $17.50 NP or buy the stock at the current price of $18.30 and sell the AUG $17.50 ITM call. Either option would give me a ROIC > 2% and would (if assigned) put me in the stock at less than the current BL of $18.68.

    Hope this helps…

    Regards,
    Troy

  3. Rich said

    Troy,

    I didn’t ask my question correctly. My question is …. if the price of a stock is above the buy limit, shouldn’t the chart say wait instead of take action even though the price is still in the visions V?

  4. mounddweller said

    Rich,

    Funny you should mention that. I was just showing VISIONS to another friend of mine over coffee this morning and he asked the very same question on some other charts we were looking at. Consequently I had my copy of “Show Me the Money” out this afternoon reviewing the various formulas and how they’re related to see if I could figure out what was going on. I haven’t arrived at an answer yet but I’m going to spend some more time on it.

    Perhaps this will be a good topic for a new post on the blog after I figure it out.

    Regards,
    Troy

  5. Rich said

    I went back to the book (page 94 )and from what I can tell the TA indicator had two formulas. the long one and the short one. In the long one the buy limit is part of it. However in the short version it is not considered. I guess its one of the decisions you have to make on your own.

    Rich

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