The Money Tree

Safely Generating Income in Retirement

Archive for October, 2009

New Trade – Can You Believe It!

Posted by mounddweller on October 27, 2009

Yes, it’s true.  After many weeks of not entering any new trades I finally found something to my liking.  This, like most of my other trades in 2009, is a naked put trade.

First let me tell you what I did.  Then I’ll explain why I like the trade.

Here are the specifics of the trade I executed on 10/26:

STO – 3 NOV ONXX $22.5 puts (OIQWX) at $0.45.

Now for the WHY.  First, I’ll note that I didn’t come across this trade idea as the result of running a VISIONS scan.  However, that being said, it does have meet several VISIONS criteria, especially in the area of company fundamentals.  ONXX has a rock-solid balance sheet.  Almost 30% of its market capitalization is held in cash.  It also has had positive earnings in 3 of the past 4 quarters.

In addition to the fundamentals I also like the technical aspects of ONXX.  It has fallen sharply over the past few weeks, tumbling from $35 to $25.  In looking at the chart it appears ONXX has support at $25.  Thus, that is my primary reason for wanting to sell the puts. 

I also like the risk/reward profile of this trade.  When I made the trade on 10/26 ONXX was trading around $25.30 and I sold the $22.50 puts for $0.45.  Thus, my ROIC is 2.00% with a 3 1/2 week holding period and over 10% downside protection.  I like that!  If assigned at $22.50 my net cost will be $22.05 (before commissions) and thus just above the 52-wk low of $21.66 recorded a year ago on 10/28/08. 

Here’s the chart for ONXX.

BLOG - ONXX Chart

 

 

 

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Rollout on UNG

Posted by mounddweller on October 15, 2009

I rolled out my UNG puts again this morning.  However, this time I did it with a different strategy in mind.  As you know I originally sold UNG $13 several months ago.  Since then UNG has never come close to getting back above $13.  For the past several months I have been able to buy back the prior months puts and sell re-sell the $13 puts one month further out. 

Unfortunately, for whatever reason, this month that strategy wasn’t going to generate a very profitable trade.  I was only going to be able to generate a $0.15 credit.  So, instead I decided to bite the bullet and roll down and out for a net debit.  Here’s the trade I made:

BTC – OCT $13 puts for $1.80

STO – JAN ’10 $11 puts for $0.95

As you can see this resulted in a net debit of $0.85 ($850.00) coming out of my account.  Why did I do it?  Well, first off in looking at the chart it appeared UNG had hit the lower leg of its Bollinger band on Wednesday and bounced higher today.  Thus, my thought was if I rolled down and sold the $11 put I would be able to profitably buy it back later this month as UNG went back up towards $12.  Secondly, if that doesn’t happen I will still be in a much nicer position to manage the trade going forward.

I was able to execute this trade and still maintain a small overall profit on my UNG position.  Below is an updated version of my transaction summary.  As you can see I still have a $1.20 profit.

Blog UNG Position

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What Others Are Trading – October 2009

Posted by mounddweller on October 2, 2009

Guys,

Here’s your monthly post in which you can respond with your own picks and comments.

Troy

Posted in Your Picks | 4 Comments »