The Money Tree

Safely Generating Income in Retirement

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.





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