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Archive for February 4th, 2011

MRK – New NP Trade

Posted by mounddweller on February 4, 2011

Fellow Traders,

I executed a new naked put trade today on Merck (MRK).  Specifically, I STO 4 MAR $31 puts at $0.35.  Merck is a large multi-national pharmaceutical company that has fallen out of favor since its late 2009 purchase of the Schering-Plough Corporation.   As you can see in the below one year chart, MRK has been range bound for several months.  Roughly it has been trading between $34 and $37.50.    It recently broke to the downside of this range, however it’s 52-wk low is $30.70.  Thus, I think selling the MAR $31 puts is a fairly low risk trade.  If assigned, my net cost will be $30.65, just below the 52-wk low and I will own a stock with a dividend yield of 4.96%.

One additional reason I executed this trade, look at the money flow indicator.  It bounced off a severely oversold level of 20 just a few days ago.  That leads me to believe that by March expiration Merck will have rebounded back into its trading range.  Only time will tell if I’m right.

Best of luck to all my trading buddies.

Regards,

Troy

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Deep OTM NP Strategy – FEB Week 2

Posted by mounddweller on February 4, 2011

Fellow Traders,

For the first time in what seems like forever I am excited about some of the selections found this week in our Deep OTM NP Strategy.  Without further delay here are the selections for this week.

There are three stocks that caught my eye this week.  All three report earnings prior to expiration Friday (2/18/2011). 

First up, let’s look at Rubicon Technology (RBCN).  As the name implies this is a technology company.  They manufacture and sell monocrystalline sapphire and other crystalline products for light-emitting diodes, radio frequency integrated circuits, blue laser diodes, optoelectronics, and other optical applications.  This is a sector that his been hard hit lately.  Another of our picks from a few weeks back, CREE also falls into this sector.    RBCN closed today at $17.83.  It’s 52-wk low is $14.50 and it sports a forward P/E of 8.57.   The company balance sheet carries $3.62/share in cash and ZERO debt.  The put option we’re interested in is the FEB $15 put which closed today at $0.15 bid.  This option has 16.71% DSP with 1% ROIC with only 15 DTE. 

Next up is Stec, Inc (STEC).  STEC is also a technology company.  They manufacture and market enterprise-class flash solid-state drives (SSDs) for use in high-performance storage and server systems.  STEC closed today at $23.13.  It’s 52-wk low is $9.47 .   The company balance sheet carries $3.15/share in cash and ZERO debt.  The put option we’re interested in is the FEB $20 put which closed today at $0.41 bid.  This option has 15.30% DSP with 2.05% ROIC with only 15 DTE.

Last, but certainly not least (actually, it’s my favorite), is Tekelec (TKLC).  TKLC engages in the design, development, manufacture, marketing, sale, and support of telecommunications products and services.  It closed today at $11.58.  It’s 52-wk low is $10.75 and it sports a forward P/E of 15.04.   The company balance sheet carries $3.25/share in cash and ZERO debt.  The put option we’re interested in is the FEB $10 put which closed today at $0.15 bid.  This option has 14.94% DSP with 1.5% ROIC with only 15 DTE.  

Here’s why TKLC is my favorite pick this week:

(1) Our $10 strike price is below the 52-wk low.

(2) The 1.5% ROIC with only 15 days to expiration equates to a 36.5% annualized return

(3) 28% of it’s market cap and over 36% of its book value is covered by cold, hard cash.

Well, there you have it.  Those are our selections for the week and I actually found some that I wouldn’t mind owning if assigned at expiration.  What more could you want?

Best of luck to all in your trading this coming week.

Regards,

Troy

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