The Money Tree

Safely Generating Income in Retirement

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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One Response to “MRK – New NP Trade”

  1. Dave said

    FMER

    Im thinking of selling march 17.50 PUTS for 0.95c…

    The stock is at a validated support level. (see chart of last 6 monthsand last 3 years)

    The RSI and stochastics are oversold.

    In addition, the 2nd of feb candlestick had a long lower leg which indicated a rejection of lower prices. Also, there was increased volume on this day which was a closed higher than the open.

    Currently the stock is 17.05. Selling the March 17.50 PUT option would put our breakeven cost to $16.55…

    If I was to sell these PUTS I would buy them back between 50%-75% of the value I sold them… So im looking for around 3%+ profit…

    If I was wrong and I was handed the shares then then a cost basis of $16.55 would be ok.I am happy with the way the chart looks over the long haulas it always stays on a sideways path…

    Let us know your thoughts on this potential trade…

    Dave

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