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Archive for February 13th, 2011

Other Trades from the Week of Feb. 7-11, 2011

Posted by mounddweller on February 13, 2011

Fellow Traders,

Wanted to update you on a couple other trades I made this past week.   First up is XOM.  I opened my position in XOM just over a year ago.  My goal was to accumulate 400 shares with the intent to hold them long-term and periodically sell CCs against them.  My goal remains the same but I chose to exit the XOM position for the time being since XOM has moved up significantly in the past several months.

On Wednesday, I BTC my JAN ’12 $65 put for $1.74.  I made $252 (3.89%) on this specific trade in exactly 3 months.  My annualized return worked out to 15.41%.  In just over a year I made a profit of $1,922.25 in XOM.  This was accomplished using a combination of NPs, taking assignment, selling CCs, being assigned, and selling more NPs.  On average I would say I had around $13K committed to the position throughout the year so that would give me an overall return of better than 14%.  Not bad for a blue-chip stock like XOM.  I will look to get back into XOM if it falls back below $70.  Below is a complete history of my trades in XOM.

My other trade this week was in CSCO.  CSCO fell sharply after reporting disappointing earnings.  Actually it was there operating margin which caused all the fuss.  CSCO falling sharply after reporting earnings is becoming a rather common occurence.  It happened last quarter and I took advantage of it by selling OTM NPs.  I did the same this quarter.   On Thursday, I STO 5 MAR $18 puts at $0.21.  My ROIC with 36 days to expiration is 1.17%.

OK, that’s it.  Three posts in one day is my limit.  Best of luck to everyone this week.  I’ll be back next week with another round of Deep OTM puts for your consideration.

Regards,

Troy

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NP Trade – DLB

Posted by mounddweller on February 13, 2011

Fellow Traders,

Wanted to update you on a trade I made this past Monday (2/7/2011).  I had a busy week so wasn’t able to get it posted sooner.  Not to worry though, after reading this post you’ll be glad you missed it!

This trade is a perfect example of what happens when you abandon your rules and start flying by the seat of your pants.  This trade didn’t come from either my VISIONS trading strategy or my Deep OTM NP Strategy.  

DLB came to my attention as a selection in one of the several newsletters to which I subscribe.  The author of that newsletter thought they would come out with good earnings and resume their climb higher.  Shortly after the new year they had fallen from around $67 down to $60.  On this past Monday I noticed they were at $56.50, having fallen sharply after reporting earnings the previous Friday and the FEB $55 put was selling for $0.55.  At the time it looked to me that the stock had found a bottom and would not fall much further.  Looking at the chart below you can see this wasn’t the case.  The stock continued to fall all week long before finally catching a bid on Friday, closing up $0.06.

So  here’s where I stand on this trade.  I sold the FEB $55 put at $0.55.  Thus, my break-even price is $54.45.  Friday, the stock closed at $53.80.  It is currently sitting right at support levels it established back in late August.  I am going to watch the position closely this week.  If it fails to hold at this support level I am going to buy back the puts at a loss and chalk it up as a lesson learned.  If the stock remains flat or begins to recover slightly I will probably roll the FEB puts out to MAR.

Now, let’s get to the real purpose of why I posted this trade.  I wanted to share with you why I think this trade is not working out.

(1) First and foremost, I didn’t follow my trading strategy.  I did something on a whim.

(2) I didn’t look close enough at the support levels.  Had I did I would have seen the stock had the potential to fall below my chosen strike price.

(3) I didn’t look at what my options (no pun intended) would be if the trade moved against me.  DLB option strike prices are in $5 increments.  I don’t have a lot of flexibility going forward if I choose to stay in this trade.

(4) Last, but not least, I let my desire to achieve a certain level of monthly option premium income cloud my judgement.  This caused me to miss or ignore some of the things I referenced above.

I’ll let you know how it all turns out when I close out the trade.

Regards,

Troy

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Deep OTM NP Strategy – FEB Week 1

Posted by mounddweller on February 13, 2011

Fellow Traders,

Well, here we are just one week remaining until FEB expiration.  Before we get to the selection’s for this week I want to comment briefly on my favorite selection from last week.  You’ll recall my favorite last week was Tekelec (TKLC).  I liked it because it was cheap and had lots of cash on its balance sheet.  However, you’ll recall I cautioned that it was due to release earnings.  Well, earnings came out and they were not to the street’s liking.  The stock fell sharply, 28.7% to be exact.  It now is well below our $10 strike price, closing Friday at $8.55.  It is also now trading at less than book value.  Given it’s large cash hoard I don’t think it will remain below book value for long.  If it does someone is going to come along and buy it, lock, stock, and barrel.

If you sold the TKLC FEB $10 puts I would hold off doing anything until we get closer to expiration on Friday.  On Friday if it remains < $9 (book value is $8.96) I would roll the FEB $10 puts out to MAR.  If it bounces back above $9.50 I would accept assignment and sell the $10 calls on the following Monday.

Now, let’s look at the selections for this week.

Two stocks caught my eye this week, Sketchers (SKX) and La-Z-Boy (LXB).  They have a lot of similarities.  Both are retail stocks, one sells shoes and the other furniture.  Both are rated TA (i.e., “take action”) in VISIONS.  Both trade around 1.2 times book value.  Both have positive net cash.  SKX has over $4.50/share of net cash (over 20% of its market cap.)  And, unfortunately, both have earnings releases this week.  LZB reports Tuesday and SKX on Wednesday.

If I had to choose one over the other I think I’d go with SKX.  I like the one-year price chart on it a little better than LZB. 

One final comment.  If you didn’t sell puts on STEC last week, put them back on your list of potentials for this week.  Last week the $20 put looked nice, this week the $19 strike looks a little better.  It has a ROIC of 1.3% with 20.13% DSP.  However, remember it too reports earnings this week.  Anything is possible.

Best of luck in your trades this week.

Regards,

Troy

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