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Archive for March 12th, 2011

NOK – New CC Trade

Posted by mounddweller on March 12, 2011

Fellow Traders,

Earlier this week I executed a CC trade on NOK.  I bought 500 shares at $8.35 and sold 5 APR $9 calls for $0.17.  This gives me a net cost basis of $8.18.  The 52-wk low is $8.00.   My uncalled ROIC is 2.035% with about 35 DTE.  The called return 10.024%.

As you’re probably aware NOK has been sold and left for dead on Wall Street.  However, being a contrarian (my wife just says I’m contrary), I think Nokia is a good buy at these levels.  I think the down-side risk is minimal and the long-term potential is enormous if their joint venture with MSFT is anywhere near successful.

However, my immediate interest in NOK is more short-term in nature.  NOK generally pays a dividend once per year.   This generally occurs in late April or early May.  While I haven’t been able to find any news releases regarding the amount of the dividend, based on amounts from the past few years I believe it will be around $0.50.  At Friday’s closing price of $8.49 this is a yield of 5.9%. 

I believe buyers, wanting the upcoming dividend, will provide support to the price of NOK.  If this holds true there are two possible outcomes to my trade.   First, NOK could rise and close above $9 at APR expiration.  If this occurs I will miss getting the dividend but will have earned 10% on my money in just 35 days.  I’ll happily forego receipt of the dividend for that kind of return.  Second, the stock may rise or hold steady and my $9 calls will expire worthless.  However, if this occurs I will still own the stock when it goes ex-dividend and will be entitled to the estimated $0.50 dividend.  After the stock goes ex-dividend I can either sell the stock outright or sell another round of MAY or JUN calls.  

I believe a similar scenario can be set-up with one of our Deep OTM NP selections from last week, Getty (GTY).  Here’s a trade I’m considering:

(1) STO GTY MAR $22.50 puts at $0.55 or better.  This is a 2.44% ROIC with only a week to expiration.

(2) If GTY closes below $22.50 I will have the stock put to me at $22.50.  However, GTY has a $0.48 quarterly dividend and goes ex-dividend on 3/31.  Having the stock put to me on 3/21 I will be eligible to receive this dividend.  After 3/31 I can sell an APR $22.50 or $25 call, or I can just sell the stock outright.

(3) If GTY closes above $22.50 on Friday, I get to keep my put premium of $0.55 which equates to an annualized ROIC of 178%.

Again, the key to this trade is that I feel all of the bad news has already been priced into GTY and that it won’t fall much further over the next week or so.  Like NOK, if anything, the upcoming dividend should provide support to the stock price as buyers jump into try to capture the dividend.

Regards,

Troy

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Deep OTM NP Strategy – March Week 1

Posted by mounddweller on March 12, 2011

Fellow Traders,

Nothing much to consider this final week before March option expirations.  Below is the list of stocks that met our screening criteria.  None of them jumped out at me as compelling, “must do” trades.

However, I do want to give you a “heads-up” on a stock that made our selection criteria back on March – Week 3.  You’ll recall Lorillard (LO) made our list that week.  It was down significantly on rumors that a report being filed by an independent commission to the FDA might lead to a ban by the FDA of all menthol flavored cigarettes.  I felt the odds of this occurring were slim to none and said so in my write-up here (https://troysmoneytree.wordpress.com/2011/02/25/otm-np-strategy-mar-week-3/).  As it turns out excerps from that report have been released and the results do not appear to be fatal to Lorillard or other menthol cigarette manufacturers.

However, for whatever reason(s), the premiums on LO options remain high.  The stock closed Friday at $79.35.  Yet, you can still sell the MAR $70 put for $0.74 and the $67.50 for $0.43.  Both of these have PFs > 2.0.  On Monday, I am going to enter an order to sell the MAR $70 at $0.70 or better. 

Best of luck to everyone this week and especially on expiration Friday.

Regards,

Troy

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