The Money Tree

Safely Generating Income in Retirement

Deep OTM NP Strategy – JUN Week 4

Posted by mounddweller on May 22, 2011

Fellow Traders,

Below are the Week 4 selections for the June expiration.

I have color coded the selections that I found of interest.  Let’s look at each one in turn and I’ll tell you a little about why they caught my eye.  First up is American Superconductor (AMSC).  AMSC caught my eye primarily because (1) it is rapidly approaching book value ($9.86) and (2) is has a ton of cash on its balance sheet ($4.79/share).  It closed Friday at $10.34.  Why so cheap you ask?  Because it’s largest customer refused to take any more deliveries.  This news caused a one day price drop from around $25 to $15 back in the first week of April.  The stock price has continued to drop.

Here’s the price chart.  Be forewarned, it’s ugly!

Now, I’m guessing you understand why the JUN $8 strike has such a high premium (5% ROIC with 26.5% DSP) .  This trade should only interest those traders who like the alternative energy industry and would like to potentially own AMSC at below book value.  With a chart that looks like this you have to expect there is a high probability the stock will continue to fall and you will have it put to you at expiration.  Gamblers (hint, not traders and certainly not investors) might want to place a small bet on it given the outsized premium.

Let’s move on to Daktronics (DAKT).  Here’s the chart for DAKT.  It doesn’t look quite as bad as AMSC.

Here’s the scoop on DAKT.  It missed analyst’s expectations when it reported quarterly results back in late February.   The stock sold off sharply and has yet to recover.  The company will report again on Wednesday, June 6.  Hence, the somewhat elevated premium (1.33% ROIC with 24% DSP).  Like AMSC, DAKT has a pristine balance sheet.  Net cash is $1.78/share.  Book value is $4.79/share.  My personal opinion (do your own DD and form your own opinion) on this one is that it is unlikely to hit the $7.50 strike price even if earnings are less than stellar.

Finally, last but not least is Enernoc (ENOC).  EnerNOC, Inc. engages in the development, implementation, and adoption of demand
response and energy management solutions for the electric power grid operators and utilities, as well as commercial, institutional, and industrial end-users of electricity in the United States.  Here is its chart.

This chart is why I like the ENOC trade.  A few weeks ago it hit a 52-wk low of $16.50.  Since then Money Flow has bottomed and is climbing.  Likewise the stock has come off the bottom, gapped up, and appears to want to recover some lost ground.  The JUN $15 strike is almost 10% below the 52-wk low and over 20% below Friday’s closing price.  With a premium of $0.25, the trade offers a 1.67% ROIC with over 22% DSP.  ENOC also has a pristine balance sheet with net cash equalling $3.98/share.

Well there you have it.  Look through the other selections as well.  Perhaps you’ll find something I missed or perhaps your tastes are different from mine.  Have a great week.

Regards,

Troy

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