The Money Tree

Safely Generating Income in Retirement

New NP Trades

Posted by mounddweller on May 24, 2011

Fellow Traders,

Wanted to update y’all on my recent trades.  Thus far this week I have established two new positions.

First up is Petroleo Brasileiro (PBR).  Yesterday I STO 3 JUN $32 puts at $0.65.   After loosely following its gyrations for the past several weeks (mainly down) I decided the time was right to sell some puts.  Like the proverbial broken clock which is guaranteed to be correct at least twice a day, my timing was actually correct this time.  Today, PBR bounced back up and the puts I sold for $0.65 yesterday, closed today at $0.39.  Of course tomorrow could be a down day and they could be back at $0.65 or more.  Anyway, a one-year chart on PBR shows why I like this trade.

PBR has bounced off support at $32 multiple times in the past year.  Barring a complete collapse in equities I believe it will do so again.  If I’m wrong I can roll the puts out further in time until I’m ready to have it put to me or I can accept assignment on June 18th and begin selling CCs.  Regardless, I will be happy to own PBR at $32.  It is one of the world’s great energy exploration and refining companies.   At $32 I would own it at less than 8x trailing earnings and a fraction over its current book value of $29.80.

Next up is MEMC Electronic Materials Inc. (WFR).  MEMC is a large manufacturer of polysilicon wafers.  It sells into both the semiconductor market as well as the solar energy market.  Therein lies part of the problem or opportunity depending upon your point of view.  Like PBR, WFR has sold off sharply over the past few months.  This is primarily attributable to the selloff of all solar related stocks.  WFR has fallen from $15 to just under $10 since mid-February.  It has now reached value territory, selling for < 7x prospective forward earnings and < book value ($10.11).  Here’s the chart for WFR:

I’ll be the first one to admit I may be a tad early on this one.  The stock has support around $10 but has previously fallen as low as $9.50 before bouncing back.  Time will tell if I should have waited a few more days but over the long haul I feel WFR will recover and this will prove to be good trade.  Here’s the trade I executed; with the stock trading around $10.10 I STO 5 JUN $10 puts at $0.43.

Before ending this post I want to point out one thing.  I opened both of these trades with half of the amount of capital I ultimately would be comfortable investing in either one.  Doing so gives me flexibility in case I’m wrong.  I did this because the market is clearly trying to decide where it wants to go next.  If it decides down is the way to go I want to be able to have capital in reserve should I need it to assist me in working my way out of a hole.

Regards,

Troy

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5 Responses to “New NP Trades”

  1. dealmakr said

    Hi Troy,

    I had a trading position in WFR a while back and wasn’t too happy with the results as I felt I overtraded the position. Here is a recap of how it went and even though was profitable never got that warm and fuzzy feeling of being on the right side of the trade. Will take a look at a rentry.

    Opening position WFR updated 10/12/10

    05/03/10 Bot 2500 WFR 13.19
    05/03/10 Sold 25 May 13 Call .73 corrected
    05/03/10 Sold 25 May 12 Put .23
    05/03/10 Sold 25 Jul 12 Put .76
    05/04/10 Sold 25 Jun 13 Call .80
    05/04/10 Sold 15 May 12 Put .43
    05/05/10 Bot 2500 WFR 12.60
    05/05/10 Sold 25 Jun 15 Call .31 corrected month
    05/05/10 Sold 25 May 11 Put .15
    05/05/10 Sold 25 Jul 10 Put .33
    05/06/10 Sold 30 Jun 13 Call avg .675
    05/06/10 Sold 15 Oct 9 Put .60
    05/06/10 Sold 15 Oct 9 Put .75
    05/06/10 Sold 15 May 11 Put .33
    05/07/10 Sold 15 Jul 14 Call .60
    05/07/10 Sold 15 Jul 10 Put .65
    05/07/10 Bot 1500 WFR 11.60
    05/10/10 Sold 25 May 11 Put .15
    05/13/10 Sold 25 Jun 11 Put .31
    05/14/10 Sold 25 May 11 Put .13
    05/14/10 Sold 25 Jun 12 Call .70
    05/14/10 Sold 10 Jul 10 Put .50
    05/14/10 Sold 25 Jul 13 Call .60
    05/18/10 Sold 25 Jun 12 Call .54
    05/25/10 Sold 50 Jul 13 Call .28
    05/25/10 Sold 25 Jun 9 Put .16
    06/07/10 Sold 25 Jul 12 Call .32
    06/08/10 Sold 50 Jun 12 Call .07
    06/08/10 Sold 25 Jun 9 Put .15
    06/08/10 Sold 25 Oct 6 Put .20
    06/08/10 Sold 10 Oct 13 Call .55
    06/15/10 Bot 1000 WFR 11.50
    06/15/10 Sold 25 Oct 13 Call .85
    06/15/10 Sold 15 Oct 9 Put .50
    06/24/10 Sold 25 Aug 9 Put .39
    06/24/10 Sold 25 Aug 12 Call .45
    07/01/10 Sold 25 Jul 9 Put .27
    07/01/10 Sold 15 Oct 9 Put 1
    07/07/10 Sold 25 Jul 11 Call .07
    07/07/10 Sold 25 Aug 8 Put .20
    07/08/10 Sold 10 Aug 11 Call .58
    07/09/10 Sold 25 Aug 12 Call .30
    07/14/10 Sold 25 Aug 12 Call .31
    07/19/10 Sold 10 Sep 11 Call .60
    07/19/10 Sold 10 Sep 9 Put .45
    07/21/10 Sold 20 Oct 12 Call .66
    07/22/10 Sold 25 Sep 13 Call .28
    07/22/10 Sold 10 Aug 11 Put .56
    07/30/10 Sold 15 Sep 11 Call .20
    08/06/10 Sold 25 Sep 9 Put .32
    08/10/10 Sold 25 Aug 11 Call .09
    08/12/10 Sold 35 Sep 11 Call .31
    09/02/10 Sold 60 Sep 12 Call .06
    09/10/10 Sold 15 Oct 11 Call .40
    09/13/10 Sold 15 Oct 11 Call .53
    09/17/10 Sold 30 Oct 12 Call .24
    09/22/10 Sold 15 Nov 12 Call .33
    09/22/10 Sold 15 Oct 11 Put .54
    09/23/10 Sold 15 Nov 12 Call .30
    09/23/10 Sold 30 Nov 12 Call .45

    Closed trades Profit or loss

    05/07/10 Bot close 25 May 13 Call .29 1100
    05/10/10 Sold 1500 WFR 12.40 1200
    05/10/10 Bot close 25 WFR Jul 15 Call .23 200
    05/10/10 Bot Close 30 WFR Oct 9 Put .57 320
    05/10/10 Bot Close 40 WFR May 12 Put .44 (540)
    05/14/10 Bot Close 25 WFR Jun 13 Call .39 1025
    05/18/10 Bot Close 15 WFR Jul 14 Call .26 510
    05/18/10 Bot Close 30 WFR Jun 13 Call .27 1210
    05/20/10 Bot Close 25 WFR Jul 13 Call .52 200
    05/20/10 Bot Close 90 WFR May 11 Put .40 (2030)
    05/24/10 Bot Close 50 WFR Jun 12 Call .33 1450
    06/08/10 Bot Close 50 WFR Jul 13 Call .14 700
    06/14/10 Bot Close 50 WFR Jun 9 Put .01 725
    06/15/10 Bot Close 50 WFR Jun 12 Call .09 (100)
    06/15/10 Bot Close 25 WFR Jun 11 Put .13 450
    06/15/10 Bot Close 50 WFR Jul 10 Put .23 1150
    06/15/10 Bot Close 25 WFR Oct 6 Put .10 250
    07/02/10 Bot Close 25 WFR Jul 12 Call .03 725
    07/07/10 Bot Close 35 WFR Oct 13 Call .30 1625
    07/16/10 Bot Close 25 WFR Jul 12 Put 1.80 (2600)
    07/16/10 Bot Close 25 WFR Aug 8 Put .15 125
    07/17/10 Expired 25 WFR Jul 9 Put 675
    07/17/10 Expired 25 WFR Jul 11 Call 175
    07/21/10 Bot Close 75 WFR Aug 12 Call .29 475
    07/22/10 Bot Close 25 WFR Aug 9 Put .10 725
    07/23/10 Bot Close 30 WFR Oct 9 Put .29 1380
    07/23/10 Bot Close 10 WFR Sep 9 Put .18 270
    08/02/10 Bot Close 25 WFR Sep 13 Call .03 625
    08/06/10 Bot Close 20 WFR Oct 12 Call .18 960
    08/18/10 Bot Close 10 WFR Aug 11 Put .47 90
    08/18/10 Bot Close 25 WFR Sep 9 Put .11 525
    08/18/10 Bot Close 35 WFR Aug 11 Call .06 655
    09/02/10 Bot Close 60 WFR Sep 11 Call .36 (175)
    09/17/10 Expired 60 WFR Sep 12 Call 360
    09/22/10 Bot Close 30 WFR Oct 12 Call .10 420
    09/23/10 Bot Close 30 WFR Oct 11 Call .56 (285)
    09/24/10 Bot Close 15 WFR Oct 11 Put .18 540
    10/12/10 Bot Close 60 WFR Nov 12 Call 1.62 (7425)
    10/12/10 Sold 6000 WFR 13.26

    Total return P/L on closed option trades 7685

    Total return P/L on closed stock trades 3600

    Total P/L 11285

    Position Closed

    Good Trading

    dealmakr

    • mounddweller said

      dealmakr,

      Thanks, as always, for posting your trades to my blog. It is good ‘food for thought’. Clearly you trade in much higher volumes and frequency than I do so much of what follows may not be relevant given your trading strategy and goals.

      That being said, it appears to me that you were a bit early in initiating your trade in WFR and that is why you never felt comfortable in the trade. You were constantly having to manage the position as the stock continued to trade down.

      In stocks like WFR I like to time my entry at the point of maximum pessimism and margin of safety. WFR seemed like it had reached that point earlier this week. The stock had fallen sharply over the past several weeks and was trading at or below book value. Thus, I felt the time was right.

      Time will tell if I got it right or not;-)

      Regards,
      Troy

      • dealmakr said

        Hi Troy,

        “Clearly you trade in much higher volumes and frequency than I do so much of what follows may not be relevant given your trading strategy and goals.”

        The above is always relavent even though the size of the position could be bigger, the strategy should be similar.

        I think that was the case with the WFR trade as always trying to play catchup and rehedge, similar to what is going on with my XRX trade now.

        One thing is that in trading WFR, I didn’t let many of the positions run out as you can see by how many expired or were exercised, very few compared to closing the trades out.

        In trying to pick a candidate for entry, I look at everything going forward and where the stock has been and also try and buy what few others want as long as it meets my criteria.

        As far as book value, its better to watch the cash flow, cash position, earnings power and debt instead of where goodwill and intangibles are counted as it gives you a better picture than just stand alone book value, too much room in a lot of cases for that to get a rapid adjustment.

        Good trading

        dealmakr

  2. dealmakr said

    Also opened a few DELL Aug 14 puts with the earnings last Q looking pretty good.

    A few more updates on positions;

    Updated Position HBAN 05/23/11

    03/04/11 Bot 8000 HBAN 6.53 (52240)
    03/04/11 Sold 80 Apr 6 put .12*
    03/04/11 Sold 80 Apr 7 call .13*
    03/07/11 Bot 2500 HBAN 6.68 (16700)
    03/07/11 Sold 25 Jul 6 Put .33*
    03/07/11 Sold 25 Jul 7 call .45
    03/08/11 Sold 25 Jul 6 Put .30*
    03/09/11 Bot 5000 HBAN 6.77 (33850)
    03/14/11 Sold 50 Jul 8 call .16
    03/18/11 Sold 50 Oct 6 Put .48
    03/23/11 Sold 30 May 7 Call .17*
    03/28/11 Bot 3000 HBAN 6.67 (20010)
    04/21/11 Sold 40 Oct 6 Put .36
    04/21/11 Sold 40 Oct 8 Call .15
    04/21/11 Bot 4000 HBAN 6.57 (26280)
    04/28/11 Sold 80 May 7 Call .07*
    04/28/11 Sold 25 Oct 7 Put .68
    05/23/11 Sold 50 Oct 7 Call .27

    Closed trades Profit/Loss

    03/16/11 Dividend .01 on 15500 shares 155
    04/16/11 Expired 80 Apr 6 Put 960
    04/16/11 Expired 80 Apr 7 Call 1040
    05/21/11 Expired 110 May 7 Call 1070
    05/23/11 Bot Close 50 Jul 6 Put .17 725

    Total return on closed trades 3950

    Long 22500 HBAN avg/share 6.63 (149080)

    Stock closed 5/20/11 6.37

    Short 25 Jul 7 Call 1125
    Short 50 Jul 8 Call 800
    Short 90 Oct 6 Put 3840
    Short 50 Oct 7 Call 1350
    Short 25 Oct 7 Put 1700
    Short 40 Oct 8 Call 600

    Net Position Exposure

    Naked puts 11500 shares
    covered calls 16500 shares

    Sometimes my record keeping needs a tweak, had an additional short lot of Jul 6 puts 03/08/11 sold that weren’t shown here, but closed out today in face of market weakness. Also added a few short Oct 7 calls for the premium. Tally should be right now and thank goodness my partner is a CPA and keeps the records that matter.

    Good Trading

    dealmakr

    Updated position XRX 05/25/11

    11/30/10 Sold 50 Dec 11 Put .16*
    11/30/10 Sold 30 Dec 11 Put .15*
    12/06/10 Bot 3000 XRX 11.74
    12/06/10 Sold 30 Apr 12 Call .82*
    12/31/10 Sold 25 Jul 9 Put .30*
    01/21/11 Sold 30 Feb 12 Call .12*
    01/27/11 Sold 30 Feb 11 Call .16*
    02/09/11 Sold open 30 Jul 12 Call .32*
    02/22/11 Bot 1500 XRX 11
    02/22/11 Sold 15 Apr 11 Call .46*
    02/23/11 Sold 25 Oct 9 Put .52
    03/14/11 Sold 15 Oct 12 Call .40
    03/16/11 Sold 15 Jul 11 Call .30
    03/16/11 Sold 25 Oct 12 Call .30
    03/22/11 Sold 15 May 11 Call .16*
    03/25/11 Bot 1500 XRX 10.68 (16020)
    04/11/11 Sold 20 Oct 12 Call .47
    04/12/11 Sold 30 May 10 Put .14*
    05/06/11 Bot 1500 XRX 10.35 (15525)
    05/06/11 Sold 20 Jun 10 Put .23
    05/23/11 Sold 30 Jul 11 Call .11
    05/25/11 Sold 25 Jul 9 Put .16

    Closed Trades Profit/Loss

    12/18/10 Expired 80 Dec 11 Put 1250
    12/29/10 Dividend .0425 on 3000 shares 127.5
    01/21/11 Bot close 30 Apr 12 Call .28 1620
    02/13/11 Bot close 30 Feb 11 Call .13 90
    02/19/11 Expired 30 Feb 12 Call 360
    03/25/11 Bot close 15 Apr 11 Call .05 615
    03/25/11 Bot close 30 Jul 12 Call .14 540
    03/29/11 Dividend .0425 on 6000 shares 255
    04/11/11 Bot close 25 Jul 9 Put .13 425
    05/21/11 Expired 30 May 10 Put 420
    05/21/11 Expired 15 May 11 Call 240

    Total Return P/L on closed trades 5942.5

    Long 7500 XRX avg/share 11.10 (83265)

    Stock closed 05/20 10.11

    Short 20 Jun 10 Put 460
    Short 25 Jul 9 Put 400
    Short 45 Jul 11 Call 780
    Short 25 Oct 9 Put 1300
    Short 60 Oct 12 Call 2290

    Net Position Exposure

    Covered Calls 7500 shares
    Naked Calls 3000 shares
    Naked Puts 7000 shares

    Call premium tough to book in Jun near term for the 11 strike. Added a few more short calls & puts and may add the Jun 9 puts if the stock breaks down from here otherwise still looking at the below scenario.

    Stock still in a downtrend here week to week and am still looking for a 2nd half of the year play to see if the company buys back any stock in size and also what they will do about the dividend, also if earnings remain on track.

    Good Trading

    dealmakr

    Trading Position CSCO 05/27/11

    The trades posted here are used specifically in an options trading position and are not reflective of what also may take place overall in swing & daytrading CSCO where the profits / losses won’t be applied here and the size of the position much larger and the timeframe much shorter, but every type of trade has its own parameters for risk/reward.

    12/31/10 Sold 25 Apr 18 Put .42*
    02/23/11 Sold 25 Jul 16 Put .45
    04/11/11 Sold 15 May 18 Call .50
    04/12/11 Bot 1500 CSCO 17.58 (26370)
    04/12/11 Sold 10 May 18 Call .45*
    04/13/11 Bot 1000 CSCO 17.28 (17280)
    04/25/11 Sold 25 04/29 17 Put .14*
    05/09/11 Sold 50 05/13/11 16 Put .05*
    05/09/11 Sold 25 05/13/11 17 Put .25*
    05/16/11 Sold 10 Jun 17 Put .58
    05/16/11 Sold 25 Jul 17.5 Call .31
    05/17/11 Sold 15 Jun 17 Put .63
    05/17/11 Sold 10 Aug 16 Put .61
    05/18/11 Sold 15 Aug 16 Put .65
    05/23/11 Sold 50 05/27/ 16 put .06*

    Closed trades Profit/Loss

    04/13/11 Bot close 25 Apr 18 Put .76 (850)
    04/29/11 Expired 25 04/29/11 17 Put 350
    05/13/11 Expired 50 05/13/11 16 put 250
    05/13/11 Bot close 25 05/13/11 17 put .15 250
    05/21/11 Expired 25 May 18 Call 1200
    05/27/11 Expired 50 05/27/11 16 Put 300

    Total return on closed trades 1500

    Short 25 Jun 17 Put 1525
    Short 25 Jul 16 Put 1125
    Short 25 Jul 17.5 Call 775
    Short 25 Aug 16 Put 1585

    Net Position Exposure

    Long 2500 CSCO avg/share 17.46 (43650)

    Stock closed 05/27 16.46

    CSCO made a nice bounce on Friday, but still a bit lower weekly close from 05/20. Will see how the stock reacts over the next week or so and hopefully the short Jun 17 puts can be closed at a profit. In trading the weekly options series I am trying to glean some smaller premium income and if exercised entering a bigger position at a price that I feel comfortable with.

    Covered Calls 2500 shares
    Naked Puts 7500 shares

    Short puts will be adjusted and traded depending upon market conditions. Stock is oversold, but when a bounce occurs is anyones guess.

    Good Trading

  3. […] back in May by selling JUN $32 puts.  You can read my write-up about why I entered the trade here: https://troysmoneytree.wordpress.com/2011/05/24/new-np-trades-2/.  From May through July this trade was working wonderfully.  My puts would expire OTM and I would […]

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