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Archive for May 29th, 2011

Deep OTM NP Strategy – JUNE Week 3

Posted by mounddweller on May 29, 2011

Fellow Traders,

We’ve got a short trading list this week to go along with our short trading week.  Only 4 stocks met our selection criteria.  I’ve got to think this is a good leading indicator of a possible correction in the near future.  When everyone wants to be on one side of the trade that tells me the end is near.

Here are the four selections for this week.  Only one, IDCC, interests me.

IDCC is the business of liscensing their extensive portfolio of telecommunications patents.  They recently announced their second quarter revenue would be less than originally expected.  This caused the stock to fall substantially as you can see in the chart below.

The stock appears to have  found support at just above $40.  It bounced off of this support back in March and it appears to want to bounce off it again now.  That’s my primary reason for liking this trade.  Fundamentally the stock is sound.  It trades for a reasonable 14x earnings and has over $11/share in cash on its balance sheet.

The $36 strike gives us over 16% of DSP.  The $0.60 premium gives us a ROIC of 1.67%.  Not bad for a three week holding period.

Good luck trading this week and keep in mind what I said earlier, I think we could see some near term weakness very soon.

Regards,

Troy

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