Fellow Traders,
Wow, this week went by fast. Just seems like yesterday I was writing about JUN Week 3 selections. Anyway, let’s dig into the selections for this week. I found one or two that are pretty interesting.
My two favorites this week are appropriately at the top of the list displayed above. Let’s first take a look at BVN. If this is a symbol that’s not familiar to you there’s a reason. It is a foreign stock. The name of the company is Compania Mina Buenaventura, S.A. It is a mining company headquartered in Lima, Peru. It was founded in 1953. It has a market-cap of $10.6B.
Here is a price chart for BVN.
I believe this stock appeared on our list this week because of the upcoming presidential election in Peru on Sunday, June 5. The election pitts a pro-business candidate against a socialist (hmmm…sounds familiar). Anyway, it is a very close race. I’m speculating that because stock markets hate uncertainty the options on this stock are elevated. If the pro-business candidate wins the stock will likely recover some lost ground. If the socialist candidate wins the stock could continue to fall.
Traders who are willing to bet the pro-business candidate will win or that the stock won’t fall sharply if the socialist wins will be well compensated for the risk they are taking on. The bid on the JUN $37 put closed Friday at $0.75 which generates a ROIC of just over 2% with just 14 days to expiration. There is also over 13% of DSP. However, I have to point out that since the election is tomorrow before the market opens on Monday it is certainly possible the premium may disappear before the opening bell if the pro-business candidate is announced as the winner.
Next up on our selection list this week is RIMM. Research in Motion is the manufacturer of mobile computing and telecommunications devices. Until the Apple iPhone came on the scene RIMM had a virtual lock on the corprate mobile telecom market. RIMM is another foreign stock. It is headquartered in Waterloo, Ontario Canada.
Generally I like to analyze and show the one-year chart for a stock I’m considering. However, with RIMM this time I want to show you the 5-year chart.
The reason I selected the 5-year chart is because I want to show you just how cheap this stock is relative to price over the past 5 years. You have to go back to the financial crisis in 2009 to find RIMM trading at this level. To find RIMM trading at the the $32.50 strike price of the selected put you would have to go all the way back to September of 2006.
Ordinarily I would not try to catch a ‘falling knife’ stock like RIMM. However, in this case I may be willing to make an exception. Why? Because I believe it is oversold and due for a bounce. It closed Friday at $38.96. This is over 17% above the $32.50 strike price. Also, I wouldn’t mind owning RIMM at $32.50. At $32.50 RIMM would be trading at around 5x earnings. That’s cheap! Talk about hated. RIMM also has over $2B in cash on its balance sheet and zero debt. Thus, it is not going to go out of business anytime soon.
Everyone seems to think RIMM is going to end up like NOK; ultimately losing the battle for business customer dominance in the mobile phone space to Apple with its iPhone or Google with the Android operating system. I don’t think so. Thus, I’m willing to place this bet and ultimately own RIMM at $32.50 if I have it put to me.
Well, that’s it for this week. Best of luck in your trades. It’s getting more volatile out there so be careful. Be very careful in minding your stop loss positions or better yet only trading options on those stocks you truly wouldn’t mind owning.
Regards,
Troy
The Money Tree 