The Money Tree

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Archive for July, 2011

What Others are Trading – August 2011

Posted by mounddweller on July 31, 2011

Fellow Traders,

Another month, another opportunity to share your successes and lessons from the ‘school of hard knocks’.  Rich, Dealmakr, others what have you been trading?

Regards,

Troy

 

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Deep OTM NP Strategy – AUG Week 3

Posted by mounddweller on July 31, 2011

Fellow Traders,

The recent uptick in volatility has generated an increase in the number of trades meeting our selection criteria this week.  The complete list of possible trades is presented below.

As you can see I highlighted two that caught my eye.  First up, let’s look at CREE.  Cree, Inc. develops and manufactures light emitting diode (LED) products, silicon carbide (SiC) and gallium nitride (GaN) material products, and power and radio frequency (RF) products. Its LED products include LED chips used in various applications, including video screens, gaming displays, function indicator lights, and automotive backlighting; LED components; and LED lighting products.

It is a competitor to RBCN which has appeared on our selection list on several other occasions.  CREE has an excellent balance sheet.  It has $9.85/share in cash and no debt.  Unfortunately, it has a very ugly 1-year price chart (see below).  It has fallen from a 52-wk high of $74.87 to a recent low of $30.17.  In the past couple of weeks it has attempted to turn the corner and head back up.  Friday it closed at $32.85.  The reason this trade caught my eye is because the strike price of $27.50 is well below the recent low of $30.17.  Barring a complete melt-down in the market from the debt-ceiling crisis I think this trade has potential.

The second trade that caught my eye is in MYGN.  Myriad Genetics is a stock I unsuccessfully traded last year.  I had done a buy/write and had successfully sold two rounds of CCs before the bottom dropped out and left me high and dry.  This time the set-up is a little bit different.  The stock has already fallen substantially.  The strike price ($18) of our NP trade is at an area of strong support.  The stock closed Friday at $21.27.

If I had to choose between the two trades I’d pick CREE over MYGN.  It has already bounced and is trying to recover while MYGN still appears to be falling.

Best of luck trading this week.

Regards,

Troy

 

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CSCO – An Update

Posted by mounddweller on July 30, 2011

Fellow Traders,

Earlier this week I executed a couple of trades on my open CSCO position.  Those of you who regularly follow my trades will recall my open position in CSCO previously consisted of two parts, (1) I was long 500 shares of CSCO at $18, having had the stock put to me several weeks ago, and (2) I was short the SEP CSCO $16 puts after having rolled them out a prior JUL expiration.

On this past Thursday, early in the day when the market was still bouncing back from the beating it had taken the day before I was able to execute the following trades.

First, with regard to the 500 shares I am long CSCO I was able to STO the NOV $18 calls for $0.45.  My current cost basis in the stock is $16.86 so if the calls finish ITM in NOV and I choose to not roll them out I will leave this trade with a profit, albeit one below my minimum target return of 12-15% per year.  My ROIC will be 8.39%.  The reason I chose to execute this trade despite the potential for a lackluster ROIC is that I didn’t want to continue to hold the stock without getting some cash flow from it.

My second trade involved a BTC of my 5 SEP $16 puts.  I was able to close out this position with a negligible profit.  I did so because I felt there might be better opportunities going forward to position myself at the $15 strike.

Some of you may have noticed that I haven’t done a very good job of keeping my ‘Open Positions’ and ‘Historical Results’ updated.  I will use these recent CSCO trades as an opportunity to get that information updated.

Regards,

Troy

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Deep OTM NP Strategy – AUG Week 4

Posted by mounddweller on July 23, 2011

Fellow Traders,

Below is the list of selections for this 4th week of the August option cycle.  You’ll notice it is very slim pickings.  So much so that I have nothing to recommend.

However, before I sign off for another week I would like to briefly discuss the status of the two potential trades I highlighted last week, IDCC and RVBD.  First the good news, IDCC soared this week after it was announced that Google was talking to IDCC about buying the company.   A week ago, Friday (7/15) IDCC closed at $43.01.  Yesterday (7/22) it closed at $72.96.  If you haven’t done so already I highly recommend buying back your puts and closing out the position.  What goes up might possibly fall just as fast.  Take the money and run!

Now, for the bad news (or at least not so good news).  RVBD fell dramatically this past week after announcing they were purchasing a company named Zeus at a sky-high price of 10x sales.  Mr. Market feels RVBD is grossly overpaying and let their opinion be known by selling in earnest.  The stock fell from around $39 last Friday to close this Friday at $32.12.  For those of you who sold the AUG $32 puts I would exercise some patience and see how the situation plays out.  The stock has good support around $32 and has recovered back above our strike price after falling as low as $31.09 on Thursday.  However, it RVBD reverses courses and begins going back down I wouldn’t hang around.  I would buy back the puts for a loss and move on.

Regards,

Troy

 

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PBR – New NP Trade

Posted by mounddweller on July 19, 2011

Fellow Traders,

Please recall in my post this past weekend I had mentioned that I wanted to re-enter my NP trade on PBR.  Yesterday, I had the opportunity to do just that.  Below are the details of that trade.

As you can see I sold 3 AUG $31 puts at $0.58.  If all goes well and the puts expire OTM I will have a ROIC of 1.77% which annualized is 20.14%.  Find a way to do that every month and you’ll be doubling your money approximately every 3 1/2 years!

Regards,

Troy

 

 

 

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Deep OTM NP Strategy – AUG Week 5

Posted by mounddweller on July 17, 2011

Fellow Traders,

As is usually the case we have a wide selection of trades to consider in this the first week of the new expiration cycle.   Please also notice that this is one of the 4 times a year when we have a 5-week cycle.  Here is our list of opportunities this week:

As you can see I have highlighted the two opportunities that I think are worthy of your further consideration.  Both IDCC and RVBD have appeared previously in the selection list.  I also have written about them before.  You can read those write-ups here

IDCC: https://troysmoneytree.wordpress.com/2011/05/29/deep-otm-np-strategy-june-week-3/

RVBD: https://troysmoneytree.wordpress.com/2011/02/25/otm-np-strategy-mar-week-3/

Both selections have good support at their respective strike prices.  However, if I had to choose one over the other I would go with IDCC.  It trades at a more reasonable P/E and pays a small dividend.  If the market hits a rough patch and I were to have IDCC put to me I would feel more comfortable than I would with RVBD which trades at a very rich forward multiple of 33x earnings.

Have a great week!

Regards,

Troy

 

 

 

 

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Portfolio Update – GTY / HGT

Posted by mounddweller on July 16, 2011

Fellow Traders,

I want to update you on a couple of my open trades.  Both of these trades employ a different strategy than either my Deep OTM NP or regular NP/CC trades.  This strategy involves buying high yield stocks and selling CCs against the shares in addition to collecting the monthly or quarterly dividends.

First let’s look at Getty Realty Corp. (GTY).  Getty is a real estate investment trust which owns gas stations on the east coast which they lease to independent operators.  Getty first caught my attention back in March of this year when they had a significant drop in price.  I felt the situation causing the price drop would resolve itself and the stock would subsequently rebound.  I opened the trade by selling NPs.  Since that time I have collected two quarters of dividends and sold two rounds of CCs.  My complete transaction history is below.

In the 4 months I have been holding GTY I have collected $1,680 in premiums and dividends.   With $11,250 in capital at risk that’s a 14.93% return in only 4 months!  Annualized that’s approximately a 45% ROIC.  Not bad for a REIT, huh?  Note this return doesn’t include my substantial unrealized capital gains.

Next up is Hugoton Royalty Trust.  As many of my long-term readers know I have been trading HGT for about 15 months.  I’m on my third round of trading HGT.  In both of the 2 prior rounds my shares were called away when my CCs finished ITM.  Below is the transaction history for my third round of trading in HGT.

In 4 1/2 months in holding HGT I have collected $636.56 in premiums and dividends.  That’s a 5.92% ROIC.  This will only get better as I should receive one more dividend in August prior to the expiration of my covered calls.  My goal in this trade is to achieve a total return of 12-15% annually.

Regards,

Troy

 

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JULY Expiration Results

Posted by mounddweller on July 16, 2011

Fellow Traders,

Not much to talk about with regard to my July results.  I only closed one position.  That was my NP trade in PBR.  This was my second consectutive month of selling NPs on PBR.  In both cases my puts expired OTM.   My transaction history for this trade is below.

I will be attempting to set-up a similar trade with PBR for the August expiration.  The AUG $31 puts closed Friday at $0.48 bid.  I’d like to get a little bit more than that if possible.  Thus, my intention is to wait and look to sell them on a down day in the coming week.

Regards,

Troy

 

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Deep OTM NP Strategy – July 2011 Results

Posted by mounddweller on July 16, 2011

Fellow Traders,

Another trading month has come and gone.  Where does all the time go?  Each month seems to go by just a little bit faster than the last.  It was a good month for the Deep OTM NP Strategy.  We had a total of 43 selections meet our criteria this month, 40 finished OTM.  That gives us a success rate in excess of 93%!  Not bad considering the quality of the companies underlying our NP selections and the shakiness of the economy.  Below are a few metrics which provide further support for my conclusion that it was a good month for the Deep OTM NP Strategy.

Percentage NP Trades Finished OTM: 40 of 43 = 93.02%

Cash Secured Capital Required to Enter All 43 Trades: $274,300.00

Premiums Received (net of commissions): $5,361,40

Net Premium ROIC: 1.95%     Annualized: 26.42%

Our three losers for the month were PTIE, SIGA, and ZN.   A passive investor who failed to get out of these 3 prior to expiration would have suffered net capital losses (including commissions) of $1,851.85.  This would have reduced the overall net profit in trading this month to $3,509.55.  The net of losses ROIC would have been 1.28%.

I will be back with another post later this weekend with our new round of selections for the August – Week 4 period.

Regards,

Troy

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Deep OTM NP Strategy – July Week 1

Posted by mounddweller on July 10, 2011

Fellow Traders,

Below is our list of possible selections for the Deep OTM NP Strategy this last week prior to July expiration.

Two stocks on our list caught my eye.  First, was the Indian IT outsourcing company, Infosys (INFY).  The $60 strike price is below recent support levels and offers over 11% of DSP.  However, two things keep me from recommending this as a possible trade.  One, the company will report earnings on Tuesday, July 12.  Two, the $60 strike price is above the $52-wk low of $56.73.  If the economy were on solid footing I might be willing to take a chance with INFY.  But with things as they are right now, I don’t think it’s worth the risk.

The second possible trade that caught my eye was RBCN.  RBCN sports solid fundaments with over $3.80 in cash and no debt.  It also trades at less than 9x current earnings and 7x future earnings.  The $15 strike is below the 52-wk low of $15.51.  However, with only one week to expiration the premium on the $15 is only $0.10.  Thus, I would have to be willing to pony up $15K in capital to get a minimum of $100 in premium (before commissions).  I’m not willing to do that on a small-cap ($390M) like RBCN.  If RBCN shows up on our screen next week for AUG expirations I may give it a more serious look.

Regards,

Troy

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