The Money Tree

Safely Generating Income in Retirement

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.




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