The Money Tree

Safely Generating Income in Retirement

Archive for July, 2011

EXC – An Update

Posted by mounddweller on July 7, 2011

Fellow Traders,

Last week I posted a message outlining my plan for EXC.  You can read that post here: https://troysmoneytree.wordpress.com/2011/07/03/exc-whats-the-plan/.  In that message I said I would be watching EXC closely as the JUL options expiration approached on 7/16.  Mid-morning today with EXC trading around $43.36 I decided to take action.  After weighing my options between rolling to either the OCT $43 or $44 strike I went with the $43.  Why, you ask?  Well, two reasons.  First, while I could have gotten a net credit rolling out to the OCT $44, it would have been small and a significant portion of it would have been chewed up by commissions.  Second, while EXC may certainly go higher over the next several days, after looking at the money flow (which is very close to 80), I decided EXC is due to sell-off or at least take a breather.  Also, I think the overall market will undergo a serious correction between now and October so I wanted to lock-in the additional premium offered by the $43 strike.

Here are the details for the trade I executed today.

I originally sold the JUL $43 calls back on May 10th at $0.65.  So, closing out that trade was essentially a wash.  However, by selling the OCT $43 at $1.40 I ended up with a net credit of $0.75.  The net effect of all this is I’ll end up with a ROIC of about 3% for a 5 month holding period.  Now some folks would say that isn’t too great.  But annualized that is about 7.34%.  Then, if you add in the 4.94% dividend yield I am getting at my original cost basis of $42.50, you’ll see my annual total ROIC is over 12%.

But wait!  It gets even better because my cost basis no longer is $42.50 but is now $34.83.   At $34.83 my annualized ROIC is 15%.  At that rate I’m doubling my money every 5 years in a boring utility stock!

Regards,

Troy

 

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CSCO – An Update

Posted by mounddweller on July 5, 2011

Fellow Traders,

A short post today to update you on my position in CSCO.  First a brief recap.  I started my trade in CSCO several months ago selling puts at the $18.  Last month I had the stock put to me at $18 because I was asleep at the switch and didn’t get my position rolled out fast enough. 

In addition to the original puts at the $18 strike, back on May 13th I sold more CSCO puts at the $16 strike with a JUL expiration.  Having learned my lesson from the $18 puts I decided to roll my JUL puts early.  Consequently, today I BTC my JUL $16 puts and rolled them out to the SEP expiration for a net credit of $0.46. 

Below is a synopsis of my returns for the $16 put portion of my position.  As you can see, assuming I hold the SEP puts to expiration my net return on committed capital is 4.62% (13.4% annualized).  This exceeds my minimum target return of 12%/year.

Date  Transaction  Gross Amount   Commissions   Net Amount 
05/13/11 STO 5 CSCO JUL $16 Puts at $0.33  $        165.00  $       (10.99)  $      154.01
07/05/11 BTC 5 CSCO JUL $16 Puts at $0.44  $       (220.00)  $       (11.01)  $     (231.01)
07/05/11 STO 5 CSCO SEP $16 Puts at $0.90  $        450.00  $         (3.07)  $      446.93
     $        395.00  $       (25.07)  $      369.93
         
  Total Committed Capital  $     8,000.00    
  Net Return on Committed Capital  $        369.93    
  Net % Return 4.62%    
  Annualized % Return 13.40%    

Regards,

Troy   

 

Posted in Portfolio Updates | Tagged: , | 6 Comments »

EXC – What’s the Plan?

Posted by mounddweller on July 3, 2011

Fellow Traders,

A friend, who also has a position in EXC, recently sent me an email asking about my plans for EXC as we approach July expiration.  I currently own 200 shares of EXC and am short the JUL $43 calls.  Given some of my other readers may also have a position in EXC I thought I’d share my response to him with you.  Here’s my plan…

I have been trying to get into a rhythm with EXC for almost a year now.  Just when I think I’ve got it figured out it does something unexpected.  My strategy for EXC is based on my observation that the stock tends to run up immediately prior to each ex-dividend date and then sell-off for a couple weeks after the ex-dividend date (see chart below).   Consequently, what I’ve been trying to do is sell calls immediately prior to the ex-dividend date and then follow-up a few weeks later after the ex-date and either sell puts after it appears to have hit bottom and/or buy back my calls.   That didn’t quite work out this last time.  I managed to sell JUL $43 calls near the top of the range before the ex-dividend date but didn’t sell any puts after the ex-date.  The stock didn’t sell-off quite as hard as it had previously.


In looking at the chart I think EXC could top out around $44 between now and the ex-date of August 11th.  Unfortunately, with my JUL $43 calls being ITM I can’t wait around that long.  My plan is to keep a close eye on it between now and JUL expiration.  If it keeps going up and gets at or above $44 I will roll out and up to the OCT $44 calls which closed Friday at $1.00 bid.  If it stalls out but stays above $43 I will roll out to the OCT $43 calls which closed at $1.45 bid.  If it falls and my JUL $43 calls expire OTM I will probably wait until closer to the August ex-date before selling the next round.  However, I will still be looking to sell OCT calls at either the $43 or $44 strike.  Then, towards the end of August I’ll look to sell NPs.  I only want to sell NPs when I can get a decent premium at the $40 or less strike price  (I would like to own more EXC if I can buy it for $40 or less). Like the calls I am interested in the OCT puts because they are the closest to the next ex-date which occurs in early/mid November.

Regards,

Troy

Posted in Portfolio Updates, Potential Trades | Tagged: , , | 1 Comment »

What Others are Trading – July 2011

Posted by mounddweller on July 3, 2011

Fellow Traders,

What are you trading?  What’s working for you? What’s not?  This is the place to share your successes and ‘learning experiences’ from the school of hard knocks.

Regards,

Troy

 

Posted in Your Picks | 2 Comments »

Deep OTM NP Strategy – JULY Week 2

Posted by mounddweller on July 3, 2011

Fellow Traders,

Something totally unexpected has happened.  There is not one new selection that meets our Deep OTM NP Strategy criteria this week; not a single one.  There were several that were repeats from prior weeks but as you recall we purposely filter those out to prevent over-weigthing ourselves in any one position and also skewing our results.

What I read into this is that the market rally this past week has made a lot of people complacent.  The debt crisis in Greece has been ‘resolved’.   Life can go back to normal.  DON”T YOU BELIEVE IT!!!  Once again, the politicians and bureaucrats avoided catastrophy by kicking the can down the road.  However, another crisis is looming right around the corner.   The US is right behind Greece.  We only have about 3 weeks to solve our own debt crisis.  I expect volatility to resume very shortly.

Be very careful out there.  I would only enter new trades on companies you like and at prices that you could live with for a very long time.

Regards,

Troy

 

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