The Money Tree

Safely Generating Income in Retirement

Archive for September, 2011

Weely NP Strategy – OCT 7 Exp – Updated

Posted by mounddweller on September 30, 2011

Fellow Traders,

I had a few minutes to look through the file.  Below are a few selections I think have merit and warrant further due diligence.

Regards,

Troy

Advertisements

Posted in Weekly NP Strategy | Tagged: , , , , | Leave a Comment »

Weekly NP Strategy – OCT 7 Expiration

Posted by mounddweller on September 30, 2011

Fellow Traders,

There are 163 trades that meet our weekly selection criteria this week.  Unfortunately I am experiencing technical difficulties in getting the file loaded to the site.  I will try to get the file posted later today.

Also, I have been very busy the past few days so I have not had time to review the list sufficiently well to make any recommendations.  I hope to do that as the day progresses and if I find something I like I will post it here right away.

Hope everyone is having a great week.

Regards,

Troy

Posted in Uncategorized | Leave a Comment »

Deep OTM NP Strategy – OCT Week 4

Posted by mounddweller on September 25, 2011

Fellow Traders,

Lots going on this weekend and a huge number of selections delayed my completing the analysis needed to get this post out to you.  This week we have 223 selections from which to pick good NP trades.  Obviously 223 selections is way too many to list out in my post.  Thus, this week I’m going to try something new.  I’m going to post my spreadsheet out in the files section of the  CoveredCalls-NakedPuts_OptionStrategies group on Yahoo.  You can find it here: http://finance.groups.yahoo.com/group/CoveredCalls-NakedPuts_OptionStrategies/files/.

Of the 223 selections listed I found 3 that interested me.   They are BBT, HPQ, and RIG.  None of these are risk-free trades.  Given what is going on in the world and the market’s corresponding volatility all of these could easily fall below the selected strike prices.  The reason I selected these three is because I felt they had already fallen a great deal and thus MIGHT be closer to finding a bottom than other stocks which are still closer to their recent highs.  Also, I believe these are all good quality stocks.  BBT is a great, well managed regional bank,  HPQ is facing all sorts of uncertainty and turmoil and now has its second new CEO in a very short time.  However, it is also a great franchise and has now been beaten down to levels not seen since May 2005.  RIG has been beaten down as the price of oil has fallen in anticpation of a slowing global economy.  It is close to lows last seen during the BP oil rig disaster and the market bottom of 2008.

Let’s look at each one of these a little bit closer.  First, BBT.  BB&T Corporation operates as a financial holding company for Branch Banking
and Trust Company that provides banking and trust services to individuals and businesses.  It was founded in 1906 and is headquartered in Winston-Salem, North Carolina.  BBT was a selection of mine fairly recently.  You can read my write-up about it here: https://troysmoneytree.wordpress.com/2011/08/21/deep-otm-np-strategy-sep-week-4/.  The current trade that met our selection criteria is the OCT $17 strike price.  BBT closed Friday at $20.86.  The premium on the $17 strike is $0.31 bid.  This gives us a 1.82% ROIC with 19.99% of down side protection (DSP).  The one-year chart for BBT is below.

Next is Hewlett Packard, HPQ.  H  P, as it is commonly known is a technology conglomerate.  It operates in many, many sectors of the technology industry.  It manufactures hardware, and software, and also provides consulting services.  It was founded in 1939 and is headquartered in Palo Alto, California.   Because of the internal turmoil and the uncertainty surrounding its future direction it is dirt cheap.  It trades at less than 6x trailing earnings and 5x estimated forward earnings.  It also trades at 1.18x book value.  It is rare for a company like HP to trade anywhere near book value.  Now as I’ve said many times none of this means a stock can’t fall further.  Also, it is also readily apparent that HP has yet to hit bottom and begin any kind of recovery.  Take a look at the one-year chart shown below.

The NP trade I’ve selected for HP is the OCT $18 strike.  The stock closed at $22.32 on Friday.  The $18 strike gives us 20.47% of DSP.  The premium of $0.25 gives us a 1.39% ROIC with 29 days to expiration.  The $18 strike is also below HP’s current book value of $19.39.  I firmly believe HP will eventually get its act together and the stock price will rise accordingly.  Thus, I am happy to own it at less than book value.

Last up is Transocean, RIG.  Transocean Ltd. provides offshore contract drilling services for oil and gas wells worldwide. It offers deepwater and harsh environment drilling, oil and gas drilling management, and drilling engineering and drilling project management services. The company also offers well and logistics services. It was founded in 1953 and is based in Zug, Switzerland.

Almost of the oilfield services companies have fallen off a cliff lately.  RIG is no exception.  Since March it has fallen 40% from a high of $85.35 to Friday’s closing price of $51.21.  It now trades well below its book value of $65.35.  It is also trading at less 9x estimated future earnings.  It recently implemented a new quarterly dividend policy.  It now pays an annual dividend of $3.16.  At Friday’s closing price, that is a yield of 6.1%.

The NP trade which meets our selection criteria is the OCT $42.50 put.  The premium is $0.80.  This gives us a 1.88% ROIC with 18.57% DSP.  RIG has not traded at the $42.50 strike price since January of 2005.

Well, that’s it for this week.  I encourage you to do your own deep due diligence on these three selections or any other that you find in the list before placing any trades.    Given the uncertainty in the market there is no telling how low any of these stocks may go and thus it is more important than ever that you be comfortable owning any company in which you place a trade.

Regards,

Troy

 

Posted in Deep OTM NP Strategy | Tagged: , , , | Leave a Comment »

Weekly NP Strategy – SEP 30 Expiration

Posted by mounddweller on September 22, 2011

Fellow Traders,

Below are the selections from our screen of weekly option which will expire on September 30.  The past couple of days of market turmoil have made it hard to be objective in selecting trades that you can feel confident will expire OTM.  Thus, this week I only have 3 selections out of a total of 119 opportunities..  My selections are not necessarily ones I feel confident will finish OTM.  Rather, they are ones I would feel confident holding no matter what their market price is on September 30.

Best of luck to everyone trading this week.  Be safe out there.

Regards,

Troy

Posted in Weekly NP Strategy | Tagged: , , , | 1 Comment »

SEP Closed Positions

Posted by mounddweller on September 18, 2011

Fellow Traders,

I finally was able to catch up and update the Historical Results and Open Positions pages of my blog.  I encourage you to take a look.  Also, I wanted to take a moment to post the trades I closed between the AUG and SEP expiration.

As you can see I closed 7 trades this month.  All were cash secured naked put trades.  Premiums received (net of commissions) totalled $1,040.82.  My maximum amount of capital at risk during the month was $73,500.  This equates to a ROIC of 1.42%.

I’m hopeful I will be able to take advantage of similar opportunities as they present themselves between now and OCT expiration in 5 weeks.

Regards,

Troy

 

Posted in Portfolio Updates | Tagged: , , , , , , , | Leave a Comment »

Weekly NP Strategy – SEP17 Exp Results

Posted by mounddweller on September 17, 2011

Fellow Traders,

Well our second week of selecting weekly NP trades has concluded.  Let’s take a look at how my choices faired.   You’ll recall my choices were:

(1) The $30 strike of Agilent (A) closed OTM yesterday at $36.36

(2) The $11 strike of Alcoa (AA) closed OTM yesterday at $11.97

(3) The $23 strike of Adobe (ADBE) closed OTM yesterday at $25.52

(4) The $30 strike of Sotheby’s (BID) closed OTM yesterday at $38.22

(5) The $77.50 strike of Catepillar (CAT) closed OTM yesterday at $85.90

(6) The $80 strike of Cummins Engines (CMI) closed OTM yesterday at $97.84

(7) The $22 strike of Encana (ECA) closed OTM yesterday at $23.85

(8) The $19 strike of Intel (INTC) closed OTM yesterday at $21.97

(9) The $25 strike of Microsoft (MSFT) closed OTM yesterday at $27.12

(10) The $40 strike of Pall (PLL) closed OTM yesterday at $44.03

(11) The $50 strike of Transocean (RIG) closed OTM yesterday at $59.17

(12) The $11 strike of Charles Schwab (SCHW) closed OTM yesterday at $12.34

(13) The $29 strike of Waste Management (WM) closed OTM yesterday at $32.01.

Hey, how about that!  13 for 13.  Two weeks running we haven’t had a single selection finish ITM.  We’re off to a awesome start testing the possibilities of this Weekly NP Strategy. However, two weeks does not make for statistically valid testing.

Regards,

Troy

Posted in Uncategorized | Tagged: , , , , , , , , , , , , , | Leave a Comment »

Deep OTM NP Strategy – OCT Week 5

Posted by mounddweller on September 17, 2011

Fellow Traders,

As promised I’m back with the Week 5 selections for our Deep OTM NP Strategy.  Please recall once a quarter we encounter a period with 5 weeks between expiration dates.  This is one of those occasions.  Thus, our selection criteria this week are different from the usual criteria in the first week after expiration.  Our criteria for this week is (1) minimum of 20% down side protection (DSP), and (2) a Put Factor (PF) greater than or equal to 2.0.

So let’s get to it.  This week, as is usual in the first week of a new period, we have a large number of possible trades to choose from.  192 to be exact.  So many in fact that I chose not to list the small caps on the blog.  None of the small caps were of any interest to me.  However, if you would like to see the complete list including the 67 potential small cap trades let me know and I’ll be happy to send you the list.

The first thing I hope you’ll notice is that of the 192 total possible trades I narrowed it down to just 4 that  I would be comfortable trading; 3 large caps and 1 mid cap.  Several others that I’ve selected and/or traded previously appeared on the list again this week but the set-up just didn’t seem right to me.  Part of this is due to the big run-up we had in the market this past week.  The S&P500 gained 6.5% this past week.  That, despite the continuing sovereign debt crisis in Europe, and our own woes here at home.   If I would have had this same list a week earlier I might have selected others as well.

Juniper Networks (JNPR) appears first on our list and coincidentally is my #1 choice this week.  I like this trade primarily because of its 1-year price chart.  You’ll notice it gapped down back in late July after reporting 2nd quarter earnings.  It missed analysts earnings estimates and experienced a slight drop in its operating margin.  Since then it continued to drift downward until finally finding support at $20.  Over the past several weeks it has cycled between $20 and $22 a share.  Friday, it closed at $20.15.  Thus, I think this presents a good entry point to sell the OCT $16 put.  Doing so give us another 22% of DSP.

Next up on the list is Arcelor Mittal (MT).  As most of you know it is one of the world’s largest steel manufacturers.  The shakiness of the global economy and MT’s high debt load have caused it sell off substantially, it is down almost 44% for the year.  What I see in MT is value.  It trades at about 5x forward earnings and less than half of book value.  It is not without risk though.  As I mentioned earlier it carries a substantial amount of debt on its balance sheet.  I chose MT because the $15 strike price is below the 52-wk low of $16.91 it hit this past week.  However, being number two on my list does not make it my second choice.  In fact, MT would be my 4th choice.

Third on the list is one I’m sure most of us are familiar with, Research in Motion (RIMM).  RIMM announced earnings this past week and Mr. Market did not take a liking to them.  RIMM fell sharply from around $30 to close Friday at $23.93.  Intra-day it had gotten as low as $22.74.  What I see in this trade is similar to that of MT.  The strike price of $19 is well below both Friday’s intra-day low as well as the 52-wk low of $21.60.  Also, RIMM despite all of the negative press is still a very profitable business.

Last, but not least, is our lone mid-cap selection, Atlas Air Worldwide Holdings (AAWW).  Atlas shares several characteristics with my other selections.  First, it is cheap, trading at only 7x forward earnings and just over book value.  The $37.50 strike price is below the 52-wk low of $39.66 and the book value of $41.29.  Second, despite hitting turbulence it remains profitable.

OK, that’s it.  Good luck out there this week and be careful.  I’m not thinking this rally is long lived.  At the first sign of renewed problems in Greece or Italy I believe we’ll be in for another rough ride to the downside.

Best Regards,

Troy

Posted in Deep OTM NP Strategy | Tagged: , , , , | 5 Comments »

Deep OTM NP Strategy – SEP Results

Posted by mounddweller on September 17, 2011

Fellow Traders,

Another month of trading the Deep OTM NP Strategy is closed and in the books.  This month was a very good month for executing this strategy.  Below are the Key Performance Indicators (KPIs) I track to measure the success or failure of the strategy:

  • Number of Potential Trades Presented: 479
  • Number of Potential Trades Finishing ITM: 10
  • Overall Success Rate: 97.9% (I find this to be extraordinary given the volatility we experienced this month)
  • Total Capital Required to Execute All of the Trades Presented: $3,854,550
  • Premiums Received (net of commissions): $73,173.60
  • ROIC (before capital losses): 1.90% Annualized 25.66%
  • Capital losses associated with the 10 trades which finished ITM*: ($3,121.90)
  • Total ROIC (net of capital losses): 1.82% Annualized 24.57%

*Note: For performance calculation purposes it is assumed all positions remain open through expiration.  However, in all 10 losing trades this month a real trader could have easily minimized the loss by buying back the put before expiration.

In closing I’d like to also make note of the fact that of the 9 trades I highlighted in my commentary each week this period ALL of them finished OTM.  My intent in pointing this out is not to ‘toot my own horn’ so to speak.  Rather, it is to show that any trader using this strategy who is willing to invest a little time in doing some rudimentary due diligence can easily avoid the riskier trades and generate consistent cash flow each month while sleeping well at night.

I’ll be back later with another post with potential trades for OCT – Week 5.

Best Regards,

Troy

Posted in Deep OTM NP Strategy | Leave a Comment »

Weekly NP Strategy – SEP 23 Exp

Posted by mounddweller on September 15, 2011

Fellow Traders,

We have a total of 77 trades to consider this week for the Weekly NP Strategy.

Of these 3 caught my eye, BP, SU, and ORCL.

Let’s first consider BP.  BP like most every other stock has bounced off of its recent lows.  It closed today at $39.52 and we have the opportunity to sell the $37 strike price.  I would like BP at the $36 strike much better, but the $37 isn’t bad.  I think this might be worth a look.

Next up is ORCL.  Like BP I would be happier if we could sell the put one strike further out of the money.  With ORCL we can sell the $26 put.  ORCL has strong support at $26 but even better support at $25.

Last, but not least, we have another oil and gas company.  However, this one is a foreign operator.  Suncor is a Canadian oil sands company.

Suncor looks good at the $28 strike.  The $52-wk low is $28.12.

Well, that’s it for tonight.  I’ll be back later this week-end with posts discussing the end of the SEP expiration period and presenting a first look at our OCT opportunities.

Regards,

Troy

Posted in Potential Trades | Tagged: , , , | Leave a Comment »

Deep OTM NP Strategy – SEP Week 1

Posted by mounddweller on September 9, 2011

Fellow Traders,

Well, another interesting week, huh?  We went out with a bang.  Depending on events which may occur this weekend, next week may be even more exciting.

This week I have 13 selections which passed the Week 1 criteria (i.e., > 10% DSP, PF >= 2.0).  They are provided below.

As you can see I have highlighted one, Manpower, as a possible trade.  However, given the extreme uncertainty in the market I would suggest passing on this one as well.  But, for those just itching to put money to work in the market here’s what caught my eye about Manpower.

(1) The $30 strike price is very near 2008 bear market lows so that might give some comfort that it is close to bottoming out.

(2) The $30 strike price is less than the current book value of $31.20.

(3) The company pays a small but growing dividend.  The dividend has increased 25% over the past 5 years.  Not great but some consolation if you have the stock put to you.

(4) If you have the stock put to you and you choose to hold it, it has tremendous upside potential if and when the economy begins to pick up steam.  In July of 2007 (when the economy was booming) this was a $90 stock.  As recently as earlier this year it has been as high as $70.

Well, that’s all I have for you this week.  Be careful out there.  Remember, it’s return OF investment that’s of paramount importance.  Return ON investment is second.

Regards,

Troy

Posted in Deep OTM NP Strategy | Tagged: , | Leave a Comment »