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Archive for September 17th, 2011

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

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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

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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

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