The Money Tree

Safely Generating Income in Retirement

Recent Trades

Posted by mounddweller on October 1, 2011

Fellow Traders,

I want to update you on some of my recent trades.  Since I last provided an update I have added to one position and opened three more positions.  First, let me update you on my NP position in Petroleo Brasileiro (PBR).  You’ll recall I initiated this position back in May by selling JUN $32 puts.  You can read my write-up about why I entered the trade here:  From May through July this trade was working wonderfully.  My puts would expire OTM and I would then rewrite them the following month.  Since August the trade has not been working so well.  PBR has declined steadily and I have been rolling my puts at the $31 strike price.  I am now short the JAN $31 puts.  I will continue to roll these puts as long as possible until the price of PBR recovers.

Because PBR has declined substantially and I still believe it is a compelling value I have chosen to sell additional puts at the $20 strike price.   On 9/22 I sold OCT $20 puts at $0.33.  At the time PBR was trading around $23.45.  Yesterday, it closed at $22.45.  The 5-year chart below will show you while I chose the $20 strike price.

Even during the financial crisis in late 2008 PBR didn’t fall much below $20.  Also, at $20 PBR would be trading at 74% of its book value.  My plan is to continue to sell puts at the $20 strike price until PBR begins to recover.  If it should continue to fall below $20 I will begin rolling the $20 strike price puts as well.  I will then commit the last of my planned capital for this trade at a new lower strike price, perhaps at the $17 strike price.

OK, let’s move on to my new positions.  My new positions are in Corning (GLW), Annaly (NLY), and Microsoft (MSFT).  GLW was brought to my attention by an investing buddy of mine.  He is very conservative so when he thinks a trade is nice, I listen.   On 9/22 I sold OCT $10 puts at $0.13.  At the time GLW was trading at $12.25.  This trade gives me a 1.16% ROIC (net of commissions) with almost 20% DSP.  Below is the 5-year chart for Corning.  The $10 strike price is very near the bear market lows.  Other factors leading me to make this trade are GLW’s over $2.60/share in cash (net of all long-term debt) on its balance sheet, its book value of $13.56, and its P/E ratio of 6.

This week I made my two other new trades.  I sold NLY NOV $16 puts for $0.38.  I sold these puts after NLY went ex-dividend.

My last trade was in MSFT.  I sold OCT $23 puts at $0.32.  Net of commissions my ROIC for this trade is 1.3%.  The following 2-year chart shows why I like this trade.

Well, now you are all caught up.  As you can see I am always on the look out for good trades outside of those generated by my two NP strategies.  As the current market volatility continues I will be on the look-out for other good trades.

Best of luck to you in the weeks ahead.




4 Responses to “Recent Trades”

  1. PBR is a tempting buy at this level. Long term major support 20.70

  2. Rich said

    I kind of in the same boat as you Troy with my AA contracts. I have many contracts at the 15 16 and 17 levels. I have been rolling them month after month and AA keeps falling. I have been in this position before with SPWRA so I know with patience I can keep rolling and AA will eventually work its way back to me. At the moment I’m just rolling enough to cover my IRA draw plus a little more to keep growing my capitol. Back in August I noted that Jason Kerr mentioned that when he gets assigned he will then sell an in the money call to force assignment and be able to use the cash to re-write more puts.


  3. Rich said

    The past three up days on the DOW were enough to keep my 7 Oct $9 put out of the money at the close today. I felt fairly confident that AA would close above 9 today so this afternoon I sold to open another weekly put on AA that will expire next friday. I sold a 9 put @ .13 which will give me a half percent ROC if AA once again closes above 9 next friday. I will try and get at least a half percent per week return on a week to week basis. Also, as I get more comfortable with these weekly options I will start selling 2 contracts each week. This will give me more income per trade as my commission cost per trade when doing 2 contracts is cut almost in half.


    • Rich said

      I may have been ahead of myself selling the weekly Oct 14 put a the 9 strike. After I had did this I realized that Alcoa is due to report earnings next week. AA closed at 9.71 yesterday so maybe if earnings disapoints the street the stock will stay above 9.


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