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Archive for November, 2011

Deep OTM NP Strategy – DEC Week 3

Posted by mounddweller on November 26, 2011

Fellow Traders,

This week we have 56 new trades which meet our selection criteria.  Of these I found 2 that are worthy of further due-diligence.  They are Agilent (A) and Foster Wheeler (FWLT).

Let’s first look at Agilent.  Agilent Technologies, Inc. provides bio-analytical and electronic measurement solutions to the communications, electronics, life sciences, and chemical analysis industries in the United States and internationally.  It was founded in 1999 and is headquartered in Santa Clara, California.

Agilent has strong fundamentals.  It trades at less than 12x historical earnings and 10x prospective earnings.  It has an net profit margin of 15% and a ROE of 26.8%.  Agilent also has a net cash position of $1.35B.  Now let’s look at the 3-yr price chart.

Our trade is at the $29 strike price.  As you can see this is below recent support at around $30.  The $29 strike has a premium of $0.48 giving us a ROIC of 1.66% with DSP 15.7%.

I see two negatives with this trade.  First, A doesn’t pay a dividend.  With the volatility in this market I would prefer to stick with stocks that pay a dividend.  Second, if A were to fall below it’s recent support at $30 it could fall much further.  As you can see the 3-yr low is down around $12.

Next up let’s look at Foster Wheeler (FWLT).  This is not the first time it has met our screening criteria and been selected for further analysis.  You can read my previous write-up here: https://troysmoneytree.wordpress.com/2011/08/06/deep-otm-np-strategy-aug-week-2/.

Foster Wheeler AG provides construction and engineering services to oil and gas, oil refining, chemical/petrochemical, pharmaceutical, environmental, power generation, and power plant operation and maintenance industries worldwide.  It was founded in 1894 and is based in Geneva, Switzerland.

FWLT also has strong fundamentals.  It trades at just under 14x historical earnings and 10x prospective earnings.  It also is sitting on a substantial pile of cash to help it through any downturns in the global economy.  It’s net cash position is $6.81/share.

Looking at the chart here’s what I like.  First, $15 strike price is below the recent low of $16.40.  Also, it is close to the 3-yr lows encountered in 2009.  Our $15 put has a premium of $0.25 giving us a ROIC of 1.67%.  It also has DSP of 15.7%.  Like Agilent, Foster Wheeler doesn’t pay a dividend.  As I mentioned earlier, that’s a negative in my mind especially in this volatile market.

For those of you who would like to review the entire list of 56 possible trades you can find it here: http://finance.groups.yahoo.com/group/CoveredCalls-NakedPuts_OptionStrategies/files/.

Regards,

Troy

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Weekly NP Strategy – DEC 2 Exp

Posted by mounddweller on November 25, 2011

Fellow Traders,

This week there are 92 possible trades which meet our Weekly NP Strategy selection criteria.  Only one seemed worthy of further attention.  It is a trade with Chevron, the multi-national integrated oil giant.

This trade gives us a ROIC of 0.58% with 5.74% of down-side protection.  It also lets us trade with a large cap, blue-chip.  The $87.50 strike price is below recent support of $90.

If you’re interested in seeing the other 91 possible trades you can find them here: http://finance.groups.yahoo.com/group/weeklyoptions/files/.

Have a great weekend.

Regards,

Troy

 

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Weekly NP Strategy – NOV 25 Exp Results

Posted by mounddweller on November 25, 2011

Fellow Traders,

Last week I recommended three trades for our Weekly NP Strategy.  I recommended trades in AA, MRVL, and SLW.  For the first time since I started this strategy one of my recommendations finished ITM.  While MRVL and SLW finished well OTM, AA did not.  I had recommended AA at the $9 strike price.  In the holiday shortened trading session today, AA closed at $8.95.

Happy Holidays to one and all.  I’ll be back later this weekend with new possible trades from both the Weekly NP Strategy and the Deep OTM NP Strategy.

Regards,

Troy

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New Trades – T and WM

Posted by mounddweller on November 24, 2011

Fellow Traders,

Yesterday I opened two new NP trades.

(1) STO 3 T DEC $27 Puts at $0.40

(2) STO 4 WM DEC $28 Puts at $0.40

First, let’s look at my trade in AT&T (T).  I’ve traded in and out of T on a couple of different occasions.  I find it attractive at $27 or less.  I sold my puts when T was trading at $27.63.  With this trade I don’t have much down-side protection but in this case that wasn’t important to me.  If I have T put to me at $27 at December expiration I will be in line to receive the $0.43 dividend; T goes ex-dividend on January 6th.  My ROIC is 1.36% (net of commissions) with 23 days to expiration.

I limited the size of my trade to 3 contracts.  If T continues to move lower I will sell additional puts at the $25 and/or $24 strike price.  T has a solid and steadily increasing dividend.  I think it will find support as its yield closes in on 7%.

Next up is Waste Management (WM).  Regular readers may recall that I sold naked puts on WM last month as well.  The puts at the $28 strike price expired worthless.  Thus, with the market selling off again on Wednesday, I took the opportunity to sell the DEC $28 puts for $0.40.  My ROIC, net of commissions, in this trade is 1.34% with 23 days left to expiration.

Looking at the chart above it should be obvious why I like the trade at the $28 strike price.  WM has solid support at $28.  You’ll notice both the T and WM charts are 3-yr charts.  One thing I’m looking at all of my trades these days is where did the stock trade in October 2008 and March 2009.  This gives me some sense of how much down-side risk I might have if either the European or American debt crisis causes the markets to come unglued.

Both my T and WM trades represent my efforts to focus more of my trades in blue-chip, large-cap, dividend achiever types of stocks.   These are stocks that I can feel comfortable owning and establishing long-term positions in.    Once assigned I can collect dividends over time and sell calls against these positions.

Regards,

Troy

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CSCO – Trade Results

Posted by mounddweller on November 21, 2011

Fellow Traders,

The purpose of this post is to share with you the results of my trade in CSCO.  I started this trade about a year ago when CSCO was trading at $20.21.  My strategy was to sell puts until assigned and then sell covered calls until they were called away.  As you can see below, that is pretty much the way it played out.  My results weren’t as good as I’d hoped as my overall objective is to average 1%/month or 12% annualized in my trades.

My ROIC was around 10%.  I might have done better had I been a little more aggressive at the beginning.  You’ll notice I didn’t have any open trades between late December 2010 and mid February 2011.  I also might have improved my results some if I had kept a closer watch on my puts and not have let them get so far ITM before rolling.  Not doing so resulted in having the stock put to me early and then I had to wait for several weeks before I could begin selling calls against the position.

Here’s a chart of CSCO for the period covered.

I plan to initiiate a new trade in CSCO very soon.  Currently, I’m considering the DEC $16 puts.  I’d be interested in selling them if the market continues to drop and I can get at least $0.16 for them.

Regards,

Troy

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Deep OTM NP Strategy – NOV Exp Results

Posted by mounddweller on November 21, 2011

Fellow Traders,

As promised I have the results of the Deep OTM NP Strategy for the NOV expiration period.  During the NOV trading period the selection criteria presented us with 424 possible trades.  Executing all 424 of these trades using the capital allocation rules provided here: https://troysmoneytree.wordpress.com/trading-plan/ would have required a total of $3,246,250.  This would have generated premiums, net of commissions, totalling $63,630.70.  This gives us a gross premium ROIC of 1.96% or 26.5% annualized.

However, this trading period we also experienced a fair number of trades that finished ITM, 38 to be exact.  Subtracting 38 from 424 gives us a ‘win’ percentage of 91.04%.  Capital losses (assuming all positions were held to expiration) would have been $29,780.70.  This gives us a net return of $33,850.00.  This equates to a 1.04% ROIC (14.1% annualized).

November results trailed slightly behind those recorded in September and October.  However, they were far better than the dismal results the strategy returned in August.

During the November trading period I highlighted 11 trades as being ones that I thought were particularly appealing.  10 of the 11 finished OTM giving me a success rate of 90.9%; almost exactly the same as the overall strategy.  Maybe I should hire a monkey to throw darts at the selections (ha ha)!

Happy Thanksgiving.

Regards,

Troy

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Deep OTM NP Strategy – DEC Wk 4

Posted by mounddweller on November 20, 2011

Fellow Traders,

There are 186 selections which meet our Week 4 criteria (> 17.5% DSP, PF > 2.0).  Of these I found two, Coinstar (CSTR) and Radioshack (RSH) that might be worth a deeper look.  You can see the entire list here: http://finance.groups.yahoo.com/group/CoveredCalls-NakedPuts_OptionStrategies/files/.

Let’s take a look at Coinstar.  Coinstar provides automated retail solutions primarily in the United States, Canada, Puerto Rico, the United Kingdom, and Ireland. The company’s core automated retail businesses include the ‘redbox’ self-service DVD rental; and Coinstar self-service coin-counting brands.   The company was founded in 1991 and is headquartered in Bellevue, Washington.

Coinstar has decent fundamentals.  It trades at 11.2x forecasted earnings, has a 12% operating margin, and generates an impressive 22.5% ROE.  The company carries about $123M in net debt but this is easily covered by the $229 in free cash flow.

What caught my eye about this trade is the solid line of support CSTR has around the $40 mark.  The put option we’re interested in has a strike price of $35.  Now there are no guarantees CSTR can stay above $40 the next time it gets down there but historical results are in our favor.

Next up let’s look at Radioshack (RSH).  RadioShack Corporation engages in the retail sale of consumer electronic goods and services through its RadioShack store chain and kiosk operations.  RadioShack Corporation was founded in 1899 and is based in Fort Worth, Texas.  Did you catch that?  Radioshack existed long before electronics were even invented!  That tells me they know how to reinvent themselves as their primary market evolves over time.

Like CSTR, RSH has decent fundamentals.  It trades at 8.6x forecasted earnings and 1.5x book value.  It has an almost equal amount of cash and debt and generates strong free cash flow.  So much so that it recently announced that it was doubling its annual dividend to $0.50.  At the same time it also announced a $200M stock buy-back.

I like this trade because our chosen strike price of $10 is below the 52-wk low of $10.68.  I also like it because at that price I would own a company that’s been around for over 100 years and it would pay me a 5% dividend yield.

Well, there you have it.  That’s all I’ve got time for this weekend.  I’ll be back later this week to let you know how are November results turned out for the Deep OTM NP Strategy.

Regards,

Troy

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Weekly NP Strategy – NOV 25 Expiration

Posted by mounddweller on November 17, 2011

Fellow Traders,

Our selection criteria this week produced a list of 117 possible trades.  Of these I found three that I like.

AA has appeared on our weekly list previously.  I like it at $9.  AA has a 52-wk hi/low range of $18.47 to $8.45.  While it went substantially lower during the 2008/9 financial crisis I think we’re not going to get back to those levels in the next week.

Next up is MRVL.  Today it announced that flooding in Thailand had hurt demand for its hard-drive controllers.  Consequently the stock sold off even harder than the overall market.  MRVL was down over 6% today.  Like AA, MRVL it trading much closer to its 52-wk low ($11.23) than it is its 52-wk high ($22.01).  MRVL has a rock solid balance sheet.  It has $3.96/share in cash and ZERO debt.  The $12 strike looks like a good NP trade.

Last we have Silver Wheaton (SLW).  SLW has appeared on our list many times.  It is rather volatile.  However, the $28 strike seems like a good bet to me.  The $28 strike is about 10% above its 52-wk low of $25.84.

I have posted the spreadsheet containing the entire list of possible trades out on the Weekly Options group board.  You can find it here: http://finance.groups.yahoo.com/group/weeklyoptions/files/.

Regards,

Troy

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Weekly NP Strategy – NOV 11 Exp. Results

Posted by mounddweller on November 12, 2011

Fellow Traders,

You’ll recall last week I highlighted 5 of the 142 trades which met our NP Strategy selection criteria.  Below are the ticker symbols, strike prices, and yesterday’s closing price for each of the 5 trades.

AA  $10.00  $10.60

CSCO $17.00  $19.02

FCX  $36.00  $39.86

HPQ  $25.00  $27.58

WMB  $29.00  $31.34

As you can see all 5 of the trades I selected finished OTM.  Thus far since I started sharing my Weekly NP Strategy selections I don’t think a single one of my highlighted trades has finished ITM.  Now if I could only feel as confident as my record suggests I should.  I find it very hard to enter these positions.  I always find something to use to talk myself out of making the trade.

I hope everyone has a great week.  I want to let everyone know I’ve decided not to run the Weekly NP Strategy on the week before option expiration each month.  There are no true weekly options this week.  They simply are the regular options which expire on Saturday.

Regards,

Troy

 

 

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Deep OTM NP Strategy – NOV Week 1

Posted by mounddweller on November 12, 2011

Fellow Traders,

Below are the selections which meet the criteria for Week 1 of our Deep OTM NP Strategy.  For newer readers and others who may have forgotten let me remind you that our Week 1 criteria is simply NPs with at least 10% down side protection (DSP) and a Put Factor (PF) of at least 2.0 or higher.

As you can see, as is usually the case this late in the monthly expiration calendar, it is pretty slim pickings.  So much so that I couldn’t find a single one that I would be comfortable owning.  What held me back from highlighting any of these as a possible trade is the fact that all of them except SIRI all report earnings this week.

If I had to choose at least one I think I would go with NTAP.  Networking stocks have done relatively well in the 3rd quarter.  Thus, odds would be in our favor that NTAP will at least match earnings expectations.  Also, NTAP has the strongest balance sheet of the stocks on our list.  It has a net cash position (cash net of debt) of $9.36 / share.

Well, that’s all I have to report for this week.  Best of luck to everone in the final week before expiration.

Regards,

Troy

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