The Money Tree

Safely Generating Income in Retirement

Archive for November, 2011

New Trades – Part Two

Posted by mounddweller on November 11, 2011

Fellow Traders,

Let’s get right to it.  Yesterday, I told you I recently entered 4 new trades and discussed one of them, Waste Management, with you.  In this post I’m going to tell you about my other three trades, one with Cameco (CCJ) and two with the Royal Bank of Canada (RY).

First, let’s look at Cameco Corporation (CCJ).  Cameco Corporation operates as a uranium producer, supplier of conversion services, and fuel manufacturer.  The company was founded in 1987 and is headquartered in Saskatoon, Canada.  This is not the first time I have traded CCJ.  I sold puts on CCJ back in March of this year.  You can read about that trade here:

Here’s my most recent trade.  On November 9th I sold 5 DEC $16 puts at $0.25.  At the time CCJ was trading at $19.44. Thus the $16 strike gave me 17.7% of DSP.  My ROIC, net of commissions on this trade is 1.43% with 38 days to expiration.  Annualized my return is 13.69%.  This is slightly under the 15% targeted return I referenced in my message yesterday but is still far better than money market or bank CD is paying.

Let’s look at the chart for CCJ and see why this trade caught my eye.

As you can see the price chart for CCJ is similar in many respects to that of WM which we discussed yesterday.  CCJ hit a 52-wk high of $44.81 back in February and then fell precipitously after the earthquake and tsunami in Japan.  Last month it hit bottom with a 52-wk low of $16.68.  It then bounced back up to around $23 before retreating again.  Yesterday, it closed at $19.38.

Here’s why I like this trade.  I think CCJ is oversold due to fallout from the Japanese earthquake.  CCJ mines uranium.  Nuclear power is not going the way of the dodo bird.  It will be around for a long time.  As a matter of fact CCJ is so confident of this it plans to double production by 2018.  If I have CCJ put to me at $16 I will own it below the current 52-wk low and very near the 2008 market lows.  It pays a modest dividend that has been steadily increasing for years.  CCJ currently yields 2%.  At my $16 strike it will have a dividend yield of 2.4%.  Not great, but again higher than short-term bond yields.

Last, but certainly not least, I’d like to tell you about my two recent trades in the Royal Bank of Canada (RY).  I have had my eye on RY for several months now.  RY is a favorite of my friend Teddi over at  Teddi has written about RY many times.  One of her most recent postings can be found here:

As I mentioned I have entered two separte trades on RY.  First, on November 1st I sold 2 NOV $45 puts at $0.80.  With 18 days to expiration net of commissions my ROIC is 1.68%.  Annualized that comes out to a return of 33.99%.  Then, with the stock continuing to exhibit further weakness, on November 9th I sold 2 DEC $40 puts at $0.75.  My ROIC, net of commissions, on this trade is 1.76% (16.91% annualized).

Looking at the chart you can see why I like these trades.  RY is a blue-chip Canadian bank.  It has fallen significantly due to the sovereign debt crisis in Europe.  However, todate there has been no indication that they have much exposure to this problem.  The stock is trading at 2 year lows.  Does that mean it can’t fall further.  No, certainly not.  During the financial crisis in 2008/2009 it did fall much lower.  However, what is important to note is that it quickly rebounded.

RY is a slightly different trade from my normal NP trades in that I want to own RY long-term.  It pays a large ($2.15 / 4.70%)and increasing dividend.   I would eventually like to own several hundred shares against which I can collect dividends and sell covered calls.  My strategy with RY will be very similar to that of my position in Exelon (EXC).

Well, that’s all I’ve got time for this time around.  I hope you will take time to do your own DD on these trades.  I especially like the WM and RY trades.  You may find them suitable for your trading portfolio as well.




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New Trades

Posted by mounddweller on November 10, 2011

Fellow Traders,

I’ve fallen behind in updating you on some of my trades.  So, without further delay I’d like to tell you about a couple trades I made last week and another couple I made earlier this week.

First up is Waste Management (WM).  WM has been on my radar screen for a few weeks now.  I’ve had considerable success in the past selling puts on large-caps which are currently out of favor on Wall Street.  I think WM is a similar opportunity.  Let’s take a look at the price chart and you’ll see what I mean.

After hitting a 52-wk high of almost $40 back on May 2nd WM fell sharply and subsequently hit a 52-wk low of $27.75 on August 9th.  Since then WM has rebounded to as high as $35 before falling back.  Today it closed at $31.16.  Last Tuesday, November 1st, I sold 4 NOV $28 puts at $0.25.  At the time I placed my trade WM was priced at $31.72.

I felt comfortable placing this trade for several reasons.  First, my strike price of $28 was very near the $52 wk low.  Also, its financial crisis low in March of 2009 was $23.26.  Second, WM has a dividend of $1.36 / share.   If I were to have WM put to me at $28 my dividend yield would be 4.86%.  Over the past 5 years WM has increased its dividend by 55%.   Third, my ROIC, net of commissions, is 0.8% with an 18 day holding period and 11.7% DSP.  Annualized my ROIC is 16.23%.

For these kinds of trades I like to have an annualized return greater than 15%.  Why 15%?  Because at 15% you’re doubling your money every 5 years.

OK, I’ve ran out of time tonight before I’ve been able to tell you about my other 3 trades.  I’ll by back tomorrow with another post to tell you about RY (two trades) and CCJ.



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Deep OTM NP Strategy – NOV Week 2

Posted by mounddweller on November 5, 2011

Fellow Traders,

Below is the list of selections meeting our Week 2 criteria.  As you can see the list is fairly short, containing only 17 entries.

As you can see I only found two that I feel are worthy of your further consideration.  Before I tell you any more about either of them I must warn you that both are scheduled to release 3rd quarter earnings in the coming week.

First up let’s look at Autodesk (ADSK).  Autodesk, Inc. provides design software and service solutions to customers in architecture, engineering, and construction; manufacturing; and digital media and entertainment industries. It operates in four segments: Platform Solutions and Emerging Business (PSEB); Architecture, Engineering, and Construction (AEC); Manufacturing (MFG); and Media and Entertainment (M&E).  It was founded in 1982 and is headquartered in San Rafael, California.

ADSK has an excellent balance sheet.  It has over $1.37B in cash (over $6/share) and ZERO debt.  As you can see in the below chart ADSK fell over the summer, bottoming out in mid August at around $24.  Since then it has recovered, steadily increasing to it Friday closing price of $35.02  Our selected trade is at the $31 strike price giving us 12.68% DSP.  The $0.42 premium gives a 1.35% ROIC.

Next, let’s take a look at WMS Industries (WMS).  WMS Industries Inc., through its subsidiaries, engages in the design, manufacture, and distribution of games, video and mechanical reel-spinning gaming machines, and video lottery terminals (VLTs) for the legalized gaming industry worldwide. The company provides video gaming machines and mechanical reel gaming machines under the Bluebird, Bluebird2, Bluebird xD, Twinstar, and Helios brands. The company, formerly known as Williams Electronics, Inc., was founded in 1943
and is headquartered in Waukegan, Illinois.

WMS like ADSK has an excellent balance sheet.  It has $90M in cash with ZERO debt.  WMS has been falling all year long.  It finally appears to have found a bottom on October 3rd when it closed at $16.53.  In the past month it as risen steadily closing Friday at $22.54.  Our selected trade is at the $20 strike price giving us 13.04% DSP.  The $0.40 premium gives a 2.00% ROIC.

Well, that’s it for this week.  Please remember what I said earlier.  Both ADSK and WMS report earnings this week.  If either misses expectations they could fall significantly.



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What Others are Trading – NOV 2011

Posted by mounddweller on November 4, 2011

Fellow Traders,

Each month I create a message on my blog for my readers to post their favorite trades.  I’m a few days late this month but here you go.  What have you been successfully trading these past few weeks?  What looks good to you right now?  Let your voice be heard.  Post your replies here.




Posted in Your Picks | 3 Comments »

Weekly NP Strategy – NOV 4 Exp.

Posted by mounddweller on November 4, 2011

Fellow Traders,

A quick post to update you on the one trade I recommended last week for our Weekly NP Strategy.  You’ll recall out of the 127 selections offered by our screening criteria only 1 was of interest to me.  That was the Newmont Mining (NEM) $60 put.  At the time of selection NEM was trading at $66.06 and the NOV4 $60 put was at $0.30 bid.

Today NEM closed at $69.38.  Thus our $60 put finished well OTM.  This trade gave us a gross (before commissions) ROIC of 0.5% with an 8 day holding period.  Annualized our ROIC is 22.81%.

I’ll be back later this weekend with a new round of possible trades from our other naked put trading strategy, the Deep OTM NP Strategy.  We’ll be looking at the regular monthly puts with a November 19 expiration.




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Weekly NP Strategy – Nov 11 Exp

Posted by mounddweller on November 3, 2011

Fellow Traders,

Below you’ll find my 5 choices from our list of 142 possible trades.  I will post the complete list out on the Yahoo Weekly Options group board.  You can link to it here:

Alcoa, Freeport McMoran, and Williams have already announced earnings.  Cisco announces earnings next week, thus that is why the premium on the $17 strike is so high.  Followers of CSCO know that its past several earnings releases have resulted in significant price drops.  However, I think this time CSCO may have positive news to report.  I have nothing substantive to base my opinion on, just a gut feel.  Take it for what its worth.

Hewlett Packard doesn’t report earnings until November 21st.  I think it will trend upward until then.  The stock has been so beaten down that even if is put to you at $25.00 you would be buying it very near its recent lows.

Well, that’s all I’ve got time for this week.  Best of luck to everyone.




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