New NP Trade – VXX

Fellow Traders,

I am sticking my big toe into the water and trading NPs on VXX.  The VIX is very low right now and a lot of market indicators are flashing overbought.  Thus, I think we could see increased volatility in the near future.  Increased volatility will drive both the VIX and its proxy VXX higher.  Now, in my opinion is a good time to sell puts on this ETN. Here’s the trade I just made:

Action Quantity                 Symbol                        Unit Price             Principal Amount

Sold           5          VXX 03/17/2012 22.00 P         $0.50                         $250.00

The most recent low for VXX is $23.67.  My strike price of $22 is well under this low.

Regards,

Troy

New Trade – PEP

Fellow Traders,

Earlier this week, Wednesday to be exact, I entered a NP trade on a stock I previously had never traded.  Here’s the trade I executed:

STO 2 MAR PEP $62.50 puts at $0.80.

At the time Pepsi (PEP) was trading around $63.40.  Since then it has continued to fall.  It closed Friday at $62.68.  So why did I decide to trade PEP?  Well, quite honestly because I wasn’t finding much else on my normal watch list that I liked.  So, given the recent steep drop in PEP since they announced lackluster earnings, I decided they were looking oversold and were due for a bounce.  Thus far, it looks like my logic was faulty and they may have further to fall.  However, that’s the beauty of trading large-cap, blue-chip companies.  You can be wrong in the short-term but still come out looking like a genius in the long-term.

If PEP does not bounce before MAR expiration I will have a decision to make, either let the stock be put to me at $62.50 or roll out the MAR puts to APR or maybe even JUN.

If I take assignment at a net cost of $61.70 I will be earning about 3.4% in dividends.  PEP has a good history of growing its dividend.  In the past five years it has grown from $0.30/quarter to $0.515/quarter.  That’s a compound growth rate of about 14%/year.

If I roll out a month or two my objective would be to earn 1%/month in put premiums.  If volatility stays low that may be difficult.  If volatility picks up it should be very achievable.

Regards,

Troy

 

Weekly Put Option Strategy – 02/24 Expiration

Fellow Traders,

This week 73 trades met our Weekly NP Strategy selection criteria.  A spreadsheet containing all 73 possible trades can be found here: http://finance.groups.yahoo.com/group/CoveredCalls-NakedPuts_OptionStrategies/files/.

Of the 73 possible trades I ran across two that I would be interested in looking into further.

(1) Alpha Natural Resources $19 strike price on stock that closed today at $20.90.  Premium is $0.23.  ANR reports quarterly earnings before the bell on expiration day, 2/24.  Seems to me all of the bad news may already be priced into this stock.  Thus, even with a poor earnings announcement it might not fall much further, or it could actually rise on bad news.

(2) Petroleo Brasil SA Petrobras (PBR).  As you know I just got out of a multi-month position in PBR.  So why would I want to reenter it?  Well, mainly because it has come down a little bit off its recent highs of around $32 despite oil going up.  Today it closed at $29.34.  The $28 put trades at $0.16.  I think PBR has some support at $28 so this might not too risky a trade.

Check out the 71 other trades.  Let me know if you see one you like.  There are several well-known large-caps on the list this week.  Most, if not all, report earnings in the coming week.

Regards,

Troy

 

 

Dividend Superstars – Potential New Trade – WAG

Fellow Traders,

Yesterday I set out to write a post on four possible trades from my dividend supertars list.  Unfortunately, I ran out of time and didn’t get anything posted.  So, this evening I’m taking a slightly different approach.  I’m going to attempt to finish a post on one of them.  If I get it finished then I’ll start another post with my next selection.

As you can see from the title my potential trade involves Walgreens (WAG).  This is a stock I’ve been following for a couple months now.  As a matter of fact I already have an open trade in WAG.  Specifically, I’m short 4 FEB $30 puts.

This new trade is a bit different than any others I have written about previously.  It is different in that in addition to doing a rather ordinary buy/write trade I am also going to buy a protective put.   A protective put allows me to buy insurance for a decline in the price of WAG.

Let’s look at the specifics of the trade I’d like to execute.

As I mentioned above this trade involves a buy/write.  Specifically, I would like to buy 400 shares of WAG at today’s closing price of $34.28 and at the same time sell to open (STO) 4 MAR $34 Calls at $1.17.  Then, I would like to buy to open (BTO) 4 MAR $31 puts at $0.21.

This trade has many possible outcomes, two of which I’ve included in my spreadsheet above.  First, if the calls are assigned at $34 at expiration on March 16 I will have earned $250.30 or 1.82% ROIC.  Second, if the calls expire OTM and worthless I will have earned $379.20 or 2.76% ROIC.  Both of these scenarios give me a return greater than my desired minimum of 12-15% per annum.

My net cost (or break-even point) in this trade is $33.35.  Having purchased the put at the $31 strike price means my theoretical maximum loss is $2.35/share or $940.  This equates to 6.85% of my invested capital.

My plan if WAG declines by March 16 would be to sell to close (STC) the puts prior to expiration and and use the proceeds to lower my cost basis.  Then, I would sell another round of covered calls.  The decision to purchase additional put protection would be dependent on how the overall market was acting.

If you would like more information about Walgreens, I have written about it before.  You can read it here: https://troysmoneytree.wordpress.com/2012/01/14/new-trade-wag/.

As I mentioned at the beginning of my post I have a few other trades I am considering.  These also involve executing buy/writes with a protective put.  Stocks I’m interested in are AVP, BBY, and CHRW.

Regards,

Troy

 

 

What Others are Trading – FEB 2012

Fellow Traders,

Sorry, I am a couple days late getting this posted.  Let everyone know what you’re trading.

Regards,

Troy

 

Weekly NP Strategy – FEB 10 Exp.

Fellow Traders,

I have posted the screener results for the Weekly NP Strategy here: http://finance.groups.yahoo.com/group/weeklyoptions/files/.  There were 65 trades meeting the selection criteria this week.  Unfortunately none of them appealed to me.  However, since we all have different objectives and risk tolerances they are there for you to check out.

I really stepped in it with my pick of ANF last week.  The company pre-announced an earnings short-fall today and the stock fell hard, dropping $6.73 to $40.40.  That is well below the $44 strike price which showed up in our screener results last week.

Folks who placed this trade now have 3 choices:

(1) BTC at a loss and walk away knowing you can’t win every trade, or

(2) Roll-out the puts to the regular MAR expiration or another month even further out.  Today, the FEB03 $44 puts closed at $3.60 and the MAR $44 puts were at $4.65.  This would give you about $1 net credit, about 2.25% for a month.

(3) Accept assignment and sell OTM calls at the $44 strike price.  The MAR $44 calls are at $0.88 bid.  The MAY $44 calls are at $2.13 bid.

I’m not very fond of #1.  ANF is a good company and will eventually recover.  I would select either #2 or #3.

Regards,

Troy