The Money Tree

Safely Generating Income in Retirement

Weekly NP Strategy – MAR30 Expiration

Posted by mounddweller on March 22, 2012

Fellow Traders,

The Weekly NP Strategy has 42 possible trades this week.  As usual you can find them here on the Yahoo group board: http://finance.groups.yahoo.com/group/CoveredCalls-NakedPuts_OptionStrategies/files/.

Out of the 42 possibilities I found three that I liked.  First up is Mosaic Company (MOS).  The Mosaic Company engages in the production and marketing of concentrated phosphate- and potash-based crop nutrients for the agriculture industry worldwide.  MOS closed today at $56.27.  The strike price of the put we’re interested in is $52.50.   While this is somewhat higher than its 52-wk low of $44.86 I still like the trade.  Here’s why, looking at the one year chart it appears that MOS has support at $55.  It has bounced off of this level multiple times in both February and March.  The premium on the MAR30 $52.50 put is $0.27 giving a ROIC of 0.51% for the 8-day holding period.

The next two trades that interested me are in the same stock, Research in Motion (RIMM).  Research In Motion Limited (RIM) designs, manufactures, and markets wireless solutions for the worldwide mobile communications market.  I’m sure most of you are aware that RIMM has been taken to the cleaners by Apple and the iPhone.  As a matter of fact I just saw a headline today that iPhone sales had overtaken Blackberry in its home country of Canada.

So, why would I consider a trade in RIMM.  Well, primarily because both of the strike prices I’m interested in ($11 and $12) are below the lows encountered late last year when everyone was trying to get out of RIMM as fast as possible.   Back on December 20th RIMM closed at $12.52.  It retested those lows earlier this month closing at $12.90 on March 7th.

The $12 strike price has a premium of $0.25 indicating a potential ROIC of 2.08%.  The $11 strike price has a premium of $0.11.  Yield is an even 1.00%.

Both RIMM and MOS are debt free and trade at reasonable multiples to current and prospective earnings.  RIMM is especially cheap trading at < 4x current earnings and just over 4x prospective earnings.

That’s it for this week.  Best of luck trading in the coming weeks.  Be safe…it could be a bumpy ride for awhile.

Regards,

Troy

 

2 Responses to “Weekly NP Strategy – MAR30 Expiration”

  1. Len Petry said

    Troy:

    1) Do you comb through all the stocks on your weekly NP list? Really?! Each one?

    Have you found a shorter way to assess each stock?

    2) I think you generate the weekly list from http://www.mtrig.com, right? Can you assume that they have vetted each stock, and all you have to do is identify the better options opportunities, or do you need to weed out some poor stocks too ? I ask this because I subscribed to a dividend/option stock service, and some of the stocks they recommend are truly awful. I think they are going after yield, at the expense of common sense.

    3) I read your trading plan, and note that when you are put a stock, you sell as soon as you can. But if the put holder put the stock to you, it would be because the stock is trading below the put strike. So, you would be taking a capital loss on the sale.

    Why not instead write a covered call with strike price the same as the strike of the put you sold? That way you might make cc premium a bit more than your capital loss, or at least the cc premium reduces your capital loss. And, if the stock does in fact recover and it is called away from you, you negate the capital loss.

    4) I am trying to master the Visions software, but it is not fun. Is it worth it, or just use the Scout?

    Thanks.

    ALways something to learn.

    • mounddweller said

      Len,

      I must admit my initial pass through the Weekly NP Strategy list is very quick. After running the query on http://www.mtrig.com and downloading the results into a spreadsheet I visually scan the list looking for names I’ve previously traded or blue-chip names that I’d be comfortable trading. In visually scanning the list I automatically eliminate any biotech or financial services companies from further consideration.

      One other thing I want to clear up is that there is no vetting process done by the screener at http://www.mtrig.com. It is simply a mechanical screener. You input the criteria, it returns the trades fitting those criteria.

      Now, you also asked a question about my trading plan. My trading plan is more like a guideline. I often do sell covered calls after having a position put to me. It just depends on what I think the future prospects are for that particular company. If it’s a company that looks like it has the potential to bounce or I’m comfortable holding it for an extended period of time, then I’ll sell covered calls. If, on the other hand, I have to admit I made a mistake, I look to sell it immediately and not compound my mistakes.

      Regards,
      Troy

      PS. Visions is not very intuitive. It takes a long time to figure out all the ‘bells and whistles’ it offers. I primarily use Scout and also run scans with Visions using my own watch lists.

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