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Archive for June 1st, 2012

What Others are Trading – June 2012

Posted by mounddweller on June 1, 2012

Fellow Traders,

We started this month off with a bang.  What looks good to you?  What have you recently traded?  What’s on your watch list?  Post a comment to this message and let us know.

Regards,

Troy

 

 

 

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New Trade – AMAT

Posted by mounddweller on June 1, 2012

Fellow Traders,

Yes, believe it or not I actually executed more than one trade in a single day.  Hard to believe, I know.  Anyway, you’ll recall in my post last week that I mentioned that AMAT was approaching a price point at which I was interested in owning shares.  I like AMAT at $10 or less.  Thus, with the big sell-off in the overall market today and the corresponding increase in volatility I took the opportunity to sell puts on AMAT.  Here are the specifics of my trade:

STO 10 AMAT JAN13 $10 puts at $1.16.  This gives me a 11.6% ROIC with 232 days to expiration.  Annualized that equates to 18.25%.  Given that I executed the trade with AMAT trading at $10.10 my only down-side protection is the premium I received.  However, given that I want to own AMAT long-term and think $10 is a fair price I’m not worried about down-side protection.

You’ll recall I executed a similar trade late last year.  Back in December I sold 5 JAN13 $10 puts for $1.57.  The market rebounded sharply shortly thereafter and I was able to buy them back for only $0.75.  If you take the premium I received from that trade and add it to the premium I received on my most recent trade you’ll find that if I have the stock put to me at $10 my true net cost will be $8,465 or $8.47/share.   This compares very favorably to the 5-year low of $8.35 which occurred back on November 17, 2008.

Note: observant readers may have noticed a discrepancy between the per share net cost I quoted in this post vs. the value I posted last week.  The number I posted last week was off slightly because I calculated it assuming I had traded 10 puts.  In actuality my trade back in December was only 5 puts.

So, why do I like Applied Materials?  Well, first let’s look at the fundamentals.  AMAT trades at 9.88x trailing and 8.63x forward earnings.  It has about $220M in net cash on the balance sheet and generated $1.15B in free cash flow over the past 12 months.  It also pays a quarterly dividend of $0.09/share.   AMAT has increased that dividend by 50% over the past 5 years.  At my net cost of $8.47 the dividend yield will be 4.25%.  Not bad for a high-tech, growth stock.

The 5-year chart is below.  You can see the stock has support at $10 but if it doesn’t hold my net cost compares favorably with the multi-year lows from 2008.

Well, there you have it.  I’ll be back later this weekend with another post about other opportunities I’m keeping an eye on.

Regards,

Troy

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New Trade – GME

Posted by mounddweller on June 1, 2012

Fellow Traders,

Wow!  Volatility has returned has it not?  The bad job creation numbers released today by Uncle Sam gave Mr. Market an excuse to sell-off in a big way.  However, that’s not the reason for me writing this post.  Rather, I want to tell you about a trade I placed earlier today.

Today I entered a new trade in an old favorite of mine, Gamestop (GME).  Long-time readers of my blog will recall that I have successfully traded GME several times over the past few years.  Let me briefly give you the specifics of my trade then I’ll explain why I did it.

Here’s my trade: STO 6 GME JUN $18 puts at $0.27.   That’s a 1.5% ROIC with just 15 days to expiration and 7.7% DSP.

So why did I do this trade?  Well, first let’s look at Gamestop’s fundamentals.   It has a trailing P/E of 8.02 and a forward P/E of 5.68.  It is trading at 85% of it’s book value ($22.57).  GME has zero debt and $2.49/share of cash sitting on the balance sheet.  And last, but not least it pays an annual dividend of $0.60/share (3.1% at todays closing price).

Now, let’s take a look at the technical side of the equation.  The 52-wk low is $18.13 which was hit just a couple weeks ago on May 18.  The 5-yr low occurred back on February 22, 2010 at $17.20.  Below is a 3 year chart.  You can see GME has strong support at $18.  It has bounced off of this level several times.

I’ll wrap up my post by saying I believe Gamestop is a solid company with good future business prospects.  I would be happy to own it at $18.

Regards,

Troy

Posted in Troy's New Picks! | Tagged: , | 1 Comment »