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Archive for August, 2012

New Trade – Another Round of GME

Posted by mounddweller on August 20, 2012

Fellow Traders,

My apologies for the sparcity of postings of late.  I’ll try to do better in the coming weeks.

Today I’d like to tell you about my most recent trade in GME.  However, before I do that I need to update you on the results of my previous GME trade.  You’ll recall I originally entered this trade back on June 1st by selling 6 JUN $18 puts.  The details are posted here: https://troysmoneytree.wordpress.com/2012/06/01/new-trade-gme/.  GME ended up moving against me and I had to work to manage myself back into a profitable position.  My interim trades are discussed here: https://troysmoneytree.wordpress.com/2012/07/25/trade-update-gme/.   This past weekend my AUG $17 calls were called away and I ended up making 2.43% over 80 days which annualized comes out to just over 11%.  Not great but not bad either.

So, now let’s discuss my new trade.  I did a buy/write.  I bought 500 shares of GME at $18.59 and sold 5 SEP $18 calls at $1.08.  Why was I so interested in getting right back into GME after having to work to get myself out of it?  Well, primarily I saw the opportunity to capture a good call premium while at the same time setting myself up to capture GME’s next dividend.

GME recently announced they were raising their quarterly dividend to $0.25/share.  The stock goes ex-dividend on 8/28 so you still have time to enter a trade if you’re interested.

With the $0.25 dividend, assuming I am called away at $18 next month my ROIC will be 3.98%.  If I get called away before the stock goes ex-dividend my ROIC will be 2.64% in about 8 days.  Either way I like the trade.

Now, I know a lot of people have concerns about the long-term prospects of GME.  People see it going the way of Blockbuster.  However, I see it differently.  I don’t think the video game industry is going away.  I just think they’re in a lull right now.  There haven’t been any new gaming platforms released in the past couple of years.  Once the next release of Xbox or Wii comes out we’ll be off to the races again.

GME is well managed.  They have no debt, signifcant cash on their balance sheet, and are buying back shares at great prices.  I will continue to buy and trade GME when they slip under $20/share.

Regards,

Troy

 

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