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Archive for September, 2012

New Trade – WAG

Posted by mounddweller on September 30, 2012

Fellow Traders,

As I mentioned in my earlier post, I made two trades this week.  The first was a naked put trade in WM.  The second was a covered call trade in Walgreens (WAG).  I have been following WAG for pretty much all of 2012.  Back in February and again in July I had sold puts at the $30 strike price.  Both expired out of the money (OTM).

Walgreens has had a difficult year.  Their business took a substantial hit when they were not able to mutually agree on terms of their contract with Express Scripts.  However, a few months apart has since convinced both companies that they are better off working together.  Consequently a new contract has been signed and went into effect earlier this month.

WAG closed Friday at $36.44, very near it’s 52-wk high of $36.90.  It’s 52-wk low is $28.53.  Normally I do not like to buy or trade stocks that are trading near their 52-wk highs.  I’m cheap and thus am almost always looking for a bargain.  However, in this case, I believe WAG is a bargain despite trading near yearly highs.  Why?  Well because of the difficulties I referenced earlier.    The stock has been beaten down all year and now that investors have a more favorable outlook its price has begun to recover.  Despite this recovery it remains well below its multi-year high of $45.  It also is reasonably priced at 12.5x trailing and 10.5x expected earnings.  The 5-yr price chart is below.

There are a couple of reasons that I decided to go ahead and enter a covered call trade in WAG.  First, its another stock that I want to own in my long-term portfolio.  Amazingly, it has increased its dividend almost 200% in the past five years, from 9.5c to 27.5c per quarter.  It currently yields 3.1%.  With the baby-boomers (of which I’m one) beginning to retire in droves, I believe the substantial dividend increases are sustainable .  Second, I liked the recent price action in the stock.  It has formed a classic ‘cup with handle’ formation that generally results in an upward break-out in price.

Here’s the trade I made and my intermediate term plan for this stock.  I bought 300 shares of WAG at $35.86 and simultaneously (buy/write) sold 3 OCT $37 calls at $0.46.  This gives me a net cost of $35.42.  If assigned at expiration, I’ll have a 4.46% ROIC with a holding period of less than 30 days.  If WAG remains under $37, I’ll be in a position to capture the upcoming dividend when it goes ex-dividend around November 9.   After OCT expiration I may sell another OTM round of calls.  If WAG begins to fall, I’ll look to add to my position by selling puts at the $32 strike price.



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New Trade – WM

Posted by mounddweller on September 30, 2012

Fellow Traders,

I executed a couple new trades this week.  First up let’s talk about Waste Management (WM).  As you probably know WM is the largest waste hauler and recycling company in North America.

I have been keeping an eye on WM for quite some time as I would like to add some shares to my long-term holding portfolio.  What I like about it from that perspective is (1) it’s market leader position, (2) it’s sizeable and growing dividend, and (3) it’s a ‘can’t live without it’ service.  It’s a market leader in that it is over 50% larger than it’s nearest competitor, Republic Service Group.  It’s dividend of $1.42 has grown almost 50% in the past five years.  With Friday’s closing price of $32.08, that’s a yield of 4.42%.  Last, but not least, it operates in an industry we can’t live without.  Everyday, in every household in the country, we generate a large amount of garbage which must be desposed of.    Waste Management does a great job of fulfilling that basic need.  Better yet, they take our trash and turn it into cash by recycling commodities and generating energy from our decomposing garbage.

Lately WM has been trending down and is now trading at support around $32.  It’s 52-wk high is $36.35 and the low is $29.77.  I think $32 is a fair price at which to begin accumulating shares so earlier this week I sold to open (STO) 3 OCT $32 puts at $0.40.  My plan is to sell 3 more puts at the $30 strike if it fails to hold at the $32 support.  I’ll sell another 3 at the $28 strike if the weakness persists.

One final note, I traded WM twice late last year, selling puts at the $28 strike price without having them put to me.  If they get that low again, I will be a buyer.



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Update – INTC

Posted by mounddweller on September 20, 2012

Fellow Traders,

I decided to roll-out my 5 INTC SEP $24 puts today to avoid assignment.  I looked at a couple different options (ha ha).

First I considered rolling out to DEC and down to the $23 strike price.  At the time the net credit was listed as $0.19.  That was a bit less than I was willing to take so I put in an order for $0.22 or better.  The primary benefit I saw in this trade was being able to lower my strike price while securing a net credit.  The downside was I had to go out to DEC to achieve it.

The other option I considered was the OCT $24 put where the net credit was listed as $0.22.  With this choice I got about the same amount of money but in about one-third the amount of time.

With these two choices in mind I looked at the following chart:

After looking at this chart which option would you pick?  I was leaning heavily toward the first one which I felt would leave me with a very good chance of avoiding assignment.  I felt sure with the decrease in the strike price I would have an opportunity to buy back the put on a rally in INTC or have it expire worthless.

However, the second option finally won out.  I decided that after having already sold two rounds of puts at the $24 strike I could sell one more with an OCT expiration and if INTC is below $24 at expiration I could accept having INTC put to me and position myself to receive the $0.225 dividend in early November.

So, here’s the trade I made.  I put in a trade to BTC 5 INTC SEP $24 and STO 5 INTC OCT $24 puts at $0.24 net credit or better.  It was filled late in the trading day.



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New Trade – INTC

Posted by mounddweller on September 10, 2012

Fellow Traders,

Been awhile (again) since my last post.  Wanted to tell you a little about my latest trade today in INTC.  Today, I used the big 3% drop to sell naked puts (NP) at the next area of visible support, which in my view is at $22.  At the time of my trade INTC was trading at $23.34.  Here are the specifics of my trade:

STO 5 INTC OCT $22 puts at $0.30

This gives me a 1.36% ROIC with 40 days to expiration.

Below is a chart which shows why I think the next significant level of support is at $22.  Previously there was weaker support at $24 but with the recent downward forecast of full year revenue, this level has been broken.

My total INTC position now consists of 5 SEP puts at the $24 strike and these 5 OCT puts at the $22 strike.  My plan is to roll the SEP puts to NOV if they are ITM as expiration approaches.  If INTC bounces back above $24 after SEP expiration I will then look to buy back my OCT $22 puts.



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