The Money Tree

Safely Generating Income in Retirement

Archive for the ‘Troy’s New Picks!’ Category

This category contains blog entries that discuss trades Troy has made in his “Money Tree” portfolio.

New Trade – TEVA

Posted by mounddweller on June 3, 2013

Fellow Traders,

 

No, your eyes are not deceiving you and no a whole month hasn’t passed quite yet.  Yes, it’s only been one day since my last post.  This is my first effort to try to get better at writing more often and in a more timely manner relative to my trades.

So, here goes.  In my post yesterday I mentioned I was interested in TEVA.  Today, while TEVA was bouncing around just above and below $38, I decided the time was ripe to sell JUN puts at the $37.50 strike.  I put in a STO limit order on 3 contracts at $0.42.  A short time later my order filled when the underlying was trading at $37.97.

With only 19 days to expiration my ROIC is 1.12%.

This is my second trade in TEVA.  Last month I executed the same trade.  Those options expired OTM.  My objective with these trades is to acquire a block of shares in TEVA for my long-term portfolio.

TEVA is a pharmaceutical manufacturer.  It is headquartered in Israel.  It is the world leader in the manufacture of generic drugs.  It also manufacturers its own patent protected, proprietary drugs.  It is about to lose a patent on one of these drugs.  This has caused the stock to fall significantly.  The stock peaked at $63.75 in March 2010.  It bottomed out at $35.26 in September of 2011.  Since then it has bounced between $45 and $37.

The stock currently yields 2.8%  Over the past five years it has consistently raised its quarterly dividend from $0.13 to $0.32.  My intent is to acquire shares while it is out of favor and begin to collect its ever rising dividend.  When growth returns it will return to favor and the price will go back up.

That’s it for now.  I’ll be back later this week if I place any more trades.  I still have my eye on CHRW.

Regards,

Troy

 

 

 

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New Trade – POT

Posted by mounddweller on February 28, 2013

Fellow Traders,

I slipped in one more trade this month.  Today, I sold 3 APR POT $37 puts at $0.47.  After commissions I netted $131.25 from this trade.  This trade came to me by way of my participation on the Yahoo Covered Calls Naked Puts Option Strategies board.  We have a lively discussion.  For further information on how you can join our group see the link on the left side bar.

Let’s look at what I and others saw that convinced us to get in this trade.  First, let’s look at the 3-month chart for POT.

BLOG - POT 3 MTH Chart

As you can see POT, after hitting the upper BB at around $44 on January 28th began to head south.  On February 20th it hit the lower BB and began to drop rapidly.  On Monday, February 25th it bottomed out and the following day carved out a small gain.  Then on Tuesday it had a big gain and pulled away from the lower BB.  This was the signal that it was time to consider a naked put trade.  Thus, this morning while the stock was hitting its lows of the day I pulled the trigger and sold the APR $37 puts.

Here’s the intra-day chart for today.

BLOG - POT Intraday Chart

If you look closely you’ll see a little blue dot on the chart when POT was around $39.65 at 11:05 ET.  This is when I executed my trade.  You’ll notice POT had hit what was to be its low of the day just a few minutes prior to 11:00.  I watched it bounce off these lows and then retrace and try to retest them.  It didn’t make it before turning back up.  That’s when I decided it was time to jump in.  My timing was good (for once).  I was only one penny away from capturing the highest premium of the day for the APR $37 puts.  The stock took off from there and closed at over $40/share.

Regards,

Troy

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New Trades

Posted by mounddweller on February 25, 2013

Fellow Traders,

I executed two new trades today in CAT and INTC.

Catepillar (CAT) is engaged in manufacturing heavy construction equipment.  It has a 52-wk range of $78.25 – $116.40.  Over the past few weeks it had fallen from $100 to close at $91.54 on Friday.  My investing buddy Teddi at www.fullyinformed.com noted in her weekend commentary that CAT appeared to be severely oversold.  Thus, I decided to give it a look.  CAT initially opened higher but then rapidly fell and found support just above $91.00.  I, in my usual fashion, tried to catch the exact bottom and ended up watching the stock move away from me.  After kicking myself for missing the opportunity I decided to keep an eye on CAT.  Later that morning I found CAT once again testing its previous lows and I was determined to not have a repeat performance of watching the opportunity pass me by.  I was looking at the MAR $90 put and wanted to get at least $1.30 for it.  However, in looking at the 3-month price chart (see below) I noticed a gap had occurred between the close on 12/31/2012 and 1/2/2013.  It has been my experience that stocks will often try to backtrack and fill the previous gap.  Thus, I decided an extra bit of caution was warranted.  So instead of selling the MAR $90 put I opted to sell the MAR $87.50 put for $0.63.

BLOG - CAT 3M Chart

After bouncing again off of support at $91 I felt pretty good about my trade.  But then Mr. Market began to wipe the smile off my face.  CAT sold off again and this time the support at $91 did not hold.  CAT ended the day at $89.16.  I am happy I decided to sell the $87.50 put rather than the $90 strike.

My second trade today was in a stock I’ve traded many times, Intel (INTC).  I want to build a significant long-term position in INTC.  I currently own just over 505+ shares and feel the $20 price is a good level to add to my position.  Thus, today I sold 5 MAR $20 puts at $0.25.  INTC was at $20.34 when I executed my trade.

BLOG - INTC 3M Chart

If INTC falls below $20 by MAR expiration I may elect to roll these puts for a couple of months to collect more premium and thus further reduce my cost basis.   If it stays below $20 as the next dividend date approaches I may choose to accept assignment in order to capture the dividend.

Good trading to one and all.

Regards,

Troy

 

 

 

 

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New Trade – GLW

Posted by mounddweller on February 10, 2013

Fellow Traders,

On Friday I entered a new position in Corning (GLW). I executed this trade after watching GLW for the past few weeks. GLW has fallen since hitting $13 in early January. It continued to sink and trace a path along the lower bollinger band finally bottoming at $11.79 on Monday, February 4. On Tuesday the stock bounced off the lower bollinger band and began to move higher. I continued to watch the stock proceed higher on Wednesday and Thursday. By Friday I feared that I had missed my opportunity. However, on Friday morning the stock pulled back and I swooped in buying 1000 shares at $12.14. At first I had tried executing a buy/write for a net debit of $11.78. However, I was unable to get a fill.

I then changed my strategy. I decided to try to time my entry by buying the stock near the bottom and then waiting to sell calls as the stock reached an intra-day overbought condition. Yes, this was a risky move on my part. There were no guarrantees that the stock would move back up at some point later in the day. However, given the previous 3-day rally in the stock I thought it was worth a chance. As it turned out, I was right. I was able to buy the stock as it bounced off its lows of the day. As I mentioned above I bought 1000 shares at $12.14 at 10:59 a.m. Then using a 1-minute price chart and Williams %R I was able to sell the MAR $12 calls at $0.45 around 3:17 p.m. You can see I missed my best chance to sell the calls a short time earlier. Greed got the best of me and I waited too long trying to get one more penny for my calls. Thankfully, I was given a second chance before the market closed to sell the calls at a good price.

BLOG - GLW 1 day chart

Let’s look at my potential profit on this trade.  By buying the stock at $12.14 and selling the MAR $12 calls for $0.45 I have the potential to make a net of $0.31 per share.  My ROIC is 2.55%.  That’s a nice return.  However, it gets even better.  GLW is expected to declare a $0.09 dividend before expiration on March 16th.  If my calls are not exercised early and I am also able to capture this $0.09 dividend it will boost my ROIC to 3.29%.

Best of luck to all my trader friends in the coming week.

Regards,

Troy

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New Position – KSS

Posted by mounddweller on January 12, 2013

Fellow Traders,

Friday, just before the market closed, I opened a new naked put trade.  I sold 3 FEB $40 puts on Kohl’s Corp (KSS) at $0.55.  With 32 days to expiration and 4.8% downside protection I am earning 1.375% ROIC or 15.7% annualized.

Kohl’s Corporation operates department stores in the United States. Its stores offer private, exclusive, and national branded apparel, footwear, and accessories for women, men, and children; soft home products, such as sheets and pillows; and housewares targeted to middle-income customers. As of September 26, 2012, it operated 1,146 stores in 49 states. The company also provides on-line shopping through its Website Kohls.com. Kohl’s Corporation was founded in 1962 and is headquartered in Menomonee Falls, Wisconsin.

For many years KSS was known as a high growth stock with a premium P/E ratio attached to it.  What once was a small, regional retailer has become a nationwide retailing powerhouse.  Last year Kohl’s generated almost $19B in revenue.  Certainly not Wal-Mart size but definitely not a mom and pop either.  Growing up in the heartland KSS has been very conservatively managed.  It generates strong operating margins, returns on assets and equity while maintaining a manageable debt load.  It’s net debt of $4B is easily financed by almost $1B in annual free cash flow.

A disappointing holiday shopping season has punished KSS.  In the past 3 months the stock has plunged 24% from a high just over $55 to a low of $41.35.  It now trades at < 10x earnings.

The 5-year chart and low valuation is what got me interested in initiating a trade in KSS.

BLOG - KSS 5 Year Chart

As you can see KSS has strong support at $40.  Other than the financial crisis in 2008, each time KSS has approached $40 it has bounced back.  I also looked at the 3 month chart.

BLOG - KSS 3 Month Chrt

In it you can see that after the lackluster Black Friday shopping results the stock was severely punished.  It fell hard and then continued to drift down further following along the lower Bollinger Band.  However, over the past couple of days it has pulled away from the lower Bollinger Band.  In my opinion this is a positive sign that may provide a good entry point for a naked put trade.

One last thought on why I decided to place this trade.  Kohl’s initiated paying a quarterly dividend a couple years ago.  It now pays a $0.32 quarterly dividend.  This dividend will likely be raised in March.  The stock now yields 3%.  If the timing of my trade is wrong and KSS resumes its fall and I ultimately decide to have the shares put to me I can take comfort in knowing that I will be paid to wait for its eventual recovery.

Regards,

Troy

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New Trade – GDX

Posted by mounddweller on January 10, 2013

Fellow Traders,

Today I executed a new trade in GDX.  GDX is the Market Vectors Gold Miners ETF.  This ETF holds positions in large-cap gold mining companies.  Below is a list of their current top 10 holdings (courtesy of Yahoo Finance).

BLOG - GDX Top 10 Holdings

While I have previously traded individual gold mining company stocks, this is the first time I have traded GDX.  Here’s what brought GDX to my attention.  I have been reading various stories about the recent weakness in the price of gold.  I also have read several articles about gold mining stocks being at record lows relative to the price of gold.  This got me to thinking that now would be a fairly good time, relative to down-side risk, to sell puts on gold mining companies.  I checked the charts for several gold mining companies and didn’t see any that jumped out at me.  However, I then decided to check GDX and its small cap sister ETF, GDXJ.

The GDX chart appeared to best fit what I was looking for.    GDX over the past 3 years has not traded below $40 and has traded as high as $65.  In the past few days it has traded around $45.  Thus, it is within 10-12% of its multi-year lows.  That limits down side risk.  Below is the one year chart for GDX (again courtesy of Yahoo Finance), showing the $40 lows.

BLOG - GDX 1 Year Chart

In this next chart which shows the past 3 months I have included the slow and fast stochastics.  Both indicate the ETF is extremely oversold.   What you can’t tell in the chart is that today the %K moved back up over %D indicating the sell-off might be over and a rally might be right around the corner.

BLOG - GDX 3 Month Chart

So, anticipating a rally might be about to occur I executed the following trade:  STO 3 GDX JAN25 $44 puts at $0.42.  GDX was trading at $45.20 when I sold my puts.  This gives me about 2.6% downside protection and a 0.95% ROIC with only 10 days to expiration.

Note, my expiration date on these puts is only two weeks out.  When looking at available expiration dates for selling GDX puts I stumbled across something new.  Previously I had never seen weekly options available with more than 8 days to expiration.  GDX had weekly options available for the next several weeks.  In fact they had weekly option expiration dates all the way out into February!  This is a put sellers dream!  Not only are GDX puts available in $1 strikes they are also available with multiple weekly expiration dates.  Talk about flexibility in both the set-up and management of your trade.  This is nirvana!

Has anyone found any other stocks or ETFs with this many available expiration dates?  If so, submit a commit and let me and my other readers know.

Regards,

Troy

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New Trades – CSCO

Posted by mounddweller on October 28, 2012

Fellow Traders,

I know it’s been a couple weeks since my last post.  I’ve really fallen down on the job lately when it comes to keeping The Money Tree current.  So today I want to catch you up on a couple trades I’ve made.

First up is CSCO.  On October 19th  I executed two NP trades.

(1)  STO 5 NOV $17 at $0.33

(2)  STO 5 DEC $16 at $0.24

In both cases CSCO was trading at $18.12 when my trades were executed.

So, why CSCO and why now?  I think CSCO represents a great value.  It trades at <12x trailing earnings and <9x expected earnings.  It has $32B in net cash ($6.13/share).  That’s over 33% of its market value.  Subtract out the net cash/share from the Friday closing price of $17.29 and you’ll see CSCO is trading at 5.34x prospective earnings.  This for a company that generates over $8B per year in free cash flow and has a dividend yield of 3.24%!  CSCO is undoubtedly the Rodney Dangerfield of the stock market; it gets NO RESPECT!

So, that is why I decided to execute the two trades I did.  I would be happy to own CSCO at between $16 and $17 per share.

So, what is my strategy?  Well, if my NOV $17 expire OTM I will rewrite another round of puts at either the $17 or $16 strike with a JAN expiration.   If the puts are ITM as expiration approaches I will roll them out and possibly down depending on price and work to build up my net credit.  If the DEC $16 puts expire OTM I will enter a new trade and do a buy/write in an attempt to capture the dividend in the first week of January.    If CSCO is less than $16 at DEC expiration I will accept assignment and then look to sell covered calls against those newly acquired shares.

My overall objective is to begin building a long-term position in CSCO, reinvesting the dividends until I retire.  At retirement the dividends will form part of my income stream.

Regards,

Troy

 

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New Trade – CCJ

Posted by mounddweller on October 14, 2012

Fellow Traders,

I opened up a new position in Cameco Corporation (CCJ) on Friday.  Specifically, I sold to open 5 NOV $18 puts at $0.40.  I think once you see the 1 and 5 year charts on CCJ you’ll see one of the reasons I like this trade.  So here you go…

In both cases you can see CCJ is nearing lows.  What you can’t see, but I’d encourage you to check out for yourself is the MACD and Stochastics on CCJ.  Both, in my opinion, suggest the sell-off has just about ran its course.

CCJ also has good fundamentals.  Over the past 5 years it has doubled it’s quarterly dividends while maintaining a low payout ratio of only 35%.  It’s forward P/E is a very reasonable 12.  Cash and L/T debt are virtually even.

Even though CCJ is not a stock I’m planning to own long-term I always look at the fundamentals to make sure I would be comfortable owning it if my trade doesn’t work out as planned.

In this case, barring a meltdown in the overall stock market, I do not see CCJ falling much below $19.  So, if my puts expire worthless as I plan I will have made 2.22% ROIC with a holding period of about 35 days.

Oh, one final note.  This is not my first rodeo with CCJ.  Twice last year I sold NPs on it.  The first time at the $25 strike price and the second time at the $16 strike price.  The $25 strikes I was able to buy back for $0.05 and the $16 puts expired worthless.

Regards,

Troy

 

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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.

Regards,

Troy

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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.

Regards,

Troy

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