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Deep OTM NP Strategy – NOV Week 2

Posted by mounddweller on November 5, 2011

Fellow Traders,

Below is the list of selections meeting our Week 2 criteria.  As you can see the list is fairly short, containing only 17 entries.

As you can see I only found two that I feel are worthy of your further consideration.  Before I tell you any more about either of them I must warn you that both are scheduled to release 3rd quarter earnings in the coming week.

First up let’s look at Autodesk (ADSK).  Autodesk, Inc. provides design software and service solutions to customers in architecture, engineering, and construction; manufacturing; and digital media and entertainment industries. It operates in four segments: Platform Solutions and Emerging Business (PSEB); Architecture, Engineering, and Construction (AEC); Manufacturing (MFG); and Media and Entertainment (M&E).  It was founded in 1982 and is headquartered in San Rafael, California.

ADSK has an excellent balance sheet.  It has over $1.37B in cash (over $6/share) and ZERO debt.  As you can see in the below chart ADSK fell over the summer, bottoming out in mid August at around $24.  Since then it has recovered, steadily increasing to it Friday closing price of $35.02  Our selected trade is at the $31 strike price giving us 12.68% DSP.  The $0.42 premium gives a 1.35% ROIC.

Next, let’s take a look at WMS Industries (WMS).  WMS Industries Inc., through its subsidiaries, engages in the design, manufacture, and distribution of games, video and mechanical reel-spinning gaming machines, and video lottery terminals (VLTs) for the legalized gaming industry worldwide. The company provides video gaming machines and mechanical reel gaming machines under the Bluebird, Bluebird2, Bluebird xD, Twinstar, and Helios brands. The company, formerly known as Williams Electronics, Inc., was founded in 1943
and is headquartered in Waukegan, Illinois.

WMS like ADSK has an excellent balance sheet.  It has $90M in cash with ZERO debt.  WMS has been falling all year long.  It finally appears to have found a bottom on October 3rd when it closed at $16.53.  In the past month it as risen steadily closing Friday at $22.54.  Our selected trade is at the $20 strike price giving us 13.04% DSP.  The $0.40 premium gives a 2.00% ROIC.

Well, that’s it for this week.  Please remember what I said earlier.  Both ADSK and WMS report earnings this week.  If either misses expectations they could fall significantly.

Regards,

Troy

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