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Posts Tagged ‘AMAT’

Position Update – AMAT

Posted by mounddweller on June 20, 2012

Fellow Traders,

I closed out my trade in AMAT today.  You’ll recall back on June 1st I opened the following trade:

STO 10 JAN13 $10 puts at $1.16.

Today, with the press release of AMAT hiring a new president, the stock gapped up at the open and stayed there despite downward pressure from the overall market.  I used this strength to close out my position.  Specifically, I…

BTC 10 JAN13 $10 puts at $0.53

Doing so generated a 6.02% ROIC in 19 days.  That equates to an annualized ROIC of 115.67%.  Now many people are probably wondering why I closed the position after only having it open 19 days and on a gap up in the stock price as well.  Clearly, the stock is exhibiting strength and may continue to climb even higher.  Here’s why I closed out the position:

(1) I captured over 50% of the total possible profit in the trade in just 19 days.  The JAN13 options have 231 days remaining to expiration.  I decided to lock in my already substantial profit.

(2) There is a good possibility AMAT will turn back down again before the end of the year.  If it does I can re-enter the trade and potentially capture even more premium.

You’ll recall I placed a similar trade in AMAT earlier this year.  In that trade I made over 7% ROIC in about 30 days.  Adding the two trades together I have collected over $990 in premiums.  This money will go a long way to reducing the net cost of the 1,000 – 2,000 shares of AMAT I’d like to eventually add to my long-term portfolio.





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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.



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Possible New Trades

Posted by mounddweller on May 20, 2012

Fellow Traders,

OK, I promise this is my last post of the day.  Four in one day is enough.  In this post I want to share a few of the trades I’m considering in the week coming up.

First, is Freeport-McMoRan Copper and Gold (FCX).  It closed Friday at $31.81.  Over the past two years it has bounced off of support at $30 twice.  The JUN $30 puts are at $0.94 bid.  The $29 puts are at $0.69 bid.

Second, is British Petroleum (BP).  It closed Friday at $37.10.  Other than during its Gulf of Mexico crisis a couple of years ago it has exhibited good support at $35.  The $34 put is at $0.40 bid.  My buddy Ed didn’t have much good to say about BP so I’m leary of this one.  However, someone who likes BP might find this to be a good trade.

Last, but certainly not least is Applied Materials (AMAT).  Some of you may recall I traded this one at the beginning of the year.  In that trade when AMAT was at $10.21 I sold the JAN13 $10 puts at $1.57.  One month later I bought to close the puts for $0.75.  AMAT is now back down $10.36.  The JAN13 $10 put is at $1.07 bid.  I like AMAT at $10 or less.  With this trade I make over 10% ROIC if I don’t have the stock put to me.  If I do have the stock put to me at $10, I will own it at a net cost of $8.11 (10 + 1.57 – 0.75 + 1.07).  With an annual dividend of $0.36 and a net cost of $8.11 I would own AMAT with a dividend yield of 4.4%.  I like this trade.

Other stocks I’m keeping my eye on if the market continues lower include: WM, INTC, ADI, GLW, WAG, and MCD.




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Update – AMAT

Posted by mounddweller on January 20, 2012

Fellow Traders,

Today I closed my naked put position in Applied Materials (AMAT).  You’ll recall back on December 21st I sold 5 JAN ’13 puts at the $10 strike price.  The premium I received was $1.57/share.  You can read all about AMAT and the reasoning behind the trade here:

So, why did I close the position after just 30 days?  Well, quite simply, I wanted to take advantage in the recent run up in stock prices in general and AMAT in particular.  Back when I entered the trade AMAT was selling for $10.21.  Today it closed at $12.47.  Yes, AMAT like a lot of other stocks in this market has been on a tear of late.  It is up 22.13% in 30 days.  This strong performance had reduced the premium on my naked puts by over 50%.  Thus, I felt  it might be a great opportunity to lock in a gain.

Let’s look at how I did.  As I said earlier I sold the naked puts for $1.57.  Today, I bought them back for $0.75.  Thus, net of commissions, I made $388.10 in 30 days on $5,000 of capital.  My ROIC was 7.76%.  Annualized, my ROIC was 94.44%.  Not bad, huh?

My plan going forward is too continue to watch AMAT.  This market is not going to go straight up.  At some point we will get a correction.  At that time I will evaluate whether it makes since to re-enter this trade.




Posted in Portfolio Updates | Tagged: , , | 1 Comment »

New Trade – AMAT

Posted by mounddweller on December 21, 2011

Fellow Traders,

I have a new trade to tell you about.  Earlier this afternoon I executed the following:

STO 5 AMAT JAN ’13 $10 puts at $1.57.

I haven’t executed a trade like this in the entire 3 years I have been publishing my blog.  However, I have done similar trades a time or two prior to beginning my blog.

Before I begin discussing why I executed this trade let’s take a moment to get you familiar with Applied Materials (AMAT).  Applied Materials, Inc. provides manufacturing equipment, services, and software to the semiconductor, flat panel display, solar photovoltaic (PV), and related industries worldwide.   It was founded in 1967 and is headquartered in Santa Clara, California.

As you can see from the financial data provided below AMAT operates in a highly cyclical industry.  It is either feast or famine.  Lately, it has been a feast but as we’ll see when we look at the price chart, Mr. Market believes a famine is right around the corner.

The cyclicality of the business is evident in the sales numbers.  Sales were low during the recession in 2002/2003.  They accelerated rapidly coming out of the recession in 2004 and expanded along with the economy until the financial crisis in 2008/2009.  Then it was back off to the races again in 2010.  That has continued into 2011.

You’ll also notice AMAT enjoys fat profit margins when times are good but can fall into negative territory when the economy slows down.  However, AMAT being the well managed company it is plans for the lean times by keeping debt low and cash levels high.  Debt to Equity is a very reasonable 22.00% and cash, net of debt, is $4.29B or $3.27/share.

Now, let’s take a look at the 3-year price chart.

As I mentioned earlier Mr. Market is anticipating a slow-down in the economy and thus is dumping cyclical, high tech companies like AMAT.  In addition, AMAT generates a portion of its revenue from the solar photovoltaic industry, which has been decimated in recent months.  Both of these factors have combined to knock AMAT down from a 52-wk high of $16.93 to the 52-wk low of $9.70 which was hit on October 4.

On the 3-year price chart you can see AMAT hasn’t been this low since March 9, 2009 when it closed at $8.58.  If you take a moment to look at a longer price chart you’ll notice that AMAT prior to March 2009 hadn’t been under $10 since 1998!

So, by now you’ve surely determined one of the primary reasons I like this trade.  AMAT is trading at historic lows!  The risk/reward ratio is solidly in my favor.

Here’s another reason.  Back in 2005 AMAT began paying modest quarterly dividends.  Every year since then they have increased the dividend.  It is now $0.32/year.  Hence, it is currently yielding 3.2%.  Not bad for a cyclical tech stock.  That is on par with MSFT and INTC.  If they continue their recent pattern the dividend will go up again in May 2012.

Last, but not least, another reason I like the trade is of course the size of the premium.  I sold the JAN ’13 $10 puts for $1.57.  My annualized ROIC is 14.51%.  At that rate I am able to double my money every 5 years.  Note also that my net cost if I have the stock put to me next year will be $8.43.  This is below the March 2009 market lows!  And, assuming AMAT continues paying the current dividend of $0.32 my dividend yield would then be 3.80%.

Well, there you have it.  One final point, you may have noticed I only sold 5 contracts.  My strategy here is to sell more if AMAT continues to drop.  I will keep an eye on the premiums for the JUL $8 or $9 strikes.  If, at some point in the year I can sell either of those for a 15% annualized ROIC I will do it.




Posted in Portfolio Updates, Troy's New Picks! | Tagged: , , | 2 Comments »

Deep OTM NP Strategy – SEP Week 4

Posted by mounddweller on August 21, 2011

Fellow Traders,

Many of you may recall my surprise a couple of weeks ago when I announced that there were 88 selections to choose from that week.  Then again last week there were 78 selections.  Well, we’ve now blown those records clean out of the water.  This week there are 414 selections that met our Week 4 criteria.  That is way too many for me to include in a blog post.  Thus, this week I’m going to depart from my normal process and only list the selections that caught my eye and that I think are worthy of your further due diligence.  If anyone is interested in seeing the complete list just leave a comment to this post and I’ll send you a spreadsheet with all 414 selections.

The first thing you’ll notice is that all but one of the selections that interested me are all large-caps.  This is not an accident.  In this type of market I’m only interested in trading stocks that I have no doubt will be around long after this latest crisis has passed.

First up this week is AFLAC (AFL).  I wrote about AFL last week so to avoid repeating myself and boring you I won’t say much about it.  However, last week I shared with you the 1 year price chart.  This week I want to show you the 5-year price chart so you can get a sense for where the stock might go if we encounter another crisis like we had in 2008.

Next on our list is Applied Materials (AMAT).  AMAT provides manufacturing equipment, services, and software to the semiconductor,
flat panel display, solar photovoltaic (PV), and related industries worldwide.   Applied Materials, Inc. was founded in 1967 and is headquartered in Santa Clara, California.

I like AMAT a lot.  It is the very first stock I ever sold an option on.  I have wanted to circle back to it for a long time but felt it was too expensive.  Now it has appeared on my Deep OTM NP selection screen.  I’m going to give it a strong look.   AMAT has a strong balance sheet with $2.35/share in net cash.  It trades at 9.1x trailing earnings and 8.2x expected earnings and it pays $0.32 annually in dividends.  At the $9 strike price that is a 3.56% dividend yield.  I would be very happy owning it at $9.

Again, I’m going to show you the 5-yr price chart.  In this case you can see AMAT is not too far from it’s 2008 lows.  That doesn’t mean it can’t go lower than that but in my opinion it does make it less risky than some other stocks which remain a great distance from their 2008 lows.

BB&T (BBT) is the next selection that caught my eye.  It caught my eye for a couple of reasons.  First, earlier this week it was a featured selection in an investing newsletter to which I subscribe.  Second, the put option on BBT that we are interested in has 33% DSP and again is very close to lows encountered in the 2008 financial crisis.  The $13 strike price has a 1% ROIC.

BB&T Corporation operates as the financial holding company for Branch Banking and Trust Company that provides banking and trust services to small and mid-size businesses, public agencies, local governments, and individuals in the United States.   As of May 17, 2011, it operated approximately 1,800 financial centers in North Carolina, Virginia, Florida, Georgia, Maryland, South Carolina, Alabama, Kentucky, West Virginia, Tennessee, Texas, Washington D.C., and Indiana. The company was founded in 1906 and is headquartered in Winston-Salem, North

In the interest of time and the length of this post I am going to leave the rest of the list for you to review and do further research on.  However, for those of you interested in Gamestop (GME) I will remind you that I have written about it in my blog before.  Typing GME in the search box will provide you with a list of my prior posts.

Best of luck to everyone in their trades this week.




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