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Posts Tagged ‘AMSC’

Deep OTM NP Strategy – JUN Week 4

Posted by mounddweller on May 22, 2011

Fellow Traders,

Below are the Week 4 selections for the June expiration.

I have color coded the selections that I found of interest.  Let’s look at each one in turn and I’ll tell you a little about why they caught my eye.  First up is American Superconductor (AMSC).  AMSC caught my eye primarily because (1) it is rapidly approaching book value ($9.86) and (2) is has a ton of cash on its balance sheet ($4.79/share).  It closed Friday at $10.34.  Why so cheap you ask?  Because it’s largest customer refused to take any more deliveries.  This news caused a one day price drop from around $25 to $15 back in the first week of April.  The stock price has continued to drop.

Here’s the price chart.  Be forewarned, it’s ugly!

Now, I’m guessing you understand why the JUN $8 strike has such a high premium (5% ROIC with 26.5% DSP) .  This trade should only interest those traders who like the alternative energy industry and would like to potentially own AMSC at below book value.  With a chart that looks like this you have to expect there is a high probability the stock will continue to fall and you will have it put to you at expiration.  Gamblers (hint, not traders and certainly not investors) might want to place a small bet on it given the outsized premium.

Let’s move on to Daktronics (DAKT).  Here’s the chart for DAKT.  It doesn’t look quite as bad as AMSC.

Here’s the scoop on DAKT.  It missed analyst’s expectations when it reported quarterly results back in late February.   The stock sold off sharply and has yet to recover.  The company will report again on Wednesday, June 6.  Hence, the somewhat elevated premium (1.33% ROIC with 24% DSP).  Like AMSC, DAKT has a pristine balance sheet.  Net cash is $1.78/share.  Book value is $4.79/share.  My personal opinion (do your own DD and form your own opinion) on this one is that it is unlikely to hit the $7.50 strike price even if earnings are less than stellar.

Finally, last but not least is Enernoc (ENOC).  EnerNOC, Inc. engages in the development, implementation, and adoption of demand
response and energy management solutions for the electric power grid operators and utilities, as well as commercial, institutional, and industrial end-users of electricity in the United States.  Here is its chart.

This chart is why I like the ENOC trade.  A few weeks ago it hit a 52-wk low of $16.50.  Since then Money Flow has bottomed and is climbing.  Likewise the stock has come off the bottom, gapped up, and appears to want to recover some lost ground.  The JUN $15 strike is almost 10% below the 52-wk low and over 20% below Friday’s closing price.  With a premium of $0.25, the trade offers a 1.67% ROIC with over 22% DSP.  ENOC also has a pristine balance sheet with net cash equalling $3.98/share.

Well there you have it.  Look through the other selections as well.  Perhaps you’ll find something I missed or perhaps your tastes are different from mine.  Have a great week.

Regards,

Troy

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Deep OTM NP Strategy – MAY Week 4

Posted by mounddweller on April 24, 2011

Fellow Traders,

Happy Easter!

We have a total of 7 trades which met our selection criteria, 3 are mid-caps and 4 are small-caps.  Most have shown up on our screen previously at one time or another.  The three exceptions are LIZ, PTIE, and TRGL. 

In running through through the vetting and DD process I use for these type of trades none of the selections jumped out at me as being a great trade.  When these situations occur (and they frequently do) I generally go back to the selections from the prior week and see which, if any, remain viable trade candidates.  Doing so this week returned me to AMSC.  Last week it closed at $12.81 and the $10 strike made our selection criteria.  This week it fell further, closing at $11.74.  The $9 strike has a bid of $0.10.  The $9 strike is also less than the $9.86 book value of AMSC.

Up above I referenced the vetting and DD process I use for my Deep OTM NP Strategy trades.  It is relatively quick.  I focus in two primary areas, (1) the one-year price chart of the underlying stock, and (2) that company’s most recent financial statements.

On the 0ne-year price chart I look at a few items, the 52-week hi and low, areas of previous price support, and where the current price is relative to the first two items.  I use these items to help me ascertain if now is a good time to trade the stock.  Stocks that are closer to their 52-week lows than their highs interest me.  Right or wrong I believe they have less distance to fall before value investors step in and begin buying the stock.  I also like selections where the strike price is below areas of previous support.    

On the company’s financial statements I look at profitability, cash flow, and net cash.   Trades where the underlying company is profitable, or at least generating positive cash flow generally rate higher than those that don’t.  If the company is neither profitable or generating positive cash flow then the amount of cash on the balance sheet takes on great importance.

I believe the first set of criteria help me pick trades that will expire OTM.  The second set of criteria are important for when I’m wrong about the trade.  If I can’t extricate myself from a losing trade prior to expiration and I end up having a stock put to me, I want to feel comfortable having it in my portfolio for some period of time.

Regards,

Troy

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Deep OTM NP Strategy – MAY Week 5

Posted by mounddweller on April 16, 2011

Fellow Traders,

Below is the list of the trades meeting our Week 5 criteria.   We haven’t had a “Week 5” for quite some time so let me refamiliarize you with how this occurs and the criteria we use for the Week 5 selections.  First, a “Week 5” occurs only a couple times a year.  It occurs when there are literally 5 weeks between expiration dates on the options calendar.  Given the extra week to expiration (hence, an additional week of exposure to market and stock risk) we increase our requisite DSP to 20%.  The put factor (PF) remains the same at 2.0. 

As you can see we have 24 selections meeting our Week 5 criteria.  I have highlighted four that I found to be interesting and worth doing some DD on.  The two highlighted in green, AMSC and RMBS, are my best bets.  LFT and ANW, highlighted in orange, are in my mind much riskier but also worth a look.

American Superconductor (AMSC) had a precipitous fall earlier this week when its largest customer (70% of revenue) stopped taking delivery on any more AMSC product.  There’s nothing wrong with AMSC’s product, it appears their customer’s business is slowing down and they have too much AMSC product in inventory. 

Here’s why I like this AMSC trade.

(1) At a strike price of $10 you have over 23% of additional DSP on a stock that has already fallen 49% in the past week.

(2) The bad news is already priced into the stock.  While it could fall further, I have a hard time believing it will fall another 23% in 5 weeks.

(3) The book value of the stock is $9.86.  If you have the stock put to you at $10, you’ll own it at book value.

(4) Almost half of the $9.86 book value is cold, hard cash in the bank; not intangible or illiquid assets.

(5) After the big drop in price this week an insider stepped up to the plate and increased his holdings in AMSC by $50M.  I don’t think he would do that unless he thought it was a great buy at the current price.

Next up is Rambus (RMBS).  I’m not going to say much about it since it was in our selections last month as well and I wrote about it then.  The stock is up about 4% from where it was back in March.  Here’s why I like it:

(1) The ROIC at 2.83% is fantastic given the over 22% DSP.  However, this is due to RMBS announcing earnings next week.  Despite the impending earnings release I still like this trade. 

(2) The stock has not seen $16 since November of 2009.  Also, it has strong support at $16 as it bounced off of this level 4 times between August and November 2009.

(3) RMBS has a strong balance sheet with almost $4/share in net cash.

A quick note or two about the riskier plays I mentioned.  LFT is a Chinese mid-cap stock.  It sells software to financial services companies.  It has sold off hard due to fear of what could happen to its business should the Chinese real estate market falter.  That isn’t an insignificant risk given the government’s rise in interest rates to keep inflation at bay.

The other risky play is ANW.  It provides marine fuel logistics services.  What caught my eye about it is that it is trading at 0.8x book value.  While that doesn’t mean it can’t fall further it does tell me it is more likely to tread water at this level than fall much further to the selected $7.50 strike price.

Best of luck to all of you in the coming month. 

Regards,

Troy

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