The Money Tree

Safely Generating Income in Retirement

Posts Tagged ‘EWZ’

New Naked Put Trades

Posted by mounddweller on May 25, 2010

All,

The recent volatility has gotten me excited again about the possibility of making money selling puts.  Accordingly I spent some time this weekend looking at some possible JUN expiration trades.  I didn’t use a methodical or even
logical approach to identify potential trades.  I simply went back through my list of stocks I’d successfully traded before or stocks I wouldn’t mind owning and looked for what I thought was a fair return for the risk being taken.  For each of the stocks I identified I looked at the chart to look for areas of support.  More importantly though I looked at the risk/reward of various strike prices and their corresponding premiums.  Of course, the best tool with which to evaluate risk/reward (in my opinion) is Ron’s “Put Factor” (PF).  Using the relationship between the current stock price, the strike price, the put premium, and the number of months until expiration the PF allows you to make an ‘apples to apples’ comparison between multiple NP trades.

My initial list contained 14 stocks.  With several of the stocks on this list I looked at multiple strike prices.  Two, NVDA and EWZ really caught my eye.  Both had excellent premiums at strike prices with substantial downside protection.  Accordingly, the PF for these trades was also very high.

I used the sell-off at the opening bell today to sell naked puts on each of them.  Here’s are my trades:

(1) Sold 5 NVDA JUN $10 puts at $0.21

(2) Sold 2 EWZ JUN $45 puts at $0.67

Below is a chart which shows the parameters I was looking at when I pulled the trigger on these trades.

I think it’s pretty obvious why I liked the trades.  With NVDA I have almost 19% downside protection yet I’m earning 2.1% ROIC with only 24 days remaining to expiration.  The PF when I placed the trade was 3.28!  With EWZ I got less return (1.49% ROIC) but more downside protection.  My dowside protection with EWZ is almost 23%!  The PF was 3.10.  Both stocks ended the day significantly higher in price than they were when I sold my puts so my downside protection from here is even greater than that referenced above.

Now, a little about the two stocks on which I sold the puts.  As I’ve mentioned several times before in my blog I never sell puts on a stock that I wouldn’t mind owning.  So why won’t I mind owning NVDA and EWZ if I have them put to me?  Well, with NVDA I would be buying THE industry leader in graphics processors at a great price.  The 52-wk high is 18.96.  The 52-wk low is 9.63.

EWZ is an ETF.  It holds a basket of Brazilian stocks.  Brazil is one of the fastest growing economies in the world.  It is also one of the most resource rich countries.  It does not have the heavy debt problems that now inflict many other countries.

As this market correction continues I plan to remain on the look-out for other similar opportunities.

Posted in Troy's New Picks! | Tagged: , , , | 11 Comments »

March Portfolio Update

Posted by mounddweller on March 22, 2009

Hi All,

Sorry for the lack of posts these past few weeks.  But, as I said when I launched my blog a few months ago, my goal is simply to communicate and record my covered call and naked put trading successes and failures.  It is not my intention to provide daily market commentary.  There are too many other web-sites and blogs which are much better suited to perform that role than I am.

Anyway, back to the topic at hand.  How did The Money Tree portfolio do this month?  Well, as is to be expected, it was just like the market as a whole, in a word…VOLATILE.  Let’s look at each of the current open positions.

Forest Labs (FRX) – You’ll recall I opened this position back in January.  Back then it was trading in the $25 range and had an almost perfect Visions setup (i.e., coming off recent lows, trending upward, good fundamentals, etc.).  Since then it has dropped.  The drop can be attibuted to three events, (1) general market decline, (2) adverse reaction to speculation on the Obama healthcare plan, and (3) a government investigation into FRX sales tactics.  In February, I chose to ‘double down’ on my investment by selling March 22.5 puts rather than accepting a small CC premium on my existing shares. 

Since February 23rd, FRX has traded between a low of $18.37 and a high of $25.04.  Friday, it closed at $21.13.  My puts were assigned and I now have a net cost basis of $22.67.  I plan on initiating a new trade in FRX on Monday.  If the market opens higher I intend to sell the Apr 25s, if lower then the Apr 22.5s.

Industrial Select Sector SPDR (XLI) – With this position I’ve learned a few lessons on trading ETFs.  First and foremost is to carefully consider the size of each underlying position in the ETF.  For example, GE at the time of my purchase constituted approximately 15% of the market cap. of XLI.  Thus, one of the primary benefits of investing in an ETF, instant diversification, was compromised by the oversized position of this one stock.  Consequently, XLI roughly tracked some of the volatility recently experienced by GE.

In the past month XLI has traded between $15.14 and $18.94.  On Friday, XLI closed at $17.39.  Since my net cost basis of $20.49 is significantly higher than this I haven’t and don’t feel comfortable selling any new covered calls right now.  I’ll continue to wait until the price has recovered somewhat before I sell any new CCs against XLI.

Energy Select Sector SPDR (XLE) – For the second month in a row this trade has been a bright spot in my portfolio.  XLE gave me a wild ride this month but closed Friday at $43.oo which was well above the strike price of my Mar 39 puts.  During the month it traded between $37.40 and $46.02.  I intend to sell puts on XLE again this month.  However, right now I can’t decide between the Apr 38s or the 39s.

iShares MSCI Brazil Index (EWZ) – I also did well in my other naked put trade this month.  EWZ performed very well all month and never approached my $25 strike price.  The low for the month was $31.14 and the high was $39.47.  I’m tempted to sell puts on EWZ again this month but am hesitant because of the strong run-up in price.  I’m currently considering selling the Apr 30 puts for around $0.50.

Well, there you have it folks, another month in the books.  I’ll be back later this week to provide an update on any new trades I place.

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New February Trade – EWZ

Posted by mounddweller on February 23, 2009

Well, I went and did it.  I sold EWZ Mar 25 puts at $0.65.  Time will tell if I come out looking like a genious or the village idiot.  As I mentioned in earlier posts I originally was interested in either the $26 or $27 puts.  But with the sell-off in the market (again) today the $25 puts caught my eye. 

So why EWZ you ask?  First, some background information for those who might not be familiar with EWZ.  EWZ is the ticker symbol for the iShares MSCI Brazil Fund.  This ETF seeks to provide investment results which approximate the price and yield performance of the MSCI Brazil index.  Consequently, it is full of the largest, most well capitalized companies headquarted in Brazil.  Brazil as many of you already know is a fast growing emerging market and is the ‘B’ in the acronym ‘BRIC’.  So, back to the original question, why EWZ? 

(1) I like the chart.  EWZ bottomed out back on November 20th, closing at $26.64 (intra-day low was $25.55).  Since then it has been range bound hitting $40 no less than 3 times and subsequently falling to around $32.  Prior to today’s debacle it had been in the Groenke V for quite some time.  After the decline today it now has a TAI score of GR, a BR of 6.33 and Gold $ score of 40.  Not exactly stellar, but hey we’re selling puts here that are way out of the money.

(2) I like the risk/reward profile.  First, the risk.   EWZ closed today at $31.95, down $2.50.  To be assigned EWZ must fall another 21% in less than 30 days.  Not impossible, but improbable.  Also, as I mentioned above, the 52-wk low is $26.64.  Our $25 strike price is 6.15% below that; the break-even point is $24.35, 8.6% below the 52-wk low.  What’s the reward?  2.6% ROIC for a holding period of 25 days; an annualized return of 37.96%.

(3) Finally, and probably most important.  If assigned this is an investment I want to own.  EWZ is full of growing companies, trading at very low P/E multiples, and throwing off over 6% in dividends.

Below are the stat’s and chart for EWZ:

2/23
Price
52 Wk
High
52 Wk
Low
50 Day
Average
Buy
Limit
Buy
Rank
TAI Dividend
Yield
 $   31.95  $    102.21  $     26.64  $     35.64  $   43.02 6.33 GR 6.09%

 

TOP 10 HOLDINGS ( 62.21% OF TOTAL ASSETS)  
 
Company Symbol % Assets
BRADESCO PFD N1 BBDC4.SA 5.54
ITAU HOLDING PFD N1 ITAU4.SA 5.4
AMBEV PFD AMBV4.SA 3.11
Companhia Siderurgica Nacional N/A 2.15
COMPANHIA VALE ADS RIO 7.05
Gerdau N/A 2.08
PETROBRAS PETR3.SA 11.3
Petroleo Brasileiro Sa Petrobras N/A 12.89
UNIBANCO UTS UBBR11.SA 3.6
VALE R DOC PFD-A N1 VALE5.SA 9.09
EQUITY HOLDINGS  
 
Ratio EWZ
Average Price/Earnings 6.98
Average Price/Book 1.36
Average Price/Sales 0.97
Average Price/Cashflow 3.50

 

feb-pick-ewz

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Update on Potential February Trades

Posted by mounddweller on February 20, 2009

Well, weren’t the last 4 days fun?  Not!  As promised, here’s an update on the potential trades I referenced in my earlier post.

Covered Calls

(1) Stryker (SYK) – Well, this one fell much like everything else in the market.  It now has fallen to the bottom of the Groenke V and has a TAI status of GR (get ready), and a Gold $ score of 70.  On the plus side it has a good BR (buy rank) of 5.05 and is well under the BL (buy limit) of $44.03 .   I’m going to keep it on my watch list.  A rally in the market would quickly rekindle my interest in establishing a position in SYK. 

(2) ABB (ABB) – The situation with ABB is similar to Stryker.  The market sell-off has pushed it down and it is now just below the bottom of the Groenke V.  It now has a TAI status of GR and a Gold $ score of 40.  I’ll keep it on my radar screen for a potential CC play in the future.  A more immediate opportunity (albeit with more risk) might be to sell the Mar 10 puts for around $0.25-0.30.  Note: this NP trade wouldn’t meet Ron’s criteria.

(3) Analog Devices (ADI) – This one still remains a viable candidate.  Even with the market setting new lows ADI still remains inside the Groenke V, has a TAI status of TA (take action), and a Gold $ score of 70.  Further, it has a reasonable BR of 3.00 and at $19.30 is under the BL of $20.76.  A couple up days would make this an almost perfect set-up for a successful CC trade.

(4) Activision Blizzard (ATVI) – Activision is much like the first two, SYK and ABB.  It has fallen to the bottom of the Groenke V and is rated GR.

ETF CCs

(1) XLK – It seems I have to  keep repeating myself.  XLK has now fallen below the Groenke V and has a TAI status of GR.  Hopefully the market will turn around soon.

(2) EWZ – I still like EWZ.  It is just inside the bottom leg of the Groenke V, has a TAI status of TA, and a Gold $ score of 70.  It very much is like ADI.  A couple day rally could present a very nice entry point for a CC trade.  Impatient and more aggressive traders might consider selling March NPs as there are several at various strike prices with enticing premiums.

(3) XME – This one has an interesting chart.  Like the others we’ve discussed, it is now outside the bottom leg of the Groenke V and has a TAI status of GR.  What makes XME different and interesting is that it isn’t a sharp price drop that has caused it to drop out of the V.  Rather, it moved outside the bottom leg because it has been moving sideways for so long.   Looking at the available option chains reveals many potential CC and/or NP trades.   This one intriques me, despite not meeting Ron’s criteria.

Well, that’s it.  As you know from my earlier post, I pulled the trigger on my XLE put trade.  So far so good.  Even with the steep sell-off I’m still well north of my $39 strike price.  I’ll be back later this weekend with an update on my January trades and other open positions.

Regards,

Troy

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Potential February Trades

Posted by mounddweller on February 16, 2009

Well, here we are just 4 trading days left before expiration on Friday.  I’ve started looking at potential trades for February.  Who knows what will happen between now and the market close on Friday but here’s what looks interesting to me right now.  These trades are listed in my order of preference based on various fundamental and technical indicators as well as perceived risk.

Covered Calls

(1) Stryker (SYK) – Great Balance Sheet, Recession resistant business, and a very nice looking chart.

(2) ABB Ltd (ABB) – Solid Balance Sheet, and a timely infrastructure play (think “stimulus” package).

(3) Analog Devices (ADI) – Great Balance Sheet, bad news appears to already be priced in.  We’ll find out after market close on Wednesday.

(4) Activision Blizzard (ATVI) – Great Balance Sheet, most aggressive idea.

ETF Covered Calls 

(1) Technology Sector SPDR (XLK) – CSCO, INTC, GOOG, MSFT, T, VZ all in one trade; what’s not to like!

(2) iShares MSCI Brazil Index (EWZ) – in my opinion the least risky of the emerging markets. 

(3) SPDR S&P Metals & Mining (XME) – chock full of beaten down commoditiy and mining companies.

Naked Puts

(1) Energy Select Sector SPDR (XLE) – like it again this month.

As I mentioned above, these are my POTENTIAL trades for February.  Who knows what any of these will look like by Friday.  

I’ll be back with another post after the market close on Friday.  I’ll update you on the potential February trades outlined above and give you some ideas on what I will be looking at going into the weekend.  In addition, I’ll let you know how my January picks turned out.

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