The Money Tree

Safely Generating Income in Retirement

Posts Tagged ‘FRX’

VISIONS Scan

Posted by mounddweller on June 20, 2010

I ran a VISIONS scan this weekend.  For the first time in quite a while it returned more than just one or two possible trades.  In fact VISIONS identified 14 possible trades, 5 of which have a Gold$ score of greater than 80. 

(1) First Solar (FSLR) – Gold$ = 92

(2) Banco Santander (STD) – Gold$ = 90

(3) Logitech International (LOGI) – Gold$ = 86

(4) ExxonMobil (XOM) – Gold$ = 84

(5) Forest Labs (FRX) – Gold$ = 82

What I found particularly interesting in the results of my scan are the increasing number of ‘blue chip’  stocks that are beginning to appear.  The most notable of these is of course ExxonMobil which showed up in the top 5.  Others, in no particular order, appearing further down the list beyond the top 14 I referenced above include JNJ, MSFT, KO, VISA, and GOOG. 

I believe we are still in a bear market thus I want to limit my trades to those types of large-cap companies.  I say keep an eye on them and pounce when the timing is right. 

Regards,

Troy

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August Month-end Wrap Up

Posted by mounddweller on August 23, 2009

Well, what a month!  Almost everything in my CC/NP was called away, including my position in FRX which had been open for over 6 months.  Below is a quick recap of what transpired this month.

FRX – As I mentioned above, after 7 months of selling CC and NP on FRX I finally had the stock called away from me.  I originally entered this position in January at $25.60/share.  Over the months I had additional shares put to me at $22.50.  In addition, I sold CCs almost every month.  The end result was a total return of 18.51%, or 30.56% annualized.

GME – Sold ITM calls and OTM puts last month.  Despite the sell-off after they announced earnings I still ended up in the ‘sweet spot’  having my calls assigned and my puts expire worthless.  My one-month return was 5.37%, or 56.03% annnualized.

IPI, O, and TK – Sold NPs on these stocks.  All expired worthless.  My one-month returns were 2.1%, 2.31%, and 1.8% respectively.

My only remaining open position is my NP position in UNG.  For a description of what transpired with it see my post from earlier this evening.

I’ll be back shortly with another post regarding what new trades look intersting for the week ahead.

Regards,

Troy

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Rollouts on FRX and UNG

Posted by mounddweller on July 14, 2009

Guys and gals,

I executed two rollouts today against my open positions in FRX and UNG.  Those of you who have been following my trades know that I’ve been in FRX since January.  I originally entered the position by buying 200 shares at around $25 and change.  I then sold the February $25 calls.   Since then I’ve acquired an additional 200 shares after having shares put to me at $22.50.  I’ve also been able to sell the $25  calls almost every month.  This month, like last month, I decided to rollout my position rather than wait for expiration day on Friday.  However, my reasoning this month was different than last month.  Last month you’ll recall I wanted to roll early because I felt there was an opportunity for the stock to go ITM prior to expiration.   Not wanting to take a chance on getting assigned I decided to take advantage of a decent premium on the rollout.  This month my reasoning was just the opposite.  The market has rallied sharply the past couple of days but I fear we may have a sell-off before Friday expiration.  Thus, I wanted to capture the relatively high premium tied to today’s price rather than chance having to sell another round of calls after expiration at a much lower premium.    The bottom line result is I was able to rollout to the AUG $25 calls for a net credit of $0.75.   My net cost basis is now $20.50 while my ROIC is now 18.71% (31.19% annualized). 

For those of you who don’t yet own FRX, it isn’t too late to get into this high quality stock.  With a market cap of $7B FRX has $2B in bare cash!  Below is a current VISIONS chart of FRX.

VISIONS - FRX Chart

 

Now, let’s talk about my NP position in UNG.  Those of you who follow the natural gas market know there is currently a glut.  Thus, prices are very low.  Since UNG is an ETF whose price is determined by the price of natural gas futures it too has continued to fall.  When I originally initiated my position in UNG naked puts UNG was trading over $15/share.  It had never closed below $13 so I felt reasonably safe in writing the JUL $13 naked puts.  Well, never say never.  Over the past couple of weeks UNG sliced through $13 on its way to setting a new 52-wk low of $12.03.  It has since recovered and moved back up to around $12.50.  Seeing this I decided to take advantage by rolling to the AUG $13 naked puts for a net credit of $0.70.  If UNG remains below $13 at expiration in AUG and I choose to allow the stock to be put to me I will have a net cost basis of $12.00.  If unassigned my ROIC will be 7.69% for two months.  That sure beats the interest Schwab is paying me on my cash reserves!

Best of luck to y’all in your trading. 

Regards,

Troy

PS.  My NP trades in O and TK remain open.  I’ll be updating you on them after expiration Friday.

Posted in Portfolio Updates | Tagged: , , , | 2 Comments »

Potential April Trades

Posted by mounddweller on April 18, 2009

Well, another trading month has come and gone.  I have spent a considerable amount of time using Visions today looking for potential new May expiration trades.  Unfortunately, the 6-week bear market rally has significantly altered the risk/rewared ratio.  I found nothing this afternoon that jumped off the page at me and screamed “AWESOME TRADE, BUY ME!”

Rather, I found a lot of quality stocks trading north of their Buy Limit (BL) and 50-day MA.  Thus, I think I’m going to keep my powder dry for a few days and see what transpires as we continue through earnings season. 

However, all that being said, I will still share with you what stocks made it into my final stage of analysis.

  ABB JEC FRX BCR
Current Price  $            15.36  $            46.60  $            22.98  $            80.10
Market Cap.  35.06B   5.74B   6.93B   7.96B 
Fundamentals        
P/B 3.12 2.41 1.69 3.98
Net Profit Margin 8.93% 3.65% 22.01% 16.99%
P/E 11.29 13.2 8.32 19.71
PP/E 14.91 13.02 6.62 13.93
ROA 10.00% 10.71% 13.04% 15.67%
ROE 28.39% 20.19% 22.41% 21.78%
Bare Cash/Share  $              2.36  $              6.06  $              7.26  $              4.45
Debt/Equity N/A N/A N/A N/A
Oper. CF 3.96B 539.01M 1.07B 516.2M
Lev. CF 2.36B 442.77M 324.56M 317.99
Technicals        
CP rel. MA        
20-day EMA Higher Higher Higher Higher
50-day EMA Higher Higher Higher Higher
200-day EMA Lower Lower Lower Lower
Trend of MA        
20-day EMA Up Up Up Up
50-day EMA Up Up Down Down
200-day EMA Down Down Down Down
MA rel. Each Other        
20-day EMA >50 >50 <50 <50
50-day EMA <200 <200 <200 <200
200-day EMA >50 and 200 >50 and 200 >50 and 200 >50 and 200
Vision V Parameters        
BR -0.74 -1.6 1.58 -2.99
TAI -1.61 -3.59 3.2 -6.01
Gold $ 100 100 100 98
BL > CP No No Yes No

As denoted by the green highlights, FRX was the overall winner in my filtering and ranking process.  If I didn’t already have a sizable position in FRX I would be tempted to enter a new trade in it.   For those of you who dieing to put new money to work here is the FRX trade I like best.

Execute a buy/write on FRX and FRXEX (MAY 22.50) at $21.58 or better.

I also looked at several ETFs.   The two I liked the most were the Oil Service Holders (OIH) and the SPDR S&P Metals and Mining (XME).  If we get a pullback over the next week or so I may consider a new position in either one of these.

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FRX – March Update

Posted by mounddweller on March 23, 2009

Well, with the huge rally in the market today I was able to get a reasonable price on the FRX May 25 calls.  Since initiating this trade back in January I have sold 2 rounds of calls and 1 round of puts.  I have reduced my cost basis from $25.60 to $22.20.  If assigned in May I will have achieved a total ROIC of 10.94%, or an annualized return of 32.99%.

A complete list of my transactions in this position follow:

1/15/2009 FRX Bought 200 FRX at $25.60 BY  $     (25.66)
1/15/2009 FRX CALL FOREST LABS INC$25 EXP 02/21/09 at $2.10 SC  $     (23.57)
2/23/2009 FRX CALL FOREST LABS INC$25 EXP 02/21/09 CE  $     (23.57)
2/26/2009 FRX PUT FOREST LABS INC$22.50 EXP 03/21/09 at $0.85 SP  $     (22.77)
3/21/2009 FRX PUT FOREST LABS INC$22.50 EXP 03/21/09 PA  $     (22.77)
3/23/2009 FRX Assigned 200 FRX at $22.50 BY  $     (22.67)
3/23/2009 FRX CALL FOREST LABS INC$25 EXP 05/16/09 at $0.50 SC  $     (22.20)

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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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FRX Update – part II

Posted by mounddweller on February 26, 2009

Oh the frustration that comes from trading in a volatile market!  As I mentioned yesterday, my objective today was to sell the Mar 22.5 puts to lower my net cost basis.  The good news is I achieved my objective.  I sold Mar 22.5 puts at $0.85.  This lowered my net cost basis to $22.77.  The bad news is FRX continued to sell-off after I sold my puts and closed significantly lower at $21.36.  Now, I’m under water on the 22.5 puts as well.   

What is so frustrating is that I thought I had came close to finding the bottom.  FRX had ran up a couple of time to over $23.00 before lunch.   Then, more bad news came out and sent the stock into it’s afternoon downward spiral.

What the events of the last few days have taught me is that all of us should have a written trading plan.  A key component of this plan is a risk management plan.  Going forward, I’ll be putting mine together and will post it as a page on my blog.  If any of my readers have such a plan and wouldn’t mind sharing it, please feel free to pass it along.

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January Trade Results

Posted by mounddweller on February 22, 2009

Well, none of my positions I entered in January were assigned after the market closed on Friday.  As you’ll recall I entered three positions in January.  First, was selling a second round of calls on my position in the ETF, XLI.  These expired OOM and I now have the opportunity to sell a third round.  I’m not sure what my next trade with XLI will be but I’ll let you know as soon as I pull the trigger. 

Second, I had entered a new position in Forest Labs, FRX.  These also expired OOM and I will be selling a second round of calls after the market opens on Monday.  My intention is to sell the Mar 25s at around $0.85.

Last, but not least you’ll recall I had entered a new position in the energy ETF, XLE.  I sold the Feb 39 puts.  These also expired OOM and I have since written a new round of Mar 39 puts.

The information presented in the Historical Results and Open Positions pages have been updated to reflect these results.

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An Early Pick for January

Posted by mounddweller on January 15, 2009

Guys,

Late last week I ran Ron’s Scout Express search looking for companies with a market cap of > $5B.  The stock that peeked my interest the most was Forest Labs (NYSE: FRX).  It originally caught my eye for two reasons (1) the abnormally large premium remaining on January calls (6 days before expiration), and (2) it is a drug stock…one of my most successful positions this past year has been with another drug stock, KG. 

After doing my customary due-diligence (details provided below) I attempted to sell the January 25 calls.  With the stock trading around $25, the calls were priced to give me around 3% for just a 6 day holding period! 

A very important lesson I’ve learned previously is generally there is a very good reason the market has placed an abnormally high premium on a company’s stock options.  Caveat emptor!   However, after looking over FRX’s chart and fundamentals, I decided to forge ahead.

Unfortunately, I tried to push my luck and sell the calls at more than the bid and didn’t get filled.  Another lesson learned, if you really want into a position…take what the market gives you.  

After not getting filled last week I continued to keep track of FRX.  Today, at the opening bell, I noticed FRX was up $1.48.  The reason?  The company announced it had received approval from the FDA to market a new drug.  I immediately looked at the February calls.  I looked at the 22.5s, 25s, and 27.5s.  After calculating the called and uncalled returns on each, comparing those to Ron’s “Magic Chart” guidelines, and reviewing the last few weeks of pricing action I decided the Feb 25s provided the best “bang for the buck”.

With the market going crazy (read “volatile”) again this morning, I decided to enter a buy/write order with a net debit amount of $23.50.  For those of you who don’t use buy/write orders what this means is I told my broker to simutaneously buy FRX and sell FRXBE for a debit amount of $23.50 or better.  My order filled within a few minutes at the following prices:  Bought FRX at $25.60 and sold FRXBE at $2.10.  My potential returns are as follows:

  • If called away at $25 on February 20th – 5.86%
  • If uncalled – 8.20%

Now, here’s why I think this is a great trade.  Check out the key statistics as found in the Finance section of Yahoo.  First, look at the TTM P/E and the forward P/E, 8.36 and 7.33, respectively.  Can you say CHEAP!  Even better, the forward P/E is less than the TTM P/E indicating analysts expect the company to grow earnings next year.  By the way, management agrees with that assessment as they upped their 2009 earnings guidance back in October.  Not too many companies doing that in this economic environment. 

Next, let’s look at some key ratios.  Profit Margin, Operating Margin, Retrun on Assets and Return on Equity are all outstanding. 

Here’s what convinced me to place the trade though.  It’s the Balance Sheet and the stock chart.  Look at those numbers from the Balance Sheet.  FRX has 25% of it’s market capitalization sitting in cold, hard cash with ZERO long-term debt.  This company has no liquidity concerns.  The current financial crisis is of no concern to them. 

Now, let’s look at the stock chart and while we’re at it some of Ron’s trade parameters.  I like the chart for FRX.  It’s showing a nice uptrend since bottoming with the rest of the market back in late November.  It’s been consistently in the V for quite some time, 35 days to be exact.  And it hasn’t been gyrating wildly.  Another thing I like is the 50-day MA has also started to trend upward.  Further, the current price is less than Ron’s Buy Limit (BL) of $25.81. 

Now, let’s consider the negatives.  There are a couple of things that don’t meet Ron’s criteria.  Both the Buy Rank (BR) and TAI scores are well outside of what Ron considers ideal.   Hopefully the positives I’ve outlined above will out-weigh these two negatives.

VALUATION MEASURES  
 
Market Cap (intraday)5: 7.81B
Enterprise Value (15-Jan-09)3: 5.41B
Trailing P/E (ttm, intraday): 8.36
Forward P/E (fye 31-Mar-10) 1: 7.33
PEG Ratio (5 yr expected): 0.75
Price/Sales (ttm): 1.90
Price/Book (mrq): 1.89
Enterprise Value/Revenue (ttm)3: 1.41
Enterprise Value/EBITDA (ttm)3: 4.416
Profitability
Profit Margin (ttm): 24.97%
Operating Margin (ttm): 29.22%
 
Management Effectiveness
Return on Assets (ttm): 16.08%
Return on Equity (ttm): 26.86%
Balance Sheet
Total Cash (mrq): 1.89B
Total Cash Per Share (mrq): 6.271
Total Debt (mrq): 0
Total Debt/Equity (mrq): N/A
Current Ratio (mrq): 5.007
Book Value Per Share (mrq): 12.824

 

 
 

Ron's Vision V Chart for FRX

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