The Money Tree

Safely Generating Income in Retirement

Posts Tagged ‘KSS’

April 2013 Results

Posted by mounddweller on April 30, 2013

Fellow Traders,

You’ll recall earlier this year I started a new series of posts summarizing my monthly trading results.   Today being the last trading day of the month let’s take a look and see how I did.

Number of Closed Positions: 4

Profit on Closed Trades: $447.50

Total Capital Used on Closed Trades: $46,600.00

Average Number of Days Trades Were Open: 27

Return on Invested Capital: 0.96%

OK, before I move on to the stats for my open trades, let me tell you a little more about these closed trades.  All 4 closed trades were naked puts.   Half expired OTM and half I bought back before expiration at a profit.  I had CSCO puts at the $20 strike and POT puts at the $37 strike expire OTM.  ITW and KSS I bought back early, both for $0.05.

Now let’s look at my open trades.

Number of Open Positions: 6

Net Cash Flow in April from Open Positions: $355.05

Total Capital Used on Open Trades: $71,050

Net Cash Flow on Invested Capital: 0.50%

The return on invested capital for my open positions is much lower than normal because I did a poor job of managing them.  I waited too long to roll out my GDX position.  This resulted in having 300 shares put to me at $40.  Because of this I was not able to generate any cash flow by rolling out my NPs.  Neither was I reasonably able to sell covered calls on my new long position unless I wanted to sell them far, far out in time or way ITM.  I also did a poor job of rolling out my open positions in CAT and NUE.  While I was able to roll-out for net credits in both cases, they were small net credits.   My other open positions are as follows:  CSCO MAY $19, TEVA MAY $37.50, and CCJ MAY $19.

I am cautiously optimistic heading into May.  Best of luck to all my readers!

Regards,

Troy

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Monthly Results – March 2013

Posted by mounddweller on March 29, 2013

Fellow Traders,

You’ll recall a couple months ago I started a new series of posts summarizing my monthly trading results.   The last trading day of the month being behind us let’s take a look and see how I did.

Number of Closed Positions: 5

Profit on Closed Trades: $1,041.80

Total Capital Used on Closed Trades: $69,790.00

Average Number of Days Trades Were Open: 30

Return on Invested Capital: 1.49%

OK, before I move on to the stats for my open trades, let me tell you a little more about these closed trades.  Of the 5 closed trades, 3 were naked puts and 2 were covered calls.  2 of the 3 naked puts trades (CAT and INTC) expired OTM.  The third, EXC I bought to close after 25 days (out of a total of 36 DTE) when I had captured 75% of the total premium.  One of the two covered call trades (COH) started out as what one of my friend and  investing mentors, Ron Groenke calls the “Double Up” strategy.  This is where you do a covered call and sell naked puts on the same stock with the same expiration date.  The other covered call trade (GLW) was a straight buy/write.  All 5 trades were closed for a profit.

Now let’s look at my open trades.

Number of Open Positions: 5

Net Cash Flow in March from Open Positions: $440.15

Total Capital Used on Open Trades: $76.050.00

Net Cash Flow on Invested Capital: 0.58%

The return on invested capital for my open positions is lower than normal this month because 2 of my 5 positions were initiated in prior months and did not generate any new income.  One of the two (POT) was initiated in late February and the other is GDX which I have been trying to profitably work myself out of for a few months now.  The return on invested capital for new open positions is a more normal 1.09%.

Best of luck to all my readers as we head into April.

Regards,

Troy

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Position Update – KSS

Posted by mounddweller on January 25, 2013

Fellow Traders,

Don’t you love it when a trade works out exactly as planned!  Today I closed out my position in KSS by buying to close my FEB $40 puts at $0.05.  You’ll recall I originally sold these puts back on January 11 for $0.55.  So, with just a 14-day holding period I was able to earn 1.09% ROIC (net of all fees and commissions).

In my original post (https://troysmoneytree.wordpress.com/2013/01/12/new-position-kss/) I noted that the stock had fallen sharply and was rapidly approaching long-term support at $40.  I also noted the stock had begun to pull away from the lower bollinger band which was a good indicator that it was ready to begin moving back up.  You can see in the chart below (thanks Yahoo) that is exactly what happened.

With 3 weeks remaining to expiration and only $0.05 premium left I chose to take the money and run.

I’ll be back later with a write-up on my other trade, GDX which isn’t turning out quite so well.

Regards,

Troy

BLOG - KSS 3 Month Chrt 2

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New Position – KSS

Posted by mounddweller on January 12, 2013

Fellow Traders,

Friday, just before the market closed, I opened a new naked put trade.  I sold 3 FEB $40 puts on Kohl’s Corp (KSS) at $0.55.  With 32 days to expiration and 4.8% downside protection I am earning 1.375% ROIC or 15.7% annualized.

Kohl’s Corporation operates department stores in the United States. Its stores offer private, exclusive, and national branded apparel, footwear, and accessories for women, men, and children; soft home products, such as sheets and pillows; and housewares targeted to middle-income customers. As of September 26, 2012, it operated 1,146 stores in 49 states. The company also provides on-line shopping through its Website Kohls.com. Kohl’s Corporation was founded in 1962 and is headquartered in Menomonee Falls, Wisconsin.

For many years KSS was known as a high growth stock with a premium P/E ratio attached to it.  What once was a small, regional retailer has become a nationwide retailing powerhouse.  Last year Kohl’s generated almost $19B in revenue.  Certainly not Wal-Mart size but definitely not a mom and pop either.  Growing up in the heartland KSS has been very conservatively managed.  It generates strong operating margins, returns on assets and equity while maintaining a manageable debt load.  It’s net debt of $4B is easily financed by almost $1B in annual free cash flow.

A disappointing holiday shopping season has punished KSS.  In the past 3 months the stock has plunged 24% from a high just over $55 to a low of $41.35.  It now trades at < 10x earnings.

The 5-year chart and low valuation is what got me interested in initiating a trade in KSS.

BLOG - KSS 5 Year Chart

As you can see KSS has strong support at $40.  Other than the financial crisis in 2008, each time KSS has approached $40 it has bounced back.  I also looked at the 3 month chart.

BLOG - KSS 3 Month Chrt

In it you can see that after the lackluster Black Friday shopping results the stock was severely punished.  It fell hard and then continued to drift down further following along the lower Bollinger Band.  However, over the past couple of days it has pulled away from the lower Bollinger Band.  In my opinion this is a positive sign that may provide a good entry point for a naked put trade.

One last thought on why I decided to place this trade.  Kohl’s initiated paying a quarterly dividend a couple years ago.  It now pays a $0.32 quarterly dividend.  This dividend will likely be raised in March.  The stock now yields 3%.  If the timing of my trade is wrong and KSS resumes its fall and I ultimately decide to have the shares put to me I can take comfort in knowing that I will be paid to wait for its eventual recovery.

Regards,

Troy

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