The Money Tree

Safely Generating Income in Retirement

Posts Tagged ‘NP’

New NP Trade – O

Posted by mounddweller on July 2, 2009

I have executed yet another NP trade.  Anyone reviewing my trading history in 2009 will find I have been almost exclusively selling NPs this year.  As a matter of fact I’ve only executed one new CC trade in 2009.  To be quite honest, I’m not sure why that is the case.  It’s not for lack of trying.  I run my VISIONS Scout screener every week looking for great CC trades.

Anyway, like I mentioned above I did execute a new NP trade today.  I sold the AUG O $20 puts for $0.50.  My ROIC on this trade is 2.50%. 

Now that I’ve explained what I did let me tell you why I did it.  My reasons for executing this trade is similar to that of my recent NP trade in TK.  I want to own O, Realty Income Corp long-term.  Realty Income Corp is a REIT engaged in the acquisition and ownership of commercial retail real estate properties in the United States. The company leases its retail properties primarily to regional and national retail chain store operators.  It pays dividends monthly.  In fact the company has declared 468 consecutive common stock monthly dividends throughout its 40-year operating history and increased the dividend 54 times since Realty Income’s listing on the New York Stock Exchange in 1994.  Annualized the current dividend is $1.7085.  If assigned at $20 my initial dividend yield will be 8.54%. 

My objective in owning O and TK (as well as some high yield MLPs) is to build a portfolio of stable business which are able to consistently grow their dividends.  By reinvesting those dividends from now until when I retire I plan to have a substantial income stream to supplement my CC/NP trading income.  In the interim I can also generate additional income by selling CCs on these positions as I accumulate shares.

Below is the price chart for O.  You’ll immediately notice this is NOT a good short-term trading candidate based on Ron Groenke’s criteria.  I would not recommend this trade to anyone unless (like me) you intend to hold it for a very long time.  My plan is to sell additional NPs over time if the price continues to fall.  For example, if O trades for less than $20 and the stock is put to me, I’ll probably sell additional NPs at the $17.50 strike price or lower until I have accumulated the total number of shares that I’d like to own.

VISIONS - O price chart

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New NP Trade – TK

Posted by mounddweller on June 22, 2009


First and foremost let me be very clear, this is unlike any of my recent NP trades.  For the past several months all of my NP trades have had the following objective and risk profile:

Objective: Achieve > 2.5% ROIC by selling NPs at a strike price where I feel there is little probability of having the stock put to me.

Risk Profile: (1) > 10% downside protection, (2) strike price < 52-wk low or significant level of support.

This TK trade is different.  This is not a short-term trade.  I want to own TK long-term.  However, I think the current price is a little high so I’m going to sell naked puts at a strike price where I wouldn’t mind owning the stock.  My objective is to accumulate 700-900 shares at an average cost of around $15. 

So today I sold 2 TK JUL $17.5 puts at $0.70.   The stock has fallen sharply over the past few days from a recent high of $23.48.  This follows an equally rapid rise from a low of $15.55 back on June 3rd.  The sharp increase in price was due to a short squeeze.  I suspect the sell-off reflects a return to the previous trend.

This is not my first NP trade in TK.  TK originally caught my eye back on June 3rd.  At that time I sold 2 JUN $15 puts for $0.70.  During the subsequent short squeeze I bought them back for $0.05.  My thought was I might have another opportunity to sell them again prior to expiration if TK fell.

So, I’m guessing some of you might be wondering why I didn’t originally post my first trade here on my blog.  Well, quite simply because it didn’t fit my earlier trade pattern and I thought it might ‘muddy the waters’ so to speak.  But, in rethinking through my goals of this blog I decided that if I used Ron’s VISIONS approach and software to identify the opportunity and time the trade then I should record it on the blog.

Below you’ll find my complete trading history in TK and a copy of the TK price chart.

TK Transactions





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Update – UNG NPs

Posted by mounddweller on June 19, 2009


Was able to sell the remaining 7 contracts on my UNG NP trade today for $0.35.  Now have 10 open contracts on the UNG JUL $13 puts.



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New NP Trade – UNG

Posted by mounddweller on June 18, 2009

Guys & Gals,

I executed a new trade today; well, OK partially executed.  I entered a trade to sell 10 JUL $13 puts at $0.35 or better.  By the end of the day I had only gotten a partial fill on 3 of my 10 contracts.  It was very frustrating to say the least.  UNG went down all day but yet I couldn’t get filled.  Never mind the fact that others were periodically getting filled at $0.35.   Yesterday, the JUL $13 contracts traded at $0.35 when UNG was as high as $15.80.  Today, I got my partial fill at $0.35 while UNG was trading around $15.45.  UNG closed right at its low of the day of $15.29 and yet still noone wanted to pay $0.35.  The bid on the option closed at $0.25.

While I was very much wanting to blame the market makers I know that’s not the real reason.  It’s all about supply and demand.  We’ll wait and see what tomorrow brings.  Hopefully I’ll get filled on my remaining 7 contracts.

Anyway, enough about that.  Here’s why I like this trade. 

(1) UNG has never closed below $13.  It’s intra-day trading low is $12.69.  Thus, low probability of being assigned at this price.
(2) UNG is currently attracting a lot of attention. Look at the increase in volume in just the past few months. I think this means the ‘smart money’ knows the bottom is in for natural gas and thus are ‘placing their bets’.
(3) UNG closed today at $15.29.  That gives me 15% of downside protection.
(4) My ROIC is 0.35 / 13 = 2.69%.  That’s 32.76% annualized.

Note: When studying the below price chart you’ll notice this NP trade does not have a TA (i.e., ‘take action’) rating.  Rather, the stock is still trading well below the bottom leg of the VISION V and thus only rates a GR (i.e., ‘get ready’). 

So why did I go ahead with the trade? Well, primarily because as I get more comfortable trading NPs I’m finding that, depending on your objectives, many good NP trades can be found on GR rated stocks.  My objective in these type of trades is to NOT have the stock put to me.  Thus, I’m looking for stocks that have bottomed and ‘turned the corner’ so to speak but haven’t gotten very far away from their 52-wk low.  Other criteria I look for are a minimum of 15% downside protection, and a strike price near, preferably less than the 52-wk low.  I also look for trades that give me a decent ROIC even though I’m selling a put with a strike price > 15% below the current price.  My target is 2.5 – 3.0% for the near month expiration.

VISIONS - UNG Price Chart

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Position Update – JEC

Posted by mounddweller on June 5, 2009

I closed out my position in JEC this morning by BTC JUN $35 puts for $0.05.  Why did I do this?  Simply because the risk in the stock falling was higher than the additional return to be gained ($0.05/share) with another two weeks remaining to expiration.  Doing so also releases another $7000 (these were cash secured puts) for any other trading opportunities that present themselves over the next two weeks.

So how did I do on this trade.  Well, let’s look at the numbers.  I sold 2 puts back on 5/11 at $1.25, netting $239.53 after commissions.  I bought them back on 6/5 at $0.05, paying $20.45 total with commissions.  Thus, I ended up making $219.08.  Since this was a CSP transaction my ROIC was ($219.08/$7000.00) or 3.13% in 25 days, yielding an annualized ROIC of 45.69%.  The table below presents these numbers in a more organized fashion.

 JEC transactions

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