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Posts Tagged ‘PBR’

Weekly Put Option Strategy – 02/24 Expiration

Posted by mounddweller on February 16, 2012

Fellow Traders,

This week 73 trades met our Weekly NP Strategy selection criteria.  A spreadsheet containing all 73 possible trades can be found here:

Of the 73 possible trades I ran across two that I would be interested in looking into further.

(1) Alpha Natural Resources $19 strike price on stock that closed today at $20.90.  Premium is $0.23.  ANR reports quarterly earnings before the bell on expiration day, 2/24.  Seems to me all of the bad news may already be priced into this stock.  Thus, even with a poor earnings announcement it might not fall much further, or it could actually rise on bad news.

(2) Petroleo Brasil SA Petrobras (PBR).  As you know I just got out of a multi-month position in PBR.  So why would I want to reenter it?  Well, mainly because it has come down a little bit off its recent highs of around $32 despite oil going up.  Today it closed at $29.34.  The $28 put trades at $0.16.  I think PBR has some support at $28 so this might not too risky a trade.

Check out the 71 other trades.  Let me know if you see one you like.  There are several well-known large-caps on the list this week.  Most, if not all, report earnings in the coming week.





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Update – PBR Trade

Posted by mounddweller on January 25, 2012

Fellow Traders,

I closed out my position in PBR today.  Specifically, I BTC 3 JUL $31 puts at $2.57.  As you can see from the list of transactions below I had been in PBR for quite some time (for me anyway).  I initiated my trade in PBR back in May 2011 by selling OTM naked puts at the $32 strike.  After these expired I wrote another round of puts at the $31 strike.  This was followed by a third round, again at the $31 strike.  It was at this point that PBR fell through support and I began rolling out my puts to avoid assignment.  I had to roll out my puts three times before I was finally able to close the position at a profit.

All in all I didn’t do too badly on this trade given the depth to which PBR plunged after falling through support between $31 and $32.  You can see I actually took the opportunity to sell additional puts at the $20 strike when the stock was down around $23.

Here’s a 1-year chart for PBR.

So, after holding onto this position for 247 days, why did I choose to close it out and not wait until it got closer to my JUL expiration?  Two reasons…(1) PBR and the overall market have had a significant run-up in the past several weeks.  I wanted to exit, with profit in hand, before the market and/or PBR reversed and I ended up giving back some of my gains.  (2) What had originally acted as support between $31 and $32 is now going to act as resistance.  Who knows if PBR will be able to punch back through and continue onto higher ground or fall back.

All in all I’m pretty proud of this trade because it shows that if one is patient and actively manages a position you can dig yourself out of a substantial hole.



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Recent Trades

Posted by mounddweller on October 1, 2011

Fellow Traders,

I want to update you on some of my recent trades.  Since I last provided an update I have added to one position and opened three more positions.  First, let me update you on my NP position in Petroleo Brasileiro (PBR).  You’ll recall I initiated this position back in May by selling JUN $32 puts.  You can read my write-up about why I entered the trade here:  From May through July this trade was working wonderfully.  My puts would expire OTM and I would then rewrite them the following month.  Since August the trade has not been working so well.  PBR has declined steadily and I have been rolling my puts at the $31 strike price.  I am now short the JAN $31 puts.  I will continue to roll these puts as long as possible until the price of PBR recovers.

Because PBR has declined substantially and I still believe it is a compelling value I have chosen to sell additional puts at the $20 strike price.   On 9/22 I sold OCT $20 puts at $0.33.  At the time PBR was trading around $23.45.  Yesterday, it closed at $22.45.  The 5-year chart below will show you while I chose the $20 strike price.

Even during the financial crisis in late 2008 PBR didn’t fall much below $20.  Also, at $20 PBR would be trading at 74% of its book value.  My plan is to continue to sell puts at the $20 strike price until PBR begins to recover.  If it should continue to fall below $20 I will begin rolling the $20 strike price puts as well.  I will then commit the last of my planned capital for this trade at a new lower strike price, perhaps at the $17 strike price.

OK, let’s move on to my new positions.  My new positions are in Corning (GLW), Annaly (NLY), and Microsoft (MSFT).  GLW was brought to my attention by an investing buddy of mine.  He is very conservative so when he thinks a trade is nice, I listen.   On 9/22 I sold OCT $10 puts at $0.13.  At the time GLW was trading at $12.25.  This trade gives me a 1.16% ROIC (net of commissions) with almost 20% DSP.  Below is the 5-year chart for Corning.  The $10 strike price is very near the bear market lows.  Other factors leading me to make this trade are GLW’s over $2.60/share in cash (net of all long-term debt) on its balance sheet, its book value of $13.56, and its P/E ratio of 6.

This week I made my two other new trades.  I sold NLY NOV $16 puts for $0.38.  I sold these puts after NLY went ex-dividend.

My last trade was in MSFT.  I sold OCT $23 puts at $0.32.  Net of commissions my ROIC for this trade is 1.3%.  The following 2-year chart shows why I like this trade.

Well, now you are all caught up.  As you can see I am always on the look out for good trades outside of those generated by my two NP strategies.  As the current market volatility continues I will be on the look-out for other good trades.

Best of luck to you in the weeks ahead.




Posted in Portfolio Updates | Tagged: , , , , | 4 Comments »

PBR – An Update

Posted by mounddweller on August 11, 2011

Fellow Traders,

Want to update you on my recent PBR trade.  As you may recall I have been selling NPs on PBR for the past 3 months, first at the $32 strike price and most recently at the $31 strike price.  I opened my third round of NPs on PBR back on 7/18.  PBR was trading around $32.30 and I sold the $31 put for $0.58.   With the recent market gyrations PBR had went from OTM to deep ITM.  It had fallen to as low as $25.94.  With AUG expiration right around the corner I didn’t think there was much chance for it to recover and finish above $31.  Thus, I began looking for opportunities to roll out for a net credit.  With a stock like PBR this is easier said than done.  I quickly found the PBR market maker liked big, fat spreads between his bid and ask prices.  This coupled with being deep ITM meant that the net credit for the SEP $31 puts was very small.  Going out to OCT at the time didn’t appear to be much better.  The market maker was only offering a net credit of $0.40.  As PBR recovered a little in price the net credit offered would go up to $0.50 or $0.55.  The net-credit available at the mid-point was a more reasonable $0.60.  Hence, on Tuesday I put in a limit order to roll-out to the OCT $31 puts at a net-credit of $0.60.  The market closed Tuesday without my trade going through.  The big sell-off on Wednesday eliminated any possibility of getting a good trade.  Thus, I was pleasantly surprised and pleased when the market opened higher this morning.   Between the strong upward movement in the price of PBR and the market maker being a little less greedy I was finally able to roll-out for a net-credit I considered fair.  Below is the trade I was finally able to execute:

BTC 3 AUG $31 puts at $3.60

STO 3 OCT $31 puts at $4.30

If my OCT $31 puts expire OTM I will have earned $362.70 (net of commissions) which equates to a 15.3% annualized ROIC.

For those of you looking for some exposure to the oil and gas industry I would encourage you to take a look at PBR.  The stock closed today at just over $28.  It is trading at less than book value.  The big decline in Brazilian stocks and the recent weakness in oil prices have combined to present a significant opportunity to pick up one of the world’s great oil companies at a fire-sale price.   I am considering expanding the size of my position in PBR by selling additional puts on the next big down day in the market.




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PBR – New NP Trade

Posted by mounddweller on July 19, 2011

Fellow Traders,

Please recall in my post this past weekend I had mentioned that I wanted to re-enter my NP trade on PBR.  Yesterday, I had the opportunity to do just that.  Below are the details of that trade.

As you can see I sold 3 AUG $31 puts at $0.58.  If all goes well and the puts expire OTM I will have a ROIC of 1.77% which annualized is 20.14%.  Find a way to do that every month and you’ll be doubling your money approximately every 3 1/2 years!






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

JULY Expiration Results

Posted by mounddweller on July 16, 2011

Fellow Traders,

Not much to talk about with regard to my July results.  I only closed one position.  That was my NP trade in PBR.  This was my second consectutive month of selling NPs on PBR.  In both cases my puts expired OTM.   My transaction history for this trade is below.

I will be attempting to set-up a similar trade with PBR for the August expiration.  The AUG $31 puts closed Friday at $0.48 bid.  I’d like to get a little bit more than that if possible.  Thus, my intention is to wait and look to sell them on a down day in the coming week.




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NP Trade – Reentered PBR

Posted by mounddweller on June 20, 2011

Fellow Traders,

Regular readers will recall that last month I executed a NP trade on Petroleo Brasileiro S.A. (PBR).  My trade involved selling 3 JUN $32 put for $0.65.  These puts finished OTM at expiration this past weekend.

A brief primer on PBR.  PBR primarily engages in oil and natural gas exploration and production, refining, trade, and transportation businesses.  It is headquartered in Brazil and is in fact majority owned by the government of Brazil.   It has a market cap of $210B and has the stated goal of becoming the largest integrated oil and gas company in the world.

I like PBR at these prices.  It is trading at two-year lows and has a Price/Book value of 1.08.  Recent price weakness appears to be caused by two factors.  First, the price of oil has been declining for the past several weeks.  West Texas Intermediate has fallen from $103 to $93 in less than a month.  Second, there is an overhang of uncertainty regarding the amount of capital required to fund PBR’s next 5-year plan.  Some analysts and investors are worried funding the plan may require a secondary offering of stock, thereby diluting existing shareholders.


As I mentioned above I am comfortable owning PBR at these prices.  Yes, it could still fall significantly if we experience another market crash like 2008-2009.  However, I am certain that in the long run oil demand (and consequently price) are headed in one direction; up!  Thus, while I might have to sit on a paper loss for a period of time, I am confident PBR will recover and go on to hit new highs at some point in the future.

For all these reasons I decided to enter a new PBR trade.  Today, I sold 3 JUL $31 puts at $0.55.  My ROIC, net of commissions, is 1.67%.  With 25 DTE my annualized return will be 24.37%.

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New NP Trades

Posted by mounddweller on May 24, 2011

Fellow Traders,

Wanted to update y’all on my recent trades.  Thus far this week I have established two new positions.

First up is Petroleo Brasileiro (PBR).  Yesterday I STO 3 JUN $32 puts at $0.65.   After loosely following its gyrations for the past several weeks (mainly down) I decided the time was right to sell some puts.  Like the proverbial broken clock which is guaranteed to be correct at least twice a day, my timing was actually correct this time.  Today, PBR bounced back up and the puts I sold for $0.65 yesterday, closed today at $0.39.  Of course tomorrow could be a down day and they could be back at $0.65 or more.  Anyway, a one-year chart on PBR shows why I like this trade.

PBR has bounced off support at $32 multiple times in the past year.  Barring a complete collapse in equities I believe it will do so again.  If I’m wrong I can roll the puts out further in time until I’m ready to have it put to me or I can accept assignment on June 18th and begin selling CCs.  Regardless, I will be happy to own PBR at $32.  It is one of the world’s great energy exploration and refining companies.   At $32 I would own it at less than 8x trailing earnings and a fraction over its current book value of $29.80.

Next up is MEMC Electronic Materials Inc. (WFR).  MEMC is a large manufacturer of polysilicon wafers.  It sells into both the semiconductor market as well as the solar energy market.  Therein lies part of the problem or opportunity depending upon your point of view.  Like PBR, WFR has sold off sharply over the past few months.  This is primarily attributable to the selloff of all solar related stocks.  WFR has fallen from $15 to just under $10 since mid-February.  It has now reached value territory, selling for < 7x prospective forward earnings and < book value ($10.11).  Here’s the chart for WFR:

I’ll be the first one to admit I may be a tad early on this one.  The stock has support around $10 but has previously fallen as low as $9.50 before bouncing back.  Time will tell if I should have waited a few more days but over the long haul I feel WFR will recover and this will prove to be good trade.  Here’s the trade I executed; with the stock trading around $10.10 I STO 5 JUN $10 puts at $0.43.

Before ending this post I want to point out one thing.  I opened both of these trades with half of the amount of capital I ultimately would be comfortable investing in either one.  Doing so gives me flexibility in case I’m wrong.  I did this because the market is clearly trying to decide where it wants to go next.  If it decides down is the way to go I want to be able to have capital in reserve should I need it to assist me in working my way out of a hole.



Posted in Portfolio Updates, Troy's New Picks! | Tagged: , , | 5 Comments »