Deep OTM NP Strategy – July Week 1

Fellow Traders,

Below is our list of possible selections for the Deep OTM NP Strategy this last week prior to July expiration.

Two stocks on our list caught my eye.  First, was the Indian IT outsourcing company, Infosys (INFY).  The $60 strike price is below recent support levels and offers over 11% of DSP.  However, two things keep me from recommending this as a possible trade.  One, the company will report earnings on Tuesday, July 12.  Two, the $60 strike price is above the $52-wk low of $56.73.  If the economy were on solid footing I might be willing to take a chance with INFY.  But with things as they are right now, I don’t think it’s worth the risk.

The second possible trade that caught my eye was RBCN.  RBCN sports solid fundaments with over $3.80 in cash and no debt.  It also trades at less than 9x current earnings and 7x future earnings.  The $15 strike is below the 52-wk low of $15.51.  However, with only one week to expiration the premium on the $15 is only $0.10.  Thus, I would have to be willing to pony up $15K in capital to get a minimum of $100 in premium (before commissions).  I’m not willing to do that on a small-cap ($390M) like RBCN.  If RBCN shows up on our screen next week for AUG expirations I may give it a more serious look.

Regards,

Troy

Deep OTM NP Strategy – FEB Week 2

Fellow Traders,

For the first time in what seems like forever I am excited about some of the selections found this week in our Deep OTM NP Strategy.  Without further delay here are the selections for this week.

There are three stocks that caught my eye this week.  All three report earnings prior to expiration Friday (2/18/2011). 

First up, let’s look at Rubicon Technology (RBCN).  As the name implies this is a technology company.  They manufacture and sell monocrystalline sapphire and other crystalline products for light-emitting diodes, radio frequency integrated circuits, blue laser diodes, optoelectronics, and other optical applications.  This is a sector that his been hard hit lately.  Another of our picks from a few weeks back, CREE also falls into this sector.    RBCN closed today at $17.83.  It’s 52-wk low is $14.50 and it sports a forward P/E of 8.57.   The company balance sheet carries $3.62/share in cash and ZERO debt.  The put option we’re interested in is the FEB $15 put which closed today at $0.15 bid.  This option has 16.71% DSP with 1% ROIC with only 15 DTE. 

Next up is Stec, Inc (STEC).  STEC is also a technology company.  They manufacture and market enterprise-class flash solid-state drives (SSDs) for use in high-performance storage and server systems.  STEC closed today at $23.13.  It’s 52-wk low is $9.47 .   The company balance sheet carries $3.15/share in cash and ZERO debt.  The put option we’re interested in is the FEB $20 put which closed today at $0.41 bid.  This option has 15.30% DSP with 2.05% ROIC with only 15 DTE.

Last, but certainly not least (actually, it’s my favorite), is Tekelec (TKLC).  TKLC engages in the design, development, manufacture, marketing, sale, and support of telecommunications products and services.  It closed today at $11.58.  It’s 52-wk low is $10.75 and it sports a forward P/E of 15.04.   The company balance sheet carries $3.25/share in cash and ZERO debt.  The put option we’re interested in is the FEB $10 put which closed today at $0.15 bid.  This option has 14.94% DSP with 1.5% ROIC with only 15 DTE.  

Here’s why TKLC is my favorite pick this week:

(1) Our $10 strike price is below the 52-wk low.

(2) The 1.5% ROIC with only 15 days to expiration equates to a 36.5% annualized return

(3) 28% of it’s market cap and over 36% of its book value is covered by cold, hard cash.

Well, there you have it.  Those are our selections for the week and I actually found some that I wouldn’t mind owning if assigned at expiration.  What more could you want?

Best of luck to all in your trading this coming week.

Regards,

Troy