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Posts Tagged ‘RVBD’

Deep OTM NP Strategy – AUG Week 4

Posted by mounddweller on July 23, 2011

Fellow Traders,

Below is the list of selections for this 4th week of the August option cycle.  You’ll notice it is very slim pickings.  So much so that I have nothing to recommend.

However, before I sign off for another week I would like to briefly discuss the status of the two potential trades I highlighted last week, IDCC and RVBD.  First the good news, IDCC soared this week after it was announced that Google was talking to IDCC about buying the company.   A week ago, Friday (7/15) IDCC closed at $43.01.  Yesterday (7/22) it closed at $72.96.  If you haven’t done so already I highly recommend buying back your puts and closing out the position.  What goes up might possibly fall just as fast.  Take the money and run!

Now, for the bad news (or at least not so good news).  RVBD fell dramatically this past week after announcing they were purchasing a company named Zeus at a sky-high price of 10x sales.  Mr. Market feels RVBD is grossly overpaying and let their opinion be known by selling in earnest.  The stock fell from around $39 last Friday to close this Friday at $32.12.  For those of you who sold the AUG $32 puts I would exercise some patience and see how the situation plays out.  The stock has good support around $32 and has recovered back above our strike price after falling as low as $31.09 on Thursday.  However, it RVBD reverses courses and begins going back down I wouldn’t hang around.  I would buy back the puts for a loss and move on.

Regards,

Troy

 

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Deep OTM NP Strategy – AUG Week 5

Posted by mounddweller on July 17, 2011

Fellow Traders,

As is usually the case we have a wide selection of trades to consider in this the first week of the new expiration cycle.   Please also notice that this is one of the 4 times a year when we have a 5-week cycle.  Here is our list of opportunities this week:

As you can see I have highlighted the two opportunities that I think are worthy of your further consideration.  Both IDCC and RVBD have appeared previously in the selection list.  I also have written about them before.  You can read those write-ups here

IDCC: https://troysmoneytree.wordpress.com/2011/05/29/deep-otm-np-strategy-june-week-3/

RVBD: https://troysmoneytree.wordpress.com/2011/02/25/otm-np-strategy-mar-week-3/

Both selections have good support at their respective strike prices.  However, if I had to choose one over the other I would go with IDCC.  It trades at a more reasonable P/E and pays a small dividend.  If the market hits a rough patch and I were to have IDCC put to me I would feel more comfortable than I would with RVBD which trades at a very rich forward multiple of 33x earnings.

Have a great week!

Regards,

Troy

 

 

 

 

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New NP Trades

Posted by mounddweller on April 13, 2011

Fellow Traders,

I made a couple of NP trades over the past couple of days that I want to update you on.  One is a very conservative trade on a true blue-chipper, MSFT.  The second one undoubtedly involves a substantially greater amount of risk.  It is with the high-flying mid-cap networking company Riverbed Technology (RVBD).

First up let’s look at my MSFT trade.  Yesterday (4/12) with MSFT trading at $25.59 I decided to STO 5 MAY $24 puts at $0.26.  My ROIC is 1.083% with 38 DTE and 7.15% DSP.  Here’s why I like this trade; look at the chart below of MSFT’s trading history for the 9 years.  It has gone nowhere.  It peaked in October of 2007 at $37 and fell to about $15 in March 2009.   Eliminate those peaks and valleys and it essentially has been range bound between $23 – $30.  With MSFT currently trading in the bottom of this band selling the MAY $24 puts seems like a pretty safe trade.

My objective in this type of trade is to generate a 12-15% annualized ROIC.  The strategy for achieving this objective is to sell near month puts on safe, large-cap stocks.  If the puts expire OTM and the stock is still in the bottom of the range I’ll repeat the trade next month.  If the puts finish ITM I will accept assignment and sell near month ATM calls against those shares.

My inspiration for doing this type of trade comes from my investing buddy, friend, and mentor Teddi over at www.fullyinformed.com.  Check out her recent article on how her trades in MSFT have outperformed gold over the past few years. 

Now let’s look at my more speculative NP trade in RVBD.  This is strictly an opportunistic trade.  Strike when the iron is hot.   My regular readers will recall Riverbed Technology (RVBD) appeared on our Deep OTM NP Strategy selection last month.  The stock was at $41.25 when I sold 3 MAR $35 puts for $0.45.  Those puts expired OTM.  Since then I had been keeping my eye on RVBD.  The stock price had continued to fall, closing yesterday at $30.92.  After the close yesterday afternoon they pre-announced their 1st quarter results.  Sales were up over 45%.  They are stealing business away from CSCO.  Anyway, the stock gapped up at the open this morning at over $35.  I took advantage of this by placing the following trade: STO 2 MAY $30 puts at $0.75.  My ROIC is 2.5% with
over 16.5% DSP.  The strike is below recent lows.  The PF at the time of my trade was 2.0.

My objective in this trade is simply to generate a generous ROIC relative to the amount of risk I believe I am taking.  The strategy involved is just taking advantage of opportunities as they present themselves in the market.  As I mentioned earlier this trade is not without substantial risk.  RVBD has been on a tear over the past year.  It had gone up almost 200% (from $15 to $45) in the past year before starting to fall back to earth a month or so ago.   

Regards,

Troy

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MAR Wrap-up and New APR Trades

Posted by mounddweller on March 20, 2011

Fellow Traders,

Like many of you I’ve spent a good portion of this weekend reviewing how I did in March and looking for potential April trades.  Here’s a brief recap of my March activity.  First, my closed trades:

(1) Back on February 4th I sold 4 MRK MAR $31 puts at $0.35.  After commissions I netted $128.03.  These puts expired OTM.

(2) On February 28th I sold 3 RVBD MAR $35 puts at $0.45.  After commissions I netted $123.77.  This was one of my Deep OTM NP Strategy selections.  The puts expired OTM.

Now, onto my trades which remained open.

(1) First Exelon (EXC).  I started this trade almost one year ago, back on April 16th.  My most recent activity includes selling 2 APR $43 calls at $0.90 and then buying them back late last week at $0.30.  Also, earlier this month I sold 3 APR $40 puts at $0.50.  Between selling calls and puts, and the dividends received I have reduced my cost basis from $42.50 to $37.46.

(2) Next up is Hugoton Royalty Trust (HGT).  This is my third trade in HGT.  The first two were very successful.  I initiated this third trade back on March 1st, buying 500 shares of HGT at $21.50.  On March 17th I sold 5 AUG $22.50 calls at $0.80.    The strategy with HGT is to buy the shares, sell calls 4-6 month out, and then collect monthly dividends.

(3) CSCO is my next open position.  Back on February 10th I opened this trade by selling 5 MAR $18 puts at $0.21.  On Friday I rolled these puts out to JUN for a $0.70 net credit.

(4) NOK is up next.  I did a buy/write on them back on March 11th at a net debit of $8.17.  I sold the APR $9 calls. 

(5) My remaining open position is in Getty (GTY).  On March 14th I sold 5 MAR $22.50 puts at $0.55.  These puts expired ITM and thus I will have 500 shares of GTY put to me at $22.50 on Monday morning.  My plan is to sell the JUN $25 calls at $0.75 and collect the $0.48 dividend which will be paid in mid-April.

Now onto my my list of potential trades for April.

Let’s briefly look at each of these.

(1) First up is Gamestop (GME).  You’ll notice I have them listed twice.  That’s because I can’t decide which trade I like better.  I like the ROIC with the $19 put and I have traded GME at this strike price with good results before.  However, I like the $18 strike because there is better support at this price.

 (2) Next is CSCO.  As I mentioned above I am already short 5 contracts at the $18 strike.  This trade expands my position by selling more puts at a much lower strike.

(3) Aflac (AFL) is my next pick.  It has fallen sharply because of the tremendous disaster in Japan where it does a lot of business.  It closed at $50.47 on Friday well off its 52-wk high of $59.54.

(4) JNJ is up next.  I ‘borrowed’ this pick from by investing buddy Teddi over at www.fullyinformed.com.  JNJ is approaching bargain territory so this is a good trade despite the sparcity of DSP.

(5) AT&T (T) is fast approaching their ex-dividend date and is trading at a nice price.  Thus, I’m happy to enter a buy/write trade here and reinitiate a position in T.

(6) Last up is GTY which I discussed up above.  As I said before I intend to sell CCs against the shares I’m acquiring tomorrow.  With a dividend yield in excess of 8% I won’t mind holding this one for awhile.

Best of luck to all my readers out there.  Let me know your thoughts on my trades and I would enjoy hearing what trades you’re considering.

Regards,

Troy

Posted in Portfolio Updates, Potential Trades, Troy's New Picks! | Tagged: , , , , , , , , , , , , | 4 Comments »

OTM NP Strategy – MAR Week 3

Posted by mounddweller on February 25, 2011

Fellow Traders,

Well, a little bit of excitement this week, huh?  Hope everyone was able to find a trade or two with the uptick in volatility.  Unfortunately, I did not.  I had several I was keeping my eye on but either never got filled or didn’t pull the trigger.  Anyway, enough about the past.  This post is all about the future, what looks good in the coming week for our Deep OTM NP Strategy.  Below are the selections for this week.

The first thing I hope you notice is that we actually had a large-cap stock meet our selection criteria.  It’s been quite some time since this last occured.  Lorillard (LO) is a tobacco company.  More about it later as it is my pick of the week.  Two other stocks caught my eye this week as well.  They are  Rambus (RMBS), a semiconductor company, and Riverbed Technology (RVBD) which manufacturers networking and communications equipment.

Now back to Lorillard (LO).   It, through its subsidiaries, engages in the manufacture and sale of cigarettes in the United States. The company offers 41 different product offerings under the Newport, Kent, True, Maverick, Old Gold, and Max brand names. It sells its products primarily to wholesale distributors, who in turn service retail outlets, chain store organizations, and government agencies, including the United States Armed Forces. The company was founded in 1760 and is based in Greensboro, North Carolina.

Did you catch that?  The company has been around since 1760!  Over 250 years!  If we get caught having to accept assignment I don’t think we have to worry about it going out of business.  Now, how did such a conservative, well managed company happen to pass our screens?  Glad you asked.  Lorillard and one of its competitors, RJ Reynolds, are suing the FDA  seeking to block consideration of an imminent advisory panel report that could recommend a ban on menthol-flavored cigarettes.  The advisory panels recommendation is due to be released on March 23 (note: this is after option expiration on 3/19).  Menthol flavored cigarettes constitute a very large chunk of LO’s revenue.  Hence, the recent drop in price (see chart below) and the increased option premiums.

I don’t think we have to worry about the FDA pulling mentholated cigarettes off the market.  According to Euromonitor International, mentholated cigarettes make up roughly 30 percent of U.S. annual cigarette sales ($83 billion).  Does it seem reasonable to you that the government will let this tax generating cash cow go the way of the Dodo bird.  Not likely!

As you can see from the graphic above the recommend strike price for the LO naked put trade is $65.  That’s over $5 below the 52-wk low of $70.24.  The MAR $65 put closed today at $0.98 bid, a ROIC of 1.51% with over 17% DSP. 

Next up is Rambus (RMBS).  Rambus Inc. designs, develops, and licenses chip interface technologies and architectures that are used in digital electronics products.  It sold off sharply earlier this week dropping almost 10% before bouncing back strongly on Friday.  The 52-wk low is $16.76, and our strike is at $18.  Rambus has already announced 4th quarter earnings so you won’t have that hanging over your heads.  Here’s the 1-year chart:

The last pick to catch my eye this week is Riverbed Technology (RVBD).   It provides solutions to the fundamental problems of wide-area distributed computing in the United States and internationally.   You don’t have to worry about earnings with it either as it announced it’s 4th quarter results back on 1/28.  The put we’re interested in is the MAR $32.50.  You’ll notice it is almost 23% below Friday’s closing price of  $41.79.  My cursory glance through the headlines could find no reason for the high premium on a put that is so far OTM.  If anyone has any insights, please share them by posting a comment below.  Here’s the chart for RVBD:

One final note for this week.  I want to put in a plug for my investing buddy, Patrick.  I use his search engine to find our selections each week.  Check out his site at http://www.mtrig.com/.   Note: I am not compensated in any way for recommending his site.

Regards,

Troy

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