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Deep OTM NP Strategy – APR Week 4

Posted by mounddweller on March 20, 2011

Fellow Traders,

We have a total of 38 selections meeting our Week 4 criteria.  However, I don’t think all 38 are worthy of our risk capital.  As I mentioned in my MAR results post I think it is imperative, given the current market volatility, that we become more selective in what we choose to trade.  So, while I am posting the entire list of 38, I would like to highlight a few that caught my eye as having a good risk/reward profile.

Running down the list the first stock that caught my attention was Interdigital Communications (IDCC).  It closed Friday at $42.01.  The put I’m interested in is the $35 strike.  It has a bid price of $0.60 giving us a ROIC of 1.71% with 18.11% DSP.  Some will take one look at the chart and immediately wonder if I am out of my mind.  The stock had a strong run up from $25 to 57.50 and has since fallen sharply back to the low $40s.   But if you look closely you can see the stock is trying to find a bottom and that the money flow has bottomed out and is beginning to recover.  That technical indicator coupled with the stocks excellent fundamentals makes it a worthy candidate for an NP trade.  IDCC has a net margin of almost 40%!  Yes, you read that correctly, 40%.  It also boasts almost $12/share of cash sitting on its balance sheet.    It currently trades at about 12x trailing earnings.

The second stock that caught my eye was LDK Solar (LDK).  This is a stock I successfully traded under similar circumstances back in late November.  Friday, the stock closed at $11.47.  The APR put at the $9 strike closed at $0.15.  This gives us a 1.67% ROIC with 22.84% DSP. 

The third stock I noticed is one that was on our list last month as well, Rambus (RMBS).  We all know the technology stocks have been taking a beating of late.  Rambus is no exception.  In the past few weeks it has fallen from just over $22 to almost $18.  Friday it closed at $19.06.  The $16 put is at $0.36 bid.  This yields an ROIC of 2.25% and 17.94% DSP.  The $16 stike is below the 52-wk low of $16.94.

I also found three other stocks on the list which I feel are worthy of your consideration.  They are AGO, TSL, and WFR.  AGO insures bonds, while TSL and WFR are solar related stocks.

Best of luck to everyone this month.  I think we are in for quite a ride. 

Regards,

Troy

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