CCI Sells Last Lot of Teva

CCI has been in the process of exiting the TEVA position for awhile.
The final lot was sold today for $40.97. An 8.4% gain on this specific lot of the position.

The full saga of the Teva holding can be relived by following  these posts.   I'd have to pull out some old records to determine the exact results of this holding but it was probably about a break even.  A small loss in capital gains but many successful option premiums collected.   Not a great performance during a general up  market, but also not a negative drag on the portfolio.

Harvested Covered Call Option Premium in Teva

As last discussed in this post in late July, CCI had sold Sept $40 calls against the last lot of TEVA shares in the portfolio. At that time the stock was trading slightly over $40.

Late Monday, with the stock still trading slightly over $40, the option position was covered.  The option was sold for $2.00 and covered at $.39 for essentially a gain of $1.60 or 4%  in less than 2 months. 


CCI will still be looked to sell this last lot of Teva on the next bounce.

Teva covered calls....again.

Readers will recall that CCI has been in the process of exiting a position in Teva (teva ) for awhile.  The rational for originally getting into, and now out of, this position can be found by following this thread. Using covered calls we were able to dispose of two lots of the position at over $45. Unfortunately the stock plunged into the $30s before we could exit the last lot of shares.  

With Teva trading back over $40, CCI sold Sept $40 covered calls for just under $2.00/contract. 
Time will tell if this option will actually be held to expiration, but I'm comfortable exiting at an effective price of $42.

Seems Natural to Speculate in WPRT

Generally CCI's investment style is conservatively biased towards grinding out modest, higher probability gains.
However, every portfolio can probably benefit from having a few speculative positions.  I've taken a small, speculative   position in Westport Innovations. (WPRT).

WPRT is a leader in the field of Natural Gas based engines.  In general, I'm thinking the upcoming political season will generate some press about this space, and could be a catalyst to drive a significant increase in the stock price.  On the other hand, there are many issues with this (and any) smaller company which makes this a very speculative investment.

My overall rational and timing about taking this position is described in a Seeking Alpha article here. 

FYI, since the article was drafted a few days ago, the stock has fallen a few dollars. So now it is obviously  even a better buy....lol!    More seriously, as discussed in the article, this weeks pull back makes it seem like a good thing that options were used to enter the position, thereby lowering my cost basis.

Static in Skullcandy headphones, might be a buy

Skullcandy (SKUL) is a manufacturer headphones and other audio related products who might benefit from the ever growing use of a diverse set of mobile devices.  Skullcandy's  IPO was last summer.
It reported earnings yesterday, and unlike many recent IPOs actually has earnings.  However, the stock pulled back as earnings apparently did not meet elevated expectations. This article

adding-to-skullcandy-on-post-earnings-pull-back-noise

describes why now might be a good time for a small,  speculative play in this stock.

More Teva Covered Calls to Exit

Based on the rationale discussed here  CCI has decided to exit the portfolio's position in TEVA.

TEVA closed trading Friday  at $45.63.

• Last weekend one lot of shares was called away via the assignment of the April $45 calls at an effective  price of $45.41

• Near the market close today, CCI sold the $45 May calls for $1.38 after commission.   If the stock stays above $45 for the next 3 weeks the final lot of Teva shares will be called away for an effective price of $46.38.  In theory there is about a 60% chance of this happening.. If the stock reverses back down this month, this option premium will provide up to a 3% downside hedge.

Sold Covered Calls in Teva

CCI has held a half position in Teva (TEVA) for awhile.

The primary reason for holding the stock was management's long-term goal of $7 eps driving a very attractive forward validation and generic drugs seeming to be a growth market.   My original thoughts on Teva are shown here. 

With a new management team coming into place it is less clear if their is still a commitment to this longer term goal, or at minimum it is likely that new management may want to take some time to adjust their view of the future plan.  Further one of the risks related to Teva is that despite the fact that it is a global company, the stock price will likely be adversely  impacted by any macro issues related to the mid-east.  Tensions in that area of the regions seem to be growing and probably already having a drag on the stock price.  Our position is near break even.

CCI sold one lot of the stock as documented here .  With the stock trading around $43.50,  CCI sold one lot of April $45 calls for about $.45 after commissions today.  If this stock rebounds toward $45 it will be called away as part of continuing to reduce exposure to this holding.  If the stock does not rise, the 1% premium will serve to provide a very small buffer to downside risks.

ANR Call Spread - Foruth Time a Charm?

As last discussed here CCI has made several attempts to repair a trade in ANR by buying a 1x2 call ratio spread.    With some recent positive movement in the stock, time to try that that once again.  This time by buying 1 lot of Mar ANR $24 and selling 2 lots of Mar ANR $26 calls on Friday.  That trade was done for a modest net credit if $.10/contract.   If the stock can bounce back to $26 (still my adjusted book value) we will have more than recovered the loss in this trade.

FYI, This weekend ANR discussed shutting in a small amount of production.  That could be a catalyst to  change some of the dynamics for this stock.

Teva Shares Called Away

Teva continued to move up, and one lot of stock was called away at $42.50 via options assignment this weekend.  Overall the Teva position is up nicely, but this lot will have been called away  at a loss. This lot was sold at a loss, but the overall position is up nicely.

As documented in  this original article , one of the main reason for liking this stock was a management team goal of over $7 eps in 2015.   It is not clear to me that the company is on track for that goal any longer, and certainly the identification of a new CEO could change this type of goal.  Hence, at this point I'm inclined to wait and watch with half a position in play, with a bias towards closing this position on any more upward movements.

ANR Call Spread - Never mind

This recent post described a 1x 2, $23/$25 call ratio spread CCI established on  ANR.  CCI  thought that ANR might be ready to rise and this trade could help the position recover.  Unfortunately,  ANR did not cooperate and retreated back below  $20.  This move seemed to mean it would take too large of a move for this trade to work out, so CCI took off this trade for a few penny, non-material gain.  If the stock moves up we may look to put it back on when it has a higher chance of success.

ANR ratio spread - Is third time a charm?

Readers will recall CCI had established the $23-$25, 1 by 2 ratio call spread in both Nov. and Dec as a way to repair a put sale gone bad in ANR.    Both times the stock retreated and these spreads expired worthless.

Let's hope the third time is a charm, because today CCI re-established this spread in Feb.  ANR was trading around $22.50 and trade was done for a very modest $.04 per contract credit.  If you need  a refresher on this activity and the rationale for this recovery trade it is documented here.    Book value (from Yahoo finance)  is still over  $36 and my calculations of tangible book value is still over $25.   Hence, it seems the stock still has a reasonable chance to get back over $25.  At that price the spread will have max gain, but it will start to make money over $23 ...all for no further out-of-pocket costs.

Teva - Covered Calls

CCI's position in TEVA has not moved very much over the past months. Today it jumped nearly 7%.  It seems the market likes the idea of a new CEO!  In the longer term, a new CEO could be a good change agent to help drive this stock towards my original target price near $50.  However, in the shorter-term I suspect that today's positive reaction might be short-lived. It usually takes several quarters for a new CEO to have an impact on the company.

Hence, this morning CCI sold Jan $42.50 calls against one lot of the stock in the portfolio for a credit of $.80. The stock continued to move up during the day and an investor could have gotten a much better price or moved to the $45 strike.  Two scenario's 

•  Today's positive move was indeed an over reaction, and the stock will pull back in the short-term.  In this case CCI will look to harvest some premium and potentially roll this same call out t a future month
• The stock stay here or rises.  In this case one lot of share will be called away at an effective price of $43.30, and the other two lots in the portfolio will continue to enjoy the ride. 

ANR - Let's Try That Again

Alpha Natural Resources (ANR) was up a "modest" 14 % today to nearly $24.  Of course that is after an even larger percentage fall the weeks prior. Yet another example of "rationale/efficient" markets.

Readers will recall our last activity in this stock was to establish a Nov $23-$25 1 by 2 ratio call spread for no cost against one of the lots of stock held in the account.  If you need  a refresher on that activity it is documented here.   The stock had bounced back nicely towards my price target of $25-$26.  It looked like this strategy had worked perfectly.  However, the stock reversed right before expiration,  and the trade expired with no impact on the p/l.   Rats.

With today's gain and my calculations of adjusted, tangible book value still over $25, CCI put on the same trade for December options.  Specifically, bought 1 lot of Dec $23 calls and sold 2 lots of Dec $25 calls for a net debit of $.09 after commissions.   Obviously we need the stock to stay over $23 to make money and the best case is for it to climb over $25.    With the way this stock moves that can happen very quickly.

Stay tuned.

Generating Income via Put Selling of November Options

With volatility in options still very high by historic standards, CCI continues to believe it makes sense to pursue the generate of income via put selling.  The past two months CCI has picked 2 option plays for the next month's expiration.  A recap of those trade and this months selections are discussed in this article at seekingalpha.com.

One of these trades is the next step in managing the Alpha Natural (ANR) position previously established by CCI.  The other is another round of selling of Corning (GLW) $13 puts.  

FYI, since that article was written earlier in the week, GLW reported positive earnings and moved up a few percent.  This already makes the GLW put sale profitable.  If those gains in price hold, and the reduction of perceived risk by the passing of the earnings release drops option volatility, CCI will likely cover this position and look to deploy the capital on another put sale in  stock with more option premium.  

Trying to "Thread the Needle" on ANR again.

Last Friday, two previously discussed option positions on Alpha Natural Resources ANR ($26 short puts and $34 covered calls) expired worthless.  That means CCI successfully "threaded the needle" between these two strike prices.  OK... so maybe "threading the needle" is a bit of an exaggeration given those positions represented a $8 (approx. 26%)  wide gap.  However,  high volatility on this stock's options meant that those two mutually exclusive trades both were positive, yielded 4% and 3% respectively. 

Of course, CCI still sits on lot of shares of the stock, with a  cost basis just under $40, that is deep underwater.   Hopefully, there is still  some base under the stock.  Additionally,  implied volatility/price of options is still quite high.  Hence CCI is  thinking of trying to "thread the needle" again with two similar option plays in October.  As a first step in that process,  one lots worth of Oct $26 puts were sold late Monday for $1.35 (5.2% premium).  Rationale for this trade (and another similar option trade on BAC) is contained at this article  at seeking alpha.   If ANR were to rebound, CCI would look to reestablish a covered call position against the already owned lot of shares.

Teva Time - Take Three

This weekend Teva $37.50 puts expired and the portfolio pocketed $1.37/share (3.6%).

The portfolio is still long and wrong two lots of Teva.   The initial article describing the rational for investment in Teva  here  focused on their long term plan to earn $7+/share by 2015.   I'm not aware of any updates from Teva to that plan, but it is possible some recent set backs in their pipeline could make that goal more difficult to achieve.  Conversely, that long term plan called for earnings of about $5 this year and that estimate is still supported by the analyst community.  Further I suspect Teva management will not give up on this plan easily or without a fight, and even earnings of $6/share would make the current price attractive.   With no reason not to believe the longer term plan will generate more earnings and the attractive short term valuations (i.e. forward pe 6.6) CCI continued to look toadd a  third lot of Teva to the portfolio. 

With the options play mentioned above not resulting in the stock being acquired, CCI simply bought a third lot of shares today.   Price net of commissions was at $37.75.  Conceptually adjusting for the premium received above this lot was in essence acquired at $36.38.   Hopefully the stock will hold the chart support in the low $37 and bounce back going into earnings.   Also, acquiring this lot of stock sets up the portfolio to consider tax loss selling of the first lot of shares bought earlier this year at some point in the future.

ANR - What next?

CCI had success trading Alpha Natural Resources in the past, and about a month ago re-entered the trade via selling one lot of $41 Aug puts.   Unfortunately, since then ANR has gotten clobbered really, really hard.  Some of the reasons include; the general market decline, perceived global slowdown and hence less demand for coal, and most importantly a poor earnings report.  The stock declined to a recent low of $26 and one lot of shares was put to CCI at options expiration for a cost just under $40.  Ouch.

When things fall this much, obviously the original thesis was not right.  However,  instead of just panic selling (although that is always an urge just to get rid of the pain), I looked into some fundamentals. The first thing that popped out at me was Yahoo Finance showed ANR book value at $37.  In theory that means ANR is trading well under book value.   That seemed to be too good to be true, so I looked a little deeper at the balance sheet. A lot of the book value is associated with good will from the Masse acquisition and other intangibles.  However, by my math, just tangible assets represent a value of  $26/share.  This strikes me as a  good support level for the stock.  The market might agree with that because it appears to be where the stock bottomed in recent trading and the option volume around that strike is slightly elevated. 

Last night, ANR announced a stock repurchase program.   I'm not sure if that is really a long-term bullish sign, but at minimum it does seem like a good attempt to stop the slide of the stock. 

Given the above information, CCI sold a lot of $26 Sept puts this morning for $1.08.  That option premium will yield 4% if the stock stays above my adjusted book value over the next month.

By mid morning, the stock was up near $31 up 9% on the day.  (Did I ever mention how much I love those rational markets).  CCI figured this can't go on forever, so we sold a lot of Sept $34 covered calls against the shares owned for $1.01.  That is about a 3% option premium.

* * *

Entering a position at $40 in ANR certainly seems like a really bad decision..  In these situations the urge to panic sell or wildly double down exist.  Hopefully these options trades represent a good balance between those two extreme choices. CCI is hoping the stock settles in somewhere between $26 and $34 and we can collect both premiums as a way of recouping some of the losses on this bad call. 

Stay tuned.

Teva - Options Assigned - "5th time is a charm"

Aug $47.50 options sold a month ago, were assigned this option expiration cycle.
This is the 5th time puts were sold against the stock.
The other 4 times they expired for a gain.  So...the 5th time is a charm.
In total over the 5 transactions,  CCI pocketed $5.83 in option premiums.
So theoretically the break even point on this lot is $41.67.

Of course the stock is now down at $38.73.  Earnings estimates for this year are still at $5.  That estimate may get lowered, but even at $4 in earnings this still would have an attractive multiple.

As previously documented, we also have naked $37.50 Sept puts to add a potential third lot of the stock.
For now, we will just sit and wait awhile to see how this develops

Teva - Time for more

Teva stock is down about 24% from its previous peak.  Ouch.
It started going down based on its earnings report and subsequent poor clinical trials on Liquinamod MS Drug.  This is likely to lower future earnings estimates at some point in time, but the stock still has single digit p/es.  The stock further snowballed after earnings in conjunction with recent market declines.  It is a little hard to articulate why a European financial problem or US debt downgrade should adversely impact an Israeli drug manufacturer. One theory might be that Teva has had a lot of hedge fund ownership, and some of those funds might be in a situation where they are forced to sell something. Teva's bad results have made it a likely candidate for liquidation, and hence possible there is some forced selling going on making it a good time to step into the battle..

CCI is long one lot at $48 and will almost certainly be long a second lot at a cost (after options adjustments) of $41.67.   Stepped into the downdraft today to sell Sept $37.50 puts for $1.37.  If the stock stabilizes we will make about 3.6% in 6 weeks or if the drop continues we will be long a third lot around  $36.13.

Performance for this holding is tracked with a google doc here

Teva - Risk Reversal - Hoping to add a second lot

CCI once again looking to add a lot of Teva to the portfolio.  General rational for wanting to acquire shares is in the original post below.

Teva Time

With Teva trading back around $47.50 today, CCI wanted to act prior the potential catalyst from earnings  next week.   Instead of just buying a lot at $47.50, I decided to reentered via an risk reversal options play.
Sold the Aug.$47.50 puts and bought the Aug $50 calls for a net credit of $.97.  (about 2% of risk capital)
.
Scenarios if held to maturity
- The stock falls below $47.5 -  CCI owns a second lot at around $46.53.  That could be bad, but is 2% "less bad"  than if the stock was bought today and then falls.
- The stock stalls and continues to trade in the $47.50-$50.00 range.  CCI keeps the 2 % option premium. We will never go broke 2% gain in a month
- The stock breaks out over $50.  Something CCI has been thinking might happen for several months, so this time into the trade we wanted to keep some upside involved in the trade.  In this case CCI keeps the 2% premium and matches the gain over $50 at least at 1:1.   Of course, if the stock does break out we will have only made the 2% option premium instead of the 5% spread between strike prices, but that is the price paid for having a lower downside entry point if the stock falls.

Earnings July 27. Stay tuned.