The stock bounced over 1% as hoped for when the position was initiated last week.
Sold Jan $85 calls for about $2.50.
Scenario's
- Stock stays flat from here or rises which would cause the stock to be called away at $85 in 5 weeks. That would result in $1 cap gain in the stock ($84 to $85) and $2.5 yield from this option play for a total of $3.50 of 4% in 5 weeks. (40+% annualized)
- Stock falls back to $84 support level, in which case I would intend to cover this option position once it achieves a profit of over 1% and then let the original $84 purchase stand on its own.
Monday, December 13, 2010
Trade - NYX covered calls
NYX hit $30 today. In addition, today was the div x-date so the position accrued .30 or 1% div today. These two triggers caused me to review the position
Fundamental story remains the same. The stock has moves straight up from $28.
Sold $30 Dec $18 calls (5 days until expiration)for $.35 with a implied vol of 25+.
Several scenario's.
Stock pins at $30 for the week. My most probably scenario. The "even number" nature of the price, the open option interest at $30, and a potential retracement towards 200dma ($25.4) could have the stock stick at around the $30 level this week. If the price falls, time decays and vol drops I would look for a chance to cover this position for a gain of .5% or more.
Stock continues to climb this week. - In this case the position will be called away at $30. That means cap gains from $29 to $30 3+%,1% div, 1% option profit. A 5% gain on this trade.
Stock plummets - the option will have provided a little downside protect and the core trade remains in place (for better or worse).
Fundamental story remains the same. The stock has moves straight up from $28.
Sold $30 Dec $18 calls (5 days until expiration)for $.35 with a implied vol of 25+.
Several scenario's.
Stock pins at $30 for the week. My most probably scenario. The "even number" nature of the price, the open option interest at $30, and a potential retracement towards 200dma ($25.4) could have the stock stick at around the $30 level this week. If the price falls, time decays and vol drops I would look for a chance to cover this position for a gain of .5% or more.
Stock continues to climb this week. - In this case the position will be called away at $30. That means cap gains from $29 to $30 3+%,1% div, 1% option profit. A 5% gain on this trade.
Stock plummets - the option will have provided a little downside protect and the core trade remains in place (for better or worse).
Friday, December 10, 2010
Trade 3m (mmm)
3m Price fell after this week's lowering of organic sales growth forecasts.
IMO this is a classic case of trying to under promise so they can then over deliver (UPOD).
Fundamentally MMM remains a blue chip company.
Technically there is support just below $84 on the charts and with the 200dma. Also more down side support at $80.
Trade
Bought MMM around $84 in expectation of few catalysts over the next few weeks to cause major movement in the stock and a near term bounce back to fill in chart gaps in high $80s.
Best Case - stock bounces back over $85 in the next few days. If it does, I plan to sell $85 calls which I would anticipate to be at about $2. If the stock stayed above $85 for the next month that would be a return of 3.5% over 5 weeks.
Worse Case - stock continue to drop..possible exit if it significantly breaks the $80 support level.
IMO this is a classic case of trying to under promise so they can then over deliver (UPOD).
Fundamentally MMM remains a blue chip company.
Technically there is support just below $84 on the charts and with the 200dma. Also more down side support at $80.
Trade
Bought MMM around $84 in expectation of few catalysts over the next few weeks to cause major movement in the stock and a near term bounce back to fill in chart gaps in high $80s.
Best Case - stock bounces back over $85 in the next few days. If it does, I plan to sell $85 calls which I would anticipate to be at about $2. If the stock stayed above $85 for the next month that would be a return of 3.5% over 5 weeks.
Worse Case - stock continue to drop..possible exit if it significantly breaks the $80 support level.
Tuesday, December 7, 2010
Positions - IBM - Business Case
Over the past four years IBM stock has moved up from a low of about $75 to nearly $150. That means a perfectly timed investment would have doubled in 5 years. While it is unrealistic to expect to have perfectly timed the bottom and top of this stock's performance, there were plenty of entry and exit points that offered a good potential return over the past years. Is there the potential for this stock to double again over the next four years? Let's look at some of the reasons the stock may have performed so well over the past years and see if those (or other conditions) might exist to drive another doubling of the stock price.
Financial Strength
IBM has always been considered a solid blue chip company with a strong balance sheet. The financial crisis of the past years was a real life stress test of any global company's financial strength. IBM weathered this storm incredibly well. It maintained its dividend, improved its balance sheet and always generated strong free cash flow. An investor can look at a variety of metrics and ratios to measure the strength of a companies finances, but perhaps the best testimony to the strength of the their balance sheet is that they were recently able to issue bonds at 1%. The market has spoken. IBM's financial strength is just as good if not better than it was years ago.
Business Model
One of the key trends in technology is cloud computing. When the industry pundits discuss cloud computing they want to focus on companies that provide high profile, but somewhat isolated pieces of the cloud such as Akami, Salesforce.com, Rackspace, etc. When global companies think about cloud computing they think about scalable, core IT capabilities delivered seamlessly around the planet . Arguably, IBM provides a unique mix of products and services that meet the needs of global customers better/cheaper than anyone else. Other good companies like Accenture, HP, etc are still trying to cross the competitive moat represented by IBM's business model.
Earnings Predictibility
Several years ago IBM stated a goal of $10 in earnings by 2010. 2010 earnings will be about $11.50. IBM can make and achieve a multiple year forecast when many other tech firms don't seem to have visibility for the next quarter quarter because large piece of their revenue is tied to long-term, reliable contracts. Hence their backlog and shadow backlog is huge and very manageable. IBM's goal is $20 in earnings by 2015. Just like a few years ago, this goal seems achievable.
So four years ago IBM started with a strong balance sheet, a unique business model, and a well defined business goal and despite the “great recession” the stock doubled. Those same conditions exist today, and hence conceptually a doubling in price seems possible again. From a numbers perspective if IBM can achieve $20 a share in earnings on 2015 that represents about an 11.5% CAGR from today's level. With the current multiple of 12 that is a 4 year price target of about $240. If the multiple can expand to 15, the stock will have doubled again. Even if IBM does not achieve its goal and only get to $18/share in earnings and the market punishes IBM with a 10 multiple that would be a stock price of $180. That would not be a good result, but not terrible for a worse case scenario.
Trading plan: Hold IBM assuming it will compound at 11.5% over the next few years. If at any time the price increases to have hit a 20% CAGR lighten up on the position and wait for a pull-back to re-establish your position.
Disclosure: Long IBM
Financial Strength
IBM has always been considered a solid blue chip company with a strong balance sheet. The financial crisis of the past years was a real life stress test of any global company's financial strength. IBM weathered this storm incredibly well. It maintained its dividend, improved its balance sheet and always generated strong free cash flow. An investor can look at a variety of metrics and ratios to measure the strength of a companies finances, but perhaps the best testimony to the strength of the their balance sheet is that they were recently able to issue bonds at 1%. The market has spoken. IBM's financial strength is just as good if not better than it was years ago.
Business Model
One of the key trends in technology is cloud computing. When the industry pundits discuss cloud computing they want to focus on companies that provide high profile, but somewhat isolated pieces of the cloud such as Akami, Salesforce.com, Rackspace, etc. When global companies think about cloud computing they think about scalable, core IT capabilities delivered seamlessly around the planet . Arguably, IBM provides a unique mix of products and services that meet the needs of global customers better/cheaper than anyone else. Other good companies like Accenture, HP, etc are still trying to cross the competitive moat represented by IBM's business model.
Earnings Predictibility
Several years ago IBM stated a goal of $10 in earnings by 2010. 2010 earnings will be about $11.50. IBM can make and achieve a multiple year forecast when many other tech firms don't seem to have visibility for the next quarter quarter because large piece of their revenue is tied to long-term, reliable contracts. Hence their backlog and shadow backlog is huge and very manageable. IBM's goal is $20 in earnings by 2015. Just like a few years ago, this goal seems achievable.
So four years ago IBM started with a strong balance sheet, a unique business model, and a well defined business goal and despite the “great recession” the stock doubled. Those same conditions exist today, and hence conceptually a doubling in price seems possible again. From a numbers perspective if IBM can achieve $20 a share in earnings on 2015 that represents about an 11.5% CAGR from today's level. With the current multiple of 12 that is a 4 year price target of about $240. If the multiple can expand to 15, the stock will have doubled again. Even if IBM does not achieve its goal and only get to $18/share in earnings and the market punishes IBM with a 10 multiple that would be a stock price of $180. That would not be a good result, but not terrible for a worse case scenario.
Trading plan: Hold IBM assuming it will compound at 11.5% over the next few years. If at any time the price increases to have hit a 20% CAGR lighten up on the position and wait for a pull-back to re-establish your position.
Disclosure: Long IBM
Thursday, December 2, 2010
Positions - Alcoa (AA) Jan 11 Options
Alcoa bounced over $14.
The last option trade of the $12.50 Jan puts is in the money by about 2%. We will leave this trade in place for awhile longer to try to get at least another 1% return.
Sold Jan $15 calls against the 1/2 position @$.35c for over a 2% yield on this position over 7 weeks. (nearly 15% annualized)
Bull case - Alcoa continues to rise over $15 resulting in both option trades expiring at full return and the core position being called away potentially limiting profits.
Target return - The stock settles in near $14 and both options can be closed at a profit.
Bear case - stock falls below $12.5 and will be forced to acquire the other half position at $12.5 less the profits from options.
The last option trade of the $12.50 Jan puts is in the money by about 2%. We will leave this trade in place for awhile longer to try to get at least another 1% return.
Sold Jan $15 calls against the 1/2 position @$.35c for over a 2% yield on this position over 7 weeks. (nearly 15% annualized)
Bull case - Alcoa continues to rise over $15 resulting in both option trades expiring at full return and the core position being called away potentially limiting profits.
Target return - The stock settles in near $14 and both options can be closed at a profit.
Bear case - stock falls below $12.5 and will be forced to acquire the other half position at $12.5 less the profits from options.
Tuesday, November 23, 2010
Positions - Alcoa (AA) Jan 11 Options
The Nov $14 calls expired completing the November Options trade. In total this trade yielded over 1% from options play in about 6 weeks.
On Nov. 23 after news of Korean hostilities lowered AA's price down to $13, sold the January 11 $12.50 puts for .$51 cents. Price of the stock was just below $13 and implied vol was about 35
Worse case - if the stock falls more will be acquired about a cost $12 which is below book value and at the target acquisition price.
Best Case - Stock stays flat or rebounds staying (above $12.3 200 dma)and the option expires at a profit of approx 4% over 2 months or a 24% annualized return.
Probably case - Stock returns to low $13 and vol drops allowing an opportunity to take profits on a shorter term basis.
On Nov. 23 after news of Korean hostilities lowered AA's price down to $13, sold the January 11 $12.50 puts for .$51 cents. Price of the stock was just below $13 and implied vol was about 35
Worse case - if the stock falls more will be acquired about a cost $12 which is below book value and at the target acquisition price.
Best Case - Stock stays flat or rebounds staying (above $12.3 200 dma)and the option expires at a profit of approx 4% over 2 months or a 24% annualized return.
Probably case - Stock returns to low $13 and vol drops allowing an opportunity to take profits on a shorter term basis.
Tuesday, November 16, 2010
Intel Options - Dec 10 - 2
Intel below $21 on big down day in the market.
Add 1/5 position of $20 puts for Dec 18 for $.24 with volatility elevated.
Worse case the stock continues to fall and final lot will be acquired at net cost below $19.8 (below $20 acquisition target). Also is stock falls the covered call recently acquired will expire providing more down side risk.
Best Case - Intc bounces back from global market pressures more quickly and this option can return 1+% over 5 weeks or nearly 10% annualized.
Add 1/5 position of $20 puts for Dec 18 for $.24 with volatility elevated.
Worse case the stock continues to fall and final lot will be acquired at net cost below $19.8 (below $20 acquisition target). Also is stock falls the covered call recently acquired will expire providing more down side risk.
Best Case - Intc bounces back from global market pressures more quickly and this option can return 1+% over 5 weeks or nearly 10% annualized.
Friday, November 12, 2010
Trade - Initiate NYX position
Bought two lots of NYXE on down market day with an average cost of $29.03.
Fundamentally - book value of $26.36 provides a good floor, forward pe of 10 seems attractive, nearly 4% div. Trading volume assumed to increase as traders/investors adjust end of year positions.
Technically - Support at 200dma 0f $28.8, chart level support around $28, and BV of $26.36. Also near bottom of KC.
Best Case: $34
Most Likely Case: return to over $30
Fundamentally - book value of $26.36 provides a good floor, forward pe of 10 seems attractive, nearly 4% div. Trading volume assumed to increase as traders/investors adjust end of year positions.
Technically - Support at 200dma 0f $28.8, chart level support around $28, and BV of $26.36. Also near bottom of KC.
Best Case: $34
Most Likely Case: return to over $30
Friday, November 5, 2010
Intel Options - Dec 10 - 1
Intel over $21!!!
Sold 1/5 position 12/18 $22 calls for $.29
If stock called away at $22 that is 10% gain on $20 cost basis stock plus over 1% cov call profit.
More likely - stock will retest 200dma around $20.70. If this occurs should be able to take profits on this position (maybe 1%) and consider selling puts at that time.
Sold 1/5 position 12/18 $22 calls for $.29
If stock called away at $22 that is 10% gain on $20 cost basis stock plus over 1% cov call profit.
More likely - stock will retest 200dma around $20.70. If this occurs should be able to take profits on this position (maybe 1%) and consider selling puts at that time.
Wednesday, November 3, 2010
Unitin (UTR) - complete purchase
UTR earnings came out near expectations with few surprises. In addition the election and QE2 announcements are now behind us.
Purchased the second half of the position at $23.97.
Next steps
- X - Dividend date next week for .9% !!!
- Exit - Below $22 - 8% loss and support on chart
- Target Price $30. Mostly on expanding multiple
- Alert at $26 for 10% and hit 200dma or at year end for review.
Purchased the second half of the position at $23.97.
Next steps
- X - Dividend date next week for .9% !!!
- Exit - Below $22 - 8% loss and support on chart
- Target Price $30. Mostly on expanding multiple
- Alert at $26 for 10% and hit 200dma or at year end for review.
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