Conservative Options Trades

MRK:

I had a 35/30 bull put spread on MRK. Last Friday, after the bell, MRK reported its quarterly results including a disappointing projection for the remainder of 2013:

http://www.reuters.com/article/2013...eedType=RSS&feedName=globalMarketsNews&rpc=43

I waited this week to see if MRK shares showed any sign of recovery from the drop but they did not:

http://finance.yahoo.com/q/bc?s=MRK&t=6m&l=off&z=l&q=c&c=

That along with the general 'overbought' condition of the market made me decide to close the MRK trade.

I lost $72 on the MRK trade.
 
MRK: Ct'd

I could 'roll' the MRK trade into a lower trade range in order to try to recover the loss above:

e.g.
Jan '14 30/25 bull put spread for a net credit of $30
Yield = 30/470 = 6.4% in 343 days or 6.8% annualized
Prob = 97%
Expectation = .97(30) - .01(470) - .02(235) = 29.1 - 4.7 - 4.7 = 19.7

I could use this roll back to recover my loss and add new expected profit.

As a rule I don't do trade adjustments such as this and probably will not do this one. All the arguments against trade adjustments apply in this case.
 
 
HNZ:
http://www.forbes.com/sites/marketn...ire-hathaway-and-3g-capital/?partner=yahootix

It's an all cash deal which takes a lot of the uncertainty out of it.

If you wish to underwrite the sale you can sell $70 (Jan '15) puts for $55. If you want to lay off most of your risk you can buy the Jan '15 $65 put for about half that price.

If the deal completes (usually six months) you will keep the insurance premium, if not you are on the hook for the difference.

HNZ is very much along the lines of what Buffett buys and he has the money so I don't think there is any problem.

HNZ stock holders are getting an unexpected windfall. I held HNZ on and off for years but don't have any now. Shows to go ya.

http://stockcharts.com/h-sc/ui?s=hnz
 
Quote from oldnemesis:

HNZ:
http://www.forbes.com/sites/marketn...ire-hathaway-and-3g-capital/?partner=yahootix

It's an all cash deal which takes a lot of the uncertainty out of it.

If you wish to underwrite the sale you can sell $70 (Jan '15) puts for $55. If you want to lay off most of your risk you can buy the Jan '15 $65 put for about half that price.

If the deal completes (usually six months) you will keep the insurance premium, if not you are on the hook for the difference.

HNZ is very much along the lines of what Buffett buys and he has the money so I don't think there is any problem.

HNZ stock holders are getting an unexpected windfall. I held HNZ on and off for years but don't have any now. Shows to go ya.

http://stockcharts.com/h-sc/ui?s=hnz
More...

They're 50x60 here. A 4% return on margin. You really want to deal-risk to earn 4%? (8% PA)
 
HNZ:

My numbers:

I got the 70/65 bull put spread for $25 credit.

Yield = 25/475 = 5.26% in six months is 10.5% annualized.

Not a killing but I think the Prob is very high...i.e. risk the deal will fall through close to zero.

At closing the spread looks like it is giving $30. That would be 30/470 = 6.4% or 12.8% annualized.

I might take a little more at opening since the market is so extended I have a hard time putting any new trades on right now.

BTW: I really don't want HNZ at $70

http://finance.yahoo.com/q/bc?s=HNZ&t=5y&l=on&z=l&q=l&c=
 
ATK:

http://www.deseretnews.com/article/765622611/Homeland-Security-and-its-cache-of-bullets.html
(I have a little .380 pocket pistol. I went to the range on Tues. and spent $40 on ammunition. There is a real shortage and prices are jacked up)

http://finance.yahoo.com/news/zacks-analyst-blog-highlights-general-120741290.html

http://finance.yahoo.com/news/alliant-beats-3q-estimates-160844834.html

http://www.fool.com/investing/gener...chsystems-wins-20-million-landmine-contr.aspx

http://finance.yahoo.com/news/alliant-gets-rocket-motor-contract-201842279.html

http://finance.yahoo.com/q/ks?s=ATK+Key+Statistics

http://investing.money.msn.com/investments/financial-statements?symbol=atk

http://finance.yahoo.com/q/bc?s=ATK&t=5y&l=on&z=l&q=l&c=

Trade:

Aug 50/45 bull put spread for $25 credit
Yield = 25/475 = 5.26% in 182 days or 10.6% annualized
Prob = 93%
Expectation = .93(25) - .02(475) - .05(237) = 23.25 - 9.5 - 11.85 = 1.9
 
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