My 2013 Option Trades.... part 3

Quote from cipherscribe:
STX?
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If you are asking for opinions on STX,... technically, I'd need it to test the 29 - 30 area, so that I can consider the credit for a $25 or $26 strike.
That assumes I like the fundamentals, which I have not checked yet, as it is still trading too far away for me to bother.

If there is a spike in IV and/or VIX, I can consider a $25 or $26 strike ealier.
But given the low VIX environment we are in, I need STX to test the $30 area, before even considering a $25 or $26 strike that would pay an acceptable credit..... aka annualized % return.
http://finance.yahoo.com/q/bc?t=1y&l=on&z=l&q=b&p=&a=&c=&s=stx&ql=1
However, those strikes and credit desires, are me being conservative.
If you are less conservative, a higher strike may interest you.
 
Sold puts on $25 USNA for March.
Credit $0.50
Annualized % return..... 17%

http://finance.yahoo.com/q/bc?s=USNA&t=2y&l=on&z=l&q=b&c=

As the 2 year chart above shows, there is tech support in the $34 - $35 area.
Hence, with the stock trading at $34.50 I sold a $25 strike.... which is 27 - 28% otm.

While it's a huge otm safety cushion, the stock is very volatile and is heavily shorted.
Even the insiders were selling in the higher $43 area.

The stock is being beaten up because of the "sector" it is in, as the entire sector is under attack.
But as with all things market related, the issue is one of price.
And I think my strike of $25, and tech support in the $24 - $25 area is very reasonable,... and will attract buyers to lend support, if my strike is tested.

If support fails, I can still generate excellent income from a price of $19 - $20,... and hopefully begin to neutralize the investment from there.
I should find out soon, as earnings are released in about 2 weeks.
Fundamentally, the stock looks strong and is financially healthy.
It's also reasonably valued at my BE price of $24.50.
Again, this is a quality company, in a sector under attack, and is thus a risky trade.
5 year chart below:
http://finance.yahoo.com/q/bc?s=USNA&t=5y&l=on&z=l&q=b&c=
 
Following a transaction in Nu Skin (NUS), also a direct seller of personal care products, your USNA trade reminds me of the line from Animal House -- Thank you, sir! May I have another?


Hope this one doesn't cause a mild heart attack...
 
Quote from Brighton:

Following a transaction in Nu Skin (NUS), also a direct seller of personal care products, your USNA trade reminds me of the line from Animal House -- Thank you, sir! May I have another?
Hope this one doesn't cause a mild heart attack...
More...
NUS remained otm during the entire contract.
The trade expired for a profit.
I obviously have similar plans for USNA.
Allthough, I anticipate a similar degree of volatility with USNA, as I experinced with NUS.
Hence the reason I was so detailed in my warnings about the sector, with both trades.
While my trades are never ment as recomendations for others to initiate, I realize some may consider them for themselves.
Hence the reason for my warnings.
 
Just giving you a hard time. :)

At a glance, it looks like a good set-up:

-well OTM,
-in the sweet spot for theta decay,
-ATM option IV is about 67% (down from 90% at year-end), so you're being compensated for the company and sector risk
-looks like your strike hasn't been breached by more than a buck since mid-2009
-profitable, no LT debt etc

I don't know anything about the sector, but I've made trades in similar situations where I think the volatility and disfavor is a temporary thing (natural gas, coal stocks, etc) and the market's paying me for the added risk. Gotta make hay while the sun shines.
 
Given that my NUS trade is a 6 week trade, I considered it to be more in a "reasonable spot" than a "sweet spot", in terms of theta.
To me, 3 weeks is more of a sweet spot.
However, he may have viewed the trades "sweetness", from the perspective blend of... "theta, % otm, and % return".
If so,....I would agree with that analysis.
But in terms of just theta.... it's in more of a very "reasonable" spot.
 
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