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September’s Dozen (Members Only)

Not bullish enough?

Let’s take a look at a quick dozen trade ideas for short-term gains.  I like all these stocks long-term too (it’s always better to play short-term where your fallback is you own the stock long-term) but we haven’t been doing much gambling lately as it’s all been boring-old hedged positions that were smart, but not really giving us that immediate satisfaction you can get from some quick, monthly gains.

Are these trades riskier?  Sure they are and they are trade ideas under the assumption that we hold our levels today and next week so no staying in them if the market sours but $75 oil and $3.40 copper and 2,200 on the Nas and 1,088 on the S&P give us some pretty easy markers to know if we’re still healthy. 

BRCM is my first choice, they are down $5 from the July high and just crossing over the 200 dma at $32.66, which is an excellent line to play the straight stock bullish.  The 50 dma is falling at $34.69 so we want to beware that the run ends there.  They are on track to earn $2.65 this year and that’s a p/e of 12.3, which is crazy-low for a stock like this so a great long-term hold:

  • Sept $32 calls at $1.25 have .54 in premium with 2 weeks to go so it’s .05 per day to "rent" the stock.
  • Oct $30 puts can be sold for .70 to fully offset the calls or by themselves or a 1/2 sale to knock down the premium.
  • Jan $30/34 bull call spread at $2.15, selling 2012 $22.50 puts for $2 is net .15 on the $4 spread that’s $2.71 in the money to start.

TRLG is back near it’s post-crash lows.  The company has been building inventory and that freaks out investors but they are also opening stores in London and Tokyo and they just made a deal in German to expand distribution with an existing partner so I don’t mind a little stocking up.  P/E around 10 means they are not priced for growth and teen fashion is fickle but I like the stock above the $17.50 line (now $18.75).

  • Selling Apr $15 calls for $1.50 is very attractive as I’d be inclined to DD there anyway (net $13.50). 
  • Premiums are a rip-off so best to do a buy/write at $18.75, selling Jan $17.50 puts and calls for $5.30 for net $13.45/15.48.

KR is a supermarket – not sexy at all but not very dangerous either.  They took a big one-off charge last year as they took advantage of the CRE dip to buy some of the stores they were leasing but, of course, short-sighted investors punish good business decisions and discourage public companies from investing in the future, as usual.  They actually pay a 2% dividend, which is cute, and food inflation is rampant so another plus as sales increase over time.  The chart is VERY ugly so do be prepared for a long haul on this one:

  • 2012 $20 puts can be sold for $2.65 for a nice net $17.35 entry.
  • Oct $19 calls at $1.70, selling the Sept $20 calls for .75 does not sound exciting but you can then roll the caller out to the Oct $21s (not .45), hopefully even, and you’re in the $2 vertical for .95.
  • Apr $18s for $3.20 have $1 of premium but if they punch through the 200 dma at $21.21, they can be very rewarding.  Out if rejected at $21 or below $20 keeps the risk low.

SWY is another supermarket and they are expanding in Mexico and Canada, which I like.  Like KR, they also took a huge non-recurring charge last year that freaked out investors, who should instead note that cash flow was not interrupted and 2.6% dividends continue to get paid.  This stock is a good buy at $19.39.

  • Selling 2012 $17.50 puts for $2.10 is a net $15.40 entry at worst.
  • Oct $18 calls are $1.65 (.25 premium) and those are good naked as long as they hold $19.
  • Jan $17.50/20 bull call spread at $1.45, selling $17.50 calls for .85 is net .60 on the $2.50 spread that’s $1.90 in the money. 

HMY is my favorite unloved miner.  It seems crazy that they are not trading near their highs when they are sitting on 48M ounces of gold at $1,250 an ounce ($60Bn).  They are up 3.4% for the year vs 15.9% for GDX.  They were a 2012 artificial buy/write pick on June 7th and that’s way up already:

  • Oct $10 calls are only .75 (.23 premium) so not a bad way to control the $10.52 stock.  Gold failing the $1,250 line is a good signal to get out. 

HRB is also unloved.  A lot of people are doing their own taxes and the lucrative refund scam is over so they have to go back to making money the old-fashioned way but that way worked just fine for 60 years and the company simply had to cut back staff and office expenses and get back to the basics. 

  • Selling Jan $11 puts for .85 is a net $10.15 entry with the stock currently at $12.57.  They usually pick up into tax season

NDAQ seems to have found a bottom at $17.50 and is already back at $18.75.  If the market comes back, then the exchanges should pick up and NYX already pooped back over their 50 and 200 dmas while NDAQ is just heading up to test the 50 at $18.88 and the 200 at $19.56 so let’s play that they pop it as well. 

  • 2012 $17.50 puts are a nice, naked sale at $2.50 for a net $15 entry.
  • Jan $19 calls should give good bang for the buck at $1.40 but out if they can’t hold $18.50.
  • March $15/19 bull call spread at $2.50, selling the $17 puts for $1.20 is net $1.30 on the $4 spread that’s $3.75 in the money.

SNDK is like riding a bucking bronco but that means it’s a great stock to sell calls against if you like to momentum trade the front-month caller.  At $36, it’s as low as it’s been since April, before they ran up to $50 and they have been dragged down with the SOX (and our beloved WFR!) but our USD and WFR are recovering now so SNDK struck me as a bargain too. 

  • Selling the Jan $32 puts for $3 is a net $29 entry.
  • Oct $32/36 bull call spread at $2.50, selling $35 puts for $2.20 nets .30 on the $4 spread thats 100% in the money (up 900% if they hold $36).
  • Sept $35/37 bull call spread at $1, selling 1/2 Oct $33 puts for $1.40 is net .30 on the $2 spread that’s $1 in the money (up 233% if they can hold $36). 

IRM seems like a dying business (document storage) but Berkshire already owns FISV and suddenly bought 8M shares of IRM, which makes me think there’s synergy there and that IRM’s move to data protection and recovery is probably serious and has a future.  The company has not grown sales in the past 3 years but they have boosted profits 50% which is something Buffett and I tend to respect.  They have also double FCF to the bottom line, also admirable.  $21.03 seems like a very nice entry point but we don’t expect a home run here but a very good long-term hold to sell calls against.

  • Selling Apr $20 puts for $1.70 is a net entry at $18.30
  • Apr $17.50 calls are $4.30 (.80 premium) and they can be naked for the leveraged gain or you can sell the $22.50 calls for $1.40 and sell the $20 puts for $1.70 and that’s net $1.20 on the $5 spread that’s $3.50 in the money (up 291% if IRM holds $21 through April).
  • Oct $22.50 calls for .30.

DV is part of the beaten-down education group but DeVry isn’t a scam, they’ve been around for 80 years and are a respected institution with millions of graduates that give them great name recognition.  They are the proverbial baby that has been thrown out with the bathwater.  Earnings were up 32% in 2009 on about the same increase in revenues and this year they are up 69% on 31% more sales.  $280M net income for the past 4 quarters (their year ends in June) translates to a p/e of 10 on their current $2.8Bn market cap.  As other educator-come-lately businesses come under regulatory scrutiny (maybe losing accreditation), DV is there to pick up the slack.  So we like the straight stock at $40 for eventual covered call selling (but I wouldn’t cover until $45).

  • Selling the Jan $40 puts for $5 is a net $35 entry and a good place to own them.
  • Oct $35 calls at $5.80 have .66 in premium for good leverage.
  • Feb $30/40 bull call spread at $5.50, selling the Feb $40 puts for $5 is net .50 on the $10 spread that’s 100% in the money with a 1,950% upside if they hold $40 through Feb expiration.  Worst case is you own them for $40 (and then do a 2012 buy/write to knock $10 off).

TXT spent $760,000 lobbying in Q2, which is actually cutting back as they spent $880,000 last Q2 and $1.59M in Q1.  Does the sqeaky wheel get the grease?  We’ll see in next year’s budget but it seems to me that TXT is diversified enough to move around military cutbacks and Cessna may not seem like a necessity to most people but it’s one of those purchases that people have been putting off for a couple of years and should come back as the economy improves.  Their new business jets are cheap and excellent too. 

  • Selling Jan $16 puts for $1.20 is a net entry at $14.80 – a very nice 19.5% discount.
  • Jan $16/19 bull call spread at $1.70 can be paired with the sale of the $16 puts for net .50 on the $3 spread that’s $2.40 in the money at the moment (up 380% if they hold it).  This raises the net entry to $16.50 if put to you.
  • Selling 2x the $16 puts and taking the bull call spread creates a .70 credit and drops the average net entry to $15.65 if put to you, still a 15% discount off the current price. 
  • Buying the stock for $18.40 and selling the 2012 $15 puts and calls for $8.20 is net $10.20/12.60 with 50% upside if they hold $15 for 17 months.

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  1. yodi

    Morning Phil,
    On BRCM to rent the stk does this Translate in buying the call???
    Sept $32 calls at $1.25 have .54 in premium with 2 weeks to go so it’s .05 per day to "rent" the stock.

  2. 8800

    Phil,
    Following your sugg re short term trades, which, if any, of the following call Oct spreads would you be most inclined to use now (PRICES AS OF 9/2 close):
    SSO:  buying 36/38 , selling 32. puts = crdt of .03
    IWM: buying 63/67 slg 58 puts = .72 dbt
    TNA  buying 38/46, slg 58 puts = 1.38 dbt
    Applying  my absorption of your guidance,
    Thanks,  KEN

  3. Phil

    Good morning!

    This is not today’s post for comments – just to be clear… 

    Yes on BRCM – I’m saying you are leveraging the stock by buying the call. 

    Trades/8800- I would not chase those into the weekend, especially on today’s pop.  If the Russell holds 635 and we hold our levels on Tuesday, then we can go for some more risk but, right now – you would be buying into the initial excitement, which would make you one of the suckers I try to teach you to sell to!

  4. tuscadog

    Phil / Septs Dozen  Nice ideas.  The jobs report is being treated as a home run.  But, it just reflects that we can’t create net jobs even with ongoing stimulus and free money.  As  states and municipalities increase layoffs and the consumer continues to deleverage in face of more foreclosures and a depression in the RE sector, there can be no meaningful  net job creation.  So, can we avoid a DDip, as existing stimulus(including unemployment ins.) wanes, without a huge new stimulus (Further Fed actions will have minimal impact on employment)?
    I’m 50% net long, so I’m a bit nervous about further increasing my exposure without news of real fiscal activity to end the recession.  Renewed emotional negativity could drive this mkt down again real fast.  Bit confused.

  5. ban2

     Morning Phil
    I had rolled my Sept TBT short puts to 30 Mar. 29′s @ 2.
    Am up nicely this am but not enough to offset the 7K bath on the Sept roll
    Can I protect this am’s gain and allow for further upside?
    thanks for the help

  6. rwvjx5

    Excitement is over, ism number was a reality reminder, 3rd quarter warnings should start popping up over next couple of weeks, time to take some profits off the table imo
    buying some rut puts

  7. lumpenprole

    Title: "Member’s Only" should be "Members Only" in this context. "Member’s"  is the singular possessive, "members" is the plural,  and plural possessive is " members’ ".
    sqeeky should be squeaky.
    accredation should be accreditation.

  8. Phil

    Thanks Lump!  Nice job proofing. 

  9. ajaytoo

     Not sure if you’ll see this here, Phil, but TRLG APR 15s should be puts not calls.

  10. tchayipov

    Pharmboy / CLDX
    have May4s callers against my shares, do you recommend to roll them to Nov,5s??????????
    you think they still have potential to go even higher?

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