Stocks and Trading Thread - Channeling your inner Mono

[Phillip V]

Will bond investors ever trust again?

[MadImmortalMan]

Will bond investors ever trust again?

Yes. For some reason, they historically always come back.

[MadImmortalMan]

Pulled out of half my puts for a triple. That more than pays for the trade. Let's see what happens with the rest.


Edit: Out. Volume has died away and I don't want to get caught in an EOD ramp. Nice little trade: over

[Admiral Yi]

BAC up 5% on the day, JPM up 7%, WMT up 5%. 

[Admiral Yi]

Looks like the big bounce in financials was caused by results of a new financial institution stress test released today.  Citi, Ally, SunTrust and Met Life (?) failed.

Then again the stress test was to see how capital would hold up if unemployment rose to 13%, so I don't know how immediately useful that was.

[MadImmortalMan]

That and JPM announced a dividend boost and a stock buyback on the same day.

[Phillip V]

What's with RIMM up over 5% right now? It makes me want to short it.

[Admiral Yi]

Hey MIM, prices for options are quoted per share, right?  For example I was looking at selling $17 April puts on PBI and saw a bid price of 30 cents.

FYI everybody, PBI's price has dropped so much they're now yielding 8.9%.

[MadImmortalMan]

Yes. Price is quoted per share. If it says thirty cents, the option costs thirty dollars.



I don't know why the market hates that stock so much. I guess it's out of the cycle. When the market is going up, people all want to be in sexy stuff. I don't know that business well though. But it's got a lot of short interest, and the technical pattern has no triggers in it. The analyst ratings are all neutral/hold with the biggest flaws pointed out being slow growth and poor share price performance, but we know that already.

Pitney Bowes (PBI)

    * Market Cap: $3.63 Billion
    * Dividend Yield: 8.26%
    * Shares in Float: 199.27 Million
    * Short Float: 24.18%

http://seekingalpha.com/article/446651-5-high-dividend-stocks-under-short-attack

That can turn into a short squeeze quickly if it uncoils. You buy stuff like this for a dividend (which they raised last month), not a quick punt, but either a takeover or short squeeze would be all right too.

[Admiral Yi]

Here's my plan, tell me what you think of it.

I sell April puts on PBI for 200 shares, maybe at $17.  If the stock puts to me, great.  If not, I buy it anyway before the 5/15 ex-dividend date.  Then I sell covered calls in every month *except* the ones with an ex-dividend date.  If it gets called away, I go back to selling puts, unless it's a month with an ex-dividend date, in which case I buy it again.



Seems to me a dividend stock with with a low share price is the perfect type to play this put/call strategy.

[MadImmortalMan]

Here's my plan, tell me what you think of it.

I sell April puts on PBI for 200 shares, maybe at $17.  If the stock puts to me, great.  If not, I buy it anyway before the 5/15 ex-dividend date.  Then I sell covered calls in every month *except* the ones with an ex-dividend date.  If it gets called away, I go back to selling puts, unless it's a month with an ex-dividend date, in which case I buy it again.



Seems to me a dividend stock with with a low share price is the perfect type to play this put/call strategy.

I like it. Deceptively conservative.

It's hard to pick bad strikes or burn too much in trade fees with a stock that moves like this one. Otherwise, I'd say those are the biggest risks, particularly when trading small numbers of contracts. Sell your puts too low and you get less than the dividend, too high and it gets exercised too easily. This stock is a good match for this sort of thing, IMO.

   Puts Calculator    
                  

                  Bid              Ask             Last             Change         Vol           Op Int    

   16.0 Put       0.05       0.10       0.06       0.01       0       1,822    
   17.0 Put       0.15       0.20       0.15       -0.05       14       12,584    
   18.0 Put       0.30       0.40       0.35       -0.05       26       3,711    
   19.0 Put       0.85       0.95       1.00       -0.05       10       1,097    
   20.0 Put       1.75       1.90       2.08       0.07       0       176    
   21.0 Put       2.75       3.00       2.20       -0.79       0       36    

Watch the open interest and the volume when working with lightly-traded options like this. Your plan should be fine with just a couple at a time, but if you were scaled up to a lot of options per trade it would be tough to move them. You can't do this with a hundred grand worth of PBI moving five thousand puts around at a time.

[Admiral Yi]

Watch the open interest and the volume when working with lightly-traded options like this. Your plan should be fine with just a couple at a time, but if you were scaled up to a lot of options per trade it would be tough to move them. You can't do this with a hundred grand worth of PBI moving five thousand puts around at a time.

  Thanks for the heads up MIM.  I was this close to putting a hundred G's into uncovered PBI puts.

Re open interest: does this mean the # of outstanding contracts, or does this mean the # of contracts which have been offered but not yet bought?

[MadImmortalMan]

It's the number of open contracts. It tells you how many people own them. It's a good thing to look at as expiration day closes in to guess how the stock might move. If for example there are tons of open calls at a certain stock price, it's more likely that stock will find it difficult to get below that price as the things begin to exercise there.

[Admiral Yi]

Etrade just dinged my request for level 2 options trading, which I needed to sell covered puts.  Gave me level 1 instead, which allows me to only sell covered calls.

[Phillip V]

Dipped my toe in the water and bought some shares in Telefonica S.A. (TEF)