Options trades: Naked puts on ABX, C, CSCO, BAC, NYX, PFE, STD, COP, ABT, GE, TGT, HPQ & more

I’ve been doing some fast and furious options trading in recent days. Market conditions have not only warranted some significant risk reduction adjustments, but have also presented a slew of new put option selling opportunities, and I’ve been doing both (see below).

This recent activity put me even further behind in reporting on my options trades, so I finally decided to catch them all up, even if some are just one-line updates. The listing below reflects all my new and adjusted option positions since my last “new positions” update a couple of months ago.

New positions:
Abbott Laboratories [[ABT]] – On 8/5/11 I sold some January 47.50-strike put options on ABT for $2.75. This is one of my core watchlist stocks that has fallen back into my “buy” range.

Aflac [[AFL]] – On 5/18/11 I sold some November 45-strike put options for $2.60 against AFL as it sold off on news of “derisking” losses it was taking on European hybrid securities in its portfolio. Despite its exposure to European hybrid securities, AFL has an A- credit rating by Standard & Poor’s. A current average fair value estimate for the stock is somewhere in the $50s. (Note: See adjusted positions below.)

American Eagle Outfitters [[AEO]] – On 5/20/11 I sold some November 12-strike put options for $0.85 against AEO on weakness in the retail space.

Amgen [[AMGN]] – On 8/4/11 I sold a January 50-strike put option for $2.65 against AMGN on weakness. I’m also short another put option in AMGN in my IRA account from an earlier naked put position.

Archer Daniels Midland [[ADM]] – On 6/16/11 I sold some December 27-strike put options for $1.55 against ADM. This stock is one of my core watchlist stocks that has fallen back into my “buy” range.

Bank of America [[BAC]] – On 8/4/11 I sold some May 7-strike put options against BAC for $0.58 as the stock slid on fears that the company might need to raise more capital (and dilute shareholders) due to ongoing mortgage-related losses. With a tangible book value of over $11 per share, BAC’s current share price (around $8) may be reflecting more fear than reality at this point.

Banco Santander S.A. [[STD]] – On 6/24/11 I sold some December 9-strike puts against STD for $0.75. This ADR has (once again) been selling off on Eurozone fears, but is still trading above my strike price.

Banco Santander (Brasil) S.A. [[BSBR]] – On 7/18/11 I sold some December 10-strike put options against BSBR for $1.10. This represents a small position in this Brazilian bank and I may look to increase it if presented with further opportunity at lower prices. (Note: See adjusted positions below.)

Barrick Gold [[ABX]] – On 5/3/11 I sold an October 45-strike put option for $2.80 against ABX as it sold off on weakness in the metals market. Barrick Gold is the world’s #1 gold producer and this starter position re-initiates my exposure to the gold market (my last naked put option position in ABX expired OTM).

Barclays PLC [[BCS]] – On 5/9/11 I sold some December 16-strike put options for $1.20 against BCS on weakness. (Note: See adjusted positions below.)

Cameco [[CCJ]] – On 5/6/11 I sold some December 24-strike put options against CCJ for $1.50 on continued weakness in the stock following the problems at the Fukushima nuclear power plant in Japan after the earthquake and tsunami that struck the area. Cameco is one of the world’s largest uranium producers, supplying about 16% of the world’s supply, and – at least until Fukushima – had seen its stock price performing well on expectations of an expanding build-out of nuclear energy in developing economies over the coming years.

At least some of this expected build-out has been put on hold (or even cancelled) as a result of “fallout” (not the radiation kind) from the Fukushima situation, one example being Germany’s recent decision to phase out nuclear power – a purely political decision, and not one based on science. Still, despite the mainstream media having had a field day breathlessly “reporting” the latest radiation scare stories, it seems unlikely that much of the build-out will be stopped permanently – China has already indicated plans to go ahead with its nuclear expansion, and so has Turkey.

Fundamentally, Cameco’s shares in the $30s and especially $40s had been reflecting a very high assumed future growth rate, making the shares vulnerable to changes in this underlying estimate with every new headline. The stock price is now recalibrating to new, slower, expectations, while also reflecting the company’s built-in earnings cushion from multi-year contracts with existing utility customers. My cost basis if ultimately put the stock will be about $22.50 with a corresponding dividend yield of about 1.8%.

Citigroup [[C]] – On 6/6/11 I sold some December 36-strike put options for $2.35 against C on continued weakness in the financial sector. With a tangible book value of around $45 and 2011 estimated earnings of over $4.00 per share, C seems like a very decent value at these levels (mid $30s). (Note: See adjusted positions below.)

Computer Sciences Corp. [[CSC]] – On 5/26/11 I sold a December 35-strike put option for $2.05 against CSC as the stock plunged on disappointing earnings and cautious guidance. The stock has since fallen below the strike price so I may elect to take advantage of high volatility and roll out the position, although, as with almost every stock I sell put options on, I wouldn’t mind owning it at these levels.

ConocoPhillips [[COP]] – On 5/3/11 I sold a November 70-strike put option for $4.10 against COP as the stock sank on weakness in the oil and gas sector. COP too is now trading below my strike price, so I am actively considering rolling the position out, if for no other reason than to buy intrinsic value and pay for it with expensive option time premium.

EastGroup Properties [[EGP]] – On 8/3/11 I sold some March 40-strike put options against EGP for $2.85. This is a quality industrial REIT that has fallen into my buying range.

Energy Transfer Equity, L.P. [[ETE]] – On 7/22/11 I sold some January 40-strike put options against ETE for $2.70. This master limited partnership owns the general partner of Energy Transfer Partners (see below) and recently closed a deal to acquire gas pipeline company Southern Union. The units – if I’m ultimately put them – will yield over 6.5% at my cost basis and should offer good future distribution growth potential.

Energy Transfer Partners L.P. [[ETP]] – On 6/7/11 I sold some December 45-strike put options against ETP for $3.30. The units of this master limited partnership will yield over 8.5% at my cost basis if I’m ultimately put them.

Flowserve [[FLS]] – On 8/4/11 I sold a January 80-strike put option against FLS for $5.20 as the stock sold off on market weakness. This stock is one of my watchlist stocks that has fallen back into my “buy” range.

General Electric [[GE]] – On 8/4/11 I sold some March 15-strike put options against GE for $0.90 as the stock sold off on market weakness. This stock is one of my core watchlist stocks that has fallen back into my “buy” range.

JP Morgan Chase & Co. [[JPM]] – On 5/13/11 I sold some December 40-strike put options against JPM for $2.40 as the stock sold off on weakness in the financial sector. Then, on 7/18/11, I sold some January 35-strike put options against JPM for $1.85. The December puts are currently trading well in the money and I will probably roll them out and down at the earliest opportunity.

Lowe’s Companies [[LOW]] – On 6/13/11 I sold some January 21-strike put options against LOW for $1.55. This stock is one of my core watchlist stocks that has fallen back into my “buy” range.

Merck [[MRK]] – On 7/29/11 I sold some January 33-strike put options against MRK for $1.90. This stock is one of my core watchlist stocks that has fallen back into my “buy” range.

MetLife [[MET]] – On 7/18/11 I sold some January 35-strike put options against MET for $1.75. This stock is one of my watchlist stocks that has fallen back into my “buy” range.

Navios Maritime Partners L.P. [[NMM]] – On 7/25/11 I sold some December 15-strike put options against NMM for $1.00. This dry bulk shipper’s unit price has seen a steep decline along with just about everything else in the shipping sector. NMM is considered one of the more “solid” shippers with good free cash flow, and even recently increased its distribution (which is offering over a 14% yield at the current unit price). However the units are already trading well below my strike price and, although this was intended as a small “starter” position, I may look to roll out my short puts rather than add to them.

Newmont Mining [[NEM]] – On 5/11/11 I sold a December 48-strike put option on NEM for $3.25. This was to (re)gain a bit of exposure to gold.

New York Community Bancorp [[NYB]] – On 7/25/11 I sold some January 14-strike put options on NYB for $1.00. This is a yield play – around 7.5% at my net cost basis if put the stock – on a “well diversified” bank with “high credit quality” (Standard & Poors). The dividend appears safe, but I’ll be watchful for any signs of that changing.

Northrop Grumman [[NOC]] – On 7/28/11 I sold some January 60-strike put options against NOC for $3.70. This position is already trading well in the money so I’m looking to roll it out (i.e., buy intrinsic value and sell time premium).

Nucor [[NUE]] – On 8/5/11 I sold some January 30-strike put options against NUE for $1.65. This stock is one of my core watchlist stocks that has fallen back into my “buy” range.

NYSE Euronext [[NYX]] – On 5/17/11 I sold some December 34-strike put options against NYX for $2.70 as the stock sold off after Nasdaq and ICE withdrew their bids for the company. Then on 8/5/11, in a risk reduction move, I bought back the December puts for $6.40 (at a loss) and sold an equal number of March 30-strike put options for $3.80, for a net overall breakeven.

Pfizer [[PFE]] – On 8/4/11 I sold some March 16-strike put options against PFE for $0.98. This stock is one of my core watchlist stocks that has fallen back into my “buy” range.

Prologis [[PLD]] – On 4/28/11 I sold some October 16-strike covered calls for $1.50 against my long position in this REIT. Prologis, a developer of global industrial distribution properties, recently merged with AMB Property Corp., another industrial REIT (and its share price was converted in the arrangement to 0.4464 of a share of AMB). This position continues to be a loser for me based on my original $26-$27 pre share conversion cost basis, but if these covered call options expire OTM as seems increasingly likely it will help make a nice dent in my cost basis.

Radioshack [[RSH]] – On 7/18/11 I sold some January 11-strike put options against RSH for $0.85. I’m not that crazy about the company but couldn’t resist this apparent value play.

Shaw Group [[SHAW]] – On 7/14/11 I sold some January 22.50-strike put options against SHAW for $1.50. This engineering and construction firm’s stock has taken almost a 50% hit recently over both its connection with the nuclear power industry as well as concerns about the global economy.

Ship Finance International [[SFL]] – On 5/25/11 I sold some November 17.50-strike put options against SFL for $1.2. SFL is considered another “solid” company in the shipping sector, with decent free cash flow and estimated 2011 earnings of over $1.60 per share. Nonetheless, with the stock now trading well below my strike price, I’m looking to adjust this (relatively small) position.

Suburban Propane Partners, L.P. [[SPH]] – On 7/27/11 I sold some February 45-strike put options against SPH for $3.10. This master limited partnership yields about 8% at my net cost basis if I’m ultimately put the units.

Target [[TGT]] – On 6/24/11 I sold a January 44-strike put option against TGT for $2.60. This stock is one of my watchlist stocks that has fallen back into my “buy” range.

Tata Motors [[TTM]] – On 7/27/11 I sold some January 19-strike put options on TTM for $1.15. Tata Motors is India’s largest automaker with good growth potential. This adds some international exposure in a beaten-down (and seemingly cheap) sector.

Telefonica [[TEF]] – On 7/6/11 I sold some December 22.50-strike put options against TEF for $1.65. This modestly sized position is currently trading in the money, but not yet far enough to have me considering a risk reduction adjustment. Also, as with almost all of the stocks I sell put options against, I wouldn’t mind owning the underlying shares at the net cost basis level (about $21 in this case).

Teva Pharmaceutical Industries [[TEVA]] – On 4/21/11 I sold a January 45-strike put option against TEVA for $3.90, adding to an existing short September 47.50-strike put option position on TEVA. I’ve since adjusted the earlier position (see closed/adjusted positions below) but have not decided what – if anything – I’ll do with the January 45-strike short put option. I wouldn’t mind owning shares of TEVA at around these levels (low $40s), but will risk adjust the position lower if presented with a lower share price and elevated out-of-the-money options premiums.

Transocean LTD. [[RIG]] – On 5/11/11 I sold a November 55-strike put option against RIG for $2.90. This position is now trading about at my strike price and I may look to roll it out, especially on further weakness.

Vale S.A. [[VALE]] – On 5/11/11 I sold some December 28-strike put options on VALE for $2.10. This added some foreign (Brazil) exposure in the commodities sector.

Closed/Adjusted positions:
Aflac [[AFL]] – When I sold some November put options against AFL in mid May (see above) I forgot I had already sold some August 40-strike puts against AFL a few weeks earlier (oops). However, this new position didn’t put me significantly above my usual risk allocation limit for a given holding so I made no immediate adjustments. In fact, on 7/18/11 I decided to roll out the August 40-strike put options by buying them back (for a profit) for $0.39 and selling an equal number of January 40-strike put options for $2.45.

However, during the most recent market weakness (on 8/5/11), in a risk reduction move, I bought back the November 45-strike put options (at $6.05), which were deep in the money, and sold an equal number of February 41-strike put options at $4.95 for a net overall credit. My net cost basis now, if ultimately assigned all my short put options, will be about $38. If the stock continues lower in the coming weeks/months I’ll probably look to roll out at least one of these positions again, if possible.

Applied Materials [[AMAT]] – On 8/1/11 in a risk reduction move I rolled out and down the 14-strike put options I sold against AMAT on 4/7/11 by buying them back at $2.04 (for a loss) and then selling twice as many January 12.50-strike put options (at $1.32) for a net overall credit. If ultimately put the stock my net cost basis will be about $11.85.

Banco Santander (Brasil) S.A. [[BSBR]] – On 8/4/11, I bought back the December put options I was short (see new positions above) for $1.60 (for a loss) and sold an equal number of March 9-strike put options for $1.20 for a net overall credit.

Barclays PLC [[BCS]] – On 7/29/11, in a (premature) risk reduction move, I bought back the December put options I was short on BCS (see new positions above) for $2.58 and sold an equal number of March 15-strike put options for $2.49 for an overall net credit.

Cisco [[CSCO]] – On 7/29/11 I bought back the October 17-strike put options I sold against CSCO on 3/15/11 and then sold twice as many April 15-strike put options for $1.28, for a net overall credit. Then, on 8/5/11, I bought back the October 18-strike put options I sold against CSCO on 3/11/11 and sold an equal number of April 17-strike put options for $3.18, for a net overall breakeven. My net cost basis for the underlying shares if ultimately assigned all my short put options will be somewhere in the neighborhood of $15 per share.

Citigroup [[C]] – On 8/5/11 I bought back the December 36-strike put options I sold against C (see new positions above) and then sold an equal number of March 34-strike put options for $5.98, for a net overall credit. This will bring my net cost basis down to an even cheaper $32 per share if I’m ultimately put the shares.

Ensco plc [[ESV]] – On 8/5/11 I bought back the September 48-strike put option I sold against ESV on 4/12/11 (for a net loss of about $1.80) and then sold a March 45-strike put option for $5.50, for a net overall credit of about $3.55.

General Motors [[GM]] – On 8/3/11 I bought back the September 29-strike put option I sold against GM on 3/7/11 (for a net loss of about $1.15) and then sold a March 27-strike put option for $3.09, for a net overall credit of about $1.80.

HSBC Holdings plc [[HBC]] – On 8/5/11 I bought back the September 50-strike put option I sold against HBC on 3/1/11 (for a net loss of about $2.35) and then sold a March 46-strike put option for $4.90, for a net overall credit of about $2.40.

Hewlett Packard [[HPQ]] – On 8/5/11 I bought back the November 37-strike put option I sold against HPQ on 5/17/11 (for a net nominal loss of about $2.50) and then sold a February 34-strike put option for $4.30, for a net overall credit of about $1.80 on the trade. The November put option position was itself part of an earlier risk reduction trade/roll-out with a carryover net credit of about $0.95, so my net cost basis if ultimately put the stock will now be a little over $31 per share.

Despite the shares’ very cheap current valuation, I elected to roll this position out rather than add to it for two reasons:

1. Given the degree of the overall market decline it seemed the more prudent thing to do, and

2. It offered a perfect opportunity to buy back intrinsic value (i.e., put options that were deep in the money) and sell expensive time premium against it for a net credit.

Itron [[ITRI]] – On 7/28/11 I bought back the August 50-strike put option I sold against ITRI on 2/17/11 (for a net loss of about $4.20) and then sold a February 45-strike put option for $4.30, for a net overall breakeven. This reduces my cost basis if ultimately put the stock to about $45, which is still substantially above where it’s currently trading (around $40). The stock is cheap if estimated 2011 and 2012 earnings in the $4+ range are to be believed, but I may consider adjusting the position again (using January 2013 LEAPS) on further weakness.

NYSE Euronext [[NYX]] – On 8/5/11, in a risk reduction move, I bought back the December 34-strike put options I sold against NYX (see new positions above) and then sold an equal number of March 30-strike put options for $3.80, for a net overall breakeven. I may consider adjusting the position again (using January 2013 LEAPS) on further weakness.

Teva Pharmaceutical Industries [[TEVA]] – On 8/2/11, in a risk reduction move, I bought back the September 47.50-strike put option I sold against TEVA on 4/12/11 for a net loss of about $2.90 and then sold a March 40-strike put option for $2.70, for about a net overall breakeven.

Wal-Mart Stores [[WMT]] – On 8/4/11 I bought back the September 52.50-strike put option I sold against WMT on 2/23/11 for a small net loss of about $0.16, and then sold a March 50-strike put option for $3.30, for an overall net credit of about $3.13. This was more of an example of opportunistic buying of intrinsic value and paying for it by selling expensive time premium than it was of risk reduction, as I have no problem owning WMT at around these levels (~$50). But lower is always better of course!

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