Written by Fastball
Published under Income Portfolio, Technology
May 31, 2012
No comments
With volatility kicking-up today and lots happening across the whole market, we are putting on three new positions to round out our June expirations. We already sold a put spread in FFIV and sold an Iron Condor in CRM. Now we are:
Not many stocks managed to swim upstream against the downward current yesterday, but AAPL was one of them. This stock still shows no potential signs of a significant decline. That’s why we are bullish and selling the put spread below to generate income.
This Put Spread trade has 2 legs:
This produces a net $455 and puts $3,045 at risk. We are setting aside $10,000 in our portfolio for this trade. So this produces a 4.6% income on our $10,000 we set aside and a 14.9% return on the money we are putting at risk. In order to get our $455 maximum return, AAPL must be above $545 at the end of the day on Friday June 15th. The stock now sits at $579. That means we have a 5.9% cushion on the downside.
Whether it’s missing earnings, or having accounting issues, or just not having a business model that’s all that great, Groupon (GRPN) has been struggling ever since it came public. Now, the lock-up period required for insiders to hold their positions after the IPO ends on Friday. I expect that this will create some significant selling as those folks look to get some money out of their positions before this stock drops any further. Therefore, we are bearish selling the call spread shown below.
This Call Spread trade has 2 legs:
This produces a net $525 and puts $2,975 at risk. We are setting aside $10,000 in our portfolio for this trade. So this produces a 5.3% income on our $10,000 we set aside and a 17.6% return on the money we are putting at risk. In order to get our $525 maximum return, GRPN must be below $12 at the end of the day on Friday June 15th. The stock now sits at $11.1. That means we have a 8.1% cushion on the upside.
Speaking of companies that can’t get their stuff together, Research in Motion has gone through a sickening decline. It has turned-over its management team and doesn’t seem to have any growth prospects as their subscribers defect to competitors. Gone is their supreme domination of the corporate market as competitors such as Apple can now be used on secure networks in a corporate setting. RIMM still has good market share for sure, but competition is clearly eating away, and RIMM was not able to make a dent in the consumer market before backing out of that entirely.
There is speculation that another company will buy RIMM, but no one seems to have a good idea of who that would be. I’m willing to bet that a buy-out won’t likely be announced in the next two and a half weeks, if ever. Since I don’t see any other events that will drive the stock significantly higher, we are selling the call spread shown below.
This Call Spread trade has 2 legs:
This produces a net $630 and puts $2,870 at risk. We are setting aside $10,000 in our portfolio for this trade. So this produces a 6.3% income on our $10,000 we set aside and a 22.0% return on the money we are putting at risk. In order to get our $630 maximum return, RIMM must be below $11 at the end of the day on Friday June 15th. The stock now sits at $10.35, so we don’t have as much of a cushion on the upside on this one at 6.3%.
Disclosure: Dave owns shares of AAPL and may execute the trades above over the next few days.
