I want you to want me
I need you to need me
I'd love you to love me
I'm beggin' you to beg me
I'll shine up the old brown shoes
I put on a brand new shirt
I'll get home early from work
If you say, that you love me
MIPS Technology Inc. (MIPS) was recommended for long exposure on April 28, 2011 when we spotted value in the contracts and IP at MIPS. We evaluated the options on October 21, 2011 and decided to accept ownership of the put option sold, providing us a cost basis of $6.19 in what we deemed to be a growth stock. Share price soared yesterday afternoon when Bloomberg reported that MIPS had retained Goldman Sachs to pursue a potential sale. Goldman Sachs will help MIPS "shine up the old brown shoes" and "put on a brand new shirt" to find a buyer who will "say, that you love me." Craig-Hallum analyst believes MIPS has a valuable IP portfolio and the value of the shares is between $10-14. If that is correct, "I'll get home early from work." The only thing for us to do is wait and see right now. We can use covered calls on any significant spikes to protect gains while the process plays out.
Ocwen Financial Coporation (OCN) was recommended on January 29, 2012 at $13.66 with an Apr $15 call sold for $0.45. OCN is trading at $14.91 a week ahead of option expiration which is very good for us. All of the reasons we wanted exposure to OCN are still in place (see Jan 29 article), and we have a 9.22% gain plus the $0.45 call option and the ability to roll to the July $15 call (OCN120721C00015000) for approximately $0.90. Watch OCN closely next week as any move over $15 will require buy-to-close on the Apr $15 call prior to rolling, but if OCN remains at or under $15, the option will simply expire.
Rio Tinto PLC (RIO) replaced Rockwood Holdings in our recommendation on February 14, 2012 at $58.62 using the buy/write strategy with Apr $62.50 call/put for $6.85 in premium. I still like RIO for long exposure and as well as for the buy/write strategy. In the next week, we will need to roll the position to July $57.50 for approximately $8.80 (RIO120712c00057500 and RIO120712P00057500) in premium depending on which day you roll. The Apr $62.50 call will expire, and we will need to buy to cover the Apr $62.50 put for approximately $7.50 which will eliminate the premium sold for April but allow us to roll forward to July.
Those are the only 2 option positions to deal with in April while we wait to see who and how much Goldman Sachs can "beg (the buyer) to beg me."
- Buy to cover (if necessary) OCN Apr $15 call
- Sell to open OCN July $15 call at the market
- Buy to cover RIO Apr $62.50 put at the market during the next week
- Sell to open RIO July $57.50 call at the market during the next week
- Sell to open RIO July $57.50 put at the market during the next week