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We are made wise not by the recollection of our past, but by the responsibility for our future.

George Bernard Shaw

Selling naked puts is a great way to purchase shares in companies you like at a predetermined price. In essence, you are getting paid to put in a "limit order."

An investor usually sells a put option if his/her outlook on the underlying security is bullish. The buyer of the put option pays the seller a premium for the right to sell the shares at an agreed-upon price. If the stock does not trade at or below the agreed-upon price (strike price), the seller gets to keep the premium.

Benefits associated with selling naked puts

1. In essence, you get paid for entering a "limit order" for a stock or stocks you would not mind owning.

2. It allows one to generate income in a neutral or rising market.

3. When you sell a naked put you are in a way acting like an insurance agent. The buyer of the option agrees to buy the stock in the future if it drops to a certain level before the option expires. For this, you (the seller) are paid a premium upfront. If this strategy is repeated over and over again these premiums can really help boost you returns over time.

4. Acquiring stocks via short puts is a widely used strategy by many retail traders and is considered to be one of the most conservative option strategies. This strategy is very similar to the covered call strategy.

5. The safest option is to make sure the put is "cash secured." This simply means that you have enough cash in the account to purchase that specific stock if it trades below the strike price. Your final price would be a tad bit lower when you add the premium you were paid up front into the equation. For example, if you sold a put at a strike of 20 with two months of time left on it for $2.50; $250 per contract would be deposited into your account.

6. Time is on your side. Every day you profit via time decay as long as the stock price does not drop significantly. In the event it does drop below the strike you sold the put at, you get to buy a stock you like at the price you wanted

7. Most options expire worthless so time is on your side. Time decay is the greatest in the front month.

Reasons to be bullish on Antares Pharma (AIS)

  • Quarterly revenue growth of 65.4%
  • Net income rose from $-10 million in 2009 to $-4 million in 2011
  • Cash flow per share rose from $- 0.12 in 2009 to $- 0.04 in 2011
  • 5 year sales growth rate of 27.8%
  • EBITDA increased from $-9 million to $- 4 million in 2011
  • Sales increased doubled from $8 million in 2009 to $16 million in 2011
  • Annual EPS before NRI increased from $-0.14 in 2009 to $- 0.05 in 2011
  • A very good Quick ratio of 3.5
  • An excellent current ratio of 3.6
  • Short percentage of Float is at 11.9%, which makes it good candidate for a short squeeze
  • Projected year over year growth rates of 60% and 833% for 2012 and 2013 respectively
  • $100K invested for 10 years grew into $750K

Naked put Strategy for Antares Pharma

AIS looks like it could test the 2.50 ranges before trending higher. The Nov 12 2.50 puts are the ones to focus on. We would wait for the option to trade in the 45-50 cent ranges before selling these puts. For this example let’s assume that the puts were sold at 45 cents or $45 per contract. If the stock trades below 2.50 you will be assigned the shares. Your final price will work out to be 2.05 (2.50- 0.45). If the shares do not trade below 2.50 then you walk away with the premium which works out to a rate a gain of 14.7% for roughly six months. Only investors willing to take on a bit of risk should consider this play as AIS is a bit volatile. Investors looking for other naked put strategies might find this article to be of interest - A Naked Put Strategy For Linn Energy.

Company: Antares Pharma

Basic Key ratios

  1. Percentage Held by Insiders = 12.52

Growth

  1. Net Income ($mil) 12/2011 = -4
  2. Net Income ($mil) 12/2010 = -6
  3. Net Income ($mil) 12/2009 = -10
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 27.95
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 88.14
  1. EBITDA ($mil) 12/2011 = -4
  2. EBITDA ($mil) 12/2010 = -6
  3. EBITDA ($mil) 12/2009 = -9
  1. Annual Net Income this Yr/ Net Income last Yr = 28.08
  2. Cash Flow ($/share) 12/2011 = -0.04
  3. Cash Flow ($/share) 12/2010 = -0.07
  4. Cash Flow ($/share) 12/2009 = -0.12
  1. Sales ($mil) 12/2011 = 16
  2. Sales ($mil) 12/2010 = 13
  3. Sales ($mil) 12/2009 = 8
  1. Annual EPS before NRI 12/2007 = -0.14
  2. Annual EPS before NRI 12/2008 = -0.19
  3. Annual EPS before NRI 12/2009 = -0.14
  4. Annual EPS before NRI 12/2010 = -0.07
  5. Annual EPS before NRI 12/2011 = -0.05

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 72.88
  2. EPS Growth Quarterly(1)/Q(-3) = 1-100.00
  3. ROE 5 Year Average 12/2011 = -95.38
  4. Return on Investment 06/2011 = -16.85
  5. Debt/Total Cap 5 Year Average 12/2011 = 11.35
  1. Current Ratio 06/2011 = 3.63
  2. Current Ratio 5 Year Average = 2.98
  3. Quick Ratio = 3.54
  4. Cash Ratio = 3.28
  5. Interest Coverage Quarterly = N/A

Valuation

  1. Book Value Quarterly = 0.3
  2. Price/ Book = 10.67
  3. Price/ Cash Flow = N/A

Company: Silverwork Metal (NYSE:SVM)

Basic Key ratios

  1. Relative Strength 52 weeks = 17
  2. Dividend 5-year Growth = 10.27
  3. Cash Flow 5 -year Average = 0.29
  4. Dividend Yield 5-Year Average = 1.26

Growth

  1. Net Income ($mil) 12/2011 = 69
  2. Net Income ($mil) 12/2010 = 39
  3. Net Income ($mil) 12/2009 = N/A
  1. EBITDA ($mil) 12/2011 = 118
  2. EBITDA ($mil) 12/2010 = 65
  3. EBITDA ($mil) 12/2009 = N/A
  4. Annual Net Income this Yr/ Net Income last Yr = 78.62
  5. Cash Flow ($/share) 12/2011 = 0.41
  6. Cash Flow ($/share) 12/2010 = 0.26
  7. Cash Flow ($/share) 12/2009 = N/A
  1. Sales ($mil) 12/2011 = 167
  2. Sales ($mil) 12/2010 = 107
  3. Sales ($mil) 12/2009 = N/A
  1. Annual EPS before NRI 12/2008 = 0.4
  2. Annual EPS before NRI 12/2009 = 0.18
  3. Annual EPS before NRI 12/2010 = 0.24
  4. Annual EPS before NRI 12/2011 = 0.38

Dividend history

  1. Dividend Yield = 1.6
  2. Dividend Yield 5 Year Average 12/2011 = 1.26
  3. Annual Dividend 12/2011 = 0.08
  4. Forward Yield = 1.5
  5. Dividend 5 year Growth 12/2011 = 10.27

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.21
  2. Payout Ratio 5 Year Average 12/2011 = 0.28
  3. Payout Ratio 5 Year Average 09/2011 = 0.28
  4. Payout Ratio 5 Year Average 06/2011 = 0.28
  5. Change in Payout Ratio = -0.08

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -55.61
  2. EPS Growth Quarterly(1)/Q(-3) = -171.43
  3. ROE 5 Year Average 12/2011 = 18.35
  4. Return on Investment 06/2011 = 17.12
  5. Debt/Total Cap 5 Year Average 12/2011 = 0.9
  1. Current Ratio 06/2011 = 4.09
  2. Current Ratio 5 Year Average = 5.01
  3. Quick Ratio = 5.77
  4. Cash Ratio = 5.66
  5. Interest Coverage Quarterly = N/A

Company: Cabot Oil & Gas (NYSE:COG)

Basic Key ratios

Percentage Held by Insiders = 2

Growth

  1. Net Income ($mil) 12/2011 = 122
  2. Net Income ($mil) 12/2010 = 103
  3. Net Income ($mil) 12/2009 = 148
  1. EBITDA ($mil) 12/2011 = 654
  2. EBITDA ($mil) 12/2010 = 597
  3. EBITDA ($mil) 12/2009 = 537
  4. Annual Net Income this Yr/ Net Income last Yr = 18.4
  5. Cash Flow ($/share) 12/2011 = 2.21
  6. Cash Flow ($/share) 12/2010 = 2.08
  7. Cash Flow ($/share) 12/2009 = 2.01
  1. Sales ($mil) 12/2011 = 980
  2. Sales ($mil) 12/2010 = 844
  3. Sales ($mil) 12/2009 = 879
  1. Annual EPS before NRI 12/2007 = 0.84
  2. Annual EPS before NRI 12/2008 = 1.05
  3. Annual EPS before NRI 12/2009 = 0.78
  4. Annual EPS before NRI 12/2010 = 0.49
  5. Annual EPS before NRI 12/2011 = 0.55

Dividend history

  1. Dividend Yield = 0.2
  2. Dividend Yield 5 Year Average 12/2011 = 0.3
  3. Dividend Yield 5 Year Average 09/2011 = 0.3
  4. Annual Dividend 12/2011 = 0.06
  5. Dividend 5 year Growth 12/2011 = -2.29

Dividend sustainability

  1. Payout Ratio 09/2011 = 0.07
  2. Payout Ratio 06/2011 = 0.11
  3. Payout Ratio 5 Year Average 12/2011 = 0.09
  4. Change in Payout Ratio = -0.02

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 26.83
  2. Next 3-5 Year Estimate EPS Growth rate = N/A
  3. EPS Growth Quarterly(1)/Q(-3) = -146.67
  4. 5 Year History EPS Growth 12/2011 = -13.73
  5. ROE 5 Year Average 12/2011 = 10.22
  6. Return on Investment 12/2011 = 3.94
  7. Debt/Total Cap 5 Year Average 12/2011 = 30.08
  1. Current Ratio 12/2011 = 1.05
  2. Current Ratio 5 Year Average = 1.02
  3. Quick Ratio = 0.95
  4. Cash Ratio = 0.61
  5. Interest Coverage Quarterly = 2.76

Valuation

  1. Book Value Quarterly = 10.15
  2. Price/ Book = 3.43
  3. Price/ Cash Flow = 15.7

Company: Emerson Electric Company (NYSE:EMR)

Levered Free Cash Flow = 2.37B

Basic Key ratios

  1. Percentage Held by Insiders = 0.85
  2. Market Cap ($mil) = 38007

Growth

  1. Net Income ($mil) 12/2011 = 2480
  2. Net Income ($mil) 12/2010 = 2164
  3. Net Income ($mil) 12/2009 = 1724
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 6.85
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -22.71
  1. EBITDA ($mil) 12/2011 = 4721
  2. EBITDA ($mil) 12/2010 = 3956
  3. EBITDA ($mil) 12/2009 = 3397
  4. Annual Net Income this Yr/ Net Income last Yr = 14.6
  5. Cash Flow ($/share) 12/2011 = 4.46
  6. Cash Flow ($/share) 12/2010 = 3.8
  7. Cash Flow ($/share) 12/2009 = 3.26
  1. Sales ($mil) 12/2011 = 24222
  2. Sales ($mil) 12/2010 = 21039
  3. Sales ($mil) 12/2009 = 20915
  1. Annual EPS before NRI 12/2007 = 2.66
  2. Annual EPS before NRI 12/2008 = 3.11
  3. Annual EPS before NRI 12/2009 = 2.27
  4. Annual EPS before NRI 12/2010 = 2.69
  5. Annual EPS before NRI 12/2011 = 3.24

Dividend history

  1. Dividend Yield = 3.3
  2. Dividend Yield 5 Year Average =2.8%
  3. Annual Dividend 12/2011 = 1.38
  4. Dividend 5 year Growth = 9%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.51
  2. Payout Ratio 5 Year Average 06/2011 = 0.47
  3. Change in Payout Ratio = 0.05

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -14.82
  2. Next 3-5 Year Estimate EPS Growth rate = 11.5
  3. EPS Growth Quarterly(1)/Q(-3) = 120.64
  4. ROE 5 Year Average 06/2011 = 23.45
  5. Return on Investment 06/2011 = 15.7
  6. Debt/Total Cap 5 Year Average 06/2011 = 29.52
  7. Current Ratio 06/2011 = 1.40
  8. Current Ratio 5 Year Average = 1.43
  9. Quick Ratio = 1.12
  10. Cash Ratio = 0.42
  11. Interest Coverage = 14.20

Valuation

  1. Book Value Quarterly = 14.33
  2. Price/ Book = 3.48
  3. Price/ Cash Flow = 11.10
  4. Price/ Sales = 1.40
  5. EV/EBITDA 12 Mo = 8.47

Company: Range Resources (NYSE:RRC)

Basic Key ratios

Percentage Held by Insiders = 1.8

Growth

  1. Net Income ($mil) 12/2011 = 58
  2. Net Income ($mil) 12/2010 = -239
  3. Net Income ($mil) 12/2009 = -54
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 112.07
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -66.98
  1. EBITDA ($mil) 12/2011 = 609
  2. EBITDA ($mil) 12/2010 = 522
  3. EBITDA ($mil) 12/2009 = 437
  4. Annual Net Income this Yr/ Net Income last Yr = 124.25
  5. Cash Flow ($/share) 12/2011 = 2.85
  6. Cash Flow ($/share) 12/2010 = 2.18
  7. Cash Flow ($/share) 12/2009 = 2.8
  1. Sales ($mil) 12/2011 = 1219
  2. Sales ($mil) 12/2010 = 910
  3. Sales ($mil) 12/2009 = 907
  1. Annual EPS before NRI 12/2007 = 1.69
  2. Annual EPS before NRI 12/2008 = 1.94
  3. Annual EPS before NRI 12/2009 = 1.04
  4. Annual EPS before NRI 12/2010 = 0.36
  5. Annual EPS before NRI 12/2011 = 0.34

Dividend history

  1. Dividend Yield = 0.3
  2. Dividend Yield 5 Year Average 12/2011 = 0.33
  3. Dividend Yield 5 Year Average 09/2011 = 0.33
  4. Annual Dividend 12/2011 = 0.16
  5. Annual Dividend 12/2010 = 0.16
  6. Forward Yield = 0.25
  7. Dividend 5 year Growth 12/2011 = 3.16

Dividend sustainability

  1. Payout Ratio 09/2011 = 0.18
  2. Payout Ratio 06/2011 = 0.17
  3. Payout Ratio 5 Year Average 12/2011 = 0.17
  4. Payout Ratio 5 Year Average 09/2011 = 0.17
  5. Payout Ratio 5 Year Average 06/2011 = 0.17
  6. Change in Payout Ratio = 0

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 17.03
  2. Next 3-5 Year Estimate EPS Growth rate = 35.76
  3. EPS Growth Quarterly(1)/Q(-3) = 131.82
  4. 5 Year History EPS Growth 12/2011 = -21.35
  5. ROE 5 Year Average 12/2011 = 8.96
  6. Return on Investment 12/2011 = 3.35
  7. Debt/Total Cap 5 Year Average 06/2011 = 43.18
  1. Current Ratio 12/2011 = 0.84
  2. Current Ratio 5 Year Average = 1.09
  3. Quick Ratio = 0.59
  4. Cash Ratio = 0.34
  5. Interest Coverage Quarterly = 0.93

Valuation

  1. Book Value Quarterly = 14.8
  2. Price/ Book = 4.4
  3. Price/ Cash Flow = 22.87

Conclusion

One of the best ways to open up positions in stocks you are bullish on when the market is in a corrective phase is to sell naked puts at strikes you would not mind owning the stock at. In essence you are getting paid to wait.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: EPS and EPS surprise charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Earnings and growth estimates sourced from dailyfinance.com. Consensus estimate analysis table sourced from reuters.com. Options table sourced from Yahoo Finance.

Source: Antares Pharma Among 5 Interesting Naked Put Plays