Options Notions: Updating Our Existing Trades

We updated three of our existing trades yesterday - going into profit taking mode on two of the trades and just marginally modifying the last one. This continues our effort at making a case for "when to sell".

NYX TRADE PROFIT TAKING RECOMMENDATION

First off, the March 9th, 2008 trade recommendation (email us for a copy of the original if you would like it) on NYSE Euronext (NYX) stock at $60.51, which suggested buying the shares, a long call spread and written puts. With the movement of NYX stock to over $76 yesterday morning (May 7th, 2008), this recommendation has performed quite well. Our specific picks were: writing the buying the stock at $60 or less, (it touched off of $57.50 in the ensuing days) selling June 60 puts, selling the September 55 puts, and going long a June $70 / $80 call spread.

Taking those trades one by one, we would now recommend taking the long NYX stock you may have, which was at $76.40 yesterday morning, and writing covered calls against those holdings. We would look to sell the June $80 calls for $2.20, or even the September $85 calls for $3.50. Either series of calls represents fair value at this point, in our opinion.

For the short June $60 puts, which we recommended selling at $5.65, we would now buy those back at $0.25 to $0.30 per contract. For the short September $55 puts, sold for $5.35, we would look to repurchase those at $1.00. Both of these respective options' moves have captured the bulk of their gains, and capital can be deployed elsewhere, we believe, for higher returns.

On the call spread, which we instituted at $1.81 net cost, going long the June $70 calls for $2.74, and short the June $80 calls for $0.93, the value now stands at approximately $5.50. The June $70's are $7.60, and the June $80 calls are $2.10. We would take the profits on this spread at this point, rather than try to capture the full $10 potential on the spread if NYX closed in June above the $80 mark.

RIG TRADE PROFIT TAKING RECOMMENDATION

Our April 9, 2008 recommendation to buy a call spread on Transocean Offshore (RIG) is also doing well, as that stock was $144 when we recommended our call spread and shot up past the $158 level yesterday morning (May 7th). Our spread was long May 150 Calls for $5.30, and short the May $160 calls, with a net cost of $3.30.

The original rationale for this trade was that we wanted to be involved in this stock during its first quarter's earnings release, which happened yesterday morning. Analyst expectations were for 1Q08 earnings of $3.35 per share, and we expected the company to beat that. We were rewarded yesterday morning with a $0.46 per share beat to that estimate, as the company reported $3.71 in EPS, on nearly double the annual revenues from a year ago. This increase was fed by RIG's acquisition of Global SantaFe Corp., which was finalized in November of 2007.

The RIG May 150 calls are now $9.20, and the May 160's are $3.10, giving a net value to this spread of $6.10. We would take profits at anything in the $5.50 to $6.00 range on this spread.

OSX PUT SPREAD TRADE - UPDATE - TAKE OFF ONE LEG

Lastly, on April 14th, we had recommended a put spread on the Philadelphia Exchange's Oilfield Services Index [OSX] as a protective hedge against the previously discussed RIG trade. RIG, as the 800-lb. gorilla in the space, at least as far as market cap, makes up 16% of that index's weight. We recommended a long May $300 put, offset with a short May $275 put, at a next cost of $8.20. We would buy back the short may $275 put for $0.25 or $0.30. Keep the May $300 long put.