Linn Energy, LLC (SYMBOL: LINE) closed at $40.98 as of 9/26/2012 and it is time to update my prior bullish article on the company.
The prior article discussed using options to enhance a potential long term opportunity which was comprised of selling January 2013 put options for $2.00 and buying the January 2013 $36-39 call spread for $1.30.
The call spread could have been traded on 9/26/2012 for $2.60 and the short $33 puts for $0.30. It is time to close out the trade as the maximum reward is only $0.70 and would require an investment to wait until January 2013 to realize the remaining $0.30 (if LINE stayed above $39).
This trade returned 7.12% in three months when using the $32.30 MVAR (maximum value at risk). The $230 in profits against the margin requirements at initiation were around $500 and would represent 46% against margin requirements.
The primary reason I am taking profits on this trade is due to broader economic and market concerns that could drive the share price lower as well as there not being any significant reward left in the trade.
If shares prices were to drop back into the $38 area then one could re-initiate this style of trade and book higher potential profits than the $0.70 remaining.
Fundamentally the company is still doing good and current analyst estimates are projecting a 2012 EPS of $1.17 (consensus average) and 2013 EPS of $1.68.
Overall I am not incredibly bullish at these share price levels and would be taking profits on bullish positions (or long shares) in order to take advantage of a future price decline below $40.
Disclosure: I am long LINE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Long term retirement plan holding only.