Henry Stokman

Long/short equity, value, contrarian, special situations
Henry Stokman
Long/short equity, value, contrarian, special situations
Contributor since: 2011
Have you also thought about selling some $60 or $57.50 put options on LO to capitalize on the merger? I sold the March 2015 and January 2015 $62.50 and $60 shortly after it was announced for nice premium.
I couldn't agree more with your analysis. I was going to write an article on this stock and found that you had beaten me to punch with very similar analysis and conclusions.
Thanks for the comments and to your question on farmers running their equipment down to the ground. I will say that some do indeed do this, but most upgrade their equipment especially in high profit years because they are able to take advantage of the tax write-off effect resulting in less money that they owe the federal/state governments in income tax. So to some degree there is almost an incentive for them to upgrade when times are good.
Hey Katerno,
Those were the relative prices of the strikes at the time I wrote the article. The current premiums for those strikes are not bad, but if you feel oil will continue to sell off in the short term (like many do), then I would suggest using some limit orders for those premium prices (or whatever price you prefer) and wait for the puts to increase in value as SDRL follows the price of oil down.
Actually I believe that was a temporary change to their dividend policy. SCCO recently announced that they intend to pay out their ordinary dividend again of $.53/share effective May 24th.
That is exactly my strategy as well. Works very well especially with a great company.
For starters I am sorry that I did not use the 'proper' terminology in this article. I was referring to a cash covered or cash secured option trade in the article, that is my fault and I am sorry for any confusion that my error might have been caused.
Second, the possible scenarios that you outlined above are all very accurate and possible outcomes for any options trade (including this one). I thank you for outlining all of the outcomes for readers that made it this far in the comments section. I will say that the trade that I outlined was set up as a simple trade that basically allows the trader the ability to pick their entry point and wait for the stock to come to them. I would say next to a covered call this is basic options trade. As the option contract gets closer to expiration I would agree there are plenty of possible scenarios that the trader could execute as they manage their trade. I did not highlight every possibility (like you did) because for the purposes of this article I did not feel that is was important since the purpose of the trade was to simply try to get a better entry point in Apple, that’s all.
I am sorry that you did not feel that this was a 'good' article because I did not go into the amount of detail that you did in the comment above. I noticed that you are recently retired and are a fully time trader now, but do not have any Seeking Alpha articles. I think that if you are this dissatisfied with the content that you are finding on this website or feel that articles require more specifics and detail then I would encourage you to begin writing some articles on trades that you are currently doing or ideas that you have on how to make money in this market.
It is one thing to be heavily critical of other peoples work (which you have been on several authors articles) when you have your own work to back up your statements. It is another thing to sit comfortably behind your computer screen and ridicule and criticize other people’s work because it is below your expectations and standards when those standards and expectations have yet to be seen in any work that has been put forth.
That is true, but like I said in my article I like the stock at the $50/$47.50 level. Plus if you subtract out the premium that you received for selling the put, the actual breakeven price is almost another 10% below the strike (purchase) price.
If you feel that the stock is going to drop another $20 below $50/$47.50 then I would suggest selling a lower put option in the $20 range or just waiting for the stock to go down and pick it up there.
I think your scenario is dependent on what your current outlook of the stock and greater market is and personally at this point I don't believe that it is 2008 again. Either way I like MOS long term and feel that the current price action provides for a nice way to make some extra money on this stock.