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Patrick Rooney
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Experience as a Proprietary Trader and Futures Trader where he was focusing on SPX options spreads, Crude Oil futures, and hedging long term positions through arbitrage. Finance and Economics background with a strong understanding of equity valuation, macroeconomic perspective, and the global... More
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Patrick J.G. Rooney
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  • Small Cap Q1 2014 Watch List

    Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is a biopharmaceutical company. Belviq is its anti obesity pill, which has been on the market for about 6 months now. Since then there have been a number of additional beneficial uses of Belviq such as type II diabetes and smoking cessation. Its large cash position is what attracts me the most at $180.70mm compared to its $73.24mm in total debt. To cut to the chase, prescription sales have been increasing week by week and even though anti obesity pills (Belviq) are considered very elastic its sales are always larger in the first quarter of the year (expected Q1 of 2014). If you're not looking to open a stock position or want to add onto a stock position, Jan/Feb OTM call spreads have been trading at a discount as of late.

    (click to enlarge)Technical Analysis of ARNA

    (click to enlarge)Jan/Feb Options Chain

    Kona Grill, Inc. (NASDAQ:KONA) is a food services company, which operates and owns a number of restaurants and food outlets. Currently one of my favorite companies to own stock in or at least have a synthetic position in. It has posted strong margin growth, especially for a series of restaurants. A short float of only 0.80% is always a great sign to any trader or investor. Kona has incredibly high insider and institutional ownership at 43.35% and 37.80% respectively. No total debt as of the most recent quarter, and a cash position of $9.18mm. Kona has remained fairly uncovered by analysts due to its market capitalization of only $138.28mm, but they have shown an 84.9% return YTD (significantly outperforming the S&P and Russell2000).

    (click to enlarge)KONA vs. SPX vs. RUT

    Medical Marijuana, Inc. (OTCPK:MJNA) provides a number of services and products to the rapidly expanding hemp and medicinal marijuana industry. Since the medical marijuana industry is incredibly risky to begin with, MJNA is by far my most risky long term position. To some investors MJNA is a typical penny stock with large fluctuations between $0.09 and $0.50 at the first glance. To myself and other investors, MJNA is a debt free rapidly expanding company in a rapidly expanding industry with a considerably high gross and operating margin and a current ratio of 147.81. In the past months we have seen a number of states decriminalize and slowly begin to regulate medicinal marijuana. I liked MJNA at $0.15-$0.20 earlier this year, I like it even more at $0.10.

    (click to enlarge)MJNA YTD

    SandRidge Energy, Inc. (NYSE:SD) is an independent oil and natural gas company focusing on exploration and production. SandRidge is another energy company I have held for quite some time now. It is under more analyst coverage compared to the previous three companies, but there is still some more than mentionable information. It has been decreasing its debt in the past few quarters and also increased its production, both at a maintainable rate in the long run. It is increasing its profit margins by decreasing some of its expensive costs. SandRidge's massive natural gas asset is most attractive to me, which will only appreciate over time. I like SandRidge at its current level, especially with a price to book ratio of 1.31 and a price to sales ratio of 1.05.

    (click to enlarge)SD vs. SPX vs. CL_F

    Disclosure: I am long ARNA, OTCPK:MJNA, KONA, SD. 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: I have various options positions on each of the stocks mentioned in this article. After options positions, I still remain net long each of the stocks mentioned.

    Dec 21 5:17 AM | Link | Comment!
  • Kodiak Oil & Gas Corp. Low Risk January Options Play

    The following idea is driven heavily by technical analysis; fundamentals are considered, but overlooked due to the time frame of the trade idea.

    Kodiak Oil & Gas Corp. (KOG) has made an incredible run since its +/-$5.00 low in 2011. It is still undervalued and poised for growth in the long run, but in the short run there is a low risk options play for investors who do not want to simply buy the stock. For investors already long (or short) the stock, this play can be used to lower the dollar cost average of the position or as a speculative monthly options play.

    (click to enlarge)

    In the short run, Kodiak has been oversold on the daily chart since November options expiration. Although I do not see Kodiak breaking its $14.11 high from October, a target price of at least $12.60 is very possible in the coming month (9.08%+ gain on the stock). Yes, any investor can go buy the stock for about a 9% gain, but why not give the position some leverage with either of these two options strategies.

    -Short 11/12.5 January put spread

    $90 credit per contract

    -Long 11/12.5 January call spread

    $60 debit per contract

    Note that each strategy has the same max gain/loss. It is up to the investor to find a discrepancy in the options pricing during market hours to decide which strategy has a greater yield. Personally, I prefer short strategies to long although the margin requirement is generally smaller for the long strategy.

    To understand this strategy more please refer to this example:

    -Long 1000 shares KOG at $11.46

    Cost of $11,460 (+commission)

    -Long 10 11/12.5 Jan call spreads at $60

    Cost of $600 (+commission)

    If Kodiak closes at or above $12.50 at Jan options expiration:

    -1000 shares worth $12,500

    9.08% gain

    -10 Jan call spreads worth $1,500

    150% gain

    Risk Assessment:
    What if Kodiak does not go to $12.50+ at January options expiration? This is where the options play becomes more favorable. With 10 contracts an investor has the same leverage as 1000 shares, but with only $600 at risk as opposed to $11,460. If Kodiak closes below $11.00 at options expiration the options are worthless at $0. At $11.00 per share the stock position is worth $11,000, a 4.01% loss of $460. What if Kodiak tanks and drops well below $11.00 per share. The options position still is only a $600 loss while the loss on the stock can be up to $11,460, although it would take only a 5.24% drop for the loss to exceed $600.

    Advanced Options Strategy:
    Long KOG stock (i.e. 1000 shares)

    Jan 14.00 Covered calls at $15 per contract ($150 credit)

    Short Jan 11/12.5 put spread at $90 per contract ($900 credit)

    Use the credit of $90+$15/contract ($1050) on an OTM Jan 10/11 put spread at $25/contract ($250 debit)

    Total Position:
    Long KOG Shares
    Short Jan 14 Calls
    Short Jan 12.5 Puts
    Long Jan 11 Puts (2:1 ratio to Short 12.5 puts; overlapping spreads)
    Short Jan 10 Puts

    Summary:

    Position

    Cost

    Gain (KOG>$12.50)

    Loss (KOG<$11.00)

    Long 1000 Shares

    $11,460.00

    $1,040+ (9.08%)

    $460+(4.01%)

    Long 11/12.5 call spread

    $600.00

    $900.00 (150%)

    $600 (100%)

    Long shares/call spread

    $12,060.00

    $1,940+ (16.09%)

    $1,060 (8.79%)

    *Advanced Strategy*

    $10,660.00

    $1,840+ (17.26%)

    $310 (2.91%)

    Disclosure: I am long KOG. 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: I am short ITM Dec and Jan monthly KOG calls. I am short ATM Jan put spreads. I am long OTM Jan put spreads. As stated in "Advanced Options Position", although position size and leverage varies. Investors should trade options at own risk, as risk varies greatly.

    Dec 05 11:56 AM | Link | Comment!
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