APP Put Repurchase:
Yesterday, I closed out a position I've held for a couple of months, repurchasing the forty Feb 2.5 puts on American Apparel, Inc. (APP) I had sold on 11/11 for $5 per put, or $200 plus commissions. In November, I had sold the puts for a net credit of $1,600, less commissions. My thesis in selling the puts was first that APP's price would likely stay above $2.50 (which turned out to be correct), but I nevertheless entered the position ready and willing to purchase 4000 shares of APP at $2.50 if exercised. I'm content with the $1,400 profit (less commissions). Note that factoring in the entire amount of reserved cash necessary to exercise ($10,000), IRR on the position turned out to be around 100% (less if I had held until expiration).
ATVI Put Sale:
After repurchasing the APP puts, I sold ten March 10 puts on Activision Blizzard, Inc. (NASDAQ:ATVI) for a net credit of $500, less commissions. This market leading video game publisher has seen its stock drop substantially over the last several months as the market's come down from lofty holiday season expectations and a Call of Duty MW2 high. ATVI is an excellent business, with tremendously valuable video game franchises, and more than $3B excess cash on its balance sheet. Before subtracting its excess cash, the stock trades at a little more than 13x analyst expectations for 2010 earnings. I think ATVI is a compelling medium to long term investment at its current price, and even more so at an effective purchase price of $9.5 per share ($10 strike price less $.5 put premium). As such, exercise may not be a worst case scenario.
Disclosure: Long APP, ATVI