OptionPundit

Tag: ANR

  • OPNewsletter (Aug’08) : +2.0% (Open)

    For the week ending Aug 01, OPNewsletter is up +2.0% including commissions and +4.0% x-comissions. Though this was a great week for 3 portfolios delivering double digit gains, it wasn’t so for our 4th portfolio that is down double digit and is dragging overall results with it. Albeit, We still have two weeks to go.

    You may find out about more about OPNewsletter here. We shall be shortly opening our Sept portfolio spots.

    There were couple of bonus trade alerts as well that delivered solid results including AMZN, POT and AAPL. I also shared a free trade idea, using covered call strategy. Simple returns were +6.6%, while those who can use portfolio margining, it was over 10% for holding only 1 day.

    Next week is an important one, FOMC announcement is scheduled on Tuesday (Aug 5). Markets have been holding pretty well (>11,000) for sometime. However, from a long term perspective, I think my earlier post still holds true. Also don’t forget to re-read how to survive this market.

    These times require very close attention. Trade Carefully.

    Profitable trading, OP

  • Alpha Natural Resources Posts Record Quarterly Earnings

    Alpha Natural Resources Inc (ANR) said that second-quarter net income was $74.3 million, or $1.04 a share compared to $4.7 million, or 7 cents a share, in the same period a year ago. Analyst were expecting $0.51-$0.54/share. Revenue surged to $732.2 million compared to $435.3 million. I opened a covered call strategy on this underlying yesterday. The call is scheduled for 11Am ET and till then stock may not move much but the IV should surely drop helping me gain from the call sold.

    Here is the summary from the ANR’s website–

    • Net income for second quarter of 2008 increases to $74.3 million ($1.04 per diluted share) from $4.7 million ($0.07 per diluted share) in comparable period last year
    • Coal revenues increase 63 percent on record metallurgical shipments
    • Per-ton margin increases 130 percent quarter-over-quarter
    • Record EBITDA of $141.8 million, compared with $53.7 million in second quarter of 2007
    • More than 21 million tons of Alpha’s planned metallurgical coal production in 2009 and 2010 remains open for pricing
    • Alpha enters into agreement to merge with Cleveland-Cliffs

    Profitable trading, OP

  • ANR, A Covered Call Case

    The Cleveland-based company (CLF) announced its bid for Alpha (ANR) on July 16 in which Abingdon, Va.-based Alpha shareholders would receive 0.95 Cleveland-Cliffs (CLF) shares and $22.23 in cash for each share. The companies pegged the deal at $10 billion the day it was announced. Based on the company’s 70.3 million outstanding shares at April 23, the deal is valued at $8 billion currently. Since the deal is a little bit rocky and is surrounded by uncertainty, the share prices are rocked as well. Currently ANR is selling cheap compared to the buyout prices.

    One may create multiple strategies to benefit from M&A play, I am planning for a coverall call strategy on ANR, details of which are here-

    • Underlying ANR: @ $88.7
    • Selling Aug 90 calls at $7.30 for each 100 shares
    • Break-even point – $81.2
    • Maximum Gains (as per current strategy without considering further actions) – $857 by Aug 15 or earlier.

    What is a covered call option trading strategy– The covered call is a strategy in which an investor writes a call option contract while at the same time owning an equivalent number of shares of the underlying stock. If this stock is purchased simultaneously with writing the call contract, the strategy is commonly referred to as a “buy-write.” If the shares are already held from a previous purchase, it is commonly referred to an “overwrite.” In either case, the stock is generally held in the same brokerage account from which the investor writes the call, and fully collateralizes, or “covers,” the obligation conveyed by writing a call option contract. This strategy is the most basic and most widely used strategy combining the flexibility of listed options with stock ownership.

    Watch-out: With this kind of strategy, profits are limited but losses can be substantial. This is a capital intensive strategy as well. So if you do decide to play this strategy, pls do your own due diligence and make sure you have risk management plans in place. You may read more about covered call here.

    Profitable trading, OP

  • Where is the Bull?

    Amongst all the bearishness in the market you might think there is none except one obvious answer OIL. There are many areas that are just moving up with their own share of correction along the up way.

    I have been mentioning my “Fantastic Four” for quite sometime. Even since my last post, in just less than two weeks POT is up >+10%, MOS is up >+20%, CF is also up >+10%, and MON >+5% after touching 52wk high. In fact, Intrepid Potash (IPI) touched 52wks high today (My post here). But keeping them is not easy and requires guts, well more than guts it is how well one hedges against any sharp corrections on the way up. A very simple and popular way will be buy puts and fund the cost by selling calls. For instance POT is currently $223, so you buy 220 puts and sell OOM calls to offset the cost of puts. I shall cover this in more details some other day.

    Another sector on the roll is coal. Check out the PCX, ANR, BTU, FDG, and ACI. Oil has its impact of alternative energy fuels as well. As Oil prices are climbing higher, all other energy resources are becoming cheaper relative to oil. One may argue why Rails are falling apart, but there is more to rails than just oil’s rise. But still it’s not a beaten down sector if you look at short term horizon of say 3months.

    Above are just two examples. You may find even more. However, as these are moving-up, the risk of their fall is also increasing. So be careful about your entry and exit points.

    Last point, the bull is on the downside as well. It’s all a matter of perspective. Almost similar strategies can be created for the downward move. However, the risk is higher. Our human brain in general is “bullish” so at the first moment of upward move (assuming I am bearish), I am more “panicked” than if I would if I were bullish and if there was a reversal.

    Have fun, Profitable trading, OP