Last Friday our short October USD 25.00 puts on ENERGY CONVERSION DEVICES (ENER / USD 25.59 / YTD – 8,4 %) expired worthless. We earned the full premium and made USD 330 on the trade. Calculated on the 100% margin we deposited, we made 6% in 6 weeks time, or almost 50% an annualized terms. We think ENER can be bought around USD 22.50. So, we like to give an order to sell 5 December 22.50 puts at a limit of USD 1.20. The latest option-price for this series can be found here: http://finance.yahoo.com/q?s=EQIXX.XDid you see the stock performance of E*TRADE FINANCIAL (ETFC / USD 10.93 / YTD – 11.5 %)? After reporting an unexpected loss the shares of the online broker fell to their lowest level in almost 3 years. ETFC reported its first quarterly net loss in 5 years on the back of the bad credit environment. The firm took a USD 200 million write-down linked to mortgage-related investments. In contrast to its rivals Ameritrade (AMTD) and Schwab (SCHW), E*Trade is much more involved in the credit market. The worst may not be over but prices below USD 10 look attractive to us. We give an order to sell 7 puts January 2008 USD 10.00 at a price of USD 0.80. The stock is allowed to fall another 15% before this position starts colouring red. Please click the link for the latest option-price: http://finance.yahoo.com/q?s=EUSMB.X
Our order to sell 5 calls PACIFIC ETHANOL (PEIX - USD 11.17) March 2008 USD 12.50 at a price of USD 1.00 was filled yesterday. We were not too bullish on the stock and wanted to earn some money on our long position (we had to buy the stock back in June at USD 15 as we got assigned on the short June 2007 puts). Today Friedman Billings downgraded the stock ( http://finance.yahoo.com/q/ud?s=PEIX) to underperform. Good news on the other hand for our junior goldmine GOLDEN STAR RESOURCES (GSS - USD 4.23). The stock jumps 15% on news it seeks a listing on the Ghana stock exchange. We are short January 2009 USD 2.50 puts. SINOVAC BIOTECH (SVA - USD 4.40), a China based biotech firm, adds another 10%. Over the last month the stock, has doubled in value. The Option Portfolio had sold puts in the beginning of the year. They have already matured worthless. The stock is still on our watchlist.
So far this year, our alternative energy stockpick PACIFIC ETHANOL (PEIX - USD 10.77) has not been our best investment. The company produces and markets renewable fuels in the western United States. It produces and sells ethanol, and provides transportation, storage, and delivery services. Since May 2006 PEIX stocks fell from USD 40 to almost USD 10 these days. The hype and the fantasy is clearly priced out. Back in December 2006 our Option Portfolio sold June 2007 USD 15 puts at USD 1.90. In June we were assigned and bought 500 stocks at USD 15. We do not expect a spectacular recovery any time soon. In order to have some income on the stock we are going to sell some calls on it. We give on order to sell 5 calls March 2008 with strike USD 12.50 at a limit of USD 1.00. If PEIX were to rise above USD 12.50 by March next year, we would then be out of position more or less flat against a loss of USD 1.165 based on actual prices (10.77 -(15.00-1.90)*500)). The actual option price can be found here: http://finance.yahoo.com/q?s=PFQCV.X.
At the same time we would like to re-enter a position in EVERGREEN SOLAR (ESLR - USD 8.71). We give an order to sell 10 puts December 2007 with strike USD 7.50 at a limit of USD 0.50. By selling these puts we are entering the obligation to buy 1.000 ESLR shares at a price of USD 7.5 if they trade below that level by mid December. On execution of the order our savings account will be credited with the option-premium of USD 500 (10*100*0.5). The 100% margin of the trade amounts to USD 7.500 (10*100*7.5). These funds are blocked on the account as a guarantee. Click here for the actual option price: http://finance.yahoo.com/q?s=QLUXU.X .
Both our open orders are filled:
- We sold 10 puts PANACOS PHARMA (PANC – USD 2.81) January 2008 with strike USD 2.50 at a price of USD 0.35. For the obligation to buy PANC at USD 2.50 if the stock would trade below 2.50 towards the maturity of the option in January, we receive an upfront payment of USD 350 (10*100*0.35). As a 100% margin (fully cask covered puts), our bank will block our savings account by USD 2.500. PANC can fall USD 0.66 or 23% before the trade will produce a loss.
- We paid USD 0.75 to buy back (close buy) our short September puts on EVERGREEN SOLAR (ESLR – USD 8.95). We had sold these puts at USD 1.15, so we make a gain of USD 400.
Today we would like to present a young and small biotech firm. PANACOS PHARMA (PANC - USD 2.89) engages in the discovery and development of small-molecule oral drugs designed to treat Human Immunodeficiency Virus (HIV) and other human viral diseases. Its lead product candidate, ‘bevirimat‘ , under Phase 2 clinical trials, is a class of drug candidates that works by a novel mechanism of action called maturation inhibition. The company's discovery technologies focus on novel targets in the virus life cycle, including virus maturation and virus fusion. PANC was founded in 1999 and has a market cap of USD 154 million. The stock, currently trading at USD 2.89, is just above year lows of USD 2.41 (on August 7th). The high over the last year was USD 7.23 back in November 2006. There is some scepticism about bevirimat’s future because of delays in the trials, but results so far have been rather promising. We therefore give an order to sell 10 puts PANC January 2008 with strike USD 2.20 at a price of USD 0.35. If the order is executed we receive an upfront optionpremium of USD 350 (10*100*0.35). As a 100% margin USD 2.500 is blocked on the account. The September USD 10.00 puts on EVERGREEN SOLAR (ESLR - USD 9.20) we had sold at 1.15, are trading ITM (in-the-money). We prefer to close the trade with a small profit, rather than to be assigned in 2 weeks. We give a closing order to buy 10 puts back at a limit of USD 0.75. If done, we would realize a profit of USD 400 on the trade (10*100*(1.15-0.75)). We can then reassess the situation and consider a new short put position. To summarize, here the 2 orders:
1. Open Sell 10 puts PANC January 2008 USD 2.50 at a price of USD 0.35 (actual price: http://finance.yahoo.com/q?s=PBQMZ.X);
2. Close Buy 10 put ESLR September 2007 USD 10.00 at a price of USD 0.75 (actual price: http://finance.yahoo.com/q?s=QLUUB.X).
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Our order to sell 2 puts Energy Conversion Devices (ENER - USD 25.95) october 2007 USD 25 at a price of USD 1.65 was filled last week. By selling these puts we are entering the obligation to buy 200 ENER shares at a price of USD 25 if they trade below that level by mid October. Our savings account is credited with the option-premium of USD 330 (2*100*1.65). The 100% margin of the trade amounts to USD 5.000 (2*100*25). These funds are blocked on the account as a guarantee. Click here for the actual option price: http://finance.yahoo.com/q?s=EQIVE.X.
Below, we listed the 3 short put options that are maturing this month. Only Evergreen Solar (ESLR) trades ITM (in-the-money). The position however is still above break-even.
September 2007 maturities
|Ticker||Stock price||Contracts||Strike||Price sold||Received premium||Break-even|
|ESLR||USD 8,97||10 puts||USD 10||USD 1,15||USD 1.150||USD 8,85|
|ACAD||USD 14,39||5 puts||USD 12,50||USD 1,60||USD 800||USD 10,90|
|KRY||USD 2,85||20 puts||USD 2,50||USD 0,30||USD 600||USD 2,20|
Energy Conversion Devices (ENER - USD 26.00) is an alternative energy technology company on our watch list. The company makes solar cells and fuel cell batteries. European readers may remember that we sold some June USD 30 puts at USD 3.60 back in February and closed them at USD 0.35 in April. The company reported on Wednesday its fiscal fourth-quarter loss widened as restructuring and other charges offset revenue growth. It expects to post a fiscal first-quarter 2008 profit of $40 million to $45 million. Figures are disappointing. Shares in ENER have now fallen almost 15 % in 2 days and 25% over the last 3 weeks. We still find ENER an attractive play in alternative energy and would like to take a small position in the stock. We give an order to sell 2 puts October 2007 USD 25.00 at a price of USD 1.65. Our break-even price then is USD 23.35. If filled we receive an upfront premium of USD 330. The actual option price can be seen here: http://finance.yahoo.com/q?s=EQIVE.X. For a chart click here: http://stockcharts.com/charts/gallery.html?ener.