DryShips, Inc (DRYS) Sinking Slowly

DRYS is well below the strike price ($55) of the covered calls I sold on Monday morning and the stock is still falling still, although at a slower rate than the past two days.  To pull some more cash in and make me slightly more Delta neutral I decided I should sell some naked calls on it.  DRYS is a stock that can rally $5 in a day, so I didn’t think selling too close to the current price (aka at the money) would be wise.  Since I sold covered calls at the October 55 strike earlier this week I had a ceiling built in already.  I came back to the $55 strike again with my new orders with the belief that $50 could be broken on a rally, but $55 was less likely in the very near term based on the chart.  I also placed a limit order to sell new October 40 naked puts if DRYS drops much more.  I think $40 could be a good support level.

While DRYS was trading at $44.92 one of my two hit and I sold one October 55 naked call (DQRJK) at 1.25 and received $114.25 after commissions.  I was flipping back and forth between work and trading and didn’t see this one hit, so when DRYS started to fall deeper I changed my order again.  While DRYS was trading at $44.36 I lowered my limit order and sold another DQRJK naked call at $1.15 and received $104.25 after commissions.  That’s $218.50 for both orders combined.

Looking at the fundamentals on DRYS (yes, I do look at fundamentals too) DRYS is very cheap.  It’s sporting a current p/e of 2.18 (aided by the sale of a couple of its ships) and a forward p/e of only 3.62.  The biggest drag on DRYS many think is the slowdown in China’s orders.  Once that picks up, which could be more than a few months away, DYRS should rally big.  That’s the reason I’m selling these calls so far out of the money.  I’m getting good premiums if DRYS would stay flat and I’m giving myself enough cushion that if the economy turns for it to benefit, I have room to buy more shares to make my short options covered calls.  The short ratio is only 1.8 meaning that the short covering rally shouldn’t be so insane that I can’t get back in before my options are causing me a loss.  Throw in the high barrier to entry for the dry shipping industry and I think DRYS is a good long term buy.  Picking a short term direction for anything is hard to say these days.

DRYS is off its lows of the morning, which is rare, so this could be a good entry point for someone who doesn’t mind the risk to open a position with naked puts.