Sold AVAV June Naked Puts & Exited T

Barron’s reran a bullish article on AeroVironment, Inc (AVAV) in today’s print edition that they ran last Tuesday online.  After the article first came out AVAV got a nice bounce and then settled down by the weekend.  I expected it to see a little more upside today after the reprint and that’s what we saw.  The story was good enough to gain my interest in AVAV, so I was ready right when the markets opened to make a quick trade.

While AVAV was trading at $25.36 I sold two AVAV June 25 naked puts at $1.40 each and received $278.47 after commissions.  A few months ago AVAV found a rough spot and dropped from the mid-30s to the lower 20s in the span of just a few days.  The $22.50 area ended being support and AVAV has been working itself higher since then.  The Barron’s article just gave it another leg up.  I think the downside is limited from here and with $1.40 in premiums my downside risk is fairly shallow.  Although AVAV’s trailing P/E ratio is in the low 50s, the forward P/E ratio is around 22.  According to Barron’s they have a huge backlog of orders from the government and (my favorite part) Nissan selected AVAV as one of the suppliers for its new electric car.  I’m expecting Nissan’s electric car to be a big seller and bring AVAV along for the quiet ride.

I only sold two contracts as I was making the trade in the first five minutes of the day.  I planned to go back in for if it dipped further, but it hasn’t happened yet.  Instead AVAV finished the day above $26.00.  I see it at the top of its trading channel, so I’ll leave a limit order in place to hit if it comes back down towards the bottom end of its range.  I feel I’m missing something with it for the premiums to be so rich, but haven’t figured out what it is yet.  I think there’s a fear left on it after the beating it took a few months ago, but without knowing that for sure I thought it wise to only go with a partial order to start.

I took an option assignment on 300 shares of AT&T (T) as I said I expected on Friday.  I had planned to sell covered calls on those long shares, but then T bounced from the start this morning.  I decided to reconsider my position and while it was bouncing back and forth over $26.00 I sold my 300 shares with a limit order at $26.02 and received $7,804.50 after commissions which equaled a $4.50 profit on the shares.  I decided not to extend my time with T after the June options were posted this morning I just didn’t see the return I wanted with the call premiums.  Since I was already in on AVAV I knew I was putting my money to use elsewhere and opted to save a little firing power for other, richer premiums.