I can’t remember what turned me back towards DryShips Inc (DRYS) back on Sunday, June 1st, when I entered my order to sell options on it. They’ve been covered by Motley Fool, Barron’s and TheStreet.com among others many times. I already have a position in one of their competitors, DSX, and didn’t want to add to my position on it. I’m not alleviating my risk completely just because I picked another company within the same industry, but DRYS approaches their business a little differently. They don’t lock in long term contracts like DSX which increases DRYS’ volatility and premiums.
Looking at the fundamentals, DRYS has a much lower p/e (5.13) than its biggest competitors, EGLE (22.55), EXM (7.81) and GNK (10.11) and the shipping industry average of 14.88. That leaves a lot of room for error with DRYS’ earnings which translates into a good cushion for me, especially since I set my strike well out of the money.
Looking back at the chart and technicals for DRYS I started to second guess my move before I saw my logic. When I placed my order 10 days ago, DRYS was already trading below its 10 and 20 day moving averages and I expected the 50 day could slow a decent possibly. Hopefully I didn’t bank on that since the 50 day hasn’t proven itself with DRYS in the past. What did look possible was support at a previous low point near 80. With uncertainty in that point, I aimed even lower and set my limit for a 70 strike. That would be more than a 50% retrenchment from the March low to the May high. I don’t see the bottom falling out of DRYS with such high barriers to entry and with the large premiums on it, I am banking on selling calls on DRYS if needed to keep a profit for me. Hopefully that won’t be necessary.
While at 84.35 this morning, I sold one DRYS July 70 naked put (DQRSN) at $2.50, received $239.25 after commissions. I broke my short streak of selling my puts at the high trade of the day. DQRSN traded as high as 3.00 today and I’m not naive enough to think it won’t go higher before July options expiration. This is one I didn’t want to miss on a dip and in the end I misjudged how deep that dip would go. Next time I’ll play it better as I add it to my repeat trade list. Volatility kicked up on it quickly and that helped the price too. I will continue to keep my strikes well out of the money as I’m fairly uneasy with where the market is heading in the near term.