I got this idea from Jim Cramer’s Mad Money show on Friday night. I only watched about 20 minutes of the show, which is pretty much the norm for me if I get to watch it at all. (I skipped Monday night’s show to watch some Eurocup soccer while my wife is out of town.)
Tidewater Inc (NYSE: TDW) is listed in the services sector under shipping industry, but is really heavily tied to the energy industry since those are the ships and vessels they service. With oil at all time highs, TDW seems fairly safe, even if oil is cut by 30-40%, these guys are going to be in high demand. One thing that strikes me as odd and makes me wonder if I’m missing something is that the PEG ratio is only 0.17. I can’t figure why the price is so low if the earnings growth predictions are even close to accurate. I’m typically happy to buy a company with a PEG close to 1.0, so this is good, but possibly too good to be true. TDW pays a dividend also and just increased the payout recently. That shows me that the insiders think they have cash they can afford to give back to investors rather than save to cover their potential turn of fortune.
With all that in mind I had to chart TDW to find my entry point. It closed on Friday after coming less than $1 away from its 10 day moving average. I figured it’d hit that line and pull back that dollar before moving up too much. I also saw the 20 day moving average was a little bit above 65 and it has been a better line of support. Not far below that, the 50 day moving average was around 62 plus change and rising. It hasn’t broken support since before April. Add all that together and 65 seemed like the safest/most profit likely trade.
On Monday, at 2:22 pm, while at TDW was trading at $68.46, I sold one TDW July 65 naked put and received $199.25 after commissions. When I put the order in the bid/ask was 1.70/1.80. My order was for 2.10. I actually thought it’d be the next day before it hit and thought I might even miss the trade because I was pricing it partly for the psychological price point of getting $200 from the trade. I do that too often – price my trades at a round number, to get what I want after commissions. Sometimes I think that works in my favor since the other side, the fear side, buys the puts once it crosses the psychological amount. With that point in mind, I get to point out that I sold my put at the high of the day for that strike and TDW closed at68.58, off the low when it touched the 10 day moving average.
In the end, selling only one put is a smaller trade than I should be making for my account balance, but two 65 strike trades would be at the top end of what I think I should risk and this current market is so crazy that legging in (selling one option at a time) makes more sense right now. If TDW drops some or even rises in line with the 10 day moving average, I might sell another naked put at a lower premium at the same strike.