Once again Itron, Inc. (ITRI) has called my name and I’ve answered. I mentioned yesterday that I was thinking about making this trade and today I put those thoughts into action. While ITRI was trading at $56.95 I sold one ITRI April $55 naked put for $1.80 and received $179.24 after commissions. This trade comes after I exited ITRI within pennies of its recent low almost three months ago. ITRI climbed more than $10 from that day through earlier this month, but then it ran into resistance, worked itself most of the way back up after slipping some and then fell hard again as it gapped down last week. Now that it has had a week to let the dust settle I thought the timing might be right to reopen my exposure to the smart meter company.
This trade has a potential annualized return of 24.7% and can withstand a 6.7% drop in ITRI before I take a loss. With a cost per share of $53.21 I don’t consider it a high risk position. I think the worst of ITRI’s shock and fall is over. I don’t really think ITRI will fall below $55.00, but won’t be shocked if it falls to its 2011 low ($53.95). If it does I’d be able to finish the position with a profit. If I’m more wrong than just that break in support, I see another area of potential support around $53.50 too. After that ITRI could head back down to wear it was when I got out last December, closer to $52.00, but I’d expect good support to surface around there and might even consider adding another put option contract to this position then too. If it’s not that low, but I’m assigned I can expect to create a strangle with ITRI by selling a new naked put along with a covered call on my newly owned shares.
ITRI’s fundamentals work for me too. Their forward P/E ratio is down to 13.52, although that’s a little hard to compare them to a competitor like GE that has so many larger divisions outside of ITRI’s niche. Roper Industries Inc. (ROP) might be a better company to compare ITRI to and ITRI looks much cheaper valued when put next to ROP. ITRI has grown its quarterly revenue 30% year of year. I don’t expect that pace to continue, but still like to see the growth.
If Monday looks like it’s going to keep today’s upward direction going I might make my next trade back into an ETF with a longer expiration. Either way I might make that trade actually. Based on the bounce we got today I still think there are a lot of buyers who aren’t willing to let this rally go away quite yet and I’m all for profiting from the continued exuberance. I took in $1,218.63 in premiums this week after commissions. That’s more than usual for me, but I had some catching up to do. I’d like to take in at least $500 per week for the next few weeks if possible. I’ll have to regroup by then to see how my positions are working and will likely slow down some for the spring and summer, maybe.
Like you, I’d been in this stock before and noticed it on the biggest drops list on google finance a couple of weeks ago. I like your trade but haven’t made a similar one yet.
I’ve already made two trades today – 2 EEM April 44 Naked Puts (closed the March ones y’day and 1 FDX April 85 Naked Put. The FDX put was sold at $2.51 giving me an $82.50 basis if assigned. The risk is earnings later this month. Might consider opening something on ITRI next week.
ITRI is coming back down to that $55-ish level again (3/4/11) that has worked as support for the past couple of weeks as I mentioned a week ago. You probably aren’t risking a bunch by waiting to see if support holds yet again. I like your EEM trade. I might follow suit next week.
I’m not as sure about FDX though. If oil keeps climbing FDX will keep dropping. If you think oil’s ascent is soon to end that’s a good move. It’s a good company for the longer term and with a cost basis of $82.50 you might actually be fairly safe.
Yeah, I’m thinking that, with an $82.50 basis, I should be fine. If it stays above $80, I’ll be able to sell $82.50 Covered Calls to bring my basis down to near $80. I’m not sure where oils going (wouldn’t want to place too much money on it) but, if it continues rising, all the shippers will raise rates to compensate so I’m not OVERLY worried about having FDX as a long term holding.
Ronan, I hope you waited on ITRI. It’s down today (March 7th) below my first area of support. It’s close to the second level of support, but still $2 from it’s low from early December.