I spoke too soon in my post earlier today when I said I was sitting back to wait to see where everything is heading. A few days ago I entered a limit order for DSX naked puts in case it dropped back into the lower range it’s been bouncing through. That order just hit this afternoon. One of our readers and a frequent commenter, Ronan, has been giving us his updates on his position and I decided to take a small bite for myself too.
While DSX was trading at $11.97 I sold three DSX June 12 naked puts for $0.60 each and received $177.86 after commission. Three contracts is only about a third or possibly a quarter position for me on DSX, but as squirrelly as it is I thought it wise to start small and work it with strangles or straddles if these first three puts are assigned. If I’m assigned the shares my cost will be $11.41 per share which equals the intraday low hit on January 25th.
I’m expecting a move in DSX down to around $11.80 (maybe even $11.60) and just misjudged the rate of increase in the option prices as the stock fell some. This expectation of a deeper fall is another reason I only took a partial position to start with. I could see me adding more before these contracts expire. If this little position works out it will be a 5.2% return on the cash I should have to back it. With 10 weeks to go before expiration I’m looking at a potential 27% annualized gain. DSX can drop another 4.7% before I am looking at a loss at all. That’s not a stretch for this volatile stock, but does help to ease the risk too.
It’s interesting to look back on old DSX trades I’ve made since I’ve been writing this blog. In 2007 DSX was trading over $36 per share and in 2009 DSX was down to the $13 range when I made my trades. It made it up above $18 since then and has used the $11.50 range as a floor a few times. I don’t expect it to stay flat for more than a couple of days at a time, but do think the downside is fairly limited from here. Its forward P/E ratio is only 11.94, but the PEG ratio of 17.46 is a little scary. If the worldwide economy continues to improve DSX will be a great place to be. Every hiccup along the way won’t be fun though. Depending how Monday opens up I might enter a new limit order for a lower strike just in case DSX as a new dip and bounce I can catch.
Hi,
Looks like a nice position to start with. At the moment, it looks like my Naked Puts will be assigned on Friday (but you never know yet as it’s a volatile stock).
With DSX trading at $11.60, the bid/ask on the April 12 Puts is 0.30/0.50. I could probably put in an order at $0.40 and it would probably hit but I think I’ll just take the assignment and sell further Options.
It’s difficult for me to work out my basis on DSX as I got some DCIX and a little cash after the spin-off. I do have April 12 Covered Calls that should expire worthless and, to be honest, I’d rather DSX where it is now so I can hold on to my shares. In all, I brought in $0.30 for each of 3 Covered Calls and $0.35 for each of 3 Naked Puts (less commissions of $4.20).
If assigned, I’m considering selling 6 May 12 Covered Calls and 4 May 12 Naked Puts. At current prices, that would give me a total of around $390 in Premiums after commissions.
This article from last week may interest you: http://www.business-standard.com/india/news/freight-shipping-oversupply-squeezes-rates/430968/
My take is that it’s a good time to start building a position in the industry. DSX, in my opinion, is in the best position in the business with it’s strong balance sheet and will probably be able to buy low-priced assets of some of the more vulnerable players.