12/21/2010
PBR
We’re adding a 1/4 position in PBR on an equal 5 to 5 ratio. We’re buying 5 Jan. 2012 25 calls for $10.10 and selling 5 Feb. 2011 35 calls against them for $1.01. PBR has had a little run from $33.00 so we wanted to have enough premium to offset, if the stock does fall back to that level. We went out an additional month to pick up this premium from the ATM 35 calls in Feb. If this plays out and the stock sits still we could realize roughly a 10% return in about two months time.
12/29/2010 PBR
Given PBR’s movement since we established the position last week, we felt it necessary to consider rolling as we did in CSCO yesterday. Unfortunately nothing really appeared interesting to us in that way. With everything becoming even more over-extended courtesy of this week’s official year end closing shenannigans, we decided to be prudent and simply close this out for an unexpectedly quick win as a trade. We’d hope to work with this longer term and still may but without the rolling options that we like to see, taking a nearly a 7% ROI/ROR in a week became the best option.
We’re concerned that this year end markup madness could come undone without much advanced warning and thus having a little less risk on and doing it for a nice short-term profit isn’t the worst thing even if it’s not how we’d like to operate what is primarily a long-biased, longer-term oriented porftolio. CSCO made sense to roll given the options board and QCOM may make sense soon as well and yet the moves that they’ve made aren’t nearly as absurd as what we’ve seen in many other stocks and the markets overall. However things are as they are and we’ll contend with them as best as we can.
