Closing June Option Early, Adding New Name

One In, One Closed-Out 

By Dr. Paul Price of Market Shadows

We made some trades in Market Shadows’s Virtual Put Writing Portfolio today.

We closed out our 5 contracts of EZCORP June 21, 2014, $12.50 puts @ 55-cents per share. These had been sold last Dec. 3 for $1.95 per share when EZPW was trading for $11.24.

At 10:30 this morning, we bought to close (BTC) at the puts’ asking price of $0.55; the stock was trading at $12.42.

EZPW  put close out

The net profit was $700 ($1.95 – $0.55 times 500 shares). I decided not to risk waiting the last three weeks until expiration as the stock has been pretty volatile recently. We pocketed a net of $1.40 per share. That was slightly better than the share’s actual move up of only $1.18 from the trade inception date.

The trade is now reflected on our closed-out list.

Our net profit on all fully completed option trades is $17,169 since the portfolio inception in January of 2013.

We have two other June expirations coming up: short puts on HollyFrontier (HFC) and Aegion (AEGN). Both look safe to simply leave alone to expire worthless. The HFC puts were recently adjusted to a $38.50 strike price due to a 50-cent per share ex-dividend on a special payment. At about noon today HFC was quoted at $49.36.

We stand to make $310 on the single contract HFC expiration.

The 6 shorted AEGN June $20 puts also appear unlikely to require attention as the stock was $24.20 a few minutes ago. Market shadows received $1.50 per share ($900 in total) for the entire lot. We’ll only count these gains once they are official after June 20, 2014.

New Name In

Our newest trade involved the sale of four contracts of the Steiner Leisure (STNR) January, 2015, $40 puts for $4.00 per share.

You may have dealt with Steiner Leisure (STNR) without even knowing it.

STNR is a leading provider of spa services on cruise ships, hotels and premium urban day spas. It operates under a number of different monikers depending on venue. As of Feb. 1, 2014, Steiner was the sole beauty and wellness operator on 156 ships representing 18 different lines which ranged from high-end Crystal, Seaborne and Silversea to the more plebeian Carnival and Royal Caribbean lines.

The company has a decent balance sheet and has been building up book value significantly. From year-end 2005 through Dec. 31, 2013, book value more than tripled, rising from $9.17 per share to $28.17.

STNR  3-years (weekly)

Our commitment in selling the puts obligates us to be ready to purchase 400 shares of STNR at a net cost of $36.00 ($40 strike – $4 put premium). That would be just 2-cents above the lowest trade price since mid-2010.

Maximum profit would be realized if STNR closes at $40 or above on Jan. 16, 2015. In that event, we’ll keep 100% of the $1,600 put premium received without needing to buy 400 shares of the stock.

STNR quote with Jan. 2015 put

STNR shares rarely linger below $40 and have typically topped out between $53 and $60. Steiner hit $51.68 as far back as 2007 when EPS came in at $2.63 and book value was only 40% as high as it is today.

Management thinks the stock is a bargain. They recently announced a major share buyback authorization for up to 20% of the entire float. I thank subscriber Leilei Y. for alerting me to this company.

The STNR put sale is now reflected as an open trade in our Virtual Put Writing Portfolio.

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