I don’t have many stocks hitting new highs at this point, but AFOP is hitting new highs, for me, at least. We started discussing it 3 months ago when I was buying it between $11.40 and $12.40 and it closed yesterday at $17.32 which is up 45.5% from the midpoint of my range. I hope that some of you have enjoyed the ride with me.
Hi Saul,
Yes, I am enjoying a shorter but still pleasant ride with you on AFOP and I thank you for that. In the beginning I sold some puts instead of buying the stock which, if they expire worthlessly in July, will lower my basis on the shares I finally did buy, down to $12.05, or if the market price is below $12.50 in July, I’ll own some more shares at that price. Either of those two outcomes are brilliant as far as I am concerned. Now let’s hope CALL and SZYM catch afire.
I’m watching CALL’s price closely as I want to see the marketing effort (launched in April) and expanded distribution start to pay off. Additionally, the more I think of it, I’m convinced this is a straight sell the company play so I will also be watching the growth of the free App customers.
Mykie
I still view AFOP as cyclical and may still liquidate my position in 5-6 quarters from now. But for now, I’d think a good entry point to buy shares has moved up from the $11-12s to the $13-15s given the increase in earnings.
Hola GauchoChris,
I think I’ll employ your strategy here. I forgot that you had sent me that strategy, and went about my business selling naked puts, but I do like the idea of surrounding it with calls and puts.
Can you explain the cyclical comment above to me?
Thanks,
Mykie
I think I’ll employ your strategy here. I forgot that you had sent me that strategy, and went about my business selling naked puts, but I do like the idea of surrounding it with calls and puts.
I no longer have short positions on AFOP but will keep selling naked puts. I will resume selling covered calls if any shares get assigned from the short puts. Also, if the price drops enough I may buy trading positions again.
Can you explain the cyclical comment above to me?
Telecom is a cyclical industry and the telco and data on companies are in the midst of upgrading their networks to hassle increase traffic demand. Once the cycle end, sales and earnings of suppliers (such as INFN and AFOP) could drop. I believe AFOP’s CEO has previously asserted that this time the cycle will not see a downturn as in previous cycles. I don’t know if he’s right. The cycle will probably end in 2015 or 2016 so I’m planning on selling before the bust cycle starts.
Thanks Saul I see it is about a mid size piece of your portfolio is there a reason you don’t give it a large piece?
Hi Andy,
There are two discussions going on on this thread, about PSIX and AFOP. If you are talking about PSIX, the reason is high PE ratio. I’m willing to carry an average position, but not a double position. If you are talking about AFOP, because it may be a cyclical industry. Gaucho Chris explained it very well here:
Telecom is a cyclical industry and the telco and data on companies are in the midst of upgrading their networks to handle increased traffic demand. Once the cycle ends, sales and earnings of suppliers (such as INFN and AFOP) could drop. I believe AFOP’s CEO has previously asserted that this time the cycle will not see a downturn as in previous cycles. I don’t know if he’s right.
The CEO says that with the build out of the internet and the demand for bigger and bigger bandwidth around the entire world, this build out is not going to stop. That really does make sense, but I’m always suspicious when someone says “This time is different” so I’ll keep my eyes peeled. If it looks like earnings are continuing to grow with no fall off, the PE could expand markedly.
By the way, my mid-size, or average, positions don’t mean a lack of faith. Mid-size or average is a standard “full” position.
Once the cycle end, sales and earnings of suppliers (such as INFN and AFOP) could drop. I believe AFOP’s CEO has previously asserted that this time the cycle will not see a downturn as in previous cycles. I don’t know if he’s right. The cycle will probably end in 2015 or 2016 so I’m planning on selling before the bust cycle starts.
Hi Chris,
Thanks for that. Do you think SZYM would be a good candidate for the GauchoChris smother them with calls and puts strategy? (I say this with reverence, not criticism.) They seem to be at a bottom around the $10-$11 range and from what I can gather, have to wait a bit for factory build outs to finally make some substantial product sales. And won’t that sales cycle take some time to fulfill hence, enough time to cash in on the calls and puts?
And lastly, in your experience how much additional revenue (or lower cost basis) can you make with that strategy?
Thanks and have a nice Sunday
Mykie
PS I also assume you are using IB with their low commission schedule
There are two discussions going on on this thread, about PSIX and AFOP. If you are talking about PSIX, the reason is high PE ratio.
Back a ways I had asked about PSIX’s competition. I used to be in the trucking industry (waaay back) and Cummins engines had 62% of the engine business (Large truck fleet owners usually spec a lot of the equipment on board, including the engine).
I went to Cummins’ site and they have a large distribution system (in 190 countries) and I see they also have some kind of proprietary device to reduce particulates and pollution by 80% but I couldn’t find anything they sold to convert diesel to natural gas, though they did sell natural and propane gas spark ignited generators. (They also have a new entrant in the natural gas burning category that will have an impact in 2015, per the article noted below.)
in your experience how much additional revenue (or lower cost basis) can you make with that strategy?
I currently have a 4% position of AFOP at an average cost basis of $12.07. The unrealized gain on the shares is currently 43% with first shares bought on 2/4/2014. As you know, I have also bought trading positions and sold calls and puts over the past several months. The profits from these shares and options are not reflected in my cost basis because these extra stock and options trades have been realized. To put these extra profits into perspective, they are roughly the equivalent of $2 per share of the shares (4% allocation) that I still have.
Do you think SZYM would be a good candidate for the GauchoChris smother them with calls and puts strategy? (I say this with reverence, not criticism.) They seem to be at a bottom around the $10-$11 range and from what I can gather, have to wait a bit for factory build outs to finally make some substantial product sales. And won’t that sales cycle take some time to fulfill hence, enough time to cash in on the calls and puts?
I do not own SZYM. I have looked at SZYM a little but have not done much DD on the company. You’ve asked me to compare SZYM and AFOP in terms of the trading approached that I used on AFOP when AFOP was trading in the high $11s and low-mid $12s. AFOP has positive earnings that have been growing rapidly. The adjusted earnings multiple on AFOP was incredibly low. Thus, I think that AFOP had a very nice margin of safety which highly influenced by decision to buy trading positions of AFOP stock and simultaneous sell puts and covered calls that were about 1 month from expiration (and keep repeating that while the stock remained around $12.50 or below). I cannot say that SZYM has such a margin of safety. The second thing about AFOP that made my trading approach attractive was the high volatility of the stock which made the options premiums high and my trading (selling of options) more attractive because I got higher premiums for selling the options. In 2.5 months, I was able to make nice profits (see above) on AFOP trading positions and selling AFOP options. If you want to examine SZYM, you will want to check if the preimums on the options are worth the risk of getting stuck with the extra shares should the stock drop further causing more shares to get assigned due to the naked puts. However, I would be careful because I think that an investment in SZYM is more risky than an invest in AFOP (that is when AFOP was trading below $12.50).
I just did a AFOP style trade on ELLI. I owned a 3.8 position already. I bought an additional 0.5% psotion for $25.27. Then I sold the ELLI May14 $25 covered calls and naked puts for a net premium of $3.20. This trade allows me to either 1) make $2.93 per share on my 0.5% trading position (assuming the shares trade above $25 at options expiration on May 16), or 2) I will increase my position from 3.8% to 4.8% for an average purchase price of $23.54 ((25.27 + 21.8)/2=23.54) if the stock is trading below $25 at expiration on 5/16. Case 1 gives a 11.6% return on my trading position in 26 days.