PFIE

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I was looking for ways to roll with PFIE coming up to earnings on 2/12. I am long PFIE and would be perfectly happy with keeping them through this drop in oil prices, but I think I’ve found a way to significantly decrease risk while only barely decreasing potential returns, and just wanted to share in case anyone else was interested in it.

It is currently selling for $2.85. I sold some of my current shares at that price, then bought a corresponding number of 2/20/15 $2.50 calls at $0.50. The way I’m seeing it, if the earnings are not good, then shares will likely decrease to below $2.50 leaving me with a total loss of my premium (which is 17.5% of the current stock price). If the stock price decreases to $2.34 or below, I would end up losing less money than I would have had I held on to the shares. If it drops to between $2.35 and $2.50, I’d end up being (slightly) better off by hanging onto my current shares. But if the stock price stays anywhere above $2.50, I’m leaving the $0.15 per share on the table ($2.50 call price plus $0.50 premium), thus giving me about 5% less upside but without having to worry about having my current position value trimmed by anything more than 17%.

Anyone of course feel free to critique my plan if you see something that I’m not - I’m certainly not saying that this is a bullet-proof plan, and if there’s something that I’m missing I’d love to hear about it.

Tim

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Tim,

The only thing I would mention is that in the past PFIE has not had an immediate or sharp reaction to positive earnings. I think your window might be too tight given the average volume we see with PFIE and its general latency to react to good news(assuming we get any). So those options may expire before anything fun happens.

-Dave

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Agreed, very small time window and more importantly, incredibly thinly traded options, leading to large bid-ask spreads (eg the Jun 5 P is currently 1.70/2.90). If you need to/want to close them early, you’d be hard pressed to get a decent price imo. I tried selling a few puts last month but the trades didn’t go through. According to IB, there’s total open interest of 140 contracts, so close to zero as to be indistinguishable.

-srslydude