An Update On A Couple Trades I’ve Made: Philip Morris Int’l (PM) & Palm, Inc. (PALM)
Philip Morris Int’l (PM) Covered Calls
First up, I had my covered calls on my Philip Morris Int’l (PM) position get called and I was forced to unload my position. This is the risk of writing covered calls on some of the stocks you own: you miss out on potential upside. I was forced to sell the position at $50 a share when the stock was trading at around $52 a share.
Upon realizing that the options would be exercised, I immediately sold a put for an equal number of shares of Philip Morris Int’l for June at a $46 strike price. The premium collected was $.65 a share which is actually more than the dividend payout for that same period if I were holding the stock. So, my cash flow is not really impacted and I will wait to re-enter the position if the stock moves lower and the strike price hits. Again, the risk here is that Philip Morris Int’l (PM) continues to move higher; in that case, just owning the stock itself would have been the best plan.
Palm, Inc. (PALM) Short
I have been shorting this stock for months, and started months ago when it was trading around $15 / share. I’ve also been writing continuously that this company is not a good investment and that they have trouble ahead. It’s become obvious that the trouble is indeed ahead. Sales numbers are indiciating that the units sold for the Palm smart phones are not good at all. The competition is just too fierce here.
Furthermore, an analyst has set a $0 price target on the stock which definitely increases the boldness of short sellers. I’m short at just above $4 a share and I have a tight stop loss set. I don’t intend on taking anything more than a very minor loss on this trade. If it moves towards $3 a share or below, I’ll consider covering, but again, this company is in trouble and very well could go to zero.
The risk here is that another company moves to acquire Palm and the stock jumps at the news. I think it’d be a terrible acquisition, but hey what do I know. Stop losses are crucial when shorting stocks!