Finally!

Today I was finally able to sell the remaining 25 NRG LEAPS in my portfolio.  All things considered this was a very successful "trade" - in less than 3 months my investment of $6,071 turned into $17,486 (all figures are after commissions).  In a way this is very reminiscent of Sandridge (http://mevsemt.blogspot.com/2011/02/sold-sd-call-options.html), i.e. the stock popped and I couldn't resist locking in my gains.  However, like Sandridge, it may turn out I'm selling way to early and leaving a ton of money on the table, I guess only time will tell...

Anyway, for reference here are the posts from when I made the purchase: http://mevsemt.blogspot.com/2011/02/new-purchase.html and http://mevsemt.blogspot.com/2011/02/nrg-order-filled.html.

Here's why I made the purchase: http://mevsemt.blogspot.com/2011/03/so-why-nrg.html.

And finally here's where I've previously sold: http://mevsemt.blogspot.com/2011/05/selling-some-nrg.html and http://mevsemt.blogspot.com/2011/05/still-selling.html.

Still selling...

This is going to be a quick post - today I sold 64 NRG LEAPS at prices between $1.75 and $1.80.  Since I sold 11 contracts yesterday (http://mevsemt.blogspot.com/2011/05/selling-some-nrg.html) I'm now left with 25 in my portfolio - hopefully I'll be able to sell these at similar prices over the next few days.

Selling some NRG...

For those of you following NRG you've probably noticed it's been on quite a run.  Personally, I tend to get a little nervous whenever a stock is bouncing around its 52 week high, so today I placed a limit order to sell 50 NRG 2013 $30 LEAPS at $1.70 (as of this writing it's been partially filled at 11 contracts, leaving me with 39 left in the order and 89 left in my portfolio).  Anyway, I'll do a more in-depth write up as time permits (and of course I'll do a quick post each time more LEAPS get sold).

Questions?  Comments?  Email mevsemt@gmail.com.

So why NRG?

Well I'm finally getting around to my NRG write-up, sorry for the delay!  Anyway, here's why I like NRG:

• I think the stock is cheap at $20 a share: EV/EBITDA and FCF yield are quite attractive plus the value of NRG's assets (i.e. power plants) alone could support a stock price in the high $30's.
• NRG's CEO, David Crane, is considered one of the best in the business.  Additionally, he is aligned with shareholders as he owns a significant amount of stock/options (many of which are out of the money).  

And here's why I purchased LEAPS instead of common stock:

• NRG has significant balance sheet leverage (i.e. debt): the more leverage a company has the harder it is to determine its fair value.  However, a high degree of leverage can really boost returns when things work out well.
• NRG has significant operating leverage: profitability for IPP's are highly dependant on commodity markets.  If the price of natural gas goes up (which is by no means guaranteed), NRG's revenue and profitability will go right up with it. 
• At $0.60, the LEAPS were cheap.  When buying out-of-the-money options I look for asymmetrical risk/reward situations.  In the case of NRG, if the stock goes to the mid to upper 30's I'll make a 10x return, if the stock goes to the low 40's I could make a 20x return, which IMO is well worth the risk.

So where does this leave us?  In short, NRG is a potentially cheap stock with quality management.  However, its high level of financial and operating leverage make its future very uncertain - the upside potential is significant but the downside risk is still very real.  Luckily for us the LEAPS were cheap, thereby creating an opportunity with decent odds and a very asymmetrical risk/reward if things go our way.

Questions?  Comments?  Email mevsemt@gmail.com.

NRG Order Filled

It looks like the rest of my order for NRG 2013 $30 LEAPS went through (for a total of 100 contracts).  All in all this order cost just under $6,100.  I'll try to do a write up later this week or maybe this weekend (if time permits). 

Questions?  Comments?  Email mevsemt@gmail.com

New Purchase

On Friday I placed a limit order for 100 contracts of NRG Jan 2013 $30 LEAPS at $0.60, but unfortunately it's only been filled on 5 contracts (thus far). 

I'll keep this order open and hopefully I'll be able to get it 100% filled.  However, rather than write a separate post each time I get another couple of contracts, I'll just post when the order closes (either b/c it was filled or canceled).

Questions?  Comments?  Email mevsemt@gmail.com