When I included my put spread investment overview on Raytheon a few weeks, I highlighted some key technical price areas that warranted further attention. One of the key things I looked for in Raytheon was that it would at least hold above it’s 100 day Moving Average and continue it’s recent uptrend. The bad news….it has now fallen below this Moving Average and the chart, as can be seen below, looks downright ugly.
In saying that, as the price further retreats, the valuations become increasingly appealing to longer term investors. So the decision I am left facing is whether the valuations trump the technical indicators I see before me. If I believe the stock has started a new downtrend, the option is there to buy back the $45 Put leg of the spread and maintain the open $40 put. It will culminate in an initial loss but if the stock traded below $40 on the third Friday in January 2012, the loss could be significantly mitigated.
For now though, I am sticking with Raytheon because the valuations are still solid. There are also further areas of support from the current share price and the hope is still that the share price can bounce back from the disappointing performance of late. According to technical indicators the stock is oversold, but be warned, there is no limit to the period of time a share price can remain in oversold territory.
Elsewhere, the $60/$50 Bullish Put spread was reinforced when Novartis share price popped this week on the back of the announcement they had finally entered in to a definitive agreement to acquire the remaining 23% stake in Alcon Inc, a company engaged in the development, manufacture and marketing of pharmaceuticals and consumer eye-care products, from minority shareholders. The transaction is valued at approximately $12,900 million. With the Put Spread expiring in 4 months time, the share price ($58.54) is edging closer to the $60 level we require to be paid out in full. The good news is we are above the breakeven level of $56.35 in this short-term investment.
Finally, the OTM calls on Transocean and Excelon continue to move in the right direction, although the former did suffer a significant hit yesterday as oil retreated and Morgan Stanley downgraded the stock to Underweight. They did maintain their fair value estimation of $80 though.
