SOLD -1 ABB 100 NOV 08 12.5 PUT @1.70
ABB Ltd.
Wrote an In The Money Nov 12.5 put for $1.70. ABB share price was at $10.92 at time of entry. I have been trading in and out too many times this past two weeks. This trade is intended to let it expire or let the option being put to me. I have the cash ready to buy 100 ABB shares if it doesn’t expire for an effective price of $10.80 / share.
Three reasons why I’m fundamentally bullish on ABB.
- $8.6 billion in cash and $2 billion in debt (0.2 debt/equity ratio)
- It is making use of this cash and current market panic to expand its operation. See: Cash-Rich ABB Speeds Up Buys As Markets Weaken. It’s one of the few companies not afraid to act at this time!
- ABB makes power control and distribution systems. It’s one of the largest builder of power grids. All these talk of alternative energy, reduce oil use, hybrid/all-electric cars, etc. have one thing in common — electricity.
Upside: Good fundamental, active management to make use of current condition. Significant volume around $10 last month.
Resistance: Recent top of $14.
Downside: We seem to be in correction of 10/28 day, moving to low of about $10.
Support: $10
Bottom line: Risk/reward ratio of about 3 to 1. Not that great. But I can afford to have the shares put to me if this doesn’t expire next week. Not saying I would sit still if it does collapse, but at least I’m not biting more than I can handle.
On another note, I entered because the market seem to be stronger today. Notice the Advance Decline line staying around neutral and the TICK not really down that much.
S&P intraday
Update: An hour later and we’ve broken down. ABB is at $10.39 and S&P at 868. I guess I should have waited til the afternoon.
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