[caption id="attachment_695" align="aligncenter" width="500" caption="ABB Ltd."][/caption]
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.
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.
[caption id="attachment_697" align="aligncenter" width="500" caption="S&P intraday"][/caption]
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.
: http://traderpau.files.wordpress.com/2008/11/2008-11-12-abb.png : http://traderpau.files.wordpress.com/2008/11/2008-11-12-spxintra.png