Tuesday, December 26, 2006

FTEK - New Position

A new position was established this morning on FTEK. The following is the trade information, including IB commissions:

26-Dec-06 - Initial Stock Position - BTO 100 FTEK @ 24.67
26-Dec-06 - Initial Call Option - STO 1 Jun07 25.00 Call @ 3.59

Stock Investment: $2,467.00
Income Generated: $359.00
Percent Income Generated: 14.55%
Net Profit If Called: $392.00
Percent Return If Called: 15.89%
Annualized Return If Called: 33.92%
Days to Expiration: 171 days

This is an example of compounding returns. I took the cash received from the adjustments made last week and reinvested them into this new position. FTEK is a good solid company. Morningstar stock grades are A- for growth, A- for profitability, and A for financial health, and it's a 5 Star stock selling below it's Fair Value Estimate of $32.00. Morningstar has a Consider Buy price at $24.70, which provides a Margin of Safety of 22% below the fair value.

By selling a covered call I have a net cost basis of $21.08, which is well below the consider buy price and it met both my criteria of 12%+ cash back (option premium) and 24%+ annualized return if called. This is a perfect example of the type of position I look for.