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New Trade Recommendations and Position Update

6/27/2011 9:19:05 AM

New Trade Recommendation:
We are looking to add two positions to our value portfolio.

Seadrill Limited (SDRL 33.04 -0.73) is a player in the drilling services sector. It competes with companies like Transocean (RIG 59.81 -1.76) but is better positioned. It's chart shows price struggling to stay above the 200-Day Moving Average (DMA) which will scare some institutions away from it. We will add it to the value portfolio at a decent price and hold it for its seventy-five cent quarterly dividend (nine percent annually). While there is still potential downside left, we believe it will be limited.

Buy shares of SDRL at a limit price of $32.50. Position size should reflect a half size position, which we will add to if we can get a better price or when we see a definite bottom put in.

Ship Finance International Ltd (17.20 +0.6) is a maritime asset play which has long term contracts with major companies in the oil space as well as other shippers. Its average contract length is over twelve years. The majority of its income comes from oil services with deep water and jack up rigs as well as other vessels to service them. It has a large oil tanker fleet with relatively new vessels and has those vessels under long term charters for the most part. It also has container ships, bulk shipping vessels, and other assets with exposure to all sorts of maritime trade. We will try to buy it for a decent price and hold it for its dividend as well. It is currently paying a thirty-nine cent quarterly dividend (nine percent annually).

Buy shares of SDRL at a limit price of $17.00. Position size should reflect a half size position, which we will add to if we can get a better price or when we see a definite bottom put in.

Current Value Portfolio:
We are long TBT at $32.50 from June 16th. (TBT closed at $32.50 on June 24th)
We sold short one contract TLT July $98 Calls at $1.19 per share on June 16th
We sold short one contract TLT Aug $98 Calls at $1.80 per share on June 16th
We sold short one contract TLT Sep $98 Calls at $2.13 per share on June 16th

(TLT closed at $96.98 so the contracts we sold are more than one dollar out of the money with price projected to move lower. Time value on all option contracts we sold continues to erode which means we can buy them back for less than we sold them for or, if this continues, let them expire worthless and keep all the money).

 

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