August 2nd, 2006
Another Trade
We’ve been enjoying this one. For the third time in as many months we have sold put options on armor maker Ceradyne, which will require us to purchase shares at $45 if the share price closes lower at the August expiration date. So far we have netted more than $6 (after commissions) per share from these transactions, meaning the shares can fall to $39 and we would still break even. Should they again expire worthless we’ll have nearly a 15% three-month return for not buying a stock.
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[...] We have done about as well this year betting that Ceradyne (CRDN) would not go down as we could have betting it would go up (click on the link for the distinction.) The company has significantly raised guidance (twice) so coming in at the high end should have been somewhat expected: For the year, sales reached $663 million, 80 percent above the $368 million reported in 2005, and total new orders hit about $730 million, up 64 percent year-over-year. Due to the strong demand for its services, Ceradyne predicts full-year earnings will come in at the high end of its $4.45 to $4.55 per share range. [...]