By Paul Price of Market Shadows
We bought 100 shares of deepwater driller Diamond Offshore (DO) @ $47.85 today in Market Shadows' Virtual Value Portfolio.
We also sold two contracts of the DO Jan. 2016, $51.75 strike price puts @ $9.40 premium per share in our Virtual Put Writing Portfolio.
The stock is near its lowest point since mid-2005 even as DO remains highly profitable. Following a few years of contracting profits, the prospects for renewed growth before year-end appear reasonable. Insiders have been nibbling since December, 2013, with three recent buys versus no insider sales.
Management has been shareholder friendly. Special dividends heavily augment the quarterly base rate. Continuous shareholders have received cumulative payments of $29.88 per share since the start of 2008. The 'if put' price of $42.35 would make for an inticing entry point. Collecting $9.40 per share for 'not buying' shares would also be acceptable.
Disclosure: In my personal account I bought DO shares while selling both Jan. 2016 $51.75 puts and Jan. 2016 $59.25 puts. The weird looking strike prices are the result of option price adjustments that occur whenever a substantial special dividend goes ex. It is expected that the strike prices sold today will be adjusted downward multiple times before expiration as more extra payouts occur in the future.
