Outsourcing play

By Sherman Lee

The S&P 500 index returned +3.31% in third quarter of 2016 compared to -6.94% in the same quarter last year.

The third quarter return was all attributable to July's performance as both August and September returns were slightly negative.

During the second quarter, I added three new positions, and reduced one position in the Prudent Value Portfolio .

 

RHI-outsourcing

 

 

RHI Purchase

The largest of the three purchases was Robert Half International, Inc. (RHI) in the staffing & outsourcing services space.

RHI provides specialized staffing and risk consulting services. RHI has staffing and consulting operations in more than 400 locations worldwide.

The company's second-quarter earnings per share improved $0.04 over prior year's Q2, but missed analyst expectations by -$0.02.

The market reacted negatively by pushing RHI down to 52-week lows where the portfolio was able to pick up shares at a fair price, in my view.

 

Option Moves

In the Prudent Value With Options Portfolio , I entered into four equity option transactions.

The largest transaction was a multi-leg buy-write of American International Group (AIG) . The buy-write was deep-in-the money, where the call option was sold at a strike price much lower than the price paid for the underlying stock.

AIG is an American multinational insurance corporation with more than 88 million customers in 130 countries. AIG companies employ over 64,000 people in 90 countries.

A deep-in-the money buy-write is a bullish option strategy that is executed to benefit by earning dividends on distributed profits and a premium when the option expires or is exercised in-the-money.

In addition, the portfolio can benefit as a long-term investor if the option expires worthless/unexercised, thus owning the stock leg at a lower desired price (i.e., discounted stock price - net premiums collected).

Photo Credit: Kristina D.C. Hoeppner via Flickr Creative Commons
Sherman Lee

Sherman Lee

Prudent Value is an independent, fee-based registered investment advisor to individuals, high net worth individuals, trust programs, and charitable institutions.

If you liked this article you might like

What's Behind the Hound of Hades' Stock Market Rampage

What's Behind the Hound of Hades' Stock Market Rampage

Dow, S&P 500 and Nasdaq Post New Records as Senate Reaches Deal to End Shutdown

Dow, S&P 500 and Nasdaq Post New Records as Senate Reaches Deal to End Shutdown

Closing Bell: LIVE MARKETS BLOG

Closing Bell: LIVE MARKETS BLOG

Dow, S&P 500 and Nasdaq Shake Off Government Shutdown to Trade Higher

Dow, S&P 500 and Nasdaq Shake Off Government Shutdown to Trade Higher

Investors Are Really Confident These Days: LIVE MARKETS BLOG

Investors Are Really Confident These Days: LIVE MARKETS BLOG