Tracking SQM - March 8th Update

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SQM History

I sold SQM 180216P55 on 1/18 for $0.95, lowering the basis by $0.94 (to include $0.01 commission), for a new cost basis of $54.06.

100 shares of SQM were put to me on 2/16 at $55.00.

I sold SQM 180316C60 on 2/20 for $0.85 and bought the call back on 3/1 for $0.05, with a $0.01 commission, netting $0.79.  The cost basis reduces to $54.06 - $0.79 = $53.27.

I sold SQM 180420C55 on 3/6 and collected $0.50.  Commissions reduce this to $0.49, and the new cost basis is $53.27 - $0.49 = $52.78.  I still hold the $55 call and will buy it back to close the leg if it drops to $0.05.

In another transaction, I sold SQM 180316P50 on 2/16 and received $1.05, and after commissions, $1.04.  The basis for this put, if it closes below $50 on 3/16, will be $55 - $1.04 = $53.96.  I still hold the $50 put and will buy it back to close the leg if it drops to $0.05.  If this put expires worthless on 3/16 the credit received will offset the shares that I currently hold.

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SQM Strategy as of 3/8

The major drop in SQM's price has me looking for ways to continue to lower my basis on the stock without taking on significantly more risk.

My longer-termed outlook on SQM is unchanged.  On an EPS/revenue basis, although some slowing has occurred, the stock is a good stock.  The YoY and QoQ historical numbers are positive, and there are less than 250 companies on all the exchanges who can claim the same.  I feel that there is low risk holding SQM for the near-term (1-2 months).  There is higher risk with holding in the May-July time frame, as the slowing in earnings may continue and drop below last year's levels.

If I were to buy shares on the market today, say at $49 limit, I would have a cost basis of ($4900 + $5278) / 200 shares = $10,178 / 200 = $50.89.  The $10,178 value is about 36% larger of a position in any one stock than I like to have, so this is less than ideal.  If I were to do this I would have to close the SQM 180316P50 leg so not to have further exposure, since that leg could be assigned at any time (theoretically) if the underlying is trading under $50 (it is presently near the money).  Presently, the 180316P50 leg would close for nearly $2.00, taking my basis back up (with the $49 stock purchase) to around $51.89.

If I sit pat and do nothing, my present basis of $52.78 holds provided that SQM closes above $50 on 3/16.  The open put leg will expire worthless and I keep the $1.04 that I collected (net of commissions).  This would drop my basis on the stock that I hold to $51.74.

If I sit pat and do nothing, and if the price of SQM is below $50 on 3/16, then another 100 shares will be put to me at $50, but because I received $1.04 credit (net of commissions), my true cost for these 100 shares is $48.96.  My new cost basis would be ($4896 + $5278) / 200 shares = $10,174 / 200 = $50.87.

Sitting pat and lowering my basis to $51.74 (SQM closes above $50 on 3/16) or $50.87 (SQM closes below $50 on 3/16) is my best approach forward at this time.

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If you see anything wrong in my calculations, please let me know.

As with all my ramblings, you are responsible for your own investment decisions and I am not.  Please do your own diligence, and please take ownership for your actions.  Nothing I've written here is to be used as a recommendation to buy/sell any security -- you need to do your own work.  I'm simply giving you a detailed glimpse into my thinking.

Regards,

pgd