DRYS

On 11-18-2009 I initiated 2 positions in DRYS, it was trading around $7. I sold 10 put contracts at the $5 strike with Jan '11 expiry at $1.07. And I also sold 10 put contracts at the $5 strike with Jan '12 expiry for $1.56. As we watch the global economy recover I think we will eventually get some nice price action to the upside on the drybulk shippers. In the hieght of the financial crisis we saw the Baltic dry index sink from an all time high somewhere near 11,600 to a low of 666, or a 96% decline. Although like many of the dry bulk shippers DRYS has locked in foward contracts on a large percentage of its vessels through 2010 there is still upside in this name.

Why I like this position:

1 - with current estimates for total earnings for 2009 in at about $0.91 for the year, this means that DRYS is currently trading at a P/E of about 7.

2 - I like the prospects of the Baltic Dry Index turning. Although DRYS has locked in a large percentage of its fleet, it still benefits from rising shipping rates from increases in this index. When I initiated this position the index was trading around 4,200 or about 600% off its lows. I think the shippers have yet to reflect any of that gain in their share price.

3 - Even if you use next year EPS estimates at $0.89 per share (which I think are too low and need/wll be revised) using a very conservitive of 10 that values DRYS at about $9.

4- There have been and continue to be concerns about debt, but DRYS has been succesful at negotiating its debt and I think this will continue. I do see this as a situation that is Temporary and DRYS will be able to earn its way out of this mess as the economy continues to recover. This is not to say there will not be bumps along the way.

5 - Latly this name is not a pure play on the DRY Bulk Shippers. It also has oil drilling rigs that I think will do very well as the economy recovers and oil exploration projects come back online. I cant remember for sure but I think they were locking in with a 5 year contract with Brazilian oil company. I want to say it is PBR, but I can't remember for sure.

What do the probablities look like?



What do I see on the charts:

Again when I first initiated this position it was not so much technically driven as it is fundementally. I don't "normally" play positions on just technicals. I usually use them in conjunction with my fundemental analysis. The only thing I have seen in recent trading days is that DYRS may be forming some level of support at around $6. And over the past few months the $7.50 to $8 range has offered some strong resistance.