The Oxen Report: Opportunities on a Quiet Day in the Market

by David Ristau - September 8th, 2010 8:54 am

The market is looking pretty quiet this morning with the big news coming out tomorrow and Friday. Today, Obama will speak more about his further plans to bolster jobs, the Fed Beige Book will be released, and global markets will help allay fears. Those things are looking positive at the start of the day. Yesterday, we got involved into two new positions. One was a Weekly Play in National Semiconductor (NSM). We got involved at 12.90 and are down slightly after yesterday, but we have until tomorrow afternoon to make 3-5%. Our Overnight Trade in Navistar looks like it won’t be…

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Which Way Wednesday - Beige Book Edition

by Phil - September 8th, 2010 8:06 am

On June 9th we liked the Beige Book, which confirmed our bottom call. 

On July 28th, we did not like the Beige Book and I said to Members in my review of the report: "Housing drives the market and housing and commercial construction are dead.  How can commercial construction come back if we have less employees?  How can housing come back if fewer people qualify for loans and the population doesn’t grow?  How does anyone think that we can address these problems through capitalism (ie. without stimulus)?"

We got the GDP report that Friday (July 30th) and the low expectations there gave us the gap up we were expecting and Alan Greenspan went on Meet the Press that weekend and admitted I was right - both stealing my "Tale of Two Economies" economic outlook and blasting the Republicans, saying the party had "lost their way."   

We couldn’t do anything about the Republican’ts but I was able to call a "Toppy Tuesday" on August 3rd and we drifted along that top until the next week, where we caught the action just right as we took our bullish money and ran on Monday and began grabbing downside hedges including the QID play I put up right in that Tuesday’s (8/10) morning post, where I said:

Yesterday we knew that the move up was fake, Fake, FAKE and we acted accordingly in Member Chat.  We had a nice QID cover play right in the Morning Alert that was an easy fill as the Nas went higher and higher all day.  It was the Aug $16/17 bull call spread at .42, and the $16 puts sold for .29 for net .13 on the $1 spread with a nice 669% upside if the Nasdaq heads sharply down on us.  Our stops on the play were a combination of Nas 2,300, Dow 10,700 and Russell 666 and we got the Nasdaq and the Dow over their marks but, once again, 666 proves to be an ominous barrier for the Russell.

That hedge did, of course, return the full 669% as QID finished the expiration period at $17.80 and there was no doubt on the trade as we had a mild drop Tuesday morning, followed by a major drop the next day, where my opening comment was: "Wheeee - I told you this was going to be fun!"  It is FUN when you are prepared to ride the market roller coaster - not so much so when you are not.  It was all about the…

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WHITNEY TILSON: WELCOME TO “MUDDLE-THROUGH”

by ilene - September 7th, 2010 5:15 pm

WHITNEY TILSON: WELCOME TO “MUDDLE-THROUGH”

Courtesy of The Pragmatic Capitalist

Whitney Tilson of T2 Partners says the global economy is set to “muddle through” as the excesses of the last few decades are worked off. Tilson detailed his macro outlook in his most recent investor letter for August.  Tilson believes the worst of the credit crisis is behind us, however, the heavy lifting is not over yet. Tilson is very concerned about the macro risks, particularly the sovereign debt crisis in Europe and US housing.  Tilson says the US housing market has already started to double dip:

“We think we have gone through the most difficult economic period in the United States and the world since the Great Depression. We think the worldwide debt bubble — this was not just a US housing crisis or bubble, but a worldwide debt bubble — was unprecedented in the degree of depravity that took place, in the amount of leverage that built up in the system all over the world, and we’re very skeptical that we have somehow successfully managed our way through the aftermath of that bubble and that everything is rosy now.

We think the aftermath of this bubble will be with us for many years and that will continue to cause disruptions and turmoil in various markets. The sovereign debt crisis in Europe is a good example of that just in the past few months; we think the US housing market is already in a double dip right now, though because there is a lag in the data, most people haven’t yet realized it. We don’t think it’s going to be anything like the first dip, which really took world economy over a cliff, but there are 7 million people not paying their mortgages right now and we have not resolved that problem and that’s going to continue to be a headwind for our financial system. There are probably six or eight major risk factors, two of which are the sovereign debt issues and the US housing market. These make us very nervous and we don’t know how it’s going to play out (and we’re skeptical that anyone knows how it’s going to play out), so in light of these major problems, we think it’s wise to be prudent.”

Tilsons’s prudent macro outlook has him relatively risk averse when it comes to the equity markets. Tilson believes there is a high probability of a muddle-through economy, but also…

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GOP: The Old Muppet Hecklers in the Balcony

by ilene - September 7th, 2010 4:18 pm

Very good points in the ongoing, unproductive battles between the democrats and republicans.  No wonder the homeless Green party candidates may really have a chance.  Not that there’s anything wrong with having Starbucks as your office. - Ilene 

GOP: The Old Muppet Hecklers in the Balcony

Courtesy of Joshua M. Brown, The Reformed Broker 

I’ve so thoroughly trashed President Obama’s economic policies and failed stimulus attempts recently that I fear I may be giving readers the wrong impression…the Dem’s are only one half of the Economic Death Squad that now pretends to offer leadership in this country.

The GOP is probably 2/3rds responsible for the credit crisis to begin with (chain-sawing rulebooks will do that) and its current leadership has been equally pathetic in terms of bringing solutions to the table for joblessness and weak business activity.  Unless of course you consider the Rain Man-esque repetition of "more tax cuts" as an example of innovative thinking.

So it should surprise nobody that Obama’s $50 billion infrastructure stimulus speech in Milwaukee today was panned within milliseconds of its conclusion by House Republican leader John Boehner.  As if there were any chance that Boehner would even listen to the address for any reason other than to know what it is that he is against.

The GOP’s constant kneejerk rejection of economic ideas simply for the sake of Saying No has as much to do with our current malaise as anything being done wrong in the White House.  The newly-minted fiscal conservatives on the Republican side of the aisle, many of whom are themselves responsible for the $3 trillion and counting Iraq War, are like the old men who heckle the Muppet Show from the balcony.

It’s naysaying for naysaying’s sake at this point and I hope voters will remember that their favorite Republican All-Stars are equally complicit in the crime that is 15 million unemployed 3 years into a recession. 

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Strangle Strategist Sees Range-Bound Shares at The Cheesecake Factory

by Andrew Wilkinson - September 7th, 2010 4:03 pm

Today’s tickers: CAKE, LVS, IYR, TEVA, EEM, S, CREE & EXPE

CAKE - The Cheesecake Factory, Inc. – One premium-hungry options strategist sold a strangle on the full-service dining restaurants operator this afternoon in the expectation that its shares are set to trade within a narrow range through October expiration. Cheesecake Factory’s shares fell 1.45% late in the session to trade at $25.38 by 3:35 pm ET. The investor sold 3,000 puts at the October $25 strike for premium of $1.05 apiece and sold 3,000 calls at the October $26 strike at a premium of $1.05 each in order to pocket gross premium of $2.10 per contract. Full retention of the premium received today occurs as long as shares of the underlying stock trade between $25.00 and $26.00 through October expiration. Wayward shifts in the price of CAKE’s shares could give this strangle-player a severe stomachache as losses start to build should shares rally above the upper breakeven price of $28.10, or if shares dip under the lower breakeven point at $22.90, ahead of expiration day in October.

LVS - Las Vegas Sands Corp. – Shares in casino resort operator Las Vegas Sands commenced the session in the red but rallied in afternoon trading to stand 1.05% higher on the day at $31.32 as of 3:45 pm ET. Earlier in the day shares increased as much as 1.5% to secure a new 52-week high of $31.46. One long-term bullish investor hoping to see continued appreciation in the price of the underlying stock established a covered call in the March 2011 contract. The trader sold 10,000 calls at the March 2011 $40 strike for premium of $1.73 per contract. The transaction had a delta of .30 and was tied to the purchase of LVS shares at $31.20 each. Premium received on the sale of the calls effectively reduces the price paid by the investor to get long the stock. The bullish player is poised to accumulate maximum potential gains of 35.7% on the run up in LVS shares from an effective purchase price of $29.47 to $40.00 if the calls land in-the-money at expiration and the underlying position is called away from the trader at that time.

IYR - iShares Dow Jones U.S. Real Estate Index ETF – The construction of a debit put spread on the IYR, an exchange-traded fund that corresponds to the Dow Jones U.S. Real Estate Index – an index designed to measure…

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The Oxen Report: Play of the Week Looks to Chips Once Again

by David Ristau - September 7th, 2010 10:37 am

Hope everyone had a terrific Labor Day Weekend and is ready to get back to business. Most investors are returning to the market after the summer break, and we should see a nice rise in volumes. We still have one position open in KB Homes (KBH). I left the position open on Thursday for a Short Sale with an average entry of 11.62. The market has brought this position back into neutral ground today, and I am hoping to exit this position for a small gain finally. 

We are going to start off the week with a Play of the Week.…

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