Puerto Rico’s newly issued $3.5 billion worth of 21-year duration bonds were sold only to ‘big boys’ who could pony up $100,000 minimum. Those hedge funds, Wall Street firms and primary dealers (banks) scooped up the whole batch at about 93-cents on the dollar.
A day or two later they off-loaded their stakes to the gullible public at prices as high as par (100-cents on the dollar of face value).
The suckers never learn. Barron’s reported today that the paper is now trading for less than its issue price.
We took advantage of Oracle’s (ORCL) early sell-off and high volatility this morning. ORCL reported fiscal Q34 earnings after the close yesterday.
We sold three contracts of the Jan. 2016, $35 puts @ $3.85 per share. Our commitment is to be willing to purchase 300 shares of ORCL, if exercised later, at a net cost of $31.85 per share ($35 strike price minus the $3.85 put premium).
Our $31.85 ‘if put’ price is near 18-month lows that were touched during November of 2012 and again in June of 2013. Both those occasions proved to be excellent entry points for this blue-chip stock.
We have two older short puts commitments (LNN & VMI) coming up on their expiration dates this Friday. Both appear to be on track to expire worthless. That is the best-case scenario for us as sellers. We are likely to pocket 100% of the premiums collected without having to buy any of the underlying shares. Check back after the close on Mar. 21st to see if these worked out as as expected.
You can follow our ORCL trade and all our previous option positions by clicking on this link
Zero Interest Rate Policy (ZIRP) has been a curse for risk-averse savers and investors. Bank CDs, T-bills, money market accounts and corporate bonds have almost never paid less than they do today.
That led many investors to chase after yield in alternative investments, at prices that they shouldn’t have paid. Holders of the natural gas transmission company Boardwalk Pipeline Partners (BWP), a master limited partnership (MLP) were recent casualties in this struggle for income.
Units (similar to shares) of BWP had spent most of the last seven years trading between $24 – $30. Its valuation was largely based on its cash distributions, which averaged 7.1% over the entire period 2006 – 2013. Investors didn’t pay much attention to anything but BWP’s yield.
Last month, management cut the quarterly payout from 53.25-cents to 10-cents. BWP cratered, plunging from above $25 to around $12. BWP closed last week at $12.55 after hitting a new all-time low of $11.99 early Friday.
Disgusted holders who suffered big losses have been dumping BWP while other investors, who like the 3.2% current yield, see rebound potential. These new investors have been buying in for the rebound potential, the current (lower yield), or both.
Option savvy income seekers can use the drop in BWP to try for better returns than before the dividend was slashed.
Better returns are likely achievable using a buy-write strategy--i.e., buying shares of BWP while writing (selling) covered calls. One idea is to sell calls that expire at the close of trading on September 19, 2014, about six months from today.
Selling calls on BWP limits upside potential but brings in substantial upfront payment in the form of option premium. The income often rivals anything available in today’s ZIRP environment while also reducing the risk of holding the underlying shares.
Here is an example based on prices that were available just before the close on Friday.
That best-case scenario will play out if Boardwalk goes up, remains unchanged or even if BWP drops down to $12.50 (but no lower). An almost 33% rate of return sounds pretty good in a zero interest rate world.
There’s no guarantee that BWP can’t decline but the money from the covered calls would mitigate up to a 13% drop if the shares fall.
The buy-write’s break-even price is lower than any actual open market transaction in…
Anyone who dumped their Puerto Rican muni bonds after reading Barron's ultra-negative cover story (last August) got horrible bids when they went to sell. Ditto for those that held on until Standard & Poors finally down graded (clown-graded?) PR bonds to junk status.
The immediate drop in prices for those bonds allowed dealers, who likely knew in advance that last week's $3.5 billion new offering was coming, to take PR tax-free bonds from scared investors at distressed prices.
Puerto Rican bonds are still down from late 2012 but anyone who 'sold on the news' from Barron's or the ratings services locked in the worst prices in decades. Many of those bonds are up more than 10% in principal from their recent low points. That is a massive move in the usually stodgy bond arena.
PS: I want credit for coining that 'clown-graded' term.
The DJIA was lower all five days while the SPY eked out a minuscule gain on Wednesday in the midst of a bad week overall.
Market Shadows Virtual Value Portfolio dipped along with the broad market but we took advantage of the sell-off to add to existing positions in PVD and BWP. Both were higher at the end of the week than they were when we bought more.
We added one all-new position by shorting some puts on Knowles Corp. (KN) in Market Shadows' Virtual Put Writing (Selling) Account. Knowles was a recent spin-off from Dover Corp (DOV). KN's stock also headed higher shortly after our trade and despite the market’s overall negative action.
We couldn’t resist owning another chunk of Boardwalk Pipeline Partners (BWP) in Market Shadows Virtual Value Portfolioafter it dropped to a new low of $11.99 today. The 52-week range on BWP has been $11.99 (set today) to $33.00.
Market Shadows Virtual Value Portfolio couldn’t resist owning another chunk of Boardwalk Pipeline Partners (BWP) after seeing it go down to a new low of $11.99 today. The 52-week range on BWP has been $11.99 (set today) to $33.00. BWP’s current yield is 3.32% at our latest entry price.
We were able to buy another 300 shares at $12.06 per unit, using $3,618 from our cash reserves. For the moment we are essentially fully invested. We will need to sell something before being able to purchase our next great idea.
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I love bargain prices. We got another chance to pick up shares of Chilean-based pension fund manager PVD this morning and didn’t waste it.
The Virtual Value Portfolio doubled our 42-share position at $78.94, a much lower quote than we paid for our original stake back on Dec. 2, 2013 when we liked PVD at $86.55 per share.
I added 100 shares to my personal holdings today as well.
The company is majority owned by US insurance giant MetLife (MET). I expect that MET will eventually want to buy out the minority holders to simplify their own corporate structure and eliminate expenses.
The $3,315 purchase price will come out of our cash reserve fund.
Market Shadows’ reader Leilei noted that MetLife’s ownership of PVD was above 90% as of Sep. 30, 2013 and is approaching 94% since. MET paid $92.214 per share or $13.20 (+16.7%) above our purchase price today. Any offer to sweep up the remaining shares would probably come at a premium to that.
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Knowles Corp. (KN) was carved out of Dover Corp. (DOV). KN started trading 'regular way' early last week.
The shares had been as high as $32.85 just days ago while trading on a 'when issued' basis. They were offered at just $28.42 early today.
We sold three contracts of the KN Sep. 20, 2014, $30 puts @ $3.30 per share.
Our maximum profit is limited to the $990 we collected upon sale of the put options. If KN closes at $30 or higher on the Sep. 20, 2014 expiration date we will make that full amount without ever having to buy the stock. Until then we must stand ready to purchase 300 shares of Knowles for a net cost of $26.70 ($30 strike price – $3.30 put premium).
That $26.70 per share break-even point is lower than any KN shares have actually changed hands for since the spin-off took place.
Source: Yahoo Finance
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This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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The Trade Followers Momentum indicator for the S&P 500 Index (SPX) is positive, but showing some short term caution signs. Seven day momentum reached extremely overbought territory last week and has now turned over. Previous peaks of high magnitude have led short term tops in the market by roughly a week or two. The peaks are often associated with sideways or slightly upward action in SPX that ultimately ends with a short term drop in price. This is the first indication of caution; however, it doesn’t imply a large consolidation in price…yet.
Breadth calculated between the strongest and most bullish stocks on social media compared to the weakest and most bearish continue to ...
This weekend’s must-read is quite apropos of today’s holiday. ‘Profits Without Prosperity’, an incredible article at the Harvard Business Review, shows exactly how corporate share buybacks have gotten out of control in the last decade. It then goes on to point out the various ways in which buybacks-gone-wild are killing the capital formation process in America, holding back the investments needed to keep us competitive and decimating the middle class workforce that actually built this country.
Just 3 months ago, as Americans celebrated Memorial Day, the spot price of gold jerked $20 higher (then plunged) as gold futures closed. Today, as Americans celebrate Labor Day, the liquidity-less market for spot gold just dropped $6, ripped back and settled lower in the space of a few minutes (with bids and offers fully crossed for a few minutes) as someone clearly forgot to tell the machines that the market is closed...
Buffalo Wild Wings Inc. (Ticker: BWLD) shares are in positive territory in early-afternoon trading on Thursday, reversing earlier losses to stand up 0.50% on the session at $148.50 as of 12:15 pm ET. Options volume on the restaurant chain is running approximately three times the daily average level due to heavy put activity in the October expiry contracts. It looks like one or more traders are buying the Oct 140/145 put spread at a net premium of roughly $1.45 per contract. As of the time of this writing, the spread has traded approximately 3,000 times against very little open interest at either striking price. The put spread may be a hedge to protect a long stock position against a roughly 6% pullback in the price of the underlying through October expiration, or an outright bearish play anticipating a dip in BWLD shares in the next couple of months. The spread makes money at expiration if shares in BWLD decline 3.3% from the current price of $148.50 to breach the breakeven point...
Gradient Senior Analyst Nicholas Yee reports on six companies that are using a variety of techniques to shift pretax profits to lower-tax areas. Featured in this USA Today, article, the companies include CELG, ALTR, VMW, NVDA, LRCX, and SNPS.
Mt Gox may be long gone in the annals of bankruptcy, but its founder refuses to go gentle into that insolvent night. And, as CoinDesk reports, the disgraced former CEO of the one-time premier bitcoin trading platform has decided to give it a second try by launching new web hosting service called Forever.net and is registered under both Karpeles’ name and that of Tibanne, the parent company of Mt Gox.
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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
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Author Helen Davis Chaitman is a nationally recognized litigator with a diverse trial practice in the areas of lender liability, bankruptcy, bank fraud, RICO, professional malpractice, trusts and estates, and white collar defense. In 1995, Ms. Chaitman was named one of the nation's top ten litigators by the National Law Journal for a jury verdict she obtained in an accountants' malpractice case. Ms. Chaitman is the author of The Law of Lender Liability (Warren, Gorham & Lamont 1990)... Since early 2009, Ms. Chaitman has been an outspoken advocate for investors in Bernard L. Madoff Investment Securities LLC (more here).
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
I just wanted to be sure you saw this. There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.
If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.
Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.
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