Butterflies/DM – I don't remember ever doing a big, specific thing on them. Generally the criteria is stocks that pay well for front-month contracts but aren't actually that volatile over time. Take WMT, for example, it's pretty violent, month-to-month but, over two years – it goes nowhere:
So, with WMT at $76.50, we can buy the 2016 $65 puts for $1.85 and the 2016 $82.50 calls for $2.20 (since we think it's a bit more likely to go up than down) and those then act as stop-losses to short puts and calls we sell.
Those two contracts cost net $4.05 and we can then sell the Nov $77.50 calls for $1.10 and the $75 puts for 0.95 and now we've collected $2.05 in premium against our $4.05 entry (50%) using just 64 of the 483 days we have to sell (13%). So we have 8 sales like that to make and, if we collect $16 in premium vs our $4.05 entry – we have an excellent chance of making money.
If WMT is over $77.50, we owe the caller money but the short puts expire worthless and if WMT is under $75, we owe the short puts money but the calls expire worthless so we have $2.05 of leeway in either direction before we take a loss so our "safe" range for WMT is $72.95 to $79.55 – pretty much covering the channel's highs and lows.
If we have to roll, we roll to widen the spreads if possible but we also watch the range as a move up to $79 on so-so earnings (11/13) would probably lead us to bet the $80 line still won't break to the upside. On the whole, if all goes well, this is the dullest strategy in the World!
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We are both by design and by culture inclined to be anything but humble in our approach to investing. We usually invest on the basis that we're certain that we've picked winners, we sell in the certainty that we can re-invest our capital to make more money elsewhere. We are usually wrong, often extremely wrong.
These tendencies come partially from hard-wired biases and partly from emotional responses to the situations we perceive ourselves to be in. But they also arise out of cultural requirements to show ourselves to be decisive and thrusting; we rarely reward those who show caution in the face of uncertainty. But we're private investors, we have limited capital and appetite for risk. A little humility – or even a lot – wouldn't go amiss.
In a recent paper Amitai Etzioni has extolled the virtues of Humble Decision-Making Theory. It's a thoughtful piece and in accordance with much of the evidence curated here over the years. In general we're far too confident in the face of an uncertain future, we end up paralyzed into inaction when everything goes wrong and we then panic when it's too late.
Even worse, when the chaos subsides we almost immediately develop myopia about recent events and rapidly fall back into our old habits. In the last year or so we've seen signs of exuberance in certain areas of markets even though we're less than five years away from the biggest financial crisis in most peoples' memories. We're pulled hither and thither by our emotions and our biases and, for the most part, remain unable to control ourselves.
Work In Progress
Given our lack of control then a rather more cautious approach to investing would seem to be sensible. Even if we can't debias ourselves and we remain subject to the ebb and flow of our emotions then we can at least recognize these limitations, and approach the topic in an appropriately humble frame of mind. As usual, though, we need a metaphor for the moment and, fortunately, Etzioni provides us with one:
"If … one recognizes that goals tends to be very unrealistic … and that people …
While Janet Yellen and her band of money printers work themselves into a tizzy over whether two buzz words—-“considerable time”—– should be dropped from their post-meeting word cloud, they might be better advised to just read the newspapers. This morning’s WSJ brings word that the lending boom which our monetary central planners are eager to stimulate is apparently off-to-the-races.
Well, sort of. The item in question is a $122 billion globally syndicated loan to facilitate an M&A deal between the world’s two largest beer companies—AB InBev with a 20% global market share and SABMiller with 10%. Needless to say, the only possible reason for creating a monstrosity with $60 billion in sales spread among scores of highly differentiated regional and national beer markets is the “synergy” euphemism—-that is, the “savings” from thousands of job terminations especially in those two paragons of job growth known as North America and Europe.
So the purpose is self-evidently the opposite of the Fed’s intent—whether the sweeping job cuts which Wall Street will peddle to justify the deal actually happen or not. In any event, the deal has virtually nothing to do with real market economics.
Both companies are already giant M&A roll-ups representing a string of mergers that have been going on for two decades, including the $52 billion InBev purchase of Anheuser-Busch six years ago. But you don’t have to be an expert in the beer industry to realize that these rollups were mainly the product of cheap debt and financialization, not free market economics. Recall that the beer industry ran out of true economies of scale 30 years ago when world class breweries reached their maximum efficient size in terms of production and distribution.
What has been happening in the business since then is nearly the opposite—that is, the rise of diseconomies of scale in marketing and branding. The latter is surely attested to by the explosion of specialty premium brands and micro-breweries.
Stated differently, in the absence of drastic financial repression by the world’s central banks there would be no case whatsoever for the globe-spanning beer merger now at hand. The latter will only create more dis-economies of scale as all the pieces and parts…
I was phoned the other night in middle of dinner by an earnest young man named Spencer, who said he was doing a survey.
Rather than hang up I agreed to answer his questions. He asked me if I knew a soda tax would be on the ballot in Berkeley in November. When I said yes, he then asked whether I trusted the Berkeley city government to spend the revenues wisely.
At that moment I recognized a classic “push poll,” which is part of a paid political campaign.
So I asked Spencer a couple of questions of my own. Who was financing his survey? “Americans for Food and Beverage Choice,” he answered. Who was financing this group? “The American Beverage Association,” he said.
Spencer was so eager to get off the phone I didn’t get to ask him my third question: Who’s financing the American Beverage Association? It didn’t matter. I knew the answer: Pepsico and Coca Cola.
Welcome to Berkeley, California: Ground Zero in the Soda Wars.
Fifty years ago this month, Berkeley was the epicenter of the Free Speech Movement. Now, Berkeley is moving against Big Soda.
The new movement isn’t nearly dramatic or idealistic as the old one, but the odds of victory were probably better fifty years ago. The Free Speech Movement didn’t challenge the profitability of a one of the nation’s most powerful industries.
Sugary drinks are blamed for increasing the rates of chronic disease and obesity in America. Yet efforts to reduce their consumption through taxes or other measures have gone nowhere. The beverage industry has spent millions defeating them.
If on November 4 a majority of Berkeley voters say yes to a one-cent-per-fluid-ounce tax on distributors of sugary drinks, Berkeley could be the first city in the nation to pass a soda tax. (San Franciscans will be voting on a 2-cent per ounce proposal requiring two-thirds of them approve; Berkeley needs a mere majority.)
No institution is more responsible for educating the CEOs of American corporations than Harvard Business School – inculcating in them a set of ideas and principles that have resulted in a pay gap between CEOs and ordinary workers that’s gone from 20-to-1 fifty years ago to almost 300-to-1 today.
A survey, released on September 6, of 1,947 Harvard Business School alumni showed them far more hopeful about the future competitiveness of American firms than about the future of American workers.
As the authors of the survey conclude, such a divergence is unsustainable. Without a large and growing middle class, Americans won’t have the purchasing power to keep U.S. corporations profitable, and global demand won’t fill the gap. Moreover, the widening gap eventually will lead to political and social instability. As the authors put it, “any leader with a long view understands that business has a profound stake in the prosperity of the average American.”
Unfortunately, the authors neglected to include a discussion about how Harvard Business School should change what it teaches future CEOs with regard to this “profound stake.” HBS has made some changes over the years in response to earlier crises, but has not gone nearly far enough with courses that critically examine the goals of the modern corporation and the role that top executives play in achieving them.
A half-century ago, CEOs typically managed companies for the benefit of all their stakeholders – not just shareholders, but also their employees, communities, and the nation as a whole.
“The job of management,” proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in a 1951 address, “is to maintain an equitable and working balance among the claims of the various directly affected interest groups … stockholders, employees, customers, and the public at large. Business managers are gaining professional status partly because they see in their work the basic responsibilities [to the public] that other professional men have long recognized as theirs.”
This view was a common view among chief executives of the time. Fortune magazine urged CEOs to become “industrial statesmen.” And to a large extent, that’s what they became.
For thirty years after World War II, as American corporations prospered, so did the American middle class. Wages
Alibaba, the enormous Chinese e-commerce company, is expected to begin trading on the New York Stock Exchange this Friday.
But one of the most crucial time periods in the company's history came in the early 2000s, when the still-new Alibaba battled out with the behemoth eBay to gain e-commerce dominance in China.
Porter Erisman, in his incredible documentary "Crocodile in the Yangtze," captures the thrilling rise of the company through real footage and photos. Erisman worked there throughout its critical years (though he had left the company by the time he started making the documentary).
The entire film is entertaining, suspenseful, and more than worth a watch, but Erisman gave us permission to use scenes from his film to tell the story of Alibaba's rise, as he saw it through his own eyes.
This quote, from founder Jack Ma, has become emblematic of the half-decade battle between eBay and Alibaba.
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 email@example.com 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.
As a direct result of sanctions on Russia, there is an overabundance of fruits and vegetables in France, Spain, Poland, and elsewhere in Europe. Basic law of supply and demand dictates prices of crops would fall. And they did.
While most foolishly want to stick it to Russia, few actually are willing to pay the price if it affects them.
Here is another case in point: French Farmers Torch Tax Office in Brittany Protest. French vegetable farmers protesting against falling living standards have set fire to tax and insurance offices in town of Morlaix, in Brittany. The farmers used tractors and trailers to dump artichokes, cauliflowers and manure in the streets and also smashed windows, police said.
Prime Minister Manuel Valls condemned protesters for p...
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SPX, DJIA and NDX all ended the week at new highs. For them, the trend remains higher.
What is most interesting is the small cap index, RUT. Not only did it lose 1.2% this week while the other indices gained, but it is now more than 5% off its peak. For the year, RUT is negative and SPX is up 9%.
Is this divergence between SPX and RUT bearish? It would seem it should be. When small caps underperform, it indicates weakness in breadth as investors concentrate their buying in a relatively small number of large companies.
The problem is these divergences have usually not been bearish in the past few years. The yellow highlights below are times when small caps underperformed large caps (lower panel). Ea...
Investors are dumping shares in Yahoo, sending the stock down 5.0% to $40.08 after shares in Alibaba made their debut on the floor of the NYSE just before midday. Shares in BABA for their part initially traded up to a high of $99.70, a near 47% increase over the IPO price of $68.00. Typically, one would expect put options that are 5% out of the money with roughly 4-hours left to trade to see waning implied volatility. But, at the start of the trading session and ahead of the first trade for BABA, the Sep 19 ’14 40.0 strike put options were trading with 271% volatility or $0.30 per contract amid uncertainty as to how the start of trading for Alibaba would take shape.
Administradora de Fondos de Pensiones Provida S.A. (PVD) shares will not be trading on the NY Stock Exchange after today. Tomorrow, shares will be harder to sell. Strangely, I wasn't able to find information on the internet, but Paul just sent me a copy of the email he received from Interactive Brokers.
We're selling PVD out of the Virtual Portfolio today at $87.18.
From: Interactive Brokers dated July 18, 2014
Holders of AFP Provida S.A. American Depository Receipts (ADR) are advised that the Company has elected to terminate the Deposit Agreement effective 2014-09-18.
Although the stock market displayed weakness last week as I suggested it would, bulls aren’t going down easily. In fact, they’re going down swinging, absorbing most of the blows delivered by hesitant bears. Despite holding up admirably when weakness was both expected and warranted, and although I still see higher highs ahead, I am still not convinced that we have seen the ultimate lows for this pullback. A number of signs point to more weakness ahead.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-r...
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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.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
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Despite the various opinions on Bitcoin, there is no question as to its ultimate value: its ability to bypass government restrictions, including economic embargoes and capital controls, to transmit quasi-anonymous money to anyone anywhere.
Opinions differ as to what constitutes "money."
The English word "money" derives from the Latin word "moneta," which means to "mint." Historically, "money" was minted in the form of precious metals, most notably gold and silver. Minted metal was considered "money" because it possessed luster, was scarce, and had perceive...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
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...
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