2010 Outlook - A Tale of Two Economies
by Phil - December 27th, 2009 6:54 am
"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way–in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only." - Charles Dickens, 1859
Dickens famous novel (which was originally written as a weekly series in 31 installments) depicts life in the time of the French revolution but was also a parable, meant to warn the British aristocracy that they should not ingore the parallels to the social inequities that existed at the time in England. Dickens warned the nobles that the seeds of revolution were planted through unjust acts and surely there would be a time of reaping yet to come.
It is said that the French Revolution was sparked by outrage over a statement by the Queen Mary Antoinette who, when told that the peasants had no bread to eat, supposedly replied (she never actually said this) "Qu’ils mangent de la brioche" or "Then let them eat cake." It’s hard for us to imagine the impact of this statement in modern times but "peasants" were 90% of the population at the time and bread was 90% of what they ate, consuming 50% of the average family’s income (people weren’t silly enough to pay for housing back then - they just found a bit of land, bought some wood and nails and built their own homes). Brioche was a luxury combination of bread enriched with flour and butter so the statement "Qu’ils mangent de la brioche" implies both lack of caring and cluelessness on the part of the Queen.
The United States had what passes for a revolution between 2006 and 2008 as we threw out the Republicans and went with a Democrat-controlled government. While the Bush administration, the Republican Congress and Fox News may have been as clueless as a French Queen to the plight of the people - the fact of the matter is that the base pay of top management rose 78% from 2002-2007 while…
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Merry Christmas Eve
by Phil - December 24th, 2009 8:28 am
First of all, what are you doing here?
Why it’s Christmas Eve, Mr. Scrooge - Most global markets are having a half day so, if you are waiting for a Santa Clause rally on a half-day’s trading, you are very likely to be disappointed.
Remember Marley, who cried: "Business! Mankind was my business. The common welfare was my business; charity, mercy, forbearance, and benevolence were all my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business!"
Marley was a man who worked and worked until the day he died and regretted it every day after. If you don’t believe in an afterlife and you don’t believe in leaving behind the World a better place than you found it, at least find some time for yourself so people don’t call you "a squeezing, wrenching, grasping, scraping, clutching, covetous old sinner!"
Those covetous old sinners in Congress passed the Health Care Bill in the Senate today with a 60-39 vote (Republican Jim Bunning did not vote against the bill but was too chicken to actually vote for it) so we can pretty much count on it moving through the House and on to Obama’s desk in the very near future. While it’s a total botch-job of a bill, at least America has taken the first civilized strep to recognizing that health care is a right and not a privilege - Tiny Tim would be very proud!
We were told by Fox that Health Care reform would destroy the universe but the market has taken the December passage of the bill very much in stride so maybe we should have just gone for it with Universal Health Care after all… Oh well, maybe next year! Meanwhile, we’ll be looking for good investing opportunities once we get a handle on the final bill but I still favor the device space (IHI, MDT, BSX, JNJ, GE, ISRG) as well as big pharma (MRK, PFE), who will be able to serve tens of millions of new customers. Hospitals (UHS, THC) should also start filling up and we always like our CELG as well as AMGN, who should also benefit from adding a population the size of England to the health care rolls right here in the USA. I’m waiting for the final bill but home health care providers (AMED, ADUS, GTIV) also look like winners so lots of fun investing opportunities in one of the fastest growing markets on…
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Werner Enterprises Sees Bearish Activity
by Andrew Wilkinson - October 22nd, 2009 4:35 pm
Today’s tickers: WERN, MDVN, GT, XRX, SLE, AMGN, ESI, EBAY, FFIV & SLE
WERN - Werner Enterprises, Inc. – The truckload freight services firm edged onto our ‘hot by options volume’ market scanner due to bearish trading in the June contract. Shares of WERN slipped 0.5% lower this afternoon to $20.22. One investor initiated a ratio put spread by purchasing 6,000 put options at the June 20 strike for 2.25 apiece, and by simultaneously selling 12,000 puts at the lower June 17.5 strike for 1.10 each. The net cost of the trade is reduced to just one nickel per contract. The trader is probably aiming to protect the value of a long position in shares of WERN through expiration. Downside protection will kick in if shares decline more than 27 cents from the current price given the effective breakeven point on the trade at $19.95.
MDVN - Medivation, Inc. – Long-term bearish activity in the June 2010 contract suggests one investor may be bulking up on downside protection in case shares of biopharmaceutical company, Medivation, Inc., continue to decline. The stock is currently trading less than 0.5% lower to stand at $26.51. A put spread was established through the purchase of 10,000 puts at the June 22.5 strike for 7.80 apiece, marked against the sale of 10,000 puts at the lower June 12.5 strike for 1.87 each. The net cost of the pessimistic play amounts to 5.93 per contract. The spread was most likely initiated by an investor holding a long position in the underlying shares. Putting on the protective stance shields the investor from losses beneath the breakeven point at $16.57. However, if the trader is in fact long the stock, he will suffer a 38% decline in the value of MDVN before downside protection kicks in at the breakeven price described. An alternate scenario is that the investor does not hold a long position in MDVN. If this is the case, the trader is uber-bearish and expects to garner profits from significant declines in Medivation through expiration in June.
GT - The Goodyear Tire & Rubber Co. – Option traders populated the November contract on GT with bullish plays this afternoon. Shares added more than 2.5% during the session to arrive at the current price of $17.83. Some investors targeted the now in-the-money November 17.5 strike to purchase 3,800 calls for an average premium of one dollar apiece. Other traders looked to the higher…
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Pharmboy’s Phavorite Phings
by Phil - August 8th, 2009 3:02 pm
Greetings PSW members from Pharmboy!
This is my first shot at writing a formal post for everyone on a few biotech/pharma picks that I believe have promise for nice returns over the next 6 to 18 months. Much of the work here is a compilation of readings elsewhere, summarized for you all to make your own conclusions. Here we go:
Big Pharma
GlaxoSmithKline (GSK) – has a robust pipeline in inflammation, cancer and other therapeutic areas. A few line extensions could do well generic simvistatin (Zocor) + Avandia) for cardio/diabetes. Will compete against Vytorin, and others like it. In the pipeline, GSK has an Orexin antagonist for sleep disorders (very hot area), several drugs for asthma/COPD in Phase II including a PDE-4 and FLAP inhibitor. The asthma/COPD drugs have huge potential as a monotherapy or in some combination, as they are the newest line of therapies that have come along for asthma/COPD in some time (GSKs strength). GSK also has a VLA4 antagonist for multiple sclerosis in phase II.
This is the first I have seen of this in a pipeline for clinical trials. VLA4 is the target of Tysabri from BIIB. One hypothesis is that a small molecule that binds to the receptor but does not completely knock out the receptor like a mAb may be better for MS patients. Remember, Tysabri has a potential of a rare neurological condition progressive multifocal leukoencephalopathy (PML) when administered in combination with interferon beta-1a, another immunosuppressive drug often used in the treatment of multiple sclerosis.
One other note for growth, Amgen (AMGN) revealed its commercialization strategy for osteoporosis treatment, denosumab, one of the most keenly anticipated new drugs set to reach the market for several years, naming GlaxoSmithKline (GSK) as partner in Europe and other countries. GSK has several cancer treatments as well as vaccines in various stages, so it is my belief that their pipeline is rich and diverse. Current yield is 4.8%.
Phi’s Take: 4.8% and Pharm likes the pipeline - say no more! We have nice solid support building at the 200 dma at $34 and the 50 dma already crossed up and is at $38 so we can be pretty confident that we can hold the early 2008 lows at $38 long-term. That makes this a nice buy/write as we want the dividend (so we need the stock) and we wouldn’t mind buying more cheaper. Best to go with the long play here with the stock…
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Qualcomm – Rally in sight, but not just yet
by Andrew Wilkinson - February 28th, 2009 12:32 pm
Today’s tickers: QCOM, GT, IVN, AMGN, C, GFI, HMY, SQNM & GE
QCOM – Qualcomm Inc. – Things might be looking better for Qualcomm – but not just yet according to one large option trade that went through earlier today. An investor sought protection in the April contract for fear that shares would be below $35.00 when the contract expires and turned the cost of the premium into a credit by selling January 2010 expiration puts at the same strike. The strategy assumes that the shares will not break through the strike price as the second quarter begins, in which case the investor gets paid out for every penny below $35.00 the share are at that time. But ahead the investor’s core assumption is that shares will shift ahead of $35.00 when next year begins, rendering the sold put options worthless. Today Qualcomm is trading a shade higher at $33.75.
GT – The Goodyear Tire & Rubber Company – Shares of the manufacturer of tires and rubber products have fallen by 5% to $4.57 today. Perhaps the continued decline stems from the downgrade GT received on Monday to ‘underweight’ from ‘hold’ by a KeyBanc analyst, who cited challenges such as global sales declines, and rising costs related to pension and raw materials. Despite the downgrade and today’s decline in share price, one investor established a bullish play on the stock. At the April 7.5 strike price, 10,000 calls were purchased for 10 cents each. Should there by a rally in shares before expiration, this trader will see premiums grow richer at the 7.5 strike, and could then potentially sell the calls to profit. There is a delta of 0.13 on the trade, thus there is a 13% chance that these calls will land in-the-money by April. The current share price would need to experience an increase of 66% in order to surpass the breakeven point on the trade located at $7.60. Whether the shares can breach the breakeven point or not, this investor can still capitalize on today’s position with even a slight rally in shares by selling premium.
IVN – Ivanhoe Mines Limited – The international mineral exploration and development company’s shares have rallied by 3% to stand at $4.59. IVN caught our attention when it edged onto our ‘hot by options volume’ market scanner. Calls were in demand in the June contract, where over 12,300 calls were purchased for 50 cents at the June…
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GDP Friday - Cramer Rips Me Off!
by Phil - February 27th, 2009 7:15 am
Boy am I mad!
It was brought to my attention last night that Jim Cramer has stolen my plan, which I called "The 3% Mortgage Solution" in my Feb 9th column, and simply added a point to it and claimed it as his own on national TV. I’m not sure how to feel about that - I’ll be glad if the plan is used of course, but seeing Cramer take credit for my work is a little irritating. In fact, "Cramer’s plan," as laid out, also lifts elements from my 2/16 article - the latest version of my year old plan for immediately ending the mortgage crisis by making the government an equity partner in the homes. So congratulations to Cramer for sinking to yet another new low in broadcasting - I suppose only writers from TSCM, where Jim has overseen the loss of 87.5% of shareholder equity in the past 5 quarters, are worthy of being given credit by the great Cramer while the ideas of us independent bloggers are just his for the poaching…
Other than being shocked last night by Cramer’s flagrant foul, yesterday was a pretty good day. We executed our plan of buying out our short DIA puts into the morning run-up as we rolled up our long puts and we grabbed some XLF puts as our first trade of the day, which worked out well as a day trade. We did a little bottom fishing with UNH and ISRG and caught the IBM rally for a quick momentum play all before lunch. In fact, at 11:20, we were done being bullish as I said to members: "I do expect a big temper tantrum this week. I know I threw one at Bush’s last budget (in fact it was BECAUSE it hid so many costs) and the GDP is going to back up the Doom and Gloom squad tomorrow so still balanced bearish off this level as we haven’t hit one of our goals yet: Dow 7,400, S&P 780, Nasdaq 1,450, NYSE 4,850, Russell 415. Keep that in mind."
We had added long QID puts as general portfolio protection and those are working out so well we are becoming concerned with our April $64 covers - which seemed safely out of range at the time. We had a bit of a false bottom after lunch but I said to members at 1:33: "Not good on XLF - see they tested $8.40 to upside and failed. …
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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