BOEasy Money Thursday – Greasing the Wheels
by Phil - February 9th, 2012 8:27 am
More free money!
That's the way we like to start the day as the BOE pumps another $75Bn into the mix and, best of all, their currency went UP on the news because "whisper numbers were for $100Bn." Now that we know the magic formula, we can start a rumor that the Fed will print $3Tn and then, when they ONLY print $2.5Tn – the Dollar will become much more valuable. See, I'm starting to think like a Central Banker!
Also in the "bad news must be good news" pile as Greek Finance Minister Evangelos Venizelos (wouldn't it suck to live in Greece with a name like Bob Smith?) heads to Brussels with NO DEAL. That's right there is still no deal on the Greek bailout that has boosted the markets by 22% since October. They do claim that the only remaining issue is pension cuts but all the Florida voters who picked Romney will soon find out how easy that is to accomplish.
Just last February, I was writing a Thursday post titled "Greece is the Word" where I warned that the 4.23% CDS rate hitting Greek bonds was unsustainable and that turned us bearish right at the top of the rally at S&P 1,344. Yesterday, the S&P was back to 1,349 and I wonder if Greece never happened – would I have continued to be bullish with the markets at this level?
On the whole, even WITH the snowballing Greek crisis, we "only" fell to 1,249 in March so, with Greece all fixed – maybe we can afford to be a bit more bullish. I'll be more comfortable with the upside once we see that Greece is not a "sell on the news" event but, as I noted yesterday, our last 10 bullish picks did quite well and a few of them are still playable and certainly there are still opportunities out there to pick up good stocks fairly cheaply.
Take DMND, for example. Last night, the stock fell from $37 to $20.50 as the beleaguered company will have to restate their last two years of earnings and that sent the CEO and two CFO's out the door and does, in fact, constitute a "material adverse change" that will allow PG to, at their discretion, terminate their deal to merge their Pringles division into DMND in exchange for a…
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DiggThrilling Thursday – Our “One Trade” Does Good!
by Phil - January 19th, 2012 8:12 am
One trade to rule them all!
That was our goal and our one precious trade for 2012 was BAC on January 5th, buying the stock at $5.75 and selling the 2013 $5 puts and calls for $2.55 for a net $3.20/4.10 entry (see "How to Buy a Stock for a 15-20% Discount" for more on this strategy). On Tuesday afternoon, I modified the entry live on TV at about 3:45, with BAC at $6.70 and you can see the immediate reaction the stock had on my pick into the close.
BAC was $6.49 on Tuesday afternoon at the start of my interview but the 2013 $5 puts and calls were $3.10 so the net was only $3.39/4.20 – not a huge change. BAC came through on earnings this morning and is up at $7.20 pre-market and we're well on our way to our 56% profit target, now with a 30% cushion.
It's no wonder that the TV crowd jumps on my picks as my last two appearances gave them a GNW spread on 10/24 for a 127% gain and an AXP spread from 10/5 for a 140% gain. BAC was, by comparison, a fairly conservative play and that's because, as you know if you've been reading this week – I'm not entirely convinced that this rally is sustainable – but I'm feeling much better about it now that we have BAC earnings out of the way!
This is a great time to thank my friendbuddypal Jim Cramer for chasing all his sheeple out of BAC this year with his SELLSELLSELL rating – without you and your half-assed opinions Jim, we'd have to work for a living! Why just yesterday, my trade idea for Members in the morning Alert was the FAS Feb $67/70 bull call spread at $2, selling the Feb $55 puts for $1.30 for net .70 on the $3 spread but last night – Jim didn't like my bullish Financials pick:
Financials were, in fact, one of my "Secret Santa's Inflation Hedges for 2011" that were published on Christmas Day, 2010 (and you can read that post for the logic behind each trade). All 4 of those trades are done tomorrow so let's see how they performed for the year:
- 30 XHB Jan $15/18 bull call spreads at $1.40 ($4,200), selling
…
Testy Tuesday – How Many Times Will You Fall for the Same Thing?
by Phil - January 17th, 2012 7:54 am
Isn't this exciting!
The pre-markets are up 1% after a long weekend. That hasn't happened since – two weeks ago! Of course last Tuesday, we were jammed up as well and the Tuesday after Christmas, we were jammed up as well but THIS TIME – we're REALLY feeling it, right?
The funniest thing is the way they have dozens of idiots saying all sorts of ridiculous things on CNBC and not one of them mentions even the vaguest hint of deja vu in what has been the most consistent pattern of late 2011, early 2012.
On this Dollar chart from Scott Pluschau, you can see the dives that are occasionally taken to goose the markets and we have another one this morning with the Dollar down 1%, making the 1% pop in the futures slightly less impressive when taken in context.
This time may be different because, according to Friday's Legacy Commitments of Traders Report released by the CTFC, Commercial Traders are now net short on the Dollar to the tune of 59,023 to just 6,061 longs – about a 10:1 ratio that is EXTREME to say the least. Non-Reportable, Non-Commercial Traders (ie. Speculators), on the other hand, are almost 10:1 the other way with 9,765 long contracts and just 1,390 shorts. Reportable Non-Commercial Traders (Hedge Funds) fill out the rest of the longs with 52,644 long contracts against just 8,057 shorts.
That's an odd sort of positions for the speculating class to be taking (super-long on the Dollar) considering the possibility of a highly dilutive quantitative event (QE3) in the very near future. This is why we can't be gung-ho bearish – tempting though it may be and this is why every little rumor of Europe being "fixed" sends the Dollar flying down – there are no buyers – only nervous long Dollar holders.
As you…
Wednesday Wheeeee – We Love it When a Plan Comes Together!
by Phil - January 11th, 2012 8:21 am
Once again, we're done with our day before you get up.
In my 5am note to Members, I said: "I see nothing in the news to justify this pre-market "recovery" and I hate to sound like a broken record but I like shorting oil (/CL) if we get below that $102 line with tight stops and the Dow (/YM) is right at 12,400, which is a great spot to short. RUT (/TF) is at 762 and below 760 (same as yesterday) will confirm a downturn but 12,400 is a great line so why wait?" By 6:26, I was able to follow it up with:
And wheeeeeeeeeeeeeeeeeeeeeeeee! There go the Futures!
It's 7:07 and we're still going down, with oil at $101.24 (up $760 per contract) and the Dow at 12,340 (up $300 per contract) and, as Dennis said: "Good enough for steak and eggs for me!" Roro got up late but still caught the Dow at 6:16 and that was right on the nose for the oil drop as well as we hit it right on the nose this morning and now we're done and waiting for the next good set-up.
Of course we scale in and scale out of positions as there's no need to get greedy in the Futures, where a single remaining contract catching a $1 move down in oil (now $101.25 again) pays $1,000. This week, we have even stationed our own Craigzooka in New Zealand, where it's tomorrow – which makes it much easier to bet on today's action as he can tell us what happened already! Not that today was all that hard to predict, right? My comment to Members LAST Wednesday was:
It’s been a pretty reliable bet that they tank the markets into the longer-term note auctions because it scares people into T-Bills and keeps the rates low. From this line-up, it seems to me they intend to jack us up on Friday and then zap us on Tuesday as Esther George releases something hawkish ahead of the 3-year and it’s no coincidence that Plosser, by far the biggest Hawk, is given the floor at 12:30 on Wednesday – just 30 minutes before the critical 10-year auction. Coincidence? Surely you cannot be that naive!
So that's how we've been playing the past 7 days and it culminated in pressing our…
Thursday Foolishness – More of the Same with One Trade
by Phil - January 5th, 2012 8:13 am
Our day is done, how’s yours?
That’s right, we already did our 3am trade where we caught the dead top of oil (and the dead bottom of the Dollar), where my 2:59 am comment to Members in Chat was:
Dollar at session low of 80.40 at 3am and oil back at yesterday’s high at $103.70 so oil (/CL) makes a nice short below $103.75 here but DANGEROUS pre-market trading as Iran could spout off at any moment and the trading is VERY THIN.
So that brings us back to the good old Dow (/YM) futures at 12,350 and they are just over that line at 12,351 but that’s the short of the moment as long as the Dollar is over 80.40 .
For the next hour, I did a blow by blow on the oil trade in Member Chat on the way down to $102.70 – a nice $1,000 per contract worm gotten by the early birds, where we took the money and ran ahead of likely morning manipulation back up to $103.50, where we can short it again on inventories (11am). The Dow slipped to 12,300 and paid a solid $250 per contract as well, paying for over 100 Egg Mcmuffins this morning by itself. If you want to see how we make decisions along the way down – it’s well worth going over this morning’s comments – there was also some good discussion of other topics this morning, including my pick for the best wide-screen TV.
We’re still just messing around with hit and run plays, waiting to see how the week pans out and next week we’ll be waiting to see how earnings pan out as well as what we expect will be a pretty major market pullback leading into the 10-year auctions next Wednesday at 1pm. Clearly the Fed freaked out and jumped in yesterday when TLT hit $118 so we are fairly comfortable with our prediction of a…
Will We Hold It Wednesday – Nasdaq 2,603 Edition
by Phil - December 28th, 2011 6:53 am
Watch the Nasdaq.
That’s the index we need to catch up to the Dow now that the S&P is halfway to goal at 1,297 (from our Must Hold line at 1,235). The Dow is in La La Land, led by MCD (up 31%), IBM (up 26%), PFE (up 24%), HD (up 20%) and KFT (up 20%) while this year’s Dogs of the Dow are BAC (down 59%), AA (down 43%), HPQ (down 39%) and JPM (down 22%).
While the losers may seem to outweigh the winners, that’s not how it works as the Dow is price-weighted so BAC dropping from $14 to $5.50 "only" costs the Dow about 68 points (roughly 8 points for each Dollar), IBMs rise from $145 to $185 added a whopping 320 points.
So a 26% rise in one component and a 59% drop in another nets out to a gain of 252 points! At the beginning of the year, they had roughly the same market cap ($150Bn) but IBM has gained $70Bn and BAC has lost $100Bn which, of course, translates into a net gain of 2% on the entire Dow – BECAUSE IT IS THE STUPIDEST INDEX ON EARTH!
Our Members, of course, know this. I wrote "DJIA: The Most Useless, Overused Tool on the Planet" back in 2006, when GM was still part of the Dow so no need to rehash it all here other than to mention the fact that a 30-component index has made 5 substitutions in the 5 years since I wrote that article only serve to highlight how ridiculous it is to use the Dow to draw long-term conclusions. The Dow is manipulated because it’s easy to and Uncle Rupert sits with the other Masters of the Universe to decide how to use this headline tool to make things look as good as possible in the US markets.
That’s why CSCO and TRV replaced C and GM in June of 2009. C was at $28.80 and is down a bit, GM went BK from $45 (which would have been a 360-point loss in the Dow) while CSCO was disappointing but essentially flat and TRV is up $20, adding another 160 points so a 520-point swing (5%) on those substitutions alone. In September of 2008, AIG ($135 at the time) was swapped for KFT ($32). KFT is just $37.70 but AIG was…
Bulls Return To Tiffany & Co. Options Despite Post-Earnings Pullback
by Option Review - November 29th, 2011 2:00 pm
Today’s tickers: TIF, BAC, NGD & MWW
TIF - Tiffany & Co. – Investors sporting near-term bullish outlooks on the high-end jewelry retailer flocked to the options market following the sharp post-earnings pullback in the price of Tiffany & Co. shares. Traders gearing up for a rebound in the price of the underlying appear to be selling puts and snapping up calls on the stock. Shares in Tiffany fell as much as 13.1% to an intraday low of $63.98 this morning, and currently trade 9.2% lower on the day at $66.86 as of 12:20 PM in New York. Investors expecting the stock to rise in the next few weeks exchanged more than 4,000 calls at the Dec. $70 strike against previously existing open interest of 1,264 contracts. It looks like the majority of the calls were purchased for an average premium of $1.35 per contract. Call buyers profit if shares in Tiffany & Co. rally 6.7% over the current price of $66.86 to surpass the average breakeven point on the upside at $71.35 by expiration day next month. Meanwhile, put selling suggests some traders believe shares are unlikely to drop much lower in the near term. More than 5,300 puts changed hands at the Dec. $60 strike against open interest of 970 contracts. Investors sold most of these put options to pocket premium of $0.67 per contract, on average. Put sellers walk away with premium in hand at expiration in December as long as shares in Tiffany & Co. exceed $60.00. Investors selling puts may have shares in TIF put to them at an average price of $59.33 each in the event that shares in the jewelry company plunge 11.3% and the options land in-the-money at expiration day.
BAC - Bank of America Corp. – Shares in Bank of America dropped to a fresh two-year low of $5.10 at the start of the session, and the prognosis for the price of the underlying over the next six month period is bleak by the looks of one options strategy initiated in the May 2012 contract. One investor appears to have paid a net $0.18 in premium per contract for a put butterfly spread; buying 2,000 puts at the May $3.0 and $5.0 strikes at premiums of $0.28 and $0.94 apiece, and selling 4,000 puts at the May $4.0 strike for a premium of $0.52 each. The trader may profit if shares in BAC, which are…
Bearish Player Foresees Fall From W.R. Grace & Co.
by Option Review - September 12th, 2011 1:34 pm
Today’s tickers: GRA, BAC, XEC & UNT
GRA - W.R. Grace & Co. – Bearish activity in options covering the producer of specialty chemicals and materials today suggests shares in W.R. Grace & Co. may extend losses through the end of 2011, and into the New Year. GRA’s shares today trade 3.5% lower on the session at $34.26. The stock has fallen 34.7% since July 26, when shares were trading up at a more than 10-year high of $52.50. One options player expecting shares to continue to head south for the winter purchased a 530-lot Jan. 2012 $22.5/$32.5 put spread for a net premium of $2.95 per contract. The investor may be taking an outright bearish stance on the stock, or could be building up downside protection to hedge a long position in the underlying shares. The spread positions the trader to profit should GRA’s shares drop 13.75% from the current price of $34.26 to breach the effective breakeven point to the downside at $29.55 by January expiration. Maximum potential profits of $7.05 per contract pad the investor’s wallet if shares in W.R. Grace & Co. plunge 34.3% to trade below $22.50 at expiration in 2012. Options implied volatility on the stock is up 9.9% at 66.67% just before 12:20 pm ET. The company’s Senior VP and CFO, Hudson La Force, is scheduled to present at the 2011 KeyBanc Capital Markets Basic Materials & Packaging Conference in Boston tomorrow, as well as at the Credit Suisse Chemicals and Ag Science Conference in New York City on Thursday.
BAC - Bank of America Corp. – Shares in Bank of America Corp. rallied earlier in the session, perhaps signaling markets are eager to learn more about CEO Brian Moynihan’s Project New BAC. The stock turned negative in early-afternoon trade, but continues to outperform…
FHFA Friday – Potential Lawsuit Tanks Banks
by Phil - September 2nd, 2011 8:18 am
$30 Billion – that’s bound to get their attention!
According to the WSJ, the Federal Housing Finance Agency is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble. The suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.
The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims arguing the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.
Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers. In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.
Tim Rood, who worked at Fannie Mae until 2006 and is now a partner at the Collingwood Group, which advises banks and servicers on housing-related issues, agrees with what I told Members in last night’s chat:
"While I believe that F.H.F.A. is acting responsibly in its role as conservator, I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again.”
In other words – MADNESS! What was the point of spending Trillions of Dollars bailing out the Banks if you are going to turn around and sue them for $30Bn and drop their stock price another Trillion, causing them to need another bailout?
Perhaps this is the denouement of a week of scary market rumors that seem to have been designed to stop the markets from breaking too high. We were speculating on this last night in Member Chat before this…
Put Player Near-Term Bullish On Pandora Post Earnings
by Option Review - August 26th, 2011 2:26 pm
Today’s tickers: P, IYR, TIF & BAC
P - Pandora Media Inc. – Demand for options covering Pandora, the online music company that went public in June, jumped after the company reported better-than-expected earnings of $0.02 a share for the second quarter. Pandora’s first earnings report since become a publicly traded company sent shares up as much as 11.5% to an intraday high of $13.90 as its top- and bottom-line results topped expectations. Despite the spike in the price of the underlying today, shares continue to trade at a substantial discount to its initial public offering price of $16.00. The positive earnings report spurred bulls to the options market, with notable volume building in September contract puts. It looks like one trader expecting Pandora’s shares to resist above $12.00 through expiration next month sold roughly 3,000 put options outright at the September $12 strike at a premium of $0.70 per contract. The put seller walks away with the full amount of premium at expiration as long as shares in Pandora exceed $12.00 and the options expire worthless. The short stance in Pandora puts suggests the trader may wind up having around 300,000 shares put to him at an effective price of $11.30 each at September expiration if the stock slips beneath $12.00 in the next three weeks. Options implied volatility on Pandora Media Inc. stand 29.2% lower post earnings at 82.54% this afternoon.
IYR - iShares Dow Jones US Real Estate Index Fund – A sizable put spread on the iShares Dow Jones U.S. Real Estate Index Fund yields maximum benefit to one bearish strategist if the price of the underlying drops substantially by the end of the year. Shares in the IYR, an exchange-traded fund that tracks the Dow Jones U.S. Real Estate Index, turned positive in the aftermath of…
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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...
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