Fickle Friday – Google Goes Down as Costs Inflate
by Phil - April 15th, 2011 8:19 am
Well who’d have thunk it?
The cost of doing business is rising and GOOG happens to be one of those businesses that lacks pricing power as their rates are generally set through an auction process and their users have to VOLUNTEER to pay more money to advertise. Most advertisers on Google are on fixed budgets, like MSM advertisers and Google has done a great job of replicating that model. Why then, should it be surprising if a maturing Google begins to look more like a traditional media outlet than a dot com company with exploding growth?
Don’t get me wrong, we love Google long-term but we did short them as well as BIDU into Google earnings as we felt Google would disappoint enough to spook BIDU investors as well. We’re taking the short money and running and looking for some bullish plays now – the drop from $630 last month to $545 today is plenty of froth blown off the top for us to get long-term interested again. As you can see from the tag cloud of the Conference Call, growth is still there, especially in mobile display ads (Android a bit disappointing) and no major negatives. I’m not going to write a whole thing about GOOG though, there are thousands of people doing that and our Members know well enough where I stand. I’m more interested in examining the bigger picture.
We expected Q1 earnings to be rough and we’ve already seen FDX, NKE, ORCL, RIMM, FAST, FCS and AA struggle so hopefully you don’t have to be hit on the head with another whole week of earnings before you get a little more cautious. Next week we hear from C, HAL, LLY, TXN, BK, GS, INTC, IBM, SYK, USB, VMW and YHOO on Monday and Tuesday and then we’re off to the races with hundreds of companies reporting each week for the rest of the month. Our job in the first few weeks of earnings season is to get a feel for the quarter and, so far, that feeling is rough.
It’s all about inflation, of course and don’t say we didn’t warn you about that one! We went more bearish up at those 100% lines we’ve been watching and now the question really is – how bad was it? Inflation is, after all, our long-term BULLISH premise. We don’t think corporations…
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DiggThe $25,000 Virtual Portfolio – Stepping Our Way to a 10-Bagger!
by Phil - January 31st, 2011 6:50 am
I can’t believe we’re doing this again!
Thanks to FINALLY getting out of the damned DIA Feb $122.75 puts at $5.15, we’re up to around $35,000 virtual Dollars on June 11th’s $10,000 Virtual Portfolio (and we ran through the preliminary results last Friday, where we also predicted "Alpha 2 says "Cliff Ahead"). As I said in yesterday’s post "once more into the breach, my friends" and we’re going to put our profits to work with the fairly ambitious goal of getting to $100,000 by December 31st.
This virtual portfolio will be available to Voyeur Members but trade ideas during chat will have their usual 1-hour delay. Premium members will get the trades with no delay and hopefully Matt will have a new system running that will allow Basic Members to see $25KP comments with no delay as well. New trade ideas and updates will be copied into the comment section of this post or, assuming I write one, the updates of this post. If you are not a Member yet, now is a good time to join. Check out the subscription page – Our EXAMPLE trade on C just closed up 200% and our ENP example returned 137% – not bad for free samples, right?
We didn’t play the $25KP this week but Monday’s DIA play in Member Chat was a good example of the kind of trades we’ll be looking for. The trade idea there was:
DIA $117.75 puts should give good bang for the buck at $1.06. If I had the new $25KP up and running I’d go for 10 with a DD at .86 and a stop at .76 for a $400 risk on the first trade.
As you can see from the chart below we didn’t get our chance to Double Down until Wednesday and there was a brief and scary dip Friday morning that touched our .76 level but, of course, my Friday morning Alert to Members went with 2 aggressively bearish plays (TZA and QID) so we were clearly not going to let a little flush scare us.
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This is why we AVOID hard stops! When you put in hard stops you will get triggered on spikes all the time. When you see that quick move in the opposite direction prior to a stock making its big move…
Smart Virtual Portfolio Management – The $25,000 Virtual Portfolio
by Phil - January 22nd, 2011 12:18 pm
Options Sage submits:
“Never risk what you do have and do need on what you don’t have and don’t need”
Smart virtual portfolio management is a world apart from conventional virtual portfolio management. While conventional virtual portfolio management offers generic guidelines to diversify capital, smart virtual portfolio management is tailored to your personal circumstances. We have, in the past had similar articles on managing $10,000, $100,000 and $1M Virtual Portfolios. This article is a variation of the $10,000 article in preparation for our new 2011 Member Virtual Portfolio with the goal of turning $25,000 in into $100,000 over the next 12 months. Phil is, of course, proposing an aggressive stance but, after turning $10,000 into over $30,000 in just 7 months in the prior virtual portfolio – let’s just say we are confident it can be done.
Although this article focuses on prudent strategies for a $25K virtual portfolio, many less conservative investors are likely to find the strategies addressed throughout suitable for their own virtual portfolios – though the % allocations will differ as we will see in Phil’s virtual exercise. No matter what your risk tolerance, a virtual portfolio comprising some relatively conservative trades is always prudent!
Phil once commented that, when trading a $10,000 virtual portfolio, “every $100 counts”!
Capital should be allocated judiciously in a small virtual portfolio. NEVER allocate a majority of your capital to any single trade. Dedicating 20% of your virtual portfolio to relatively conservative trades (shown below) is appropriate but exceeding 30% is far too risky when dealing with limited capital. With a $25K virtual portfolio, it becomes increasingly imperative to be right first time. Financial constraints limit your ability to scale into trades at different threshold levels and that makes timing critical unless….
Unless you figure out how to trade without requiring perfect timing of the market! Those of you trading along with Phil’s earnings spreads have already seen some of the ways we take advantage of stock movement, whether they go up, stay flat or even drop to some degree…
Strategy A: The Covered Call – With a Twist – Making 44% in Just 13 Weeks
Instead of placing the short call out-of-the-money in the conventional format, the short call is actually placed in-the-money.
C closed…
Freaky Friday – Alpha 2 Says “Cliff Ahead”
by Phil - January 21st, 2011 8:22 am
This is fun, right?
We had a nice opportunity to buy the F’ing dip yesterday as well as an interesting opportunity to test the prudishness of the hundreds or web sites that syndicate my articles as I saw every possible variation of "F’ing" popping up in titles that were pinged back to me. Social mores aside the move was so well telegraphed that we were able to take a non-greedy exit on our QID position – leaving us, thankfully, with just the DIA shorts in our $10,000 Virtual Portfolio. That means, we are going to be able to start our brand new $25,000-$100,000 Virtual Portfolio right on schedule next week.
We began "Turning $10,000 into $50,000 by January 21st" on June 11th and we’re not done yet but we’re well over $30,000 – even looking at our wrong-way (so far) short bet on the Dow. We could have killed that one yesterday as well but, as today’s title says – we just have to give the old Alpha 2 a chance to fully play out as we would just hate ourselves if we get get that 500-point drop in the Dow right after we bail on the shorts as that would be our $50K right there!
So up only 200% or so in 7 months is a failure but, to be fair, we did take a couple of months off as I didn’t like the market enough in October and November and we already had $26,000 so it didn’t seem worth risking 260% to make another 100%. In the final month, we decided to "go for it" but it was a messy way to make another 20% as our overall premise – that a drop was "right around the corner" simply did not pan out.
Frankly, looking back at the original 5 picks makes me want to cry as we could have just left those on the table and gone on vacation! They were:
- 10,000 YRCW at .21 (we doubled down at .11), now $3.76, up $35,500 (a Bazillion percent, I think but there was a reverse split…)
- 20 C Dec $3/4 bull call spreads at .62, closed at $1, up $760 (up 61%)
- 20 short C Dec $4 puts at $1.08, close at $0, up $2,160 (up 100%)
- 20 TASR Jan $5/7.50 bull call spreads for .35, now $0, down $700 (down 100%)
- 10
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Secret Santa’s Inflation Hedges for 2011
by Phil - December 25th, 2010 4:30 am
Merry Christmas!
I hope you got everything you wanted this holiday season and, most importantly, I hope you had time to spend with your family. I’m waiting for mine to wake up – waiting for my children to come out of their rooms so I can videotape (gosh I’m old, there’s no tape anymore) them in those first moments of Christmas morning – how can I not be of good cheer anticipating that?
It occurred to me, though, that I have something I can give you. Not peace on earth but perhaps peace of mind heading into the New Year – a way to help insure some future prosperity with a few inflation-fighting stock picks that can brighten up your virtual portfolio, which also can be used to help balance the budget against unexpected cost increases.
This isn’t an options seminar or one about risk or leverage – these are just a few practical ideas you can use to hedge against inflation as it may affect your everyday life using basic industry ETFs and some simple hedging strategies to give you an opportunity to stay ahead of the markets if they keep going higher.
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Idea #1 – Hedging for Home Price Inflation
Let’s say you have $20,000 put aside for a deposit on a home but you’re not sure it’s the right time to buy. On the other hand, let’s say you are worried that home prices will take off again (I doubt this but you never know). XHB is the homebuilder’s ETF, currently at $17.46 and they bottomed out at $7.77 in 2009 and were in the $40s back in 2006.
You can sell 20 contracts of the XHB 2013 $14 puts for $1.70 each ($3,400) and that obligates you to buy 2,000 shares of XHB at $14 (20% off the current price) and you can use that money to buy 30 2013 $15/18 bull call spreads for $1.40 ($4,200) so another $800 out of pocket and you have 30 $3 contracts for net $800 that pay back $9,000 if XHB simply gains .54 by Jan 2013. These bull call spreads, however, do not pay off early – the ETF needs to be above $18 at Jan 2013 options expiration day (the 18th).
So you are putting up $800 in cash and the margin requirement on the sale will be roughly $7,000 (1/2 of the potentially…
Thoughtful Thursday – The True Meaning of Christmas
by Phil - December 23rd, 2010 8:19 am
Why it’s almost Christmas Eve, Mr. Scrooge!
The Global markets are closing for the weekend and we’re bound to have a very slow day – if you are waiting for a Santa Clause rally on today’s trading, you are very likely to be disappointed. Today is a day for relaxation and reflection. Remember, the words of Jacob Marley, who said:
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" after you’re gone.
I was inspired this morning by a post on Barry’s site titled "Give and You Will Receive" listing 13 good ways we can all give every day. ’Tis the season of giving and goodwill to all man and all that and my children just completed their annual ritual of wrapping up all the toys they are done with to give to children who need them more than they do. It’s a little thing, but if you want your kids to learn the benefits of charity, actually parting with things they like or liked and physically giving them to kids who clearly appreciate it is much more gratifying than writing a check to some anonymous organization. The same goes for volunteering some time (and money!) at a local shelter and helping some people come in from the cold for a nice, warm meal – it makes you appreciate your family dinner a LOT more!
Anyway, end of commercial. Let’s just see who’s being naughty and who’s being nice this morning. We have quite a bit of data today with November Durable Goods at 8:30 (which have been tailing off) along with Personal Income and Spending. 2010 has NOT been an exciting year so far with monthly gains of about 0.4% but, on the bright side, there were only small negative months but this report only covers November and will not…
Trillion Dollar Tuesday – More Free Money!!!
by Phil - December 7th, 2010 8:29 am
Thank you Republicans!
The party of fiscal responsibility has strong-armed the President and what little is left on the Democrats in Congress to extend the Bush Tax cuts for another two years at a cost of "just" $830Bn to the little people who still have to pay taxes. They accomplished this by allowing the Democrats to extend $56Bn of additional unemployment relief to the 2M families who were cut off on Friday and were about to go their first week without checks with just 17 shopping days left until Christmas. Of course, the Democrats don’t just bend, they BREAK and the Republicans also got a 30% reduction in the estate taxes that are projected to cost an additional $66Bn to the people who don’t have $5M estates. Merry Christmas, rich folks – Lloyd bless us, everyone!
"But Phil," you may ask "who actually does pay taxes?" When your deficit is about as high as your net collections – the answer is: No one really – or no anyone who matters, anyway. As I’ve often told you, our Corporate Overlords actually pay just 2.4% of our GDP in taxes, just $138Bn last year which was less than the $6Tn in bailouts they collected by a factor of 43 – no wonder they are doing so well! As you can see from the chart, Estate and Excise taxes are barely a point on the graph and Individual income taxes are barely 6% while Employment Taxes have jumped from 1.5% of GDP in 1950 to 7.5% today – that’s a 400% increase but don’t worry, it only affects your first $106,800 in income – after that, ZERO! That way, if you earn $1M, the jump in payroll taxes from $1,250 to $6,250 is just 0.5% of your income vs the 5% increase borne by a person earning $100,000 or less.
Imagine if all 140M US workers were given an even $6,000 break ($840Bn divided by 140M) on their take-home pay by just eliminating those SS deductions (it’s not like they’ll ever get that money back anyway)? Why everyone would immediately be taking home $500 more per month. Of course we know that the poor people would only "waste" it on food, shelter and clothing so our wise government has guided the bailout to the places it will do the most good, with $670Bn going to the top 5% and $160Bn…
Impending Q3 Earnings Report Spurs Demand for Viacom Options
by Option Review - November 10th, 2010 4:22 pm
Today’s tickers: VIA B, BJ, MRK, EEM, PETM & C
VIA B - Viacom, Inc. Class B – Options on the global entertainment content company are active ahead of the release of the firm’s third-quarter earnings report before the opening bell tomorrow. Investors are establishing both bullish and bearish positions on Viacom using near-term put and call options. Viacom’s shares are currently up 0.15% at $38.09 with just fewer than thirty minutes remaining in the trading session. Traders fearing the price of the underlying stock could fall following earnings initiated bear put spreads. Put players picked up approximately 3,000 in-the-money puts at the November $38 strike for an average premium of $0.77 each, and sold about the same number of puts at the lower November $36 strike for an average premium of $0.14 a-pop. Average net premium required to purchase the spread amounts to $0.63 per contract. Thus, investors are prepared to profit, or realize downside protection, in the event that shares in Viacom fall 1.9% from the current price of $38.09 to breach the average breakeven point at $37.37 by expiration day. Maximum potential profits of $1.37 per contract are available if VIA’s shares plunge 5.5% lower to trade below $36.00 by November expiration. Meanwhile, investors taking bullish stances ahead of earnings looked to the November $39 strike to purchase approximately 1,600 calls for an average premium of $0.32 per contract. Call buyers profit if Viacom’s shares rally 3.2% to surpass the average breakeven price of $39.32 by expiration day.
BJ - BJ’s Wholesale Club, Inc. – Reports that the warehouse club operator is considering hiring an advisor to review options including a potential sale to a leveraged-buyout firm in a deal that could net as much as $3 billion sent shares flying higher today and drew speculators to the…
Testy Tuesday – 7.5% or Bust!
by Phil - October 19th, 2010 8:28 am
Wheee, this is fun!
Will our 7.5% lines hold? As I mentioned yesterday, we expected a test of our 7.5% lines at Dow 10,950, S&P 1,160, Nasdaq 2,400, NYSE 7,450 and Russell 690 and we remain TECHNICALLY bullish if we hold them. The Dollar was doing well until about 3am this morning but then turned down sharply – some sort of rumor is driving the market and, of course, heading into the G20 pretty much any comment made by any Central Banking official is blown way out of proportion.
China is likely to raise rates today, making a small concession to the US on their exchange rates but more so to cool off the massive property bubble that is forming in their cities. That may put some downward pressure on commodities without strengthening the dollar – an interesting combo, but one that illustrates how China is becoming more important in the Global marketplace than the US.
If China is raising their lending rate to 5.56% and their deposit rate to 2.5%, they risk attracting even more money, including a reverse carry-trade from the US, when money can be borrowed from the Fed at 0.25% and lent to China for 2.5% giving the trader a 2.25% profit for the year. 2.25% may not sound that sexy, but when it’s done by Investment Banks and other investors who can lever their money 10:1, that’s a 22.5% on their cash. This is how Japan has supported their economy for two decades but it’s hard to imagine what will happen if the US Dollar, which makes up 62% of all money on the planet, starts flowing out of the country in even faster quantities.
We were just discussing investing in foreign countries in Member chat and I warned that this may not be the best time to make that kind of move as the dollar is very possibly bottoming here and transferring US Dollars to another currency risks hitting a reversal that wipes out any interest gains and possibly even some the principal as the Dollar rebounds and you find yourself in the wrong currency at the wrong time.
I guess I should talk about AAPL although we’ve already discussed it in depth in Member Chat but they do seem to have had some kind of earnings and, although very nice – expectations were already a bit high so they…
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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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