Monday Market Momentum – Down is the New Up
by Phil - September 5th, 2011 7:54 am
Thank goodness the US is closed!
Europe is down a whopping 3.5% (so far) this morning, opening in free fall after Asia opened down about 2% on the average (but finishing at the day’s lows). Gold flew up to $1,906 before calming down but oil is down to $84.82 at 6:45 am as the Dollar tests it’s highs of 75.15 on the Euro’s fall to $1.41 and the Pound testing $1.61. Any thoughts that the BOJ was done manipulating the Yen are now officially out the window as the Dollar/Yen is STILL 76.80 (around 128.50 on FXY), the same place it’s been since August 8th!
When the World’s 3rd largest economy is manipulating it’s currency on a daily basis, of course the Global markets are going to be thrown into chaos. Every day the BOJ tries to debase their currency they must buy other currencies or foreign stocks or gold or silver or oil – ANYTHING BUT YEN to make the Yen less valuable as compared to another relative basis.
Even so, it’s not working and Japan’s new finance minister said this morning that he will try to forge a consensus among the Group of Seven leading industrialized countries that "excessive yen rises" won’t benefit the world economy when finance officials meet in France later this week. "I am hoping to see us develop a common view that excessive yen rises, as shown by facts and processes in the past, do not necessarily have a positive impact on the global economy," Mr. Azumi told reporters, referring to Friday’s planned meeting of G-7 finance ministers and central bank chiefs in Marseille, France. "At this exchange rate, it is becoming impossible for crucial parts of Japan’s export industry to make profits," he said.
Asian shares were already following US financials downhill on overblown fears of the FHFA lawsuit (see FHFA Friday). I say overblown because the first bank sued, ING, already settled for .20 on the Dollar so banks are reacting as if they already lost $30Bn when it’s much more likely this will all get washed away for $6Bn, or about 2 day’s worth of profits (4%). We’ve already seen the banking community write down over $1Tn in losses and survive to screw us over another day – do we really think this little wrist-slap will end them or is this just another example of retail suckers…
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DiggBank of America Bear Cleans Up
by Option Review - May 28th, 2010 5:41 pm
Today’s tickers: BAC, FXY, VALE, ATPG, CAT, EBAY, CSCO, KG, NE & AGN
BAC – Bank of America Corp. – Activity in out-of-the-money call options on Bank of America in the first half of the trading session appears to be the work of an investor taking profits on the closing purchase of a previously established bearish short call position. BAC’s shares surrendered 1.85% today to stand at $15.88 as of 2:45 pm (ET). It looks like the investor originally sold 20,500 calls at the November $24 strike for an average premium of $0.37 per contract back on April 28, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $17.73 each. In the past four weeks since the initial sale of the calls, Bank of America’s shares declined 12.12% down to the current price of $15.88. The call seller was properly positioned to benefit from share price erosion, and today was able to buy back the same call options for just $0.10 apiece. Thus, the closing purchase of the calls yields net profits of $0.27 per contract to the responsible party.
FXY – CurrencyShares Japanese Yen Index Fund – A sizeable debit call spread enacted on the FXY, an exchange-traded fund designed to reflect the price of the Japanese Yen, indicates one options strategist is expecting shares of the underlying fund to rally sharply by expiration in January 2011. Shares of the fund are currently up 0.18% at $109.14 as of 1:52 pm (ET). The investor purchased 8,709 calls at the January 2011 $110 strike for a premium of $4.40 apiece, and sold the same number of calls at the higher January 2011 $125 strike for $1.00 in premium each. The net cost of the transaction amounts to $3.40 per contract, thus dictating a breakeven price – above which profits start to accumulate – of $113.40. Shares of the FXY must rally at least 3.90% from the current value of $109.14 before the responsible party starts to make money. Maximum potential profits of $11.60 per contract are available to the spread trader if shares jump 14.53% from the current value of the fund to $125.00 in the next eight months to expiration. It does not appear the fund’s share price has ever exceeded the current 52-week high of $115.40, attained back on November 30, 2009.
VALE – Vale S.A. – Shares of the world’s largest…
Yen ETF Options Play Suggests Eternally Cheaper Currency
by Phil - January 8th, 2010 4:24 pm
Today’s tickers: FXY, EEM, PEP, TEVA, TIF, UPS & X
FXY – Japanese Yen Shares – The exchange-traded fund, which seeks to mirror the price of the Japanese Yen, is trading more than 0.50% higher today to stand at $107.12 in the aftermath of employment data undermining the U.S. dollar. Options activity in the March contract this morning suggests the price of the Yen may decline in the next couple of months. One Yen-bear sold call options in the March contract in order to finance the purchase of a put spread. The investor sold 10,000 calls at the March $110 strike for a premium of $1.20 per contract. The put spread involved the purchase of 10,000 puts at the March $105 strike for a premium of $1.70 each, marked against the sale of the same number of puts at the lower March $100 strike for $0.40 apiece. The net cost of the three-legged combination trade amounts to just $0.10 per contract for the investor. Thus, from a pure options standpoint (assuming no underlying position in shares), the investor stands to accumulate maximum potential profits of $4.90 per contract in the event that shares of the FXY plummet to $100.00 by expiration in March. FXY’s share price must decline 2% to $104.90 before the trader breaks even on today’s transaction.
EEM – iShares MSCI Emerging Markets Index Fund – Shares of the emerging markets exchange-traded fund are up less than 0.50% today to $43.01. Near-term pessimistic sentiment clouded the February contract as one investor initiated a ratio put spread on the fund. It appears the trader purchased 5,000 puts at the February $40 strike for an average premium of $0.69 apiece, marked against the sale of 10,000 puts at the lower February $35 strike for roughly $0.17 each. The ratio spread results in a net cost of $0.35 per contract. The investor responsible for the spread is likely holding a long position in the underlying stock. In such a case, the value of the share position is protected if EEM’s shares decline 8.5% from the current price and breach the effective breakeven point at $39.65 by expiration next month.
PEP – PepsiCo, Inc. – Global beverage, snack and food company, PepsiCo, received an upgrade to ‘buy’ from ‘hold’ at Edward Jones today despite slight share price declines of less than 0.50% to $60.76. Bullish investors initiated a couple of different strategies…
Stock Market Crash – Year One in Review – The Gathering Storm
by Phil - September 7th, 2009 7:13 am
Happy anniversary market crash!
One year ago, in September, the market started falling in earnest. A lot of people were caught by surprise by that drop as many thought we had just had a major correction and the worst was over. We had bounced off 10,800 on July 14th and had made it all the way back to touch 12,000 on August 14th but that day I warned my members in the morning post:
We’re really through the looking glass when you see investors stampede right back into oil and other commodity stocks at the first sign of a bounce off a 20% drop. I guess they’ve never seen a pullback off 20% before so it makes sense that Cramer would hit the BUYBUYBUY button on anything that smells like crude. I wish I had access to the tapes of all these same idiots telling you to BUYBUYBUY housing stocks and mortgage companies when they made their first bounce on the way to 80% losses.
It’s not just oil that is expensive, now it has to compete for consumer dollars with food and airline fares and tobacco prices and consumer goods etc. Oil was able to bubble up because people were enjoying a robust economy and it was the ONLY thing that was rising out of control. Metals began to follow it as that didn’t affect the average person but then companies had to start passing on the increased costs and the banks stopped lending money and the consumers were forced to stop using their home’s equity (if there was any left) like a piggy bank and *poof,* suddenly there isn’t enough money for oil. This isn’t going to change because there’ s a hurricane or a shut down pipeline or anything else.
Oil was trading at a still ridiculous $115 a barrel that day, down from $147 on July 1st but still choking the life out of the economy. We were very bearish on oil and natural gas ($14 at the time) as the fundamentals simply didn’t support the price of oil at $115 as much as they didn’t support $147 a month earlier. I had gone negative on oil too early though, as we thought $120 was surely the top back in May. Sometimes fundamentals can get you too ahead of the market. Our man Ben was between a rock and a hard place as he HAD to do something to…
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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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