Testy Tuesday - Things Start To Go Wrong
by Phil - December 8th, 2009 8:29 am
Over 100 people were killed by car bombs in Baghdad at about 3:30 this morning.
That got Europe off in a foul mood this morning and poor earnings guidance from MMM didn’t help, nor did poor Industrial Production numbers out of Germany or new fears that Dubai World will cause massive losses (Nakheel lost $3.65Bn in it’s first half report). Then Moody’s Investors Service said today deteriorating public finances in the U.S. and U.K. may “test the Aaa boundaries” while Fitch Ratings downgraded Greece’s credit grade to BBB+. Ben Bernanke told the Washington Economic Club yesterday that the U.S. economy faces “formidable headwinds” but, on the bright side Japan’s government backed a stimulus package worth 7.2 trillion yen ($81 billion).
Before we know it, futures are off 100 points at 7:30. Hopefully we don’t break below 10,320 at the open as we covered our long DIA puts to that spot, more worried about a bounce up than a market move in our generally bearish direction. We had a very nice day yesterday with our $100K Portfolio already making it’s target $1,000 for the week so locking in the gains seemed prudent but maybe we could have been greedier…
“Central banks and governments around the world are totally right in saying that the recovery is still very weak,” Philippe Gijsels, a senior structured product strategist at Fortis Global Markets in Brussels, said in an interview with Bloomberg Television. “Going into 2010 I would be extremely surprised if we do not see a serious hiccup somewhere.” German industrial output unexpectedly fell for the first time in three months in October, led by a drop in production of energy and investment goods such as machinery. Output decreased 1.8 percent from September, when it advanced 3.1 percent, the Economy Ministry in Berlin said today. Economists forecast a 1 percent gain, off by 280%, according to the median of 38 estimates by "expert" economists in a Bloomberg survey.
Moody’s fingers the U.S. and U.K. among top-rated sovereign borrowers, saying they must prove they can reduce their bulging deficits or risk a downgrade to their AAA credit ratings. Under its most pessimistic scenario, the U.S. could lose its rating in 2013 if economic growth lags, interest rates rise and the government fails to shrink the deficit or recover its loans to the financial sector.
Our 25% lines held yesterday, other than the NYSE, and this morning we should get a proper test of Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,200 and Russell 600…
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Monday Malicious Microbe Mania
by Phil - September 21st, 2009 8:29 am
Just when you thought it was safe to invest in Asia!
Today’s shocker came out of a World Health Organization meeting yesterday where officials estimate 20% to 30% of Asia’s population - or between 448 million and 672 million people will be infected by swine flu H1N1 this season. Hong Kong had their 15th death this weekend and eight more people are in critical condition. 492 new cases were confirmed over the weekend, bringing the official count in Hong Kong alone up to 22,054 infections. According to the WHO: "China may not be in a situation of what we call extensive local transmission, which Hong Kong is in now." Once it does happen, we can see a lot of severe cases."
It’s ironic that the G20s efforts to put lipstick on this pig of a global economy may all be derailed by a pig’s disease. Despite skipping testing and relaxing safety regulations (which will, of course lead to other problems) in order to get tens of millions of doses of vaccines out for mass-inoculation programs, the WHO estimates that China, at best, will be able to inoculate just 5% of the population (65M people). We went through our last major swine flu scare last April and, here at PSW, we turned it into a half-dozen very successful picks - so let’s look at a few more who should do well in this next round of the crisis:
- SVA is the primary vaccine maker in China and you can buy that stock for $8.88 and sell the Jan $7.50 puts and calls for $4.50, which is net $4.38 with a call away at $7.50 (up 71%) if they hold that level through Jan 15th and the break-even to the downside (where you would be assigned the puts) is $5.94, 33% lower than today’s price. I’m not one to jump on disaster plays usually but this one has pretty good odds.
- BCRX has Perimavir in late-stage trials and the FDA is considering a "pre-emergency use authorization review," of the drug, which would be great for BCRX if it goes through and bad if it doesn’t. As BCRX is already up a lot, the way I would play this one is buying the 2011 $10 calls for $4.10 and selling the 2011 $12.50 calls for $3.60, which is a net .50 entry with a 500% return if BCRX hits $12.50 in 15 months (now $10) and it shouldn’t cause too much damage (perhaps 30%) if things don’t work out and they fall…
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Canadian Energy Bulls Seek Call Options in Suncor
by Andrew Wilkinson - July 17th, 2009 4:24 pm
Today’s tickers: SU, EEM, IBM, AXP, MOS, GE, YHOO & MMM
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Monday Market Madness - Pandemic Edition!
by Phil - April 27th, 2009 8:13 am
It’s been a while since we had a flu scare.
We had avian flu a few years ago and the biotech stocks of companies that made vaccine went nuts for a while and then crashed when it turned out to be much ado about nothing. Of course before that was mad cow and that one devastated the beef and restaurant industry, especially in Europe where steak houses went bankrupt as people refused to eat meat so don’t underestimate how fast panic can spread and habits can change when people start dying. The pigs are getting a bad rap this time as this particular virus is a mix of swine, bird and human strains but logic doesn’t enter into these things and if the press is determined to label it "swine flu" then you bet that’s what the public will fixate on.
HRL is a big seller of pork products and could make a big breakdown if they can’t hold $30 but, rather than short them, I prefer to get in on a dip as these things do tend to pass. GSK makes a vaccine and is an obvious upside choice and they’ve been trading well off their highs so make a nice play either way. The June $30 puts can be sold naked for $2.17 and that’s a nice way to enter the stock (or get paid $2 NOT to buy it). Also buying the stock at $29.34 (which pays a 5.6% dividend) and selling the June $30 calls for $1.10 and the June $27.50 puts for $1.05 drops the net entry to $27.19 and an average entry of $27.35 if put to you, a nice discount to the current price (see "How to Buy a Stock for a 15-20% Discount" for details on this strategy). GSK 2011 $25 calls are also pretty cheap at $6.15 ($2 in premium) and we can sell calls against them on a nice run up, perhaps a 1/2 sale of June $30s at $2+ (now $1.10).
NVAX already got a huge pop on Friday when this story first spread and should continue to fly but that’s one of the ones we’re more likely to short as they get overextended. I think my other favorite upside play is MMM, who don’t make a vaccine but do make those blue masks that governments love to give out to make people feel like they’re doing something. It’s hard to get US…
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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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