Phuket Friday – Carnival of Madness
by Phil - December 16th, 2011 8:25 am
It’s party time!
A lot of investors have been saying "Phuket" lately and they can only be referring to the annual Patong Carnival in Thailand, where the tourist bureau wants you to know the tuberculosis outbreak is "under control." Actually, it’s an amazingly beautiful place with great people – must be why so many people keep mentioning it when starting at the markets this week…
As I mentioned yesterday, we had to flip bullish because our bearish bets were no fun and we felt that A) the bottom was a little forced in order for Timmy to peddle his T-Bills and B) that Santa Clause is coming to town. Actually, we had plenty of bearish bets from when the market was high so we needed the bullish bets to get BALANCE!
Balance was the theme of our virtual White Christmas Portfolio and we added another $3,615 in gains over the past two weeks to bring us very close to a triple at $42,925 off our $15,000 start back on November 21st. This is a very aggressive virtual portfolio where we are practicing the art of hit and run trading. The positions we closed in the last 9 sessions were bullish bets with FAS, XLF, FAS, DIA, GLD, XLF, FAS and XLF and bearish bets with GLL, TZA, FAS (spread), USO, DIA, TZA, DIA, DIA, DIA, DXD. See – BALANCE!
We thought the market would go up and down (I know, such a stretch!) and the markets did, in fact go up AND down with an AVERAGE swing of 1.5% PER DAY but, in the end, we’re still consolidating around our Must Hold lines and right back where we were at the last options expiration day of November 18th – causing almost all puts and calls sold to sucker a month ago to expire worthless. Isn’t it a funny coincidence how all that seems to work out for the Banksters?
As I reminded our Members, our cynical motto at PSW is "We don’t care IF the game is fixed, as long as we can figure out HOW the game is fixed and place our bets accordingly."
I don’t know how many times I need to tell you oil is a scam before you’ll believe me but it was way back on June first, when I laid out our plan to break the…
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by ilene - January 2nd, 2011 8:18 am
Here’s the latest Stock World Weekly Newsletter, New Year’s Edition.
Feedback welcome — please leave comments, we value your input. - Ilene
Picture credit: William Banzai7
For Stock World Weekly archives, click here.
One More Cup of Coffee Addendum
by Sabrient - October 21st, 2010 4:03 am
One More Cup of Coffee Addendum
By Scott Brown at Sabrient, Ilene at Phil’s Stock World, and special thanks to Sam Antar
Last night, we decided to replace the short in JOE, covered yesterday, with a short in GMCR for the DHH virtual portfolio. We noted:
There are many reasons that insiders may sell shares which have nothing to do with their perception of the company’s prospects or valuation. However, when a week after the last insider sale, the company discloses that the SEC is inquiring into the company’s methods for accounting for revenues, it starts to look more dark and mysterious. It is worth noting that Keurig accounted for over half of GMCR revenue last year, so when the President of Keurig is selling, it is worth a further look. When the SEC discloses an inquiry into the companies accounting it is worth more than a look. Multiple class-action lawsuits have been filed against GMCR since the announcement by the SEC, yet the stock has rebounded from a low of $26.87 to a close today of $31.31. Rumors of Nestle having interest in GMCR resurfaced on October 12, despite the SEC’s inquiry and pending class-action lawsuits.
To further examine our initial observation, we took a guided tour though the SEC filings, with Sam Antar, who specializes in reviewing SEC filings. The first thing we discovered on the SEC site was that the last date Michelle Stacy exercised 5000 options and then sold the stock for $37 was September 21, 2010. This transaction was reported in a Form 4 filing on Sept. 23, 2010.
Next, we looked at the most recent 8K Form filed and we found that the disclosure of the SEC inquiry occurred on September 28, 2010. However, notification of the SEC inquiry occurred eight days earlier, on September 20, 2010:
On September 20, 2010, the staff of the SEC’s Division of Enforcement informed the Company that it was conducting an inquiry and made a request for a voluntary production of documents and information. Based on the request, the Company believes the focus of the inquiry concerns certain revenue recognition practices and the Company’s relationship with one of its fulfillment vendors. The Company, at the direction of the audit committee of the Company’s board of directors, is cooperating fully with the SEC staff’s inquiry.
This information…
One More Cup of Coffee Addendum
by ilene - October 21st, 2010 3:41 am
One More Cup of Coffee Addendum
By Scott Brown at Sabrient, Ilene at Phil’s Stock World, and special thanks to Sam Antar
Last night, we decided to replace the short in JOE, covered yesterday, with a short in GMCR for the DHH virtual portfolio. We noted:
There are many reasons that insiders may sell shares which have nothing to do with their perception of the company’s prospects or valuation. However, when a week after the last insider sale, the company discloses that the SEC is inquiring into the company’s methods for accounting for revenues, it starts to look more dark and mysterious. It is worth noting that Keurig accounted for over half of GMCR revenue last year, so when the President of Keurig is selling, it is worth a further look. When the SEC discloses an inquiry into the companies accounting it is worth more than a look. Multiple class-action lawsuits have been filed against GMCR since the announcement by the SEC, yet the stock has rebounded from a low of $26.87 to a close today of $31.31. Rumors of Nestle having interest in GMCR resurfaced on October 12, despite the SEC’s inquiry and pending class-action lawsuits.
To further examine our initial observation, we took a guided tour though the SEC filings, with Sam Antar, who specializes in reviewing SEC filings. The first thing we discovered on the SEC site was that the last date Michelle Stacy exercised 5000 options and then sold the stock for $37 was September 21, 2010. This transaction was reported in a Form 4 filing on Sept. 23, 2010.
Next, we looked at the most recent 8K Form filed and we found that the disclosure of the SEC inquiry occurred on September 28, 2010. However, notification of the SEC inquiry occurred eight days earlier, on September 20, 2010:
On September 20, 2010, the staff of the SEC’s Division of Enforcement informed the Company that it was conducting an inquiry and made a request for a voluntary production of documents and information. Based on the request, the Company believes the focus of the inquiry concerns certain revenue recognition practices and the Company’s relationship with one of its fulfillment vendors. The Company, at the direction of the audit committee of the Company’s board of directors, is cooperating fully with the SEC staff’s inquiry.
This information…
The Big Boys Discover Options
by ilene - September 5th, 2010 4:04 pm
The Big Boys Discover Options
Other institutions follow Pimco in using puts and calls to battle stock-market risk. Global volatility leads to less reliance on modern portfolio theory.
IN THE RAREFIED WORLD OF endowments, pension funds and major asset- management companies, worries about risk are often quashed by modern portfolio theory.
The Nobel Prize-winning concept essentially contends that asset diversification alone is enough to reduce risk. Options, though designed for that very purpose, are historically viewed as an inelegant solution.
But the old biases could be fading, according to a study released last week by the Options Industry Council, an educational marketing group primarily funded by the options exchanges.
THE GYRATIONS in the global financial market seem to have upturned longstanding ideas in the investment community, including those about owning a variety of stocks or bonds to reduce investment risk. Even now, correlation is damaging many portfolios as different assets, including some stocks and bonds, increasingly trade like each other.
The OIC study suggests that the financial crisis has made endowments, pension funds and major asset managers more open to using options to reduce portfolio risk. This is a significant development. The common experience for derivatives salesmen traveling to Boston and other bastions of the money-management industry, is to be viewed by portfolio managers as people with two heads and one eye, trying to peddle exotic financial detritus.
JPMorgan, RBS, Barclays Charge Fees on ‘Black Box’ Reverse Convertibles that Exceed Maximum Yields
by ilene - June 25th, 2010 3:31 am
JPMorgan, RBS, Barclays Charge Fees on ‘Black Box’ Reverse Convertibles that Exceed Maximum Yields
Courtesy of Mish
Bloomberg reports Fees Exceed Maximum Yields on ‘Black Box’ Reverse Convertibles.
Royal Bank of Scotland Group Plc, JPMorgan Chase & Co. and Barclays Plc are charging fees on some structured notes that equal or exceed the securities’ highest possible yield, as sales of the opaque products draw scrutiny from regulators.
On June 15, RBS gave brokers a 2.75 percent commission to sell a three-month reverse-convertible note with a 2.56 percent potential yield, according to a prospectus. Last month, JPMorgan charged 5.25 percent in fees and commissions on a three-month Citigroup Inc.-linked note that paid 5 percent interest, and Barclays offered brokers a 2 percent commission on a security paying 2 percent interest, according to other prospectuses.
Reverse convertibles generally pay higher interest rates than corporate bonds, with last month’s notes yielding an average of 15.7 percent per year, Bloomberg data show. Their risk lies in so-called down-and-in put options built into the products that allow banks to repay buyers with shares if an underlying stock declines a certain amount. Investors in RBS’s note could lose money if Alcoa Inc. drops by more than 25 percent.
Down-and-in put options aren’t traded on exchanges, making them difficult to value without a computer model. The customized contracts are privately negotiated by banks and their clients in the $615 trillion over-the-counter derivatives market, where trades and prices aren’t reported publicly.
Investors in JPMorgan’s reverse convertibles, which pay 5 percent interest over three months, are exposed to losses if Citigroup declines more than 20 percent. JPMorgan collected a 5.25 percent fee for selling $784,000 of the securities on May 25, according to the prospectus. Barclays’ $1 million offering on May 10 is linked to the stock of Apple Inc., with the option triggered if shares drop more than 25 percent.
Undisclosed costs, such as a profit for the issuer, are generally included in the notes’ sale price, according to Finra. It is “all but impossible” for investors to determine the size of these costs or “whether the reverse convertible represents a good deal,” Finra said on its website.
“It’s pretty easy to build in extra fees because retail investors aren’t in a position to price the embedded options,” said Janet Tavakoli, founder of Chicago-based consulting firm Tavakoli Structured Finance, in a
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Did a Big Bet Help Trigger ‘Black Swan’ Stock Swoon?
by ilene - May 11th, 2010 3:39 pm
I wouldn’t call this a "black swan" event any more than Jon Stewart would call it a "perfect storm." Felix Salmon - it’s a silly theory – Nassim Taleb Didn’t Cause the Crash makes a better argument below. – Ilene
Did a Big Bet Help Trigger ‘Black Swan’ Stock Swoon?
By SCOTT PATTERSON And TOM LAURICELLA, WSJ
Shortly after 2:15 p.m. Eastern time on Thursday, hedge fund Universa Investments LP placed a big bet in the Chicago options trading pits that stocks would continue their sharp declines.
On any other day, this $7.5 million trade for 50,000 options contracts might have briefly hurt stock prices, though not caused much of a ripple. But coming on a day when all varieties of financial markets were deeply unsettled, the trade may have played a key role in the stock-market collapse just 20 minutes later.
The trade by Universa, a hedge fund advised by Nassim Taleb, author of "Black Swan: The Impact of the Highly Improbable," led traders on the other side of the transaction—including Barclays Capital, the brokerage arm of British bank Barclays PLC—to do their own selling to offset some of the risk, according to traders in Chicago.
Then, as the market fell, those declines are likely to have forced even more "hedging" sales, creating a tsunami of pressure that spread to nearly all parts of the market.
The tidal wave of selling fed into a market already on edge about the economy in Europe. As the selling spread, a blast of orders appears to have jarred the flow of data going into brokerage firms, such as Barclays Capital, according to people familiar with the matter…
Nassim Taleb Didn’t Cause the Crash
By Felix Salmon
Of all the silly theories about the cause of Thursday’s stock-market plunge, I’m not entirely sure why the WSJ has decided to give particular credence to the idea that it can all be traced back to a single $7.5 million trade for 50,000 options contracts. Lots of options trades of that size take place every day, and just because this one happened just before the market fell doesn’t mean it was the cause of the crash.
It’s becoming increasingly clear that the crash was fundamentally the fault of weak market structures, especially in the smaller electronic exchanges. It wasn’t a fat finger, it wasn’t cyberterrorism, it wasn’t the sale of 16 billion
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Gold Chart (GLD)
by Chart School - April 30th, 2010 11:35 am
GLD
Courtesy of Allan
I wrote to my subscribers last night about GLD; that it is on a fresh Buy on the Daily chart and is in Buy Pending mode on the Weekly chart. That longer-term Weekly Buy should be confirmed by today’s close. Below is a GLD 240 minute chart:
The most recent Buy on the chart came on April 20th at 111.93. With GLD up above 115 today, that is about a 3% rise from inception of the trade. Taking a look at the option tables, a 3% rise in near-term at the money calls translates into a pro-forma rise in the option of well over 100%, i.e. from about $2.07 to between $4.00 and $4.85:
That’s a healthy return for a ten-day period. But it has to be, as the trade has to make up for the previous whipsaw, where I suspect a loss on the option would be about 30%. Adding it all up, assuming that for any given two trades there is a 30% loss followed by a 100% gain, at the end of the year you are addicted to the trend models.
A lot of assumptions here, including pro-forma and/or hypothetical analysis. But the underlying trading paradigm is not assumed, it is real and based on this rear-view mirror option analysis, is a viable strategy going forward. Daily and Weekly models offer similar opportunity and I’ll eventually get around to posting this same kind of analysis for those time frames.
Allan’s newly launched newsletter, “Trend Following Trading Model,” goes with the trend-following trading system he’s been working on for years. Most trades last for weeks to months. Allan’s offering PSW readers a special 25% discount. Click here. For a more detailed introduction, read this introductory article. – Ilene
Pharmboy Takes On Lilly
by ilene - January 15th, 2010 1:50 pm
Here’s Pharmboy’s first stock and options recommendation for the new year, or decade. He’s generally bullish on Lilly and presents two strategies – a simple buy/write strategy and a slightly more complicated strategy which includes selling puts and calls. - Ilene
Pharmboy Takes On Lilly
Courtesy of Pharmboy
Another year has come and gone, 2010 (twenty ten or two thousand ten – which do you prefer?) is here. The market is great for some, and a baffling experience for others. One thing we do know is that we all need, at some point, health care in one form or another! This year, my write-ups may focus on longer term strategies so that we don’t have to manage our trades on a daily basis. This means a bit more depth in the analysis of companies we invest in, and perhaps some longer term picks.
So, here we go for Pharmboy’s first segment for a new decade!
Eli Lilly (LLY) – is a global pharmaceutical company and is a member of the Fortune 500. Its global headquarters is located in Indianapolis, Indiana. The company was founded in 1876 by a pharmaceutical chemist, Eli Lilly, after whom the company was ultimately named. The company’s first innovation was changing the flavorings of medicines so that they were easier to take. The business grew and in 2008, had of $20Billion.
Among the company’s major pharmaceutical breakthroughs are: cephalosporin (antibiotic), erythromycin (antibiotic), insulin, and fluoxetine (Prozac). Among other distinctions, Lilly is the world’s largest manufacturer and distributor of medications used in a broad range of psychiatric and mental health-related conditions, including clinical depression, generalized anxiety disorder, narcotic addiction, insomnia, bipolar disorder, schizophrenia, and others. Below is a list of their brands:
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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
(