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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DiggShort-Term Bullish Bets Mount As Las Vegas Sands Extends Rally
by Option Review - January 25th, 2012 2:18 pm
Today’s tickers: LVS, S & PG
LVS - Las Vegas Sands Corp. – Weekly call options on the casino operator continue to see heavy action as shares in Las Vegas Sands extend their sharp run to the upside. The stock is up more than 12.0% year-to-date and some options traders are positioning for the momentum to continue, abandoning concerns that slowing growth in China may curtail activity in Macao. Optimism the Chinese New Year will boost revenues in the Asian gambling hub is also helping the stock’s fast-and-furious drive toward the February 3, 2011, 52-week high of $50.65. Shares are currently up 2.9% on the day to arrive at $49.31 as of 1:30 p.m. in New York. Traders exchanged more than 3,200 now in-the-money calls at the Jan. ’27 $49 strike, with much of the volume generated by buyers shelling out an average premium of $0.43 per contract. Investors long the $49 strike calls may walk away with profits at week’s end as long as shares in LVS exceed the average breakeven price of $49.43. Bullish positioning spread to the higher Jan. ’27 $50 strike where more than 1,300 calls were purchased at an average premium of $0.17 apiece. Weekly call buyers profit if shares in the owner of casino resorts extend gains heading into the weekend, but are not exposed to the reaction of shares following Las Vegas Sands Corp.’s earnings release next Thursday.
S - Sprint Nextel Corp. – Big prints in Sprint puts made the wireless communications company one of the most active names by options volume today. Shares in the wireless provider are down 1.4% at $2.14 in early-afternoon trade, hovering just four pennies above the October 10, 2011, multi-year low of $2.10. Options volume on Sprint Nextel…
Tuesday – Topping Out or Just Pinning the Fed?
by Phil - January 24th, 2012 8:26 am
Tough call today.
The Dollar bounced off 79.75 this morning, nothing to crow about for Dollar bulls as the Euro remains just over the critical $1.30 mark and the Pound is solidly over $1.55 for the moment.
You could say it's a bearish sign that the Dow and the NYSE stopped dead at our breakout levels but that's to be expected on a first attempt at breaking out – even if they have already attempted the same move back in late October, when the Dow was 5% lower in it's test and the NYSE was testing the same line (7,866).
Our broadest market index is the one that's holding everyone back as what little volume there has been in this rally has been fairly narrowly focused on certain leaders. Now a pessimist might say that this is a reflection of the blatant manipulation of the indexes in which certain Banksters place buys on stocks that have disproportionate positive effects on the junior indexes in order to fool retail traders into believing there is a rally while the Banksters drive the VIX down to multi-year lows, dump all their stocks on the bagholders and prepare to cash in by crashing the markets on a major event like tomorrow's FOMC Rate Decision which is, in fact, very unlikely to have any language specific to the QE3 that has been promised by the MSM since Thanksgiving.
An optimist would say – well, you can read almost any MSM site for that. It's lonely at the top of the range when you are bearish, one by one the other bears capitulate and soon you are there all by yourself with your shorts – your lovely, lovely, cheap shorts! The Dow shot up yesterday to just over the 12,749 breakout line we have as the tippy top of the range on our Big Chart so of course I called for DIA puts in Member Chat. The DIA Feb $123 puts, which came in around .75 and finished the day not much higher at .78 after topping out at .95. Ranges usually hold – if you're not going to have conviction at the very top of a range to short – when will you? For one thing – you have a very good stop line to watch!
As noted by Dave Fry in his SPY chart, the bulls have engineered their golden cross…
Options Feeding Frenzy Gains Momentum as Shares in Ford Motor Co. Hit 8-Year High
by Option Review - November 15th, 2010 4:50 pm
Today’s tickers: F, ALU, WMB, TLCR, PG & LNG
F - Ford Motor Co. – The automaker’s shares jumped 6.80% during the session to an intraday high of $17.41, the highest recorded share price for Ford Motor Co. since June 3, 2002. Options on Ford are extremely well trafficked today with shares surging to new heights and the market eagerly awaiting rival General Motors Company’s public stock offering. More than 2.2 call options are changing hands on the stock for each single put in play out of the more than 704,650 contracts exchanged on the automobile maker as of 3:45 pm in New York. Nearer-term call options are the most active, with volume in November $17 strike calls exceeding 70,800 lots ahead of the closing, bell versus previously existing open interest of 45,757 contracts at that strike. The majority of those in-the-money call options were purchased for an average premium of $0.46 apiece. Call buyers at this strike make money if Ford’s shares exceed $17.46 ahead of expiration on Friday. Buying interest spread all the way up to the sky-high November $20 and $21 strikes. More than 5,000 of the November $20 strike calls were picked up for an average premium of $0.03 a-pop. The premium on these contracts will continue to rise as long as Ford’s shares head higher in the next 4 trading sessions, and may provide call buyers the opportunity to bank handsome profits ahead of expiration day. The December $20 strike calls were even more popular, with some 17,000 lots purchased at an average premium of $0.15 each. Bullish players were also seen selling in- and out-of-the-money put options across multiple expiries. Near-term November $16 strike puts were the most heavily populated as upwards of 53,250 contracts changed hands by 3:50 pm. Strong demand for the automaker’s option contracts, GM’s impending IPO and the sharp shift in Ford’s share price today helped lift the overall reading of options implied volatility on the stock 9.4% to 45.92% late in the…
Bulls Bulk Up On DryShips Call Options
by Option Review - September 27th, 2010 4:07 pm
Today’s tickers: DRYS, PG, LCC, MHP, GDX, AMR, AMGN & GMCR
DRYS – DryShips, Inc. – A number of options players boarded the DryShips, Inc. bullish bandwagon this afternoon after the dry bulk carrier was upgraded to ‘equal-weight’ from ‘underweight’ and given a target share price of $5.50 at Morgan Stanley. DryShips’ shares jumped 9.95% in the second half of the trading day to touch an intraday high of $4.53. In- and out-of-the-money call options on the shipping firm were in high demand, particularly in the October and November contracts. Traders scooped up some 2,300 in-the-money calls at the October $4.0 strike for an average premium of $0.45 each. Optimists also picked up roughly 6,700 calls at the higher October $5.0 strike by shelling out an average premium of $0.05 apiece. DRYS’ shares would need to rally another 11.5% over today’s high of $4.53 in order for October $5.0 strike call buyers to make money above the average breakeven point at $5.05 by October expiration. Bulls looked to the November $5.0 strike to take ownership of some 4,000 call options at an average premium of $0.14 a-pop. Investors long the calls are prepared to profit should the price of the underlying stock increase another 13.5% in the next couple months to trade above $5.14 by November expiration. Options implied volatility on DryShips surged 10.9% to 48.14% by 3:40 pm ET.
PG – Procter & Gamble Co. – Shares of the consumer goods manufacturer edged 0.60% lower this afternoon to trade at $61.26 with 30 minutes remaining in the trading session. One pessimistic player appears to be building up downside protection on the stock through expiration in January 2012. The investor initiated a ratio put spread, buying 2,000 puts at the January 2012 $60 strike for a premium of $6.00 each, and selling 4,000 puts at the lower January 2012 $45 strike at a premium of $1.80 apiece. The net cost of the transaction amounts to $2.40 per contract. Thus, the investor starts to make money – or realize downside protection on a long position in shares – if the price of the underlying stock falls 6.00% to slip beneath the effective breakeven price of $57.60 by expiration day. Maximum potential profits of $12.60 per contract are available to the trader, but require PG’s shares to collapse down to $45.00. Options implied volatility on PG is up 7.3% at 14.78% as…
Frenzied Options Activity Observed on Transocean Ahead of Earnings
by Option Review - August 4th, 2010 5:02 pm
Today’s tickers: RIG, BKS, GPS, HIG, CX, GENZ, ENP & PG
RIG – Transocean, Ltd. – Shares of the provider of offshore contract drilling services are up 6.75% to stand at $53.79 with 20 minutes remaining before the closing bell. Transocean is scheduled to reveal its performance for the second quarter of 2010 after the market closes today. Impending earnings inspired a flurry of options activity on the stock in afternoon trading. Investors are making good use of RIG’s weekly options pre-earnings, placing both bullish and bearish bets by exchanging calls and puts. Optimists hoping to see Transocean shares extend gains through weekly-expiration on Friday purchased roughly 3,200 calls at the August $55 strike for an average premium of $0.74 each. Buying interest spread to the higher August $60 strike where approximately 1,000 calls were coveted at an average premium of $0.08 apiece. A strong earnings report and continued rally in RIG’s shares will benefit traders making bullish wagers today. On the flip side, some investors are hedging possible disappointing earnings and subsequent share price erosion. Put players picked up roughly 2,500 puts at the August $52.5 strike for an average premium of $0.96 each. These contracts, which expire on Friday, yield profits – or downside protection – to investors should Transocean’s shares decline 4.2% from the current price of $53.79 to breach the average breakeven point on the downside at $51.54 by expiration. Calls expiring on August 20 were also heavily traded ahead of earnings. Trading traffic is heaviest at the August $55 strike where more than 11,500 contracts changed hands by 3:50 pm ET. Overall, options players exchanged roughly 1.65 calls for each single put traded on the stock today.
BKS – Barnes & Noble, Inc. – The bookseller’s shares surged 24.9% at the start of the trading session to an intraday high of $16.04 on news the retailer willing to consider offers from others to buy the company and its 720 outlets. Shares cooled slightly by 3:20 pm ET, but are still up 18.85% on the day to arrive at $15.26 ahead of the final bell. The U.S. bookseller was upgraded two levels to ‘neutral’ from ‘sell’ at Goldman Sachs. Options traders hoping to see Barnes & Noble’s shares continue higher ahead of expiration next month purchased roughly 1,000 calls at the September $18 strike for an average premium of $0.47 apiece. Call buyers make money…
Appetite for Options on YUM! Brands, Inc. Grows Ahead of Earnings
by Option Review - July 12th, 2010 4:44 pm
Today’s tickers: YUM, INTC, CBRL, CASY, RMD, PG & STEC
YUM – YUM! Brands, Inc. – Traders are placing bullish and bearish bets on the operator of KFC, Pizza Hut and Taco Bell ahead of the firm’s second-quarter earnings report slated for release after the closing bell on Tuesday afternoon. YUM’s shares are up 0.97% to stand at $40.66 with 35 minutes remaining in the trading day. The overall reading of options implied volatility jumped 21.8% to 33.38% this afternoon as investors anxiously await the firm’s earnings for the second quarter. Some investors are preparing for a rally following earnings and ahead of July expiration. These optimistic individuals picked up at least 1,300 now in-the-money calls at the July $40 strike for an average premium of $1.13 apiece. Investors long the calls make money if YUM’s shares increase 1.15% to trade above the effective breakeven price of $41.13 by expiration on Friday. Bullish sentiment spread to the higher July $41 strike where 1,000 calls were purchased at an average premium of $0.57 a-pop. Traders long the higher-strike call options stand ready to accrue profits should YUM! Brands’ shares rally 2.2% to surpass the average breakeven price of $41.57 by expiration day. In contrast to the bullish behavior observed, pessimistic players purchased put options on the stock to position for disappointing second-quarter earnings from the firm. Bears bought approximately 4,900 puts at the July $40 strike for an average premium of $0.95 per contract. Put buyers make money if YUM’s shares decline 3.95% from the current price of $40.66 to breach the average breakeven point to the downside at $39.05 by July expiration.
INTC – Intel Corp. – Options investors are hard at work populating the chip maker with various trading strategies ahead of Intel’s second-quarter earnings report scheduled for release after the closing bell tomorrow. Thus far in the session more than 144,700 option contracts have changed hands on INTC with investors exchanging 2 call options on the stock for each single put option in play today. The semiconductor manufacturer’s shares are currently up 1.40% to stand at $20.53 as of 3:10 pm (ET). One options trader expecting Intel’s shares to remain range-bound through expiration in January 2012 opted to sell a strangle in the first half of the trading session. It looks like the investor sold 5,000 calls at the January 2012 $25 strike for a premium of $1.54…
Investor Optimism Apparent in Yahoo! Options Action
by Option Review - July 8th, 2010 5:59 pm
Today’s tickers: YHOO, PG, MWW, PWER, IYR, HRB, ANF, CSC & EWH
YHOO – Yahoo!, Inc. – The online media company made an appearance on our ‘most active by options volume’ market scanner after one investor initiated a long-term bullish stance on the stock. Yahoo’s shares increased 1.10% to stand at $14.56 by 3:05 pm (ET). Optimism on the operator of one of the most heavily trafficked Internet destinations was perhaps inspired by words from the firm’s CFO, Tim Morse, who intends to end the company’s pattern of poor M&A decisions. Morse addressed Yahoo’s history of overpaying for acquisitions and later selling those assets at a disadvantageous price by announcing plans to improve the company’s return on invested capital to 18% to 24% in 2013 from approximately 5% in 2009. One optimistic options trader opted to purchase a plain-vanilla debit call spread on Yahoo! in order to position for share price appreciation through expiration in January 2011. The investor picked up 5,000 in-the-money calls at the January 2011 $14 strike for a premium of $1.92 apiece, and sold the same number of calls at the higher January 2011 $17.5 strike for a premium of $0.58 each. Net premium paid to establish the spread amounts to $1.34 per contract. Thus, the bullish trader makes money if Yahoo’s shares rally 5.35% to trade above the effective breakeven point on the spread at $15.34 by expiration day in January 2011. The investor exits with maximum potential profits of $2.16 per contract if the online media company’s shares surge 20.2% over the current price of $14.56 to trade above $17.50 by expiration.
PG – The Proctor & Gamble Co. – Investor demand for call options on the global provider of branded packaged consumer goods surged during afternoon trading with options participants exchanging more than 4.4 calls on the stock to each single put option in play thus far in the session. PG’s shares rallied 1.7% to $61.85 by 3:30 pm (ET). It looks like bullish players expecting Proctor & Gamble’s shares to trade at a new 52-week high by August expiration purchased at least 17,900 calls options at the August $65 strike for an average premium of $0.21 per contract. Call buyers are poised to profit should shares of the underlying stock jump 5.4%, surpass the stock’s current 52-week high of $64.10, and trade above the average breakeven price of $65.21 by August expiration.…
The Worst-Case Scenario: Getting Real With Global GDP!
by Phil - June 6th, 2010 8:27 am
$10,500.
That is the per capita average GDP for the 6Bn ape-like creatures on this planet who have pockets and purses. Of the still hairy and pocketless apes, there are only about 1M left and they are mainly prisoners so we won’t be worrying about them but it would be nice to consider the plight of our ancestors once in a while… Anyway, so 6Bn of us fill in those last 3 images in the planetary labor pool with the vast majority of us STILL FARMING and, of course, a select group of us are still hunting and gathering and contributing very little to the GDP.
None of our problems are new – as noted in this 2005 cartoon:
The United States of America with it’s highly evolved population of shopoholics has a per capita GDP of $46,381 – VERY IMPRESSIVE but we rank 6th! Brunei does a little better than we do and Singapore is up at $50,523 (so let’s hear it for corporal punishment) and Norway (one of my top choices of countries to flee to when it all hits the fan) is at $52,561 but Luxembourgh ($78,395 – banking) and Qatar ($83,841 – oil) simply trounce us in earnings power per person. For those of you who like to think Capitalism is all about keeping score – they must be better than you because they make more money, right?
Below the US, per capita GDP drops off fairly quickly. Rounding out the top 10 are Switzerland ($43,007 – watches and more bankers), Hong Kong ($42,748 – don’t tell China!), Netherlands ($39,938 – legal drugs!), Ireland ($39,468 – free beer when on wellfare!) and Australia ($38,911 – beer comes in oil cans plus gigantic bouncing rats). 20th on the list is Germany at $34,212, Greece is 25th at $29,882 (but not for long), 30th is South Korea at $27,978, 40th is Slovakia at $21,245. Lithuania comes in at 50 with $16,542 (1 ahead of Russia) and it steadies out there with emerging market star Brazil in 75th place with $10,514 and, keep in mind – that is where you FINALLY get to the average leverl of economic activity for the world.
Another BRIC in the global wall is mighty China, with a per capita GDP of $6,567 for each of their 1.2Bn persons and India’s Billion people average out at less than half of that, at $2,941, ranking 128th and still ahead of 53…
Smart Virtual Portfolio Management III – The $1,000,000 Virtual Portfolio (Members Only)
by Phil - May 15th, 2010 6:35 am
You can’t lose what you don’t have.
The reverse is true for people with Millions in a stock virtual portfolio. Phil points out that the reson you don’t run a large hedge fund trying to make 100% gains is that the people who invest in those funds are more interested in what we call "preservation of capital" rather than generating wealth. Generally, the people who have $1M of investable cash to play the markets have already achieved a great deal of success, often by taking their own risks along the way. For most of us, $1M is hard to come by and, while we want to put that money to work – we certainly don’t want it wondering off and joining the circus.
As a high net-worth investor, you need to decide how to diversify your assets to suit your long-term goals. We’re not going to get into that here – let’s just say that if you want to gamble and go for some of our "more exciting" plays, perhaps allocate a portion of the virtual portfolio to those. Whether that’s 5% or 10% or 30% is up to you but it is good to fence off your risk to a sensible, manageable amount that you really can afford to lose while keeping the bulk of your market allocation well diversified and well-hedged.
I have my own 5% Rule. Phil’s famous 5% Rule deals with the predictable movement of stocks in their trading ranges but my 5% Rule, which Phil also agrees with is simply "Do not put more than 5% of your virtual portfolio in the stock of any one company!” This is so much easier said than done for many reasons!!
[1] Transition to Large Numbers
Moving from a 5 or 6 figure account to a 7 figure account has a profound impact on many traders. In fact, our friend Dr. Brett refers to the effect “performance anxiety” can have on a virtual portfolio and notes that one of the causes is the responsibility felt by traders as larger dollar amounts are traded. Phil advocates a system of "purging" Short-Term Virtual Portfolio gains when they gets too large and shifting money into safer investments in a Long-Term Virtual Portfolio – it is good to have a strategy for balancing out your holdings, not just target goals.
While it might be acceptable to put 15% of your $10,000 virtual portfolio on that long call you just KNOW will…
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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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