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…
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DiggSmart 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…
Bullish Investors Flock to Popular, Inc. as Shares Reach a New 52-Week High
by Option Review - April 13th, 2010 4:40 pm
Today’s tickers: BPOP, SLV, XRT, RCL, USO, MRO, AVP, PG & CROX
BPOP – Popular, Inc. – Shares of the largest bank in Puerto Rico surged 26.5% during the trading session to a new 52-week high of $3.86 after the firm was raised to ‘buy’ from ‘neutral’ and given a target share price of $3.50 at B. Riley & Co. Popular’s shares took off running on news the company may sell its Evertec unit and some other businesses for $1 billion. Options traders enacted bullish strategies on the stock to position for continued upward movement in the price of the underlying stock. Plain-vanilla call buying took place at the April $3.5 strike where approximately 9,400 now in-the-money contracts were picked up for an average premium of $0.14 apiece. Other traders displayed optimism on Popular, Inc. by shedding put options. Roughly 4,500 puts were sold short at the April $3.0 strike for a premium of $0.06 each. Investors keep the premium received as long as shares trade above $3.00 through expiration day on Friday. Similar bullish activity was observed in the May contract today. Investors paid an average premium of $0.28 per contract to take ownership of nearly 8,000 in-the-money call contracts at the May $3.5 strike price. Additionally, traders expecting shares of BPOP to remain above $3.50 through May expiration shed 6,200 put options at the May $3.5 strike to receive an average premium of $0.33 each. Put sellers at this strike price keep the full premium pocketed on the trade as long as shares of the underlying stock exceed $3.50 through expiration day. Investors short the puts are apparently happy to have BPOP-shares put to them at an effective price of $3.17 each should the put options land in-the-money at expiration. Options players exchange 83,855 contracts at Popular, Inc. as of 3:00 pm (ET), which represent more than 55% of the total existing open interest on the stock of 151,847 contracts.
SLV – iShares Silver Trust ETF – Shares of the silver ETF, an exchange-traded fund whose share price typically reflects the price of silver owned by the Trust at any given time less the Trust’s expenses and liabilities, increased 0.35% in late afternoon trading to stand at $17.87. Options activity on the stock, however, indicates at least one investor is expecting the price of the underlying shares to decline ahead of July expiration. It looks like the bearish…
Monday Medical Miracle – Health Care Finally Passes
by Phil - March 22nd, 2010 8:19 am
Paul Krugman summed it up nicely:
There is, as always, a tunnel at the end of the tunnel: We’ll spend years if not decades fixing this thing.
Love it or hate it, the US has just taken a big step towards nationalized health care so maybe now we can finally stop talking about it and move on with the investing! I think medical devices (IHI) should do well with 32M new patients – that’s a play we made quite a while ago though and, like pretty much everything else in this market – they look a little toppy.
As I noted in the Weekend Wrap-Up, we came to the decision to get back to cash on Friday, removing all uncovered bullish bets and adding our disaster plays, no longer hedges (as there’s not much to hedge) but as bets that the Global markets are due for a little correction at this point. I’m already feeling good about the decision as the futures look awful this morning (8am) as the Hang Seng dropped 2% (437 points) and couldn’t get back over 21,000 during the session and has now given up all of March’s gains. The Dow is still up about 400 points in March as well – hopefully our fall won’t be as violent as what the Hang Seng saw this morning. India held up well, only losing 1% after Friday’s surprise rate increase.
The Dollar was very strong after the Health Care vote and we’re sitting below $1.50 to the Pound and we’ve bounced off $1.35 to the Euro twice this morning – a break below there could get very interesting! The Yen is staying down at 90.5 to the Dollar, which is a relief for Japanese exporters but I’m not sure they’ll hold 90 this week. Copper broke below $3.40 on Friday – confirming our bearish turn and is at $3.32 this morning. Gold once again is testing $1,100 and silver failed $17 at $16.82 with $16.50 being a bearish signal for metals. Oil dropped all the way to $79.31 this morning and we’ll see if they can get back over $80 but we are going to be thrilled with our short plays (see wrap-up) in that sector.
“Risk aversion has come up after developments in India and Greece,” said Henrik Gullberg, a fixed-income strategist at Deutsche Bank AG in London. “Any exiting of the current accommodative policy stance…
Wells Fargo Put Spreaders Back in Town
by Option Review - November 11th, 2009 4:27 pm
Today’s tickers: WFC, AMR, PG, DRYS, DTV, M, EMC, WYNN, TOL & SFD
WFC – Wells Fargo & Co. – A popular option strategy frequently employed on Wells Fargo, the ratio put spread, appeared once again in the January 2010 contract. The bearish play was initiated despite the more than 2% rally in shares during the trading session to $28.75. The ratio spread involved the purchase of 7,500 puts at the January 27.5 strike for an average premium of 1.60 apiece, marked against the sale of 15,000 puts at the lower January 24 strike for 67 cents each. The net cost of the protective play amounts to 26 cents per contract. Thus, downside protection will kick in if shares decline beneath the breakeven price of $27.24 by expiration in January.
AMR – AMR Corp. – American Airlines operator, AMR Corp., attracted a large bullish play by one investor targeting the January 2010 contract. Shares of AMR are up more than 4% to $5.83 with just under one hour remaining in the trading day. An AMR-optimist initiated a call spread by purchasing 15,000 calls at the January 7.5 strike for an average premium of 35 cents each, marked against the sale of 15,000 calls at the higher January 9.0 strike for 10 cents premium apiece. The net cost of the bullish transaction amounts to 25 cents per contract. Profits are available to the call-spreader if shares of AMR rally at least 33% to breach the breakeven point at $7.75 by expiration. Maximum potential profits of 1.25 per contract for a total of $1.875 million are attained by the trader if shares surge 54% to $9.00.
PG – The Proctor & Gamble Co. – Options activity in the January 2011 contract on the consumer products company today indicates one investor expects little fluctuation in shares over the next 14 months. Shares of PG are slightly up by less than 0.25% to stand at $61.90. The trader initiated a sold strangle by selling 2,000 puts at the January 60 strike for 5.73 each, and by selling 2,000 calls at the higher January 65 strike for a premium of 3.82 apiece. The gross premium pocketed on the sale amounts to 9.55 per contract. The strangle-seller retains the full premium if shares of PG remain ‘strangled’ within the parameters of the strike prices described. The investor will benefit from lower option implied volatility on the…
Staples Firm – Proctor & Gamble Options Suggest Further Upside
by Option Review - November 6th, 2009 4:53 pm
Today’s tickers: PG, CTXS, LINTA, HIG, CVS, UUP, VIX, AONE, SWKS, CLX, BCSI & NVDA
PG – The Proctor & Gamble Co. – Bullish action on Proctor & Gamble today suggests one investor expects shares to continue to rally ahead of expiration in November. Shares are currently trading 1% higher to $61.13. The trader purchased 10,000 calls at the now in-the-money November 60 strike for 1.39 each, and simultaneously sold 10,000 calls at the higher November 62.5 strike for 26 cents apiece. The net cost of buying the call spread amounts to 1.13 per contract and yields maximum potential profits of 1.37 each if shares rally up to $62.50 by expiration. Shares need only rally another 2.2% from the current price to reach the $62.50-level.
CTXS – Citrix Systems, Inc. – Software developer, Citrix Systems, attracted bullish option traders to the November contract today amid a 1% increase in shares to $38.80. Investors displayed optimistic sentiment on the stock by selling approximately 10,600 puts at the November 35 strike for 10 cents premium apiece. Put-sellers retain the full dime-per-contract as long as shares remain above $35.00 through expiration this month. Shares of CTXS have traded above $36.00 since September 4, 2009.
LINTA – Liberty Media Corp. – Shares of the broadcasting and entertainment company rallied 1% during the trading session to $12.14. Plain-vanilla call buying action on the stock today suggests some investors expect shares to rise significantly by expiration in January 2010. Traders purchased about 11,800 calls at the January 15 strike for an average premium of 25 cents apiece. Call-buyers will accumulate profits if shares surge at least 26% from the current price to surpass the breakeven point at $15.25 by expiration.
HIG – Hartford Financial Services Group, Inc. – Medium-term investors placed bearish bets on the insurance and financial services firm today. Shares are currently trading less than 0.25% higher to $24.16 after suffering significant erosion throughout the week. One pessimistic trader initiated a bearish risk reversal in the January 2010 contract. The investor sold 4,500 calls at the January 27 strike for an average premium of 78 cents apiece to partially finance the purchase of the same number of put options at the lower January 21 strike for 1.68 each. The net cost of the transaction is reduced to a more palatable 90 cents per contract, but does leave the investor exposed in the event of…
Jobless Thursday – REITs Turn Rotten
by Phil - October 1st, 2009 8:28 am
Look out below!
I warned yesterday that the end of the quarter may well mark the end of Goldman and their Gang of 12′s Global pump job and what better way to pull the rug out from under the markets then for Goldman Sachs themselves to issue a report that warns that REIT valuation seem "stretched" and they are projecting "flat to down 15% returns next year" with concerns that they are "just beginning what could be a multi-year down-cycle."
Other headlined charts (and Zero-Hedge has the full scoop) are:
- Still a long road ahead for a recovery in credit.
- Cap rates to rise substantially.
- Deleveraging process just beginning for the REIT sector
- Despite pipeline reductions, development remains a risk
In other words, all the stuff I’ve been saying for for the last couple of months as they IYR has climbed 50% since July 15th is now the subject of a GS report on Oct 1st. I was fine with the sector rising 20% (IYR $36) but the move to $46 was completely without merit and, as I noted in a post last week, we shorted it there and went very long on SRS (ultra-short on the IYR). In fact, just yesterday, in the morning post, I discussed Friday’s multiple plays on SRS. We also have short positions on BXP and, of course, we’re still overall short on the whole market as a correction in the real estate sector is not going to be an isolated incident.
Fortunately, at PSW, we don’t have to wait for Goldman Sachs to tell us a sector is overvalued because we understand valuations and we practice sound fundamentals – something that is sorely lacking in the larger investing community. There’s a reason REITs usually trade at 10x multiples and it’s the same reason commodity producers usually trade at 10x multiples as well – because the underlying commodity, whether it is land or oil or gold or copper, can fluctuate in price over time and will sometimes spike earnings up and sometimes spike them down so, on the whole, they are WORSE long-term investments than say AAPL, MCD, KO or PG, who tend to steadily grow their business over time and deserve stronger multiples.
When the REITs were trading at 5x earnings in March, we were loading up on them but when they crossed 12x in August, we flipped negative. That’s called buying low and selling high, something GS and their traders (like Cramer – and congrats on that…
Cubist Calls Active As Shares Rise 10%
by Option Review - August 5th, 2009 5:02 pm
Today’s tickers: CBST, EFA, IYR, WFMI, PG, FXI, UNG & DVA
Uranium company sees calendar call spread
by Option Review - April 20th, 2009 5:05 pm
Today’s tickers: CCJ, BAX, XHB, T, VIX, PCP, PG, JNJ, HIG & USO
CCJ Cameco Corporation – The producer of commercial-use uranium to fuel nuclear power plants has experienced a share price decline of about 4.5% to $17.08. According to one news source, uranium-oxide concentrate for immediate delivery rose 2.5% or $1, to $41.50 per pound last week, although uranium spot prices have declined by more than 26% since December 1, 2008. Additionally, trading last week jumped to more than 4.3 million pounds up from just 2.2 million pounds in the first three months of the year. CCJ edged onto our ‘hot by option volume’ market scanner after one investor initiated a calendar spread. Perhaps with revived demand for uranium and trading volume for the commodity on the rise, this investor is hoping that CCJ’s share price will receive a boost in the next six months. The trader purchased 7,500 calls at the September 22.5 strike price for an average premium of 52 cents per contract. The long call position was funded by the sale of 7,500 calls at the January 2010 22.5 strike price for 1.15 apiece. The investor receives a credit of 63 cents on the trade and is hoping shares rally through $22.50 by expiration as he would then be able to exercise the call options and take delivery of the underlying shares. The fact that the sooner-to-expiration September calls have a higher gamma means that its premium will rise faster for a given rally in the underlying share price. On the flip side, the investor could see the credit pocketed today erode if the calls fail to land in-the-money by expiration in September. We’re unsure what the investor will do with this strategy should shares rally but not far enough to allow September exercise – an event that would leave him short of calls after expiration.
BAX Baxter International, Inc. – Shares have dipped by about 1.5% to $50.95 for BAX, a company that develops, manufactures, and markets products that aid persons with hemophilia, immune disorders, infectious diseases and other chronic and acute medical conditions. A complex combination trade took place that grabbed our attention, but the trade is likely marked inaccurately on the exchange. The trade shows the sale of twice as many calls purchased, which makes little sense and so we’ll describe the way we think the trade went. Using the May contract…
PNC Short Sellers Wade In
by Option Review - March 6th, 2009 11:34 pm
Today’s tickers: PNC, GT, ROH, WMT, CX, PG & XLF
PNC – PNC Financial Services Group – Shares have fallen over 12% to $17.60 and put action today indicates that there may be more down-days to come. At the March 15 strike price nearly 14,000 puts were sold for an average premium of 1.78 per contract. We believe this sale could be the work of an investor who is short the stock initiating a covered put strategy. By taking in the premium today, this investor stands ready to take delivery of the shares at $15 come expiration. The risk to this trader is that shares are remain stable above the strike ahead of delivery and thereafter rebound, in which case he has to buy back at some point. But, the trade would yield a satisfactory outcome if shares continue to fall below $15 by expiration in which case the investor has his short position alleviated with a long put holder putting the stock to him. In the meantime this investor retains the full premium of 1.78. At the April 10 strike price, more typical put buying was seen given the fall in shares today. Over 5,500 puts were picked up for about 1.65 apiece, indicating that investors do expect that shares will continue to fall.
GT – The Goodyear Tire & Rubber Company – A victim of the decline in auto sales, Goodyear has fallen 4.5% to a new 52-week low, touching down at $3.40 today. Despite the depressing news plaguing the auto industry from all sides, one option investor sees the world through rose-tinted shades and initiated to purchase of 20,000 calls at the January 2010 7.5 strike price for 50 cents per contract. Shares will need to rally like there’s no tomorrow and increase by 135% in order to breach the breakeven share price of $8.00 by expiration next year. Option implied volatility for GT currently stands at 128%. Lately we have noticed similar structured trades using optimistic options plays in both Ford and GM.
ROH – Rohm and Haas Company – Shares have jumped over 17% to $63.60 amid news that discussions over merger resolution have resumed between ROH and Dow Chemical Co. We can only speculate as to how the discussion will turn out and scant information is available at the present time. The uncertainty has created a veritable hot bed of frenzied trading among option…
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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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