23.7 C
New York
Monday, September 26, 2022

Subscribe

Friday Morning – Yipee for Yahoo!

This will be a short post because we have a lot of work to do today!

The jobs report was TERRIBLE, down 17,000 in January.  December, however was revised UP 64,000 jobs, from 18,000 to 82,000 jobs so that's a 355% margin of error in government reporting of what is considered a VITAL economic statistic.  Like I said, I'll take those ADP reports anytime.

Asia did some stuff, Europe did some stuff – who cares – MSFT just offered $44.6Bn for YHOO!  This is so fantastic for us I can't begin to tell you.  Anyone who's been following the $10KP and $25KP on the free site knows that YHOO was one of our key positions and yesterday we followed our trading rules and took out the $20 caller for just .42, a very nice profit off the $1.85 we sold them for just a week earler!

There is no better way to start the year over at PSW than to double up our smaller players in the first month.  Thanks to our very aggressive moves yesterday, the STP is also close to a double and should be well over as there was plenty of YHOO in there as well.  This is just way too much fun.

On the dark side, Google was going to be our focus play of the morning but this news should put a damper on their recovery off what were actually fantastic earnings by any rational measure.  We are still in Google of course and will take out our caller, roll down our longs to $520 or lower and give sanity a chance to reassert itself as Microsoft just told us Yahoo was 60% undervalued and Google is certainly better than Yahoo and was, even yesterday, trading at a significantly lower multiple.

Wake up people, do you really think the creators of Zune will suddenly blow Google out of the water by buying the competitor Google has been tearing to shreds for 5 years?  I'm not saying it's a bad deal for Microsoft, they need to do something on the Web and Yahoo is a totally underperforming asset but it's no Google killer.  Also, this bid is HOSTILE, which means it's possible Google themselves could turn around and make an offer (Microsoft's is cash and stock), which is why Ballmer waited for Google to be at a low value to make the offer – it's a lot harder for GOOG to match now than it would have been when they had an extra $60Bn in market cap.

Did MSFT work behind the scenes to tank the markets in order to close a deal they've been desperately after for almost a year or did things just align perfectly for them and they siezed the opportunity?  We may never know but we do know one thing – who will Steve Ballmer lay off to pay for this aquistion after spending over $1Bn in R&D to make MSN competitive?  Click here for the answer.

Our play on all this is TWX, who still have a small asset called AOL that Google already owns 5% of (probably with options for more) that company is way down from last year's high of $22 so we're going to grab the Jul $15s for $2 and wait for the rumors to start flying.

The jobs numbers destroyed a 150-point rally in pre-markets and dropped our indexes back to flat but I put no faith in those numbers and will consider this a great opportunity to get out of those QQQQ puts we picked up after hours.  The dollar is hitting new lows so gold is back up and oil will fly and it's going to be back to $500Bn for XOM as that company made $11.66Bn in Q4.  That should give us a nice rally to short into as it's probably the last hurrah for XOM as OPEC left oil production unchanged, which will add downward pressure to oil prices. 

Busy, busy, busy today.  Europe is holding up well and I expect our markets to recover.  Those DIA $125s we picked up yesterday need to be sold if we can't break 12,700 but they are already more than a double so let's hope XOM gets the Dow moving early on.  They should get help from BA, who may also get bought out if they don't get back over $100 soon – what a bargain!

Have a great weekend.

 

653 COMMENTS

Subscribe
Notify of
653 Comments
Inline Feedbacks
View all comments

foto- 3 hours? Ugh. I love love love 8-9 a night. Mmmm, sleep.

Phil,
A BIG Thank you for everything you do especially the last couple days. I was very bearish and your words got me on the right side of the trades. I cannot imagine the drag in my portfolio had it not been for you.
Great job and a big THANK YOU again!

Parchesia – that I shouldn’t have been trading if I couldn’t be at the computer with a tight stop to get back out with a small loss. Once I got to my office, it was too late, already down 50%. In fact I probably shouldn’t have been trading today at all because the trend is not clear yet.

Apple (NASDAQ:AAPL): Asian Checks from BofA
– Banc of America is out with a call on Apple (NASDAQ:AAPL) saying their Asian checks indicate recent production levels are increasing for Macs, iPod production is being cut, and iPhone is volatile.

Both desktop and notebook production numbers have moved up by 20%+ from expectations in early January, indicating potentially solid demand thus far in the March quarter, as well as some inventory replenishment. Firm believes production numbers should continue to move up throughout the quarter. MacBook Air orders also increased slightly for March, contributing to the upside. They continue to believe that desktops and notebooks are the key driver of the story.

iPod order cuts confirm BAC’s conservative stance on unit growth. iPod March quarter production numbers appear to have been significantly reduced, down 10- 20% from early January and down 30%+ from early December. Current production expectations for March imply 5-10% Y/Y unit decline, versus firm’s expectation for 5% Y/Y unt growth during the March quarter, implying an inventory correction and sluggish sales.

iPhone production bounces back, although still lackluster. After severe production cuts in December and early January, our recent checks reveal that production plans for the March quarter have bounced. Firm remains concerned that iPhone production and demand are lackluster.

Stock oversold and valuation attractive. They would be buyers of the stock at these levels, given our Asian checks on Mac production, and especially given they believe the main driver for the company and its stock near-term is notebooks and desktops. Reit Buy and $180 tgt.

Notablecalls: Not making a specific call here, just letting you know it’s out there.

Greg,
When I have to leave the office unexpectedly, I put on some limit (or trailing stops) on my index calls and puts (usually DIA or QQQQ, sometimes QID). I set the triggers depending on how the market has been moving using +10%, +20%, +40%, and -20% limits.
I plan out my strategy before the market opens, so I can look quickly at a couple of screens, execute and be out of the office in 15 min or so. This has made me a better trader, since I plan my strategy early in the morning and brainstorm different scenarios.

I’ve only been doing this a year, but I have improved drastically since joining this site. My success prior was hit and miss.

cramer- dissing AAPL, GRMN & GOOG as momentum names that can’t do well in this part of the cycle

This is quite an interesting feature on stockcharts

http://stockcharts.com/charts/tickercloud.html

stockchart.com trends – Nifty! Looks like the Google Trends feature works for stock tickers as well (though it’s not all that useful in itself):

http://www.google.com/trends?q=aapl

Greg-That’s right except for the fact that you said you shouldn’t be trading. There’s always a way to make money in the market. Orion had it right though, you need to just set trailing stops if you have to leave for the office. You got out though! Good Job!

Hmmm. There are at six web developers here. Seems like we could spam the symbols with an old laptop we have laying around, then short the name. 😉

“at least six web developers”

KLAC-Yes, I sold all of it. Not going against this chart at this point. That was a daytrade, have to be disciplined.

Phil,

Since its the weekend I had a burning question for you. Perhaps an example will illustrate this best.

I am long 100 rio and sold 1 covered call against- march 30 at 1.87. Now at 3.20. I am down 87% but it still has 1.75 of premium left. Obviously, I didn’t employ a stop since I considered myself to be in the premium selling business. According to some of your posts you don’t like to roll until atleast 50% of the premium is gone. Have I misunderstood your teachings by not having a stop in place or am I on track by just being concerned about the premium?

Second, on calendar spreads ie the Apple starter spread which was a LTP play, do you have 20% stops in place on both legs of the trade. The reason I am uncertain is because its in the LTP. I am trying not to daytrade and can’t be tied to the computer due to work. Aapl options make such wild swings each day easily 20% or more sometimes in a matter of hours I would get triggered quite frequently on the caller only to be fine a few hours later. BTW i got killed on my LEAP rolling it down but my callers did pretty well.

Thanks

jeffro – a stop wouldn’t have worked, there was event news associated with the AA/ACH 12% purchase. A limit order wouldn’t have executed, and a market order would have really hurt your feelings.

The issue now is that you’re at risk of being called away. Is that acceptable ?

I am curious as to why you don’t consider the RIO long, which gained 1.63 vs. the current loss on the option, part of the overall RIO position?

Optrader-

I know you will not give outside advice to folks on the blog other than answering questions here, but I am very interested to see what your spreadsheets look like. I promise I won’t ask any questions about it and turn this into anything painful for you, I am quite handy with spreadsheets. If you could email it to me at blake.cantley@bp.com I would be very grateful, if not, I am still very grateful for all of your help.

Phil, can you give any stock covered call recs with good dividends. I believe you asked to be reminded on the weekend. We had a nice one with Yamana, of course the caller made out like a bandit but it was a nice return for two months.

Thoughts on MDT. They are not getting any love. They need one of your articles of outrage similiar to your CCJ one last year. thanks.

Whew!

The scattered pieces are finally coming together. My confusion was re caller treatment in a ST vs a LT portfolio aaah.. clarity.
Now I feel like I am better prepared to navigate this ship around icebergs and take advantage of oppty.

Much appreciated.

Phil, I wanted ur take on MOT. I work for MOT. Thursday we heard the news abt the possible spin-off/sell off of the mobile devices division. Yesterday, we got an email from Greg Brown indicating that he is taking direct control of this division (replacing Stu Reed) and he also mentioned the following in the end of his email
“my number one commitment is to make Mobile Devices a winning business that can achieve its full potential. Though we have much to do, we are confident that we have the financial strength, technology leadership and capabilities to succeed.”

From this it doesnt appear that they are serious abt breaking the company. Do you feel this is a strategy to gain some time from Carl Icahn, as some analysts are indicating. I wanted to know what you feel abt this. Thanx.

i am a new member and i am trying to find several articles from ki project,under basics of the core strategy; terminolgy and rules,also under tools,shortcuts,strategies and advice; could only find earnings strangles and all the other articles i could not find. if someone knows where they are i would appreciate it. thanks

rickd – http://www.philstockworld.com/newsletters/members/author/khoxsey/

This is the “k1 project” – about 10 hours of reading *for comprehension*. I suggest that you have a notepad, be logged into your trading platform to get representative quotes (just adjust in time from the date the article was written), and click on every link within the “continue reading” posts.

As a new member, it will take a little while to get the hang of what’s being said during the day, but you will be pretty well served by reading a few of these k1 articles at least twice.

If you’re a new options trader, carefully read every post and comment related to YHOO, AXP, and CMP since 1/21/2008 – a lot of small portfolio followers made some silly mistakes, many that were expen$ive. There were some extraordinary results, as well – it helps to know how things were handled when they start happening to you.

Good luck. Lots of other people here will be able to help you along.

What!!!! ?
No long weekend?
Guess I’ll have to take Monday off!

rickd- the way WordPress organizes stuff (by date published) makes it seem a bit jumbled. If you go to the main page of the k1 project it helps organize things a bit more and provide a path through all of the material:

K1 Project Intro Page

Oh, and this may not be obvious to everyone, but my nickname on postings is a pointer to the intro page of the k1 project also. So you can ctrl-F for my nick and have an instant link. Although I have it in my bookmarks bar….

rickd- one other thing. There are a number of topic areas of the k1 project that I haven’t written up, particularly those that you mentioned. I have material collected for tools, etc., but haven’t found time.

In particular, I have a large amount of material collected as advice for newbies that I haven’t written up because a) I’ve only been doing this stuff for 7 months, so I’m no expert or genius or spirit guide and b) I’m afraid it would sound condescending.

When the tech team is able to get the wiki up and running, I will put all of my remaining links up to share, and we can all work our way through explaining and summarizing what they mean and who they’re for. And then I won’t feel like I’m lecturing to people who might just know more than I do.

Well, probably not obvious to everyone (although I hovered over last month)… what if you changed your nick to “k1 – click here for great info” ? 😉

sakiko- LOL. Maybe I should.

But then maybe people would develop banner blindness and stop seeing my posts altogether.

I just have to point out to the newer members about the required reading; as recently as early last fall, there was no K1 project!!! Many hours were spent reading the *entire* daily comments for several weeks worth of posts.

Personally, I printed them out and read while walking 3 miles to school barefoot in the snow … and it was uphill both going and coming back 🙂

My biggest problem is understanding phils lingo.I am reading articles and I do not understand some of the lingo in them,I am sure I will run into them sooner or later.but in the mean time I am going to have to guess at their meaning.Alot of new members ask what cover means, several brokers told me it means sell,but it means hedge ,wow that could be an expensive mistake,I thought dd meant double down,but it means sell half your position,I do not know yet what 2x means and iv,I am sure I will run into them sooner or later.I am sure most of you know what I am talking about. I appreciate all the hard work you did so far.If it was easy anybody could do it.thanks for all your help.

this is crazy:

Hedge Fund Manager Devaney Returns to Subprime After Yacht Sale

Feb. 2 (Bloomberg) — Hedge fund manager John Devaney, who had to sell his yacht and jet plane last year after wrong-way bets on mortgage securities, says it’s time to buy bonds backed by subprime loans.

http://www.bloomberg.com/apps/news?pid=20601087&sid=anEgTK3aK4gs&refer=home

rickd –

I don’t know how long you’ve been here, but I might offer that it takes a couple of months to really understand Phil’s comments and intentions. More importantly, it is fairly dangerous to execute any of these trades until you understand WHY you are doing what you are doing. Please don’t take this comment negatively as I have been there myself and it just takes a little time 🙂

2x – it’s intended to be an “even money swap” to improve your position. Using sold calls (covers) as an example, you can roll 1 in-the-money cover that is going against you to 2x that number at a higher strike (provided you have at least that many long calls). This 2x roll benefits you by both adding premium to and lowering the delta of your caller. For those of us unfortunate enough to be covered on the YHOO positions when it popped, this is the technique to salvage that trade. Hope this helps.

rickd – Hmmm. We do have a bit of dialectics going on here at PSW – don’t feel bad for bring it up. In PSW,

Cover – to buy a specific security that is opposite your position, normally expiring the current month and generally ITM. It is a hedge because it gains value faster than you are losing value in your position. Sometimes countertrend Market index options are purchased when your portfolio needs protection, and it is too crazy to try to focus on specific sectors / securities in your portfolio.

We’ll use the phrase “as cover” to indicate the security involved in the hedge.

You’ll often see “sell the cover”, which means take out the hedge – because the hedge has done it’s work and can do no more (or not enough ‘more”). The YHOO people who did not sell their covers as indicated at 11:56 Thursday owed their callers a big part of the windfall that came with Friday’s announcement.

You may also see the construct “covered my XYZ”, which usually means that the publishing trader has sold the security short, and is now buying it back. (Sell high, Buy low).

DD – Double down. (correct) The trader still loves his position and outlook and is buying the same number of contracts as he bought when he entered the first time. Usually this means that he was “early”. The market thinks he’s “wrong”

2DD – Double-double-down. A last chance for loving and buying as above, and after you’ve already DDed once, since you were apparently “Really Early”. And the market thinks…

2x – Buy twice the number of contracts indicated (or currently held as The Position). You might also see this as “you can roll up to 2x the next strike”, which means sell however many that security is in the position, and buy double of the same thing (call or put), but at the next strike, which will usually be cheaper in price and will at least give better value or wiggle room for the position.

IV – Implied Volatility. This is a good thing when it’s high and we’re selling it, or when it’s low and we’re buying it. It also is associated with large price swings, which signals to some people that the market has topped. IV larger than the historical volatility will generally cause option contract prices to be much higher than anticipated, and depending on what we’re doing, will indicate the usage of a trade strategy that negates the high IV. For the textbook definition:, and a cool discussion: http://www.optionetics.com/education/advanced/volatility.asp

Heh – for you politicos: http://www.youtube.com/watch?v=AIiMa2Fe-ZQ

Just the cure for Banner Blindness.

rickd- You had mentioned a while back that you had terminology questions, please don’t be shy about putting up a list of things you’re wondering about (especially as you’ve just done, and on a weekend – Perfect!). I’m just gonna pile on to sakiko’s explanations. Unfortunately, what I’ve found over and over again here on PSW is that any question is not only a good question, but is only answered by a truly mountainous amount of reading homework.

Cover is usually used here on PSW to mean sell a short, front-month option against the same type of long option. Specifically, sell a short call against your LEAP, or a short put against your long/LEAP put. However, the term has some other uses, both here on PSW and elsewhere, as sakiko mentions. If you searched Investopedia as recommended, you saw a good dozen articles to read about various uses of the term. Investopedia is highly recommended (keep it handy for when you start wondering about the greeks).

2x is as sakiko defined, but since you’ve already read the k1 project you already know that the 2x strategy is primarily a rescue strategy for when a stock moves against your position too much to make up the difference with the premium from a simple rollout.

IV means Implied Volatility, except when it means Intrinsic Value. This is often only parseable in context, so again you’re going to have to go to Investopedia and do more reading. As a hint though, we generally only talk about Implied Volatility (as in “IV Crush” or “IV Rush” or Film’s favorite “IV Suck”) in terms of its effect on premium. As well as the link sakiko sent you to, I would strongly recommend some time spent on iVolatility.

Unfortunately, when we talk about Intrinsic Value, we’re generally *also* talking about how much premium is on an option. But then, since you’ve already read the k1 project, you’ve already bookmarked the section on calculating premium and therefore have a reasonable basis for attaching this knowledge to the term.

Please understand I mean all of this lightheartedly. The reason I collected all that stuff in the k1 project was because I myself followed the same journey. Unfortunately I don’t know of an easier way to gain the knowledge than to put in the hours of study, but at least you’re asking the right questions to identify the path to follow.

Forgot one thing. For terminology, introduction to PSW, grounding in what we do, and a knowledge base that just won’t quit, put on your filters and do nothing but read Sage for a week or two. The book, the articles, and the comments, especially the period in early August when Phil was on vacation and the market was crashing the first time. My personal opinion about how to approach all of Sage’s material is here in the k1 project, but I encourage you to plot your own path.

I’m a huge fan of both Phil and Sage, and have spent hundreds of hours reading everything both of them (and a bunch of you all) have written and shared here. It may be possible to get good at this trading game without investing incredible amounts of time and effort in study, but I am thankful that I’ve been able to learn from such experienced and generous traders.

Aah – the 2x Strategy. Another “knife” I have to learn to get. Thanks, k1.


Many of you will notice that I’m a Student of Life. One of my favorite quotes comes from a Margaret Mead book, “Letters from the Field, 1925-1975” : “Living in the village by night as well as by day and for long uninterrupted months, the field anthropologist witnesses thousands of small events which would never have become visible, let alone intelligible, at a greater distance.”

I urge you newer members to “live” in this cool community that Phil has here, for that at least that month or so, and during that time, I assure you that the small things you see done here WILL become intelligible – even if Market behaviour is not.

I appreciate all the help,I was pretty naive,options are not something you will learn in a couple of days,its great how you are all stepping up to the plate and shareing all your knowledge.thanks,again!

Rickd – Hey welcome to the forum!!!

You could start here: k1 Project – Core Strategy I – Fundamentals if you want.

KEEP FIT AND HAVE FUN
http://youtube.com/watch?v=t1p6K0xGKd0

Microsoft Investors Don’t See Gains From Yahoo Deal
http://www.bloomberg.com/apps/news?pid=20601087&sid=am1odVZXMwjk&refer=home

phil, I have some questions related to the LTP and my positions. I used the closing prices for all positions below:

COH 32.64 – I have the 1/2 Feb 25s sold against 09 Jan 25s; net position +4.3 because I only sold half.

09 Jan 25s at 10.40, +4.80 from 5.60 entry
Feb 25s at -7.70, -5.30 from -2.40 entry

Since the premium is 99% gone from the Febs, I’m thinking its time (maybe past time) to roll those to March, but I’m not sure which strike price. Should I be rolling those to Mar 27.50s for 5.90, 30s for 3.90 or 32.50s for 2.20? I’m thinking the 27.50s because those pay for the roll. At this point, do you think I should stay half covered or go 2x for full coverage?

BA 82.76 – I started scaling in with Jan 90s and never sold against them or rolled down to the 80s.

09 Jan 90 at 6.60 -3.7 from 9.70 entry

I’m ready to add to the position and wondering if you were adding, would you DD on the Jan 90s or or pick up the Jan 80s for 11.10? Another idea I had was to buy the Jan 80 and sell the Mar 80 for 5.00, using the proceeds to roll the Jan 90s to Jan 80s leaving the postion 1/2 covered.

Thanks for your time! You do superb job with the porfolios and still finding time to help everyone with their individual positions.

phil/BAC- i think i get the idea- a friend of mine is going to like this- but is the math wrong? off by $10 at the beginning? unless i really don’t get the idea…

BAC (6%) – At $45.03 you can buy the stock and buy the ‘09 $55s for $12.15 so that’s $57.18 and you have a guarantee of $55 at the year’s end. You can sell Mar $35 puts for .30 and the Mar $50 calls for .23, both very unlikely and it may not seem like much but that’s $5 a year plus the dividend = 16% and you’d have to be massively unlucky to lose.

phil/BAC- also, there is no reason (other than relative risk) to sell the MAR 35 puts, right?

one can start selling FEBs and b more aggrssive in MAR by selling the 37.5s or 40s- assuming they r ok w/ the risk of being put BAC at those prices?

phil/BAC- thanx. i get it.

GOOG- based on MSFT valuations for YHOO, GOOG is worth 775ish

Phil, thx for the “lazy” plays.

Hey everyone,
RickD–
Being new to the site, I too had some problems with the “lingo’. But having had some exposure to options I was able to figure out what was meant. For instance, I had trouble with “callers” or “putters” as well as what was meant by “naked” here. And after reading through the K-1 project and following posts by the many members smarter and more used to these terms than I was, here’s what works for me: “callers” are whoever has the power to call away your shares, or in this case your options at a particular strike price. THey are who you sell an option to. A”putter”, conversely has the right to put or make you buy a stock or option at a strike price and is who you sell a put option to. Both callers and putters come into play because the long options entered into are being hedged.

“Naked” is a question of context. If you were to sell an option without owning the underlying stock or an option position you would be considered going into the transaction “naked”. Here I think it refers to not having your long options hedged by either a full or partial offsetting option in the near expiration month. At least that is the way I understand it. Hope this helps.

Stay Connected

160,723FansLike
408,526FollowersFollow
2,130SubscribersSubscribe

Latest Articles

653
0
Would love your thoughts, please comment.x
()
x