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September’s Dozen (Members Only)

Are we jumping the gun?  

It’s been so long since we’ve been bullish it feels wrong, doesn’t it?  We’ve had plenty of long-term, well-hedged trade ideas in Member Chat this month but not too many aggressive shorter-term trade ideas so I’m putting together an aggressive list, like last year’s "September’s Dozen" that was 12 for 12 with huge winners, many pulling in 300% or more.

Although we still need to confirm that this rally is real on our Big Chart, let’s take a look at a quick dozen trade ideas for short-term gains.  I like all these stocks long-term too (it’s always better to play short-term where your fallback is you own the stock long-term) but we what we’re looking for here is that immediate satisfaction you can get from some quick, monthly gains.

Are these trades riskier? Sure they are and they are trade ideas under the assumption that we hold our levels today and next week so no staying in them if the market sours but $85 oil and $4 copper and 11,200 on the Dow and 1,173 on the S&P give us some pretty easy markers to know if we’re still healthy.  

This is NOT going to be a virtual portfolio, this is simply a list of trade ideas I like, taking advantage of low prices and a high VIX before we lose one, the other or both!  Also, people sometimes ask if we ever pick just stocks and the answer is:  Of course if we like a stock well enough to paly an aggressive option combination on them we also like the stock straight up as a buy!  I’m going to put the current prices on the stocks we select to clarify that.    

What we’re looking for is simple, a repeat of the action we got last year coming out of the Jackson Hole conference so we’ll be making some of the same plays with a couple of new ones as well.  Keep in mind that THIS IS OUR PREMISE – we expect the S&P to go up from this line (with, perhaps, a rocky start the first week), certainly not falling below our -5% line at 1,173!  We expect the Dollar to go down from 74 and TLT to stay below $108.  If these things don’t happen – then our premise is blown and we DO NOT want to stay in these trades – as they are very aggressive.

 

BRCM ($33.91) was my first choice last year and is again, they are back down from the January highs of $47 and just crossing over the 50 dma at $33.73, which is an excellent line to play the straight stock bullish.  The 200 dma is way up at $38.75 so not too much upside resistance but we do want to beware that the run ends there.  They are on track to earn $3 this year and that’s a p/e of 11.3, which is crazy-low for a stock like this so a great long-term hold:

  • The Sept $33/35 bull call spread at $1.11 has .20 in premium with 3 weeks to go so it’s a penny per day to "rent" the stock.
  • Oct $30 puts can be sold for $1 to offset the spread down to .11 or a more conservative 1/2 sale to knocks out the premium and puts you in for net .61 on the $2 spread. 
  • Jan $31/35 bull call spread at $2.15, selling 2013 $20 puts for $1.70 is net .45 on the $4 spread that’s $2.91 in the money to start.

GNW ($6.51) gets very little respect for a company with $10Bn in sales.  They were spun out of GE years ago and, like all insurance companies, they suffer from bad investments and low interest rates but, like all insurance companies, they are dollar cost-averaging their incoming premiums and, as a long-term investment, these things tend to work out.  As they fell all the way to .70 in the crash, this is NOT an investment you want to press your luck with but, with the possibility of Mortgage Stimulus AND QE3, they have the potential to rocket higher. 

  • The Jan $5/7.50 bull call spread is $1.40, these can be paired with the sale of the Dec $6 puts at .92. 
  • 2013 $7.50/10 bull call spread is .58, that pays $2.50 (up 331%) by itself if all goes well or you can sell Dec $5 puts for .20 as a start towards reducing the basis.

HCBK ($5.86) is priced LOWER than the panic of 2009.  As a conservative, regional bank, they are being hurt by low interest rates as well as having to pay higher FDIC insurance rates to make up for their less-conservative cousins.  So far, they are still paying that .08 quarterly dividend and that’s 5.4% at this price.  

  • The April $6 puts can be sold for $1 to provide a net $5 entry.
  • The April $4/6 bull call spread is $1.30 so the pair would be net .30 with $1.70 upside at $6 (up 566%) and a break-even at $5.15.  

MRO ($25.89) is not the same MRO as it was as they split their refining operations into MPC in June, which was terrible timing because 11% of MRO’s E&P business is in Libya and is totally shut down.  Obviously we expect Libya to improve now and oil also may shoot up under QE3 and we need a bullish play on oil so this is a good pick (besides VLO, of course).  

  • 2013 $20 puts can be sold for $2.70 for a net $17.30 entry (33% off the current price)
  • Sept $24/26 bull call spread at $1.30 can be offset with the sale of the Oct $24 puts at $1.18 for net .12 on the $2 spread that’s $1.89 in the money, up 1,566% if they hold $26.  

 

 

SNDK ($34.80) is still like riding a bucking bronco but that means it’s a great stock to sell calls against if you like to momentum trade the front-month caller.  At $34.80, it’s as low as it’s been since August of last year, before they ran up to $53.60 in January.  They have once again been dragged down with the SOX (and our beloved WFR!) WFR is recovering now and USD looks like it has finally bottomed so SNDK once again looks like a bargain. 

  • Selling the Jan $30 puts for $2.65 is a net $27.35 entry.
  • Oct $33/36 bull call spread is $1.60 and can be offset by the sale of the $30 puts at $1.42 for net .18 on the $3 spread that’s $1.80 in the money (up 900%) to start.  
  • Oct $30/35 bull call spread at $3.20, selling $33 puts for $2.35 nets .85 on the $5 spread that’s 564% in the money (up 488% if they hold $35).
  • Sept $34/36 bull call spread at $1.04, selling 1/2 Oct $30 puts for $1.42 is net .33 on the $2 spread that’s .80 in the money (up 500% if they can hold $36). 

SPLS ($14.48) is back around their 2008 lows ($12.99) and they actually pay a .40 dividend (2.8%) so a nice little stock to own.  They are not in trouble – in fact, they have $1.4Bn in cash against a $10.27Bn market cap and they have earned about $800M a year.  International growth has been strong but the US is where they make the margins and we have been lagging – even without stimulus I’d look for the US to pick up and margins to improve in Europe and Asia.  

  • Since you can just sell the 2013 $15 puts for $3.20 and establish a $11.80 entry – I do like that idea!  That would make the .40 dividend 3.4%.  
  • The Jan $15 calls are $1.15 and the Oct $14 puts can be sold for .80, which is net .35 on the set.  
  • The Jan $12.50/15 bull call spread is $1.45 and 2x can be paired with the sale of the 2013 $15 puts for a net .30 credit so you make $5 at $15 (up 3.6%) in Jan and lower the potential entry to net $9.70 or the worst case is a 1x entry at net $14.70 if they are still under $15 in Jan 2013 (rollable, of course).  

 

SVU ($7) is one we’ve played before with great success.  They were doing well in the Spring but they turned very negative in their outlook and cut their dividends as margins thinned out but things are improving and even the cut dividend (0.35) is 5% at this price so the fallback of ending up owning the stock long-term is not so terrible.  The key to this trade is simply deciding how much SVU you want to buy as a long-term holding and then seeing if we can possibly give ourselves a bonus discount.  This is a great trick for entering long-term positions.

  • Jan $4/6 bull call spread is $1.40 and the 2013 $5 puts can be sold for $1.10 for net .30 on the $2 spread that is 150% in the money at the moment.  If the spread comes in, the trade can be cashed for a quick profit or it can be held to the end for either a net 566% gain or a net entry of $3.30 (52% off the current price).  

Worst case is you end up owning the stock at net $5.30 (24% off the current price) in 2013 (and if the stock falls below $6, you can sell $5 calls to cover (now $2.80) and then buy the stock if it crosses back over $6.  

 

SWY ($17.08) is another supermarket we like (and was on last year’s list) and they are expanding in Mexico and Canada, which I like.  3.5% dividends continue to get paid.  

  • Selling 2013 $15 puts for $1.85 is a net $13.15 entry at worst (23% off).
  • Oct $16 calls are $1.55 (.47 premium) and those are good naked as long as they hold $17.
  • Jan $15/17.50 bull call spread at $1.50, selling $15 puts for .70 is net .80 on the $2.50 spread that’s $2.08 in the money. 

X ($27.55) was way down at $16.62 in 2009 so not a good one to hold in a big crash but they are now priced like a homebuilder with a $3.9Bn market cap despite the fact that, in 2008, they made a $2.1Bn profit.  Of course they LOST $1.4Bn a year later and $482M last year so timing is everything but VERY nice if you catch them at the right time.  Sales were up last year and last Q they made $222M so they could really pop if the economy gets in gear.  If not, there is a chance they don’t survive (pension costs are a big issue) but it’s hard to imagine even our Congress is so stupid that they would leave us without a Steel Industry in America so I do believe there is a floor to their problems:  

  • 2013 $18 puts can be sold for $2.70, a net $15.30 entry, which is 44% below the current price and lower than the panic lows of 2009 – just as a matter of statistics, it’s an interesting gamble.  
  • The Jan $22.50/27 bull call spread is 100% in the money at $2.80, so a nice, straight play with a  60% upside at $27.  Pairing it with the sale of the Jan $22.50 puts at $2 makes it net .80 on the $4.50 spread and gives you a 462% potential upside.  
  • A very aggressive play on QE3 would be the Oct $28 calls at $2.30, offset with the sale of the Oct $25 puts at $1.85 for net .45.  Keep in mind X was at $44 five weeks ago so potential for a 10-bagger if we get lucky.   

 

 

 

 

 

IN PROGRESS 

 

 

 

 

 

 

57 COMMENTS

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100 years ago.
 
All 4 of my grandparents were born before 1900 into that very different world. If the Tea Party types want to see no taxes/no government in action, take a quick hop over to Haiti. It is good that everyone has a cell phone (huzzah for Digicell and modern technology!) , but not so good that there is no clean water supply, sewerage system, emergency services, or vaccination against infectious diseases, that many children clearly suffer from malnutrition, and that cholera is rampant.

Phil / TBT – sorry for the double post. I just don’t know how you maintain your prolific rate and depth of responses. I stand in awe of you. Now, I can be to a certain degree circumspect on my TBT position, because in my first year of membership I can truly say that through your prescient picks – of which there are too many to mention – I have more than covered myself. Most important of all, your ability to think through positions and make the highest calibre adjustments has prevented many a sleepless night on my part. So, fawning session over. But I am not sure if all the members of this board really appreciate the exalted company that we are in. Methinks they doth complain too much.

Phil / TBT – TLT; Just adjusted my position to your recommendation (after first understanding, analyzing and double checking). Then took some more time to understand the logic of the TLT trade, and then moved into that.
By the way, you have mentioned it before, but trying to get a fill on rolling a spread on an Ultra ETF is nigh on impossible with TOS. Had to close out the short puts by buying back and then selling the longer term puts.
Now wait for Bernanke’s announcement that upon further reflection, in order to prevent inflation overheating the economy interest rates are going to be raised on a gradual basis over the next two years.

 Phil Added the following plays to this portfolio on Monday August 29th in the Daily Post:

Adding AA ($12.28) to Sept Dozen:

Jan 12.50 puts can be sold for $1.45 for a net $11.05 entry.
Oct $12/13 bull call spread at .50 can be offset with $11 puts at .42 for net .08 on the $1 spread that’s .28 in the money with 1,150% upside and a worst-case of having AA put to you at net $11.08 (10% off).  

Adding HPQ ($26) to Sept Dozen:  

Jan $22.50 puts can be sold for $1.42
2013 $22 puts can be sold for $2.90.
Oct $24/25 bull call spread is .66, selling $22 puts for .55 is net .11 on the $1 spread that’s $2 in the money (up 809% if it holds).  

 

 September’s Dozen Addition:

BRK.B ($72.39) is kind of like what we were discussing – a best of the S&P investment.  Why be jealous of Buffett getting a great deal on BAC when you can play along with him?  

Owning the stock long-term has not been a bad idea for investors since the 60s and you can buy it for $72.39 and sell the 2013 $70 puts and calls for $20.50 for net $51.89/60.95.  Think how smart you’ll sound at parties saying you bought Berkshire at $51.89!  They bottomed out at $44.82 in the 2009 panic but were back at $55 in a few weeks.  
To raise cash, the 2013 $60 puts can be sold for $5.20.  TOS says that’s net $6 in margin, not bad to make $5.20 (86%) in 15 months if Bershshire manages to hold $60.   Buffett turned 81 today so, like Steve Jobs, he will die one day – keep that in mind..
March $65/75 bull call spread is $6.10 and you can sell the $67.50 puts for $4.60 for net $1.50 on the $10 spread that’s $7.39 (492%) in the money – not a bad start.  
Oct $70/72.50 bull call spread is $1.60 and you can sell the $62.50 puts for $1 so net .60 on that $2.50 spread or, if you sell 1 of the 2013 $60 puts for $520 and buy 9 of the bull call spreads for $560, it’s net $40 cash out of pocket and, at $72.50, you get $2,250 back if Berkshire holds $72.50 through Oct expirations.  If not, you can cash out at net .30 (down 50%) and you still have a worst-case net $57.80 entry in 2013.  

 Sept Dozen bonus stock:  

INTC ($20.33) is Intel – say no more!  They are in a good spot just crossing $20 and lagging the Nas. 

Short 2013 $20 puts at $3.20 puts you in for net $16.80.  Please don’t tell me I have to explain why that’s good!  
Jan $17.50/20 bull call spread is $1.70 and can be offset with the above short puts or the Jan $19 puts sold for $1.10 for net .60 on the $2.50 spread that’s 100% in the money (up 316% if they hold it).  
Nov $21 calls at .78 (earnings play) can be offset by short sale of Oct $20 puts at .83.  

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