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Faltering Friday – Market Tries to Reconcile Election, Fed, White House Turmoil

Image result for china cyber crime cartoonAll kinds of stuff is happening.

At the moment (7:30) the futures are down a bit but not very much and we're still holding those huge gains from Wednesday – so all is well (ish).  There's new tensions with China as the NSA says Chinese Internet stocks are violating a 2015 Cybersecurity Agreement regarding intellectual property theft and that's a charge that should, techincally lead to even more sanctions against China.  Most likely, this is one of Trump's "negotiating tools" as he prepares for trade talks with Xi – another chip he has to bargain with.

Still, real or fake, these accusations are having very real effects on Chinese cyber-stocks, which are all heading lower pre-market, including AliBaba (BABA) who we would like to play bullish into their "Singles Day" on Sunday, but now we'll have to wait and see how the morning plays out.  Don't forget, Trump's unilateral sanctions are illegal unless he can cite "National Security Issues" and, if those don't exist – just make them up!  

Image result for trump no collusion cartoonWe're going to chalk up the timing of these charges, right before BABA's "Singles Day" and the fact that BABA's Jack Ma is critical of Trump's trade policies to be just another coincidence in Trumpland – where there's never any collusion – just many, Many, MANY coincidences…

China is, in fact, holding a massive International Import Expo this week and all of their Global Trading Partners are there – except us.  Our decision not to trade with the World's second-largest economy has opened up China to the rest of the World, who are thrilled to rush in and fill the voil – much like other countries rushed in to fill the voild of OPEC's cutbacks – and now oil is collapsing, down below $60 just a year after OPEC cut production.  Feel free to draw your own parallels…

Getting back to China, according to Bloomberg, there are 50M (22%) EMPTY Chinese homes, mostly homes that have been bought solely for speculation but the problem with that is, in a down market, those homes could flood the market into no demand and crash housing prices for everybody – taking the banks down with them.  

“There’s no other single country with such a high vacancy rate,” said Gan, of Chengdu’s Southwestern University of Finance and Economics. “Should any crack emerge in the property market, the homes to be offloaded will hit China like a flood.”

 

 

Short article due to poor internet – sorry!

 

 


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  1. FNSR – Great news !

    Well done Phil !

    I've traded FNSR for years.  I;m going to miss it.


  2. Good Morning

    Phil—for some reason my spread on FNSR is Jan 20  17.5/25 net dr $3.50—should I wait or is there something I could do now—I am thinking hold for now and see where it goes—-Thanks



  3. FNSR / Phil, Albo – If I recall, Reinharden was the one that got me in that name 4 or 5 years ago. I was hoping for a bit more as the traded over $30 last year, but we'll take $26… 


  4. Don't know that I would jump into the IIVI who is buying them – they will be adding a lot of debt:

    II-VI, which has a market value of about $3 billion, said it intends fund the deal with cash reserves of both companies and a $2 billion debt raise.

    I guess wait and see there!


  5. Albo – CTL had good numbers it seems but not good enough for the market! Looks to open weak.


  6. Wisconsin politicians seem to like to give money to big corporations:

    https://talkingpointsmemo.com/news/wisconsin-republicans-consider-limiting-tony-evers-authority

    The lame duck session, which legislative leaders called at Walker’s request during the campaign, was supposed to be exclusively about approving a $100 million tax break bill for paper products giant Kimberly-Clark Corp. The incentive package is designed to save a Fox Crossing plant that employs about 500 people.

    That's $200K per job saved! Almost as bad as the tax break for Foxconn at $250k per job! What's wrong with these people. These companies get 5 free years of salary and will then move out looking for more suckers!

    And to make sure that the new Dem governor can't get in the way of these "great" deals:

    GOP Senate Majority Leader Scott Fitzgerald said in an interview on WISN-AM that Republicans were discussing limiting the governor’s authority over a process of enacting rules that have the power of law. The Legislature increased Walker’s authority over that process shortly after he took office in 2011. 

    Lose and change the rules you enacted when you won before you leave! Democracy at work!


  7. Interesting discussion about the power of tech companies:

    https://www.vox.com/the-goods/2018/11/8/18076440/facebook-monopoly-curse-of-bigness-tim-wu-interview

    We need to break up Facebook, undoings its acquisitions of Instagram in 2012 and WhatsApp in 2014. Then we should take on Google and Amazon, the airline industry, the beer industry, all these concentrations of wealth and political power that have enabled what could be called a second Gilded Age — which sounds nice but isn’t.

    “As that era has taught us,” Wu writes. “Extreme economic concentration yields gross inequality and material suffering, feeding an appetite for nationalistic and extremist leadership.”

    And then go after other people:

    One is the pharmaceutical industry. It needs a lot more scrutiny; it’s a hotbed of anticompetitive practices and efforts to rip off the entire economy. Cable television: The cable industry enjoys an unregulated monopoly over 68 million Americans, and nobody is paying attention to that right now. They can do whatever they want. I would take another look at the airline industry, which I think was wrongly allowed to consolidate industry majors and has done nothing but become worse for flyers.

    There are others that are more obscure, like the fertilizer industry. Most people have no idea about them, so they’re allowed to consolidate into three major global players. The global beer industry is now overconcentrated. Despite the success of craft beer, there’s been a mass consolidation of all the other beers.

    I think we need a trustbuster; a serious trustbuster needs to be in the position of Theodore Roosevelt and actually get back into that mandate of trustbusting across industries. A lot of industries are at extreme, unprecedented levels of concentration right now.

    Not gonna happen though!


  8. STJ .- Don't see that it was a very bad quarter.  Increasiing EBITDA and Free Cash Flow. 

    Current yield now !!% +

    CTLGuidance

    Reiterating full year outlook for Adjusted EBITDA of $9.00 to $9.15 billion

    2018 Capital Expenditures to $3.15 to $3.25 billion.

    Free Cash Flow to $4.00 to $4.20 billion from $3.60 to $3.80 billion.

    Dividends $2.30 bln (Reaffirmed)

    FCF after dividends $1.7-1.9 bln (Prior $1.3-1.5 bln)

    CenturyLink misses by $0.01, misses on revs 

     

     


  9. Phil/Gold & Silver - 

    Any thought on /YG at these levels?   /SI  

     

    Thanks


  10. Good Morning.


  11. CTL – If I weren't so overweighted, I'd be selling some OTM puts.


  12. CTL / Albo – That was my feeling as well, but can't please everybody it seems! I'll wait my usual 3 days and see if worth adding.


  13. /RB 1.60!! Phil, that was your dd spot 


  14. Looks like not everybody is convinced about that FNSR merger. I wonder it it's worth a toss at selling some puts now. Someone sold the 2021 20 puts for $1.50. Looks like free money to me.


  15. Good morning!

    Sorry guys, very bad connection today on the ship (last day).  Will do my best but everything is creeping and I lost the end of the post, which is a shame, because it was brilliant stuff!  cheeky


  16. Phil – what would you do with nov 16 SQQQ 10/13 spread here with a week to go? Close it? Keep it and hope SQQQ>13 next Friday? In IRA so can’t close just one side of it


  17. jeffdoc i think  phil would wait and see if wti held 60 before rb/ dd and so far it hasnt


  18. ST. Jean- Evers says he will challenge legally anything Walker tries to pull and what is not known is that the attorney general and other high ranking state politicians all changed to Democrats also. Talk about a total rip off of the taxpayers. It's kind of a miracle that we FINALLY got rid of him after therecall failed. He scrapped the Buckeye health system for indigent seniors, no Medicaid expansion, stripped the school budgets and passed on the costs to the taxpayers .He also gave many more billions to "friends" such as 6 B for Quick Trip a gas station that went in everywhere, The Feds are great too by giving a COLA of 2% and then raising Medicare another 38 bucks effectively erasing the increase.. MAYBE these numbskulls are finally catching on. And I won't go into how they have strangled the right to vote here. You have to have more ID"S to vote than to do an international flight on an airline!


  19. GE 8.50… unreal


  20. FNSR – For those who don't know, apparently they have an offer at $26 but, as always, it depends if it's all cash or cash-stock as to where they really end up at:

     (basic) 

     

    FNSR

    https://finance.yahoo.com/news/ii-vi-incorporated-acquire-finisar-100703031.html

    “I-VI Incorporated (IIVI), a global leader in engineered materials and optoelectronic components, and Finisar Corporation (FNSR), a global technology leader in optical communications, today announced that they have entered into a definitive merger agreement under which II-VI will acquire Finisar in a cash and stock transaction with an equity value of approximately $3.2 billion.”

    “The transaction values Finisar at $26.00 per share, or approximately $3.2 billion in equity value and represents a premium of 37.7% to Finisar’s closing price on November 8, 2018.”


     

     

     

    Wow, that's nice!  FNSR is another silly value play we added to on the way down – when will we ever learn?  In the LTP, we got very aggressive and we're going to make a fortune with:

    Short Put 2020 17-JAN 17.00 PUT [FNSR @ $18.88 $0.95] -20 1/3/2018 (434) $-6,200 $3.10 $-0.23 $-1.98     $2.88 - $450 7.3% $-5,750
    Long Call 2020 17-JAN 10.00 CALL [FNSR @ $18.88 $0.95] 50 6/15/2018 (434) $47,250 $9.45 $0.30     $9.75 - $1,500 3.2% $48,750
    Short Call 2020 17-JAN 22.00 CALL [FNSR @ $18.88 $0.95] -20 6/18/2018 (434) $-6,500 $3.25 $0.05     $3.30 - $-100 -1.5% $-6,600

    Yes, sometimes the "value plays" we chase go lower but, just as often, we're right and the rewards far outweigh the risk – if you maintain appropriate allocation levels.  

    Looks like we'll get back $78,000 from our naked 30 longs and $24,000 from our covered longs (buyer is only a bit over our fair value estimate) and that's pretty good for a net $34,550 position!  Congrats to all who played! 

    We also have a position in the OOP that's a bit less exciting since we played it more conservatively and didn't DD and leave 60% naked when it bottomed out:

    Short Put 2020 17-JAN 17.00 PUT [FNSR @ $22.07 $3.19] -10 1/3/2018 (434) $-3,100 $3.10 $-1.30 $-1.60     $1.80 - $1,300 41.9% $-1,800
    Long Call 2020 17-JAN 13.00 CALL [FNSR @ $22.07 $3.19] 20 2/6/2018 (434) $15,400 $7.70 $1.95     $9.65 $3.25 $3,900 25.3% $19,300
    Short Call 2020 17-JAN 20.00 CALL [FNSR @ $22.07 $3.19] -20 2/6/2018 (434) $-9,000 $4.50 $-1.25     $3.25 - $2,500 27.8% $-6,500

    It's still going to make the full $14,000 back off a net $3,300 entry a year ahead of schedule but it makes a very good example of how, when you can, it's far more rewarding to stick to your convictions.  Actually, in the $100,000 OOP, this positions would have grown too big if we did what we did in the LTP – which is why we didn't.

    FNSR/Savi – You'll be fine.  Like the OOP, you'll just get your full $7.50 when it's done and it's a nice profit.  FNSR is "only" $21.50 at the moment so you COULD take you $7.50 bird in the hand (though there are no $17.50s, you know) and roll your $6+ long call to the 2021 $17 ($7)/25 ($3) bull call spreads at $4 so $2 off the table and you get back another $8 less whatever you have to pay the short $25 caller.   You could also sell the 2020 $25 puts for $4 still, but it's a bit of overkill and would really suck if the deal falls apart. 

    Big Chart – Oops, I forgot to say that this morning's downturn was very scary because we're only barely above our 200 dmas and failing them in such short order would be seen as a rejection on weekly and monthly charts – which is what the Big Boy traders pay attention to.   

    Sorry, that was the tail end of my post.

    Reinharden/StJ – Yes, I think all those discussions is why I got so gung-ho aggressive on them in the LTP (a risk we could afford to take as we were having a great year – now much greater).  

    IIVI/StJ – Not for me now, too much debt and draining out cash from both companies and leaving only debt with rising rates – way too 1999 for me! 

    Wisconsin/StJ – That's really disgusting and hopefully won't be emulated in other states.  

    Tech/StJ – Actually, it would be nice if everyone else stopped trying and let GOOGL just be in charge of search.  Then we could regulate how much advertising they are allowed to sell and have some kind of bi-partisan content oversight panel to keep them honest.  GOOGL has become like a utility and pretending its not in the name of Capitalism is a mistake.  FB too, I suppose, would be silly to break it up as it's primary benefit is that pretty much every connected person on Earth has an account.

    On the whole, this guy is just railing against Capitalism.  I hate the airlines too but nothing stops someone from competing with higher fares and better service.  People have tried and it turns out that passengers don't want that – they seem to want the cheapest possible crap that gets them where they want to go.  The worst thing happening to passengers is the airlines have become ruthlessly efficient in filling the panes thanks to AI and Big Data – there's no such thing as a half-empty plane anymore but, sadly, now that they fly full planes all the time, the only way to grow revenues is to put the screws to the people sitting in those planes and, next year, the shareholders will want more and More and MORE — yay Capitalism!

    Oops, RTY leading us down now.  /YM 26,000 is a good shorting line with tight stops above.


  21. TSLA – Over 350 now…   may be time to short.


  22. Wow, these things are barely getting published before crashing, have to be careful today.

    Inflation – that's the other thing I talked about in the post.  PPI way, way up at 0.6% 

    • Stocks sink at the open in a broad-based retreat, as October producer prices jumped 0.6% and core producer prices rose 0.5%, both well above consensus expectations; Dow -0.6%, S&P -0.8%, Nasdaq -1.2%.
    • Major European markets trade in the red, with U.K.'s FTSE -0.8%, France's CAC -0.7% and Germany's DAX -0.2%; in Asia, Japan's Nikkei -1.1% and China's Shanghai Composite -1.4%.
    • In U.S. earnings, Walt Disney +2.4% after beating top and bottom line estimates, and Yelp -26.4% after missing revenue expectations and guiding full-year revenue below consensus.
    • Nine of the 11 S&P sectors start lower, led by energy (-1.7%), as U.S. WTI crude oil -2.2% to $59.30/bbl, its 10th consecutive daily loss and reaching its lowest level since February.
    • Information technology (-1.3%) and communication services (-0.9%) also are notable laggards, while consumer staples (+0.4%) and real estate (+0.2%) show relative strength.
    • U.S. Treasury prices tick higher, sending the Fed-sensitive two-year yield down 2 bps to 2.95% and the 10-year yield one basis point lower to 3.22%.
    • Oct. Consumer Sentiment98.3 vs. 98.0 consensus and 98.6 prior.
    • Current economic conditions 113.2 vs. 114.4 expected and 113.1 prior.
    • Index of consumer expectations 88.7 vs. 88.6 expected and 89.3 prior.

    More weak AAPL rumors:

    • Apple (AAPL -1.8%) suppliers see red this morning after Skyworks Solutions printed a weak Q4 guidance on premium smartphone softness and BofAML downgraded the company on iPhone uncertainty. 
    • KeyBanc downgraded Synaptics after the firm’s recent survey showed disappointing iPhone XR sell-through with accumulating inventories.
    • Earlier this week, reports said Apple had cancelled its production ramp for the XR on low sales. 
    • Suppliers for the iPhone XR: Micron (MU -4.7%), Cypress Semi (CY -2.7%), Intel (INTC -1.4%), Broadcom (AVGO -3%), Texas Instruments (TI -6.1%), Cirrus Logic (CRUS -3.3%),  
    • Previously: Analysts push Skyworks to sidelines after weak guidance (Nov. 9)
    • Previously: KeyBanc downgrades Synaptics on iPhone XR weakness (Nov. 9)

    Gold and Silver/Jeff – Oh this is a great opportunity to get back into /SI near $14 ($14.13 now) and /YG at $1,200 ($1,211 now) – I'd play /SI with conviction until/unless $14 breaks, then take a loss and wait for a better bottom.  Dollar near 97 is a big factor.  Doesn't bother honey badger though:

    So, if all goes well Dollar is rejected at 97 and, if not, then there's some sort of Global Panic that should make us very nervous. 


  23. AAPL / Phil – These weak iPhone numbers are not surprising. I think that there is a good reason they will stop publishing numbers. The trend for hardware refresh has been weak and it makes sense – phones prices have gone for about $500 to over $1000 so people keep theirs twice as long (not exactly, but you get the point). AAPL doesn't really care that much, they'll emphasize services and be less reliant on hardware (BTW, that has been the GOOG model from day one). For their suppliers, it's going to be more painful… 


  24. /RB/Jeff – Got our bounce so shame on anyone who started at $1.65, doubled down at $1.60 and isn't getting 1/2 back out at $1.625 – it's a gift – don't blow it!  /RB way too volatile to hold a 2x position into the weekend.

    DIS knocked it out of the park again – may have to start moving the channel higher than $120.

    SQQQ/Coulter – Well, it's right at $13 but was $16 two weeks ago so that would've been the time to close it.  Now the $10s are $3.20 and the $13s are 0.55 so you are sacrificing 0.35 to take the bird in hand but is it really worth 1.13 in the bush?   If it's insurance that you need long-term, you could buy the Jan $12s for $2 of the $3.20 you cash and then your Nov $13s are covered and you can wait out the premium on Nov and the Jan $18s are 0.60 so not a bad roll if SQQQ goes higher and, if it doesn't, you have $1.20 in your pocket and whatever the Jan $12s are worth so, as long as that's $1.50 or better – you are no worse off.

    /CL/Tommy – With a major support like that, we often trade it on faith.  Once it stops falling, the chance of a bounce back over is very, very high the first time (but not the 2nd!).

    Wow, /NG might hit my $4-$4.50 target for next year already. 

    Walker/Pirate – Good riddance!  What a nightmare you guys have lived through.

    GE/Jabob – JPM says $6.

    TSLA/Batman – Can't short them again after they made a profit (blows part of the premise).  Have to wait for next Q now.


  25. Thank you Phil—


  26. Phil/GE,

    big pain in A@#. my bad of course.

    I have 8 GE short Jan 20 strike 15 Puts. sold at 3.21 and now at 6.70. using lot of my margin…close to $6500 (note that I do not have PM Margin) How can I roll these and reduce the margin requirement without losing much money.

    thanks as always.

    regards


  27. IMAX????


  28. You're welcome Savi.

    I'm planning to hit a poker tournament at 2pm – hopefully the markets aren't too crazy. 

    GE/Pat – You can reduce margin by rolling the 8 short 2020 $15 puts ($6.90 = $5,520) to 20 short 2021 $10 puts at $3.10 ($6,200) and buying 20 of the $5 puts for 0.70 ($1,400) so that's net $720 out of pocked from the $2,568 you initially collected so net $1,848 on 20 short $10s means you need $9 to break even in 2021 but the margin should be about 1/3 lower and the strike is 1/3 lower and the max loss is $8,152, down from $9,432 on the original set.  

    IMAX/Jabob – Dolby is making good inroads with their system and worries about China retaliation is not helping either.  I don't know if there's anything else as I don't have all my screens and the ones I have are slow so you need to do what I have to do every time you put up a symbol that's going down and check the news to see if anything is actually happening or if it's just going down with the market.  

    Meanwhile, great opportunity to go back into the OOP (we cashed it out when it was high) but we'll wait until next week.

    IMAX is Now Oversold


  29. IMAX / Phil – Better hold that 18/19 line… Not that cheap in my book though. Forward P/E is decent but the forward part is always tricky. It's getting more interesting at these levels, but not rushing in now.


  30. stjean--looks like another 52 week low for that one. 


  31. IMAX/StJ – Just put up good earnings, I don't know what people are worried about.  It's like selling the cable companies because they spent money connecting more homes this quarter that will subsequently deliver revenues for many years to come.  

    IMAX Corporation IMAX delivered third-quarter 2018 adjusted earnings of 14 cents per share that beat the Zacks Consensus Estimate by 3 cents and surged 75% year over year.



    Revenues of $82.1 million surpassed the Zacks Consensus Estimate of $80 million. However, revenues declined 16.9% from the year-ago quarter. The decline can be attributed to the absence of $8.7 million of revenues contributed by Inhumans television series in third-quarter 2017 coupled with lower sales type systems installations in the reported quarter.



    Category-wise, Equipment and product sales were $25.3 million, down 17.6% from the year-ago quarter. Services revenues totaled $39.4 million, down 20.8%. Rentals revenues totaled $14.5 million, down 8.6%. Finance income increased 19.3% year over year to $2.9 million.



    During the quarter, the company extended its partnership with Wanying Cinema Line, a subsidiary of China Resources Land — one of the biggest state-owned commercial developers to open 14 more IMAX laser theaters, bringing the total to 15.

    Wow, /RB almost round-tripped to $1.60 – that's why we take half off as soon as we're even (or near even) after we DD! 

    Indexes still not looking pretty but only giving up about half of Weds… so far.

    RUT gave it all back and then some – not a good sign:


  32. Phil, they got poker tournaments on your cruise? what cruise line you on?


  33. NLY – Phill does this mean anything for those holding common stock?

    https://finance.yahoo.com/news/annaly-capital-management-inc-announces-211500951.html


  34. Poker/Crs – This is Celebrity. They had it on Norwegian too.

    NLY/Tangled – No, it’s just the normal thing they do with Preferred stocks.

    Not much going on though /RTY is now down almost 2.5% at 1,545, another 3 points should do it so that makes the weak bounce line off 1,542 from a rejection at 1,590 yesterday 48 point so call it 10-point bounces so 1,552 would be weak and 1,562 strong and anything less than strong does not bode well for next week.


  35. IMAX / Phil – Methink we see better prices especially if the market tanks again… I don't have a list of what is coming up at the movies though and that's probably the next deciding factor.


  36. IMAX/StJ – $17.50 to $19 is the usual bottom of their channel and $25-26 is the top.  Will this time be different?

    In the STP, I want to pick up 10 of the BABA Nov $145s for $3.10 – a fun play for the Singles Day Weekend.  

    Back at the Command Center on Monday but then off to Vegas for the Cannabis Convention for the rest of next week.  

    Off to play poker – don't let the market collapse while I'm gone – but it looks like it might with /RTY testing 1,542 and /YM giving us almost 100 points since 26,000 already.  /NQ below 7,000 will be duck and cover time (7,007 now).  On the whole, I'm glad we kept our hedges!  

    Have a great weekend,

    - Phil





  37. Trump Brushes Aside Questions About Mueller Probe


  38. Double agents: How soccer clubs, players and agents play the tax game


  39. Donald Trump Played Central Role in Hush Payoffs to Stormy Daniels and Karen McDougal


  40. Fun & crazy week in the markets and on the site. Have a good weekend…


  41. This comment found at Sentiment Trader a couple of weeks back:

    "To be clear, the terms “smart” and “dumb” are just shorthand. “Smart money” includes traders who tend to buy into declines and sell into rallies. They go against the trend, which looks dumb for a while, but they usually are holding their largest positions at bottoms and smallest at tops. That’s where the “smart” moniker comes in.

     

    “Dumb” money investors are trend-followers. They will add to longs as prices rise and reduce them as they fall. They’ll look correct during the meat of a trend. But they’ll usually be holding their largest long positions as a market peaks and their smallest as it bottoms."


  42. Not smart enough myself… Still making some dumb money though!


  43. Maybe it's not so much about what kind of money it is, as long as whatever style you use is making you money?


  44. I thought I'd follow up on something I mentioned to member 'beinghuman' mid-week about following up on historical posts related to FTR trades to understand Phil's methodology of managing trades and the lively interchanges that add so much more. I acknowledge it is subjective, based on historical context, and while times have changed I think it is representative of Phil's approach. I defer to Phil if he thinks it is no longer relevant or taken out of context.

    The extracts cover a period from October 14th – October 16th 2016. It starts off with 'Maya1' asking the question: 'HOW MANY SHARES OF FTR would you risk in a $1M portfolio?'

    Some facts for historical reference.

    FTR price at close Oct, 14, 2016: $59.10. FTR announced a reverse stock split effective as of the beginning of trading on Monday, July 10, 2017, so the prices in the posts that follow all need to be adjusted to a pre-split price, multiplying by 15 if one wants to compare with current pricing. 

    On Feb 28, 2018 FTR stopped paying a dividend.

    FTR price at close Nov 10, 2018: $3.87 (that price does not need to be adjusted!). 


  45. Phil / GLW & BX - 

    Hi Phil, if you have some time over the weekend can you let me know your thoughts on GLW and BX.  Im looking into selling puts on both.  Thank you!


  46. Maya1 

    October 14th, 2016 at 3:28 pm | Permalink | Tweet thisIgnore this user

    Phil/appl and FTR

    Not bad risk reward…for the 2019's

    HOW MANY SHARES OF FTR would you risk in a $1M portfolio? I forget the OOP size concept

    phil

    October 14th, 2016 at 3:49 pm | Permalink |

    FTR/Maya – Well, with a $1M portfolio I'd also have T and CHL, so don't want to over-concentrate on a minor Telco.  But, $1M means $2M buying power/50 = $40,000 per allocation block but, with $1M portfolios and 1/50th allocations, it's never a big deal if you go over the allocation.  So, with FTR netting you in (if assigned) at $3.35, there's certainly nothing wrong with committing to 5,000 shares to start, which would be 10,000 at $3.35 if assigned ($33,500) and then (assuming FTR is not going BK) you would sell $2.50 puts and calls for maybe $1 and drop your net to $2.35/2.43 and, if assigned then, you'd have 20,000 shares at $2.43 ($48,600) which is why it's no big deal to be aggressive in round one. The dividend on 20,000 shares is $8,400, which is a nice annual 17% return if you never touch the stock again after that (assuming the dividends keep up) and, of course, if you are just leaving the stock alone, it's $24,300 margin or less so the return on margin is 34% – this is why I am disappointed when the stocks we buy don't go lower and force us to DD! It's tedious when you first start building the portfolio (2 years) but, if you stick with the program, you end up with nothing but cheap stocks for a nice, long-term base. And what Craigs said!  Actually Craigs is really starting to get it so it's hard for me, at 53, to change my teaching style when I see it working.  Yodi and I used to have the relationship Craigs and I have now and he's one of my star pupils now and passes what he's learned on to others (in a much nicer fashion). I've always been like this but I've worked with thousands of people over the years and many times I've made people cry but I don't let them quit.  I'm not proud of that – I just happen to be a very intense person who NEEDS to make sure things are sinking in and sometimes, I may hurt your feelings (and I don't mean to) – but as long as you remember it I'm happy with the result.

    Maya1

    October 14th, 2016 at 3:59 pm | Permalink |

    Phil/ FTR THANKS Yes, I have T as well as VZ already. But as I have said here, I have not had much luck selling calls. Every time, without fail, a ITM call, always results in stock being called away the day before ex dividend date….and that has happened to me with NLY, AGNC, VZ, T… So, I am a little weary of selling the FTR $4 calls…may lose out on the dividend and then our thesis of building a position becomes much more difficult. More ideas?


  47. phil

    October 14th, 2016 at 4:31 pm | Permalink |

    FTR/Maya – You are looking at it all wrong.  FTR is at $3.94 and pays a 0.105 quarterly dividend.   If you buy FTR for $3.94 and sell the 2018 $4 call for 0.45, your net is $3.49.  If you get to dividend day and they call you away, they put $4 in your account and, instead of making 0.105 in the dividend, you make 0.51 – they are doing you a favor by calling you away - that's a whole year's worth of dividends at once! Then, with the $4 they put in your account, you simply buy the stock and sell calls again and HOPE someone is nice enough to call you away next time as well! $1,200/Craigs – Yes, I got it – and I'm glad you did too, Congrats!  Have a great weekend.

    Maya1

    October 14th, 2016 at 4:40 pm | Permalink |

    FTR Phil, you are correct but all FTR has to do is get above perhaps $4.10 or $4.20 and if my short calls are in the money…that's it- it's called away! And if the stock is above $4.40, then it's even worse as I then not only lose the dividend but have to buy the stock at 4.40 or whatever and sell calls again? What am I seeing wrong?

    phil

    October 14th, 2016 at 4:53 pm | Permalink |

    Not wrong just losing sight of the process.  Your goal, now, is to make 0.51 on FTR plus 5 dividends of 0.105.  So your expectations are to gain 0.105 on 11/1, 0.21 on 2/2, 0.315 on 5/1, 0.42 on 8/1 and 0.525 on 11/1 of next year and then, if still above $4 in Jan 2018, you get a bonus of 0.51. So, if you get called away on 11/1 this year – you are ahead of schedule with 6 months worth of profits in your first month.  If you get called away on 2/1, you get 0.51 + the 10.5 from 11/1 is 0.615 and still very nice.  If you get called away on 5/1, you have 0.21 from 2/1 and 0.51, still very nice for a few months – and so on. FTR has strikes every 0.50 (one of the reasons I like them) so, if it's at $4.50 when you are called away, you sell the $4.50 calls instead.  As long as the calls you sell have 0.105 worth of premium, then they can't hurt you by calling you away – ever. If you can't get a good premium (which happens sometimes if you are 0.25), then simply don't buy it again unless it's cheap – you sold the puts anyway and you can always sell more as a substitute for the stock if you really miss it.


  48. phil

    October 16th, 2016 at 1:26 pm | Permalink

    FTR/Pstas – They pay a 10% dividend easily servicable though cash flow and they have almost no chance of going BK and fairly fat option premiums to sell – what's not to love?  We don't need, or even want, an upside catalyst when we're selling $4 calls on a $4 stock, do we?  All we want is for our net $2.80 to get called away at $4 plus the 0.42 dividend is a $1.62 profit (57%).  I like making 57%, that's all the reason I need to be interested in something.

    Frankly, we've been doing FTR plays for 5 years and making 57% over and over again so we have a stock paid over 3x back and all we have to do is sit and collect dividends now. Let's say I have a $100,000 portfolio and I play FTR like this in year 1:

    Buy 1,000 shares at $4

    Sell 10 2018 $4 calls for 0.45

    Sell 10 2018 $4 puts for 0.90

    So, in Jan of 2018 we've got 1,000 shares at net $3,650 and net $420 in dividends. Now we do it again but reinvest our dividends and bring it up to 2,000 shares and let's assume the same sales on this boring stock with no catalyst that goes nowhere. We spend $2,000 more for another 500 shares less the $420 dividends is $1,580 and we sell 15 $4 puts and calls at $1.35for $2,025 so now we're net $3,205 on 1,500 shares and we collect $630 in dividends.  Notice, despite upping our share count by 50%, our cash allocation is going lower anyway. Now we're into Jan 2019 and another boring flat year and we bump it up to 2,500 by buying 1,000 more at $4 ($4,000) less the dividend and now selling 25 puts and calls for $1.35 ($3,375) so now net $3,200 and we're STILL losing ground on our cash invested and now we're getting $1,050 in dividends. By Jan 2020 we have 2,500 shares of FTR at net $2,150 but, if assigned, it will be 2,500 more at $4 for $5 ($10,000), which isn't awful but not necessary anymore and we can now just put 1/2 our dividends and 1/2 our put and call sales into new stock. So, in Jan 2020, we sell 25 Jan 2021 calls for 0.45 ($1,125) but only 15 puts for 0.90 ($1,350) and we still get our $1,050 dividend for $3,525 collected against our $2,150 net position. In Jan 2021 still bored at $4 with 2,500 shares, we bump it up to 3,000 for $2,000 more, leaving $1,525 to lower our basis to $625 on 3,000 shares, still with 15 short puts ($1,350) but now 30 short calls ($1,350) and the dividend is $1,260, generating $3,960. Another year (Jan 2022) another 1,000 shares to buy with our profits and now we have 4,000 shares, leaving us with $1,960 from last year's collections so now we finally have a cash profit of $1,335  and we sell 20 puts ($1,800) and 40 calls ($1,800) and the dividend is $1,680 and we collect $5,280. Keep in mind this is just 5 years from now and the trade we began in 2017 with $3,650 in cash and a net commitment (if assigned) of $7,650 is now throwing off $5,280 in option sales and dividends each year.  In a $100,000 portfolio, with 10 positions like that, in just 5 years we're collecting over $50,000 a year and, even better, the asset value of this position, with 4,000 shares is now $16,000 so 10 x that and we'd have $160,000 in positions ALL of our $100,000 original cash back in our pocket and we're collecting $50,000 a year from our working positions with only 1/2 put sales on them ($80,000 if assigned). That's why I like them, it's a nice, safe way to build up some fantastic payoffs in your portfolio.  It SEEMS very dull at first but, if you follow the plan – it's just as exciting as any 10-bagger – without all the drama. 5 more years (2027) and it all doubles up to $320,000 in positions, $200,000 in cash and collecting $100,000 a year – all from starting with a $100,000 and buying those unappealing dividend stocks in 2017!

    Of course, that's the THEORY, not the practice because FTR doesn't stay at $4 and, when it doesn't, we let it get called away and move on to the next 10 value stocks we like and, if FTR gets cheap again (like it is now) we buy it again – for the reasons I outlined when talking to Hanj on Friday.

    We started playing FTR when it got cheap in 2012 and it got away from us for a while and we lost interest and now it's cheap again and I'm interested again.  Over those 5 years, dividends have been rock solid (we bought them when they cut dividends and the stock dove).

    There's a value to having a chunk of your portfolio invested in mindless dividend-paying stocks that just throw off an income, year after year.  As I noted last week, our LTP, in year 3, is generating $50,000 a year just from dividends and we only started with $500,000 3 years ago this November so that portfolio is now making 10% a year before we make a single trade and that will bump up to 20%, 30%, 40%… until, within 30 years (if we kept this modest pace), it would be throwing off $500,000 a year in dividends alone.

    Don't forget, those dividends generally adjust for inflation too so THAT is the value of making those kinds of investments – you get to retire with security and a nice, tax-advantaged income – BESIDES the massive buildup in your portfolio's asset value (up 110% so far).


  49. FTR – now come a series of posts by Phil referencing previous notes and comments on FTR from 2012. As I mentioned to 'behuman', FTR has been a perennial talking horse over the past few years.


  50. phil 

    October 16th, 2016 at 1:38 pm | Permalink | Tweet thisIgnore this user

    Our first FTR trade:

    Submitted on 2012/01/04 at 2:40 pm

    Telcom/StJ – A very large amount of people cancelling services and also huge problems with collections make it a tough sector.  Other than T and VZ, who are both too big to fail, the only one in the sector I like is FTR but even they have had a lot of issues.  With the big guys, the cash flow is enormous, all they have to do is stop building/upgrading for a year and they’re up Billions.  

    Submitted on 2012/01/24 at 2:36 pm

    FTR/Craig – You can just sell the Jan $5 puts for $1.20 and be done with it.  Either you get a $3.80 entry (20% off) or you make 20% (over 100% on margin) for doing nothing.  Why waste time (and fees) otherwise?  The dividend is nice at 15% but the short put makes more.   

    Jromeha Submitted on 2012/01/27 at 10:30 am

    FTR:  S&P downgraded its outlook on FTR yesterday to negative (kept BB rating), basically telling the company they need to cut their dividend.  This morning stock was down 15% in the first 10 minutes hitting $3.81 and has now bounced back to $4.24.  Nothing from the company yet that I've seen, but some serious volume on the down move and now the rebound. And to think these guys like to think of themselves as a "boring telco"!

    Ronresnick Submitted on 2012/01/27 at 10:57 am

    FTR / As someone who now lives mostly on dividend income I am always looking for companies with high dividends.  Almost every time I reached for an unusually high dividend yield (oil tanker companies, middle-market lending BDCs, non-U.S. phone companies) it was a mistake, resulting in losses and sleeplessness.  I have had some winners there (NLY, SCCO, SDRL, APA Group in Australia and CPL in Brazil) but, in general, I have learned to not be so greedy about yield and to focus on MLPs and companies like PM.

    Submitted on 2012/01/27 at 12:19 pm

    FTR/Cwan – S&P doesn't take into account the expected slowdown and loss of clients from the acquisition nor does it look at the R&D spending (working to compete with cable cos) that have very long-term payoffs.  As they should, they look at cash flow and near-term projections, those are not great for FTR, this is a very long-term hold and accumulate type of stock

    FTR/Jrom – Keeping in mind they could go to $3 if they cut their dividend (but then it's a nice growth company as they concentrate on cash flow and building business) then sure, I like FTR and you can sell the 2014 $5 puts for $2.30 and just buy the 2013 $5 calls for now (.30) so you don't feel like you're missing anything on the way up (except the dividend) and you have a net $3 entry and, if they seem like they are getting better, the current 2014 $3/5 spread is about .90 so you can grab that once you feel more confident or buy the stock around $4.50 and sell the 2013 $3 calls for $1.50ish (now $1.20ish) and that would put you in for net .70/1.85 even after you wait to be sure they are bottoming.  If they keep paying that .75 dividend for 2 years, you risk .35 on the whole trade, even if they end up at $0 (but those two things are probably mutually exclusive, of course).   


  51. Dividends/Ron – I agree in general but if you look at FTR's cash flow, it's pretty steady.  They just did an acquisition and are being punished for it but they are an accidental 15% payer.  I understand management's viewpoint – why should we lower a dividend we can afford just because the PRICE of our stock is down?  Last time FTR was this low, they began buying stock ($200M in 2008), that would be about 5% of the company at these prices so we'll see what happens next.  

    Roma Submitted on 2012/02/07 at 9:10 am

    Phil/ FTR  what is your thoughts about 500% dividends payout ratio? do you think it is safe and sustanable?

    Submitted on 2012/02/07 at 10:36 am

    500%/Roma – I'll take that!  Unfortunately, FTR is only paying .75 and I doubt they'll get to .15 on the stock anytime soon.  On the other hand, you can buy them for $4.30 and sell the 2014 $5 puts and calls for $2.55 for a net $1.75/3.38 entry and that makes the .75 dividend 42% against your $1.75 cash outlay.  If the dividend holds up for 2 years, your net becomes 0.25/2.63 and if those short puts expire worthless (FTR over $5) and you don't sell new ones, you're left with just the stock at net .25 and 300% annual dividend returns (assuming they hold up).  So, let's say you have a $100,000 portfolio and you want to end up making 3.75% a year in this rosy scenario.  

    Your goal is then to buy 5,000 shares for $21,500 and sell 50 puts and calls for $12,750 for a net cash entry of $8,750 and your worst case is you are obligated to own another 5,000 shares of FTR for $25,000 more, which is then $33,750 committed for 10,000 shares.  Assuming ordinary 50% margin, this would use up $16,875 of your buying power which wouldn't be terrible but only if the dividend stays.  

    So probably, on this trade, you want to keep a stop on the $5 puts, now $2.10, at $3, which would net you into 5,000 shares at $4.75 with a call away at $5 and then you could stop out at $3 on the stock for an approximate $10,000 loss so that's your risk outside of a sudden bankruptcy against the potential upside of owning 5,000 shares for net $1,250 (after collecting $7,500 in dividends between now and 2014 and having the short puts expire worthless) and then collecting $3,750 a year for the rest of your life (hopefully moving up over time).  It's a good risk/reward and even better if you don't mind starting with 2,000 shares (which still bring in $1,500 a year) and scaling in on a downturn.  

    The biggest problem with this trade is that, if it works out with 2,000 shares, you'll be kicking yourself that you don't have 5,000 – that's why we aggressively doubled down in the Income Portfolio after taking a small initial entry.  

    Roma Submitted on 2012/02/07 at 10:52 am

     

    Phil / FTR

     

    500% dividends payout ratio means they pay 5 times more than they make (net income), and i am in doubt they can continue to do that for long term…..

     

    just think your math is too good to be true…….:)

    Submitted on 2012/02/07 at 12:05 pm

    FTR/Roma – Ah, is that based on one quarter or two of observation?  They did a huge acquisition so things are a mess but income is holding steady and this is a company that pays a set dividend – it's the same one they always pay and they are making the same money they always make with the same cash flow and essentially the same balance sheet but they added a bunch of debt ($3Bn) as well as $500M in Receivables that they haven't booked to earnings yet.  There is nothing I like better than companies that tank after making sensible acquisitions when people who fixate on this or that metric freak out and panic out of their positions.  That's another reason this country is doomed – outside of very early stages, growing a company is frowned upon – only squeezing operating efficiency out of existing businesses is rewarded and God forbid a company does $1Bn in sales and drops $200M a year to the bottom line for 10 straight years – they call that "dead in the water."  

     


  52. … that was an aside from 2012, now the thread on FTR from 2016 resumes…….


  53. batman 

    October 14th, 2016 at 9:37 am | Permalink | Tweet thisIgnore this user

    Phil / FTR – do you see a bottom forming at 4 with the recent FCC ruling?  If not where do you the support?

    phil 

    October 14th, 2016 at 10:35 am | Permalink | Tweet thisIgnore this use

    FTR/Batman – I see $4 as a really good place to get in, that's for sure.  The impact of the decision is maybe $20M/y in revenues out of $5.7Bn, not really material.  Doesn't stop people from freaking out though and then the TA people start following the trend and so on and so on…    Anyway, long story short:  We already have 4000 FTR in the LTP at net $3.40/3.70 and the dividend is 0.42, which makes it 12.3% on our cash outlay.So, as a new play for the OOP:

    Buying 2,000 shares of FTR at $4

    Selling 20 2018 $4 calls for 0.45

    Selling 20 2018 $4 puts for 0.85

    That nets us into 2,000 shares at $2.70 ($5,400) and our upside, if called away at $4 is $8,000 for a $2,600 profit (48%) if FTR simply holds $4.  If we are assigned another 2,000 shares at $4, our average price on 4,000 shares would be $3.35 a 16% discount from the current price – that's our worst case.

    While we wait, we get 2,000 x 10.5 ($210) dividend per Q and they just paid out in Sept so we expect Dec and 4 more next year for $1,050 in dividends too, bumping up our total gain over the course of 15 months (if all goes well) to $3,650 (67.5%) which is not bad for a boring dividend stock!

    Maya1 

    October 18th, 2016 at 2:06 pm | Permalink | Tweet thisIgnore this user

    Phil/ FTR

    GOOD AFTERNOON!

    So I entered a 1/4 position last Fri at $3.93 and sold puts, hoping for a bounce before selling calls

    With the stock up 5% today to $4.08, I sold the Jan $4.50 Calls for 30 cents rather than $4 calls for 50 cents

    Figured- I can live with that- and less likely to be called away- trying to build a dividend portfolio..

    phil 

    October 18th, 2016 at 2:58 pm | Permalink | Tweet this

    FTR/Maya – Good adjustment, taking advantage of the move up is an excellent play.


  54. It is important to note that I do not show any posts after October 18th, 2016 so it is a very arbitrary cutoff date. I am not passing judgement on whether the trade was a 'good' trade or a 'bad' trade. It is purely to illustrate the PSW style in action.


  55. Phil, can you comment on FTR's quarter?  Everything I'm reading suggests that FTR is in a death spiral.  They cannot get customer churn under control enough to deleverage.  With cord cutting, and 5G coming, it is hard to imagine how they can meaningfully change the trend.  In the end it seems like simple math.  They have huge debt maturities in the coming years, and if they cannot generate enough cash to pay these, they are going to go bankrupt. Not this year, or next, but it seems very likely bankruptcy will happen in 2022.   The bond market looks closed to them, and it doesn't seem likely that they are going to be able to sell assets at a good enough price to save the company.  

    I found this article informative:

    Frontier Communications: September 15th, 2022

    I have a major loss from this position, but it seems hopeless now. What am I missing?


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  66. FTR/Winston – Not sure what you are trying to prove with the FTR comments but let's keep in mind that between Oct 2016 and July 2017 they paid dividends of $5/share which made them a good bet – as long as they didn't go BK so OF COURSE the trade changed when they cut their dividends.  Would you like me to be consistent despite MASSIVE changes in the underlying facts?  

    FTR hit $34.48 in October of 2016 and then popped back to $43.80 into Jan – up $9.32 (27%) that quarter so was I wrong to thing $34.48 was too low 3 months earlier?  Your hindsight is astounding after they bought Verizon's operations for $20Bn and that move was rejected by the market but, sadly, I didn't have those facts at the time, did I? 

    I also can't possibly imagine what you hope to prove by showing how much I liked FTR in Dec 2012 as it's completely out of context but, since you bring it up – it was a MASSIVE 2-year winning run for us:

    Those are the split-adjusted numbers of course so 15x $125 = $1,875/share – seems a little rich, even now…

    There's way, way too much noise to cut through in all that you put up but let's take that Oct 16th, 2016 trade idea, before the July 10th, 2017 split and before the stock collapsed and let's say that we were idiots and never adjusted it and that was our only trade:

    Buy 1,000 shares at $4

    Sell 10 2018 $4 calls for 0.45

    Sell 10 2018 $4 puts for 0.90

    I laid out our plan at the time for a $100,000 portfolio so let's remember you have to increase prices to adjust for the split at 15x but you ALSO have to reduce the share count by 15x so – very unlike the picture you seem intent to print that it's out of control – it's a perfectly normal trade – despite the disaster in stock price.

    1,000/15 is really 66.6 but we can't do that (though it would be 33% cheaper) so we'll call it 100 for the purpose of working out how the trade went though it adds 50% to what we actually lost:

    • Buy 100 shares of FTR at $60 ($9,000) 
    • Sell 1 2018 $60 call at $6.75 ($675) 
    • Sell 1 2018 $60 put at $13.50 ($1,350)

    So there we are, in our first round of FTR at net $3,975 – paying $46.50/share.

    We do NOTHING at all until Jan 2018 when the stock is down to $7.15 and we get assigned 100 more at $60 ($6,000) and now we have 200 shares at $9,975 ($49.87/share).  At $715 we're down $9,260, which is essentially a single allocation block less, of course, the dividends we collected:

    Dec 14, 2017 0.6 Dividend
    Sep 14, 2017 0.6 Dividend
    Jun 13, 2017 0.04 Dividend
    Mar 13, 2017 0.105 Dividend
    Dec 13, 2016 0.105 Dividend

    That's from the OOP, and let's say (since you want to be a stickler) that we weren't assigned and only had the 100 shares despite the steep drop and they only split into 7 shares on July 10th, 2017 so we would have collected (because these are split-adjusted dividends from Yahoo): 1,000 x so that's $101.50 for Dec, $101.50 for March, $40 in June, $600 in Sept and $600 in Dec which is $1,443 so our net net loss was $7,817, no $8,417 because we closed FTR after the Sept payout (14th) as we didn't trust them to do another one.   

    If you haven't cut and run by then then I guess you decided to stick with them for the long haul but doubling down is still DOUBLING DOWN, not adding 200 more adjusted shares so we commit to another 1,500 shares (100 more of the old shares) and I know that's what we'd do because it's exactly what we did do in the OOP:

    Frontier Comms. Corp. 1500 1/2/2018 313 $10,725 $7.15 $-3.28 $7.15     $3.87 $-0.14 $-4,920 -45.9% $5,805
    2020 17-JAN 8.00 CALL [FTR @ $3.87 $-0.14] -15 1/3/2018 (432) $-1,875 $1.25 $-0.83     $0.43 $-0.08 $1,238 66.0% $-638
    2020 17-JAN 8.00 PUT [FTR @ $3.87 $-0.14] -15 1/3/2018 (432) $-6,000 $4.00 $0.45     $4.45 $0.35 $-675 -11.3% $-6,675

    So now we have another 1,500 shares at net $2,850 or $1.90 per share and, if assigned another 1,500 at $8 (seems likely) we'll have 3,000 at $14,850 or $4.95/share (plus the original 200, of course but we did cash those out in the old OOP on 9/14/17 – so this was truly a new trade). 

    When we are assigned in 2020 – we'll then have to decide if we take another big loss or we continue to have faith and DD again – we're still in the original plan and, if FTR doesn't go BK and goes back to paying a dividend, I'll be TRILLED to have 6,000 shares in the OOP in 2022.  Let's say those shares are $2 and we paid (including the first loss) $20,000 for them so $3.33/share and let's say they only pay a 5% dividend (0.10), that's still $600 a year back (3%) on our $20,000 and then we can still sell 20 2024 calls for another 0.50 at least and that's another 2.5% a year so, not great but we're making 5.5% a year in our worst case and we do still have $12,000 worth of stock.  

    Well, the worst case is bankruptcy but why do we keep doubling down for 4 years if they are going BK?  At this moment, we're just sitting on our net $4,375 loss and deciding what to do next but, since you are the wise one – you tell us what we should do and we'll analyze your decision vs mine in a couple of years.


  67. Heheh – looks like the boat's wifi improved for Phil.

    Good discussion, though, thanks Winston & Phil.


  68. And, by the way, the examples above are NOT arbitrary and are exactly what we did do in the OOP.  We had a plan, it didn't work the first time and, so far, we've followed through by committing another allocation block and we're now in year 2 of a 6-year trade so one might think it's a little early for Monday morning quarterbacking but it won't be any fun to rip the trade apart if FTR goes up – so now is the best time.  

    FTR/Palotay – FTR has a ton of debt and rates are rising and that scares the crap out of people but FTR's rates are mostly fixed, so only a real problem if they fail to pay them off or have to refinance at higher rates.  This year, they paid down $800M in debt from their Free Cash Flow and they just confirmed they expect to make another $500M/yr by the end of 2020 but $800M is their planned 20-year debt pay-down (they anticipate rolling about 1/2 their debt to longer periods over time).  

    Obviously, if this now $410M company were making $1.3Bn a year free and clear, it would be a bit of a bargain but you don't have to wait 20 years as each year they are on plan, they are 5% closer to making $1.3Bn a year and 5% of $1.3Bn is $65M which is still a p/e of 6.3 – not a bad annual pick-up. 

    Meanwhile, even the downgrades sound fine if you are a LONG-term investor:

    Calling Q3 results mixed, but taking note of weaker-than-hoped broadband subscribers, UBS downgrades Frontier Communications (NYSE:FTR) to Sell from Neutral. The price target is cut to $3 from $6, suggesting about another 33% downside.

    Management has time to turn things around, but hoped-for savings will take time to put in place, and revenue and EBITDA will continue to fall in the interim.

    Source: Bloomberg

    Shares down 10.8% premarket to $4.69.

    Remember, our plan is to own 6,000 shares for $3.33 by 2022 – they're still not there yet so, on the whole, we pretty much agreed with UBS back in Jan of this year.  

    As Winston notes above, I laid out a whole 6-year trading strategy for FTR back in Oct of 2016 and we're just sticking to the 6-year plan in November of 2018 – this really isn't very complicated and I never said it would rocket higher – we knew it would be a long, slow turnaround and expected to have to DD twice.  Of course we didn't expect them to get this cheap – but that's an opportunity to buy more if you believe in it but, if you have doubts – WALK AWAY – because it's still going to be a rough road ahead.

    These are their current slides from Nov 6th.  I'm sorry but I read through all of Winston's comments looking for something Fundamental but all I could find was a bunch of 2 year-old comments picked out of more than 2,000 comments on FTR from PSW (448 were me specifically answering questions on them – Winston has highlighted about 20 to prove his point) 

    That's $2Bn a quarter and yes, they are getting tax breaks for depreciating things so they show the IRS a loss but EBITDA is $878M – in one quarter!  And they paid down $475M in debt – in one quarter!  

    Gosh, if I could by a company like this for $410M – I'd be pretty excited!  

    Revenues are steady, EBITDA is steady, margin is steady, cash flow is steady…

    Customer loss is stable now.  Next they have to do some marketing but this year has been all about trying to keep the VZ customers they bought from leaving. 

    Oh, and they invested $1Bn in future growth…  A very odd thing for a $410M company to do, don't you think? 

    Vast majority of their debt is unsecured – that's good for them if they ever have to re-negotiate.  Easily serviceable until 2021 but they'd better be much more profitable by then so we'll keep an eye on that.

    Non-GAAPs are nicely laid out (many companies bury them) and there's nothing here I disagree with.  They are writing down VZ's assets, as they should for tax purposes and that makes their reported earnings look $500M worse each Q and will continue to do so for 10 more years!  

    Cash flow is king and trailing 12 months is a good indicator to cut down the noise.  

    These are the customers they are losing – much more under control this year and losing customers (churn) is normal and their rate of churn (2%) is normal for the industry (1 in 50 customers decides to switch services each year).  

    Also, Palotay, the negatives the author describes are IF they fail to make their Sept 15th, 2022 $2Bn debt payment.  Based on the current numbers – that does not look like it will be a problem but anyone can then postulate what a catastrophe it would be if this goes 10% against them and that goes 10% against them and then they can't make the payment and that will cause this and that to happen.  You can make that case against pretty much any company if you want to.  

    It's amazing how bad you can make something look if you take it out of context and then extrapolate the worst case from that, right?   

    Acquisitions are expensive, not just in the debt you pick up but in the restructuring costs you incur while stitching the two companies together – a massive acquisition like this takes years to digest and, so far, FTR is doing a pretty good job of controlling the costs but also a good job ignoring the plunging stock price and trying to please traders at the expense of investors.  

    Boat/Snow – No, I'm back in the command center.  I would go on a lot more trips if I could take my home system with me.  I bought a 42" all-in one so I can hang another screen off that and have, effectively, 4 screens on the road plus my IPads so that's good for local trips and, since I'm in Florida now – I can haul that set-up on local cruises, which I think I'll stick to from now on since flying to Puerto Rico and then getting on a boat was one step too many!  

    Meanwhile, Puerto Rico was great and a shout out to the Condado Vanderbilt Hotel, where we stayed while we were there.  I highly, highly recommend it and it's an AMEX Fine Hotel so, if you book through them you get breakfast for 2 every day and a $100 credit to spend at the hotel.  

    Image result for Condado Vanderbilt Hotel

    Image result for Condado Vanderbilt Hotel

    Image result for Condado Vanderbilt Hotel


  69. Well, we finally got a pop in oil and gasoline – I thought $60 would be unacceptable:

    • Grappling with a drop in crude prices, Saudi Arabia is discussing a proposal that could see OPEC and non-OPEC oil producers cut output by up to 1M barrels per day, sources toldReuters.
    • Any such deal would depend on Iranian export levels and U.S. sanctions waivers.
    • Meanwhile, Venezuela is hoping to steeply raise oil production next year, but will respect any new deal if OPEC agrees to reduce output from December.

    Honey badger don't care:

    Even honey badger went against us for a while but, as some of us believe, Fundamentals win out over time:

    UNG, in fact, was our 2016 trade of the year so imagine how much fun Winston could have had showing what a fool I was for doubling down when it hit $2 as the stock fell to $1.75.  Could have found dozens of comments of me saying "I'd stick to the plan and buy more" even though it kept going lower.  

    UNG was another one that did a split – a 1/4 reverse split this Jan.  We closed the old LTP position but we had 50 UNG 2020 $5 calls at $2.15 and we had 30 short 2020 $10 puts at $3.82 so that would be:

    • 12.5 2020 $20 calls at $8.60 (now $11.30) 
    • 7.5 2020 $40 puts at $15.28 (now $11.30) 

    So that's up $3,375 on the calls and $2,985 on the calls and we could sell the $30 calls now for $4.80 to put another $6,000 in our pockets and then close the $40 puts and sell 5 2021 $30 puts for $5.40 ($2,700) instead which leaves us with little downside risk and another $12,500 to pocket if UNG stays over $30.

     

    If not, I'd probably add more – despite all the complaining…


  70. Speaking of loser stocks – imagine if GE wasn't dragging down the Money Talk Portfolio:

    Here's the print from Friday a week ago – before I left for my trip:

    It's easy to take vacations when your portfolios are well-balanced!  And what are we going to do with GE?  Yep, probably double down while it's cheap - we'll never learn!  

    Essentially, we're on the hook for owning 1,000 shares of GE for $15 ($15,000) plus the $4,250 we spent on the spread but it's only a $50,000 portfolio (now $109,000) so we don't REALLY want to own $30,000 worth of GE so we'll move to AVOID the assignment and roll the 10 2020 $15 puts ($6.40) to 20 2021 $10 puts at $2.80, which is $5,600 so it costs us $800 to do that and that ups our net entry to $5,050.

    Then we can just kill the current spread for $1,500 (net $3,550) and we're back to being in for 1/3 of an allocation block and, at the moment, I'd go for 25 of the 2021 $8 ($2.94)/12 ($1.50) bull call spreads at $1.44 ($3,600) so if GE is over just $10 in 2021, we get $5,000 of our $7,150 back and we get $10,000 at $12 for a small profit.  In a smaller portfolio – we don't have the luxury of "going for it" with a huge move as a stock gets low – in GE's case, we'll be thrilled to get our current $3,550 loss back.

    The problem Winston seems to have is that he thinks we're "wasting" time trying to get the $3,550 back on GE and there's some better opportunity out there but, in reality, that $3,550 is GONE and the old GE trade is GONE and this is simply a brand new trade that COINCIDENTALLY is using GE since GE is so cheap now that it's a very compelling way to turn $3,600 into $10,000. 

    The history of GE doesn't matter – nor does our past trading of it.  What matters is whether or not, right now, GE seems like a bargain at $8.58 and whether the combination of stock and options we can take make it worth the risk of our $3,600 and whether or not we can think of a better, safer way to turn $3,600 into $10,000 (that also supports the diversity we want to maintain).  

    And yes, sometimes the trades don't work out but the ones that do tend to make up for it and we use SOME of those profits to stick with the ones that aren't working out – if we still think they can turn up.  

    I haven't updated the portfolios for changes we made from the boat but, last week to this week (completely untouched, which is a nice way to check if you're balanced) we're:

    • OOP $151,883 to $159,511
    • Butterfly $127,480 to $128,480 (yawn as usual)
    • STP $309,940 to $306,272
    • LTP $942,248 to $1,015,903

    That's a net gain of $78,615 + $3,887 on the MTP so a net gain of $82,502 for the week on the completely untouched positions is the BALANCE I want people to focus on – not whether or not one individual trade idea is doing well or not 2 years into a 6-year cycle.  

    SELL PREMIUM, SELL PREMIUM and, when in doubt, SELL MORE PREMIUM – if you stick to that, your portfolio will generally take care of itself unless you don't HEDGE – in which case a downturn can break you but… BALANCE those philosophies and you can do very well in the market over the long-term – or even a good week once in a while…


  71. The Ultimate Guide to Risk Managment






  72. Not sure if you are considering starting fresh with the LTP/STP at the New Year, but count me as one in favor of it.







  73. Falling Oil Prices Are Becoming an Emerging-Markets Catalyst




  74. The War Inside 7-Eleven





  75. U.S. on a Course to Spend More on Debt Than Defense



  76. Phil / GLW & BX - 

    Hi Phil, can you let me know your thoughts on GLW and BX.  Specifically on GLW, do you think last year was just a bad year for their earnings or the beginning of some problems?  

    Im looking into selling puts on both.  Thank you!


  77. Thanks Phil for taking the time to post your follow up – it certainly adds a lot of learnings.  


  78. Phil/MJ – Hey Phil, you did a cute setup on MJ back last week when it was at 32 or so, and I missed it because of Sessions getting fired. It went like this:

    MJ/Japar – At the moment, I'd go with:

    Sell 5 MJ 2021 $35 puts for $10.20 ($5,100)

    Buy 15 MJ 2021 $30 calls for $10 ($15,000)

    Sell 15 MJ 2021 $40 calls for $6 ($6,000) (did you mean 10 instead of 15? I assume so)

    That's net $4,900 on the $15,000 spread with a break-even around $32.50 and then you can sell quarterlies like:

    Sell 5 MJ Jan $36 calls for $2 ($1,000) 

    Sell 5 MJ Jan $29 puts for $2 ($1,000) 

    Now the net of the spread is just $2,900 and you have 8 more sales ($16,000) to go while you wait for your $15,000."

    SO now MJ's heading down again, it might be fun to do something like this, but I'm not seeing options prices that look like that. Is there another way, or do I need to wait a bit for MJ to start turning around?


  79. Good Morning…

    LB upgraded to outperform at Wells Fargo, PT raised from $30 to $55. 

    Here we go – lets hope this starts the analyst upgrade party. 


  80. Good morning! 

    Running late, please re-ask questions in new post.