Posts Tagged ‘SII’

Weekly Wrap-Up – Buffett’s Daring Derivative Deal Does Well

I was going to talk about Buffett's annual letter to investors.

Fortunately, I procrastinated and other people did some detailed reporting like Ravi Nagarajan, Andy Fry, Scott Patterson and Joe Del Bruno – who does a great job of pointing out that Berkshire's 4th quarter results were propped up by Buffett's $1.05Bn gains in derivatives betting (something Buffett himself once called "weapons of mass financial destruction" but, as we well know – if you can't beat them…), which accounted for 1/3 of Berkshire's $3.06Bn profits

Buffett's biggest bet was selling a put against the S&P 500 back in March – a move I said at the time was BRILLIANT and Buffett himself now says about his own options trading:  "We are delighted that we hold the derivatives contracts that we do.  To date, we have significantly profited from the float they provide. We expect also to earn further investment income over the life of our contracts."  

What did Buffett do?  Exactly what we teach you to do here at PSW - he took advantage of an irrational move in the markets and SOLD INTO THE EXCITEMENT, getting a fat premium from some sucker that bet the S&P would not hold 666 5 years from now.  Buffett effectively sold $5Bn worth of puts that expires worthless at S&P 700 between 2019 and 2027, putting $5Bn in his pocket and holding aside $1Bn in margin, which is how much he's already ahead on the bet.  Like a good options trader, he has a plan and he's trading his plan, making sure his investment is on track and patiently letting time do it's work as it eats away at the put-holder's premium. 

What about the risk?  Well I can't speak for Buffett's stop-loss technique but we're talking about a company that has (had) $40Bn in cash using their excess margin to make a $5Bn bet that the S&P would not stay below 700 for 10 years.  Buffett and I both tell people – NEVER buy a stock (or sell a put against one) that you are not willing to own for 10 years.  The S&P was 5% below at the time and would have had to drop, perhaps, 20% more to cost him $1Bn so let's call the stop 550 on the S&P where Buffett risked 2.5% of his cash against a posible 400% gain on his $1Bn risk allocation over 10+ years.  While it is true that if the
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Investor Removes Comcast Strangle to Bank Profits

Today’s tickers: CMCSA, HSY, GLD, ORCL, XRT, ERTS, FXI, PFE, SII & JCP

CMCSA – Comcast Corp. – A large-volume short strangle established at the beginning of the month on the entertainment and communications services firm was unraveled today, yielding one investor a nice chunk of change heading into the weekend. Comcast’s shares are up 1% to $15.89 in afternoon trading. It appears the trader originally sold roughly 35,000 calls at the July $17 strike for a volume-weighted average premium of $0.74 apiece in combination with the sale of 35,000 puts at the July $14 strike for a premium of $0.74 each. The original transaction likely occurred on February 4, 2010, and yielded a gross premium of $1.48 per contract to the trader. Today the investor purchased-to-close the short strangle, buying back the calls at a reduced premium of $0.60 each, and buying the put options for $0.56 apiece. The trader paid a gross premium of $1.16 to close out the short stance. Therefore, the investor walks away with net profits of $0.32 per contract for a grand total of $1.120 million. It is important to note, however, that the trader left a great deal of money sitting on the table. Comcast’s shares are still trading within the boundaries of the $14/$17 strike prices required for maximum profit potential. The investor would have accumulated profits of $1.48 per contract – a total of $5.180 million – if CMCSA shares remained range-bound and if the trader held the position through expiration. Perhaps this individual unraveled the strangle in anticipation of greater volatility in the price of the underlying stock going forward.

HSY – The Hershey Company – Bullish investors satisfied sugar cravings this afternoon by devouring Hershey call options. Shares of the chocolatier rallied 2.70% to $39.88 today. Option traders picked up 1,600 calls at the March $41 strike for a premium of $0.47 apiece. The higher March $42.5 strike attracted greater volume with more than 5,300 calls purchased for a premium of $0.23 per contract. Higher-strike call buyers are positioned to accumulate profits if Hershey’s share price exceeds its current 52-week high of $42.25, attained back on July 23, 2009, by expiration next month. These optimistic individuals profit if shares increase 7.15% from the current price to surpass the effective breakeven point on the calls at $42.73.

GLD – SPDR Gold Trust ETF – Shares of the gold exchange-traded fund,…
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Bullish Trader Quenches Thirst for Calls by Assembling Ratio Spread on PepsiCo

Today’s tickers: PEP, ODP, PFE, EK, AET, PFE, EWT, BIDU, ZION & SII

PEP – PepsiCo, Inc. – Global beverage and snack company, PepsiCo, attracted the attention of bullish option traders in late afternoon trading. PEP’s shares appreciated just less than 1% during the session to stand at $62.05 with 45 minutes remaining before the closing bell. It looks like one trader initiated a ratio call spread on the stock in order to position for continued upward momentum in the price of the underlying through expiration in April. The investor purchased 6,000 calls at the April $62.5 strike for an average premium of $1.93 apiece, spread against the sale of 12,000 calls at the higher April $65 strike for roughly $0.92 each. The net cost of the transaction amounts to just $0.09 per contract. Shares need only rise $0.54 over the current price in order for the investor to breakeven on the trade. Maximum available profits of $2.41 per contract accumulate if the price of PEP’s shares rally 4.75% to $65.00 by expiration day in April.

ODP – Office Depot, Inc. – A sold strangle play on the global supplier of office supplies this afternoon indicates one investor expects shares of Office Depot to remain range-bound for the next several months. ODP’s shares improved 1.25% during the trading day to arrive at $6.61 each. It appears the investor sold 15,000 calls at the April $7.5 strike for a premium of $0.30 apiece, and sold 15,000 put options at the lower April $6 strike for an average premium of $0.47 each. The strangler pockets a gross premium of $0.77 per contract, which he keeps in full as long as shares of the office supplies company trade within the strike prices described above, through expiration. Lower volatility in the price of the underlying shares as well as declines in option implied volatility on the stock benefit the investor in this case. The trader is exposed to losses, however, if shares of Office Depot swing outside of the upper breakeven price of $8.27, or if the stock declines beneath the lower breakeven point at $5.23 by expiration.

PFE – Pfizer, Inc. – Massive chunks of long-dated call options traded on the pharmaceutical company this afternoon. It is unclear what the exact motivation or position of the responsible party is, but it certainly appears to be the work of a Pfizer-bull. Shares continue to…
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New Bank of America CEO Gets Thumbs Up From Investors

Today’s tickers: BAC, HES, SII & DHI

BAC – Bank of America – A New Year and a fresh start in the corner office for incumbent CEO Brian Moynihan at Bank of America. Comments from his maiden voyage speech at a conference today noted that banks had over lent and consumers had taken on too much debt. It’s time to get back to work and as a responsible lender Mr. Moynihan wants to take the lead and do the right thing. His point that the worst of the crisis is now behind us in the context of credit seems to have been taken to heart by investors surrounding BAC’s shares today lifting it 3.9% to $15.65. Option investors appear to have taken profits on January call options at the $14 and $15 strikes instead favoring the $16/$19 strikes to play a bullish call spread combination. Volume patterns suggest the sale of around 33,000 call options for three cents at the upper strike while the $16 calls appear to have been purchased for around 18 cents thus lowering the breakeven at this point to a further rally of 3.1%. Investors also appeared to sell 22,000 puts expiring this month at the $15 strike – a sustained rally would render these worthless at expiration. Puts expiring February at the same $15 strike were also ditched at a premium of 73 cents, while option implied volatility remained unchanged at 37%.

HES – Hess Corp. – A New Year jump in commodity prices was largely inspired by a sustained bout of cold weather sending crude oil prices on the rise above $80. Shares in oil companies rose with those at Hess up 4% at $62.92, while one long-term option bull appeared to purchase 6,750 bullish call options using the January 2011 expiration. The $75 strike price traded at an average price of $4.60 per contract implying a break even share price at expiration of $79.60, requiring an annual rise for shares at Hess of 26.5% from its current level.

SII – Smith International Inc. – Oil services provider, Smith international is also higher by 2.8% today at $27.92 while our scanners picked up unusual options volume. We’re missing one data point to completely and accurately identify this trading strategy, but we think we get the gist. The option combination involved the purchase of puts expiring in April at the $23 strike where an investor…
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Phil's Favorites

Delta is tempting us to trade lives for freedoms - a choice it had looked like we wouldn't have to make

 

Delta is tempting us to trade lives for freedoms — a choice it had looked like we wouldn’t have to make

shutter_o/Shutterstock

Courtesy of Peter Martin, Crawford School of Public Policy, Australian National University

Last year COVID-19 seemed simple. It was horrific, but the arguments about what to do were fairly straightforward.

On one side were people rightly horrified by its rapid spread who wanted us to stay at home and stay away from school and work and socialising in order to save lives.

On the other side were people concerned about the costs of those measures — to jobs, to educati...



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Biotech/COVID-19

Delta is tempting us to trade lives for freedoms - a choice it had looked like we wouldn't have to make

 

Delta is tempting us to trade lives for freedoms — a choice it had looked like we wouldn’t have to make

shutter_o/Shutterstock

Courtesy of Peter Martin, Crawford School of Public Policy, Australian National University

Last year COVID-19 seemed simple. It was horrific, but the arguments about what to do were fairly straightforward.

On one side were people rightly horrified by its rapid spread who wanted us to stay at home and stay away from school and work and socialising in order to save lives.

On the other side were people concerned about the costs of those measures — to jobs, to educati...



more from Biotech/COVID-19

Politics

Political orientation predicts science denial - here's what that means for getting Americans vaccinated against COVID-19

 

Political orientation predicts science denial – here’s what that means for getting Americans vaccinated against COVID-19

Protesters at an anti-vaccine rally in Pennsylvania in August 2021. Weaver/SOPA Images/LightRocket via Getty Images

Courtesy of Adrian Bardon, Wake Forest University

Vaccine refusal is a major reason COVID-19 infections continue to surge in the U.S. Safe and effective vaccines have been available for months, b...



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Zero Hedge

Chevron CEO Warns "New Dynamics" To Boost Energy Prices Amid Global Supply Crunch

Courtesy of ZeroHedge View original post here.

Soaring energy prices are stoking new concerns about a stagflationary environment of high prices and waning economic growth. Natural gas prices in Europe and the US are through the roof, and WTI futures are over $70 per barrel. 

Chevron Corp.'s CEO Mike Wirth spoke with Bloomberg on Wednesday and warned about elevated prices due to tightening supply. He said oil and ga...



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Digital Currencies

Animal Spirits: Crypto's Gateway Drug

 

Animal Spirits: Crypto’s Gateway Drug

Courtesy of Michael Batnick

Today’s Animal Spirits is brought to you by YCharts

On today’s show we discuss:

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Chart School

Gold and Silver Volume Waves Review

Courtesy of Read the Ticker

The sign says it all. The professionals want the public to focus on the words, to scare out the weak hands, but the color of the sign underlines the value in a money printing world, its gold stupid.

Point and figure (PnF) charts draw price waves with the sum of volume per wave. PnF charts high light true accumulation underneath price action. This is why Richard Wyckoff favored PnF charts.    

In the charts below we see price moving sideways to down, yet volume on up waves are greater than volume on down waves. At the moment there is no heavy selling on down waves. Or in other words price is being moved down at a low volume expense to allow accumulation at a lower price.

This action represents professionals building their...

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Promotions

Phil's Interview on Options Trading with TD Bank

TD Bank's host Bryan Rogers interviewed Phil on June 10 as part of TD's Options Education Month. If you missed the program, be sure to watch the video below. It should be required viewing for anyone trading or thinking about trading using options. 

Watch here:

TD's webinar with Phil (link) or right here at PSW

Screenshots of TD's slides illustrating Phil's examples:

 

 

&n...



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Kimble Charting Solutions

Crude Oil Cleared For Blast Off On This Dual Breakout?

Courtesy of Chris Kimble

Is Crude Oil about to blast off and hit much higher prices? It might be worth being aware of what could be taking place this month in this important commodity!

Crude Oil has created lower highs over the past 13-years, since peaking back in 2008, along line (1).

It created a “Double Top at (2), then it proceeded to decline more than 60% in four months.

The countertrend rally in Crude Oil has it attempting to break above its 13-year falling resistance as well as its double top at (3).

A successful breakout at (3) would suggest Crude Oil is about to mo...



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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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