Put Player Positions for a Pullback in Lorillard Shares
by Andrew Wilkinson - March 7th, 2011 4:43 pm
Today’s tickers: LO, HMA, AMR & USO
LO - Lorillard Inc. – A three-legged spread involving April contract put options on the cigarette manufacturer appears to be the work of an investor positioning for the price of the underlying stock to slip ahead of expiration. Shares in Lorillard, the maker of Newport cigarettes, the number one menthol brand, are currently up 0.33% to stand at $78.00 as of 12:50pm. The stock rallied as much as 5.7% one week ago to trade as high as $81.18 after the FDA said the risk of lung cancer for smokers of menthol cigarettes does not differ significantly from that of non-menthol cigarettes. But, last week’s sharp run up in LO’s shares was fairly short-lived given other portions of the FDA report that were not quite as positive for big tobacco. One trader expecting Lorillard’s shares to fall in the near-term seems to have established a bearish butterfly spread. The investor picked up 5,000 puts at the April $75 strike for a premium of $4.40 each, sold 10,000 puts at the April $65 strike for a premium of $1.50 apiece, and purchased 5,000 puts at the April $55 strike for a premium of $0.35 a-pop. Net premium paid to initiate the put ‘fly amounts to $1.75 per contract. The trader profits if LO’s shares decline 6.1% from the current price of $78.00 to breach the effective breakeven point at $73.25 by April expiration. Maximum potential profits of $8.25 per contract pad the investor’s wallet in the event that shares plummet 16.7% to settle at $65.00 at expiration. Options implied volatility on the cigarette-stock is up 3.4% at 54.92% just after 1:00pm in New York.
HMA - Health Management Associates, Inc. – Shares in the health care services provider are down 1.4% in early afternoon trade to…
“Crashiversary” Week Begins – Just Another Manic Monday
by Phil - March 7th, 2011 8:05 am
Happy Crashiversary!
Just 2 years ago this week, on March 6th, we spiked down to a low of 666.79 on the S&P 500. That move was capping off a relentless drop down from 950 as they year opened and was dashing most people’s hopes of a recovery. I say most, because certainly not ours as out Members were BUYBUYBUYing that F’ing dip. I happened to be on TV the afternoon of the crash doing a 3-hour special on Tim Syke’s LiveStock show where I not only made 13 REALLY good picks that made 469% over the next 6 months, but I also explained my logic for buying on that particular dip so it’s worth watching if you have time to kill.
That same afternoon, my friendbuddypal Jim Cramer was on TV throwing 5,320 around as a target for the Dow (it was at 6,626 that day so another 20% down) although you wouldn’t know it now because CNBC has redacted the video and changed the text on the link to his show that day. Fortunately, it’s hard to get rid of video once it hits the web so now you can decide if the new CNBC summary matches the actual tone of segment they are hiding. MSNBC’s summary of the segment remains: "Mad Money’s Jim Cramer makes the call that the Dow will bottom at no less than 5,320. Listen to why Cramer says the key index could still drop another 1,300 with CNBC’s Melissa Francis."
The Fast Money crew had a chance to watch my broadcast but still chose to go on with a unanimously bearish show that day and this one you still can catch part of on the official site. "A lot of people are calling bottoms," said Guy Adami. "But I still don’t think we’re there, yet. It has to feel like the end of the world before the market can bottom."
"The data that I’d watch to signal a bottom is the rate of decline slowing," adds Karen Finerman. "But I don’t see that, yet." "We won’t be at the bottom until the financials participate in the market’s broader moves," adds Pete Najarian. "I don’t think we’ll get a bottom until we get policy going forward that doesn’t seem like it’s just attacking Wall Street," adds Jon Najarian.
Crashes tend to make investors fearful and Mr. Buffett says…
Long In The Tooth Rally
by markettamer - March 7th, 2011 1:41 am
Asia down overnight, futures down, euro rate hike…. rather than rehash it all, let’s get to the bottom of line of picks and performance!
Three-Legged Bull Prepares for a PNC Rally
by Andrew Wilkinson - March 4th, 2011 6:30 pm
Today’s tickers: PNC, CEDC, SPLS & GILD
PNC - PNC Financial Services Group, Inc. – Shares in the financial services firm are down 1.00% at $60.34 in early-afternoon trade, but activity in May contract call and put options suggests one strategist sees shares in PNC rising sharply in the next few months. The three-legged bullish player appears to have sold 5,000 puts at the May $55 strike for a premium of 1.39 each, purchased the same number of calls at the May $62.5 strike for a premium of $2.15 per contract, and shed 5,000 calls up at the May $67.5 strike at a premium of $0.68 a-pop. The options trader paid a net premium of $0.08 per contract for the transaction, and stands ready to profit should PNC’s shares reverse course and rally 3.7% over the current price of $60.34 to exceed the average breakeven price of $62.58 by expiration day in May. The investor responsible for the trade could accumulate maximum potential profits of $4.92 per contract if the firm’s shares jump 11.9% to trade above $67.50 before the options expire. PNC’s shares last traded above $67.50 back in May 2010. The financial services provider reports first-quarter earnings before the opening bell on April 21, 2011.
CEDC - Central European Distribution Corp. – Near-term options activity on the vodka producer this morning suggests some investors expect the pain of Central European Distribution Corp.’s post-earnings hangover to stick around through March expiration. Shares in CEDC lost 11.2% today to trade at $12.38, the lowest recorded price for the stock since April 2009. The alcohol beverage provider’s shares dropped 45.8% during the trading week, from a closing price of $22.85 on Monday, to today’s low of $12.38. Put buyers in the March contract, however, do not seem to think CEDC has hit…
Friday’s Market Blow – Jobs or No Jobs?
by Phil - March 4th, 2011 6:57 am
Why are we bearish?
For one thing, we like to go bearish when the market is testing the top of it’s channel as there is generally a higher percentage probability that we drop than we pop back over. Secondly, as I mentioned yesterday, it’s not just the Federal Reserve that is in denial but the commodity speculators, the equity investors and even the bond investors as the ALL believe they are going to get paid while MATH says that’s not even remotely possible.
What is math? I know – thanks to cutbacks in our education budgets over the past 30 years, that is a question that vexes many Americans and it also creates a perfect environment for the people who CAN do math, those in the Financial sector perhaps, to design endless levels of complex instruments that are all designed to con people who have lower math skills than they do.
Complexity is good. Just like the legal scam, complexity forces you to seek assistance with your finances – the more money you have, the more complex your finances become and the more you need help and this allows swarms of leeches or, to be kind, remoras to attach themselves to you and feed endlessly off your earnings and savings (they don’t care which as they will happily destroy the host and simply move on to the next big fish).
Personally, I prefer simplicity. My Grandpa Max was a Depression kid who built a business from scratch and invested his money well and had a nice life for himself. He taught me how to invest when I was a little kid and, as you can imagine, he did not ask a "financial adviser" what to do with his money as he had seen where that had gotten his parents generation when he was young (he was 24 when the Global markets collapsed).
Our investing days would begin by reading the papers (not just one – they all say different things, don’t they) together and pointing out things that looked interesting. Not just the Business Section but whatever seemed like an important World event or a trend worth watching that would help us get ahead of the curve with our stock selections. This is pretty much what I do now isn’t it (thanks Grandpa!)? So, I will share with you what I consider the most…
Straddle-Strategist Sells Flextronics Options
by Andrew Wilkinson - March 3rd, 2011 4:29 pm
Today’s tickers: FLEX, BMY, CQB & TSS
FLEX - Flextronics International, Ltd. – The Singapore-based provider of electronics manufacturing services popped up on our scanners after one big player sold a massive straddle in the July contract. Shares in Flextronics are currently up 5.0% at $8.14 as of 11:55am in New York. The sizable straddle play composed of a total of 49,000 FLEX options is almost on par with the overall level of open interest on the stock of 56,483 contracts. It looks like the investor is reeling in time-rich, in-the-money call premium as well as just out-of-the-money put premium, in the expectation that volatility will come off and shares in the name will remain around this level. The straddle-strategist sold 24,500 calls at the July $8.0 strike for a premium of $0.70 each, and sold 24,500 puts at the same strike for a premium of $0.60 apiece. Gross premium pocketed on the transaction amounts to $1.30 per contract. The trader keeps the full premium received on the sale as long as shares in FLEX settle at $8.00 at expiration in July. The short straddle strategy implies the investor at least sees shares trading within a certain range through expiration. In this case, the trader keeps some of the premium received and staves off losses unless shares in FLEX swing above the upper breakeven price of $9.30, or slip beneath the lower breakeven point at $6.70. The short stance in both call and put options expose the trader to potentially devastating losses in the event that shares work against him in the next few months. However, the investor need not hold the position to expiration. The trader may be able to buy back the straddle at an advantageous price at some point, benefiting from the erosion of time value as well as subsiding levels of implied volatility.…
Forward Thursday – Nothing Could be Drier than a Jolly Caucus Race!
by Phil - March 3rd, 2011 8:28 am
Forward, backward, inward, outward
Come and join the chase
Nothing could be drier
Than a jolly caucus raceBackward, forward, outward, inward
Bottom to the top
Never a beginning,
There can never be a stopTo skipping, hopping, tripping fancy free and gay
Started it tomorrow
But will finish yesterday‘Round and ’round and ’round we go
Until forevermore
For once we were behind
But now we find we are be-Foreward, backward, inward, outward
Wheeee – this is FUN!
Up we go again, getting close to 100 points pre-market – once again punishing anyone who was foolish enough not to buy the F’ing dip. How dare you short this market!!! Like the Wall Street Pelican in the cartoon says: "You HAVE to run with the others if you want to get dry." Of course it’s impossible for the participants (the bottom 90%) to get dry as they are not on the rock with a warm fire and simply keep getting wet over and over again but the Wall Street Pelican keeps playing his tune, giving himself a ready supply of dancing fish to snap up whenever he gets hungry.
Of course, for those who miss the subtlety of the Caucus race, Disney also puts in the story of the Walrus and the carpenter. "The time has come" the Walrus said, "to speak of many things. Of ships and shoes and ceiling wax and cabbages and kings."
The carpenter reminds me of the Tea Party, enabling their fat-cat (or fat-walrus) allies, only to get screwed over in the end. Walt Disney, don’t forget, had gone bankrupt early in his career and had also got screwed by big business when Universal Studios took control of "Oswald the Lucky Rabbit" – the original Bugs Bunny from Disney. "Alice Comedies" were and earlier work of Disney’s that culminated in the eventual release of Alice In Wonderland, with much of his early sarcasm and frustrations with the system still intact.
Yesterday, the part of the Walrus was played by Doctor Ben Bernanke, who’s Beige Book (see my commentary to Members) refers to "non-wage input costs" which have "increased for manufacturers and retailers in most Districts." Callooh! Callay! The Fed may as well be saying as they come up with brand-new words in order to…


del.icio.us
Digg
Reddit
Stumble
Yahoo












Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(