Tinsel Tuesday – Market Decorations Make Us Merry
by Phil - December 21st, 2010 8:24 am
I figured out how to get bullish!
Just read the Wall Street Journal. On the front page we have "Nuclear Pact Adds Backers" above the fold along with a fluff piece on the weather in Europe. There are 3 other featured articles on the front page of the World’s most widely-read financial paper and one is a fluff piece on the Jimmy Stewart museum, one is on the obscure concept of betting people are going to die (very fun and interesting but "The World’s biggest financial paper"?) and the last is on the SEC looking into Mark Hurd’s exit from HP. On the left is "What’s News" with about 30 summaries of articles in the paper so one would think you could look this over and have a really good idea of what’s going on in the World.
I see that "Spain said its regional governments are on track to meet their budget targets" and Dow component Boeing (who fell off yesterday) announced a "$1 Billion commercial satellite deal with the Mexican Government" and Blackstone is starting a $15Bn fund and TD is buying Chrysler Financial for $6.3Bn and (and this is a real XMas gift to Wall Street) "A Senate deal to fund the federal government until early March doesn’t include money to enact the health-care overhaul or stepped up regulation of Wall Street" and also that North Korea held their fire during a South Korean artillery drill. Wow! All seems right with the World, doesn’t it?
If I just read the WSJ, I find no reason to be bearish at all. Certainly there is no mention of Spanish Bond Yields rising 37% in a month to 5.5% at today’s $4Bn bond auction. There is no mention of China’s Vice Chairman of National Development saying that China "needs to prepare for a long- term fight against inflation" or that oil imports into China are expected to fall off next year as their economy cools down. You would think the fact that BAC, JPM and four other lenders facing a suspension of foreclosure activity under court order in New Jersey would be a news story or perhaps some mention of the 29-year high in sugar prices would be of interest to investors along with the limit-up trading in cotton to record highs for no particular reason other than…
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Toppy Tuesday – Can the Dollar Fall Faster than our Indexes?
by Phil - December 14th, 2010 8:27 am
It’s a race to the bottom!
While we may have thought we were flatlining yesterday near our breakout, Europe and Asia had a different view of our markets as we pulled back -0.5% to -1.73% when priced in other currencies. While you may not care what happens in other countries, there are 6.5Bn people who would disagree with you there and the US is not the World leader anymore (despite what the citizens of the US may think) – we can no longer afford to ignore things like how exchange rates affect us. Here’s the chart for the Dow, S&P and Nasdaq priced in Dollars, Euros and Yen for the past two months:
Fortunately for the bulls (especially the commodity ones), the dollar has resumed it’s pathetic decline as Obama and The Bernank have combined to dilute our currency by another $2Tn over the next 48 months, from about $14Tn to $16Tn (+14%) plus, possibly, the $110Bn of new $100Bills the Treasury is trying to run off. This has sent the dollar back down from it’s Thanksgiving high and now it’s going to be all about whether or not we can hold that 78.5 line as our Congress finalizes their vote on the Obama Tax Cuts and another $1,000Bn of US debt taken by our citizens in order to hand another $650Bn to the top 1%.
When $100Bills are being printed faster than rolls of Charmin are being made, your currency is probably on it’s way to a crisis. You reach a certain point at which it’s cheaper to just wipe your butt with dollar bills than to go to the store and buy toilet paper and, of course, we’ve all seen pictures of Germans in the 1920′s, fueling their fireplaces by burning bills, which were cheaper than wood. Of course stocks and commodities are going up when priced in dollars – they are making more dollars every day, even Disney now has cartoons trying to explain to kids why this is a bad idea.
On top of the relentless devaluation of our dollar-denominated assets, we also have wild rumors driving up demand for commodities by speculators, who are generally those same top 1% who are being handed money by our Government at a rate of $2Bn per day. If you had to put away $2Bn a day, where would you…
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Monday Market Movement – Pulling on Global Threads and the SEP
by Phil - December 6th, 2010 8:28 am
"We think the global (and overall European) outlook remains robust."
That’s the word from Goldman Sachs’ Erik Nielson this weekend, who also observes that he was "Possibly deluded by the wonderful vibrancy of California." Deluded indeed seems to be an excellent choice of words with a new report out showing that California leads the nation in a local government pension crisis that has a $3.5Tn hole to fill and will not be sufficient to pay benefits through 2020 along with 5 other states while another 20 states will run out of funding by 2025. Is Nielson just saying anything to herd more suckers into the market by telling the sidelined cash that it’s safe to go back in the water or is he cleverly employing an SEP Field to bamboozle the public?
An SEP (Somebody Else’s Problem) Field s an effect that causes people to ignore matters which are generally important to a group but may not seem specifically important to the individual. As Douglas Adams put it:
An SEP is something we can’t see, or don’t see, or our brain doesn’t let us see, because we think that it’s somebody else’s problem… The brain just edits it out, it’s like a blind spot. If you look at it directly you won’t see it unless you know precisely what it is. Your only hope is to catch it by surprise out of the corner of your eye. It relies on people’s natural predisposition not to see anything they don’t want to, were not expecting, or can’t explain.
SEP’s are commonly used by politicians to justify ridiculous policies like kicking crises down the road, ignoring pension and other unfunded obligations (that’s going to be your children’s problem), massive deficits (grandchildren’s problem), unemployment (lazy people’s problem), global warming (someone living south of you’s problem) and, of course unfair tax policies (poor people’s problem). They are also used by analysts, CEOs, their lobbyists and journalists (especially TV ones) to distract the "beautiful sheeple" from focusing on what’s really happening.
Not at all our problem is the price of vegetables in China and that’s a good thing for us because they have risen 20% in 30 days. Officially, China’s inflation rate was 4.4% in October but even that is expected to jump 14% to 5% in November. "Many see China’s monetary tightening as a pre-emptive tap on…
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Bullish Players Sink their Teeth into Krispy Kreme Calls
by Andrew Wilkinson - December 2nd, 2010 4:23 pm
Today’s tickers: KKD, JPM, NYT & AEO
KKD - Krispy Kreme Doughnuts, Inc. – Bulls are bingeing on Krispy Kreme call options today after the firm sweetened its outlook for 2011 operating income to a range of $17 million to $20 million, up from previous estimates of $13 million to $17 million. The maker of the popular Original Glazed doughnut said it earned $2.4 million in the third quarter, or $0.03 a share, after the closing bell on Wednesday. Analysts, on average, were expecting KKD to post a third-quarter loss of $0.01 a share. Shares in Krispy Kreme jumped 19.8% following earnings to hit an intraday- and new 52-week high of $7.38 today. The better-than-expected earnings report and rosier outlook for next year’s performance inspired strong demand for call options on the doughnut maker. More than 5,480 options, nearly all of them calls, changed hands on Krispy Kreme by 12:55 pm in New York, versus overall previously existing open interest of 6,271 contracts. Investors purchased more than 1,340 calls at the December $7.5 strike for an average premium of $0.22 a-pop. Call buyers make money if Krispy Kreme’s shares rally another 4.6% over today’s high of $7.38 to surpass the average breakeven point at $7.72 by December expiration. Bullish sentiment spread to the January 2011 $7.5 strike where another 1,040 call options were picked up at an average premium of $0.34 apiece. Investors holding these contracts are poised to profit should shares in KKD surge 6.3% to trade above $7.84 ahead of expiration day in January. Krispy Kreme’s overall reading of options implied volatility is lower by 9.2% to stand at 52.47% as of 1:00 pm in New York.
JPM - JPMorgan Chase & Co. – Shares of the financial services firm are on the mend, and one bullish options strategist…
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JP Morgan Options Player Portends Near-Term Rebound in Shares
by Andrew Wilkinson - November 30th, 2010 4:18 pm
Today’s tickers: JPM, UPS, GM, SNDK, FO & SVU
JPM - JPMorgan Chase & Co. – One options strategist expecting a near-term turnaround in JPMorgan’s shares purchased a call spread in the December contract today. Shares of the financial services firm are currently down 0.75% to stand at $37.62 in the final hour of the trading session. It looks like the investor picked up 7,000 calls at the December $38 strike at a premium of $0.80 each, and sold the same number of calls at the higher December $40 strike for a premium of $0.22 apiece. Net premium paid to initiate the bullish spread amounts to $0.58 per contract, thus positioning the trader to make money should shares in JPMorgan climb 2.55% to surpass the effective breakeven price of $38.58 by December expiration day. The call-spreader stands prepared to accumulate maximum potential profits of $1.42 per contract if shares rally 6.3% over the current price of $37.62 to trade above $40.00 by expiration day in the final month of the year.
UPS - United Parcel Service, Inc. – Bullish options traders are scooping up in- and out-of-the-money call options on UPS this afternoon. Shares of the package delivery services provider increased as much as 0.80% today to hit an intraday- and new 52-week high of $70.44. The stock is currently up 0.40% to arrive at $70.15 as of 1:50 pm. More than 25,700 option contracts have changed hands on UPS thus far today, with more than 4.25 calls exchanged on the stock for each single put contract that has traded. Near-term bulls purchased more than 1,400 now in-the-money calls at the December $70 strike for an average premium of $1.16 each. Optimists looked up to the higher December $72.5 strike where more than 13,000 calls changed hands versus previously existing open…
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Thrilling Thursday – The Luck of the Irish
by Phil - November 18th, 2010 8:03 am
Yawn!
Yes, YAWN I say to a 1% bounce! I mean REALLY people, have we taught you nothing following our 5% Rule? This is a very basic part of it, you get a 20% reversal off of 5% moves and that is called a WEAK BOUNCE. Don’t blame me, I don’t make the rules… Oh wait, actually I did make this one. Anyway, don’t blame me, this is just a rule based on how the system works so let’s not get too excited about what basically amounts to physics.
It could have been Ireland (which we were expecting) or it could have been JPM bashing the dollar (they did) or it could have been Buffett saying "All is well" in the NYTimes (gotta get the liberal into the market too!) – it could have been anything but SOMETHING was going to give us a dead cat bounce.
Note the Nov 2nd levels on the chart. Here, if it helps I’ll do an impression of a TV analyst: "It is truly amazing to see how resilient our markets are making such a strong recovery and we project…" Oh, excuse me, I made myself sick… Come on people, we’re back to our Nov 2nd highs (if that) and, if we pull back to the "year to date" view, the song "I’m Always Chasing Rainbows" springs to mind (the Alice Cooper version):
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So pretty, isn’t it? Maybe this time it will be different. I’m not saying we CAN’T go up – with the Fed pumping in cash at an annualized rate of $1.8Bn it would be pathetic if we DON’T go up but I am very skeptical until we do break over those April highs and hold them as a firm floor. I was skeptical about Monday’s bounce (from 11,200 on the Dow to 11,275 and from 1,200 on the S&P to 1,207) and that served us quite well so give me the benefit of the doubt on this one before you all go off chasing this rally. We have a weekend coming up (lots of things could go wrong) and then a short week into a holiday which just so happens to be the holiday after which we expected the market to fall off a cliff if it continues to follow April’s Beta 3 pattern (see Monday’s…
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Bears Take a Bite Out of Las Vegas Sands Corp. Options
by Andrew Wilkinson - November 8th, 2010 5:09 pm
Today’s tickers: LVS, JPM, WNR, PFE, SLW, PCLN & XLK
LVS - Las Vegas Sands Corp. – Options strategists are initiating trades on the operator of casino resorts that suggest LVS shares could pull back further off recent highs. One big player wary of bearish movement in the price of the underlying shares purchased a large-volume ratio put spread in the January 2011 contract. Las Vegas Sands’ shares started the session in the red, but recovered this afternoon, and are currently up 1.65% at $52.84 as of 3:20 pm in New York. The put player purchased 20,000 contracts at the January 2011 $52.5 strike for a premium of $5.50 each, and sold 40,000 puts at the lower January 2011 $45 strike at a premium of $2.21 a-pop. Net premium paid to initiate the bearish spread amounts to $1.08 per contract. The investor responsible for the transaction is prepared to make money, or realize downside protection on a long position in the underlying shares, if LVS shares decline 2.7% from the current price of $52.84 to breach the effective breakeven point at $51.42 by January expiration. Maximum potential profits of $6.42 per contract are available to the trader if shares of the casino operator plunge 14.8% lower to settle at $45.00 at expiration. More than 216,000 option contracts have changed hands on LVS with 35 minutes remaining before the final bell. Options implied volatility on the stock is up 4.1% at 57.43%, the highest reading of IV since the end of July.
JPM - JPMorgan Chase & Co. – Shares of the financial services firm fell 0.85% to $40.59 late in the trading session, but earlier today one cautiously optimistic investor initiated a delta neutral hedge using longer-dated put options in the June 2011 contract. It looks like the investor picked up…
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Impending FDA Decision Spurs Options Traders to Action at Human Genome Sciences
by Andrew Wilkinson - November 7th, 2010 6:20 pm
Today’s tickers: HGSI, MDRX, JPM, ESV, FLR & SD
HGSI - Human Genome Sciences, Inc. – Shares in biotechnology company Human Genome Sciences are down 3.95% this afternoon at $25.23 as of 3:15 pm, but one options trader populating the December contract today is positioning for the stock to rebound ahead of a key FDA decision on its lupus drug treatment, Benlysta. A preliminary FDA review is set for release in one week, while an advisory panel with outside experts is scheduled to provide their input before the FDA provides a final ruling by December 9, 2010. The optimistic options player is well positioned to benefit from a strong rally in the biotech firm’s shares should approval of the lupus treatment become a reality. The trader purchased 5,000 calls at the December $26 strike for a premium of $4.30 each, and sold the same number of calls at the higher December $32 strike at a premium of $1.36 apiece. Net premium paid for the spread amounts to $2.94 per contract. Thus, the investor makes money if Human Genome’s shares reverse course and rally 14.7% over the current price of $25.23 to surpass the effective breakeven point to the upside at $28.94 by expiration day. The call-spreader stands ready to amass maximum potential profits of $3.06 per contract if shares jump 26.8% to trade above $32.00 by December expiration. Options implied volatility on the biotechnology company is up 12.1% at 141.59% as of 3:30 pm, and will likely continue to ascend ahead of the FDA’s critical ruling.
MDRX - Allscripts-Misys Healthcare Solutions, Inc. – Call options on the provider of clinical software, services, information and connectivity solutions to physicians and other healthcare providers are in high demand today ahead of the firm’s third-quarter earnings report, which is scheduled for release after the market closes on Monday. Shares in Allscripts are currently up 1.3% at $19.44 as of 2:15 pm. Plain-vanilla call buyers were the first to arrive on the scene, but the majority of the options volume…
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Options Player Eyes ING Upside Potential, Employs Bullish Ratio risk reversal
by Andrew Wilkinson - November 3rd, 2010 7:03 am
Today’s tickers: ING, TMRK, BA, JPM, PRGO, ADP & CPB
ING - ING Groep N.V. – The Amsterdam-based financial services firm popped up on our scanners in the second half of the trading session after one bullish options trader populated the April 2011 contract with a bullish ratio risk reversal strategy. ING’s shares are up 3.35% to trade at $11.14 as of 2:35 pm in New York. The investor utilized 10,800 option contracts to take a bullish stance on the stock, which is sizeable in relation to the 15,233 lots of overall previously existing open interest. The trader sold 3,600 puts at the April 2011 $11 strike at a premium of $1.20 each in order to buy 7,200 calls at the higher April 2011 $13 strike for a premium of $0.55 apiece. The bullish player pockets a net credit of $0.10 per contract on the transaction, and keeps the full amount of premium received as long as ING’s shares exceed $11.00 through April expiration. Additional profits start to accumulate if the price of the underlying stock jumps 16.7% over the current price of $11.14 to surpass the effective breakeven point at $13.00 by expiration day. Shares in ING Groep last traded above $13.00 back on November 24, 2009. ING is slated to report third-quarter earnings ahead of the opening bell on November 10, 2010. The overall reading of options implied volatility on ING is down 4.8% to stand at 39.89% as of 2:45 pm.
TMRK - Terremark Worldwide, Inc. – Shares of the provider of managed IT infrastructure services shot up as much as 13.9% during the session to hit an intraday- and new 52-week high of $11.12. Terremark posted a narrower-than-expected second-quarter loss of $0.12 per share yesterday evening and raised its fiscal 2011 sales view and guidance for the third quarter. The sharp rally in the price of the underlying shares and the firm’s improved outlook going forward inspired one cautiously optimistic options strategist to initiate a delta neutral hedge. It looks like the…
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Testy Tuesday – 7.5% or Bust!
by Phil - October 19th, 2010 8:28 am
Wheee, this is fun!
Will our 7.5% lines hold? As I mentioned yesterday, we expected a test of our 7.5% lines at Dow 10,950, S&P 1,160, Nasdaq 2,400, NYSE 7,450 and Russell 690 and we remain TECHNICALLY bullish if we hold them. The Dollar was doing well until about 3am this morning but then turned down sharply – some sort of rumor is driving the market and, of course, heading into the G20 pretty much any comment made by any Central Banking official is blown way out of proportion.
China is likely to raise rates today, making a small concession to the US on their exchange rates but more so to cool off the massive property bubble that is forming in their cities. That may put some downward pressure on commodities without strengthening the dollar – an interesting combo, but one that illustrates how China is becoming more important in the Global marketplace than the US.
If China is raising their lending rate to 5.56% and their deposit rate to 2.5%, they risk attracting even more money, including a reverse carry-trade from the US, when money can be borrowed from the Fed at 0.25% and lent to China for 2.5% giving the trader a 2.25% profit for the year. 2.25% may not sound that sexy, but when it’s done by Investment Banks and other investors who can lever their money 10:1, that’s a 22.5% on their cash. This is how Japan has supported their economy for two decades but it’s hard to imagine what will happen if the US Dollar, which makes up 62% of all money on the planet, starts flowing out of the country in even faster quantities.
We were just discussing investing in foreign countries in Member chat and I warned that this may not be the best time to make that kind of move as the dollar is very possibly bottoming here and transferring US Dollars to another currency risks hitting a reversal that wipes out any interest gains and possibly even some the principal as the Dollar rebounds and you find yourself in the wrong currency at the wrong time.
I guess I should talk about AAPL although we’ve already discussed it in depth in Member Chat but they do seem to have had some kind of earnings and, although very nice – expectations were already a bit high so they…
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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
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