Friday, January 28, 2011

Positions - Boeing Early Board Annoucment

Boeing reported earnings and guidance this week that disappointed the street. However, there appears to be some signs that the clouds could be lifting, and Boeing could be getting ready to take off. Read more about why it might be time to get on board now and some specific suggestions for establishing a position in Boeing at:

Wednesday, January 26, 2011

Hershey - Vday Trade

Over the years, my undocumented observation has been that Hershey stock gets more attention (and hence volatility) than usual prior to Valentines day. I have been successful in the past buying in Jan and selling in early Feb. (Kind of like buying on the rumor of Valentines day and selling on the I know that is somewhat unhealthy reason to buy a stock, but I've tasted success in the past with this approach and every once in a while you need to have some fun while trading.

So earlier this year I had set an alert in my account if Hershey stock fell. Hsy had been grinding up this month, but fell over a percent this morning. Technically this nearly filled the up-gap from an upgrade on the 13th. I bought one lot at $48.92. I don't expect to be in this speculative trade too long. Specifically earnings are 2/2 so I hope to be out of the trade before that event. Hopefully, I can get a gap reversal that lets me go to the store to buy some chocolate to celebrate! Either that or take a small loss and eat chocolate to help cure my depression over the trade....seems like a win/win!

Full disclosure: I am an admitted choc-aholic!

Monday, January 24, 2011

Intel Options Strategy Change

A comment at Seeking Alpha by "bcfran" n the recent Intel article suggested that a way to play the solid foundational support for Intel was with $15 Jan 13 Leaps that could be purchased at almost no premium over intrinsic value. The more I thought about that the more it made sense to me.

So, I covered the short $22 Mar puts that were put in place in conjunction with the last post at an inconsequential gain and acquired one lots worth of $15 Jan 13 Calls at $6.35. This increases the leverage on the overall Intel position. Hopefully that leverage will prove useful sometime over the next two years. Over time, hopefully there will be some opportunities to hedge away some of the risk related to this leverage might present themselves.

Trade NYX - trade closed

NYX stock closed at $32.80 on options expiration day. This far exceeded the $30 covered calls that were in place and the position was closed. Overall the trade returned 7.8% in about 2 months (about 50% annulized). The return was comprised of 3.3% stock cap gains, 1% dividend, and 3.5% from the option position. As usual, trades work out well with any trading strategy when the position is entered near the bottom, but this trade actually underperformed the SPY over the same period and other trading strategies could have returned more. Still, hard to be too upset by a 7.8% return while having a hedge in place for most of the time.

Going forward, I'm still generally positive on nyx. It is a different way to get exposure to financial markets and fundamentals are reasonable. Earnings announcement is 2/8, and options volatility is still fairly high. Might consider re-invsting the profits from this trade back into the stock on a pull back.

Sunday, January 23, 2011

Positions - Alcoa (AA) Jan 11 Options Expiration

On Friday's option expiration day Alcoa closed at $15.79.

The first lot of the position was called away at $15. This lot was acquired prior to the initiation of this blog at around $10 share. A gain of $5.00. In addition the lot had covered calls written against it a few time for a total of $.44, and made $.06 in dividends. That is a total gain of $5.50 or 55%. Obviously a great return on this lot

The closing price of $15.79 also means the $16 puts sold for $.20 about 2 weeks ago were assigned. So we became long one lot of AA now at an entry price of $15.80 this weekend. In a stroke of luck (....wait... I meant brilliance) AA spiked up to $16.50 on Monday. Given the opportunity to make 4% in one day...I booked it now and asked question later. Sold at $16.48

No AA in the portfolio anymore. Some think AA has room to run. For example , see Street Authority's article below for a good summary of the bull case. However, I need to see the stock consolidate some, and currently would not consider an entry price above $15. The stock is pulling back today. Vol continues to be high on AA options. If the stock continues to pull back towards $15 and market vol rises I would consider selling $15 puts

Saturday, January 22, 2011

Trade 3m (mmm) - closed

MMM hit option expiration day at $89.29. The calls covering this position were assigned and this trade is over. Basically the stock went straight up since being acquired on 12/10 at a price of $84.09 after commissions.

With the "luck" (oh...I meant to say skill) of buying almost exactly at the short term bottom, and the benefit of hind site it would have been better to own the stock outright for a 6.1% return. The covered calls scenario "only" returned 4% over the same week period. The S&P is up about 3.1% from that date so both strategies "beat the market". Of course the call strategy was less risky. If the stock had fallen we were protected down to $81.50.

Of course, the call also "forced" the discipline to sell after this run up. The strike date was purposely selected to be right before the earnings catalyst on Tuesday. Obviously it could go higher after earnings and we will have missed even more of an opportunity. But.. ..the general trend this quarter for all companies ( and for MMM in the past) has been to "sell on the news" with earnings. I would not be surprised to see that happen in this case. We will monitor the earnings results and commentary. If MMM does pull back more towards its $85 and its 200 dms support it might be appropriate to put a trade back on before the stock goes x-div in mid Feb...stay tuned.

Thursday, January 20, 2011

Portfolio - Globalized SPY (GSPY)

Looking for a investment that provides country and currency diversity from a S&P 500 index fund that
  • avoids the high risk emerging markets
  • avoids the stagnating economies of the Eurozone and Japan
  • is easy to implement
  • has outperformed the S&P 500 over the past 1, 3, 5, and 10 years.
This can be accomplished through the use of four simple etfs. Read all the details about this approach at

Tuesday, January 18, 2011

Positions - IBM - earnings comments

IBM earnings came out and exceeded expectations from almost every perspective.

More importantly they re-enforced (or upgraded) just about every key aspect of their plan to earn $20 by 2015. As discussed in the original post, there is something special about a company in an "uncertain" environment who is ready, willing and able to share a 4 year plan with investors and then deliver it like clock work. A doubling over the next 4 years still seems possible to me.

In the mid-term, IBM set expectations for 2011 at $13, and I assume analysts estimates will be around $14.5 for 2012. Pick you favorite multiple to get your twelve month target, but it seems there could be mid term upside from its current $154.

IBM remains a key position in my portfolio. With volatility general low, strong tech support at $145 it may be worth considering a leveraged play via $140 or $145 leaps on a market pullback.

Friday, January 14, 2011

Intel - Earnings - Soar through the cloud - Options Mar 11

We interrupt the debate over the technological magnificence of phones and tablets to report that once again Intel hit the ball right through the clouds into the stratosphere.

While the press focuses on which commodity device, with what low-margin chip, is going to get what percent of the the hand held market..... news flash.... Intel kept selling lots of powerful, high margin chips to the people who are building content and deploying it over “the cloud”. That is a secular trend that is likely to continue perhaps even longer than the life-cycle of the current hand held device technology. Also, they continued to invest in the best chip production capability in the universe, use out-of -this-world engineering talent to re-architect their product line with sandy bridge, and amass lots and lots of cash for a rainy day. While it is frustrating that Intel's hand held strategy is not as mature as many investors would like, it seems very likely that Intel has the technical capability and cash to build and/or buy the capability to be the low-cost produced of commodity chips for hand helds at some point in the future. So when this investor stares into the clouds he continues to see dollar signs in a long position with Intel.

Time to get my head out of the clouds (that was the last pun...I promise) and think about ways to manage a long position in Intel that has been built at an average cost of around $20.

Let's first look at the fundamentals. Earnings for 2010 were $2.05. Management seems to believe 2011 will be better than 2010. A zillion analysts will be cranking out estimates for 2011, but let's just use some common sense and increase it by 8% to get to $2.20 for 2011. If you feel Intel deserve a normal market multiple of 15 at some point in the next year that is a stock price around $33. If you feel Intel is too big to get that type of multiple and want to use a much more conservative 12, that is a price target of $26+. That is 20% up from here. Oh, and by the way, there is a 3 % dividend that is probably more secure than most sovereign debt.

Technically, the 52 week high is $24 and there is chart resistance (which hopefully will become support) around $22.

Intel is such a large, widely held stock it is unlikely to streak towards $26 so holding this position will require some patience. While waiting for Intel to drift higher, the situation seems ripe to try to enhance returns with some option strategies. My mid-term assumption is that it is reasonable to accumulate Intel under $22 and lighten-up on the position around the $24 level.

Short term options plays
- My portfolio was short some $21 Jan puts that were sold for $.40 just before the holidays. As fast money “sold on the news” this morning, I rolled these over and up to be short Mar $22 puts for a credit of $1.20. That commits me to buying Intel at $20.80 well below the target acquisition price . However, more likely opportunities to cover this position at a nice short term profit will present itself in the coming weeks.
- If the stock drifts towards $23 in the next weeks. I would plan to sell $24 calls against a portion of my long position.

We now return you to your regularly scheduled programing on the phone and tablet market just in time for Apple's earning next week.

Trade - PGN - M & A Arbitrage

PGN has drifted up this week as intended but seemed to meet some resistance around the $44.50 mark yesterday. By this time the market should have had time to digest the M&A news and in general must not be as optimistic as my analysis or it seems there would have been a stronger upward move.

Since the position is positive but not moving as fast as intended, A sell order with a $44.57 limit was submitted this morning and it hit. This speculative trade yielded 1.2% in 4 days, or over 60% annualized.

The underlying conditions for this trade continue to exist. An alert to re-consider re-entering this position if the stock price falls back towards $44 will be set and monitored.

Tuesday, January 11, 2011

Positions - Alcoa (AA) Jan 11 Options after earnings

After a large percentage run up in the stock, Alcoa reported earnings last night. The earnings seemed to beat on the bottom line and avoided any major surprises in future guidance. Not too surprising it appears as if the market is “selling the news” today.

Currently the portfolio has one lot of stock covered with a $15 Jan call.
It seems very likely the stock will be called away at that level next week.

That means it it is also time to review this holding and see if it should remain as a core holding. One of the key metrics to determine when to buy the stock was that it was trading under book value. More research will be required to see where the stock relates to book value after this last reporting period.

In the mean time, with earnings announcement complete the volatility has been reduced but not totally eliminated from this stock. It seemed like solid earnings provides an opportunity to take advantage of the remaining volatility and timed decay

Hence, I sold the Jan $16 put for .20 cents today to deploy the second lot of capital allocated to this position.

Best Case the stock will stabilize at this level or rise for the next week and a half and this trade will yield a quick 1%. If this occurs all lots will have been sold and the portfolio will be totally out of AA. As discussed above a re-analysis will need to be done to see if a new position should be initiated when the price is over $16. Initial thoughts is at those prices it may be time to move on to other opportunities.

Middle Case – the stock settles between $15 and $16. One lot will be called away and one lot assigned with a cost basis of $15.80.
Worse Case – the stock falls below $15 in the short term. With the earnings announcement complete this 8% down scenario seems unlikely but anything is possible.
In either of these final two situations occur the likely next course of action is to play for a bounce back to recent highs and sell $16 calls.

Monday, January 10, 2011

Trade - PGN - M & A Arbitrage

Duke agreed in concept to merge/buy PGN today. I don't often get involved with the "arb game" with "the big boys" around M&A but in this case I think it is worth a speculative play. This utility merger will likely move slowly, be less volatile, and has less of a premium than many other M&A situations. Those characteristics should minimize the hedge fund activities in this situation. Hopefully this provides some floor under the stock for a short period of time which will provide the opportunity to make a quick, low risk 2% gain.

At the time of the merger each share of PGN would be worth 2.6125 worth of Duke. So in theory if Duke trades at $17.50 (what it fell to today) PGN should be worth $45.71, if Duke falls to its 200dma of $17.15 PGN should be worth $44.80. In addition it is probably safe to assume that PGN will continue to pay its .62 per share per quarter dividend during the merger approval process cycle. Assuming this takes three dividend periods to close that would be $1.86 in dividends. Add that to a conservative price of $44.80 and a you get an end of year value of over $46.50 maybe $47.00.

I purchased PGN at $44 this morning. The trading plan would not be to wait until the end of the year to try to get the $46.5 in value out of the trade but rather get out in the short-term if/when the stock drifts toward $45 for a 1-2% gain. Since this deal was just announced it would be surprising to see something become wrong with this deal in the short term time frame of this speculative trade. If the stock sticks at around this level for a week or so, it would be time to re-evaluate and likely get out at break even. Worse case if something were to go wrong with this deal hopefully PGN could stabilize around the $42-$43 level where it was trading prior to this news.

Monday, January 3, 2011

Trade NYX - re-establish covered calls

As NYX broke out over $30 on the first trading day of the year, sold $30 Jan calls against the position at $.77 after commissions.

Break out - Perhaps the stock has broken out, and will stay well above $30 for the next three weeks. In this event, and the stock will be assigned at $30 in three weeks. We will be comfortable with what will have been a $1 or 3.4% capital gain, $.77 or $2.6% on this option position plus another 1% dividend and 1% from prior option play for a total return of 8% in about 2 months (or approx 50% annualized)

Pull back - It is of course equally likely the stock will pull back towards $30 sometime this month, the plan is to cover these options when over a 1% gain is achieved via a combination of the price slippage and time decay. That will have lowered the break even point for this position to just above $28

Next catalyst is the Feb 8 earnings. Re-evaluation of the position will be required before that catalyst under either scenario.