Sunday, May 29, 2011
CCI highlights this article for reasons well beyond it supporting my view of one stock. Specifically, it clearly illustrates the type of thoughtful, independent, free, and intelligent analysis that is now available to investors by the power of "social network investing". I do not know Tom. His Seeking Alpha profile says he is a retired accountant/actuary from the insurance industry. I encourage you to read any of his other articles on that sight. Do that, and I think you will believe that is his background and that his insight is helpful.
Since CCI's insurance industry background consists only of writing lots of checks for auto/home insurance, I use to blindly gain my portfolio exposure to this industry via etfs and funds. After reading some of Tom's articles on that industry and I feel I am be better able focus investments in that sector. More generally, it supports my belief that investors with this type of knowledge, utilizing the internet can change the way the investor class makes investment decesions.
Tuesday, May 24, 2011
It still seems unlikely this stock can be trading based on its sky-high fundamentals, so ultimately it "should" come back down....eventually.
In the short term, looking at it from a technical/momentum perspective seems the most appropriate. CCI's thesis/plan/hope is that "the weak" shorts covered over the past few days and that helped drive the price up. Next, the longs will take profits before the holiday weekend and the stock will fall to fill some of the gap on its chart.
More generally, this re-establishes a hedge against some of the other tech stocks in the portfolio.
Monday, May 23, 2011
No real changes in the storyline. So as discussed in the past, CCI would look to add fourth and final lot on weakness. So today June $10 puts were sold for $.28 after commissions. A few scenarios.
1). The stock continues to fall below $10 and CCI will be the proud owner of a 4th lot at an effective price of $9.72. In this case, CCI would own a full 4 lot position at an average price of $10.44. It would be time to sit, watch and wait for awhile.
2). The stock continues to hold over $10 (chart support level). Best case CCI harvests the $.28 gain (2.8% monthly gain for the math challenged). However, more likely in this scenario the stock will have had some bounce during the month and CCI might harvest a smaller gain over shorter period.
Friday, May 20, 2011
Fortunately despite being short and CRM going up from the date of the original post, through "extreme brilliance, insight and trade execution", the portfolio is still up about 3% on this total trade. (ok...ok... .....maybe it was just being lucky).
CCI will likely go short again in some manner at some point in time, but I will let the market digest the earnings news for a little while before re-entering.
Thursday, May 19, 2011
Just kidding. After all, CCI is not exactly a "best client" of Wall Street firms that can "efficiently" profit from the arbitrary setting of a price at $45 and then watching it sell for $80 ...or was that $122...or was that $94. (today's trading range)
A few data points from today (unaudited)
Linked in's market value of $8b would put it near the middle of the S&P 500 market cap. I guess a web-site, eyeballs and a $161m in revenue is worth a lot more than you might think.
My understanding is 7.8m shares were sold in the IPO. Today's trading volume 30.1m shares. If that is right, on average a share changed hands 4 times today. Not exactly buy and hold!
5th largest IPO in history (not sure how that is measured)
FYI, I tried to short this when it was over $100, but could not. I'm not exactly sure why. I think there are restriction on shorting IPOs until the initial trades clear/stabilize or perhaps there were technically no shares available to borrow to be able to short. All I know is I am really, really glad those naked shorting rules and financial regulation legislation are protecting me from market manipulation!
One last deep thought...... if Linked-In is so valuable by simply providing a network of professionals, maybe Common Sense says that a network of investors sharing their main street investment knowledge can be more valuable than the advice of financial services firms who orchestrate this type of ridiculous market activity.
Monday, May 16, 2011
Sold May $48 calls against the position at $1.54 after commissions.
Scenario 1: Worse Case: the stock goes down below $48 this week. The $1.54 option premium will be pocketed and the portfolio will be "stuck" holding the position. Essentially revising the Break Even Point on the trade down to $47.
Scenario 2: Best Case: The stock stays above $48 for the next 5 days, the option will be exercised this Friday and the trade will have made 2% in a week (for you non mathematicians....that is over 100% annualized). This is the most likely scenario...over 2:1 likely if you believe option pricing theory.
Friday, May 13, 2011
That fall could be explained by less than stellar earnings, a general market move away from the commodity trade, concern of a slowing global economy reducing coal demand, dollar fluctuations, hedge funds trying an "arb" play on the pending merger (that would be my best guess) or.......sun spots (that's an attempt at humor).
In any event, this still seems like an attractive price point, and I couldn't resist anymore. Bought a lot of ANR towards the end of Friday at $48.50.
Worse case - In wall street lingo...I could be catching a falling knife. However, with earnings estimates actually increasing after earnings (to approx. $5 in 2011 and $6 in 2012) it seems like valuation has to take hold at some point.
Best Case - Hopefully the oversold RSI will draw this back to the 200dma of about $50 in the short term. Also, the implied volatility for the options remain high. If the stock does bounce, a short term covered call opportunity should present itself early next week.
Sunday, May 8, 2011
Overall rationale is the same as before. However, these options expire shortly after their earnings announcement so this is somewhat of an event play around the earnings announcement. Also note that the risk of this trade is limited (defined by the cost of the spread) and is in essence playing with the houses money won via the earlier short position.
Wednesday, May 4, 2011
Still bearish on CRM and think it can fall hard, but I wanted to take the ulimited risk of being short off the table. I will be looking to put some of these profits into a put spread on the stock, that will continue to play this to the downside
PS: Not only did this trade make money but other cloud related companies like Intel and IBM were up during the same period. So the long/short, pairs strategy worked well......at least this time.
Tuesday, May 3, 2011
The "good news" is the portfolio had covered the lot of stock with June $60 calls. One of the key reasons to have that type of option position in place is to provide some insurance for a drop in the price. My general philosophy is
- "when you have insurance in place and the stock falls....cash in the insurance policy first, ask questions later" .
Later in the day, I spent a little time trying to sort through the earnings announcement. I did not spend too much time because on the surface it was clear it did not meet my expectation of " no noise before the merger vote". So I sold the lot at $55.18 after commissions. Rational for the sale included:
- the earnings were not good and more importantly more messy than I expected.
- earnings misses often create more that a one day adverse impact on the stock.
- some of CCI's enthusiasm/momentum for this stock was because in the short term it was a way to play the "nuclear backlash" from the Japanese issues. That catalyst seems to have fallen off the front page.
A list of ANR transactions can be found by clicking on the google doc on the page below
In summary this lot (and related options trades) returned 4.7%. The S&P during the same period was up 2.35%...so coincidentally this lot doubled the performance of the S&P. As previously reported, lot 2 of ANR was also exited profitably.
Certainly the actions/timing taken on this trade were not perfect. More profits could have been made. However, it is never too upsetting to achieve the two key goals for a trade of
- making money
- beating the market
Sunday, May 1, 2011
I agree there was indeed nothing inspiring in the announcement. However, the announcement was still consistent with the two key points of the investment thesis.
Continued transition to a services company. Total Q1 Revenue was $5.5b of which $3.6b was “services outsourcing, and rentals”. I'm not sure exactly what is included in the $3.6b, but taken at face value, Xerox is now 2/3 a services company. FYI, they also classify $4.6b of the $5.5 b revenue as annuity business. Maybe they should have taken the ACS name when they acquired them...hmm. This reminds me of the transition IBM made from hardware to services. It took some time for the market to acknowledge that for IBM, but it seems to have worked out well for IBM. Hopefully at some point it will work out for Xerox.
Confirmed full year guidance. So earnings of $1.10/share this year continues to seem plausible. Hopefully, at some point, the market will put a 12+ multiple on these earnings and the stock can get to $13 for a nice gain.
Given the above, I continue to work towards accumulating a full position in XRX. Specifically, as Xerox dropped this week, the $11 May puts for $.55 were sold. In common sense language, that means the third lot of stock will likely be added to the portfolio at $10.46 at expiration on May 20th.
Overall, the portfolio is in essence long three lots at an average price of $10.68. (Friday's close $10.09 ..ouch) A little more patience and better trade execution could certainly have gotten the position cheaper...but that is “yesterdays news”.
Will be looking to add a 4th and final lot. After that, wait for awhile for either
the market to recognize my “obviously correct” thesis....lol
a chance to harvest capital gain tax losses ...lol