Sunday, July 31, 2011

A Year after Dodd/Frank, What has changed?

Last weeks anniversary of the Dodd/Frank bill and this weeks "show" from DC  caused me to take a step back and think more generally about the state of the financial markets since the last "crisis". (maybe a glass of wine was involved too). I found some interesting facts about the current global financial system/markets and put them in a general article below.  
The reader can draw their own conclusions. However,  IMO it seems that not too much has changed, and the markets are still "not your father's market" and may never be.  This leads me to conclude that investors need to be open minded to non-traditional strategies for non-traditional market conditions. 

So this weeks non-traditional post for informational reading can be found at

Friday, July 29, 2011

Intel - Closed Coverd Call Position

As discussed in the last Intel post, CCI cover the lot of Intel covered calls on the pull back today . 
Took the trade off  because I'm still bullish on Intel and think it will be trading higher whenever the debt ceiling noise goes away.  Did not want the lot of stock to get called away at what I think is too low of a level.

The trade turned a small (.3%) profit but more importantly had provided some protection for the position going to earnings a few weeks ago. 

Thursday, July 28, 2011

Xerox - Added a Fourth Lot on Weakness

Xerox reported earnings last week.  They met earnings expectations and reaffirmed guidance but fell far short of any "wow-factor" that some more heavily followed  tech names reported this year. 

Xerox also got some tv time on CNBC's Fast Money.  The clip is embedded below, but basically supports CCI's view that the business model is changing and the street does not yet necessarily recognize this change,and it is a value play (trading at 8x earnings and just a 1.07 price/book).  The clip also highlights the continued large position of hedge funds in this name.  I'm not sure if this is a good sign (i.e. th smart money is buying) or bad sign (i.e. the smart money is entering "pump and dump" mode). 

CNBC - hedge fund trade of the week

Despite poor performance of this position to-date, CCI continues to agree with the view that XRX represents a good value.  As the stock dropped based on earnings and general market performance CCI looked once again to add its fourth (and final) lot to this position.  Specifically as the stock hit $9.50, CCI put on a risk reversal. Sold the Oct $9 puts and bought the Oct$10 call for no out of pocket costs. 

Comparing this approach to buying the stock.
  • Only commits $9 of risk capital vs. $9.50 to buy the stock
  • We will not participate in the first $.50 of up or downside in the stock
  • Sacrificing one $.045 dividend payment
  • Have the opportunity to trade this position on a stock move.  Ideally if the stock moves up we will be able to cover the short put to remove the risk while at the same time selling an upside call to turn the call into a call spread. 

Tuesday, July 26, 2011

Trying to catch a market drop via SDS

Yesterday afternoon, when I heard there were a whole lot of speeches from the "braintrust" in DC to be given Monday night, I figured those speeches would only serve to make the debt ceiling issue seem more confused and there was a good chance for a market drop on Tuesday.

So CCI bought some of the double short S&P500 etf (SDS) at the end of the day Monday .  I was not able to catch a big drop today, and the trade was stopped out for no gain after commissions.

So CCI is now 5-0-3 in day trading the double shorts ETFs this year.

Oops...did I say day trading.  Clearly, I meant to say deploying a  leveraged, short-term, negatively correlated, hedging strategy to protect some of the portfolio from tail risk and volatility!  That sounds much

Friday, July 22, 2011

Intel - Still Bullish

In a post at the beginning of June,  readers will recall CCI had the view that Intel would be a good buy at $22 while "our friends" at GS had just lowered their price target to $20.
Battle of the Titans

Well surprise, surprise today we find Intel closing the day at $23.13 after reporting another great quarter earlier this week. Looks like CCI wins another round!

OK...that's enough patting myself on the back......for now.....LOL

Intel - looking ahead
Time to focus on the look ahead for Intel. While just about ever aspect of Intel's earnings were positive the bad news was they lowered their forecast for PC industry growth to 8%.  Of course the fact that their cloud business was up 50% did not get that much press.  As discussed here in January, I think Intel's role as the preferred supplier for the backbone of the cloud is very under appreciated by the street.   Trying to put some of this noise in the background, it seems like Intel's earnings expectations are headed toward $2.50 in 2012.   Feel free to play pin the multiple on the earnings yourself, but to help the math challenged reader a multiple of 10 is $25 (up 8%), 12 is $30 (up 29%), etc, etc.  That does not mention a book value of $9 per share, and a 3+% dividend.  Oh there is also the little tidbit about their huge R&D efforts yielding a recent announced breakthrough in 3d, 22 nano chip design.  I'm not a chip expert, but if this design does consume half the power as stated, it could be a game changer for the longer term.

So, yes I'm still bullish on Intel. 

CCI already have a large position.  I'm fighting the temptation to buy more just because I don't want to fall too much in love with the story. However, I will try to get out of (or roll up and out) the one lot of Aug $22 covered calls in the portfolio on any pull back in the stock price.

Thursday, July 21, 2011

IBM Reports Solid Earnings - Continue to Hold

IBM Q2 result were reported this week and they exceed analyst expectations from every perspective.
Their earnings guidence for the year is now up to $13.25.

More importantly, with their strong backlog their target of $20 in earning by 2015 continues to seem more and more achievable. This earning target was the primary rationale for recommending  IBM in the original post this past December.

The stock is up over 25% since then. (compared to about 10% for the S&P500).  The longer term story remains in play.  Hence in this case there is nothing to do to manage the position but hold on and watch for awhile.  If it does get to $200 in the short term, it might be getting a little ahead of itself, and CCI will consider taking some profits off the table.

Wednesday, July 20, 2011

Teva - Risk Reversal - Hoping to add a second lot

CCI once again looking to add a lot of Teva to the portfolio.  General rational for wanting to acquire shares is in the original post below.

Teva Time

With Teva trading back around $47.50 today, CCI wanted to act prior the potential catalyst from earnings  next week.   Instead of just buying a lot at $47.50, I decided to reentered via an risk reversal options play.
Sold the Aug.$47.50 puts and bought the Aug $50 calls for a net credit of $.97.  (about 2% of risk capital)
Scenarios if held to maturity
- The stock falls below $47.5 -  CCI owns a second lot at around $46.53.  That could be bad, but is 2% "less bad"  than if the stock was bought today and then falls.
- The stock stalls and continues to trade in the $47.50-$50.00 range.  CCI keeps the 2 % option premium. We will never go broke 2% gain in a month
- The stock breaks out over $50.  Something CCI has been thinking might happen for several months, so this time into the trade we wanted to keep some upside involved in the trade.  In this case CCI keeps the 2% premium and matches the gain over $50 at least at 1:1.   Of course, if the stock does break out we will have only made the 2% option premium instead of the 5% spread between strike prices, but that is the price paid for having a lower downside entry point if the stock falls.

Earnings July 27. Stay tuned.

Sunday, July 17, 2011

Teva Options Expire

The July $47.50 Teva puts recently sold by CCI expired worthless this weekend.

This results in over a 2% gain for this lot of Teva stock on this transaction. This is the fourth time the sale of puts has earned money while the stock stagnated.  As shown via the spreadsheet below, this strategy of naked put selling on Teva has now yielded nearly 10% this year.
Teva Performance  

CCI remains long one lot of Teva at a cost of $48 which is about where it closed trading on Friday.

Earnings announcement is planned for 7/27.
CCI may look to get long a second lot of Teva, perhaps via calls, prior to that date.

USO Options Expire ...OOPS

The "insurance" oriented USO (oil) options bought by CCI a few weeks ago moved immediately against CCI and expired worthless this weekend.  The trade can be rationalized as the cost of insurance for the energy portion of the overall portfolio. ...or said another way......I was wrong, and oil remains near $100/barrel.

No new trades in the energy space planned at this time. Although, my bias is still to beleive that several countries have the intent of keeping the price of a barrel of oil  under $100 for the summer. 

Thursday, July 14, 2011

Trading ANR Again

In the recent past, CCI successfully traded coal stock ANR.  The core of the rational for putting some money in this stock has been that
  • coal seems like a resource that will continue to be a critical
  • ANR might have been overly punished by noise and uncertainty from its acquisition of  Massey
  • with a forward P/E of single digits (now near 7) it is  not overly expensive.  
Earlier this week, for better or worse,  Crammer talked up ANR. It got a short term bounce and pulled back a little today.
 Crammer calls ANR "top dog" in coal space.

Today CCI decided to re-initiate a trade in ANR.  Wiht ANR trading around $44.35 sold one lot of Aug $41 puts for $1.11 net of commissions.   Implied vol remains high at around 45 at the time of the trade. A catalyst in the form of a earnings call is schedule for Aug 3. A few scenarios

Worse case - the stock falls over $3 (about 8%) and CCI will be long a lot at an effective price of around $40.  In this case, volatility will even likely be higher and we would likely sell calls against the position to try to recover any losses.

Best case - Stock stays above $41 and the portfolio makes 2.5+% in option premium over 5 weeks.

Most likely case - Any positive drift in the stock going into earnings provides the opportunity to scalp a smaller profits in a shorter period of time.

Wednesday, July 6, 2011

Two Strategies for Trading HP Stock.

CCI has been in the process of legging into a trading position in HP for awhile.

Today an article appeared on Seeking Alpha with a good analysis of HP.
HP Value Play at SA by Tom Armistead

CCI has quoted Tom's articles in the past, and found solace that he and I had totally independently come to a similar view.  Given that view, Tom suggested a trading strategy around a deep itm leap option, and covered calls.  CCI has been legging into a more conservative,  income oriented, shorter term trade around the stock. I documented it on a comment on the article above.    So a reader who agrees with the analysis of the stock has two trading strategies to consider.

CCI will track the results of my trade here on this blog.

Tuesday, July 5, 2011

Emerging Market Consumer Portfolio (EEM2) Q2 Results

Complete information about the objective and make up of the EEM2 portfolio can be found at

In summary the objective of this portfolio is to outperform an emerging market ETF such as VWO by holding several ETFs that focus on the emerging middle class while having less exposure to China (FXI) than most emerging market investments.  Performance for the second quarter of 2011 was
  • eem2 - plus 3.6%
  • vwo - minus 0.67%
  • fxi - minus 5.6%
Clearly a nice outperform for the first quarter of this portfolio operations.  However, one quarter's data is not that significant. While the performance has been good, the volatility has been high and most of the returns have come from one holding, the emerging consumer market ETF (ECON).  

CCI plans to continue to hold this portfolio for now, but may make adjustments to the composition over time.

Q2 Resutls for GSPY - Global diversification with less risk than emrging markets

Version 2 of this post.

The detail rational and objectives of the Globalized SPY  (GSPY) portfolio can be found at  
The objective of this portfolio is to provide diversification from the S&P 500 (SPY)   via a portfolio that provides better returns with less volatility and risk than using the very popular emerging market ETFs such as VWO  (VWO) to provide portfolio diversification.

Basically, this portfolio is a mix of ETFs of the following countries:
For the first half of the year the portfolio's performance has not been great. Specifically;
  • GSPY has lost -.2% while VWO is up 1% for the year.
  • GSPY has been less volatile than VWO with a monthly SD of 2.6% vs. VWO's monthly SD of 3.6% and it seems to make common sense that these larger more established countries and companies shold be less risky than other emerging markets.
  • GSPY and VWO have shown a high correlation of 94%
  • GSPY underperformed the S&P 500s return of 5.5% YTD.  The positive spin on this negative comparative result is that GSPY is showing a -.20 correlation with the S&P500.   In reality this type of  negative correlation is the objective of  diversification.    Hopefully this negative correlation will continue if/when the S&P500 has a down period.
A half years results is not enough to draw any long term conclusions, but overall results are mixed at best.   However, the negative correlation with the S&P 500 provided by this blend of blue chip dominated companies still seems like it could provide a good balance the the S&P500, so CCI plans to continue to hold and monitor this portfolio.

Monday, July 4, 2011

Utility Dividend Capture Portfolio Achieves 8th Straight Quarter of Growth

The Utility Dividend Capture Portfolio just completed it 8th quarter of operation.
Detailed information on the objective, approach, and returns of this portfolio  can be found at

In summary, the objectives of this portfolio are
- absolute quarterly returns of 2+% in quarters when the stock market is up and 0% when the stock market is down.
- to be less volatile than the stock market.

This objective is to be accomplished via trading in and out of 15-20 utility stocks around their dividend x-date to capture about a 1% return from the dividend and relying on market inefficiency to be able to loose less than that amount via capital gains.

For the eigth quarter in a row this fund achieved its objective!!
  • The fund returned 5.5% in total this quarter
  • The return was comprised of 5.9% in dividends and a loss of .4% in capital gains
  • 18 trades were made.  15 of them were winning trades. An 83% win percentage.
  • daily standard deviation of the fund was .49, which was about 25% less than volatility of the XLU etf.
Over 8 quarters of operation, the fund has consistently met its objectives

  • Never had a loosing quarter!  This type of absolute return is the key goal of this portfolio.
  • Averaged 3.9% in  returns each quarter
  • Had 109 of 145 winning trades for over a 75% win rate.
  • Low daily volatility. A SD of .60% which is nearly 1/3 less volatile than the XLU etf.
  • Low quarterly volatility. A SD of 3.97% which is nearly 1/2 less volatile than the S&P.

This portfolio continues to meet and exceed expectations.  This begs the question "how long can this last". IMO the most likely thing to adversely impact the performance of this fund would be higher interest rates. As an extreme example if one-year risk free interest rates went to 4+%, the additional risk of this portfolio would not seem justified.  However, it seems like short-term interest rates will remain low for awhile, so CCI will continue pursuing this portfolio into its ninth quarter of operations.