Friday, July 27, 2012

Intel puts expire as Intel goes up 4%

In this post early in the week, CCI discussed why we were prepared to add to Intel if the stock fell under $25. So the weekly $25 puts were sold as a potential entry point for this trade.

Intel (intc) was up about 4% in the last two days.  The put sale returned about 1%.

1% in 3 days never sucks, but wish we had just bought the stock.

Should have resisted the 200% volatility in Netflix

As discussed here,  CCI couldn't resist trying to skim some profits from the 200% implied volatility in Netflix weekly options.We should have.

Despite less than disastrous earnings, the stock fell below the lower end of the range of  iron condor. I guess based on lower expectations. .

This speculative trade on weekly options was a loser.
Fortunately not a big trade/loss, but a loss never feels good.

Thursday, July 26, 2012

Teva covered calls....again.

Readers will recall that CCI has been in the process of exiting a position in Teva (teva ) for awhile.  The rational for originally getting into, and now out of, this position can be found by following this thread. Using covered calls we were able to dispose of two lots of the position at over $45. Unfortunately the stock plunged into the $30s before we could exit the last lot of shares.  

With Teva trading back over $40, CCI sold Sept $40 covered calls for just under $2.00/contract. 
Time will tell if this option will actually be held to expiration, but I'm comfortable exiting at an effective price of $42.

Tuesday, July 24, 2012

Can't resist speculating on the 200% implied volatility in Netflix

Netflix (nflx) is announcing earnings after the bell today.  Of course, netflix has a very volatile history.  I won't try to summarize that history here as I assume many investors are familiar with their story.

What caught my eye today was the over 200% implied volatility in the weekly options.  That makes options very expensive.  Hence CCI took a speculative flyer on the 60/65 - 85/90 iron condor for a credit  of $2.25.
At the marco level this is a 45/55 wager (win $2.25 or lose $2.75 per contract) that Netflix will end the week between $65 and $85.  A $20 range.

More fine tuned, CCI is hoping that whatever the earnings news is today
  • there will be enough of a tug of war between the netflix bulls and bears to have the stock trade in that range sometime in the next few days
  • the volatility should be sucked out of these options after the news is out today
If/when those events happen, hopefully we will be able to buy back this spread for substantially less than the $2.25for which it was sold.

Yes, this is a speculative trade.  It was done as a very small trade in the portfolio which will not really impact overall results for the year...but ..I could not resist taking a chance on the 200+% volatility of the "rational market".

Willing to add to Intel at these levels.

Regular readers will recall that CCI has been bullish on Intel for awhile.  This last article  on Intel (INTC) set my price target for the stock at $30.  Intel reported earnings last week that met expectations largely on 15% growth  in the server market. (i.e. intel powers the cloud). However, they  lowered growth expectations on continued pc slow growth and unproven capabilities in the mobile market place.  The stock had peaked near $29 a few months ago but is now back to $25.

It seems like time to re-evaluate my longer term view of Intel, but in the interim the valuation just seems too compelling to ignore trading around the current position.  At the most basic level of analysis:
  • They still seem on track to earn around $2.50/share.  
  • Putting a reasonable 12 multiple on the stock
  • Still gets to the $30 price target.
  • Oh, by the way, it pays a 3.5% dividend with a rock solid balance sheet 
Hence, with Intel trading around $25 today, CCI sold a  lot of the July weekly $25 puts for $.27/contract.
There are essentially two outcomes each with about a 50/50 chance.
  • The stock will hold $25 over the next three days and we earn 1% in 3 days.
  • The stock stays below $25 and we are the proud owner of another lot of Intel at an effective price of $24.73. The stock will go x-dividend in early August earning another $.21 lowering the break even point almost another 1% to $24.52.  In this case, CCI is willing to hold this position for awhile and hope for better days.

Monday, July 23, 2012

Lulu covered put harvested.

As discussed here,  the covered put in Lululemon lulu expired this weekend.  CCI pocketed the about 1% premium collected to get the break even point on this trade up to $54.    Lulu still has a large multiple that will likely come crashing down with any Lulu stumble around earnings.   CCI plans to hold onto the short position through earnings announcement but may layer some sore of protective option over the position if the stock moves back down toward $55.

Monday, July 16, 2012

Making our Lulu position into a Covered Put

Back at the beginning of the year, as discussed here, CCI shorted Lululemon Antheltic (lulu ) at $53.54.
The stock pretty much went straight up to $80 from there.....ouch.
But.....last quarter's results finally were less stellar than anticipated and the stock is now trading back around $55.  The "pressure" to unload this position as it approached getting back to even has been "large".
However, its pe is still over 40.  Further, general retail sales numbers this quarter seem to be somewhat challenged.   Hence it does not seem like this stock will be bouncing back anytime before the catalyst of its next earnings call.

So instead of unloading this position now, CCI sold the July $52.50 puts for $.55.  This creates a covered put situation.  The inverse of the popular covered call strategy. Scenarios include:
  • The stock continues its plunge this week down below $52.50 and the position will be closed at around a price of $52.  "Getting out" with a modest 3% position.
  • The stock levels off or rises from here, in which case we will pocket the 1% premium (over 1 week) to reduce our exposure on this trade.  Then we will have to re-evaluate this position going into their earning call.

Wednesday, July 11, 2012

Apple - Lets Call it a Tie

As discussed here, CCI had established the July, Apple $495-$500, $610-$615 iron condor for a $2/contract credit. In essence, this was a bet that Apple would trade in a  $110 range between $500 and $610 for a month

With Apple (AAPL) recently trading well over $600, the trade has been at risk of losing money on its upper end for awhile. With only 8 days until expiration the risk/reward (risk $3 to make $2) on a position that essentially has a 50/50 chance of going up or down was no longer appealing.  CCI took advantage of a small pull back in Apple today to closed this trade.  Overall the trade made a relatively immaterial credit of $.09/contract (i.e. a tie).

Tuesday, July 10, 2012

Closing Facebook Position

As discussed here, CCI had sold the Facebook (FB) July $25/27 - $33/35 iron condor for $1.00/contract.  This was in essence a 50/50 bet that the noise over Facebook's IPO would die down and the stock would settle somewhere in the $6 range between $27 and $33 in July.  That seems to have happened!

With FB trading around $31.50 today, CCI covered the position for $.25/contract.  That is a $.75/contract gain or a 75% return on the $1.00/contract of risk capital.  While that seems impressive, these type of trades have either a big gain or loss.  Big gains are

At a more macro level, this trade and a few other FB trades have now generated enough profits to more than  cover the loss in the small amount of shares I was allocated at the IPO price of $38. So we will take our modest overall profit in Facebook and move to the sidelines on this stock for awhile. 

Going forward, I suspect that even "if" FB posts good earnings results this stock will have a lot of trouble getting to $40 for quite awhile. This is because I suspect many early buyers will be looking to selling if/when they get back to near break even.  "If"  the stock were to move up to about $36, it might be a good candidate to sell something like a $37-$39 call spread.  I've set an alert if it goes over $36 to evaluate this strategy at that time.

Monday, July 9, 2012

Profiting While Going No Where

First day back from vacation was spent looking at the performance of the market over the past three weeks.

Basically the market has gone no where the last three weeks
 Of course the market has gone no where for the last dozen years, so this is kind of fitting.

Before CCI, left town, I wanted to have a little less exposure to the market so I purchased one lot of  the double short S&P 500 (SDS).   I also entered a standing order to sell the position if it went up 1.5% (i.e. the market wiggled down a little).  This level was chosen based on some relatively standard chart levels.   On a big down day a few weeks ago the order was executed. 

This was not the  "normal" process I use for using the double shorts, worked!

4-1-4 playing the double shorts for the first half of the year.
Percentage wise, overall up a modest 4.5%.
Given the market is up for the first half of the year, being up while trading from the short side is not too bad!

Of course, regular readers will recall last year's double short trading record was an impressive 14-0-6.

Sunday, July 8, 2012

Back from vacation.... "shocking" developments

CCI has been silent for the past few weeks due to an extended vacation
(I needed to relieve the "stress" of  

While vacationing, CCI did not pay too much attention to the detail of the markets, but did notice a few macro level developments such as:
- My understanding is Barclays seems to have admitted to somehow manipulated the LIBOR market.  What?  A Market Maker might  manipulate the market for their own profit??..Shocking
- JPM losses due to "the whale" traders,  rogue hedging tactics appear to have continued to grow well past the originally estimated $2b. you think there would be any noise if a rogue trader had made a $2b profit while hedging?   or are we just suppose to be shocked that they actually can lose money?
- More evidence seems to have come to the forefront that CountryWide Mortgage (now BAC) was providing sweet, VIP mortgage deals to politicians in the early 2000s.  What?  You mean politicians might accept favors from the financial services industry in exchange for future considerations that might benefit  key actors in the  financial system.....shocking.
- A potentially disgruntled JPM employee claims that JPM sold more expensive, less effective products just because they were their own and there was more profit in selling those products.....doubly shocking.
- A month after the "efficient and straightforward" execution of the Facebook IPO the stock continues to trade well under the IPO price.  Shockingly.... more retail investor's than usual seemed to receive allocations.
- Central banks around the world continue to announce various agreements, statements, deals, plans, and policies to "protect" the "free" markets.  Using the words "protect" and "free" in the same sentence and no one seems to even think twice about what this really means for the state of the markets.....shocking
- I did not see any mention that any of the customer money that MF Global seems to have lost has been found...shocking

Less shocking is that retail customers  are still being "sold" the same old strategies, asset allocations and products despite that this does not appear to be your grandfather's market.  Common sense still seems to indicate that retail investors might be better served by not blindly following the advice of an industry with a record like the one outlined above. CCI will resume trying  to play a very small part in providing others investment thoughts when starting more specific market postings this week.