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

http://seekingalpha.com/article/247845-globalizing-spy-how-to-diversify-without-adding-emerging-market-risk

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.

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.

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.

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.

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.

Intel Options Jan 11 - 1

On Decemebr option expiration day, INTC closed within the $20-$22 ($21.46) range established by the December 18 options trades established in November. Hence both option position expiring and both yielded 1+% in a month!

The fundamentals on INTC remain basically the same as before. Technically, it looks like the 50dma is about to cross the 200dma around $20.85 and in general there is some support around that level.

Today I sold the Jan $21 puts for just over $.40 per share after commission (just under 2%). These options do span the potentially more volatile earnings announcement period. Implied vol is only about 21.

Worse case - the stock falls and I am forced to purchase at a net price of $20.60. This is slightly higher than the sub $20 acquisition price of risk capital for option purchases for most of the year but still seems prudent under current conditions. This purchase price would be at about a p/e of 10 the stock would be purchased right before an x-date (around 2/3) so they would quickly capture the dividend.

Best case (i.e. hopped for case) - the stock rises back towards $22 either quickly as managers may want INTC in their year end portfolios or in anticipation of good earnings around 1/13. If the stock does drift back toward $22 prior to earning announcement I would look to cover this option or possibly roll it out to February when a 1% gain is achieved.

Positions - Alcoa (AA) Jan 11 Options - Cover Puts

With AA over $14.40 it was time to cover the $12.50 Jan puts. At $.08 over 80% of the premium has been received and it did not seem prudent to leave the capital to cover the puts at risk for such a small remaining reward.

The options were sold at $.51 and covered at $.08. After commissions, the result was over a 3% gain for a position held less than 4 weeks. That is nearly a 40% annualized return.

A 1/2 position covered by Jan $15 calls remain in place. Earning announcement scheduled for Jan 10. I remain bullish on the stock. The earning event will likely create some volatility which might create an opportunity to put back on the short put trade early in 2011.

Trade NYX - close options

NYX did fall back to (and below) its 200dma as projected

Bought the Dec 18 $30 calls that were sold 2 days ago at $.07. After commissions the trade yielded about $.24. About .8% for two days or something like 80% annualized.

The core trade remains in place.
Cost of $29/share, Collected to-date 1% div and .8% option play for 1.8% return.
This makes the break even below $28.50. That point will be a watch for a potential sale but will also monitor the position for a return to $30 toward the goal of low $30s exit.