As originally documented here, CCI believes Salesforce.com (CRM) is a bubble waiting to pop.
CRM report earnings tonight after the bell, and CCI felt it was time to "put some money behind my mouth". With CRM trading around $135 yesterday, CCI bought the Nov $130 puts and sold the Nov $120 puts yesterday at the cost of $2.66. (A put spread). This could be rationalized as a portfolio hedge or simply a re-investment of past profits made from shorting CRM. However, with only 2 days until expiration, this was far more of speculative trade on CRM disappointing later today. In essence this trade is simply a bet with almost 4:1 odds of a miss. (i.e. lose $266/contract if they meet expectations or make $1000/contract if they disappoint).
Today, prior to earnings, CRM fell aggressively. I guess that fall was because of some other tech stock misses, speculators running away from CRM before earnings, some info leaking somewhere, or who knows. That pre-earnings drop was kind of surprising to me, so I decided to take the trade off early with only a $128 gain/contract. I guess some might call that a 48% gain on capital,but the risk of loss was quite high, so that is not really fair to say.
Was I too quick on the sell trigger on a winning position? Probably yes.
We will know later today, ......but.... s they say " bulls make money, bears make money, pigs get slaughtered". So I'll watch the earning results with great interest..... while counting my winnings.
Thursday, November 17, 2011
Wednesday, November 16, 2011
HPQ - Closed Nov Option Position
With HPQ trading back near $28, option expiration on Friday, and earnings on Monday, CCI unwound the November option position. To remind readers of the specifics, that meant selling one lot's worth of the $24-$28 call spread and rolling one lot's worth of the $28 covered calls from Nov to Dec. After commissions those trades resulted in a gain of $3.08/share. A very nice gain, that proactively puts a little bit of a dent in the overall loss on the HP trade.
Earnings are Monday. In a perfect world, a new CEO (Meg W.) would like to report in-line quarterly results (i.e. things are under control) and manage down expectations for the future (i.e. it will take me a little while to repair the damage of the past.) I think it unlikely that a new CEO in their first quarter on the job will increase expectations. Hence, I'll keep betting HPQ will continue to range bound in the high $20s for awhile. The lot of Dec $28 calls are in the portfolio to try to make some shorter term profits from that scenario.
After the earnings report, the x-date, etc we will reevaluate the next steps with this trade.
Earnings are Monday. In a perfect world, a new CEO (Meg W.) would like to report in-line quarterly results (i.e. things are under control) and manage down expectations for the future (i.e. it will take me a little while to repair the damage of the past.) I think it unlikely that a new CEO in their first quarter on the job will increase expectations. Hence, I'll keep betting HPQ will continue to range bound in the high $20s for awhile. The lot of Dec $28 calls are in the portfolio to try to make some shorter term profits from that scenario.
After the earnings report, the x-date, etc we will reevaluate the next steps with this trade.
Tuesday, November 15, 2011
Deja Vu - All Over Again
This morning's financial "news" included concerns about European debt. Spain this time.
Sound familiar? Do you think it was possible some big money was creating "news" to help their positions? I've seen this movie before, and was willing to play along.
Bought the double short financial ETF (SKF) for $64.10 and was able to sell it for $65.10.
Good/lucky timing. 1.4% in a few hours. 14-0-6 using the double shorts this year.
Sound familiar? Do you think it was possible some big money was creating "news" to help their positions? I've seen this movie before, and was willing to play along.
Bought the double short financial ETF (SKF) for $64.10 and was able to sell it for $65.10.
Good/lucky timing. 1.4% in a few hours. 14-0-6 using the double shorts this year.
Could Buffet be reading CCI ?????
Monday's news including this bit of info.
"Warren Buffett has broken the habit of a lifetime and disclosed that Berkshire Hathaway (BRK.A) has not only bought a 5.5% stake in IBM (IBM), it has also acquired 9.3M shares in Intel (INTC)" .
It is probably just one of those nasty Internet rumors, but I'm "unbiasedly" willing to highlight that it seems like more than a coincidence that these are two of CCI's major positions as documented here and here.
Hmm...
* * *
More seriously, hopefully this news may drive some short-term demand for these stocks which would be great for our positions. It is also probably somewhat of a
This news also reminded me that I had not provided any q3 earnings update for IBM. Perhaps that was because it was just another ho hum, make the number, and add to the recurring revenue backlog via long-term services contracts and software. Their stated goal of $20/eps by 2015 seem to be more obtainable and even conservative. A conservative multiple of 12 provides a stock price of $240 and an aggressive multiple of 15 provides a stock price of $300. Something like an 8-15% annual return over the next few years. CCI will just do the good old fashion, buy-and hold on the IBM position unless it has a major breakout in which case some profit taking may be prudent.
"Warren Buffett has broken the habit of a lifetime and disclosed that Berkshire Hathaway (BRK.A) has not only bought a 5.5% stake in IBM (IBM), it has also acquired 9.3M shares in Intel (INTC)" .
It is probably just one of those nasty Internet rumors, but I'm "unbiasedly" willing to highlight that it seems like more than a coincidence that these are two of CCI's major positions as documented here and here.
Hmm...
* * *
More seriously, hopefully this news may drive some short-term demand for these stocks which would be great for our positions. It is also probably somewhat of a
- validation of the attractive valuation of these stocks
- a recommendation for the role the business models of these two companies play in the infrastructure of the cloud.
This news also reminded me that I had not provided any q3 earnings update for IBM. Perhaps that was because it was just another ho hum, make the number, and add to the recurring revenue backlog via long-term services contracts and software. Their stated goal of $20/eps by 2015 seem to be more obtainable and even conservative. A conservative multiple of 12 provides a stock price of $240 and an aggressive multiple of 15 provides a stock price of $300. Something like an 8-15% annual return over the next few years. CCI will just do the good old fashion, buy-and hold on the IBM position unless it has a major breakout in which case some profit taking may be prudent.
Monday, November 14, 2011
MMM - Rolled Covered Calls
I was right before I was wrong.
No that is not the latest words from a politician, but rather this describes CCI's trading position on MMM.
Readers will recall CCI was corrected in anticipating that MMM would manage down expectations during the last earnings cycle and correctly used covered calls to make a modest profit from this event. However, CCI's confidence was shaken when MMM also missed q3 earnings, causing CCI to too act a little too hastily in re-establishing a covered call position all the way back down at $75. A little more patience a belief in the original thesis would have allowed the covered calls to re-established at a higher price and substantially better return.
But that is yesterday's lesson. With expiration only 4 days away and MMM trading around $81.70, CCI did what seems like a prudent thing and rolled the Nov $75 covered calls out and up to the Dec $77.5 covered calls. There are several scenarios in play over the next five weeks, but in the situation where MMM continuesly trades over $80 for the next 5 weeks this lot of stock and related options will have returned a modest 4+% gain. Not fantastic, but not bad for having risk capital tied up in a "relatively safe" blue chip stock that may haved not moved anywhere during the holding period.
No that is not the latest words from a politician, but rather this describes CCI's trading position on MMM.
Readers will recall CCI was corrected in anticipating that MMM would manage down expectations during the last earnings cycle and correctly used covered calls to make a modest profit from this event. However, CCI's confidence was shaken when MMM also missed q3 earnings, causing CCI to too act a little too hastily in re-establishing a covered call position all the way back down at $75. A little more patience a belief in the original thesis would have allowed the covered calls to re-established at a higher price and substantially better return.
But that is yesterday's lesson. With expiration only 4 days away and MMM trading around $81.70, CCI did what seems like a prudent thing and rolled the Nov $75 covered calls out and up to the Dec $77.5 covered calls. There are several scenarios in play over the next five weeks, but in the situation where MMM continuesly trades over $80 for the next 5 weeks this lot of stock and related options will have returned a modest 4+% gain. Not fantastic, but not bad for having risk capital tied up in a "relatively safe" blue chip stock that may haved not moved anywhere during the holding period.
Thursday, November 10, 2011
Cisco - Earnings - Rolled Options
Cisco reported earnings Wednesday after the bell and the results generally seemed to please the street. The stock rallied to $18.60 today.
Readers recall that CCI has owned the Jan 12 $10 calls as leveraged play in this stock for quite a while. Unfortunately we also owned Nov. $16 covered calls which in this case has just stunted any gains in the position.
We rolled the Nov$16 calls out to Jan $19 covered calls today. So after several iterations of options plays the portfolio is now essentially long the Jan $10-$19 call spread. As of today, this lot is cumulatively showing a small gain, but a reasonable upside opportunity was missed because the covered calls limited growth.
With this earning catalyst behind us, we will be looking for the right opportunity to close out of this position.
Readers recall that CCI has owned the Jan 12 $10 calls as leveraged play in this stock for quite a while. Unfortunately we also owned Nov. $16 covered calls which in this case has just stunted any gains in the position.
We rolled the Nov$16 calls out to Jan $19 covered calls today. So after several iterations of options plays the portfolio is now essentially long the Jan $10-$19 call spread. As of today, this lot is cumulatively showing a small gain, but a reasonable upside opportunity was missed because the covered calls limited growth.
With this earning catalyst behind us, we will be looking for the right opportunity to close out of this position.
Hedging Financials Today
After getting beat down on Wednesday the financial stocks bounced this morning. I thought there was a chance that this bounce would not last, so CCI bought the double short financials ETF (skf) today as a hedge against more bad banking news. There was really not too much movement during the day and the position was closed in the afternoon for a "huge" gain of $3.84 after commissions.
So this attempt ends in a tie. 13-0-6 trading double short ETFs this year.
So this attempt ends in a tie. 13-0-6 trading double short ETFs this year.
Tuesday, November 8, 2011
Using options to increase returns if gold were to move up
Readers will recall that CCI has maintained a small overall exposure to gold in the portfolio. At present, this exposure is represented by a position in the gold miners etf (GDX). This was last discussed here.
Also in the past CCI has successfully found ways to take advantage of the high correlation, but different implied volatility in option prices between the gold miners etf (gdx) and gold etf (gld) to improve returns. A good example of this concept was initially described in this article
With European news continuing to swirl, the US debt committee coming towards their due date, mideast uncertainty continuing, and gold prices seemingly consolidated CCI wanted to increase exposure to the gold market. As in the past, CCI has deployed an options strategy to try to increase returns in gold rises without taking on much more risk if the price of gold were to fall. This strategy can a get a little bit complicated, but is described in detail at this new article.
In summary, the strategy is to sell $65 Jan covered calls against one lot of the gdx shares owned and use these proceeds to buy one lot of $180 Jan calls in the gld etf. As discussed in the article this strategy will provide increased leverage and hence returns without increasing the risk of the portfolio.
Also in the past CCI has successfully found ways to take advantage of the high correlation, but different implied volatility in option prices between the gold miners etf (gdx) and gold etf (gld) to improve returns. A good example of this concept was initially described in this article
With European news continuing to swirl, the US debt committee coming towards their due date, mideast uncertainty continuing, and gold prices seemingly consolidated CCI wanted to increase exposure to the gold market. As in the past, CCI has deployed an options strategy to try to increase returns in gold rises without taking on much more risk if the price of gold were to fall. This strategy can a get a little bit complicated, but is described in detail at this new article.
In summary, the strategy is to sell $65 Jan covered calls against one lot of the gdx shares owned and use these proceeds to buy one lot of $180 Jan calls in the gld etf. As discussed in the article this strategy will provide increased leverage and hence returns without increasing the risk of the portfolio.
Monday, November 7, 2011
Rolled Intel Covered Calls Out and Up
Frequent readers know that CCI is bullish on Intel. (recent article here). Readers will also recall that back in October CCI had sold one lot of Nov $24 calls to provide a modest amount of downside protection through the earnings season. With Intel trading below $24 this morning we bought this call back. The trade had an immaterial gain, but I prefer to think of it as some small amount of insurance against an earning miss was held for no-cost.
When Intel bounced back towards $20.20 this afternoon, CCI re-established the covered call on one lot of stock via the $25 Dec calls for $.43 after commission. This allows my bullish thesis a little more room to run but re-establishes a little income/protection if by some "slim chance" my bullish thesis in Intel is wrong.
When Intel bounced back towards $20.20 this afternoon, CCI re-established the covered call on one lot of stock via the $25 Dec calls for $.43 after commission. This allows my bullish thesis a little more room to run but re-establishes a little income/protection if by some "slim chance" my bullish thesis in Intel is wrong.
Tuesday, November 1, 2011
Its all Greek to me.....or is it?
The Greek soap opera continued today. The potential for a Greek referendum on the bailout/austerity program seemed to drive the market down today. From a common sense perspective, it seems hard to believe that whatever happens to the small Greek economy matters that much to the global market. However, what is not hard to believe is that it does matter to the financial services firms. They seem to be in the same position as they were related to US mortgage debt.
The next exhibit in financial services mismanagement is MF Global. CCI has no real knowledge of the behind the scenes story at MF Global, but it is not too hard to believe the reports that
If you can't beat"em...join em.
CCI skimmed almost one percent off the double short etf today (SKF)
13-0-5 trading double shorts this year.
The next exhibit in financial services mismanagement is MF Global. CCI has no real knowledge of the behind the scenes story at MF Global, but it is not too hard to believe the reports that
- they were leveraged 40:1 (sounds familiar)
- made big bets on government backed instruments (sounds familiar)
- perhaps were caught by the EU calling Greek 50% haircuts "voluntary" vs. credit defaults and hence not triggering CDS insurance, (CDS at the core of the problem...sounds familiar.
- However, MF may have even reached new heights by intermixing client money with their proprietary trades.
If you can't beat"em...join em.
CCI skimmed almost one percent off the double short etf today (SKF)
13-0-5 trading double shorts this year.
Subscribe to:
Posts (Atom)