Cisco - $17 ...no $16...no $15...no $16...no $15...no $14

CCI has decided it is time to exit its trade in Cicso. Several reasons

1. The main reason for entering this trade was because Cisco represented a cheap, value play with a strong balance sheet and low valuation. That is still true today, but after the last few weeks there are now likely many, many stocks in value territory. It seems like it would be possible to find a value play that also has better growth prospects than Cisco.
2. At the time of entering the trade there appeared to be several potential catalysts to turn around the fortunes of the company. This included the selling of some division, cost cutting via layoff and reorg, etc. Several of these things have happened, and even before the overall market collapse, they had not moved the needle on the stock. It is not clear what catalyst might move the stock in the near term.
3. The initial investment thesis here also felt that more of Cisco's issues were process oriented than product oriented. However, recent results seem to indicate falling margins on some mainline product lines which could imply other competitive products are providing better value to the customer.

Given the above, CCI plans to exit the trade and believes there will be better places to invest the capital.

However........I did not want to sell into the teeth of a sell off and the volatility remains incredibly high so today I sold $15 Aug 12 calls for $.15 net of commission with the implied volatility at over 100%. Those are the weekly calls that expire in three days. (As an aside, the fact that weekly options even exist is kind of amazing...but I digress). Two outcomes if held until expiration this weekend.

1. The stock rallies over $15 in three days (7%) - This really seems unlikely, but in this crazy market anything can happen. In this case, the stock is called away at around $15.15 and I'm OK with that for all the reasons mentioned above.
2. The stock falls or stalls – The 1% premium over three days is kept as an offset for the loss and we look for another way to exit the trade next week.

CRM - Covered Short Position

As the "rational" market plunged today, CCI covered the short position in CRM at $130.

This specific transaction gained about 11% and the gain on overall short trades around CRM is now 17.7%.
A small spot of green in a sea of red.  CRM has basically just dropped with the market and not broken down more on company specific issues which was the primary motivation for taking the position.  However, in a decline like the past week it seems prudent to take advantage of whatever hedges were in place.

 CRM earnings are 8/18.  If (a big if) the stock rallies before then, we may re-invest these gains in a short option play around the earnings date.

Teva - Time for more

Teva stock is down about 24% from its previous peak.  Ouch.
It started going down based on its earnings report and subsequent poor clinical trials on Liquinamod MS Drug.  This is likely to lower future earnings estimates at some point in time, but the stock still has single digit p/es.  The stock further snowballed after earnings in conjunction with recent market declines.  It is a little hard to articulate why a European financial problem or US debt downgrade should adversely impact an Israeli drug manufacturer. One theory might be that Teva has had a lot of hedge fund ownership, and some of those funds might be in a situation where they are forced to sell something. Teva's bad results have made it a likely candidate for liquidation, and hence possible there is some forced selling going on making it a good time to step into the battle..

CCI is long one lot at $48 and will almost certainly be long a second lot at a cost (after options adjustments) of $41.67.   Stepped into the downdraft today to sell Sept $37.50 puts for $1.37.  If the stock stabilizes we will make about 3.6% in 6 weeks or if the drop continues we will be long a third lot around  $36.13.

Performance for this holding is tracked with a google doc here

Minmially, Minimizing the Downside.

Not a great week for equities.   It will take a little research time to search through this weeks carnage to see where buying opportunities might exist, but I suspect there are some out there.

CCI did successfully execute a leveraged, hedge trade today .  (i.e. day traded the double short financials ETF, (SKF)).   Skimmed a modest 1.2% profit out of the SKFs 3.3% gain for the day.  Of course its range for the full day was a kind of  an amazing  10% ($72.51 to $80.23).  

The gain on this trade only puts a very small dent in the drops of the week, but every little bit to minimize downside helps.  This pushes CCI  record on trading double short  ETFs to 6-0-4. 

Boeing - Buying when others are fearful

An Ugly day in the market today.

CCI bought a third lot of a position in Boeing today at just under $70.  Unfortunately it continued to fall all day down near $68, so not great timing.   However,  CCI thinks the overall story first documented in this this article in January remains correct.   The core of the investing thesis is that the dreamliner is a "unique" product in the world.  When it starts rolling off the line it will drive Boeing's stock back towards $100 in the future (2013?), but now was the time to start slowly accumulating a position in the stock

Two quarters after the article, Boeing's plan still seems to be to deliver about 25 dreamliners this year, but they certainly have had issues in the past.   This is not to say the last 6 months have been overly positive for Boeing as they had some govt contract penalties, had to split the order for planes from American with Airbus, etc.  However, they continue to plan to deliver the most planes in their history this year, ramping production into next year, and have a backlog of $323b (up only 1% this year).

So with today's fear in the market, CCI stuck to the plan of adding a lot under $70.  Hopefully it will pay off over the longer term.

Swing and a miss

Played the double short S&P Etf (SDS) again on Monday, because I felt the "debt ceiling rally" would not hold.    

The good news: Good Call.
The bad news : Got busy with real life and had to put on the trade entirely electronically (via  conditionals, and trailing stops).  Unfortunately, my attempt at automation of the concept and the actual volatility of the day cause the trade to be executed for only a gain of .2% . 

.2% up on a down day is "better than a sharp stick in the eye" but CCI had a hittable pitch lined-up and basically swung and missed.   Disappointing results. 

While technically this trade generated a gain it was so small we will classify it all yet another tie.
Now 5-0-4 trying to hedge via double shorts this year.

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
http://seekingalpha.com/article/283026-questions-to-ask-on-the-one-year-anniversary-of-dodd-frank

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. 

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. 

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 better...lol.