Credit - David Steckler (HGS contributor)
Friday, June 26, 2009
Friday, June 19, 2009
The Experiment with Tyco
I am publishing this trade virtually because I think this is a good trade but I am on options rookie so I am trying out my playbook here.
Here's what I read on Friday Jun 19th Quadruple Expiration Day.
Tyco has been trading in a reasonably tight range recently, and that has prompted one options trader to step in.The security company is down just $0.04 on the day to trade at $26.85. It broke above $29 on the first day of the month, after a run up from near $17 in early March. TYC shares have gotten back above the 200 day moving average, through which the stock broke down back in August when the price was above $40. The options trade is out in October, with the 26 puts and the 27.50 calls. There were 6,524 contracts traded in each at the same time. This appears to be a short straddle, with the October 26 puts sold for $2.05 and the October 27.5 calls traded for $2 even. If this was in fact a volatility sale, the trade will profit up to $31.50 and down to $22. This trade would go along with the falling volatility levels. Implied and historical volatility are both around 39 percent, continuing to fall over the last four months and now at their lowest levels since last October.
PLAY 1 - Short Straddle on Jul 27.5 TYC
I didnt know how to take advantage of this today but now sitting here at home with my playbook I am wondering what would happen if I were to do a short straddle myself but do it for July instead. Selling TYCSY this evening if it was possible would net me 1.40. Selling TYCGY would net me 0.75 for a total of 2.15 for the trade. Ofcourse a short straddle has unlimited risk on the upside substantial downside risk but given the low volatility of the stock - collecting 2.15 doesnt sound bad does it? We will revisit this trade on Jul expiration and see where we sit.
I can tolerate a fall from current price to 24.87 to a rise upto 28.87
PLAY 2 - Short Strangle on Jul 26 and 27.5 TYC
Sell TYCSK (Jul 26 TYC Put) - 0.7
Sell TYCGY (Jul 27.5 TYC Call) - 0.75
Yielding a net 1.55
Of the two plays - Play 2 Yields a lower amount but I like it better ! With Play 2, I can tolerate a fall in the stock price upto 24.50 and a rise upto 29. As you can see with Play 2 - I have a better tolerance of swings in price. Looking at TYC charts - I see the 50-200 golden cross (bullish) but a parabolic stop and reverse (bearish). Near term I think the bearish trend wins and we should see price gradually migrate downwards with first resistance at the 50 day MA. If it goes through that the very gradually sloping 200 MA is at around 24. As I think out loud here - perhaps it might be better to wait nearer term to see if TYC bounces at the 50 day MA before jumping into the short strangle. Will update as I have time.
Here's what I read on Friday Jun 19th Quadruple Expiration Day.
Tyco has been trading in a reasonably tight range recently, and that has prompted one options trader to step in.The security company is down just $0.04 on the day to trade at $26.85. It broke above $29 on the first day of the month, after a run up from near $17 in early March. TYC shares have gotten back above the 200 day moving average, through which the stock broke down back in August when the price was above $40. The options trade is out in October, with the 26 puts and the 27.50 calls. There were 6,524 contracts traded in each at the same time. This appears to be a short straddle, with the October 26 puts sold for $2.05 and the October 27.5 calls traded for $2 even. If this was in fact a volatility sale, the trade will profit up to $31.50 and down to $22. This trade would go along with the falling volatility levels. Implied and historical volatility are both around 39 percent, continuing to fall over the last four months and now at their lowest levels since last October.
PLAY 1 - Short Straddle on Jul 27.5 TYC
I didnt know how to take advantage of this today but now sitting here at home with my playbook I am wondering what would happen if I were to do a short straddle myself but do it for July instead. Selling TYCSY this evening if it was possible would net me 1.40. Selling TYCGY would net me 0.75 for a total of 2.15 for the trade. Ofcourse a short straddle has unlimited risk on the upside substantial downside risk but given the low volatility of the stock - collecting 2.15 doesnt sound bad does it? We will revisit this trade on Jul expiration and see where we sit.
I can tolerate a fall from current price to 24.87 to a rise upto 28.87
PLAY 2 - Short Strangle on Jul 26 and 27.5 TYC
Sell TYCSK (Jul 26 TYC Put) - 0.7
Sell TYCGY (Jul 27.5 TYC Call) - 0.75
Yielding a net 1.55
Of the two plays - Play 2 Yields a lower amount but I like it better ! With Play 2, I can tolerate a fall in the stock price upto 24.50 and a rise upto 29. As you can see with Play 2 - I have a better tolerance of swings in price. Looking at TYC charts - I see the 50-200 golden cross (bullish) but a parabolic stop and reverse (bearish). Near term I think the bearish trend wins and we should see price gradually migrate downwards with first resistance at the 50 day MA. If it goes through that the very gradually sloping 200 MA is at around 24. As I think out loud here - perhaps it might be better to wait nearer term to see if TYC bounces at the 50 day MA before jumping into the short strangle. Will update as I have time.
Wednesday, June 17, 2009
Interesting Day in the Markets (OPEX week Jun 17)
TRADING THOUGHTS (This is intended as a personal blog for me to jot down my daily thoughts and help with the learning process). PLEASE DO NOT COPY ANYTHING I DO ON THIS BLOG - I am not responsible for any trade losses you will incur.
Today was an interesting day in the markets and possibly a turning point in the rally we have seen. The last couple of days had seen some intense selling especially in small caps with large beta. I had a bunch of those in my portfolio. The selling was brutal from the open. It actually seemed to diminish as the day wore on. I sold my entire portfolio today (well almost my entire portfolio - I continue to hold UNG and VTG). Natural gas seems to be holding up really well here and its about that time of the year anyway. UNG is a solid play off of Natural Gas futures. VTG is a driller and will be profitable this year. They have also been able to raise money in private placement.
Towards the end of the day - Tim Knight (http://www.slopeofhope.com/) - went short the ES futures at 911.50 and I in turn bought 400 SDS at 56.30. Then around 3:45 - there was very interesting action in AXL, VTG and TEN. Some huge buys came in especially in AXL. Either these were people short covering or actually buying - I am not sure. Regardless, AXL went positive for a short time but fell back down. VTG went positive and stayed positive. In the markets as well - they started turning +ve briefly. Looking at that action - I immediately sold my SDS for a small profit at 56.65 (I intended to sell SDS before end of day anyway). SDS ended the day at 56.83
The S&P is currently sitting ON its 200 day moving average but its MACD has crossed and turned lower. Saw an interesting video by Adam Hewinson of INO.com and Marketclub on the INX (S&P) where he sees it turning lower with the first fibonacci around 881. From previous resistance levels as well S&P seems to be headed to 880. I am in all cash and will be looking to play the short-side tomorrow. Overshadowing all this is whether or not OPEX (which is this week) is messing with us. My impression looking at optionpain.com was that OPEX week would make the markets trend lower given what optionpain.com was suggesting. I was thinking of buying puts on Friday to protect my gains (on Friday - I was sitting on a much better profit level in my portfolio). I didnt buy them and I paid for that mistake. I am now all cash with some small positions.
I have created portfolios in FINVIZ (because the stocks I had purchased are strong small cap names like - VTG, CENX, AXL, GRO, SEED, FEED, HOGS, CHU, BBY, COT, CPY, CENT, FUQI, APWR etc).
Just got an email from Market Club - BMI went higher to 42 (argghhh) and all healthcare stocks seem to be higher today. RDY is looking quite strong. Within small caps - best healthcare action in the last 3 days has been in MRGE. UBET and MNKD also received strong rankings of 100+
Today was an interesting day in the markets and possibly a turning point in the rally we have seen. The last couple of days had seen some intense selling especially in small caps with large beta. I had a bunch of those in my portfolio. The selling was brutal from the open. It actually seemed to diminish as the day wore on. I sold my entire portfolio today (well almost my entire portfolio - I continue to hold UNG and VTG). Natural gas seems to be holding up really well here and its about that time of the year anyway. UNG is a solid play off of Natural Gas futures. VTG is a driller and will be profitable this year. They have also been able to raise money in private placement.
Towards the end of the day - Tim Knight (http://www.slopeofhope.com/) - went short the ES futures at 911.50 and I in turn bought 400 SDS at 56.30. Then around 3:45 - there was very interesting action in AXL, VTG and TEN. Some huge buys came in especially in AXL. Either these were people short covering or actually buying - I am not sure. Regardless, AXL went positive for a short time but fell back down. VTG went positive and stayed positive. In the markets as well - they started turning +ve briefly. Looking at that action - I immediately sold my SDS for a small profit at 56.65 (I intended to sell SDS before end of day anyway). SDS ended the day at 56.83
The S&P is currently sitting ON its 200 day moving average but its MACD has crossed and turned lower. Saw an interesting video by Adam Hewinson of INO.com and Marketclub on the INX (S&P) where he sees it turning lower with the first fibonacci around 881. From previous resistance levels as well S&P seems to be headed to 880. I am in all cash and will be looking to play the short-side tomorrow. Overshadowing all this is whether or not OPEX (which is this week) is messing with us. My impression looking at optionpain.com was that OPEX week would make the markets trend lower given what optionpain.com was suggesting. I was thinking of buying puts on Friday to protect my gains (on Friday - I was sitting on a much better profit level in my portfolio). I didnt buy them and I paid for that mistake. I am now all cash with some small positions.
I have created portfolios in FINVIZ (because the stocks I had purchased are strong small cap names like - VTG, CENX, AXL, GRO, SEED, FEED, HOGS, CHU, BBY, COT, CPY, CENT, FUQI, APWR etc).
Just got an email from Market Club - BMI went higher to 42 (argghhh) and all healthcare stocks seem to be higher today. RDY is looking quite strong. Within small caps - best healthcare action in the last 3 days has been in MRGE. UBET and MNKD also received strong rankings of 100+
Friday, June 5, 2009
The End of the Long Winter
Ok so its been a while. A lot of things have changed.
The markets seem to have put in a solid bottom in March. I sent out an email to the rest of my office in mid April entitled "The End of the Long Winter."
I believe Obama created this bottom. Smart man. He knows that the driving force in any economy is confidence. Animal spirits if you will. The play a disproportionate role in this economy. And those of you who followed Obama's call to invest in the market are now doing quite well. The S&P bottomed at 666 with a beautiful double bottom and then carved out a beautiful cup and handle formation and has broken out.
Small caps especially Chinese small caps are going absolutely nuts. So are Russian stocks. All are raging buys and are going up as fast and hard as they fell down. Look at the charts of stocks like: SEED, FEED, GRO, SOL, CHU, YTEC, MTL, IGC etc. Look at the macro ETFs of things like RSX, GUR, FXI and INP. Look at TLT crashing and TBT rocking. They all tell a micro and macro story. I am making solid returns in the past month or two on the long side in both stocks and options.
This is a good time to be in the markets. New stocks are powering higher. Look at stocks of companies like AXL, XTXI etc. American Axle a key automotive supplier is now starting to climb. Yes, can you believe it? An automotive supplier. And it has a long way to go as today its only around 2.6 dollars. It could easily be around 15 in the next year. And as it does, I intend on riding it all the way. As always excercise caution and ALWAYS, ALWAYS use a stop loss.
This blog is for informational purposes only for my entertainment and not intended to be investment advice. Follow anything I can and you can and will incur a loss. DO NOT PUT YOUR MONEY TO WORK ON ANYTHING WRITTEN HERE ON THIS BLOG. DONT MAKE ME HURT YOU!
The markets seem to have put in a solid bottom in March. I sent out an email to the rest of my office in mid April entitled "The End of the Long Winter."
I believe Obama created this bottom. Smart man. He knows that the driving force in any economy is confidence. Animal spirits if you will. The play a disproportionate role in this economy. And those of you who followed Obama's call to invest in the market are now doing quite well. The S&P bottomed at 666 with a beautiful double bottom and then carved out a beautiful cup and handle formation and has broken out.
Small caps especially Chinese small caps are going absolutely nuts. So are Russian stocks. All are raging buys and are going up as fast and hard as they fell down. Look at the charts of stocks like: SEED, FEED, GRO, SOL, CHU, YTEC, MTL, IGC etc. Look at the macro ETFs of things like RSX, GUR, FXI and INP. Look at TLT crashing and TBT rocking. They all tell a micro and macro story. I am making solid returns in the past month or two on the long side in both stocks and options.
This is a good time to be in the markets. New stocks are powering higher. Look at stocks of companies like AXL, XTXI etc. American Axle a key automotive supplier is now starting to climb. Yes, can you believe it? An automotive supplier. And it has a long way to go as today its only around 2.6 dollars. It could easily be around 15 in the next year. And as it does, I intend on riding it all the way. As always excercise caution and ALWAYS, ALWAYS use a stop loss.
This blog is for informational purposes only for my entertainment and not intended to be investment advice. Follow anything I can and you can and will incur a loss. DO NOT PUT YOUR MONEY TO WORK ON ANYTHING WRITTEN HERE ON THIS BLOG. DONT MAKE ME HURT YOU!
Friday, February 6, 2009
Gary Schilling's Predictions: 2009
Gary Shilling's 2009 Predictions: We're Still Screwed
Henry Blodget Jan 6, 09 3:58 PM
Last year, economist Gary Shilling humiliated the rest of the economic forecasting industry by going 13 for 13.
As promised, here are Gary's predictions for this year:
Every one of our 13 investment strategies for 2008 worked last year. Some of them have been fully exploited so we dropped them from this year's list. But others are only partially achieved in view of our dire outlook that the worst global financial crisis and deepest worldwide recession since the 1930s will continue throughout 2009.
So we've retained 10 of our 2008 strategies this year, some in modified form, and added two new ones.
1. Sell homebuilder stocks and bonds.
2. If you plan to sell your house, second home or investment houses anytime soon, do so yesterday.
3. Sell some housing-related stocks.
4. Sell some consumer discretionary spending companies.
5. Sell most commercial real estate.
6. Sell some commodities.
7. Sell emerging market equities.
8. Sell emerging market debt.
9. Buy the dollar.
10. Sell stocks in general. (S&P 500 to 600)
11. Sell consumer lenders’ equities.
12. Buy, carefully, high-grade bonds.
from: clusterstock.alleyinsider.com
Henry Blodget Jan 6, 09 3:58 PM
Last year, economist Gary Shilling humiliated the rest of the economic forecasting industry by going 13 for 13.
As promised, here are Gary's predictions for this year:
Every one of our 13 investment strategies for 2008 worked last year. Some of them have been fully exploited so we dropped them from this year's list. But others are only partially achieved in view of our dire outlook that the worst global financial crisis and deepest worldwide recession since the 1930s will continue throughout 2009.
So we've retained 10 of our 2008 strategies this year, some in modified form, and added two new ones.
1. Sell homebuilder stocks and bonds.
2. If you plan to sell your house, second home or investment houses anytime soon, do so yesterday.
3. Sell some housing-related stocks.
4. Sell some consumer discretionary spending companies.
5. Sell most commercial real estate.
6. Sell some commodities.
7. Sell emerging market equities.
8. Sell emerging market debt.
9. Buy the dollar.
10. Sell stocks in general. (S&P 500 to 600)
11. Sell consumer lenders’ equities.
12. Buy, carefully, high-grade bonds.
from: clusterstock.alleyinsider.com
Moody's to review CMBS
Moody’s to Review $302.6 Billion in Commercial Debt (Update2)
Email Print A A A
By Sarah Mulholland
Feb. 5 (Bloomberg) -- Moody’s Investors Service is reviewing the ratings of $302.6 billion in commercial mortgage-backed securities as real-estate values drop and property owners fall behind on payments.
The review encompasses 52 percent of outstanding U.S. commercial mortgage-backed debt ranked by Moody’s, the New York- based ratings company said today in a statement. The ratings of so-called senior and mezzanine AAA bonds, the top two classes of CMBS accounting for about 72 percent of the securities being reviewed, probably won’t be affected, Moody’s said.
The U.S. recession is crimping consumer spending and hurting business growth, making it harder for commercial property owners to make their payments. Should Moody’s decide to cut the ratings, investors including banks and insurers may need to sell CMBS holdings to maintain required levels of capital.
“Property values declined sharply in 2008, and we anticipate further declines over the next 12 to 24 months,” Moody’s analyst Nick Levidy said in the statement. “Delinquencies on CMBS loans are also on the rise, and we expect the pace to accelerate as macroeconomic pressures take a toll on property cash flows.”
Moody’s said it may downgrade the lowest levels of the securities by an average of four to five levels. Many of the securities are trading at levels that already suggest their ratings were lowered.
The gap, or spread, on commercial mortgage-backed bonds relative to benchmark interest rates has soared in the past year on concern that defaults will rise. Top-rated commercial real estate securities are trading at about 10.3 percentage points more than the swap rate, compared with 1.8 percentage points a year ago, Bank of America Corp. data show. The swap rate is currently 3.154 percent.
Fait Accompli
“This was already a fait accompli in the market,” said David Castillo, a senior trader of structured-finance bonds at Further Lane Securities in San Francisco.
Sales of the securities plummeted to $12.2 billion last year, compared with a record $237 billion in 2007, according to JPMorgan Chase & Co. data.
To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net Last Updated: February 5, 2009 16:09 EST
Here we go. Review, Downgrade, Markdown, Bailout. Yee haw! The banks are insolvent dammit. Nationalize them and get this over with. Ofcourse game theory dictates that uncertainty on one hand makes things worse for the economy and on the other hand makes Treasury debt popular. Right now, the Treasury is focused on raising money for the Fed at cheap rates and therefore they'll try to keep certainty from coming back into the market. For now. At some point Obama has to make an executive decision here and say enough with the uncertainty - the damage that is being caused to "animal spirits" in the economy is unacceptable.
Email Print A A A
By Sarah Mulholland
Feb. 5 (Bloomberg) -- Moody’s Investors Service is reviewing the ratings of $302.6 billion in commercial mortgage-backed securities as real-estate values drop and property owners fall behind on payments.
The review encompasses 52 percent of outstanding U.S. commercial mortgage-backed debt ranked by Moody’s, the New York- based ratings company said today in a statement. The ratings of so-called senior and mezzanine AAA bonds, the top two classes of CMBS accounting for about 72 percent of the securities being reviewed, probably won’t be affected, Moody’s said.
The U.S. recession is crimping consumer spending and hurting business growth, making it harder for commercial property owners to make their payments. Should Moody’s decide to cut the ratings, investors including banks and insurers may need to sell CMBS holdings to maintain required levels of capital.
“Property values declined sharply in 2008, and we anticipate further declines over the next 12 to 24 months,” Moody’s analyst Nick Levidy said in the statement. “Delinquencies on CMBS loans are also on the rise, and we expect the pace to accelerate as macroeconomic pressures take a toll on property cash flows.”
Moody’s said it may downgrade the lowest levels of the securities by an average of four to five levels. Many of the securities are trading at levels that already suggest their ratings were lowered.
The gap, or spread, on commercial mortgage-backed bonds relative to benchmark interest rates has soared in the past year on concern that defaults will rise. Top-rated commercial real estate securities are trading at about 10.3 percentage points more than the swap rate, compared with 1.8 percentage points a year ago, Bank of America Corp. data show. The swap rate is currently 3.154 percent.
Fait Accompli
“This was already a fait accompli in the market,” said David Castillo, a senior trader of structured-finance bonds at Further Lane Securities in San Francisco.
Sales of the securities plummeted to $12.2 billion last year, compared with a record $237 billion in 2007, according to JPMorgan Chase & Co. data.
To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net Last Updated: February 5, 2009 16:09 EST
Here we go. Review, Downgrade, Markdown, Bailout. Yee haw! The banks are insolvent dammit. Nationalize them and get this over with. Ofcourse game theory dictates that uncertainty on one hand makes things worse for the economy and on the other hand makes Treasury debt popular. Right now, the Treasury is focused on raising money for the Fed at cheap rates and therefore they'll try to keep certainty from coming back into the market. For now. At some point Obama has to make an executive decision here and say enough with the uncertainty - the damage that is being caused to "animal spirits" in the economy is unacceptable.
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