***A 34% gain in seven days
***Scary times in Japan
***What other investment gurus are buying...
SmallCapInvestor PRO readers took their gains on Arena
on Wednesday. The final haul was 34%. Not bad for holding a stock
for seven days. I expect we'll re-buy Arena if it drops to $4.50
over the next few days.
Daily Profit readers were able to lock in some gains on the
stocks we recently recommended here.
You can use this link to find out more about my SmallCapInvestor PRO service: the one that just bagged 34% in 7 days.
few days should be interesting for the stock market. I'm a bit
surprised that the major indices finished in the green on Wednesday.
I'll be more surprised if they finish with gains today.
be discussing mark-to-market rules today. It's a safe bet that some
kind of easing of these rules will happen. That would essentially
buy the banks some time that could be better spent than writing down
assets and taking losses. And it could extend the rally. No decision
is expected until April.
I also think
it's safe to say that there are entities out there that would like
banks to continue to be squeezed. Eventually, they will be forced to
puke up impaired assets and even more impaired prices, which would
almost certainly to a windfall for those with ready cash. It's a dog
eat dog world ?
getting a little scary in Japan. Fourth-quarter GDP fell an
annualized 12.7% after exports fell an amazing 45%. Some economists
think the current quarter could be even worse. It's so bad that
Japan's blue chips are having cash flow problems and are turning to
state-sponsored Japan Bank of International Cooperation (JBIC) for
loans. The $40 billion in loan requests so far this year is four
times the bank's annual budget.
claims and retail sales numbers are out. Yes, they are not good. But
not disastrous, either.
week, I promised you a look at what other newsletter gurus buying.
However, due to a communication breakdown, we failed to run the
piece. So we're doing that today. Here's an interview with two top
options traders from Big Money Options. Enjoy...
Andrew Houghton and Nick Atkeson
and Nick Atkeson work together to identify options trading
opportunities on the institutional level and, now, for
OptionsZone.com readers. They are the editors of Big Money
Options, an options trading service that provides one to two
new opportunities each week based on their findings.
Andrew: As experienced options traders, how have you kept your head
above water in the past year?
water for the past year was generally not a problem until the market
crash of the fourth quarter of 2008 and its aftereffects coming into
traders, we have had to manage a situation where the Chicago Board
Options Exchange's Volatility Index (VIX) ran from 20 to a high of
89 and has remained persistently in the high-40s near "panic" levels
for the past several months. (The VIX is a measure that shows
investors' expectations for the market in the coming 30 days. Also
known as the "fear index," it is calculated using options on the S&P
terms, this means it has been hard to make much money by just going
straight long calls and puts, as the volatility has been priced at
very high levels. Despite the record moves in the overall indices,
many individual stocks are showing less actual volatility than what
has been accounted for in the options pricing.
is still plenty of profit to be made by following what the "big
money" players are doing, we have had to adjust our style somewhat
by looking for opportunities that include selling volatility. That
is, we are directly shorting options to collect a premium upfront
and buying them back at a much-lower price or letting them expire
worthless (while we keep our premium).
We have also
been using spread, risk-reversal and naked short-selling of puts to
collect premium that is priced too high. In cases where we are
selling options, we look to do so only in situations where, if we
end up taking ownership of the underlying stock, it is a position
that we believe is fundamentally sound, attractively valued and a
money winner over time.
What type of
investor (and or knowledge) would one need in order to follow your
advice? Would you recommend they go it alone?
Big Money Options trading service works well for investors
who range in experience from beginner to expert so that, not only
are they not "going it alone," we can meet them where they
are and help them to take their next steps toward becoming better,
more profitable options traders.
novice, our service allows them to dip a toe into the options market
while we stand by their side. For the most experienced option
traders, we are identifying the most-significant tradable
opportunities in the market and suggesting effective trade
structures to take advantage of these opportunities.
subscribers benefit from having two very experienced institutional
options guys scanning the market full-time with state-of-the-art
technology. For the price of a cup of cappuccino per day, you are
made aware of trade ideas that could easily buy you all the coffee
you might want for the rest of your life.
As a way of
background, we began our careers in the world of finance in the
small- and mid-cap equities area, where our focus was on company
fundamentals. After several years, we moved into options trading
with the largest options trading firm in the world and successfully
mated a fundamental stock approach with the more-quantitative
methodologies of the options world.
words, we began our careers in this business understanding the
importance of knowing an investment opportunity from as many sides
as possible, and our trading philosophy involves explaining trades
with a fundamental approach. As "stock guys," we learned to get the
story behind the trades, and as "options guys," we tend to talk
about options in ways stock investors find easy-to-understand.
We make every
effort to provide comprehensive advice in terms of opening and, more
importantly, closing the position.
recommend that an investor have a basic understanding of puts and
calls and that they visit the Options Clearing Corp.'s website (OptionsClearing.com)
and read the "Characteristics and Risks of Standardized Options"
document. The OCC site also has a link to a document entitled
"Understanding Equity Options" if you are looking for a review of
Name your two
most successful trades thus far in 2009.
companies have depreciated to very attractive valuations during this
bear market. One of our most successful trades this year involved
taking advantage of the depressed valuation of Wal-Mart (NYSE:WMT)
after the company disappointed investors with weak earnings and
guidance in early January.
With the stock
trading down 8% on Jan. 8 and the company clearly being one of the
few beneficiaries of consumers "trading down," we recommended that
our members sell (i.e., "sell to open," to establish a short
position) the February $47.50 Puts for $1.45. Selling puts is a
bullish strategy that allows us to immediately pocket money and
keep that money when the stock goes up and the puts lose their
value as options expiration nears.
It was also
clear that for the past decade, the mid-$40 range was the low end of
WMT's trading range. The stock performed well, surprising investors
several times with better-than-expected sales and earnings
announcements and closed well above the $47.50 strike price on
expiration, leaving us with a 100% profit in a little over a month.
successful trade occurred during the December/January time frame. In
late November 2008, Shaw Group (NYSE:SGR)
was trading at about $16 per share. We saw very bullish option
signals on this high-quality engineering, technology and
construction company that made us take a hard look at the options.
analysis, we recommended buying the SGR April 15-25 bull-call spread
(i.e., buying the calls at the $15 strike price and selling the
$25-strike calls against them in a single transaction) and also
selling the SGR April 12.50 Puts.
It may sound
complicated on the surface, but it was a fairly low-risk way to gain
upside exposure to a great company that had been oversold.
It was also a
very profitable play.
On Jan. 8, we
closed the bull-call spread for an 83% win. And then on Jan. 26, we
closed half of the $12.50 put position for an 87.5% win. We are
letting the other half of the put position ride, as we fully expect
to have a 100% win come expiration.
sectors/industries do you think will lead the markets out of the
are seeing a broad economic slowdown, there are some very robust
growth trends emerging under the surface. One such trend is the
continued migration of economic activity from bricks and motor to
recent powerful evidence of this was Amazon.com's strong
outperformance on its most recent quarter. Companies that are
exposed to this trend include Amazon.com (Nasdaq:AMZN),
Google (Nasdaq:GOOG), Cisco (Nasdaq:CSCO)
and United Parcel Service (NYSE:UPS).
has not disappeared. Their developing focus on capitalism will drive
increased amounts of wealth-creation for years to come. You can gain
exposure to this market as well as find attractive value in Baidu
BIDU is a Chinese Internet play, and
is the largest supplier of many of the raw commodities that are used
as the factors of production and growth in
energy prices are down on falling demand, oil demand-and-supply
conditions look attractive over the longer-term. ExxonMobil Corp.
has been earning record profits and is globally positioned to take
advantage of this trend.
domestic indexes down to the lows of 1997, what trading/investment
advice would you give individuals as we move through?
address this from an options perspective. The overriding question of
the day is whether we are entering a depression and will the market
go substantially lower, or whether the worst is behind us.
knowing the answer to the question, there are options trading
strategies that have a high probability of winning, whatever the
answer may be. The tug-of-war between these two opposing views is
keeping the VIX at very elevated levels.
making options premiums expensive. We have already discussed selling
puts in high-quality companies that you would not mind owning at
lower prices. You may also want to sell calls on many of the stocks
you own in your portfolio to provide some income enhancement.
If you would
rather just go long options, we would recommend buying longer dated
calls in companies that you believe are at or near the extreme end
of an oversold range. See below for an example with our
recommendation to buy the NOVL 2010 leaps.
trades/stocks you would recommend today.
is the world's leading provider of interior products and solutions,
and the world's leading distributor of aerospace fasteners and
consumables for the commercial, business jet and military markets.
industry isn't immune to the serious economic downturn. Airline
traffic was down 4% in November and December and the International
Air Transport Association forecasts that international passenger
traffic will fall by an additional 3% in 2009.
downturn may offer a clue as to why airplane fasteners and interiors
are selling well. Rather than buying new jets, it appears airlines
are maintaining and upgrading the old jets with BEAV manufactured
On Feb. 2, B/E
Aerospace reported a record year in 2008 for the company in terms of
sales, operating earnings, net income, earnings per share, bookings
and backlogs. More surprisingly, management raised its forward-year
EPS guidance to $2. The consensus analyst estimate was $1.89. The
company is generating cash and has more than ample liquidity and no
debt maturities until 2014.
collecting premium while we are exposed to a possible market bounce,
so the way we're playing this is via "buying to open" the BEAV April
10 Calls (BQVDB), and "selling to open" the
April 7.50 Puts (BQVPU) against them. This trade currently offers a
net credit of $0.40.
and Apple own the PDA market. Consumers around the world are
steadily moving from simple cell phones to full-featured smartphones
that can surf the Web and manage e-mail. This is a secular change
that will continue for the foreseeable future.
is down on the announcement that its gross margins and Q4 earnings
per share will be at the low end of the range. Current analyst
estimates for fiscal year 2009 ending in February is $3.38. The
company has $3 per share of cash.
just completed a $4 billion bond offering for the purposes of
"aggressively" investing in the
India and China. We have seen this before. The great companies
invest during the downturns and emerge stronger and more dominant on
the other side of the recession. CSCO is a company built in large
part through acquisitions.
June 25 Puts (RUPRE) for $1.85 cents or higher. We believe that if
approaches a $25-per-share valuation, there is a good chance it will
analyst earnings estimates are about $3 in June and RIMM is trading
at $25, the P/E would be about seven times if you subtract the cash.
Even if you cut the earnings in half, the stock at $25 per share
would be inexpensive given its market position and long-term growth
Novell Inc. (Nasdaq:NOVL)
an infrastructure software company that offers software to integrate
mixed technologies so they operate as one.
In the past,
the company has struggled against Microsoft. Now, the company has a
new management team that has been in place for about a year, $3 per
share of cash, positive cash flow and no debt. The stock is
currently trading at about $3.45.
estimates for this fiscal year and next are $0.26 and $0.30
respectively. That translates into a P/E multiple of less than two
times earnings, if you account for the cash on the balance sheet.
checks indicate that the company's solid financial condition
shouldn't change materially during the next six to 12 months. And we
may not be the only people who recognize how silly the low valuation
has become on this stock.
We like the
position of the stock, the price of the options and the duration of
them. We've joined the smart options buyers by recommending that our
members "buy to open" the
Jan 5 Calls (WNNAA) and "sell to open" the
NOVL Jan 2.50
Puts (WNNMZ). This position can be executed today for a net debit of
plenty more option trade recommendations where those came from, as
we work around the clock to spot under-the-radar opportunities to
pass along to our Big Money Options members. A typical week
can bring anywhere from one to three new trades, along with intraday
alerts to take profits and otherwise help our subscribers to manage
We'd like to
share with you a deeper understanding of the money flows that drive
the options market, timely market intelligence that gives you the
confidence to pull the trigger, and an opportunity to receive
specific, easy-to-execute options trades that will give you profits
regularly throughout the year. Please accept a
free copy of The Secret Formula to Doubling Your Money Twice a
Month by going here now.
03-12-2009 11:47 AM
Filed under: GDP, ARNA, Apple, SGR, Big Money Options, CSCO, AMZN, RIMM, PDA, WMT, OCC, NOVL, XOM, JBIC, UPS, Japan, BIDU, BHP, GOOG, BEAV