Facebook IPO a colossal failure!

Posted on May 19, 2012 by admin

So it’s come and it’s gone. The Facebook IPO launched at $38 yesterday and it closed at $38. I suppose the investment bankers made a killing along with Facebook’s management, but for anyone who bought on the secondary market, it was a failure. My advice to those folks it get out while the getting’s good (or at least not so bad).

Taking all emotion aside, I wouldn’t touch this company with your money. At nearly 100x earnings and questions about the advertising model and how they will monetize video and the tablet market, it is so amazingly overvalued it’s not even funny. Then, there’s the fact that this company is one of the more shareholder unfriendly companies I have ever seen. The antics they played recently with the stock split (with non-voting shares) that solidified management’s hold on this company was arrogant, unfriendly, and quite frankly, just stupid. You see, Zuckerberg you little dude, it’s the influence of the markets that makes you better. You can’t control everything and now that you’re public, you’re going to control less and less.

Good luck. May you go from $38 to $10 with dignity.

Posted in Commentary | Leave a comment

Options Strategies | Repair Strategy

Posted on October 31, 2011 by admin

The options strategies that really excite me are those that are no cost, but high benefit… that is no risk. The strategy I’m about to talk about is such a strategy. It is called the Repair Strategy. As you might have guessed, this strategy is used to repair a losing position that you want to hold onto, but you need some help to make the position whole. This strategy include the use of a ratio call spread to reduce the break even point (BEP) of a losing long stock position.

Here’s how it works.

Suppose you had bought 100 shares of XYZ stock at $50 a share. Since the purchase the stock has dropped 20% or $10 a share to $40. By just holding the stock, you would now need the stock to rise 25% (the $10 you lost) to reach the original break even point of $50. You still believe in the stock, but would like to reduce the break even point as close to the current price of $40 as possible. To do this, you buy 1 call XYZ 40 contract and finance it by selling 2 $50 call options. This structure will most likely turn out to be no cost or a net credit if you’re lucky. Now, with the leverage of the call options you bought, the break even point has been reduced to $45. This structure also doesn’t cost any margin since it is equivalent to writing options off the losing position and also buying a call spread. The downside is that if the stock rallies above $50 prior to expiration, those gains wouldn’t be realized.

Small price to pay in my opinion.

Below is a graphic illustrating the strategy.

 

Posted in Uncategorized | Leave a comment

Moody’s threatens to downgrade US debt from AAA to AA

Posted on July 13, 2011 by admin

Moody’s threatens to downgrade US debt from AAA to AA

So what we’ve all been watching for is starting to happen. As Congress fails to get off their asses and get to work, Moody’s is finally starting to apply a bit of pressure. Moody’s just announced they have put US debt on watch for downgrade sighting that there is a small additional chance that a deal wouldn’t be struck by the August 3rd deadline. I don’t fault Moody’s here. They have to act. Just remember how poorly they predicted the mortgage crisis. I only hope that Congress and the President stop using the risk of default as a political football and actually do something about it and raise the debt ceiling. I understand both sides of the argument. Everyone understands both sides of the argument. The time for action and compromise is now.

It wouldn’t surprise me if Moody’s actually did pull the trigger. Trade: TBT, naturally.

Posted in Commentary, Trade tip | Leave a comment

Morning Call | GM trade will attract value investors this week.

Posted on March 7, 2011 by admin

Last week was a hard week to be long GM. Geopolitical risk in Libya caused oil supplies to go into question. Not even good economic news (Jobs, ISM, Auto sales) could prop up the sector. In the end, people were just looking for reasons to sell.

Late last week, I saw that value investor were really looking at GM as a value play. I am looking there as well this morning. I am looking to finish out my position in GM if it dips to 32 (which I think it will). I am still short 34-33 put spread, which I may just have to let expire. I’m also long 32-33 call spread which I’m still hopeful on. The good news is that if I do fill out my GM position, you guys won’t have to hear me talk about it any more. :)

Happy trading!

Update: Pre-Market trading is pointing to a flat to lower open. Looks like oil prices are still going to be a drag on the market.

Posted in Morning Call | Leave a comment

Economic Data | Unemployment data February Non-Farm Payrolls come in at a gain of 192,000 jobs

Posted on March 4, 2011 by admin

The Labor Department reported this morning that the US economy added a net 192,000 jobs for the month of February. This is in line with economist expectations.The unemployment rate fell to 8.9%, the lowest in nearly 2 years slipping below the elusive 9% level.

This is a cap of a long string of positive economic data for the week. It’s well needed since the conflict in Libya is still putting a strain on oil prices and the overall global economic recovery.

Posted in Economic Data | Leave a comment

Commentary | When is Geopolitical risk an opportunity and when is it real risk?

Posted on February 23, 2011 by admin

When Egypt’s regime fell, I was interested. As the movement started to spread to other countries in the region, I started to pay attention. Now that there is a much more violent uprising in Libya, I am not only paying attention, but I’m a little bit concerned. I’m concerned because now with Libya, it is impacting Western countries (specifically Italy and the rest of Europe). In addition, countries like Libya control a large amount of the oil supply which not only causes security concerns but also impacts the US economic recovery. Typically, geopolitical risk presents amazing opportunity. In the worlds of the Oracle, “Be greedy when others are fearful; be fearful when others are greedy.” There’s no better time of fear than when another country does something stupid. The question I still come back to is “When is geopolitical risk opportunity and when is the risk real?”

In theory, the answer is quite simple: risk is real if it materially changes the business you are invested in. For example, a company that only operates in the US and sells to US customers would not be effected materially by a European recession. There are obvious examples where there is some impact, but as a whole, you shouldn’t be concerned. If, on the other hand, you are invested in a multi-national company that not only operates in Europe, but also has European customers, then a prolonged recession would have a material impact on corporate earnings.

In practice, however it does get a little more tricky. When fear takes hold, it can take the entire market down with it. After you perform all of your due diligence and determine that the geopolitical risk does impact your company, then you have to have the conviction to act. This can be very challenging sometimes because you have to believe that you are right and everyone else is wrong. It may be easy to have conviction at the beginning of the story, but as the stock continues to fall, the true test is maintaining conviction and adding to the position. I’m also reminded of a quote by John Maynard Keynes, “The market can stay irrational longer than you can stay solvent.” So have the margin to back up your conviction.

The Egypt story did not pose material risk to the US market because there was no real risk to the oil market and Egypt is not a large consumer of US goods. As the story moves, however, I do believe that real risk is hanging its ugly head. With Libya controlling 17% of the world’s global supply, the oil market is at risk. As that risk continues, energy costs will rise which will cause all companies to suffer.

Posted in Commentary | 1 Comment

Sold the GM MAR 34-33 put spread

Posted on February 22, 2011 by admin

Got lucky this morning with the downdraft and was able to fade the GM MAR 34-33 put spread on the short side. The spread widened to $.20 and then quickly shrank into a dime. I’m hoping that the geopolitical mess with Libya comes to some conclusion or I may regret that move.

As it stands right now, it’s looking pretty good.

Update 2/23:
The bloodbath is continuing. GM hasn’t yet violated the $35 support level, but I’m watching very closely.

Update 2/23:
GM violated the $35 level like something on prom night, but the $34 level provides some intra-day support. Let’s see if it holds into the close and follow-through tomorrow.

Posted in Trade tip | Leave a comment

Trade Tip – Sell Put Spreads GM MAR 35-34

Posted on February 11, 2011 by admin

A trade that I have been putting on recently that has been working really well for me lately has been GM. When GM first emerged from bankruptcy about 2 months ago, I bought a small position. It wobbled at first, but then a chart trend surfaced that has provided some very real support.

First, the stock has been trading in a very defined trading range btw $33 and $38 since the IPO. More specifically, though, throughout November, the $35 level proved to be significant resistance. Toward the end of the year, however, GM broke through this level and has yet to break this level on the downside. Recent weakness in the past couple of days has tested this level and it passed with flying colors.

Since the stock is near this level and hasn’t broken it, until it does, there an opportunity to collect a lot of premium by selling options against it.

Recommendation: I recommend selling the 35-34 March put spread. You can collect $0.25 on a $1 spread and the stock can fall 3.2% before it hits the near strike.

Note: I typically use this strategy when I want to get paid a little waiting for it to get to a level to buy the stock. I would buy the stock at $35.

 

Posted in Trade tip | Leave a comment

Options Education : Writing Covered Call Options

Posted on February 8, 2011 by admin

The writing covered call option strategy is probably the most widely used options strategy by the advanced options traders and novices alike. This strategy is used when you currently hold a position of stock and would like to earn additional “dividends” from the portfolio. Writing covered calls can yield anywhere from 1%-2% per month depending on certain factors including volatility. The less volatile the stock, the lower yield received from this strategy. Typically, an investor would use this strategy when they feel that their stock will trade sideways or down. That is not always the case, though. Some investors like to use this strategy on their entire portfolio to produce a steady stream of income.

Here’s how the strategy works. On the stock position that you’re looking to write calls against, you pick a price to sell at. This is called the “strike price”. Once you write the calls, you will receive a premium or yield for this. As long as the stock doesn’t rise above the strike price, nothing happens except you collect the premium and still own the stock. If the stock does rise above the strike price, however, your position will get “called away” or sold out of your portfolio. But you only lose money on the upside if the stock rises above the strike price plus the value of the premium that you collected.

Example:

You own 100 shares of ABC stock and they’re currently selling for $54 per share. You think that it will trade flat or lower for the next month so you decide to sell some covered calls against the position. After looking at the option chains, you see that you could collect $1 from selling options. You put on the position.

3 example outcomes:

  1. ABC stock settles at $54.50 at the time of expiration. You collected $1 per share and continue to hold the stock.
  2. ABC stock settles at $55.50 at the time of expiration. You collected $1 per share, but the position will be called away. You still made a net $0.50 per share on the trade ($1 collected – (stock price – strike price)).
  3. ABC stock settles at $57 at the time of expiration. You collected $1 in premium, but the stock climbed $2 above the strike price. This resulted in a net loss of $1 in the position since you were not able to realize the $2 in appreciation above the strike price.

Below is a graph illustrating the profit of the trade. As you can see, once the stock reaches the strike price, the profit maxes out.

Options Strategy - Writing Covered Calls

Using this strategy can be quite profitable if used in a repeatable manner. It’s important, however to not be emotional about having stock called away from you. It’s just stock. It can be bought every day.

Posted in Education | Leave a comment

Welcome to PortfolioGain.com!

Posted on February 6, 2011 by admin

Let me be the first to welcome you to PortfolioGain.com!  I’m not exactly sure where this site will lead, but for now I’m going to be blogging about all things having to do with the financial markets, economics, stocks, options, and much, much more! These topics are truly a passion of mine and I want to share thought, ideas, and strategies that will (quite frankly) make us all as a community, gobs and gobs of money.

So please engage with me in conversations and debate as we go through this journey together.

Posted in Commentary | Leave a comment