Thursday, March 25, 2010

BAGAKOAA March 25, 2010 One more day of fun this week


March 25, 2010 One more day of fun this week.

OK under the category of damn I’m good, Sunday night I posted. “Thursday we have the initial jobless claims reporting. The number last time was 457,000. The consensus says we should be down about another 5,000. I say fishah, I think we will see a considerable drop. Possibly 10,000 or more.” Well “or more” was correct. We had a drop of 14,000 on the jobless report today. However it did not have the effect I expected. The market had a couple of good days this week and some profit taking today took a lot of the wind out of the good employment numbers. OK I did miss Wednesday’s durable goods order by a little, but the correction to January numbers gave us a boost.

SBUX, Starbucks did not do well for the first day I owned it. It was down 4.2% since I bought it. So at about 12:50 PST, I checked my homework and did what any wise investor would do. I bought more, actually doubling down.

Now I told you I bought some May 85 contracts for PNRA, Panera Bread. The beauty of contracts or “long calls” in this case, is you control a lot of dollars with just a little investment. For example let’s say you want to buy ABC stock, currently selling for 50 dollars a share. To buy 100 shares, you would have to invest $5,000. ($50X100). As you can see that ties up a lot of cash. Now you can, if your account is set up for option trading, control one contract (100 shares) of ABC at a fraction of the cost. Let say you thought that ABC would go up to 52 dollars by May. There would be an option out there for ABC at $52.00 which means you have the right but not the obligation to buy 100 shares of ABC at 52.00 a share on May 23rd. Typically you would pay about 2.00 for the contract. So for 200 dollars (100X$2.00), you are controlling $5200 worth of ABC stock. If the stock creeps towards the $52.00 point people are willing to pay more than 2.00 for that option. They might pay 2.50 cents for that option you have made 25% very quickly. (2.50-2.00=.50 X 100=$50 on your $200.00 investment) Of course it goes with out saying the negative changes are just as drastic. And that’s where I am with the May PNRA calls. Because the underlying equity was down 1.9% today my calls are off 42%. That is not unusual which is why options are not for the faint of heart. I have had a HAS call be down 89% and have it comeback and cash out at 74% to the good. Its fun.

Let’s look at few of my prognostications for today. WTSLA was looking for 8 cents a share profit and I was a wet blanket on the Wet Seal saying they’d be lucky to see 5 cents. They hit 79 cents a share. Anytime you see a company blow by their consensus by that much, ask why? It turns out WTSLA did benefit from a huge tax ruling. This is a one time extraordinary item. When you adjust down for it their earnings were 10 cents a share, still very respectable. I do not own it and with their financials I would not buy it.

ORCL reported today and I was an oracle in calling the 38 cents a share that Oracle hit. I just agreed with the consensus because I could not see any good reason not to.

I just realized that last night I winged and moaned about loosing money on Best Buy but did not make a call. Honestly I would not have guessed them to do as well as they did. TV and notebook sales got top line sales and profits up. (Think now about that. TV and Note books are hot. Think INTC, AMD, ARMH, and Coring Glass – they make a lot of the glass for the TVs.)

I just looked at the 80 or so companies reporting tomorrow. You are off the hook because I do not know enough about any of them to make a guess. Well, Rubios RUBO does report and they are expected to loose about 2 cents a share. They are opening quite a few more stores, their food is pretty good and commodity prices, (most of their non-labor cost) have stayed in check. Assuming they managed their expansion cost ok I could see them breaking even or even making a penny. That would take a 300,000 dollar improvement o their bottom line from where they expect to finish. We’ll see.

OK good night BAGAKOAA. I will have a brief review of the Priest book this weekend for anybody who cares.

For some lighter reading, don’t forget to check out my non investing blog



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