6 December 2010 A Cleansing Breath
We like weeks like this. It should be relatively quiet in the market. We can do some house cleaning, stock research, trading skill readings, and analyze the most important element of being a successful investor/trader. That would be the psychological emotional aspects of the game we call investing. Its really important for me right now as I have had a string of very successful option trades which has me feeling a bit euphoric about options. One of my golf buddies (Tim), financial investment professional, and reader (ok maybe a closet reader) described options as financial cocaine. I would have to agree at this moment in time.
So let’s slow down a bit and take a look at recent pin action in the Salve Lucrum portfolio. We had a nice surprise when our FANUY Fanuc Holding executed a 2 for 1 stock split. Recall that FANUC Robotics America, Inc., is the leading supplier of robotic automation. Over 220,000 FANUC robots are installed worldwide, and more than 200 robot variations with payload capabilities ranging from 0.5kg to 1,350kg working in a wide range of industries including aerospace, automotive, alternative energy, consumer goods, food, machine tool, pharmaceutical, and many others.
We sold out of the April 2011 $12.50 KIRK calls at a 54% gain. Then we sold out of a February $30.00 call for CYD at a 56% gain. Then in a effort to stay grounded (and to take what I know will be a loss next year off the table for tax purposes) I took a 99% loss on that ugly Valero call options I have suffered through all year long.
To keep our supply of fiscal opiates alive, we did buy some BKI Buckeye Technologies Inc. manufactures and distributes cellulose-based specialty products made from wood and cotton worldwide. The company's products include chemical cellulose, customized fibers, fluff pulp, and nonwoven materials. Its chemical cellulose is used in the manufacture of various products, including food casings, cigarette filters, rayon filaments, acetate fibers, and thickeners for consumer products, cosmetics, and pharmaceuticals.
We got in this new BKI position via an April $20.00 call at $2.15 a call option. The stock closed today at $19.91. That makes my break even at 22.06. Barring any major economic surprises, this should be very doable. We will be looking for a $3.00 exit that would create a 40% gain.
We did get into Great Lake Dredging as discussed in the blog over the weekend. It is a $7.50 march 2011 call for .75. The stock closed at 7.51 today. We are down about 22% on the call at the moment.
Lastly if you are a long term reader of this blog, we have a love hate relationship with GE. We chased it all the way down from about 19 a share to 6.96 a share in 2008-2009. We took a 2% gain in July 2009. It was an 11 dollar a share company when we discovered its had an intrinsic value of about 4.80 cents. It got a nice pop in 09 when Warren Buffet was buying the stock. But he wasn’t, he and a prince from Dubai bailed out GE credit for about 12 billion (Buffets stake was 5 Billion) and they got preferred stock with a GUARANTEED dividend of 8% every year. I was not made a similar offer so I had common with nearly 0 value.
The CEO and CFO are having a couple of analysts briefings this week to talk up the value of the company and the reinstatement of a dividend and possible some other surprises. So we are trying to catch a decent amount of March 2011 16.00 calls at $1.29 a contract. This is where the words of my golf buddy Tim rings loud and clear. This is a gamble and it could bite me in the portfolio as the CEO and CFO could be holding meetings just to announce that warren Buffet’s check bounced. So as I have said before DO YOUR HOMEWORK. OPTIONS ARE SCARY AND RISKY.
Another Two Years
Obama announced a concession in the tax cut war for this Senate and Congress. He announced late today that we will keep the existing Bush tax cuts another two years. In return the Republicans will support an unemployment extention for 13 more months. Compromise is a beautiful thing. So it looks like your capital gains at 15% is protected a couple more years. Oh yeah, you greedy wealthy folk out there get to keep your current tax status with no changes. If you are wealthy, it would be a good time to die as the death tax threshold will remain at 0 for two more years.