Tuesday, December 07, 2010

7 December 2010 Defending a Compromise


7 December 2010 Defending a Compromise

As we mentioned last night, The Obama Administration compromised with the recently empowered Republican party. It was probably a good move for everyone except for those worried about our national debt. In all seriousness, it was a difficult decision he faced. Do nothing and everyone including the filthy greedy rich folk would see taxes increase and capital gains tax almost triple. So he did what he had to do get something done by years end.

The market started to take off this morning, but did not see the pop I would have imagined. That tells us that a lot of folk, (especially fund managers and financial advisors) had this compromise priced into the market. We were up 70 points on the DOW when the President approached the podium and explained to the world why he rolled over. Those greedy Republicans had taken America Hostage and he had to make nice in order to get extension on the unemployment rolls another 13 weeks. (He used the word hostage 4 times in his 20 minute appearance.) By the time he finished, he had threatened an embattlement in two years to make things right (increase capital gains tax, higher income taxes for filthy rich greedy people, a return of the 55% death tax, to name a few). So his compromise became his battle cry and the market reacted accordingly. In the twenty minutes he spoke, the market went from 70 points up to 14 points up.

Bill Clinton (am I really going to quote Bill Clinton, I must be desperate for material), said on many occasions, it not what I do it’s what I say. That's not to imply Clinton was a liar. (That impeachment thing was all just a big misunderstanding.) President Obama had a huge win, he positioned himself in the light of Ronald Reagan by making this controversial compromise. He should have explained why this is good for the country and Americans. (Last I checked, filthy greedy rich folk were still allowed to be citizens.) He could have explained why this is good for curbing unemployment and poverty. He could have shown how this will stimulate the economy, or at the very least not cripple it with new taxes for all. He could have said the right things to instill confidence and hope for a better economy in the next two years versus drawing another line in the sand across from the impressive shift in power in Congress and Senate.

Stepping Down From My Soap Box

The term Soap Box has a questionable back round. My usage comes from the days when there were no huge stage and ultra large crowds and the political pundits would use merchandise crates, turn them upside down and speak their mind to people who really don’t care. Today we call them blogs, but I am done now so we can talk about what is going on in the market.

On some disappointing earnings guidance on FIS we bought some March 19 dollar puts at $1.59. We will be looking to get out at $2.25 a 40% gain.

We sold out RES March 30 dollar call at a 68% gain after one week. We were in at $3.20 and out at $5.40.

After some first quarter negative guidance from the management of TLB Talbots we bought some May 8 dollar puts at .98 cents. TLB closed at 8.80 today and the put is off about 7%.

I can dig it, he can dig it , she can dig it, we can dig it, they can dig it, you can dig it, oh, let's dig it, can you dig it, baby. Sorry about that got carried away. Do you remember our old friend RIG? Well it might be time to think about getting back in the water with them. BUT, rather than tying up 70 dollars a share, we can get some January 2012 LEAPS (basically long term options) for a couple of bucks. We chose the 100 dollar January 2012 LEAP and we got in for $2.19 a contract. Again that means we are controlling 7,000 dollars of RIG for $219.00. As oil continues to creep up and RIG clears some of the BP stigma, it could easily see 85 by mid year. The call would see about a 400% gain if that happens.

OK here is a great illustration as to the volatility of options. If you recall, last week we told you about a PUT on BKS, Barnes and Nobles as we were hearing a death rattle in its fundamentals and future earnings. Remember a PUT is a bet the stock would be going lower. Well a group of investors are putting together a deal to take the company private or merge it with Border’s. That has sparked some life back in the patient and as a result, our losses went to an unacceptable level. We are out of the put with a 58% loss. It was a good decision, the investment group was not in the cards when we made the decision to buy. The decision was better than if we chose to Short the stock by several hundred dollars.

We also stopped the ticking time bomb on a 145 dollar December call on Netflix after a 32% loss.

We took a 20% gain in the GE March calls we described last night. If my math is right that is a 5,600% annual gain. I like snorting, I mean buying options.

If your account is set up for it, here is a fun cheap one you might want to play along with AFG  American Financial Group, Inc., through its subsidiaries, engages in property and casualty insurance business in the United States. We are trying to get into this tonight (Tomorrow). We spotted this on FINVIZ tonight, looked at the fundamentals (I won’t bore you because I am tired too. Please do your homework.) and they look pretty darn good. They have a really sexy chart with the 50, 100, and 200 day averages headed all in the same direction with impressive volume. Try and get a March $35.00 call option under .50 cents. We are shooting for a 40 cent grab. My break even will be 31.96 which is were it closed today. We will be looking to get out at 80 cents a contract which will be a nice double. The stock only needs to go to $32.50 by January to see that happen.

Salvay and Loocrum is a hit.

Several of you have sent notes or ran into me and commented on the Salvay and Loocrum animations. Some of you have asked for your own avatar and to be in the animation and a few have asked I create an avatar for me. (There is no accounting for taste.) My daughter suggested I use the animation to describe some of the more advanced strategies or terminology as it is conducive to learning. (Her opinion must be heeded as she is an Associate Producer on a Warner Bros TV show-Supernatural)

We will be playing with xtranormal.com over the next few weeks to see how best to use this cool animation site.

President Obama drawing a line in the sand.

Salve Lucrum


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