Thursday, December 02, 2010

BAGAKOAA 2 December 2010 How Do You Handle A Hungry Man (or woman)


2 December 2010 How Do You Handle A Hungry Man (or woman)

The players in the market (that be us) seem to be willing to take a tad more risk in the last two sessions. (I warned you that you could get stung playing the VXX. I did.) So today’s gain for both the S & P 500 and DOW were another one percent on top of the two percent yesterday. That created another opportunity to take some of our call options off the table with some decent gains. (More about that later.) Jean-Claude Trichet created some anxious moments early in the day when he announced the ECB (European Central Bank) was not going to continue their mad hatter bond buying spree. But the market plowed its way through that news. The news jobless number came in higher than expected but that too was taken in stride. (perhaps everyone read our blog yesterday so they new it was coming. Yeah, that’s the ticket!) As my father used to say, “watcha you ass” tomorrow when the actually jobs report does come out. My guess is (Salvay, my Britsh Avatar will have fun with this one.) the overall number of unemployed will be up as a result of public job cutbacks. The UE rate will probably stay at 9.6%. Positive housing sales numbers today did help bloat the indexes today. We saw quite a few of sickly bank stocks come back to even (BOH and ZION) as that sector had a nice two day rally. Retailers were doing happy dances as it appear they might have a holiday season after all. That too was mentioned in the Salve Lucrum animation over the weekend.

Here is some pin action in the SL portfolio.

We took a quick gain on the FNSR calls we mentioned last night. We caught them at the opening at $2.50 a contract and sold out at lunch at 3.40 a nice 36% gain less than one day. Ok Ben and Ellen, I am not a day trader. I am a night and lunch trader so get off my back. We also sold out of our call on NEWP after a 33% gain in two days. We did get out of an MDAS put after loosing 30%. There is one put we mentioned here last week that is doing very well and that was the 14 dollar April Put for BKS, Barnes and Nobles. Now keep in mind, a put is contrarian to a call so we make money on a called put if the stock goes down.  (BTW, just had a great dinner with Ben and his buddy Tom, both readers.  Great night guys.)

Most educations are expensive.

We have been spending quite a bit of money on an option education over the last six months. We have attending the Charles Schwab School of “Oh Crap Why Did I Do That?”, but it is slowly paying off. DON’T GET ME WRONG, OPTIONS ARE VERY SCARY AND VOLATILE. Here is what I have been doing of late. When I get home and my teachers at Serra Catholic have not assigned my son, my wife and I too much homework, I open my browser and go to then open their high end trading platform.

Simultaneously we open another window in as it seems to have the best quick glance news and fundamental picture for any stock. (It is the one we use to attach links to my blog for you all.) Then we go to We mentioned this a few weeks ago in the blog. It’s kinda like Twitter for stocks. You have hundreds of thousands of idiots like me (as well as some recognizable bright people) tweeting about this stock or that etf. You can search almost any way you want. You can pick AAPL for Apple and you will see every post from one minute ago to 6 months ago. We like doing the live stream where every 10 seconds the screen is updated and you can see a smorgasbord of stock comments fly by.

I just drop my cursor over the ticker and a small popup shows me a little detail on the stock (I actually think it is FINVIX, but they call it chartly.) If a stock gets my interest, we got to FINVIZ and do a two minute forensic, then I go to Schwab and look at 60-120 day option chains, and roll the dice. (It’s a little more complicated than that, but in essence, that what I have been doing.) It is important to get a feel for the overall market before playing this little Wall Street Casino Game as the inertia of the market will impact about 90% of the gain or loss of a call option. (That was Lesson 27 in the school of “Crap Why Did I Do That”) I’d be happy to show anyone how I am doing it, one on one if you have a strong heart, nerves of steel, and gobs of disposable income. Let me know.

Here are a couple we are working on tonight.

PAY VeriFone Systems, Inc. designs, markets, and services electronic payment solutions that enable secure electronic payments among consumers, merchants, and financial institutions worldwide.

This is a dreadful stock based upon current fundamentals. There is chatter about the stock reporting well today, which it did, but what is of interest, and we had to do a couple of minutes homework on this one, is the 2011 guidance is up quite a bit from 1.59 a share to as high as 1.70 profit.

(Ok basic training if I might.  Up until this point management has been giving up their feel –GUIDANCE- of what their earnings are going to be next year. They have been saying 1.59 a share. Based upon today’s closing price of $36.76 that gives them a forward looking PE –price to earnings- ratio of about 23. Now management – usually conservative in their public statements- are providing GUIDANCE of up to 1.70. Using the current PE ratio of 23 and the new GUIDANCE of a 1.70 we could extrapolate a stock price of 39. It is only a 10% increase in the stock, but a well placed call can double on a 10% move in the underlying stock.)

Let’s see if I am right. I am going to try and “catch” an April 40 dollar call for PAY at a price slightly lower than the ask price of $2.65 a call contract. The reason I do this is that every nickel counts on an option. The difference between a 2.65 call and a 2.70 call is almost two percent. If it executes in the morning and other analyst jump on board and start upgrading the stock, we could see a move closer to the $39 price and the 2.65 cent April call will fall into the value range of the current 38 dollar April call which is selling today for $3.50. Do the math and you will see it could be a 32% gain in one day. You could also just a easily see it correct and become a 2.00 call by tomorrow afternoon.

Now that you get the game, here are a couple more.

TSCO Tractor Supply Company operates retail farm and ranch stores in the United States. Its stores offer a selection of merchandise, including equine, pet, and animal products, such as items required for their health, care, growth, and containment; hardware and seasonal products, including lawn and garden power equipment; truck, towing, and tool products; work/recreational clothing and footwear products; maintenance products for agricultural and rural use; and home decor, candy, snack food, and toy products.

I placed a buy for some calls last night (Wednesday) and picked up some April 45 dollar calls for 3.40 a contract. (Again I will not disclose how many as when I do my portfolio summary you could figure out all of my holdings then you would really see how crazy I am.) It looks as though they are still available at that price.

The only other one worth noting and this is VERY RISKY would be a downgrade play on RBC Regal Beloit Corporation, together with its subsidiaries, manufactures and sells electrical and mechanical products to original equipment manufacturers, distributors, and end users.

We will try and buy some February Puts at $60.00 and those puts are selling for $2.75 but are being bought at 2.15 so you are starting out 25% behind the game. Remember you make money off bought puts when the stock goes down. Management today announced a downward revision in 2011 profits.

This was added just now.  (About 10:24 PM)  Will try and grab a April 15 dollar call option for KIRK Kirkland's, Inc. operates as a specialty retailer of home decor and gifts in the United States. Its stores offer a range of merchandise, including framed art, mirrors, wall decor, candles and related items, lamps, decorative accessories, accent furniture, textiles, garden-related accessories, and artificial floral products.

We are looking to get in at 1.40 a contract.  There is some intel about value hedge funds getting on board soon.  It worth a roll of the mouse.

In closing, It appears as though we have about 7% of the overall portfolio tied up in Options at the moment. I would not feel comfortable going beyond 10%. There is still no other better why to make money in the market than doing some good old fashion thorough homework, finding a company you understand how they make a profit, make sure they are doing all the right things to increase shareholders value (creating good cash flow, paying down long term debt, issuing sustainable dividends, buying back stock, acquiring weaker competitors and the like), and be patient with those choices. Options are fun and exciting but they can clean your clock very quickly if you are not extremely careful. Trust me I know. I have a January 2011 LEAP (A very Long Term call option.) for a 30 dollar call for Valero Energy. It currently has a loss of 99.45% I keep it to remind myself how badly things can go wrong in an option deal. It will expire worthless in January. It stung.

Speaking of Pin Action


So who do you think had the best average?  The answer, tommorow.  Shoot me your guesses if you dare.

Salve Lucrum


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