Friday, January 14, 2011

14 January 2011 Mr. Toads Wild Ride


14 January 2011 Mr. Toads Wild Ride

To many of you, that should bring back memories of the happiest place on earth. Yes my bedroom in Huntington Beach circa 1974, ooopps sorry, flash back. The wild and crazy Mr. Toads wild ride at Disneyland was what I was referring to. Today it was a bit crazy. But crazy good.

We are going to brag here for a few paragraphs. We had a dog of a call option on Valspar. We pimped it here the third week of November as there were some nice forward looking comments made by both analysts and management. Fundamentals looked good as did the chart. The chart was really sexy perfect. 50 day average was above the 100 day which was above the 200 day and volume looked pushy enough to get the 50-60 cent call options for the strike price of $35.00. We got in a little late at the 69 cent range and immediately took a hit, down about 40%. We went and did our homework again and liked it some more and bought more at the 54 cent range a week later. It is called averaging your losses or throwing good money after bad money depending upon how the trade turns out. Yesterday the call option was off 86%. The option expires on the 22 January. I assumed it was going to be a 2011 tax write off.

While enjoying a PBJ (that is not a stock ticker) in our trailer waiting for yet another contractor to lie to me (hope there are now contractors reading this. Hah, I used contractors and reading in the same sentence. Bet that does not happen too often.) when I remembered this was option contract expiration day.

There it was, the Valspar option was way up. We rubbed our eyes and took an 86% profit and actually went into the account to be sure the cash was there. Tonight we went in to see what could have caused the bump and we cannot find a single relevant press release. But we will take it.

The other night we told you about a short term AKAM Akamai Call option. We explained it was a bit speculative and suggested doing your homework on it. We got out today after a 24.4% gain in 3 days. Hope you were playing along.

Since the end of Nov we have had a nice run with SDIX which we pimped here for a couple of days. We took about half our position (sizeable) off the table with a 30% gain. We are trimming several positions as we thinkest a correction coming, but also need some cash.

Today we also added to our loosing position on FIS Fidelity National Info. This is a stinky stock but is getting carried up by the bank and tech sectors. When everyone figures out what a dog it is, these PUTs will be in good shape. We added to our April 16 28.00 PUT options to average our losses. Remember a PUT is a contrarian venture. When you buy to open a PUT you are betting to the down side. (It is like playing the don’t pass line in Vegas. You don’t make many friends, but after the come out roll you are betting with the house. A very very very fine house.)

SIDEBAR (While looking for pictures to use with the word PUTs, I got about 300 pictures of various presidents. I check to make sure I did not spell the search PUTZ)

Up Up and Away.

If you have been paying attention lately you might heard that some of the airline companies are poised for recovery. We will be doing some research to see if there are any out there and let ya know. My guess is that it will be the shortest recovery in airline history as most of the companies I have read about were hedging fuel at the 50-70 a barrel range about 18 months to a year ago. That hedging should now be consumed which means they are out buying fuel with a base of $80-90. Unless prices start going up (which in a few markets they are) they will be squeezing the lift out of their margins. It could be a one quarter recovery. Be cautious in that sector.

Many of you know the airline industry has interesting ways of dealing with squeezed margins.

One way is to lower the qualifications of the pilots.

To counter that, and pray for safe air travel, the unqualified pilots will be traveling with people to guide them in prayer worship on take offs and landings.

They are also soliciting frequent flyer celebrities to pilot the aircraft. That has been working well except for the occasional celebrity who insists on leaving the windshield open.

Bond James Bond

I was recently asked if I was still in bonds. Yes we are about 35% of our portfolio is in bonds. We currently own Zion National Bank Bonds, Citibank Bonds, Ford Motor credit Bonds and GMAC Smartnotes. They have coupon rates of between 5-7% and we have enjoyed a 30-35% gain on these bonds since we bought them. Obviously with those gains we have seen yields drop from 7-9% to close to coupon rate as they are all now selling in the 900 to 1000 dollar range.

A quick set of rules for those that need them regarding bonds, and these are general rules not written in stone. If I get these wrong I know of at least 3 readers show should correct me. A strong bond market (prices high/yields lower) is usually accompanied by a strong stock market. When the bond market is weak (Prices lower/yields increasing) the stock market is weaker. When bond yields are high, (above twice the 10 year yield) the stock market might not look as attractive and be driven down by monies shifting from equities to the bond market. When bond yields are weak like at or below the 10 Year yield, equities begin to look interesting causing a shift from bonds to equities. Again you can find temporary exceptions to these scenarios, but for the most part they work.

Trailer For Sale or Rent, Flamingos Have Been Very Good To Me

Someone suggested today we need to spruce up our trailer a bit.  Please note the new yard decorations and we now have cable.  Note the white cabel coming out the front window.  We have flamingos and spike TV it doesn't get a better than this.

On my way out to wait for tommorow's Barron's.

Salve Lucrum


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