stocks and options

Todays trades

2007-01-04T12:34:00.000-08:00

Hey folks,

In the Pacific Northwest it has been weeks without power for awhile. I wanted to update some trades and will have some more tonight.

Close short GOOG 510 call @ $2.20
Close short GOOG 460 put @ 3.20

I will update tonight.

GL

We are going into the slow X-mas months

2006-12-10T10:47:00.000-08:00

Going into the slow part of December we are going to mostly sit the market. I am going to sell some more GOOG January 460 puts while wrapping my December position. I am also going to play a January 510/ March 540 diagonal spread. I am going to see if I can get the premium of the 510's to pay for part of the 540's. Please note this diagonal spread is a very risky play and one would not normally sell the puts and play the spread because the exposure to loss is amplified.

Sell 500 shares TIE @ $33.50=$16,750.00
Sell 300 shares ATI @ $98.20=$29,460.00
Sell 300 shares BA @$90.13=$27039.00
Buy to close 4 contracts of GOOG Dec 460 puts (GOPXL)@ $70.00=($280.00)
Sell to open 4 contracts of GOOG Jan 460 puts @ $710.00=$2840.00
Buy to open 5 contracts GOOG March 540 call @ $1370.00=($6850.00)
Sell to open 5 contracts of GOOG Jan 510 call @ $830.00=$4150.00

Transactions: $73109.00
Commision: $88.00
Total transactions: $73021.00

Long 300 shares FCX @ $61.81=$18,543.00
Short 4 contracts of GOOG Jan $460.00 puts (GOPXL) @ $830.00=($2840.00)
Short 5 contracts GOOG 510 call @ 830.00=($4150.00)
Long 5 contracts GOOG March 540 call @ $1370.00=$6850.00

Total portfolio: $18,403.00
Total cash:$88,534.80
Total gain to date: $6937.80 (6.94%)

GL investors

Disclosure: I am not currently long or short any of the shares aforementioned.

Note to all readers:
This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

The market is somewhat back on track

2006-11-29T18:00:00.000-08:00

It looks like the market is getting back on track a little. The oil stocks had a very nice couple day run and I am taking profit. Time to go full bore in specialty metals. Following are the trades for the fantasy portfolio.

Buy 500 shares TIE @ $30.42=($15,210.00)
Buy 300 shares ATI @ $88.46=($26,538.00)
Buy 300 shares BA @$88.89=($26,667.00)
Sell 4 contracts of GOOG Dec 460 puts (GOPXL)@ $320.00=$1,280.00
Sell 500 shares long COP @ $66.45=$33,225.00
Sell 300 shares long OIH @ $145.89=$43,767.00

Total transactions: $9,857.00
Commissions: $64.00
Total transactions: $9793.00

Portfolio
Long 300 shares FCX @ $61.64=$18,492.00
Long 500 shares TIE @30.42=15,210.00
Long 300 shares ATI @ 88.46=$26,538.00
Long 300 shares BA @$88.89=$26,667.00
Short 4 contracts of GOOG Dec $460.00 puts (GOPXL) @ $320.00=($1280.00)

Total portfolio: $85,627.00
Total cash:$15,513.80
Total gain to date: $1011.80 (1.14%)

Justifications: The defensive plays in oil worked real well but I think the big runs are over. I took the profit.

BA: It is time to get back in to Boeing with the market correction mostly behind us.

TIE: Time to load up on more metals. Titanium appears to be doing well so I think this will be a nice play.

ATI: This is another specialty metal play.

GOPXL: I am slightly bullish on GOOG but think it might still be in snide for awhile. I wouldn't mind buying GOOG if it hit $460 but most likely I'll just let these contracts expire by December option expiration.

GL investors

Disclosure: I am not currently long or short any of the shares aforementioned.

Note to all readers:This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

The word for today is capitulation

2006-11-27T19:18:00.000-08:00

The market was heading ever higher with seemingly unstoppable speed. Then all of the sudden crash!! The dollar was hitting 22 month lows against the Euro. The market was also seriously overbought. The correction came and there was no where to run and no where to hide. My guess is that this market will be stuck in the mud for at least a few days if not weeks. The Nasdaq closed down $54.34 and the Dow closed down $158.46. The high flyer's were hit the hardest. Following are some stocks:

CSCO: $25.80 down $1.04
BIDU: $106.85 down $7.14
RIMM: $135.30 down $6.26
AMZN: $40.85 down $1.56
AAPL: $89.54 down $2.09
BA: $87.37 down $2.40
JCG: $40.21 down $3.07
NYX: $101.11 down $7.15
CME: $532.77 down $20.47
BOT: $157.12 down $6.83

It was not a good day to be in the market unless a person was short. I don't believe that tomorrow will be a bad day but I also don't believe it will be stellar. Time to do a little risk management with the portfolios.

GL investors

Disclosure: I am not currently long or short any of the positions in this post.

Note to all readers:This post and all other posts in this blog are for entertainment purposes only. All of the stocks described are very highly speculative. Investing in the stocks mentioned could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

Time to go mostly cash.

2006-11-27T17:43:00.000-08:00

Today is a bad day for the market and I think I will sit out of all the marquee plays for now. As I had said yesterday, that I would either sell at a $.50 rise or wherever the stock is an hour out of the gate (with the exception of FCX). The trades to buy COP and GG didn't reach their target. Let's account for all the trades last week:

Sold at Earnings
Buy 1000 shares of BRCD @ $8.18 sell at $8.49=$310.00
Buy 200 shares of GME @ $50.70 sell at $53.00=$460.00
Buy 400 shares of DELL @ $24.76 sell at $24.82=$24.00

Bought last week and sold today:
Buy 1000 shares of LCRD @ $12.41 sell today at $12.40=($10.00)
Buy 200 shares EFUT @ $45.00 sell today @ $46.50=$300.00
Buy 500 shares MRVL @ $21.25 sell today @ $20.80=($275.00)
Buy 200 shares SNDK @ $48.95 sell today @ $46.75=($440.00)

Short position covered last week:
Cover 500 shares RIMM @ $138.00 (shorted @$127.50) =($5250.00)
Cover GOOG @ 495.83 (shorted @ $491.93)=($390.00)
Buy to close 1 contract GOPXI @ $520.00 (Sold@ $870.00)=$350.00

Positions previously accounted:
Sell 100 shares BA @ $88.20=$8,820.00
Sell 1000 shares GT @ $17.40=$17,400.00

Positions bought today at close:
500 shares of COP @ $64.19=($32,095.00)
300 shares of OIH @$138.20=($41,460.00)

Net transactions ($58,256.00)
Commission: ($242.00)
Total transactions($58,498.00)

Portfolio:
300 shares long FCX @ $61.45=$18,435.00
500 shares long COP @ $64.19=$32,095.00
300 shares long OIH @ $138.20=$41,460.00

Total portfolio: $91,990.00
Total cash:$5,720.80

Total gain to date: -$2289.20 % (-2.23%)

Today's market action is a normal correction. This is why I am liquidating stocks of a non defensive nature. I will stay long the metals and the oil stocks COP and OIH through this correction. Between the short position in RIMM and today's action, the small loss is not too bad.

GL investors

Disclosure: I am not currently long or short any of the shares aforementioned.

Note to all readers:This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

Thanksgiving trades

2006-11-26T21:01:00.000-08:00

With Monday looming with the dollar dropping I am going to liquidate all positions for now except FCX.

Following are the trades sell at $.50 up from the morning. Any stocks that are down an hour out of the gate will be sold at the price at that time.

I am going to put in a buy order for 1000 shares of GG at $28.00
I am going to put in a buy order for 500 shares COP at $64.00

I will make some option trades at the end of the day.

I hope everyone had a nice turkey day.

GL investors

Disclosure: I am not currently long or short any of the positions in this post.

Note to all readers:

This post and all other posts in this blog are for entertainment purposes only. All of the stocks described are very highly speculative. Investing in the stocks mentioned could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

FCX and PD plan marriage by almagamation (copper and Gold)

2006-11-26T08:03:00.000-08:00

Last Sunday FCX Freeport McMoRan made an offer to buy PD Phelps Dodge for $88.00 a share plus .67 shares of FCX stock. Is this a good deal? Will this create too much dilution?

I think this is pretty darn good deal for FCX. Let's look at the numbers:

PD
Shares outstanding: 203.99
Cash less debt: $3.17 billion
2006 forward EPS: $16.40
2007 forward EPS: $15.95
Total net income for 2007 at consensus: $15.95 x 203.99 million=$3.25 billion

FCX
Shares outstanding: 196.93 million
Cash less debt: -$76 million
2006 forward EPS consensus: $6.99
2007 forward EPS consensus: $5.65
Total net income for 2007 at consensus: $5.65 x 196.93 million $1.11 billion
New shares created: .67 x 196.93 million=131.94 million
Total new shares of the combined company: 196.93 million + 131.94 million=328.87 million
Total debt: ($88.00 x 203.99million)+ $76million -$3.17 billion=$14.86 billion
Total 2007 net income of new company: $1.11 billion+$3.17 billion=$4.28 billion
Current stock price: $61.86
Forward 2007 EPS of combined company: $4.28 billion/328.87 million shares=$13.01
Forward PE of the new company: $61.86/$13.01=4.75

This deal if it happens as advertised would create tremendous share holder value. The forward PE should be somewhere between 8 to 10. This would mean that the shares should be at $104.19 to $130.23. If copper and gold remain at their current levels, the EPS for 2007 could be quite a bit more. This combined stock could be a $180 to $200 stock with high copper prices.

The risks that remain are the deal isn't approved by share holders. We saw what happened when PD tried to aquire Inco and Falconbridge. The other problem would be if metal prices tumble next year. I think that both of these scenarios represent a real possibility.

I have to admire the way that this deal was structured even though there is debt. This debt could be paid off in a short period of time and it doesn't create too much dilution. If this deal goes through, it would be an amalgamation made in heaven.

GL investors

Disclosure: I am not currently long or short FCX or PD.

Note to all readers: This post and all other posts in this blog are for entertainment purposes only. All of the stocks described are very highly speculative. Investing in the stocks mentioned could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

GOOG revenue expectations for Q4

2006-11-25T12:41:00.000-08:00

In a previous post, I explored Google’s earnings and found that the analysts consensus is a high target. With Google entering the strongest quarter of the year, is their top line or revenue an easy target. In this post, I will explore this.

The consensus for Google’s revenue number is currently running at $2180 million TAC adjusted. Last quarter GOOG produced $1860 billion. That is 17.2% quarter over quarter revenue increase. This would mean that they would earn $3153M gross revenue (revenue not adjusted for TAC).

Last year GOOG had a 21.6% quarter over quarter increase so 17.2% should be a walk in the park…………….. right? After all this is Google’s best quarter.

Actually $2180 million is a very high target. As a careful investor, I would not think that it is a given.

Why is this number not just another number for Google to blow away? From my previous post, following is Google’s revenue starting from when it went public:

GOOG gross revenue with quarter over quarter growth
(04) 3) $806M 4) $1032M (28%)
(05) 1) $1257M (21.8%) 2) $1384M (10.1%) 3) $1578M (14.2%) 4) $1919M (21.6%)
(06) 1) $2254M (17.5%) 2) $2456M (9%) 3) $2690M (9.5%)

Growth metrics
Q3(06)/Q3(05)=1.70
Q2(06)/Q2(05)=1.77
Q1(06)/Q1(05)=1.79
Q4(05)/Q4(04)=1.86
Q3(05)/Q3(04)=1.96

As you can see, the numbers on a percentage basis are decreasing. This is very clear. As Google grows, the numbers on a percentage basis become much harder to achieve. To demonstrate this I will show the dollar amount that would need to produce the growth:

Q4(05) growth over Q3(05); $341 million.
At $3153 million gross, Q4(06) over Q3(06) would be $463 million. That is $122 million more growth than produced in Q4 last year. This is where the large number statement for Google becomes prevalent.

Now I’m not going to predict that Google misses this target. Many things could happen that would make this number higher like addition sources of revenue. Even with products like Youtube ™ and Google Checkout ™, most of Google’s income will be derived from search. Most of Google’s new sources of revenue haven’t been efficiently monetized yet.

With 10 straight quarters of growth in search revenue, what happens if growth slows?

The gross revenue number of $3153 million could be considerbly less.

Now, I am not predicting a miss in revenue for Q4 but am pointing out the risk which is real. There are many people like Jim Cramer who are not even mentioning the risk that is associated with investing in growth stocks like GOOG. Anybody who has perused the message boards and online discussion groups regarding Google will see people predicting insane near term numbers like $1000 and $1500. A new breed of idiots has been born. There may be some people who lose a considerable amount of money due to these recomendation’s by perma-pumpers.

Folks……..Google is a risky investment. Due to the risk, an investor may receive a nice return. These returns are not a guarantee, though, and could be subject to large losses.

The last post in this series will look at costs and taxes. It will become evident that GOOG will most likely have to meat the revenue number to meat EPS consensus for Q4(06). Even if the revenue number is hit, there is a possibility for an EPS miss. Everyone should be risk adverse and it would be a mistake to take on a new investment either long or short through Google’s earnings.

GL investors

Disclosure: I am not currently long or short GOOG.

Note to all readers: This post and all other posts in this blog are for entertainment purposes only. All of the stocks described are very highly speculative. Investing in the stocks mentioned could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

Trades for Nov 21

2006-11-21T21:53:00.000-08:00

Since I set some targets for trades today following are today's trades. Unfortunately I had indicated that I would sell all companies that were announcing earnings so following are today's trades:

Buy 1000 shares of BRCD @ $8.18 sell at $8.49
Buy 200 shares of GME @ $50.70 sell at $53.00
Buy 400 shares of DELL @ $24.76 sell at $24.82

Momentum trades:
Buy 1000 shares of LCRD @ $12.41
Buy 300 share FCX @ $55.00
buy 200 shares EFUT @ $45.00
Buy 500 shares MRVL @ $21.25
Buy 200 shares SNDK @ $48.95

Cover RIMM @ $138.00
Cover GOOG @ 495.83
Buy to close GOPXI @ $5.20

Good luck investors and have a happy Thanksgiving

Disclosure: I am not currently long or short any of the shares aforementioned.

Note to all readers:

This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

Some momentum and earnings plays for tomorrow

2006-11-20T21:47:00.001-08:00

I decided with positions that I am closing out tomorrow I will add some pre-earnings plays and some momentum plays tomorrow.

These companies announce earnings after the bell tomorrow at the opening price and I will buy at open and sell at the end of the day to pick up some pre-earnings rise.

Buy 1000 shares of BRCD at opening price
Buy 200 shares of GME at opening price
Buy 400 shares of DELL at opening price

I will also take a few momentum plays:

Buy 1000 shares of LCRD at tomorrows open
Buy 200 shares of EFUT at tomorrows open
Buy 500 shares of MRVL at tomorrows open
Buy 200 shares of SNDK at tomorrows open

Good luck investors

Disclosure: I am not currently long or short any of the shares aforementioned.

Note to all readers:
This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

Some momentum plays for tomorrow

2006-11-20T21:47:00.000-08:00

I decided with positions that I am closing out tomorrow I will add some pre-earnings plays and some momentum plays tomorrow.

These companies announce earnings after the bell tomorrow at the opening price and I will buy at open and sell at the end of the day to pick up some pre-earnings rise.

Buy 1000 shares of BRCD at opening price
Buy 200 shares of GME at opening price
Buy 400 sahres of DELL at opening price

I will also take a few momentum plays:

Buy 1000 shares of LCRD at tomorrows open
Buy 200 shares of EFUT at tomorrows open
Buy 500 shares of MRVL at tomorrows open
Buy 200 shares of SNDK at tomorrows open

Good luck investors

Disclosure: I am not currently long or short any of the shares aforementioned.

Note to all readers:
This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

RIMM has been a run away freight train

2006-11-20T19:55:00.000-08:00

RIMM has been going up and up. It is hard to stop. The knee jerk reaction is to keep short but it is time to cut the bleeding with a $5000.00 loss and cover the short tomorrow . I will also cover GOOG tomorrow. Following are trades for tomorrow.

Cover RIMM at $134.00 with a stop at $138.00
Cover GOOG at tomorrows open.
Put a buy order in for 300 shares FCX at $55.00

BA 100 shares long @ $89.12=$8912.00.00
GT 1000 shares long @ $17.79=$18450.00
RIMM 500 shares short @ $137.41=$68705.00
GOOG 100 shares short @ $495.05=$49505.00
GOPXI 1 contract short GOOG 480 call @ $590.00

Total Long positions: $27362.00
Total short positions: $118800.00

Total received from shorts: $112,943.00
Net positions=$21505.00
Long cash position: $80,718.80
Gain to date $2223.80 (2.22%)

Rationalizations for trades:

RIMM: Sometimes it is pure stubbornness or maybe it is stupidity that keeps a person in trades. Don't short on valuation. I will cover tomorrow because it looks like RIMM is still going up.

GOOG: In my opinion, I don't think that GOOG does too much this week. It is time to get out and on to new trades.

FCX: M/A activity taking over PD. I think this will be good for FCX but the market has to digest these moves.

GL investors

Disclosure: I am not currently long or short any of the shares aforementioned.

Note to all readers:

This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

Comparing YHOO to GOOG

2006-11-19T19:49:00.000-08:00

I have noticed that many people want to make a comparison of YHOO and GOOG. This is to produce a value comparison. I think that this is a mistake especially for GOOG which is a growth stock not a value stock. A growth stock is a stock that is based on it's future ability to produce earnings......We risk today's dollars for a future company value.

But what the heck. Let's do the calculation since I have seen many people use false assumptions in their calculations.

GOOG is currently at $498.79
YHOO is currently at $26.91

Let's start calculating forward PE's......But wait a minute GOOG reports on a non-GAAP basis and YHOO reports on a GAAP basis. The basic difference is that Yahoo accounts for option and one time expenses in their earnings and Google doesn't. Ok then, we will turn Google's earnings into GAAP. To add to this equation, GOOG created 3.2 million in dilution by the Youtube purchase and YHOO is buying back $1 billion worth of it's stock. Everything is fair right?

Information pertinent to GOOG:

Estimated options expensing for 2007: $475 million dollars (From Goog's employee plan)
Number of dilutive shares: 310.574 million
Number of shares created by Youtube dilution: 3.2 million
2007 consensus estimated EPS: $13.70
Total shares after Youtube buyout: 313.774
So let's back out the option expenses: $13.70-($475/313.774)=$12.19
Dilutive forward EPS: (310.574/313.774)$12.19=$12.07
Forward PE: $498.79/$12.07=41.32

Information pertinent to YHOO
2007 consensus EPS: $.60
Number of dilutive shares: 1.36 billion
Number of shares leaving the float due to buy back: $1 billion/$26.91=37 million shares
Number of shares after buyback: 1360 million - 37 million=1323 million
Adjusted EPS: (1360/1323)$.60=$.62
Forward PE: $26.91/$.62=43.4

Well Goog=41.32 and Yhoo=43.4 are closer than Goog=36.41 and Yhoo=44.85. It is kind of crazy how these numbers come out huh?

Now I tend to think that YHOO hovers around the $24-$27 range and GOOG will probably head for the mid $500's just prior to earnings. What would these valuations look at that time. You know what, there will be the same comparisons made at that time.

Yes, I know that I made some assumptions. There are many more calculations that go into these numbers, but that is not my point. These valuation comparisons are useless especially for GOOG. These calculations that other people made on the valuation take two unlike numbers (GAAP and non-GAAP) and try to compare them. Both companies are going to grow and the price of the stocks will be based on how much people currently believe in the future numbers.

The main point is that none of these numbers have been achieved yet. Hey guys they are future numbers.

Now one last way to look at this is that because YHOO's numbers were lite this year they will have an easier time achieving the future numbers......Hmmmmm

In all actuality, I believe that GOOG will have a stock that appreciates more than YHOO and will most likely produce better growth. The moral here is not to try to intermix growth and value metrics because they are not the same.

GL investors

Disclosure: I am not currently long or short GOOG or YHOO. I do have some speculative option plays on GOOG.

Note to all readers: This post and all other posts in this blog are for entertainment purposes only. All of the stocks described are very highly speculative. Investing in the stocks mentioned could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

FCX buys PD

2006-11-19T18:34:00.000-08:00

PD ( Phelps Dodge ) failed in it's bid to buy N ( Inco ) and FAL ( Falconbridge ). FCX ( Freeport McMoRan ) is going to buy out PD. The buy out price is $126.46 and will pay PD shareholders $88.00 in cash and .67 shares of the combined company.

In a future post, I will look at how this deal will look. It will produce around $18 billion in debt on Freeport's books. If copper and gold prices remain high, this could be a great deal and the debt could be paid off real fast. The combined company will have a very low PE and could be a super company to buy.

If metal prices dive, this will be a bad company to get into. I will give a complete analysis next week.

GL investors

GOOG earnings for Q4 Goog or not so Goog

2006-11-19T11:21:00.000-08:00

Earnings are coming around the corner. Most people think that GOOG will beat their Q4 earnings target by a fair amount. Fourth quarter is seasonally the strongest quarter for GOOG.

This should be a piece of cake because Google has a way of always beating estimates by a fair margin.

Google actually missed Q4(05) by $.22. Let’s look at the targets and actual earnings for this year:

Q1 Posted $2.29

Q2 Target $2.22
Q2 Posted $2.49

Q3 Target $2.42
Q3 Posted: $2.62

Q4 Target: $2.89

What is wrong with this picture? Am I the only one who sees this? Every quarter this year the target has been lower than the previous quarter earnings except Q4 which is much higher. If a person went back last year the pattern is the same. Does this mean that GOOG is going to miss 4th quarter earnings? No, I am not going to say that GOOG will miss Q4. Actually the toughest target was for Q1 which GOOG beat by a fair margin. It would seem to go without saying that Q1 and Q4 are the best quarters. In the next posts in this series, I will explore "Revenue" and "Taxes and costs to revenue".

A quick teaser
At current consensus analysts are calling for a revenue of $2.18 billion TAC adjusted. Is this number reasonable? If this number is hit, GOOG could come close or even slightly ahead of EPS estimates? This will be dependent on taxes and costs.

Now, I am not trying to make a bearish statement but one has to understand that the Q4 target will be a tough target to surpass or make. I am not even trying to predict a miss. I will say the bar is at the highest point this year. If I were a risk adverse investor, I would not be long
through this earnings. This will be a thought provoking series because I have not seen this mentioned before.

GL investors

Disclosure: I am not currently long or short GOOG. I do have some speculative option plays on GOOG.

Note to all readers: This post and all other posts in this blog are for entertainment purposes only. All of the stocks Described are very highly speculative. Investing in the stocks mentioned could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

10-Q Numbers and a few metrics from GOOG

2006-11-15T21:08:00.000-08:00

Following are some number from GOOG's earnings announcements since public. Over a couple of posts we will explore a little into GOOG's future. I think GOOG is on a bull run and should be in the mid $500's just prior to their 4th quarter earnings report.

I think the 4th quarter earnings will be one of the most risky earnings to invest through. I won't give predictions but will explore why it might be risky. If you invest or trade in GOOG, these numbers should save a person from of digging through 10-Q's.

GOOG gross revenue with quarter over quarter growth
(04) 3) $806M 4) $1032M (28%)
(05) 1) $1257M (21.8%) 2) $1384M (10.1%) 3) $1578M (14.2%) 4) $1919M (21.6%)
(06) 1) $2254M (17.5%) 2) $2456M (9%) 3) $2690M (9.5%)

Q3(06)/Q3(05)=1.70
Q2(06)/Q2(05)=1.77
Q1(06)/Q1(05)=1.79
Q4(05)/Q4(04)=1.86
Q3(05)/Q3(04)=1.96

TAC
(04) 3) $303M 4) $378M
(05) 1) $462M 2) $494M 3) $530M 4) $629M
(06) 1) $723M 2) $785M 3) $825M

Total cost of revenue
(04) 3) $795M 4) $729M
(05) 1) $814M 2) $909M 3) $1049M 4) $1349M
(06) 1) $1511M 2) $1641M 3) $1758M

Stock compensation

(04) 3) $68M 4) $60M
(05) 1) $49M 2) $47M 3) $46M 4) $58M
(06) 1) $115M 2) $109M 3) $100M

Total cost less stock comp and TAC
(04) 3) $223M 4) $291M 30%
(05) 1) $303M (4.1%) 2) $368M (21.5%) 3) $473M (28.5%) 4) $572M (20.9%)
(06) 1) $673M (17.7%) 2) $747M (11%) 3) $833M (11.5%)

Interest income:

(04) 3) $3.87M 4) $7.37M
(05) 1) $13.7M 2) $19.7M 3) $20.8M 4) $70.2M
(06) 1) $67.9M 2) $160.8M 3) $108.18M

Capex:
(04) 3) $78M 4) $59M
(05) 1) $142M 2) $157M 3) $293M 4) $246M
(06) 1) $345M 2) $699M 3) $492M

Tax and rate
(04) 3) -$37M 4) $106M 34.19%
(05) 1) $87.3M (19%) 2) $152.6M (30.88%) 3) $168.8M (30.69%) 4) $267.6M (41.8%)
(06) 1) $218.3M (26.9%) 2) $255.1M (26.1%) 3) $306.2M (29.4%)

Number of dilutive shares:

(04) 3) 275M 4) 286M
(05) 1) 287M 2) 287M 3) 290M 4) 304M
(06) 1) 304M 2) 310M 3) 311M

Non GAAP EPS

(04) 3) $.45 4) $.48
(05) 1) $1.23 2) $1.36 3) $1.51 4) $1.54
(06) 1) $2.29 2) $2.49 3) $2.62

GAAP EPS GOOG

(04) 3) $.19 4) $.71
(05) 1) $1.29 2) $1.19 3) $1.32 4) $1.22
(06) 1) $1.95 2) $2.33 3) $2.36

Good luck investors

Some major M/A activity gave fuel to the market

2006-11-15T20:15:00.000-08:00

AMR announced a $8 billion dollar bid for beleaguered Delta. The FOMC state that there will be a soft landing. Following are today's trades for the fantasy portfolio:

Short 100 shares GOOG @ $491.93=$49,193.00
Sell 1 contract of Dec $480.00 covered put $870.00=$870.00
Sell 300 shares CAT @ $61.45=$18,435.00
Buy to close 3 contracts of CAT Nov. 60 calls @ $155.00=($465.00)
Target cover on GOOG short at $483.00
Target cover on RIMM short at $124.00

Trades from Monday (re-posted):

Sell 200 shares of ADM @ $35.06=$7,012.00
Short 500 shares of RIMM @ $127.50=$63,750.00

Net short positions: $112,943.00
Net from long positions: $25,852.00.00
Commisions $64.00
Total from long positions: $25,788.00

Portfolio:
BA 100 shares long @ $87.08=$8707.00.00
GT 1000 shares long @ $18.45=$18450.00
RIMM 500 shares short @ $128.42=$64210.00
GOOG 100 shares short @ $491.93=$49193.00
GOPXI 1 contract short GOOG 480 call @ $870.00

Total Long positions: $27157.00

Total short positions: $113,403.00
Total received from shorts: $112,943.00

Net positions=$26,697.00
Long cash position: $80,718.80
Gain to date $7415.80 (7.42%)

Rationalizations for trades:

ADM: It was looking like a loosing position so I sold.

CAT: With the calls sold this position was fully profitable so I wrapped it up. Since the calls were in the money they would go up almost lockstep with the rise in CAT. Why hold this position for it to drop.

RIMM: I think that RIMM is looking a little top heavy so I'm going to see if I can get a little drop out of it.

GOOG: I am going to bet on the might manipulators before OE to pull GOOG down some. In two years watching GOOG it is unusual to see this weeks type of gains on the week of OE. I sold a covered put to give a little hedge just in case.

Good luck investors

Disclosure: I am not currently long or short any of the shares aforementioned. I have some speculative option positions in GOOG and RIMM.

Note to all readers: This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

Trades for Nov. 13

2006-11-13T21:20:00.000-08:00

I am in a hurry so here are some quick trades. I will account for the trades tomorrow.

Sell 200 shares of ADM @ $35.06
Short position was met for RIMM @$127.50
Set cover target for RIMM short positions @ $122.00

Good luck investors

Today was a bad day for the metals and miners

2006-11-11T09:34:00.000-08:00

It was a bad day for the metals and miners and is time to get out of PD. Following are Fridays trades for the fantasy portfolio:

Sell 200 shares on PD @ $96.71=$19,342.00
Sell target for BIDU was met for 400 shares @ $97.50=$39000.00
Buy to close 4 contracts of BDQCT (BIDU Dec. 100 calls) @ $4.10=($1640.00)
Put in a short target for 500 shares of RIMM @ $127.50
Sell 3 contracts of Nov. 60 call contracts of CAT (CATKL) @ $55.00=$165.00
Total transactions: $56867.00
Commission: $47.00
Total transaction: $56820.00

Portfolio:
BA 100 shares long @ $85.62=$8562.00.00
CAT 300 shares long @ $59.60=$17880.00
Short 3 contracts CATKL CAT Nov. 60 calls @ $55.00=($165.00)
ADM 200 shares long @ $35.46=$7092.00
GT 1000 shares long @ $18.02=$18020.00

Total positions=$51389.00
Cash $54930.80
Gain to date $6319.80 (6.32%)

Rationalizations for trades:

PD: Copper prices as well as other metals took a hit on Friday. Instead of trying to chase this around, I am going to get out and wait for a better opportunity to either short or go long.

CAT: I am writing some Nov call contracts in hopes that they will expire by Friday OE.

Good luck investors

Disclosure: I am not currently long or short any of the shares aforementioned. I have some speculative option positions in GOOG and RIMM.

Note to all readers: This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

Good day of trading

2006-11-09T18:24:00.000-08:00

Following are the trades for today.

RIMM short target met at $127.50 cover at days end of $124.75 500 shares $1375.00
Buy target met for 300 shares CAT @ $59.00 =($17,700.00)
Buy 1000 shares GT @ $17.54=($17540.00)
Sell 500 share COP at $63.31=31655.00
Sell target for PD $102.50
Sell target for BIDU $97.50
Todays transactions: ($2210.00)
Commission: ($40.00)
Total transactions: ($2250.00)

Portfolio:

BA 100 shares long @ $85.45=$8545.00
CAT 300 shares long @ $59.20=$17760.00
PD 200 shares l0ng @ $101.19=$20238.00
ADM 200 shares long @ $35.76=$7152.00
BIDU 400 shares long @ $96.07=$38428.00
GT 1000 shares long @ $17.54=$17540.00
BDQCT (BIDU Dec 100 calls) 4 contracts short @ $420.00=($1680)
Total positions=$107,803.00

Margin $1886.20

Gain to date $5916.80 (5.92%)

Rationalizations for trades:

GT: Goodyear got a nice rise off of good earnings. I am going to see if I can catch some momentum.

BIDU: Setting a sell target of $97.50. It looks like it is sputtering a bit so I will hopefully get out tomorrow if target is met.

COP: COP has performed nicely so it is time to take profit.

GOOG: Still have buy target for $460.00

Good luck investors

Disclosure: I am not currently long or short any of the shares aforementioned. I have some speculative option positions in GOOG and RIMM.

Note to all readers: This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

Todays trades

2006-11-08T19:55:00.000-08:00

Following are today's trades:

Buy 200 shares ADM $35.73=($7136.00)
Sell 100 shares RIMM $124.87=12487.00
Buy 400 shares BIDU $96.10=($38440.00)
Sell 4 contracts BDQCT BIDU Dec 100 call @ $420.00 per contract=$1680.00
Buy target for 300 shares CAT @ $59.00
Short target for 500 shares RIMM@ $127.50
Buy target 100 shares of GOOG @ $460.00

Today's transactions ($31409)
Commission $44.00
Total transactions: ($31453)

Portfolio:

BA 100 shares long @ $85.45=$8545.00
COP 500 shares long @ $62.37=$31185.00
PD 200 shares l0ng @ $98.60=$19720.00
ADM 200 shares long @ $35.73=$7136.00
BIDU 400 shares long @ $96.10=$38440.00
BDQCT (BIDU Dec 100 calls) 4 contracts short @ $420.00=($1680)
Total positions=$103346.00
Cash: $363.80
Gain to date $3709.80(3.71%)

Rationalizations for trades:

ADM momentum looking good after election. I am going to see if I can ride this for a little while.

RIMM: This was a one day momentum play. It was bought yesterday and I sold it today. If it goes higher, I think there will be some correction so if it reaches $127.50 I will go short.

BIDU: Looks like this has a full head of steam. I am pairing this with a Call for a hedge.

CAT: Looks like it is stabilizing so if I can catch it at $59.00 tomorrow, I will buy.

GOOG: It looks like it could go a little lower. This is a compelling investment if it reaches $460.00.

Good luck investors

Disclosure: I am not currently long or short any of the shares aforementioned. I have some speculative option positions in GOOG and RIMM.

Note to all readers: This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

The stock market had a nice day ahead of elections

2006-11-07T17:32:00.000-08:00

The Dow was up 51.22 to close at 12156.77 and the Nasdaq was up 9.93 to close at 2375.88. Following are the trades for today in the fantasy portfolio:

Sell 40 GOOG $472.57=18902.80
Sell 500 CROX $44.25=22125.00
Sell 300 ERTS $58.53=$17559.00
Buy to close 3 contracts EZQLL @ $140.00=($420.00)
Buy 100 shares BA $84.85=($8485.00)
Buy 100 shares RIMM $122.77=($12277.00)
Commision: $63.00
Total procedes: $37341.8

BA 100 shares long @ $84.85=$8450.00
RIMM 100 shares long @ $122.77=$12277.00
COP 500 shares long @ $60.99=$30495.00
PD 200 shares l0ng @ $101.23=$20246.00
Total positions=$71468.00
Cash: $31816.80
Gain to date $3284.80(3.28%)

Rationalization of trades:

GOOG: I still think GOOG will do very well in the near future but it isn't performing very well as of late so I am selling the entire position. I might have to wait until Options expiration to purchase more.

CROX: CROX rose very nicely both today and yesterday. I believe that it will perform well but with such nice gains it is time to takes some profit.

ERTS: This is a speculative play. This does not look like it will go anywhere so I sold it today.

RIMM: RIMM was a short target but it looks as though there is some momentum. I will see if I can catch a little tomorrow.

BA: Fedex canceled an order with EADS. Boeing had a nice rise today and I am going to see if I can catch a little momentum tomorrow.

Good luck investors

Disclosure: I am not currently long or short any of the shares aforementioned. I have some speculative option positions in GOOG and RIMM.

Note to all readers: This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

The stock market had a fabulous day today

2006-11-06T17:40:00.000-08:00

It was an all around great day for stocks. Many people will disagree with me but I believe when there is profit take it. All prices are days end. Following are the transactions for today.

Sell 60 shares of GOOG @ 476.95= $28617.00
Sell 500 shares of DIVX @ $24.80=$12400.00
Sell 500 shares of XLE @ $57.01=$28505.00
Sell 500 shares of YHOO @ $26.59=$13295.00
Buy to close 5 contracts of YHQAY (YHOO Jan (07) $27.50) @$140.00=($700.00)
Sell 200 shares of IACI @ 32.29=$6458.00
Buy 300 shares of CROX @ $41.27=($12381.00)
Buy 300 shares of ERTS @ $59.25=($17775.00)
Buy 200 shares of COP @ $61.05=($12210.00)
Sell 3 contracts of EZQLL (ERTS Dec 60 call) @ $190/contract=$570.00
Buy 200 shares of PD @ $101.73=($20346.00)

Commission $116.00
Total transactions for today $26423.00

Portfolio

GOOG 40 shares long @ $476.95=$19078.00
CROX 500 shares long @ $41.27=$20635.00
COP 500 shares long @ $61.05=$30525.00
ERTS 300 shares long @ $59.25=$17775.00
EZQLL Short 3 contracts @ $190=($570.00)
PD 200 shares l0ng @ $101.73=$20346.00
Total positions=$107,789.00

Margin: $5525.00
Gain to date $2264.00 (2.26%)

Rationalization of trades:

XLE: Right before the election (California Proposition 87), I don't want to have exposure to CVX which is in XLE. This is why I sold the entire position.

DIVX: This stock had a 8.53% gain. I have to take all this as profit. This was a very speculative play and I am very happy with the gain.

GOOG: I think GOOG will do very well in the near future but to have such a large exposure in my account wasn't good so I took a little gain today and pared down the shares.

CROX: CROX rose very nicely and I think it might catch a little short covering at this level so I wanted to increase my position.

COP: I think oil will rally after the election. I do believe it will do well tomorrow as oil has been doing well for the past week. Conoco Phillips shouldn't have exposure to California offshore drilling so I don't think it will be effected by proposition 87.

YHOO: YHOO was marginally up today. It did not quite have the same momentum as I had anticipated. I don't think that it will do too well tomorrow.

IACI: I sold IACI for the same reason as YHOO.

ERTS: This is a speculative play. Electronic arts had a much better than expected quarter on Friday. It was only marginally up today. I believe that it will rise on upgrades. I hedged this position with a covered call and hope for a quick small gain.

PD: Phelps Dodge broke through the $100.00 mark and held in that position today. The play today is a momentum play and will be closed at the end of the day tomorrow.

RIMM: I had a target for shorting RIMM at $121.00. Fortunately it did not hit this target $120.74 was the high. The momentum that RIMM has was high and I will not short until further notice.

I hope everyone had a great day in the stock market.

Good luck

Disclosure: I am not currently long or short any of the shares aforementioned.

Note to all readers:

This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

New Format

2006-11-05T09:35:00.000-08:00

I have been very busy and haven't posted in a couple of weeks. I have given commentary and did some research previously.

I am going to change the format a little.........

In looking at what other people like to read and to make it more valuable to the reader I am going to follow a portfolio. I am still going to give commentary from time to time. I hope you enjoy.

The portfolio that I am following will be a fantasy portfolio and will not reflect any of the holdings that I have. The portfolio is going to start with $100,000 and will be traded. Some margin will be used. Other than an occasional covered call no other option trades will be made. I could do something grandiose and make a goal of turning this into one million dollars.......While that is fun to try, I think that would be unrealistic. The goal is to produce double digit yearly returns. I will give rational when trades are made. All option trading education and trades will be moved to another blog which I will have going next week. I will post the link at that time.

Beginning portfolio:

GOOG 100 shares long @ $471.80....................................$47,180.00 cost
DIVX 500 shares long @ $22.85........................................$11,425.00 cost
CROX 200 shares long @ $39.00......................................$7,800.00 cost
XLE 500 shares long @ $56.60.........................................$28,300.00 cost
COP 300 shares long @ $60.97.........................................$18,291.00 cost
YHOO 500 shares long @ $26.28.....................................$13,140.00 cost
YHQAY sell 5 contracts YHOO Jan (07) 27.50 calls......($625.00) proceeds
IACI 200 shares long @ $31.76..........................................$6,352.00 cost

Subtotal......................................................$131, 863.00
Commission................................................$85.00
Total............................................................$131,948.00
Margin.........................................................$31,948.00
Target................Short 1000 shares RIMM @$121.00

All prices are closing day prices Friday. All trades will be made with the closing price the day the trade is made unless a target is given. As in the RIMM target, I will short 1000 shares of RIMM in this portfolio if it reaches a target price of $121.00.

I hope everybody enjoys this new format and I look forward to see how this portfolio grows.

Good luck investors

Disclosure: I am not currently long or short any of the shares aforementioned.

Note to all readers:

This post and all other posts in this blog are for entertainment purposes only. All of the stocks listed are very highly speculative, and the portfolio is not diversified and could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.

GOOG earnings just the numbers

2006-10-21T12:19:00.000-07:00

Following are the numbers from GOOG E/R. More later when the 10-Q is filed.

Effective tax rate: 29%
Stock option cost: $100M
Dilutive shares: 311M

Non TAC adjusted revenue:
Q2 $2.456M
Q3 $2.690M
Q/Q 9.5%

TAC Non GAAP
Q2 $785M
Q3 $825M
Q/Q 5.1%

Total expenses Non GAAP
Q2 $1.531B
Q3 $1.659B
Q/Q 6.4%

Total expenses GAAP
Q2 $1.640B
Q3 $1.758B
Q/Q 7.2%

Income from operations Non GAAP
Q2 $924.5M
Q3 $1031.2M
Q/Q 12.5%

Non GAAP EPS
Q2 $2.49
Q3$2.62
Q/Q 5.2%

Income from operations GAAP
Q2 $815.4M
Q3 $931.3M
Q/Q 14.2%

GAAP EPS
Q2 $2.33
Q3 $2.36
Q/Q 1.3%

Capex
Q2 $699M
Q3 $492.2M

Free cash flow
Q2 $141.6M
Q3 $512.1M

Good luck investors

Yahoo ( YHOO ) alive and well

2006-10-17T19:03:00.000-07:00

Everyone has left YHOO for dead. Every news article says revenue is down. Yahoo is currently at $24.15 and was trading at $29.37 a month ago and at $39.69 at the beginning of the year. There are stories out that say Yahoo's profit is down 37% from last year. Jim Cramer actually trashed GOOG yesterday and today on Mad Money. Is he trying to use his appeal to try to force Yahoo down? Is it just a bad company or sour grapes from Jim? Shame on you Jim.

Following is Yahoo's report.

EPS $.11
Expectations: $.11
Last year EPS $.17

Revenue: $1.58 billion
Revenue last year: $1.33 billion

Revenue with TAC subtracted: $1.12 billion
Expectations: $1.14 billion

Guidance for quarter 4: $1.15 billion to $1.27 billion
Expectations: $1.2 billion to $1.39 billion

Now Yhoo is up $.68 in after hours trading.

So what gives?

Yahoo is down from $.17 to $.11 from a year ago. They missed their revenue target. They guided lower. The street must see something that the rest of media doesn't see.

1) Yahoo has Panama (their platform to compete with Google's adwords) on line and will have it out of beta in the first quarter of 2007.

2) The $.11 target is based on GAAP guidelines which is a new law (as of the beginning of the year) required for all companies. Last year YHOO reported on a Proforma or a non GAAP basis which lets companies back out option and one time expenses (this partially explains an EPS of $.17). A direct comparison cannot be made and is irresponsible for the media to report this way (This is very misleading and is lying by omission). Here is another little tidbit of information: While all companies have to report on a GAAP basis, they can still report 2 numbers. To further make this process misleading, the analysts will evaluate 2 companies 2 different ways. They will have EPS targets for YHOO on a GAAP basis and EPS for GOOG on a non GAAP basis. Even though GOOG will report both GAAP and non GAAP number, the analysts will match the non GAAP numbers. This allows the analysts to bypass the new law for some companies.

3) YHOO grew the top line by almost 20% over last year. So there is still growth coming from Yahoo.

4) YHOO is down 18% from a month ago and 39% from the beginning of the year. How much more can YHOO be beat up.

Yahoo has one of the top web properties. With a way to better monetize search with Panama, they will see growth in ad revenue next year. The revenue growth will be in line with the rest of search. There has not been a lack of people on Yahoo's properties....There has not been full capitalization of the visits. Yahoo is growing and will continue to grow next year. We shall see how the market rates Yahoo's earnings over the next week. I would not recommend that you put your money in YHOO right at this point in time.....Let's see how the street rates the earnings first. Maybe a good entry point exists real soon.

Good luck investors

Disclosure: I am long YHOO

Major earnings announcements for Oct. 18th

2006-10-15T22:28:00.000-07:00

Following are major companies that are going to announce Oct. 19th.

Company:Abbott Laboratories
Ticker: ABT
Description: Phamasutical and bio-pharmasutical company
Earnings history: Met 3 and Beat 1 of the last 4 earnings
Expectations: $.78
Market cap: $71.70B
PE: 23.16
Stock performance: Started the year at $39.55 Currently at $46.93

Company: Advanced Micro Devices
Ticker: AMD
Description: Microprosessor chip manufacturer
Earnings history: Missed 1 and Beat 3 of the last 4 earnings
Expectations: $.24
Market cap: $12.26B
PE: 27.25
Stock performance: Started the year at $31.02 Currently at $25.23

Company: Amphenol
Ticker: APH
Description: Electronic and fiberoptic manufacturer
Earnings history: Beat 3 and missed 1 of the last 4 earnings
Expectations: $.71
Market cap: $5.9B
PE: 27.56
Stock performance: Started the year at $44.71 Currently at $66.00

Company: American Airlines
Ticker: AMR
Description: Airlines
Earnings history: Beat 2 missed 1 and met 1 of the last 4 earnings
Expectations: $.50
Market cap: $5.31B
PE: n/a
Stock performance: Started the year at $22.25 Currently at $24.95

Company: Amylin Pharmesuticals
Ticker: AMLN
Description: Pharmesutical manufacturer
Earnings history: Missed 3 and Beat 1 of the last 4 earnings
Expectations: $-.45
Market cap: $5.47B
PE: n/a
Stock performance: Started the year at $40.01 Currently at $48.17

Company: Apple Computers
Ticker: AAPL
Description: Computer and electronic manufacturer
Earnings history: Beat 4 of last 4 earnings
Expectations: $.51
Market cap: $63.99B
PE: 34.96
Stock performance: Started the year at $72.38 Currently at $75.02

Company: Boston Scientific
Ticker: BSX
Description: Medical device manufacturer
Earnings history: Missed 3 and Beat 1 of last 4 earnings
Expectations: $.09
Market cap: $22.59B
PE: n/a
Stock performance: Started the year at $24.56 Currently at $15.344

Company: CR Bard
Ticker: BCR
Description: Medical device manufacturer
Earnings history: Met 1 and Beat 3 of the last 4 earnings
Expectations: $.77
Market cap: $7.91B
PE: 24.63
Stock performance: Started the year at $65.92 Currently at $76.39

Company: Capital One Financial
Ticker: COF
Description: Banking
Earnings history: Missed 1 Beat 3 of the last 4 earnings
Expectations: $1.79
Market cap: $24.99B
PE: 10.89
Stock performance: Started the year at $86.40 Currently at $81.23

Company: CDW
Ticker: CDWC
Description: Computer and electronic device retail marketer
Earnings history: Beat 4 of the last 4 earnings
Expectations: $.93
Market cap: $5.36B
PE: 20.23
Stock performance: Started the year at $67.84 Currently at $68.73

Company: CIT Group
Ticker: CIT
Description: Financial and Leasing
Earnings history: Met 2 missed 1 and beat 1 of the last 4 earnings
Expectations: $1.21
Market cap: $9.71B
PE: 10.83
Stock performance: Started the year at $52.29 Currently at $48.82

Company: Citrix Systems
Ticker: CTXS
Description: Internet Software
Earnings history: Met 1 and Beat 3 of the last 4 earnings
Expectations: $.33
Market cap: $6.4B
PE:33.71
Stock performance: Started the year at $28.83 Currently at $34.89

Company: Compass Bancshares
Ticker: CBSS
Description: Banking
Earnings history: Met 2, missed 1 and beat 1 of the last 4 earnings
Expectations: $.91
Market cap:$7.65B
PE: 17.51
Stock performance: Started the year at $48.27 Currently at $58.45

Company: Etrade Financial
Ticker: ET
Description: Financial Services
Earnings history: Beat 4 ot the last 4 earnings
Expectations: $.36
Market cap: $9.77B
PE: 17.65
Stock performance: Started the year at $21.77 Currently at $22.86

Company: Ebay
Ticker:EBAY
Description: Internet marketer
Earnings history: Met 3 and Beat 1 of the last 4 earnings
Expectations: $.24
Market cap:$42.11B
PE: 40.98
Stock performance: Started the year at $43.71 Currently at $29.75

Company: General Dynamics
Ticker: GD
Description: Military and aviation manufacturer
Earnings history: Beat 4 of the last 4 earnings
Expectations: $1.66
Market cap: $30.70B
PE: 17.24
Stock performance: Started the year at $114.95 Currently at $76.09

Company: Genuine Parts
Ticker: GPC
Description: Auto and industrial parts seller
Earnings history: Beat 3 and met 1 of the last 4 earnings
Expectations: $.70
Market cap: $7.72B
PE17.26:
Stock performance: Started the year at $44.06 Currently at $45.08

Company: Gilead Sciences
Ticker: GILD
Description: Bio-Pharmesutical company
Earnings history: Beat 4 of the last 4 earnings
Expectations: $.56
Market cap: $30.56B
PE: 32.39
Stock performance: Started the year at $53.00 Currently at $66.89

Company: Illinois Tool Works
Ticker: ITW
Description: Diversified machinery manufacturer
Earnings history: Met 4 of the last 4 earnings
Expectations: $.80
Market cap: $27.91B
PE: 17.02
Stock performance: Started the year at $88.60 Currently at $49.15

Company: IMS Health
Ticker: RX
Description: Imformation solutions to the pharmesutical and healthcare industries
Earnings history: Met 4 of the last 4 earnings
Expectations: $.35
Market cap: $5.44B
PE: 17.55
Stock performance: Started the year at $25.15 Currently at $26.98

Company: JP Morgan Chase
Ticker: JPM
Description: Banking and financial services
Earnings history: Beat 4 of the last 4 earnings
Expectations: $.86
Market cap: $167.18B
PE: 14.50
Stock performance: Started the year at $39.83 Currently at $48.16

Company: Juniper Networks
Ticker: JNPR
Description: Router and switch manufacturer
Earnings history: Missed 1 Met 2 and Beat 1 of the last 4 earnings
Expectations: $.18
Market cap:$9.87B
PE: 29.68
Stock performance: Started the year at $22.14 Currently at $17.45

Company: Kinder Morgan
Ticker: KMP
Description: Energy transportation management
Earnings history: Missed 2 Beat 2 of the last 4 earnings
Expectations: $.57
Market cap: $9.66B
PE: 27.01
Stock performance: Started the year at $48.00 Currently at $43.49

Company: Mellon Financial
Ticker: MEL
Description: Banking
Earnings history: Beat 3 and met 1 of the last 4 earnings
Expectations: $.52
Market cap: $15.92B
PE: 19.11
Stock performance: Started the year at $34.60 Currently at $38.69

Company: Northern Trust
Ticker: NTRS
Description: Banking
Earnings history: Beat 2 and missed 2 of the last 4 earnings
Expectations: $.76
Market cap: $13.03B
PE: 21.15
Stock performance: Started the year at $52.05 Currently at $59.78

Company: Occidental Petroleum
Ticker: OXY
Description: Oil explorer and refiner
Earnings history: Beat 4 of the last 4 earnings
Expectations: $1.36
Market cap: $39.45B
PE: 7.90
Stock performance: Started the year at $82.50 Currently at $46.67

Company: Parker Hanifin
Ticker: PH
Description: Industrial fitting manufacturer and diversified industrial products
Earnings history: Missed 2 and Met 2 of the last 4 earnings
Expectations: $1.48
Market cap: $9.92B
PE:14.81
Stock performance: Started the year at $65.96 Currently at $92.40

Company: SEI Investments
Ticker: SEIC
Description: Financial services
Earnings history: Beat 4 of the last 4 earnings
Expectations: $.57
Market cap: $5.88B
PE: 28.49
Stock performance: Started the year at $37.08 Currently at $59.72

Company: Saint Jude Medical
Ticker: STJ
Description: Healthcare equipment manufacturer
Earnings history: Met 4 of the last 4 earnings
Expectations: $.37
Market cap: $13.11B
PE: 31.42
Stock performance: Started the year at $50.15 Currently at $37.17

Company: Synovus Financial
Ticker: SNV
Description: Banking
Earnings history: Met 4 of the last 4 earnings
Expectations: $.47
Market cap: $9.67B
PE: 16.96
Stock performance: Started the year at $27.04 Currently at $29.79

Good luck investors

Major earnings announcements for Oct. 17th

2006-10-15T18:27:00.000-07:00

Following are major companies announcing Oct. 17th.

Company: AMB Property
Ticker: AMB
Description: Industrial real estate
Earnings history: Beat 3 and missed 1 of the last 4 earnings
Expectations: $.66
Market cap: $5.08B
PE: 14.61
Stock performance: Started the year at $49.90 Currently at $57.43

Company: American Standard
Ticker: ASD
Description: Air conditioning and bathroom fixture manufacturer
Earnings history: Missed 2 beat 1 and met 1 of the last 4 earnings
Expectations: $.82
Market cap: $8.64B
PE: 18.26
Stock performance: Started the year at $40.05 Currently at $43.10

Company: American South Bancorp
Ticker: ASO
Description: Banking
Earnings history: Met 2 and beat 2 of the last 4 earnings
Expectations: $.53
Market cap: $10.5B
PE: 14.82
Stock performance: Started the year at $26.40 Currently at $30.67

Company: Chicago Board of Options Trading
Ticker: BOT
Description: Derivative trading house
Earnings history: Met 1 and Beat 2 of the last 3 earnings
Expectations: $.80
Market cap: $7.09B
PE: 59.88
Stock performance: Started the year at $95.00 Currently at $134.20

Company: CSX Corporation
Ticker: CSX
Description: Rail to truck transportation and off loading
Earnings history: Met 1 and beat 3 of the last 4 earnings
Expectations: $.51
Market cap: $15.42B
PE: 15.47
Stock performance: Started the year at $50.72 Currently at $34.77

Company: EMC
Ticker: EMC
Description: Information infrastructure
Earnings history: Met 1 missed 1 and beat 2 of the last 4 earnings
Expectations: $.12
Market cap: $24.17B
PE: 27.06
Stock performance: Started the year at $13.70 Currently at $12.69

Company: Forest Laboratories
Ticker: FRX
Description: Generic Pharmaceuticals
Earnings history:Missed 2 and Beat 2 of the last 4 earnings
Expectations: $.65
Market cap: $16.77B
PE: 25.50
Stock performance: Started the year at $40.18 Currently at $52.75

Company: Intel
Ticker: INTC
Description: Microprocessor chip manufacturer
Earnings history: Missed 1 met 1 and beat 2 of the last 4 earnings
Expectations: $.17
Market cap: $124.59B
PE: 19.41
Stock performance: Started the year at $25.19 Currently at $21.00

Company: IBM
Ticker: IBM
Description: IT solution provider
Earnings history: Beat 4 of the last 4 earnings
Expectations: $1.35
Market cap: $131B
PE: 16.25
Stock performance: Started the year at $82.45 Currently at $86.08

Company: Johnson and Johnson
Ticker: JNJ
Description: Consumer goods and pharmaceutical manufacturer
Earnings history: Missed 3 and Beat 1 of the last 4 earnings
Expectations: $.93
Market cap: $188.90B
PE: 17.34
Stock performance: Started the year at $61.07 Currently at $64.58

Company: Keycorp
Ticker: KEY
Description: Banking
Earnings history: Beat 4 of the last 4 earnings
Expectations: $.72
Market cap: $14.93B
PE: 13.05
Stock performance: Started the year at $33.18 Currently at $37.02

Company: Merril Lynch
Ticker: MER
Description: Financial services
Earnings history: Beat 4 of the last 4 earnings
Expectations: $1.47
Market cap: $74.11B
PE: 17.15
Stock performance: Started the year at $67.75 Currently at $83.60

Company: Motorola
Ticker: MOT
Description: Communication and electronic device manufacturer
Earnings history: Meat 3 and missed 1 of the last 4 earnings
Expectations: $.34
Market cap: $64.49B
PE: 13.29
Stock performance: Started the year at $22.84 Currently at $26.20

Company: National city
Ticker: NCC
Description: Banking
Earnings history: Beat 2 and missed 2 of the last 4 earnings
Expectations: $.80
Market cap:$22.28B
PE: 12.78
Stock performance: Started the year at $33.77 Currently at $36.84

Company: Office Depot
Ticker: ODP
Description: Office supply retailer
Earnings history: Met 3 and missed 1 of the last 4 earnings
Expectations: $.44
Market cap: $11.83B
PE: 41.36
Stock performance: Started the year at $31.70 Currently at $41.77

Company: Sovereign Bancorp
Ticker: SOV
Description: Banking
Earnings history: Missed 3 and beat 1 of the last 4 earnings
Expectations: $.38
Market cap: $11.28B
PE: 21.94
Stock performance: Started the year at $21.70 Currently at $23.91

Company: State Street
Ticker: STT
Description: Banking
Earnings history: Beat 4 of the last 4 earnings
Expectations: $.79
Market cap: $21.15B
PE: 23.52
Stock performance: Started the year at $55.60 Currently at $63.87

Company: Stryker
Ticker: SYK
Description: Orthopedic manufacturer
Earnings history: Missed 1 met 1 and beat 2 of the last 4 earnings
Expectations: $.46
Market cap: $20.49B
PE: 29.99
Stock performance: Started the year at $44.90 Currently at $50.41

Company: Suntrust Banks
Ticker: STI
Description: Banking
Earnings history: Met 1 and beat 4 of the last 4 earnings
Expectations: $1.46
Market cap: $28.97B
PE: 13.71
Stock performance: Started the year at $73.01 Currently at $79.41

Company: EW Scripps
Ticker: SSP
Description: Television and periodicals
Earnings history: Missed 1 and beat 3 of the last 4 earnings
Expectations: $.40
Market cap: $8B
PE: 35.50
Stock performance: Started the year at $48.05 Currently at $48.95

Company: United Technologies
Ticker: UTX
Description: Conglomerate
Earnings history: Beat 4 of the last 4 earnings
Expectations: $.96
Market cap: $67.36B
PE:20.25
Stock performance: Started the year at $56.45 Currently at $66.50

Company: Wells Fargo
Ticker: WFC
Description: Banking
Earnings history: Missed 3 and beat 1 of the last 4 earnings
Expectations: $.63
Market cap: $122.33B
PE: 15.41
Stock performance: Started the year at $63.20 Currently at $36.33

Company: WIT
Ticker: Wipro
Description: IT products and services
Earnings history: Met 3 and beat 1 of the last 4 earnings
Expectations: $.10
Market cap: $21.04B
PE: 43.21
Stock performance: Started the year at $12.26 Currently at $14.69

Company: Yahoo
Ticker: YHOO
Description: Internet search and advertising
Earnings history: Missed 1 Met 2 and beat 1 of the last 4 earnings
Expectations: $.11
Market cap: $33.78B
PE: 28.80
Stock performance: Started the year at $39.69 Currently at $24.42

Good luck investors

Major earnings announcements for Oct. 16th

2006-10-15T17:49:00.000-07:00

The major portion of earnings starts next week. Following are major companies that announce Oct. 16th.

Company: Commerce Bancorp
Ticker: CBH
Description: Banking
Earnings history: Met 2 beat 1 and missed 1 of the last 4 earnings
Expectations: $.41
Market cap: $6.79B
PE: 23.89
Stock performance: Started the year at $34.80 Currently at $36.43

Company: Eaton
Ticker: ETN
Description: Industrial conglomerate
Earnings history: Beat 3 and missed 1 of the last 4 earnings
Expectations: $1.59
Market cap: $10.55B
PE: 12.38
Stock performance: Started the year at $67.30 Currently at $70.30

Company: Marshal and Isely
Ticker: MI
Description: Banking
Earnings history: Met 1 beat 1 and missed 2 of the last 4 earnings
Expectations: $.81
Market cap: $12.48B
PE: 15.50
Stock performance: Started the year at $43.14 Currently at $49.07

Company: Mattel
Ticker: MAT
Description: Designs and manufacturer of toys
Earnings history: Missed 2 and beat 2 of the last 4 earnings
Expectations: $.61
Market cap: $7.82B
PE: 14.46
Stock performance: Started the year at $15.88 Currently at $20.70

Company: WW Grainger
Ticker: GWW
Description: Industrial wholesaler
Earnings history: Met 2 and beat 2 of the last 4 earnings
Expectations: $1.06
Market cap: $6.25B
PE: 17.42
Stock performance: Started the year at $71.02 Currently at $70.52

Company: Wachovia
Ticker: WB
Description: Banking and financial services
Earnings history: Met 2 and Beat 2 of the last 4 earnings
Expectations: $1.14
Market cap: $89.76B
PE: 12.82
Stock performance: Started the year at $53.00 Currently at $56.47

Good luck investors

Is Google's Youtube purchase and indication of a great Q3

2006-10-12T20:53:00.000-07:00

As many people know, Google purchased Youtube. Hernry Blodget indicated in his blog that the acceptance of stock by Youtube and Sequoia Capitol was a bearish indicator for Google's 3rd quarter earnings.

http://internet.seekingalpha.com/article/18152

Henry Blodget had some good points. I do think that both Youtube and Sequoia most likely like the business model or they wouldn't accept Google stock.
..................However............................ ..

I do not think it in any way portends anything for Q3 earnings. The deal plain and simple has not been consummated yet.

We as investors look for a mechanism to allow us to know something that hasn't already happened. We could say aha looks like GOOG is going to massively beat because.......

What happens if we are wrong? Well we loose money. What GOOG will earn is not currently transparent. With the current history of GOOG's earnings, a very good quarter could be announced. However the two events are independent of one another.

I guess, if we take Blodget's word for it, we can blame him if we loose money. I am in no way trying to berate Mr. Blodget. I like many things that he says. I think the line of thinking in the aforementioned article could be disastrous to the investor.

If anyone is planning on speculating through Google's earnings, I would say don't. I am not saying that it is wrong to invest in Google. Just don't make assumptions that very well could be wrong. The plain fact of the matter is.....Without any guidance there is no way to know what is going to happen. All we can do is guess. Study and use prudence when you invest.

Good luck investors

AA misses PD sale rumors.....Metals were mixed

2006-10-11T17:25:00.000-07:00

AA anounced after the bell yesterday. The reported a EPS of $.61 and analysts were expecting $.79. December gold closed down $5.80 to close at $577.00. Atticus Capitol who owns 10% of PD filled with the SEC it's intent to shop PD. The metals where mixed.

PD $90.84 up $3.06
BHP $38.52 down$.17
RTP $191.97 down $.31
AA $26.97 down $1.44
AL $39.90 down $.77
GG $21.13 down $.66
NEM $41.09 down $.72
AU $37.30 down $.10
TIE $27.21 up $.76
X $64.05 down $.30
NUE $64.05 down $.54

Good luck investors

SVU beats ..... Grocers get a nice lift

2006-10-10T17:49:00.000-07:00

SVU post 3rd quarter earnings of .61. Analysts were expecting $.53. They also raised guidance for the year from $2.18 to $2.41. The Grocers generally got a lift.

SVU $32.39 up $1.38
KR $22.71 down $.04
SWY $29.49 up $.74
WFMI $62.69 up $1.37

SWY announces on Thursday October 12th.....Hmmmm

Good luck investors

Google and Youtube......From here tube eternity

2006-10-09T16:56:00.000-07:00

After the stock market closed today. Youtube and Google announced the deal. Youtube will be run as with some autonomy.

The deal was for $1.65 billion in stock. The deal will close in the fourth quarter of this year. At current valuations, this will add around 4 million more shares to GOOG's float. With current projections that will take about $.04 out of the EPS.

Will it be good for GOOG?

Only time will tell. As I said in the previous post, I believe it was a deal that GOOG had to make.

Good luck investors

Major earnings announcements week of Oct. 9th

2006-10-09T08:59:00.000-07:00

Following are major companies announcing earnings the week of Oct. 9th:

October 10th

Company: Alcoa Aluminum
Ticker: AA
Description: Aluminum producer
Earnings history: Beat 3 and missed 1 of the last 4 earnings
Expectations: $.78
Market cap: $24.05B
PE: 13.05
Stock performance: Started the year at $29.59 Currently at $27.50

Company: Genentech
Ticker: DNA
Description: Biotech company
Earnings history: Beat 3 and met 1 of the last for earnings
Expectations: $.50
Market cap: $87.61B
PE: 54.41
Stock performance: Started the year at $93.41 Currently at $83.20

Company: Supervalu
Ticker: SVU
Description: Wholesale and retail grocer
Earnings history: Beat 2 and missed 2 of the last 4 earnings
Expectations: $.53
Market cap: $6.37B
PE: 21.32
Stock performance: Started the year at $32.80 Currently at $30.10

October 11th

Company: Gannett
Ticker: GCI
Description: News paper and periodical publisher
Earnings history: Beat 1 and met 3 of the last 4 earnings
Expectations: $1.11
Market cap: $13.44B
PE: 11.49
Stock performance: Started the year at $61.35 Currently at $56.85

Company: Host Hotels and Resorts
Ticker: HST
Description: Hotel and resort chain
Earnings history: Beat 4 of the last 4 earnings
Expectations: $.28
Market cap: $12.28B
PE: 17.31
Stock performance: Started the year at $19.05 Currently at $23.59

Company: M&T Bank Corp.
Ticker: MTB
Description: Commercial and retail banking
Earnings history: Beat 3 and missed 1 of the last 4 earnings
Expectations: $1.84
Market cap: $13.21B
PE: 16.85
Stock performance: Started the year at $109.05 Currently at $119.00

Company: Monsanto
Ticker: MON
Description: Agriculture chemical manufacturer
Earnings history: Beat 1 and missed 3 of the last 4 earnings
Expectations: -$.21
Market cap: $25.61B
PE: 36.67
Stock performance: Started the year at $78.30 Currently at $47.19

Company: Yum Brands
Ticker: YUM
Description: Restaurant chain
Earnings history: Beat 2 and missed 2 of the last 4 earnings
Expectations: $.75
Market cap: $14.62B
PE: 19.64
Stock performance: Started the year at $47.09 Currently at $54.00

October 12th

Company: Costco Wholesale
Ticker: COST
Description: Warehouse shopping
Earnings history: Beat 2 met 1 and missed 1 of the last 4 earnings
Expectations: $.73
Market cap: $23.61B
PE: 21.68
Stock performance: Started the year at $49.75 Currently at $49.48

Company: Genzyme
Ticker: GENZ
Description: Bio tech company
Earnings history: Beat 2 met 1 and missed 1 of the last 4 earnings
Expectations: $.71
Market cap: $18.19B
PE: 41.29
Stock performance: Started the year at $70.67 Currently at $69.61

Company: MGIC investment
Ticker: MTG
Description: Private mortgage insurance
Earnings history: Beat 3 and missed 1 of the last 4 earnings
Expectations: $1.55
Market cap: $5.12B
PE: 9.20
Stock performance: Started the year at $66.50 Currently at $60.64

Company: Pepsi Co.
Ticker: PEP
Description: Beverage and snack food producer
Earnings history: Beat 3 and met 1 of the last 4 earnings
Expectations: $.86
Market cap: $105.42B
PE: 24.94
Stock performance: Started the year at $59.92 Currently at $63.94

Company: Safeway
Ticker: SWY
Description: Retail grocer
Earnings history: Beat 3 and missed 1 of the last 4 earnings
Expectations: $.39
Market cap: $12.67B
PE: 18.73
Stock performance: Started the year at $23.81 Currently at $28.49

October 13th

Company: General Electric
Ticker: GE
Description: Conglomerate
Earnings history: Met 3 and missed 1 of the last 4 earnings
Expectations: $.49
Market cap: $371.69B
PE: 22.39
Stock performance: Started the year at $35.10 Currently at $36.01

Company: Regions Financial
Ticker: RF
Description: Commercial Banking
Earnings history: Beat 3 and missed 1 of the last 4 earnings
Expectations: $.71
Market cap: $17.14B
PE: 15.13
Stock performance: Started the year at $34.20 Currently at $37.69

Good luck investors

Youtube + GOOG ......Totally tubular or down the tubes

2006-10-09T08:09:00.001-07:00

My belief is that the youtube purchase is done for 1 of 2 reasons.

1) To compel the investors. There has not been a lot of news from GOOG to stir the markets imagination. This deal does this in a big way.

2) Google wants to remain a leader in search. Google is afraid of loosing it's search share to not only Yahoo and MSN but the upstarts like......My Space, Metacafe, Bolt. I believe that impetus for the interest in Youtube is purely preservationist.

We as investors must view this differently..........

The unfortunate problem with video share is that it has a cult-like existence. This is a place for the teens and early twenties to express themselves. If the format is tweaked, will the users bail?Youtube also has a fad-like existence. What happened to Community Webshots? Well, it is still a valid site but you hardly hear about it any more. With Myspace and Youtube, the aforementioned demographic has another place to go. With the proliferation of other sites similar to Myspace and Youtube, there will be other places that offer just the right mix to make a "community" among their users. Will Youtube's format remain the user choice in the future?

The cost......What does $1.65B represent? Could other companies join in on the frenzy and bid the deal up higher?Google earns roughly 1% per quarter on it's cash. At that point $1.6B, becomes $16.5 million lost per quarter of pretax income due to interest (this would be similar to operating income). At this rate, the combined entity (Youtube + Google video) would have to generate $66 million more in operational income than Google video generates alone. With GOOG's operational income being roughly 1/3 of revenue, the break even of this venture would be $198 million revenue more than Google currently generates from it's video. Even if this deal goes beyond the break even point, could the money been spent another way to produce more growth?

With the potential revenue of video share by 2010 being $2.5 billion dollars, this ought to be a slam dunk....Right?With Myspace etal, Google/Youtube will get a piece of the pie. This is a good deal for now and it could be a real profitable venture..................However...........................

I believe that when we look at the future of deals such as Youtube, we have to be risk aware. The risks of the deal remain:

1) Will Youtube still be the same after it is bought and commercialized and tweaked?

2) Will the current format of video share still be popular1,5, or 10 years from now.

3) How much money will this combination generate? Will the amount of money be sufficient to offset the purchase price?

Even if the combination doesn't make the investor money, this is the type of deal that Google must do. To remain in the lead in search, Google will have to spend. In an otherwise stagnate sphere (GOOG news) , this purchase will give GOOG something to compel the stock until the purchase is closed. For the near term the market appears to like the news. The question is what will the markets perception of this deal be in the future.

Good luck investors

GOOG's 3rd quarter earnings... the Bull and the Bear

2006-10-07T16:27:00.000-07:00

GOOG is one of the least transparent companies on the face of the earth. When we try to take a look at earnings, we get wildly varying statements. I believe that it is a mistake to trade through the earnings with a company like Google. Here are a couple of scenarios from the bull and the bear perspective. In this post we will look at just revenue and assume that everything else is held constant. Analysts surveyed by Thomson First Call are expecting GOOG to have a Q3/Q2 revenue growth of 9%.

The bull: Google always beats every time with the exception of Q4(05) which was due to taxes. They have been increasing their market share at the expense of YHOO and MSFT. Last quarter they grew quarter over quarter by 15%. This will be no exception this time.

The bear: What part of slowing growth don't you understand? Google is saying that this is the slowest part of the season. Last year in the third quarter was due to the hurricanes. Many people where searching for loved ones. It was a total anomaly.

The bull: You would short your own company give me a break. While I do think that Google will be slightly less than 15%, I don't expect it to be by much. By the way why don't you keep events like the hurricane out of this argument. It has nothing to do with anything. While there is a little slowing in the overall growth, take a look at all the market share that Google is taking from Yahoo and Micrososft. Didn't you see that Yahoo warned....This was due to a loss of market share to yes you guessed it GOOG. You are going to be sorry for shorting GOOG through earnings. I expect GOOG to have revenue growth of 14% this quarter.

The bear: Give me a break.......Yahoo's warning is bad for the whole sector. Google should have announced revenue growth of around 5% last year. I don't expect GOOG to grow at all this quarter over last quarter. If you hold through earnings, you'll be left holding the bag.

Let's run this through the equations and see what we come up with.
Assumptions: Tax rate=30%, TAC=32% of Revenue, quarter/quarter non-TAC costs will increase 8.6% which is the same as Q2/Q1, stock option expense will be $109 million, interest from cash=$100 million, and total dilutive shares =311 million (1 million in addition to 31o million).

Q2(06) revenue=$2.456 billion
Total cost and expenses less TAC=$856 million @ 8.6% increase=$930 million
Non GAAP expectations=2.42

The bull case:
Q3(06) revenue=1.14 x $2.456 billion =$2.8 billion
TAC=32% of revenue $896 million
Total cost and expenses: $930 million+$896 million=$1.826 billion
Operating income: Revenue-total cost=$974 million
Operating income + interest: $1.074 billion
Taxes @ 30%: $322 million
Non GAAP as applicable to the common shares: Operating income +Option expense (this is added because it is backed out for non GAAP calculation) +interest-taxes=$883 million
Non GAAP EPS: $861m/311m (shares)=$2.77

The bear case:
Q3(06) revenue=$2.456 billion
TAC: $786 million
Total cost and expenses: $903 million+ $786 million=$1.689 billion
Operating income: $2.456 billion-$1.689 billion=$767 million
Operating income + interest: $867 million
Taxes @ 30%: $260 million
Non GAAP income applicable to shares: $716 million
Non GAAP EPS: $716m/311m=$2.30

This bull and bear case will get a little wilder when we look at cost and throw that into the mix in the next post. The lesson to this story is that it will be tough to figure out exactly what the announcement will be for GOOG. You will hear both sides.

Good luck investors

The vertical debit spread

2006-10-07T13:23:00.000-07:00

In my last option strategy post, I spoke about the vertical credit spread. The vertical debit spread is like the aforementioned except it is done in a debit as opposed to a credit.

Let's review a few concepts. A vertical spread is where a person buys and sells the same number of options in the same month. The credit spread is where the option sold is more than the option bought giving the person a credit. The vertical debit spread has an advantage when time value and implied volatility decline. A vertical credit spread profitability is neutral where the risk is direction one way. Think of a debit spread as buying an option and selling a option to offset the cost of the option that was bought.

A debit spread is a little harder to understand. To go profitable the spread has to widen or the difference in the price of the call bought and the call sold has to increase. When this position is closed if the the difference is larger the player will receive more money. The maximum loss in this position is the debit. The maximum profit in this position is the spread minus the debit.

Let's take a look at an example.

You buy a Aug 400 Goog put for $10.20 and sell a Aug 390 put for $6.70. If Goog is neutral or
rises by option expiration, a $10.20-$6.70=$3.50 would be created. If Goog drops below $390.00 before OE the profit would be the spread ($400 - $390=$10) less the premium paid or $6.50. This is called a bear put debit spread.Now the converse is true with a bull call debit spread. An example would be: You buy a August 410 call for $13.05 and sell a Aug 420 call for $8.65. Your debit is $4.40 and your maximum profit is $5.60. This spread is looking for Goog to rise near or above $410.

You see that all I did in the example was to turn around the buys and the sells in my post of vertical credit spreads. We will be following option contracts that will help show how these various strategies work. There are many other types of spreads that may be done in a debit position and understanding the various types of option plays will allow you to have some different ways to play options.

Good luck investors

Analyst recommended US Steel the metals and miners soared

2006-10-05T17:54:00.000-07:00

A Bank of America analyst recommend US steel. Copper futured were up $.085 to end at $3.29. The metals went up especially copper miners and the steel industry.

PD: $82.76 up $4.11
PCU: $45.70 up $1.30
BHP: $37.72 up $1.15
RTP: $187.22 up $4.81
TIE: $25.37 up $1.48
GG: $22.09 up $.33
NEM: $41.83 up $1.00
AU: $37.36 up $1.77
X: $60.63 up $4.68
NUE: $51.98 up $3.23
AA: $27.57 up $.41
AL: $39.63 up $.60

Good luck investors

The copper and conglomerate miners had another down day

2006-10-04T17:45:00.000-07:00

The copper and conglomerate miners had another down day. Gold futures were off $14.80 to end the day at $566.70. Copper was up a penny and some change. Despite gold dropping the gold miners had a pat day.

PD: $78.65 down $1.40
PCU $44.40 down $.73
BHP: $35.57 down $.71
RTP: $182.41 down $2.14
GG: $21.76 up $.39
NEM: $40.83 down $.06
AU: $36.59 up $.40

Good luck investors

The market rose nicely today

2006-10-04T17:31:00.000-07:00

Ben Bernanke indicated that the Fed would refrain from raising rates today. The market sailed today:

Dow: $11850.61 up $123.27
Nasdaq: $2290.95 up $47.30
S&P: $1350.22 up $16.11

Internet sector:
GOOG : $415.70 up $11.66
YHOO : $25.21 up $.37
EBAY : $29.90 up $1.72
AMZN : $32.76 up $1.06
IACI : $29.73 up $.90

Tech:
SNDK : $56.38 up $3.07
RIMM : $108.80 up $6.73
ERIC : $34.95 up $.76
AAPL : $75.38 up $1.30

Mature tech:
MSFT : $27.94 up $.57
CSCO : $23.93 up $.52
IBM : $83.10 up $1.45

Non tech growth:
HANS : $32.24 up $1.13
WFMI : $60.92 up $1.11

Yes even the oil stocks were up. The metals and the miners were one sector that was off.

Good luck investors

Refiners and big oil hit a slick today

2006-10-03T21:10:00.000-07:00

Oil finished under $60.00 today to end at $59.95 down $1.08. The refiners and big oil took a big hit today.

XOM: $65.41 down $1.59
BP: $63.72 down $1.62
CVX: $62.94 down $1.57
COP: $56.03 down $2.52
TSO: $55.59 down $2.63
VLO: $48.17 down $2.77
SUN: $58.83 down $3.02

Oil and energy ETFs

IYE: $88.41 down $3.17
VDE: $74.11 down $2.70
OIH: $120.56 down $5.59
XLE: $50.90 down $1.94

Good luck investors

Gold down miners off today

2006-10-03T20:57:00.000-07:00

Gold futures dropped $15.30 to end a $588 a troy once. The metals and miners were down sharply across the board.

PD: $80.05 down $5.08
PCU: $45.13 down $1.83
BHP: $37.28 down $1.09
RTP: $184.55 down $7.63
TIE: $23.40 down $1.40
GG: $21.37 down $1.73
NEM: $40.87 down $2.32
AU: $36.19 down $1.96
X: $55.06 down $2.25
NUE: $48.35 down $1.58
AA: $27.10 down $.52
AL: $39.02 down $1.49

Good luck investors

RIMM option observation

2006-10-02T17:08:00.000-07:00

Rimm dropped from Fridays close of $102.65 to end today at $100.01. I have been observing some options. In my last RIMM post, I spoke of a strangle play being to expensive. This is a one day observation with a drop of $2.45. This was a almost a perfectly balanced 100 strike put and 105 call. This took the put to at the money which should have made this play profitable. The play in fact was not profitable. The put gained value as the stock dropped, but the call lost more than the put gained.

This is where the intricacies of option playing gets confusing. One would have expected the put to gain value faster than the call lost value. What happened?

Both contracts lost implied volatility. Now, one might wonder how we figure what the implied volatility is before we play. There are calculators as well as areas like 888options.com where you can see what the implied volatility may be. So what will the implied volatility tell a person?

The implied volatility won't tell the person much if they do not understand the movement of the option contracts. Implied volatility (IV) is a relative measure. Some stocks exhibit higher IV than others. IV is also a reflection of the expectation of the buyer. This is why we are observing the RIMM options. I will have a full posting at the end of the week as we watch the options move with RIMM. This will include Delta, Theta, Gamma, and Vega. By the end of the week we will have a little understanding about RIMM option contracts that we never had before.

For clarification following is a breakdown of premiums from Friday to today on all the options that we observed. Just to make it interesting, I will post these into strangle pairs.

Friday: Oct 100 put=$2.30 Oct. 105 call=$2.75 combination=$5.05
Monday: Oct 100 put=$3.15 Oct 105 call= $1.50 Combination=$4.65

Friday: Oct. 95 put=$.95 Oct.110 call=$1.20 Combination= $2.15
Monday: Oct. 95 put=$1.35 Oct.110 call=$.55 Combination=$1.90

Friday: Oct. 90 put=$.35 Oct.115 call=$.50 Combination=$.85
Monday: Oct. 90 put=$.55 Oct. 115 call=$.20 Combination=$.75

Friday: Nov. 100 put=$3.95 Nov. 105 call=$4.60 Combination=$8.55
Monday: Nov. 100 put=$4.95 Nov.105 call=$3.35 Combination=$8.30

Friday: Nov. 95 put=$2.20 Nov.110 call=$2.75 Combination=$4.95
Monday: Nov. 95 put=$2.85 Nov.110 call=$1.90 Combination=$4.75

Friday: Nov. 90 put=$1.20 Nov. 115 call= $1.60 Combination= $2.80
Monday: Nov. 90 put=$1.55 Nov. 115 call=$1.00 Combination= $2.55

As we observe options, I want you to take a look at what happens as the stock moves. We will see some increase in IV. We will observe about five stocks with the corresponding option contracts going into earning. This observation will be 2 weeks prior to the earnings announcement. If you want to study these posts, you will become a very knowledgeable person in options.

Good luck investors

Major earnings announcements week of Oct. 2nd

2006-09-30T09:03:00.000-07:00

Following are major companies that are going to announce the week of October 2nd:

October 3rd

Company: Mosaic
Ticker: MOS
Description: Manufacturer of animal feeds and crop nutrients
Earnings history: Missed all 4 of the last 4 earnings
Expectations: $.23
Market cap: $7.39B
PE: n/a
Stock performance: Started the year at $14.64 Currently at $16.90

October 5th

Company: Constellation Brands
Ticker: STZ
Description: Producer and Marketer of spirits, wines and beers
Earnings history: Met 2, beat 1, and missed 1 of the last 4 earnings
Expectations: $.43
Market cap: $6.46B
PE: 20.54
Stock performance: Started the year at $26.37 Currently at $28.78

Company: Marriot International
Ticker: MAR
Description: Hotel chain
Earnings history: Beat 4 of the last 4 earnings
Expectations: $.30
Market cap: $15.62B
PE: 26.95
Stock performance: Started the year at $67.12 Currently at $38.64

Company: Micron Technologies
Ticker: MU
Description: Microchip memory manufacturer
Earnings history: Beat 2 and missed 2 of the last 4 earnings
Expectations: $.14
Market cap: $12.78B
PE: 31.18
Stock performance: Started the year at $13.48 Currently at $17.40

Good luck investors

The option observation will be tedious

2006-09-29T18:05:00.000-07:00

Observation of option contracts will be like watching paint drying. It will be very tedious. I will narrate throughout but it is important that a person who is interested in option play understand these positions. The postings will give you an understanding of options without having to paper play. There will also be the added benefit of understanding the greeks that are used to price options.

If these bore you or are you are not interested in playing options skip over these posts. I want you to read the information that you need.

Good luck investors

GOOG's 3rd quarter earnings... the great unknown

2006-09-29T17:55:00.000-07:00

For GOOG earnings will be announced on October 19th. Because of Google's secretive and non-transparent structure, it is tough to figure out how they may announce. The analysts are always way off on their estimates so we are going to try to figure out how they will report. We will have to do this in a range and will have to look at both the bear side and the bull side of the argument. Following are key numbers from GOOG's 10-Q. These will be the basis for our arguments.

Revenue
Q2(06): $2.456BRevenue
Q1(06): $2.254BRevenue growth
Q/Q: 9%

Income from operations:
Q1(06): $743M
Q2(06): $815M
Q/Q: 9.8%

Income from operations with options expense backed out:

Q1(06) $857M
Q2(06) $925M
Q/Q: 7.9%

Cost of revenues:
Q1(06): $904M
Q2 (06): $989M
Q/Q: 9.4%

Net income:
Q1(06): $592M
Q2(06): $721M
Q/Q: 21.8%

Net income as a percentage of operational income:
Q1(06): 88.44%
Q2(06): 79.75%
Lowest since public Q4(05): 65.34%
Highest since public Q2(06): 88.44%

Non Gaap EPS:
Q1(06): $2.29
Q2(06): $2.49
Q/Q: 8.7%

Now what can we tell from this?:
1) Cost of revenues are growing slightly more than revenues are growing.
2) Income from operations (without option expensing) is growing slightly less than revenue growth.
3) It is very hard to figure out what happens between income from operations to net income.

Here are some questions to ask yourself as far as the risk and benefit to revenue....(These may cause revenue to skew off the mathematical model):
1) Are there new products that may be monetized this quarter?
2) Is there new strategic alliances that will contribute to the income?
3) Will there be any loss of revenue due to loss of advertisers like EBAY and AMZN?
4) Will GOOG steal more market share from MSFT and YHOO or will they start stealing market share from GOOG?
5) What will adwords average price be this quarter.

Risk and benefit to Cost of revenue:
1) Will there be any cost savings or economies of scale this quarter?
2) How will costs such as Dell, My Space, etal effect the cost structure.
3) What other savings may exist?
4) What other items may contribute to a cost expansion?

Risk and benefit between operational income and net income.
1) What will the tax rate be?
2) With capital expenditures, how much will depreciation increase? Will it be under growth, over growth or inline?
3) How much will CAPEX drain cash reserves thus effecting interest income? Will growth contribute to more cash reserves than the CAPEX or will it deplete the cash reserves?

Last but not least is how many dilutive shares will there be in the future?

There will be 2 more posts describing the bull argument and the bear argument of what we may expect GOOG to announce .

We as investors have to figure out how to read and interpret financial statements through 10-Q filings. Earnings and profitability are the largest driver of stocks so this will be a good exercise.
This non-transparency is the biggest risk for a stock such as GOOG. Google's value is based on earnings that have not happened yet. We saw what happened when RHAT and RIMM recently announced. This is a portentous of what might happen with GOOG.

Good luck investors

RIMM was flat after big run AH

2006-09-29T16:32:00.000-07:00

RIMM was up big after hours last night.....Around $17.00. RIMM opened today at $102.20 and closed today at $102.65. This was with a volume of 34.4 million shares (the average is 4.45 million). This is a tricky time to trade because buyers and sellers were at parity with alot of volume. I think momentum will not be there on Monday. I spoke about following a straddle/strangle play. The premiums were too rich for my blood. Implied volatilty is still remaining in both the puts and the calls.

Let's follow the options:

Oct 105 call: Premium: $2.75 Delta: .4297 Theta: -.0342 Vega: .0362 Gamma: .0145
Oct 110 call: Premium: $1.20 Delta: .2379 Theta: -.0694 Vega: .0762 Gamma: .0435
Oct 115 call: Premium: $.50 Delta: .1161 Theta: -.0443 Vega: .0481 Gamma: .0213

Oct 100 put: Premium: $2.30 Delta: -.3552 Theta: -.0758 Vega: .0917 Gamma: .0405
Oct 95 put: Premium: $.95 Delta: -.1804 Theta: -.0568 Vega: .0647 Gamma: .0276
Oct 90 put: Premium $.35 Delta: -.0787 Theta: -.0342 Vega: .0362 Gamma: .0145

Nov 105 call: Premium: $4.60 Delta: .4787 Theta: -.0608 Vega: .0299 Gamma: .0158
Nov 110 call: Premium:$2.75 Delta: .3375 Theta: -.0537 Vega: .1374 Gamma: .0278
Nov115 call: Premium: $1.60 Delta: .2216 Theta: -.0430 Vega: .1118 Gamma: .0226

Nov 100 put: Premium: $3.95 Delta: -.3769 Theta: -.0478 Vega: .1428 Gamma: .0272
Nov 95 put: Premium: $2.20 Delta: -.246 Theta: -.0411 Vega: .1185 Gamma: .0224
Nov 90 put: Premium: $1.20 Delta: -.1484 Theta: -.0322 Vega: .0871 Gamma: .0158

We will watch as implied volatility drops out of the contracts. Watching this as well as other contracts, is going to give you a good idea of how to observe option contracts.

Good luck investors

RIMM up way up after hours

2006-09-28T17:15:00.000-07:00

Research in Motion (RIMM) reported earnings of $.74 on revenues of $658.5 million. The analyst of Thomson First Call expected earnings of $.71 on revenues of $644 million. Without option expenses RIMM posted an EPS of $.77.

RIMM shares rose $17.09 to $103.15 in after hours trading.

RIMM may have to restate earnings due to options expensing. I would stay clear of this stock for a couple of days and see how things shake out with the options. This may be a good time to play a strangle or a straddle option play with the restatement looming. You have to watch out for implied volatility. If it is low, I will observe a play and we will post results.

Good luck investors

Disclosure: I have no position in RIMM at this time.

Redhat RHAT down sharply today.

2006-09-27T17:53:00.000-07:00

RHAT reported EPS of $.05 GAAP and $.11 non GAAP on $99.7 million yesterday. The analysts expected EPS of $.10 on revenue of $97.5 million. Redhat gave guidance for EPS of $.12 to $.13 next quarter compared to the analysts expectations of $.12. The day after announcement the shares got slaughtered.

RHAT finished the day at $20.21 down $6.11

The big reason was the high increase in operating income. I think that Redhat will recover from the drop. YHOO, DELL, and NFLX all recovered after their earnings. The recovery will be slow. If you are planning to trade growth stocks like GOOG, HANS, and WFMI through earnings let this be a warning to you. Just look how the market is treating growth stocks

A meet is a miss. There will be a lot of confusion regarding non GAAP (proforma) and GAAP reporting. Especially with the new reporting rules that started at the beginning of the year.
Don't invest through earnings....Unless you would like a surprise like RHAT.

Good luck investors

Disclosure: I am long call options on RHAT.

The vertical credit spread or the first of many spread plays

2006-09-26T16:51:00.000-07:00

You are taking a look at various option plays and see a $.20 option that went to $5.00 in a day. Out comes the calculator and you figure that you could have made 25x your money if you made this play. You relax back in your chair in a semi dream state and say to yourself....."If I bought $20K of the aforementioned option contracts, I would have $500K right now". You start seeing these option plays all the time. You say to yourself "I'm going to be rich....real rich....Bill Gates get out of the way...There's a new sheriff in town".

I think everyone knows what happens. Yes sorry to say it.....All the money was lost if this person played these contracts.

Once you have executed many option plays, the spread is the first advanced play that a person wants to master. The first type of spread that a person typically will play is a credit spread or also known as a vertical spread. There are so many different types of spreads and each strategy has it's own outlook for a stock.

The spread....This is selling an option and buying an option together. What we will talk about here is a vertical credit spread....This is spread where you buy and sell the same number of options in the same month and the option that you buy is less than the option that you sell. The option that you buy is used to hedge the option that you sold against a catastrophic drop. For example: You sell a Aug 400 Goog put for $10.20 and buy a Aug 390 put for $6.70. If Goog stays above 400 or rises by option expiration, you keep the difference or $10.20-$6.70=$3.50. If Goog drops your maximum risk is the spread ($400 - $390=$10) less the premium or $6.50. This is called a bull put credit spread.

Now the converse is true with a bear call credit spread. An example would be: You sell a August 410 call for $13.05 and buy a Aug 420 call for $8.65. Your premium is $4.40 and your maximum risk is $5.60. This spread is looking for Goog to stay below $410 or drop.

You can mix this up by having a larger credit....sell a 410 call and buy a 430 call this would increase your premium and also increase your risk. You can also go further out and sell a 430 call and buy a 440 call.

These plays are so much different than any other play because they take advantage of the time decay and the decay of implied volatility.......or you can make money while a stock stays flat. Also as we have discussed previously you can take advantage of declining implied volatility like investing through earnings (Most likely, you wouldn't want to play this with a stock like GOOG which could rise quite a bit through earnings). The amount of money made is so much less than a pure long option play, but the risk is considerably less.

Ok, why don't we get started right now. Why did you say that spreads are for more advanced option players?

When ever you are short an option position, you always run the risk of being assigned. Let's say that you were playing 10 contracts of the 410, 420 bear credit spread. Ole GOOG takes a big rise into earnings and the position hits $460.00. You would get a short position in your account. You would exercise the 420 call to cover your short position leaving your loss at $5.60 x 10 contracts x100 or $5600.00. Now here is where the intricacies come in. You have to enter your position as a spread. You also have to understand what your brokerage will do if you are assigned. Will they automatically use your long 420 call to cover the short position in your account. You also have to exercise the hedged option if your broker doesn't. It is better to appear dumb by asking the question of your broker than it is to have your broker liquidate all your positions.

Now the fact of the matter is that most of the time you won't be assigned until right around the time that your option expires. You can close out your position prior to OE. If you are starting to trade options, your broker won't allow you to trade spreads. As well you shouldn't be. (It may even be a couple of years away) . However, you will have all the knowledge that you need to follow these contracts and to discuss "your options with others". As you advance in your option play, the spread will be your bread and butter play. I will discuss many different spread plays and we will integrate these into the options that we watch. The next post will be the debit spread or how to get a little rise out of your spread.

Good luck investors

Is the internet business model broken?

2006-09-25T16:59:00.000-07:00

Last week YHOO indicated that it will report in the low end of the projected revenue due to slowing add sales. eMarketer, who tracks online ad sales, indicated that internet growth rate is likely to be around 25% instead of 30%. On GOOG's 2nd quarter 2006 10-Q, the indicated of a slowing rate of growth and that they will be entering a traditionally slow quarter.

With all this warning, what must we expect about the internet sector to include stocks like:

EBAY
GOOG
YHOO
AMZN
IACI
PCLN
EXPE

I don't think we can accurately ascertain this market yet. Even with a couple of years worth of metrics, the analysts etal have misjudged and mis-predicted this sector. The information is hard for the basic investor to predict. We have not received reliable information to make good investment decisions. Due to our inability to understand this sector, it is a real risky sector to invest our hard earned money. With higher PE stocks like GOOG, YHOO, EBAY, and AMZN, there is more risk because these are growth stocks. Growth stocks are valued in the future based on earnings that may or may not happen. That is (risk + risk)=Don't invest.

Most of these companies are going to announce earnings somewhere in the middle of October. Stay out of these stocks until after they announce. We will have a better idea of what the actual market will be behind earnings. Sometimes we like to play the guessing game and try to figure out what a company will announce. Now, investing money on something that is basically a 50% (Will the company impress the market or not) chance is not smart. This makes our equation (risk+risk+risk)=high probability of failure.

With the recent news the whole sector is going to be whipped around until they announce earnings. If you want to speculate fine understand that you will be risking your money......And hey, you might get a nice return if you speculate right. If you are an investor, don't invest in these stocks right now. The market is telling us something.....Listen to it. I don't necessarily think that the internet business model is broken......Just unknown.

Good luck investors

The strangle and the straddle or how to lose twice as much money

2006-09-24T08:50:00.000-07:00

Most people believe that when you play a straddle or a strangle you are essentially creating a risk free option position. Both a straddle and a strangle take advantage of the fact that you don't care if the stock goes up or down but that it moves. The position should, therefore, be profitable if the underlying stock goes up or if it goes down. This is not always the case. But before we get into that lets see exactly what the definitions are:

Straddle: This is buying (you can write a straddle but we won't discuss that in this post) a combination of a call and a put at the same strike price. These are usually bought right near or at money. For example if a stock is at $30.50, a straddle would consist of a $30.00 strike price put and a $30.00 strike price call. The call would be $.50 in the money and the put would be $.50 out of the money.

Strangle: This is buying a combination of a call and a put with different strike prices. These position are typically bought approximately the same amount out of the money. If the put and the call are at a different amount out of the money, this is called a biased position. An example of this would be the same $30.50 stock with a $35.00 call and a 25.00 put. The call would be $4.50 out of the money and the put would be $5.50 out of the money. To bias this on the call side we would buy a $32.50 call and a $25.00 put. The call would then be $2.00 out of the money and the put would be $5.50 out of the money.

The biggest differences between a straddle and a strangle are the cost of the positions and how far the stock needs to move to produce a profit. Because a straddle is at money both the put and the call will be much more expensive than the call and the put in a strangle. If you play either a strangle or a straddle around earnings, you will find that among volatile stocks , the strangle will have to move quite a bit more than the straddle to make the position profitable.

Let's look at a example:

WFMI is announcing earnings on November 8th

Let's see what a straddle will cost:
Current stock price: $59.29
November 60 put: $3.70 Delta= (-.486) Theta=(-.026) IV=37%
November 60 call: $3.30 Delta=(.513) Theta=(-.034) IV=37%
October 60 put: $2.25 Delta=(-.53) Theta=(-.028) IV=30%
October 60 call: $1.65 Delta=(.47) Theta=(-.037) IV=30%
Total premium November: $7.00
Total premium October: $3.90

Lets see what a strangle will cost ($5.00 out of the money)
November 55 put: $1.70 Delta=(.47) Theta=(-.032) IV=40%
November 65 call: $1.45 Delta=(-.53) Theta=(-.028) IV=36%
October 55 put: $.55 Delta=(-.19) Theta=(-.032) IV=32%
October 65 call: $.35 Delta=(.15) Theta=(-.028) IV=29%
Total premium November: $3.15
Total premium October: $.90

As you can see the straddle premium for November is $7.00 and the strangle premium for November is $3.15. The strangle will need to move quite a bit more than the straddle to become profitable. The strangle will have to move to a point where the delta of the call becomes higher than the delta of the put if the stock is rising. (This would be converse if the stock is dropping). The straddle will only need to move a little for the delta's to get to an unequal point.

If you look at implied volatility (IV) which is given as a percentage of the option premium, you will see that they are between 30% to 40%. Right before a volatile stock like GOOG announces, these premiums could be 50% or more. If a person invests through an event like earnings volatility crush will wipe out a large portion of the implied volatility (IV). Even though the stock may move quite a bit through earnings, the drop in implied volatility could wipe out most of the gains or cause a loss. The loss can be severely magnified on the nearer month strangle as it will on the later month straddle. If a person has 2 positions (call and a put), the loss can be doubled. I will observe some stocks through earnings and post the results to show this effect. If a person does not understand how these factors govern the profitability of an option combination like a straddle or strangle, they should not be investing through earnings.

There is a time and a place for straddles and strangles like low volatility times. When investing into certain technical patterns such as wedges (draw a line from the tops and the bottoms with the point on the right hand side of the graph), money can be made. As a stock consolidates it becomes less volatile so the premiums will become cheap. In this period money can be made if the stock breaks out in the assumed time frame. There are also stocks that can be invested through earnings and money can be made if a person understands the option contracts underlying the stock that is going to announce.

Paper play is the best way to get a good understanding of options without risking your money. I will observe some contracts, narrate the observation, and post the results.

Good luck investors

Good investing/trading blogs

2006-09-23T12:20:00.000-07:00

There are many good blogs that give good advise in regards to investing. With so much out in the blogsphere, it is hard to find all the good authors. Many times people find the blogs with the best page rank and aren't able to find other good blogs. Here are a few that I came across lately. I hope you enjoy them also.

Stock Dollars
In this blogs articles, the author follows a large list of stocks. I like his rationalizations of the stock movements as well as his commentary.
http://www.stockdollars.blogspot.com

Anonymous Trader
Good read on the short term catalysts that affect the market.
http://www.anonymoustrader.blogspot.com

Naked Shorts
This blog gives good general commentary on the markets. The author throws in a few articles for entertainment.
http://www.nakedshorts.typepad.com

Stock Investigator
This is a relatively new blog but has good specific trades. The author also has articles on "how to" and rules that govern trading.
http://www.stockinvestigator.blogspot.com

I will keep scouring the web to find good blogs. I will gladly share what I find and post periodically.

Good luck investors

Going long in options

2006-09-23T09:58:00.000-07:00

So you have traded stocks with success and you want to make a lot of money trading options. GOOG is about to announce earnings and boy it will go to the moon. GOOG is at $420.00 and you can buy some October $460.00 Calls for .$80. You sink $5000.00 into this position..Well, with earnings and GOOG going up at least a $100.00 after earnings gonna make at least 50x. Holy moly that will be $250k......Yea baby!!!!

Earnings are announced and GOOG goes up $20.00 and the calls are worth zero after earnings. This all too often is the story of the beginning option buyer. Many option buyers never figure out these following things:

1) They don't understand how the option contract moves with a stock. (They have no knowledge of Delta (how much the option moves when the stock goes up or down) and vega (implied volatility) .
2) They do not understand the time value or theta of an option.
3) They look only at the high leverage
4) They make very low probability plays with very high losses when failure occurs.
5) They buy options because they are cheaper than the stock and they can't afford the stock.
6) They put all there money in options. When they should only play about 10%
7) If they make a good option play they will parlay it into another option play. They put all their eggs in one basket. Even with success eventually one bad play will destroy all the gains of previous positions.

A person who is new to options should understand that buying long option positions can be more risky than any other equity trade. It is sometimes said, "that because an option player has only a fixed amount to lose, the option play is actually the least risky trade".....This just is not so. If this option player is taking every thing he has and plopping it down in one trade, the whole investment can be lost on one trade

Long option positions give at a person a way to easily speculate either way. Buy calls if he expects the stock to go up and buy puts if he expects the stock to go down. Options are a very versatile instrument. Knowing what option contract to play on the underlying stock is key to success and failure trading.

The type of option a new player should trade is at least 3 months out and at money (ATM) or in the money (ITM). These options are going to have high delta's and behave more like the stock. If the stock goes up the option will go up. Using back month options reduces one of the intricacies that make option trading hard........Not only does the option player have to figure out how the stock is going to move but he has to figure out volatility, delta, etc. This is what makes option trading so hard.

There is a time and a place for shorter term options like day trades but this is beyond the scope of this post. I am going to be following some option contracts through earnings and beyond. I will post the delta, gamma, theta, and vega values so we can see what the option contracts are doing. I am a firm believer in observing options before a person plays them. To paper play options is hard......A person doesn't know how to observe the options and what options to play.

I will narrate what we observe and will give some commentary on what option plays could have been made. This will give the person a good firsthand knowledge of the option contract . After observing the option contracts, a person will have the knowledge of a typical trader who has played options for a couple of years.

Next option post will be on the Straddle and the Strangle or how to lose twice as much money.

Good luck investors

Major earnings announcements week of September 25

2006-09-22T20:03:00.000-07:00

Following is a list of major companies that are going to announce the week of September 25th.

September 25th
Company: Walgreen Company
Ticker: WAG
Description: pharmacy chain
Earnings history: Missed 2 and beat 2 of the last 4 earnings
Expectations: $.41
Market cap: $47.28B
PE: 28.74
Stock performance: Started the year at $44.63 Currently at $46.90

September 26th
Company: Jabil Circuit
Ticker: JBL
Description: Electronic manufacturing and services.
Earnings history: Missed 1, met 1, and beat 2 of the last 4 earnings
Expectations: $.34
Market cap: $5.88B
PE: 20.98
Stock performance: Started the year at $37.77 Currently at $27.72

Company: Lennar
Ticker: LEN
Description: Home builder
Earnings history: beat 4 of the last 4 earnings
Expectations: $1.42
Market cap: $7.29B
PE: 5
Stock performance: Started the year at $61.19 Currently at $45.81

Company: Red Hat
Ticker: RHAT
Description: Enterprise software provider
Earnings history: Beat 4 of the last 4 earnings
Expectations: $.11
Market cap: $4.77B
PE: 60.90
Stock performance: Started the year at $27.15 Currently at $25.03

September 27th
Company: McCormick
Ticker: MKC
Description: Spice and seasoning manufacturer
Earnings history: Beat 4 of the last 4 earnings
Expectations: $.36
Market cap: $4.83B
PE: 23.49
Stock performance: Started the year at $31.19 Currently at $36.65

September 28th
Company: Accenture
Ticker: ACN
Description: Management and outsourcing consultants
Earnings history: Beat 4 of the last 4 earnings
Expectations: $.38
Market cap: $16.93B
PE: 20.76
Stock performance: Started the year at $28.84 Currently at $29.34

Company: Research in Motion
Ticker: RIMM
Description: Wireless mobile communication device manufacturer
Earnings history: Missed 1, met 1, and beat 2 of the last 4 earnings
Expectations: $.71
Market cap: $16.20B
PE: 44.31
Stock performance: Started the year at $66.60 Currently at $86.85

Good luck investors

GOOG new leg up or to continue down?

2006-09-19T20:49:00.000-07:00

GOOG had a bad fall today. It was due to several factors one of which was a warning by YHOO that they would come on the low side of revenue estimates. GOOG dropped $10.88 to end the day at $403.81 in sympathy of YHOO. There are several other reasons but that is the biggy.

Should one trade this as GOOG shakes off the bad news and starts a new leg up into earnings?

I would stay out of this one for now. If it means that you will miss a good rise tomorrow, so be it.

The symmetrical triangle pattern...........Broken
Trend since September 11.........Broken

GOOG went to as low as $388.00 and retraced up to where it is right now. If it drops again tomorrow we could see at the support of $380.00 and maybe lower. If it rises, well hey you might miss a portion of the rise into earnings. I like to trade very conservatively and will leave my money off the table for know. The thing that few people realize is that if there is not a solid play, go to another stock.

If you want to gamble, I wish you the best.

Good luck investors

Investing around OE a look at GOOG history

2006-09-17T09:44:00.000-07:00

Options expiration is a just another day that occurs 12 times per year. Many people who would be called conspiracy theorists watch what is called Max pain (tm) or maximum pain. This is a point where the most option contracts are out of the money. If the market makers at OCC etal. where able to make the stock finish at this point, the most contracts would expire worthless. The more otm contracts, the less the market makers would have to absorb. I just did a little study on ten stocks and for the most part maximum pain did not hold up. Maximum pain also changed with time......It was a moving target.

Ok, we now know that options expiration has nothing to do with the stock right?

It actually has quite a bit of an effect on a particular stock. The maximum pain point for the most part either points to a center point (we will refer to it as center point from here on out in this post) of the stock or a center point of the option players expectations. On OE the market makers have to absorb the in the money contracts. This is where the effect on a particular stock becomes evident. Following is a study of GOOG for the year of 2006. You should find the results quite revealing.

January 2006:
Center point day before OE: $420.00
4 day trend prior to OE: Down $18.15
OE day: Opened $438.70 and ended $399.46
1st business day following OE: Up $28.04 from OE close
End of the week following OE: Up 34.81 from OE close

February 2006:
Center point day before OE: $370.00
4 day trend prior to OE: Up $19.82
OE day: Open $369.86 close $368.75
1st business day following OE: Down $2.16 from OE close
End of the week following OE: Down $8.65 from OE close

March 2006:
Center point day before OE: $350.00
4 day trend prior to OE: Up $2.16
OE day: Opened $338.80 Closed $339.79
1st business day following OE: Up $8.40 from OE close
End of the week following OE: Up $2.10 from OE close

April 2006:
Center point day before OE: $390
4 day trend prior to OE: Up $11.55
OE day: Open $448.90 close $437.10
1st business day following OE: Up $3.40 from OE close
End of the week following OE: Down $17.07 from OE close

May 2006:
Center point day before OE: $380.00
4 day trend prior to OE: Down $4.94
OE day: Open $373.28 close $370.02
1st business day following OE: Up $.93 from OE close
End of the week following OE: Up $12.97

June 2006:
Center point day before OE: $380.00
4 day trend prior to OE: Up $2.66
OE day: Open $389.10 close $390.70
1st business day following OE: Down $2.56 from OE close
End of the week following OE: Up $9.25 from OE close

July 2006:
Center point day before OE: $400.00
4 day trend prior to OE: Down $17.15
OE day: Open $386.14 close $390.11
1st business day following OE: Up $.79 from OE close
End of the week following OE: Down $7.71 from OE close

August 2006:
Center point day before OE: $380.00
4 day trend prior to OE: Up $14.30
OE day: Open $386.31 close $383.36
1st business day following OE: Down $6.06 from OE close
End of the week following OE: Down $9.63 from OE close

September 2006:
Center point day before OE: $390.00
4 day trend prior to OE: Up $25.72
OE day: Open $407.48 close $409.88
1st business day following OE: ?
End of the week following OE: ?

A couple of things that can be observed. Let's look at GOOG prior to OE. GOOG had a nice little higher than recent volume climb just prior to OE. This upward movement was flattened on Thursday and Friday (OE). When the market makers absorb the contracts they have to hedge these with either a long or a short position depending on whether they are absorbing a call or a put. This is done so they don't take a loss. A likely scenario would be the market makers are selling into GOOG's rally by shorting to hedge calls. Another interesting affect of OE is that when GOOG was under the center point generally there was upward pressure on the stock one to 4 days after OE. When GOOG was over the center point, generally there was a downward pressure on the stock one to 4 days after OE. The Monday after OE will have many positions that need to be unwound. Calls and puts that were exercised will cause stock to be bought and sold. The market makers also will have to do opposite trades to close their hedges.

This becomes an important analysis tool......However, I want to caution everyone out there that it is foolish to use any single tool like our center point. A large upward or downward trend may sweep through OE without a flinch. Always use more than one analysis method and take off the blinders. I would suggest that most investors not trade OE unless they are very experienced and fully understand the stock that they are trading. I will post the results of the 10 stocks we followed next week and everyone can see where they ended and if there is any effect from OE.

Good luck investors

Volatility Crush and investing into earnings

2006-09-17T08:46:00.000-07:00

Volatility crush is where an option contract goes from a high implied volatility (IV) period to a low implied volatility (IV) period. The expectations prior to an event like earnings will cause IV to be high. After earnings, there will be no expectation, thus low (IV). With stocks like GOOG, HANS, CROX, and CME (to name a few) IV is going to constitute a high percentage of the premium on near month otm contracts. A lot of contracts will be severely deflated after earnings are announced. Some will be zero. This is what is called volatility crush. Don't invest through earnings. In addition to having to deal with volatility crush a person has to guess the direction of the stock. I did say “guess” as most people don’t know what will happen in an earnings announcement. Don’t play options through earnings……Unless you really know what you are doing.

Now, many people will be investing in OCT. contracts going into earnings. Why not buy at low volatility and sell when it is high. This is pretty smart isn’t it? Well, as you’ll see by the following example it may not be as smart as you might think.

My name is Ralph and I am going to make a killing by buying GOOG Oct. 460 calls for $2.40. I expect GOOG to make at least a $55.00 jump into earnings. If this contract is at money right before earnings, then it should be worth $15-$20. At $20.00 if this happens, Ralph would make over 8x what he invested. Ralph wants to drop $4000.00 so he will in a little more than a month be able to buy a new car cash.

Now Ralph is pretty smart isn't he?....He is investing in options that he is planning on selling just prior to earnings when IV is high.

Ralph didn't figure out a few things which were:

1) GOOG may not rise as much as Ralph expects or maybe it doesn't rise at all.
2) What if GOOG actually drops?
3) What if sentiment is actually some what ambivalent prior to earnings and implied volatility is lower than expected?
4) The time value will decline very fast. This contract expires the day after GOOG announces.

A person who is speculating may be thinking that it is worth the risk that one of the aforementioned events happens. However, when you look at all four possibilities, this becomes a low probability play with a high chance of failure. Where failure occurs on other trades a person may take a small loss. In this scenario, the loss could be the whole investment.

People who would want a high probability play would buy December or further out contracts itm. Now on a percentage basis with these options, IV would play much less of a role in the premium. There would be much less leverage....Therefore, much less chance for a big payoff.

Options have a way of attracting people and portending a sure shot with a big pay off. If people could consistently make these plays, there would be many very wealthy people out there. Part of the expectations are already priced into the Oct. 460 contract. It is even at this point in time quite costly.Don't be like Ralph.

The highest probability plays will be delta neutral option plays like spreads. Many people are not approved for these trades so should invest in back month in the money (itm) options. There will be quite a bit less IV as a percentage of premiums in later month options but they will be less risky. The best thing is to understand options before playing. There are many good option investments but not the way Ralph plays.

Good luck investors

Major earnings announcements week of Sept. 18

2006-09-16T13:11:00.000-07:00

Following is list of major companies who are going to announce earnings the week of September 18:

September 19th

Company: Auto Zone
Ticker: AZO
Description: Auto parts retailer
Earnings history: Beat 2 missed 2 of the last 4 earnings
Expectations: $2.79
Market cap: $7.10B
PE: 13.10
Stock performance: Started the year at $91.85 Currently at $95.61

Company: Oracle
Ticker: ORCL
Description: Software company
Earnings history: Beat 2 Met 2 of last 4 earnings
Expectations: $.16
Market cap: $85.54B
PE: 25.56
Stock performance: Started the year at $12.23 Currently at $16.33

September 20th

Company: Bed Bath and Beyond
Ticker: BBBY
Description: Soft goods retailer
Earnings history: Beat 2 and met 2 of last 4 earnings
Expectations: $.51
Market cap: $10.53B
PE: 19.19
Stock performance: Started the year at $36.40 Currently at $37.31

Company: Biomet
Ticker: BMET
Description: Medical product and laboratory manufacturer
Earnings history: Met 2 and missed 2 of last 4 earnings
Expectations: $.43
Market cap: $8.30B
PE: 20.73
Stock performance: Started the year at $36.58 Currently at $33.89

Company: Carmax
Ticker: KMX
Description: Used car retailer
Earnings history: Beat 3 and met 1 of the last 4 earnings
Expectations: $.41
Market cap: $4.31B
PE: 25.74
Stock performance: Started the year at $28.24 Currently at $40.52

Company: Circuit City
Ticker: CC
Description: Specialty electronics retailer
Earnings history: Beat 4 of last 4 earnings
Expectations: $.05
Market cap: $4.55B
PE: 29.28
Stock performance: Started the year at $22.65 Currently at $26.12

Company: Darden Restaurants
Ticker: DRI
Description: Holding company for multiple restaurant chains
Earnings history: Beat 3 and met 1 of the last 4 earnings
Expectations: $.58
Market cap: $5.67B
PE: 18
Stock performance: Started the year at $39.45 Currently at $38.78

Company: Morgan Stanley
Ticker: MS
Description: Financial services
Earnings history: Beat 4 times by a wide margin in the last 4 earnings
Expectations: $1.37
Market cap: $76.06B
PE: 12.34
Stock performance: Started the year at $57.17 Currently at $70.95

September 21

Company: AG Edwards
Ticker: AGE
Description: Financial services
Earnings history: Beat 2 times, met once, and missed once in the last 4 earnings
Expectations: $.87
Market cap: $4.14B
PE: 15.77
Stock performance: Started the year at $47.10 Currently at $54.25

Company: Conagra Foods
Ticker: CAG
Description: Diversified food producer
Earnings history: Beat 3 and met 1 of the last 4 earnings
Expectations: $.23
Market cap: $11.93B
PE: 22.76
Stock performance: Started the year at $20.45 Currently at $23.35

Company: Fedex
Ticker: FDX
Description: Package delivery and ltl trucking
Earnings history: Beat 4 of last 4 earnings
Expectations: $1.52
Market cap: $32.45
PE: 18.18
Stock performance: Started the year at $103.38 Currently at $105.90

Company: General Mills
Ticker: GIS
Description: Conglomerated grain producer
Earnings history: Beat 3 and met 1 of last 4 earnings
Expectations: $.67
Market cap: $18.68B
PE: 18.26
Stock performance: Started the year at $49.52 Currently at $52.96

Company: Nike
Ticker: NKE
Description: Shoe manufacturer
Earnings history: Beat 4 of last 4 earnings by a wide margin
Expectations: $1.42
Market cap: $21.19B
PE: 15.72
Stock performance: Started the year at $86.79 Currently at $82.97

Good luck investors

OE is behind us...How did stocks end

2006-09-16T11:09:00.000-07:00

I have been following Maximum pain for 10 stocks since August 31. It doesn't look like maximum-pain held up for most stocks. The maximum pain follows Left to right for 8/31, 9/06, 9/12, and 9/14. The last column shows where the stocks ended up on Friday's option expiration.

PD : $90.00/$90.00/$90.00/$90.00/$83.73
GOOG : $380.00/$380.00/$380.00/$390.00/$409.88
MRVL : $17.50/$17.50/$17.50/$18.75/$19.99
WFMI : $55.00/$55.00/$50.00/$55.00/$56.32
AAPL : $65.00/$67.50/$67.50/$70.00/$74.10
YHOO : $27.50/$27.50/$27.50/$27.50/$29.32
CROX : $30.00/$30.00/$30.00/$30.00/$29.64
LLL : $70.00/$70.00/$70.00/$75.00/$76.25
GG : $30.00/$27.50S/$27.50/$27.50/$22.94
SNDK : $52.50/$52.50/$52.50/$55.00/$58.51

We found out for the most part that all of the numbers where somewhat off. Does this mean that option expiration has no affect on stocks?

Actually it does have a gravitational pull on stocks so I will show trends of these stocks going into OE. After option expiration, postions are unwound and I will observe this effect and post it. Always use more than one analytical technique. I hope this has been informative.

Good luck investors

Refiners stock not performing well

2006-09-14T19:46:00.000-07:00

Oil futures finished the day under $64.00 to finish at $63.15. The refiners had another down day.

TSO : $57.02 down $2.01
VLO : $50.58 down $1.83
HES : $40.30 down $1.08
SUN : $62.38 down $1.92

With analyst downgrades and expectations of OPEC holding production levels, this sector should remain down.

Good luck investors

A few Jokes

2006-09-14T17:32:00.000-07:00

I am going to add a couple of stock and investment related jokes for a little levity.

How many analysts does it take to change a light bulb?

None they are already in the dark

A Limerick

There once was a man named cramer
Whose lightning round was his claim to famer
But those who are smart
Study the chart
Do their homework and be a good home gamer

The mining stocks had a bad day

2006-09-14T17:24:00.000-07:00

Gold futures ended down $5.70 today to finish at $573.20 per oz. Copper ended today unchanged at $3.32 per pound. The mining stocks were down at the end of today.

PD : $84.18 down $2.13
PCU : $88.75 down $1.42
GG : $23.15 Down $.73
ABX : $28.46 Down $1.23
NEM : $44.14 down $1.60

We might be seeing a sector rotation out of the commodity stocks and into technology and growth stocks.

Good luck investors

Max pain (tm) tomorrows OE

2006-09-14T17:12:00.000-07:00

I have been following Maximum pain for 10 stocks since August 31. Options expiration is tomorrow so lets see if the stocks get pinned. Many stocks had their maximum pain point change as people added positions.. The maximum pain follows Left to right for 8/31, 9/06, 9/12, and today.

PD : $90.00/$90.00/$90.00/$90.00
GOOG : $380.00/$380.00/$380.00/$390.00
MRVL : $17.50/$17.50/$17.50/$18.75
WFMI : $55.00/$55.00/$50.00/$55.00
AAPL : $65.00/$67.50/$67.50/$70.00
YHOO : $27.50/$27.50/$27.50/$27.50
CROX : $30.00/$30.00/$30.00/$30.00
LLL : $70.00/$70.00/$70.00/$75.00
GG : $30.00/$27.50S/$27.50/$27.50
SNDK : $52.50/$52.50/$52.50/$55.00

I will post how these end up tomorrow.

Good luck investors

Time to close Sept options Friday will be volatile

2006-09-13T12:23:00.000-07:00

There has been a nice rise on stocks like GOOG ($405.00 up $21.74), HANS ($29.80 up $2.62), and WFMI ($58.27 up $5.10) in the past couple of days since September 11th. There has been a lot of momentum players jumping on the bandwagon with theses stocks as they rose. Take a look at the volume...This is the most I've seen since last Earnings season.

If These stocks remains at their high levels, it may be tough for the OCC to pin options at expiry. Expect volatility late Thursday and Friday, though, because the MM will have to hedge the itm call positions with short positions.

If you are long Sept. calls, in the previously described positions or any others that took off since September 11th, today might be a good time to close your positions and take profit. There may be a rise tomorrow.....Or there may be a little correction. You must make your own call. If you can take a nice profit, you should be happy and not try to speculate any further.

There will be a lot of volatility on Friday due to the number of contracts itm. Don't trade OE unless you are experienced. I wish everyone success and profitable trading.

Good luck investors

The internet stocks had a good day

2006-09-12T21:18:00.000-07:00

The internet stocks had a good day. This was aided by a drop in oil prices and an optimistic view of the economy by the general market. Even overstock.com did well. Here are some standouts from todays market.

GOOG : $391.40 up $7.81
YHOO : $29.09 up $.48
EBAY : $28.45 up $.37
IACI : $28.47 up $.53
AMZN : $31.27 up $.93
OSTK : $20.14 up $1.81

It has been a long time since this general sector has enjoyed a good day. Many of these stocks are going to be reporting earnings in October. If you are bullish on these stocks, I would wait to invest until after September OE on Friday and make sure the market fundamentals are still entact.. I personally will wait until after these companies announce their earnings to make any investment decisions.

Good luck investors

Disclosure: I am neither long or short any of these stocks.

My favorite investment / trading blogs

2006-09-12T20:22:00.000-07:00

There are many good blogs that give good advise in regards to investing. With so much out in the blogsphere, it is hard to find all the good authors. I don't care about traffic or pagerank in selecting these sites.......These are writers I like and hope you also enjoy them.

http://www.dollarwiseblog.com
Dollarwise is about the general market, Forex, and options. Dollar Wise Blog is authored by Siva Nara. There are good articles on individual securities as well as Forex and options. Siva published a book Dollarwise Pennyfoolish....I haven't had a chance to read this book but will soon.

http://www.adamsoptions.blogspot.com
Adams Options is written by Adam Warner. He writes a lot of articles about option trades (individual equities and indices) as well as general market conditions like volatility. This is one of my favorite areas for option commentary.

http://www.bloggingstocks.com
This is not an individual blog with one author. This site is hosted by AOL (TM) and has a collection of many writers with contrasting view points. I enjoy the diversity of this site.

http://www.crossingwallstreet.com
Crossing Wall Street is a well thought commentary on the equities markets and conditions that affect investing. This is written by Eddie Elfenbein and is well worth a visit.

http://www.randommarketthoughts.blogspot.com
This blog is well written and gives very good insight into individual equities as well as the general market. His posts are well thought through and enjoyable to read.

I will scour the internet to find more good blogs on investing/trading and share these with you. I wont necessarily bring you the top ranked blog, but I will bring you well written blogs with good content.

Good luck investors

Max pain (tm) with 3 days to OE

2006-09-12T17:25:00.000-07:00

I have been following Maximum pain for 10 stocks since August 31. Here are the results only WFMI changed. It will be an interesting day on September 15 when options expire. The maximum pain follows Left to right for 8/31, 9/06, and today.

PD : $90.00/$90.00/$90.00
GOOG : $380.00/$380.00/$380.00
MRVL : $17.50/$17.50/$17.50
WFMI : $55.00/$55.00/$50.00
AAPL : $65.00/$67.50/$67.50
YHOO : $27.50/$27.50/$27.50
CROX : $30.00/$30.00/$30.00
LLL : $70.00/$70.00/$70.00
GG : $30.00/$27.50S/$27.50
SNDK : $52.50/$52.50/$52.50

Good luck investors

Is it time for a commodity play?

2006-09-11T19:18:00.000-07:00

The oil and metal stocks got hammered today. It must seem like a good time to go long in either sector. CVX has given up all the gains plus some after it's big oil find in the Gulf of Mexico. PD was down $7.04 today to close at $84.05. COP was down $1.54 and now is trading at a PE of 5.45. Both sectors are down all across the board. A person must think that it is time to pick these stocks up off the bottom.

Don't try to pick these stocks off the bottom. The sell off could continue......And that would be a good way to lose money. You must wait and let the dust settle.

There might be a point in time that these stocks would be worthy of your investment.....But not right now. The market is not favoring these stocks right at this point in time.

As an investor, you have to take everything into consideration. Market sentiment is sometimes the hardest to predict. When sentiment changes back in favor of a stock and it's fundamentals are intact, a person can invest in a stock with less risk.

Take head and let the market's actions direct how you invest.

Good luck investors

Gold drops under $600 an ounce

2006-09-11T09:09:00.000-07:00

Gold drops under $600 to $592 an ounce. Copper futures are off $.12 to 3.44 per pound. The whole miner sector is under water.

In earely morning trading:

PD $85.78 down $5.32
PCU : $88.58 down $5.32
BHP : $38.05 down $2.22
RTP : $189.09 Down $8.14
GG : $25.10 down $1.95
AU : $40.61 down $3.07
ABX : $30.00 down $1.37
NEM : $46.20 down $1.99

Good luck investors

Oil under $66.00 a barrel

2006-09-11T09:03:00.000-07:00

Oil drops below $66.00 per barrel in early morning trading the whole sector is down.

XOM : $65.00 down $1.81
CVX : $61.77 down $2.45
BP : $64.97 down $.86
COP : $58.61 down $1.73
TSO : $57.3 down $2.60
VLO : $50.27 down $1.18
SUN : $63.57 down $1.93
HES : $42.02 down $1.76

Good luck investors

A little mathematics for the long term covered call

2006-09-10T12:58:00.000-07:00

If you are interested to see where the mathematics come from for using a covered call to get rid of margin or to look at a covered call in a fully margined account, here they are. I don't know of another place that gives these equations.

1) For a covered call paying for the margin:

1st variable=M (this is the extra stock that could be bought due to the option premium)
1st constant=Stock price
2nd constant=Option price

If a person was able to buy the maximum amount of stock while writing a option, the equation would look like this:

A) (Option price)(1+M)=M(Stock price)

The premium for writing the call would be for writing 1+M shares
This amount would contribute to buying (M) extra share of stock
Therefore both are equal as in equation "A"

By taking the equation with the M variable to one side the equation becomes:

B) (Option price)=M(Stock price - Option price)

Solve for M:

C) M=(Option price)/(Stock price - Option price)

The total number of shares would be (1+M)

To check out the solution, all you need to do is see if the premium from (1+M) options would pay for the extra stock. It does.

2) To solve for a fully leveraged position:

For the leveraged position, I change the variable to Xm. Xm is the variable that corresponds to the amount of premium that would be available due to the option.
The constants remain the same. The equation would look like this:

D) 2(1+Xm)(option price)=Xm(Stock price)

If you use full leverage, you would be able to buy 2 times the stock. Therefore the option premium would be 2(1+Xm)(option premium). This would be set equal to the amount of shares it would buy which is Xm(Stock price).

By taking Xm to one side of the equation we have:

E) 2(option price)=Xm(Stock price-2[Option price])

solve for Xm:

Xm=2(option price)/(Stock price -2[Option price])

Because this is a leveraged position you would be able to buy (1+Xm) stock with the option premium and the original money. You would also be able to buy (1+Xm) stock on margin. Therefore you would be able to buy 2(1+Xm) shares.

To check out this equation see how much premium one would receive from 2(1+Xm) shares. See if this is equal to the extra stock you could buy. The equation checks out.

Sorry for over simplification for those of you that are more math savvy. I just don't want to float some equation out there without showing a justification.

Good luck investors

Major earnings announcements week of Sept. 11

2006-09-08T18:37:00.000-07:00

Major companies announcing earnings for the week of September 11th:

September 11:

Company: Campbell Soup
Ticker: CPB
Description: Food manufacturer
Earnings history: Beat their estimates all previous 4 quarters
Expectations: $.21
Market cap: $15.31B
PE: 18.77
Stock perfomance: Started the year at $29.98 Currently at $37.18

September 12

Company: Best Buy
Ticker: BBY
Description: Retailer of specialty electronics, computers, and appliances
Earnings history: Missed by a penny and 2 pennys last 2 quarters
Expectations: $.44
Market cap: $22.41B
PE: 19.26
Stock performance: Started the year at $43.59 Currently at $46.31

Company: Goldman Sachs
Ticker: GS
Description: Investment Banking and financial services
Earnings history: Met or beat earnings all 4 previous quarters
Expectations: $2.99
Market cap: $64.67B
PE: 9.12
Stock performance: Started the year at $127.15 Currently at $149.68

Company: Kroger
Ticker: KR
Description: Grocer
Earnings history: Met earnings 3 times and beat once in the last 4 quarters
Expectations: $.29
Market cap: $17.33B
PE: 18.06
Stock performance: Started the year at $18.80 Currently at $23.99

September 13

Company: Lehman Brothers
Ticker: LEH
Description: Investment banking and financial services
Earnings history: Met 1 quarter and missed 3 quarters out of the last 4 quarters
Expectations: $1.48
Market cap: $35.53B
PE: 10.38
Stock performance: Started the year at $63.65 Currently at $66.13

Company: Xilinx
Ticker: XLNX
Description: Programable logic chip maker
Earnings history: Missed 2 quarters and beat 2 quarter out of the last 4 quarters
Expectations: $.24
Market cap: $7.16B
PE: 20.66
Stock performance: Started the year at $25.08 Currently at $21.07

September 14

Company: Adobe
Ticker: ADBE
Description: Software maker
Earnings history: Beat all previous 4 quarters
Expectations: .26
Market cap: $18.42B
PE: 33.88
Stock performance: Started the year at $36.76 Currently at $31.81

Company: Bear Stearns
Ticker: BSC
Description: Investment banking and financial services
Earnings history: Beat all last 4 quarters by a large margin
Expectations: $2.93
Market cap: $18.96B
PE: 10.03
Stock performance: Started the year at $115.85 Currently at $128.99

Covered calls the ratio write

2006-09-08T16:56:00.000-07:00

Now many people have heard about ratio spreads. You can also do ratio writes on stocks that you own. There are a couple of reasons that a person would want to write at a ratio as opposed to doing just a covered call.

A ratio write is just writing a covered call + writing a naked call. (A naked call is call option that is written without stock to cover. The writer will be obligated to buy stock and sell it to the holder of the contract if he is assigned). This strategy may sound very risky to a person who is brand new to options. If this strategy is properly managed, it can be a very good strategy. The reasons that a person may play this way are numerous but lets look at one example. A person may plays this contract into an earnings event where they can sell the option at a very high premium. With a normal covered call write through earnings a person would typically sell the call at a strike very close to the current price of the stock. If the stock goes up, all the person would recieve is the premium of the call.

With a ratio write the person can write the calls at a strike that is away from the stock's current price. This allows the stock some room to rise while retaining a decent premium. I would never have more than twice the calls that you have stock. There will be a range between the current price of the stock and where the calls are written. The stock goes up faster than the price of the option goes up so if properly managed this position can be closed before a loss occurs. This can be done with a stop. Once the stock price crosses the strike of your call the position will go into a loss which will increase as it goes higher and further away from the strike. I don't recomend that you do this unless you have alot of experience trading options .

If you write at a ratio and you have your calls at money (ATM) or in the money ITM, you will be sorry. This has a risk reward profile like a triangle with just a tiny tip in the positive side. I call this play a straight jacket....You set up a play where the stock cannot move up or down without creating a loss.

Writing a ratio with a collar
A collar is writing a covered call and buying a put. The premium from the call is used to buy the put. A person would do this to hedge the position from a catastrophic drop. With a normal collar, the call would be written at a strike close to price of the stock. This would be done to recieve a premium large enough to buy the put close to the price of the stock. This creates a gainless lossless play. The stock would be called away if it rose. If you write at a ratio, you can have your calls further out so your stock has room to move up yet you have enough premium to buy the puts under your stock.

All naked writing including ratios is for only experienced option traders. The more experienced option player is going to know how the options move and be able to set stops to mitigate risk. You now have another option in your covered call play book.

Good luck investors

Longer term covered call writing

2006-09-07T18:50:00.000-07:00

Most of the time Covered calls plays are presented as a single strategy. Well there are actually more than one way to play covered calls. We are going to look at a long term covered call strategy. It is great for people that buy and hold and wish to make a little extra income. Here is the set up:

Jane has been holding BA for quite some time.
Her outlook for BA is neutral and if she was to give up the stock she wouldn't care.
BA is paying dividends at .30/ share per quarter.
BA is currently trading at $72.87

Jane decides that she would like a little extra income for BA. Jane writes an 80 strike January (08) LEAP with a premium of $7.50. So if Boeing stays flat between now and expiration she will earn 7.50 + .30(5=dividend periods)= $9.00 per share or 12.4% not too bad for 15-1/2 months. If the stock goes over $80.00 by expiration then jane will earn $7.13 ($80.00 - $72.87) + $7,50=$14.63 per share (+ potential dividends depending where the position gets exercised) or 20% over 15-1/2 months. This is a very conservative strategy and is is capable of providing some nice returns. If BA drops, all gains could be negated. I believe that it is better to sell a stock than have it underperforming. Some people don't want to manage their stocks and this would be a good strategy for them provided their currently holding the shares.

The long term covered call with a kick

Yes there is another long term covered call strategy. You could buy a stock with high price LEAPS and use it to pay for the margin. If you did a buy write on SNDK with a $55.00 strike Jan(09) LEAP you would receive a premium of $14.20 per share. Playing this position this way would allow you to buy 1.35 x the shares without taking on leverage. If the stock was to stay flat or go up, you could make a 35% return in 15 months. The problem with these plays is that the stocks that fetch the highest LEAP premiums are unstable. To figure this out for yourself, here is the equation: (I will post the algebraic equation on Saturday so you can see how it is solved for those who are interested)

Margin = (option price)/(stock price - option price)
The amount of stock that you can buy is (1+Margin)

Now by writing a LEAP out of a fully margined account, you could buy 4.14 x the shares that you have the money to purchase......Or if you bought 1 share, you would be able to purchase 3 more which would come from both the margin and the option premium.....Wow!!!!!! This trade follows this equation:

Xm(variable)=2(option price)/(stock price - 2[option price])
The amount of stock that you could buy out of a fully leveraged position is 2(1+Xm)

Now imagine the possibilities. I can hear all the perpetual motion people stirring. I want to mention something.......NEVER TRADE THIS WAY!!! Here is where the problem occurs. When you are buying a stock in a leveraged position, your outlook is short term (maybe no more than a week.....There are some exceptions). By writing a position 15 months out, you have a outlook that is long term. You are in more than 2 x what you could normally afford. If the broker calls, you wont have the money to cover. Furthermore, a 50% drop in a leveraged position = 0. If a brokerage closes the position, the option position would need to be closed also.....The zero point in this position could very well be the stock dropping 30%-35%. Many brokerages won't allow this (some will) but some people loop into these position by re-buying the stock after they write.

The LEAP covered call writing can be an effective way for a person holding a stock to produce an income if they don't like to manage their portfolio. Everyone that holds stocks should watch and manage their portfolio, however many don't. The leveraged LEAP covered call write is just mentioned because there have been some books that promoted it and I wanted to mention it so people are aware. Don't play the LEAP leverage position because they can be very risky. There will be one more way that I will describe to write covered calls and then I will present the buying of calls and puts.

Good luck investors

Apple...The Apple of the Wall Streets eye

2006-09-07T11:38:00.000-07:00

Apple has taken a big bite out of the market lately. Since close on Aug 30th, AAPL has risen from $66.96 to $73.33 in late trading. They are going to be announcing a new product on September 12th. Could the rest of the sector be on the rise?

SUN in late day trading is at $4.92 and was trading at $4.99 at the close of Aug 30th.
HPQ in late day trading is at $36.00 and was trading at $35.64 at the close of Aug 30th.
DELL in late day trading is at $21.95 and was trading at $22.75 at the close of Aug 30th.

It looks like AAPL takes the cake......or pie if you will.

Good luck investors

Disclosure: I am not currently long or short any of these positions.

Refiners down after downgrade and inventories

2006-09-07T10:05:00.000-07:00

Citigroup analyst Doug Leggate down graded the targets of VLO from $79.00 to $65.00 and SUN from $90.00 to $81.00. Gasoline inventories rose 700,000 barrels to 206.9 barrels. Oil prices were down $.23 to $67.27 a barrel.

The slide is continuing for the smaller oil company and the refiners. Following are the prices closing Aug 30/todays price at midday.

COP : $63.50/$61.15
SUN : $73.02/$66.86
VLO : $58.53/$53.07
TSO : $64.22/$61.92
HES : $47.03/$44.63

Look for the slide to continue.

Good luck investors

Disclosure: I am not currently long or short any positions mentioned in this post.

The covered call the defintion the myth

2006-09-06T13:37:00.000-07:00

Of all strategies, covered call writing is one of the first option plays a person learns. The other is buying puts and calls. Now most people believe that covered call writing is the least risky strategy of all option plays. Furthermore, there are more than one strategy involved with the aforementioned play. I will give a basic definition, describe why covered call writing can be risky, and give a few plays.

A covered call write is very simple......It is selling a call while owning the underlying stock so the writer can deliver if he is assigned. Now a covered call player will either already own the stock or he will buy the stock to write (this is called a buy write). This strategy is employed to collect a premium from writing the call. Here is an example....Tom is holding 200 shares of AAPL and he writes 2 contracts of a Oct. 70 call. He collects a premium of $4.40 x 2(number of contracts) x 100 (an option contract is the price on an option table x 100)=$880.00. Now that is kind of nifty isn't it. $880.00 worth of free money.

........Hey not so fast there Tom

This premium collected is not free. AAPL is currently at $70.03 and let's say that Apple goes up to $90.00. Our friend sold the right to someone to buy his stock for $70.00. Tom will no longer own the stock and didn't have the chance to enjoy the gain. Maybe, though, Tom wanted to just make the premium which was almost 6.3%......Heck, if he were able to do this every month he would double his money in a year and if he did this in a fully leveraged position, he would have 4.2 x his money at the end of the year. Now what do you have to say for yourself, Ben?

The aforementioned scenario is just where the covered call writing became very risky. The one thing that Tom forgot about was that the stock could go down. Now this play is in a whole new ball park. Let's just say that AAPL dropped to $50.00 instead of rising to $90.00.....Our friend Tom just sustained a loss off $20.03(200) - $4.40(2)(100)=$3126.00.....Ouch!!!! Now our friend Tom had already owned AAPL but many people will buy a stock with the sole purpose of writing a call. The call premiums are their highest among volatile stocks (the riskiest stocks). If a person wouldn't want to buy a stock alone by itself, they certainly shouldn't buy a stock to write a call. Now to buy a stock in a leveraged position and write a call......Boy o boy that's just plain crazy.

Furthermore a person usually buys a stock so that they can enjoy the stock appreciating.

Now don't get me wrong. I am not bad mouthing covered call writing but I do want to drive the point home that like all option plays covered call writing can be risky. There are a lot of people that write covered calls in a very conservative fashion and do well. I will compose some more covered call strategies in future posts (Long term strategies, Collars (selling a call and buying a put), what contracts to buy, rolling up and down). I will first describe a few strategies that not many people consider.

Short term covered call writing. A person who is long a position can write a covered call for a short period of time. If a person is still bullish on a stock and let's say that option expiration is a week a way, they could write a call that would expire real soon and collect the premium. Let's say that a person is long 200 shares of GOOG. Option expiration is September 15th. A person could write a Sept. 390 call for $2.05. The total premium is $2.05(2)(100)=$410.00. After option expiration, the contract would no longer exist and the person would be able to pocket the premium.

The other short term play would be one that involves implied volatility. If you are long a stock and this issue is about ready to announce earnings, you could write a call on your position and close out the position right after earnings are announced. In some cases the premium of the call could be halved right after earnings are announced. You would be able to keep the premium with sometimes less than 1 hour exposure. This is such a good play that I will observe some contracts through earnings and post the results.....What the heck, I'll post the results for the Sept. options expiration for GOOG.

Please remember that there is no perfect play in either options or stocks. All carry some risk

Good luck investors

Disclosure: I am not long or short any equity or option positions in this post.

Max Pain (TM) follow up

2006-09-06T11:06:00.000-07:00

On August 30th, I posted some maximum- pain numbers. We are going to follow these through September Options expiration.

Following are the numbers (Todays number/Aug. 30 numbers):

PD : $90.00/$90.00
GOOG : $380.00/$380.00
MRVL : $17.50/$17.50
WFMI : $55.00/$55.00
AAPL : $65.00/$67.50
YHOO : $27.50/$27.50
CROX : $30.00/$30.00
LLL : $70.00/$70.00
GG : $30.00/$27.50
SNDK : $52.50/$52.50

All the numbers remain the same except for AAPL and GG. AAPL went up from $67.00 to $71.00 from that time. GG had a Aug. 30 after hours gap down from $30.50 to $28.00. What we are observing is the maximum pain point is changing as the stock changes. This is due to people adding new contracts. It will be interesting to observe what happens by option expiration.

Good luck investors

Does PD soar without N nickel and dime(ing)......

2006-09-05T15:47:00.000-07:00

As my last post indicated, PD and N called off the merger. This actually might be a good thing for Phelps Dodge. The debt and dilution that would of occurred through the merger could have been bad for Phelps Dodge......And to think it could have been PD, N, FAL.

Phelps Dodge is hanging on to $2.63 billion in cash with a $828 million debt. What will PD do with all that money? They have talked about buying back stock in the past. They may pay out some special dividends......They have been generous with previous dividends. There is even some talk that Phelps Dodge may become a take over target itself.

In any case , the combination of the N deal failing and the higher copper prices made PD gain $2.73 to close at $93.48 today. With all this cash and ever higher copper prices, do we get in for the ride?

I think that PD is approaching full value at a PE of 14.70. I believe that it will start having a tough time getting and staying in the high nineties and will definitely have a difficult time crossing $100.00. Analysts are collectively saying that this stock is worth $105.00 with some as as high as $115.00. Remember, though, these are the same analysts that scorned PD in the past.

I think I'll pass on it for now. I won't short it either. I'll wait until after they announce earnings.....The collars they place around their copper assets make it appear as though they miss. The stock has dropped after the last two earnings. When the analysts and industry experts say the collars are a good thing the stock goes up. If the weak hands are head faked for a third time, I will be impressed.

Good luck investors

Disclosure: I have made many plays on PD but are neither long or short at this time.

Inco and Phelps Dodge call off deal

2006-09-05T10:46:00.001-07:00

Inco (N) Share holders were to meat September 7 th to vote on a planned merger with Phelps Dodge (PD). It was looking like the share holders of Inco were not going to support the deal so it was called off.

Copper futures advanced $.15 to $3.59 and gold futers advanced $13.10 to 637.50 in midday trading.

The metals and miners are up in midday trading.

PD : $93.70 up $2.95
PCU : $97.37 up $4.29
RTP : $214.00 up $8.97
BHP : $43.81 up $1.14
N : $76.89 down $.81
NUE : $52.15 up $2.47
X : $62.20 up $2.64
GG : $27.77 up $.42
AU : $47.94 up $1.49
ABX : $34.15 up $.72
NEM : $52.27 up $1.16

Good luck investors

Chevron big oil find

2006-09-05T10:21:00.001-07:00

Chevron (CVX) completed test on a new well in the Gulf of Mexico 270 mile Southwest of New Orleans. The well could produce 3 to 15 billion barrels of oil. This could increase US reserves by up to 50%. Chevron owns 50% of this well and 25% is owned by Statoil (STO) and Devon Energy (DVN).

In midday action:
CVX : $66.93 up $2.10
DVN : $72.40 up $8.25
STO : $28.10 up $.52

Big oil is generally up:
XOM : $68.60 up $.50
COP : $64.51 up $.27
BP : $68.00 unchanged

Refiners are down:
VLO : $56.21 down $1.57
TSO : $63.47 down $1.63
SUN : $71.59 down $1.05

Good luck investors

Option implied volatility

2006-09-05T08:40:00.000-07:00

When we hear about implied volatility (IV), it seems like some mystical force that affects option contracts. It is actually not as hard to understand if a person looks at it from a supply and demand stand point. When we look at a stock, if there are more buyers than there are sellers the stock will go up. The same is true with option contracts……In fact options sometimes behave independently of the underlying stock. This is the basis for implied volatility (IV). There is another factor governing implied volatility premiums and that is the management of option contracts by the market makers like CBOE. We like to call this manipulation. However, if things like put call parity where not managed, it would provide infinite profit potential for some big players.

What is implied volatility? The market is implying there will be a movement in an equity in the future. Now this does not mean that volatility will happen and many times it doesn’t. High implied volatility is very prevalent before a known big events or news. Now historic volatility as well as current volatility can be a contributor to implied volatility. If a stock exhibits volatility in the past or present, it is likely that it will exhibit volatility in the future.

If you invest in options, you are going to run into implied volatility. Now to go out and calculate volatility is a mathematical problem that is so complex that it is beyond the scope of this post. Luckily, there are many calculators out there that will help a person calculate volatility. We are not going to discuss these right now because it will cloud the issue and not help one bit in understanding implied volatility.

Here are a few important concepts to understand on how implied volatility affects certain option contracts.

1) On a percentage basis of the premium, IV has less effect on options that are near or in the money as opposed to those that are far out of the money.
2) Options with more time to expiration are going to have less of an effect of IV as a percentage of premium.
3) As a stock moves, implied volatility will become greater. Conversely as a stock settles down, the implied volatility will become less.
4) Through events like earnings, implied volatility will be at it’s greatest. This is because there is a lot of expectation for a stock when the market has no idea of the outcome of an event.

Now consolidation has been occuring with most stocks through the summer. Option premiums are getting lower and lower. We are going to see a lot of increased option activity into the next earnings season. This is where we can observe the effects of implied volatility directly. I will follow and post option premiums corresponding to five stocks into their earnings so we can have a good idea of how IV plays a role in an the options price.

Understanding how options are priced and how different contracts move when the underlying stock moves is key to understanding how to invest in options. If we were to buy an option contract before an event like earnings, we would likely pay exceptionally high premiums because of implied volatility. When we try to sell this contract after earnings, there will be no expectation left and the premiums are low. Even in the stock moved the way we wanted, we may have lost money. This will give us a good gut feeling for how an option is priced. I will post how we can use the option Greeks to determine the theoretical price of the option and incorporate these into our option decisions in later posts.

Good luck investors

Option pricing and the Greeks

2006-09-04T11:29:00.000-07:00

Have you ever bought a call and had the stock go up and the call go down in price? Have you ever held on to an option and had it slowly creep to nothing?.........Most option players have. The problem is the basic option play seems simple but what happens through time with the contract is hard to understand. This understanding is key to making money in this market. Not only do you need to know about the underlying stock of an option, but you also need to know about options by themselve's. To understanding calls and puts, one must first understand the pricing factors that govern the movement of it's premium. Our modern understanding of options is described by Black Sholes. Since then many thesis's and studies have been used to describe pricing behavior.

Black Sholes is a equation for option pricing. This model was produced by Fisher Black, Robert Merton, and Myron Sholes in the 1970's.The equation they solved was a risk equation from the late 1800's for insurance. It is a partial differential equation with no solutions. Fisher Black, Robert Merton, and Myron Sholes solved this equation with statistical calculus.....The solution was for European style options and was considered to have some flaws.......However it is considered to be reasonably accurate for implied volatility of American style options. Following are the Greeks that give us the basis for the pricing of options.

Option Theta
Theta shows how much the value of an option is contracting with time. this is used in time value calculations. Theta by definition is how much the option contract will decrease per day. If an option has a value of $4.50 and a Theta of -.3, then the value of the option with everthing else held constant would be $4.20 the next day.

Many people don't realize that as time gets really close to expiration the value of the option falls very fast. Theta is not a fixed number. It is dynamic and will change with other factors like implied volatility (IV). Another anomoly in options is that a contract that is far out of the money may go to zero well ahead of options expiration.

Option Delta
Delta shows how much an option contract will move with a given movement in the underlying stock. Call contracts have Deltas that are between 0 and 1. Put contracts have Deltas that are between 0 and -1. If a call option moves up $.30 when the underlying stock moves $1.00 then the call contract would have a Delta of .3. If a put contract moves up $.30 when the stock moves down $1.00, then the put contract would have a Delta of -.3.

Here is how Delta works theoritically (please underline theortically). If you hold a call contract priced at $5.00 and it has a Delta of .3 and the stock moves up $10.00 the call contract would have a value of $5.00 + .3($10)=$8.00. Now if you hold the same contract and the stock falls $10.00, the call contract would have a value of $5.00 +.3(-$10)=$2.00. The converse is true with a put contract. If a put contract priced at $5.00 has a Delta of -.3 and the stock drops $10, the put would have a value of $5.00 +(-.3)(-$10)=$8.00. Now your getting the idea......It is pretty basic isn't it.

Well, the contracts that we described almost never act this way......In fact you may be holding a call contract that has a Delta of .1 and the stock moves up and the call contract actually drops in price. To make matters even more confusing, the Delta changes incrementally with every movement of the stock. Also other pricing factors like changing implied volatility can contribute to the price anomolies.

Gamma
Gamma describes how the Delta will change with every incremental $1.00 change in the underlying stock. This is an instantanious point (the derivative of delta). Gamma is the smallest when an option is in the money or far out of the money and is the greatest when an option is near or at money.

We now have all the tools and we can put together perfect option pricing models right?

No......We have put together a set of tools that we can use to figure out high probability plays. Understanding these principles is like taking math in school. Many people wondered why they had to take the classes. Our understanding of math helped us to later understand many other subjects. The aforementioned Greeks are only good for understanding theoritical price movements instead of exact consise movements. Black-Sholes is an imperfect model in itself but it is useful in understanding options.

We also left out the most important concept in options understanding and that is the Vega or our friend implied volatility. Knowing implied volatility is key to investing in options. I will describe this in the next post and throughout many of my option discussions.

Good luck investors

The set up of a horrible play

2006-09-03T21:59:00.000-07:00

People that just start trading make some very big mistakes. They read all the books and they have learned many types of technical analysis. They are already to trade. They want to make it to the big leagues. People don't want to first learn how to invest and trade in and out of their portfolio. Following is a trade that was recommended to me:

The stock: VCI
Previous days close (Aug 30): $20.79
Next days open (Aug 31): $22.11 on a very high volume spike
Stochastics: Show an oversold condition

This looks like a golden opportunity to make a fast buck.....Right? This stock gaped up after hours and opened the day with a high volume. The stock is oversold. This play is in the money (one might think).

Uh oh.....Within minutes of opening VCI crashed to $21.50 and mid way through the day it was at $19.00. Over a 14% loss in a matter of 4 hours.

So what went wrong?

1)This stock had been as high as $40.00 towards the end of 2005. It also took a dive from $30.00 to around $20.00 2 months earlier. This stock is trading downward and has been going down in big chunks. Stay a way from these stocks. If you want to invest or trade stocks that are in a bad position, let the conditions improve.

2)This stock had a lot of bad news like lawsuits and crappy fundamentals. Don't try to pick the bottom especially a stock that is currently in a bad position.

3)This is also a very thinly traded issue. Stocks with small floats and market caps can turn on a dime. I am not saying not to invest in small cap stocks with good fundamentals but not to trade these unless you are very experienced.

4) The gap up was after hours trading. Don't play the after hours game.....This is where the professionals play. They can send stocks up and down with very little volume. These stocks can correct back during the normal trading day.

Now many investors want to be heavy hitters right away. We hear the terms day trader, swing trader, and momentum trader. Don't try to be a heavy hitter right away. The real successful short term traders take many years to hone their craft. Even yet there are a lot of traders that loose in the game. There are hedge funds and large traders that are participating in this game.....If you are playing against these guys, you are playing poker against a player with a very large bank roll.

I am not telling people not to trade. Learn technical analyses and trade in and out of your portfolio. Maybe trade some options with a couple of weeks set up (This can be equally as dangerous if you do not understand options). You may do so well with your portfolio that you never want to day trade. As in everything, a failure to understand all the mechanics of trading can be disastrous. Always play within your own limits.

Good luck investors

2006-09-03T10:36:00.000-07:00

Basic Option Terminology

Following are some basic option terms. The terminology will help you to understand when you read through literature.

Contract: A contract is an option on a 100 shares of stock. You can only trade in multiples of 100. Even though options trade in contracts, they are shown and talk about as though they trade on 1 share. ie: If an option is shown on a table for $2.30, our minimum trade would be $2.30 x 100= $230.00.

Call: The holder of a call contract has the right to buy the underlying stock for a set price (Strike price) for a set period of time.

Put: The holder of a put contract has the right to sell the underlying stock for a set price (Strike price) for a set period of time.

Write: A person (writer) that writes a call or a put is selling the right to someone else to buy or sell an underlying stock from or to him.

Expiration: This is when the option contract no longer exists. There are many option contracts that will be available for any one stock. Expirations may exist 1 month out 2 months out and up to a few years out. All expirations are the third Friday in each month. So if we hold a December contract, it will expire in the third week of December.

LEAP: A leap is an option with at least 9 months until expiration.

Intrinsic value: Intrinsic value is the value of the option if we exercised it. If we hold a call that has a strike price of $40.00 and the stock is at $45.00, we would have the right to buy the stock for $40.00. We would be able to buy the stock for $5.00 less than it is worth. The intrinsic value would therefore be $5.00. The converse would be true for a put. If we held a put contract with a strike price of $40.00 and the stock was at $35.00 we would be able to sell the stock for $5.00 more than it is worth.....So this put contract would have an intrinsic value of $5.00.

Time value: The more time the option has until expiration the more expensive the option contract would be. This is one of the factors that determines an option premium. If an option had 9 months until it expired, it would be more expensive than an option that had 1 month to expire. Even if an option contract has no intrinsic value, it will have a cost associated with how long it is until the contract expires.

Implied volatility: Implied volatility (IV) is price premium for an option with aan expectation that the stock will move in the future. The higher the expectation the higher the IV will be. An option contract will be more expensive the more it is expected to move. This is one of the most important concepts to understand in option trading. I will devote a lot of time to this concept in future posts. If you don't understand this, it is hard to trade options.

Delta: An option Delta is much the option moves when the underlying stock moves. If an option moves $.10 when the underlying moves $1.00 it would have a delta of $.1/$1=.1. The delta can also be negative depending on the contract but we will get into that later. The delta is also dynamic and changes with time and implied volatility.

In the money (itm): An option that is in the money is an option whose strike price is lower than the stock for a call and higher than a stock for a put. With our previous example , the call has a strike price of $40.00 and the stock is at $45.00 so the call would be said to be $5.00 in the money (if the stock where at $50.00, the call would be $10.00 in the money). Likewise, the put has a strike price of $40.00 and the stock was at $35.00 so the put is $5.00 in the money (if the stock where at $30.00 the put would be $10.00 in the money).

Out of the money (OTM): This is how far the option contract is from going in the money. If a call has a strike price of $35.00 and the stock is at $40.00, the call would be said to be $5.00 out of the money. If the put had a strike price of $45.00 and the stock was at $40.00, the put contract would be said to be $5.00 out of the money.

At the money (ATM): If the stock and the strike price of the option are at the same point, it is at the money (at money).

OCC: OCC is the Options Clearing Corporation. When we trade options, the OCC keeps the market liquid so we can buy and sell options like stocks.

Exercise: If we are a holder of an option and we exercise this option, we are using our right as the option holder to either buy or sell the stock. If we have a call option at a strike of $40.00 and we exercise this option, we are making someone sell us the stock for $40.00. If we are a holder of a put contract at a strike price of $40.00 and we exercise this option, we are making someone buy the stock from us at $40.00. We never directly do this with an individual....The OCC does this for us.

Assignment (assigned): If we are the writer of the contract and someone exercises the contract that we sold, they will be making us either sell or buy the stock depending on if the contract is a call or a put. If we wrote a call contract for $40.00 and we are assigned we would have to sell someone the stock for $40.00. If we wrote a put contract with a strike price of $40.00 and we were assigned, we would have to buy from someone the stock for $40.00. As in exercising, assignment would come from the OCC not the individual.

There will be more option terminology to come in the future posts. With this information, you can understand and read articles and posts on options.

Good luck investors

2006-09-02T12:54:00.000-07:00

Happy Labor Day Weekend Everyone

I am glad that you took the time to visit my corner in the blog universe. I have been trading and investing for over 15 years. I am a very good researcher and consider myself a good invester and trader. I would like to share with you my experience, research, and thoughts about investing. My intent is not to overwhelm you with daily trades or to show you how I am so much smarter than everyone else with esoteric language and complex jargon. I want this to be readable by everyone. I truley want to help everyone to become a better investor.

Whether you are a reader or a blogger, I believe that we are a community. My blog is only a week old. I know that right at this point in time I don't have alot of traffic......but I believe it will come gradually. As a community, I want to help drive traffic to other peoples blogs. In about a month, I will do a review of other financial blogs and give some plugs. I am not going to ask for back links......This will be purely for the readers and bloggers that are putting out good content. I hope to help foster a community of good will with common goals.

I hope to serve the reader well. As I become more experienced in mechanics of graphics and layout, I will add charts and organize this so information is easy to find. I would like to invite you as the reader to let me know what you think. I don't mind if the comments are critical.....All I ask is that they aren't profane and don't undermine the topics or general theme of this blog. I wish everyone and their families a happy Labor Day.

Good luck investors

2006-09-02T10:47:00.000-07:00

Free resources for the traders and investors

There are some very nice resources that both investors and traders can use. The investor or trader has to do a lot of research......If you have to try to find the resources it can be very time consuming. If you have some resources that you like, please feel free to comment and share with myself and the other readers. Following are the resources:

Financial hubs

Yahoo Finance (http://www.finance.yahoo.com): In my opinion, this is one of the best pure finance hubs on the web. This is a very organized site with very easy to find fundamentals and new of various stocks. The charts are basic but it has standard charts as well as technical charts. Try out the message boards....If you can wade through some profanity and inane-ness, you will find some good serious posters. These boards are well frequented so you will find a lot of content and you can find a board for just about every stock.

Google Finance (http://www.finance.google.com): This is a recently developed finance hub. The information is very well organized (you see all the fundamentals on the first page). The site has a lot of news. The charts are not as useful as I like yet, but I think it will get better with time.

My Way Finance (http://www.finance.myway.com): My way finance is a very compact site with very good research tools. The charts on this site are very good. The news feeds are a little less than the other hubs.

MSN Money (http://www.moneycentral.msn.com): Msn money is a good site with basic charts and good news feeds (but less than Yahoo or Google. This site also has all the tools that you need to do fundamental analysis. The stand out features are original content like Jubak and CNBC.

Charting

Big Charts (http://www.bigcharts.marketwatch.com): Big charts has very nice charts. The technical charts and graphics are great. This is my favorite free place to go for charts.

Stockcharts.com (http://www.stockcharts.com): This site has some of the best free technical analysis charts.

Currency

X-rates (http://www.x-rates.com): This is one of the easiest to use currency sites. The layout is easy to navigate. If you are a serious currency trader, this site does not give you as many tools as others. However, if you want to research what is happening in the currency markets, this is the site for you.

Options

CBOE (http://www.cboe.com) : If you want to learn about options, this is one of the 2 sites that you want to frequent. This site has option chains, articles, educational series, and calculators. The only complaint that I would have is that it is hard to navigate and find what you need.

888options (http://888options.com): This is very equivalent to CBOE but is much easier to find what you need here. It has slightly less content than CBOE.

Metals markets

Kitco (http://www.kitco.com): For the basic investor that is not investing in metal's, this is the site for you. This site will show you quotes and graphs for metals. Here there are very good news feeds pertaining to the metal market and equities. Kitco is easy to navigate and will give you all the basic information that you need pertaining to metals.

Earnings (when are companies going to announce earnings)

Earnings calendar (http://biz.yahoo.com/research/earncal/today.html) : This is part of the Yahoo finance site, however, it is hard to find. This site gives in a chronological order the companies that are going to announce on a particular date.

Insider trading/reports

Form 4 oracle (http://www.form4oracle.com): The most current insider trades can be found here. This site is much easier to use than the SEC's site.

SEC (http://www.sec.gov): Here you can find every SEC filing for all companies in the US. If you need to find a 10-Q or 10-K, you will find it here. You can also find insider trades here, but you will have to wade through tons of reports and information.

I hope all these resources are useful to you. If you have any sites that you would like to share with other users, please feel free to leave a comment. Everyone have a Happy Labor Day weekend.

Good luck investors

2006-09-01T16:48:00.000-07:00

The metal stocks

.........Or lining your portfolio with gold

The metal stocks and miners have performed very well over the last few years. Commodity prices have been constantly going up. Lately however there have been some pull backs. However, if you would have invested in these one year ago you would be in the green so to speak. Here are some of the metal stocks and their year over year prices (Sept 1 2006: Sept1 2005....All have been adjusted for splits):

Copper
PD $90.75 : $51.40
PCU $93.10 : $49.35

Gold
GG $27.35 : $18.35
AU $33.43 : $27.10
NEM $51.21 : $40.59

Silver
CDE $5.56 : $3.81

Aluminum
AL $45.56 : $33.21
AA $29.01 : $27.18

Steel
NUE $49.68 : $28.40
X $59.56 : $43.26

Titanium and specialty metals
TIE $27.63 : $8.29
ATI $59.97 : $27.97
RTI $44.85 : $35.71

Diversified metals:
BHP $42.67 : $31.96
RTP $205.03 : $147.17

It's amazing they are all up. Now right at this time I wouldn't dig around in this sector. There has been some corrections. There is also alot of industry consolidation. These stocks could crash if the metal prices drop. I think that the metal prices will stay high for at least a year or 2. Also most of these stocks are at PE's of around 10 with some considerably lower. I would keep my eyes on these stocks and there might be some attractive entry points in a couple of months. These stocks should perform well if metal prices stay high or go up. Always do your own research and know what your getting into before you buy.

Good luck investors

2006-09-01T11:48:00.000-07:00

Equity options a basic definition

Equity options consist of a call and a put. There are many other different types of options like options in the futures market, currency options, and real estate options. Even though we are concentrating on purely equity options, All option aforementioned have roughly the same characteristics. I believe that people must understand options fully before using them as a trading vehicle. I am going to start this series with the basic definition of options. This series will go through everything like understanding implied volatility and more complex trades like spreads. I hope this is informative and easy to read.

Now the option contracts that I am going to describe are a wasting asset. They will have a time limit on them and will no longer exist at that time. Times will vary from 1 month to expiration to several years. So as you will see, there may be many different contracts out there for any single stock.

Call
The first type of option is a call. A call is the right to buy a stock at certain price (Strike price). If you a holder of this option and a stock (XYZZ) is at $60.00 and the strike price is at $50.00, you would have the right to buy this stock at $50.00 even though it is at $60.00.

There are 2 ways to this trade. You can be a buyer or a writer of this option. The writer of the example that I just gave would have the obligation of selling the stock to the holder of the option at $50.00. This doesn't seem like a good deal for the writer.....Now does it? Well, actually when you understand the mechanics of the trade it makes perfect sense. So lets take a look at both perspectives:

Call writer: The call writer writes the call contract when XYZZ is at $45.00 and receives a premium.....Let's call it 5% of the stock price which comes out to $2.25. He is expecting the stock to stay under $50.00 by the time the contract expires. If the contract expires before XYZZ reaches $50.00, then he is able to pocket this money. If XYZZ finishes above $50.00 before expiration, the call writer may have the obligation of either buying the stock at $50.00 or giving up shares he holds......This is so he has the stock to deliver to the holder (buyer) of the option. The outlook of the call writer is bearish (he wants the stock to go down)

Call buyer: The call buyer buys the call for $2.25 on a $45.00 stock. He is expecting the stock to go up and if it goes to $60.00 as in the example, he will have a contract that is worth at a minimum $10.00. The call buyer is hoping to make a leveraged gain by buying the option for a small percentage of the actual price of the stock. The call buyers outlook is bullish (he wants the stock to go up).

Put

A put is the right to sell a stock at a set price (Strike price). Like the call there are writers as well as buyers for puts........So let's say that you are a holder of a put option with a strike price of $50.00 and the stock is at $40.00 (assume that the stock was at $60.00 when the put contract was bought). The writer of this option would have the obligation of buying stock that you sold to him for $50.00 even though the stock is worth only $40.00. Now your getting the idea......The buyer of the put option is looking for a leveraged position for the stock to go down. If we assume that he bought the contract for $2.25, he would have made the same amount of money for the stock going from $60.00 to $40.00 as the call writer would have made by the stock going from $40.00 to $60.00.

The put writer is looking for the stock to stay above $50.00 before the contract expires. If he is wrong, he might be buying a $40.00 stock for $50.00.

Now to make matters more complex, there will be many different strike prices for different contracts offered on a single stock. So together with the different expirations, one single stock may have 100 contracts (could be more or less depending on the stock) for calls and a 100 contracts for puts. Another complexity of options is that people will trade these options prior to the expiration date. Even if they have no intrinsic value when they are being traded, they have time value and implied volatility value (plus a few other price values). This is what makes option trading difficult. Due to this fact, a call holder may loose money when the stock goes up and conversely the put holder may loose money when the stock goes down......Which is opposite of what you might expect.

There are many different ways to play. One could buy and sell at different strike prices on the same security....Or he could buy or sell a combination of a put and a call on the same security. This will give many different types of plays and strategies.

Before you start trading options, understand what the consequences are of what you are doing. A couple of loosing trades could make you very unhappy. Two very good sites for option education are 888options.com and cboe.com. Both of these sites have many free tools and are good resources for options education. I will post more in this options education series. The most important will be watching what options as they go through time and events.......I will post these in about three weeks. By the way homework is not optional.....It is required. Always do your homework.

Good luck investors

2006-09-01T08:06:00.000-07:00

Mistakes we make when we invest

Mistake1: You wake up Monday morning and you turn on the business news........The reporter announces the next hottest stock.........You think about the this stock all day long and say to yourself, "I am going to do something right this time and buy the stock". You get home from work and put a buy order in for 200 shares of AXKB. The stock goes down right after you buy it. Now, many people will simply listen to a friend or a boss and buy the stock that they are saying is the new hot stock. We as investors need to do our own research. We cant rely on other people to tell us what to buy (They all have opinions just like us). You see when we go out to buy a new car we read reports......We ask many people what they think. We check everything we can about the car we are going to buy. In short we do our research. We need to do the same with the stocks that we buy.

Mistake 2: We have been watching certain stocks. These stocks keep going up and up and up. We decide that we're going to get in this stock. By the time we get into the stock, it starts going down. We didn't look at what news has transpired or what has happened with the stock since the stock started going up......We just wanted to get into this stock at all costs. Often people get a sort of a tunnel vision. The reason we got into this particular stock was that it was the stock to own. We don't take into account that it was just down graded or missed it's earnings. All stocks go up and down. What was good then may not necessarily be good now. Be able to be flexible and let yourself change your mind. Don't get into a stock just because of it's past.

Mistake 3: You buy a stock when it is really low. The stock goes up and up and we cheer. Hey....What goes up must come down....Our really nice stock starts going down. Do we sell?....No way, "This stock is going to go back up again". We keep holding on to our stock as it keeps going down to a lower lows. We may hold onto the stock until it is at a loss. If you were on a boat holding a big rock and it tipped over, you would let go of the rock. Well at least I hope you would. We need to do the same with our stocks. Even though you may be a very long term investor, you need to pare your portfolio from time to time. You have to ask yourself this one question, "Would I be willing to buy the stock that I'm holding at it's current price?" If the answer is no, you should be selling it.

There are plenty of other mistakes that we make when investing in stocks. I will write more about these later. All the mistakes previously mentioned have to do with either our ego or our failure to study the stocks that we own or are going to buy. We have to follow all our stocks in our portfolio and replace some of the stocks from time to time. We can't let other people tell us what to do. We have to decide for ourselves. Stocks are just a vehicle for investing and we have to put our ego aside and make decision that are not emotional. The most studious nonemotional investors will always do the best.

Good luck investors

2006-08-31T17:43:00.000-07:00

2 tier system

........Or optioning out of the new law

Many of you are well aware of the options scandels........backdating........etc. This all came about because of The new options expensing law (which started the begining of this year) mandates that all public companies must expense options this year forward according to GAAP. But many people do not know that if you look at forward earnings estimate two companies in the same sector may be evaluated differently. One GAAP and the other Non GAAP (Proforma).

As long as the company reports GAAP numbers, that will be fine and they will be abiding by the law.Furthermore analysts will be "encouraged" to use GAAP numbers but they will be able to at thier own discretion use 2 sets of numbers (non GAAP (Proforma) & GAAP). Now forward eps numbers may be effected differently for 2 different companies......Case and point......YHOO is expected to make earnings based on a GAAP basis and GOOG is expected to make earnings based on a Non GAAP basis. Because analysts reporting is discretionary, they can base thier analytics of a company like GOOG on a non GAAP basis as long as GOOG reports a GAAP number.

So what's the big deal?

Because the GAAP number is going to be less than the non GAAP (Proforma) number, it will appear that the company that is evaluated by the latter method will be expected to make less in the future. Now if you go to your favorite financial web site and look at what forward expectations are according to Thomsons First Call......They aren't going to tell you......You will have to find out for yourself. Go to http://www.sec.gov/edgar/searchedgar/webusers.htm and search the companies 10-Q and see how they reported.....Then go to Thomson's First Call and see what they were expecting.

Here is why you should care. Let's say a companies forward PE is 20 and the company meets all it's expectation up to the point where it's forward PE is projected. You would expect the company to have a PE of 20 right?. If the company is evaluated on a Non GAAP (Proforma)basis, its actual PE could be higher because the trailing PE is calculated on a GAAP basis. This company could actually be at a PE of maybe 25 instead of 20 at the future point in time.

Earning's season for most of the major players will be starting in weeks with major players like NKE and ORCL . It is important that you as an investor have all the knowledge you can ascertain as it pertains to the companies in which you are investing your money or planning on investing your money. In todays market, it pays to be informed.

Good luck investors

2006-08-31T12:45:00.000-07:00

Understanding momentum

Looks like it is gone for the moment.

Momentum is a key driver of growth stocks. Stocks move on fundamentals, news and momentum.News and events like earnings give a key kick to get stocks moving. Once a stock moves, momentum keeps the stock moving either higher or lower depending on the initial direction. Momentum is driven by volume. When momentum is at it's strongest people jump on the band wagon and keep a stock moving. Now this is not a case for momentum trading but a case to show how stocks move and keep moving.

Much of the momentum on Growth stocks was killed around the first of the year. Something really positive or negative could cause the stock to move......But after it stops it seems as though the momentum is gone.......Take a look at GOOG after Q1(06) and Q2(06).

You might be stating, "Well fundamentals will drive the stock." Fundamentals drive stocks very slowly at this point in time. Maybe after the end of September we will see momentum return to many of the stocks. The volume will have to pick up substantially. I advocate that very low volume makes the trading atmosphere poor.

Understanding momentum will tell you why many of the growth stories of 2005 are staganant now. Along with the general market sentiment, and general malaise in tech's......it is not a good time to be in tech growth. We may see a shift in sentiment later and we might see some nice gains later in the year......but remember nothing is guarenteed right now.

There is alot of momentum over in the metals stocks like TIE, PD, BHP, RTP, GG. These stocks can turn on a dime with industry consolidation and the ever fluctuating prices of metals. I would stay away from these stocks currently unless you know the sector well and want to trade as opposed to invest.

If you understand how momentum keeps pushing stock's up, it will help you ascertain when it will be a good time to find an entry point for a longer term investment. Especially growth stocks.

Good luck investors

2006-08-31T08:30:00.000-07:00

What is Max Pain (TM) and how should it be used

Options expiration (OE) for Sept, contracts is September 15. Many people believe in a theory called Max Pain (TM).........This theory state that the market makers will try to make make most of the contracts expire worthless on OE.......Thus creating the maximum- pain for those who hold the option contracts. I am going to give some observations of this theory and we will observe if it is a reliable technical analysis tool. Max pain is a trademark of BCA Software.

Maximum- pain should be a supplemental tool as opposed to an absolute tool. Maximum- pain is somewhat predictive of a converging point of stocks at OE...Simply put if you look at Open interest ask yourself the question....At what point would the most option contracts be out of the money both puts and calls. (At OE these contracts would be killed).....This will give you where maximum pain would occur. Maximum pain will change as open interest changes for both puts and calls (So when new contracts are created the max pain number will also change).....It is a moving target. It also exists for further out contracts such as Sept, Dec. It gets more accurate the closer it is to OE.

Here is a free calculator for maximum-pain: http://www.iqauto.com/cgi-bin/pain.pl

Here are some stocks that I am watching and their corresponding maximum-pain:

PD : $90.00
GOOG : $380.00
MRVL : $17.50
WFMI : $55.00
AAPL : $65.00
YHOO : $27.50
CROX : $30.00
LLL : $70.00
GG : $30.00
SNDK : $52.50

I will post the maximum-pain numbers weekly until OE on Sept 15 and we'll see where the stocks end up at that time. I don't believe that anyone should use any singular method for analyzing stocks.....But if you observe on OE day it is amazing how some stocks converge to a certain point.

Good luck investors

2006-08-30T19:01:00.001-07:00

COP , CVX ,TSO , VLO

Oil's well that ends well

Now the market has been somewhat stagnant since the beginning of the year and one of the reasons is high oil prices. Why not put your money where the money is going. It sounds like a very good idea.......Doesn't it? Well the oil stocks have been stagnant also. In looking at how desirable a stock is, the bottom line is earnings, earnings, earnings. Take a look at how much money the oil stocks are making. Furthermore, I really don't think that you are going to see any contraction in earnings in the future......In fact you are very likely to see it increase. These stock's are sitting at rock bottom valuations, they pay solid dividends, and have hoards of cash and no debt (except for COP).

But alas......These are the finks that are making you pay at the pump.

Here are a few oil stocks to consider:

COP: Conoco Phillips is currently trading at $63.50. It was at $60.00 at the beginning of the year. It trades at a PE of 5.88. Yes that's right folks 5.88 not 15!!!! The only current problem is it carries a $29.51 billion dollar debt....but with consistent quarterly earnings of over 3 billion and last quarter a earnings of over $5 billion, it is not going to take them to long to pay off their debt. Because the last earnings was enhanced by acquisitions, expect $5 billion+ to be the norm. I believe that this will be the best future performers of the big oil.

CVX: Chevron is currently trading at $65.19 up from $62.00 at the beginning of the year. It sports a price to earnings ratio of 8.98.

TSO: Thesoro is a nice little stock. It is a purely refining play. It does not explore or extract oil. It is even from the beginning of the year trading at $65.00. It's PE is 6.82.

VLO: Valero is also a pure refining play. It is trading at $58.53 up from $55.00 at the beginning of the year. It's PE is 7.45.

Now one may say that as a sector oil trades at a very low valuations. Well, that's not true... XOM trades at a PE of 10.69 and BP trades at a PE of 11.57. I think that we are going to see ever increasing oil prices and higher valuations especially for COP, CVX, TSO, and VLO. It may not seem popular or politically correct to be in oil but I think this is going to be one of the safest places to put your money. I believe these stocks will not only go up in the near future but they will pay you a dividend to boot. Now, you should do your own research and decide for yourself. Anywhere you invest there is risk. Take a look at these, though,........I think it would be a gas.

Good luck investors

2006-08-29T16:08:00.000-07:00

HANS , GOOG , TIE , WFMI , EBAY

Where have all the high fliers gone?

You are looking at the best of the best. These stocks that are heading to the moon. We drop our investment in these stocks……and low and behold we loose 40% and maybe more.......Ouch!!!! You see the people that got in these stocks in the beginning made a tremendous amount of money. The growth and the value these stocks commanded just a short while ago, are not available in today’s market. We sometimes think that, “Well, maybe with the current value of these stocks we should be able to get in while they are low"…..Don’t do this unless you want to loose more money. Understand what the market is saying right now…….and maybe at a future time these stocks may be worthy of your investment dollars.

Here are a few of the recent high fliers:

HANS: Hanson Naturals was trading at around $6.00 3 years ago and was trading as high as a little over $50.00 in July. HANS is trading at $29.44. I big drop came after they announced earnings which were inline, however, their guidance was on the low end of what analysts expected.

GOOG: Google for the last two quarters has been blowing earnings out of the water. For Q1(06) they earned 2.29 GAAP verses $1.97 expected. For Q2(06) they announced 2.49 GAAP vs $2.22 expected. Just prior to the first quarter of this year GOOG was trading at around $440.00. It has hovered in the range of $390.00 to $370.00 for the past month and a half.

TIE: Titanium metals has been going through the roof following the commodity run ups of the past couple of years. You could of bought TIE split adjusted for less than $5.00 2 years ago. This monster of a stock was trading at $45.00 in the middle of May 2006. It is trading at $26.20 right now.

We also have a slew of stocks in the tanker right now like EBAY and WFMI.

What must have gone wrong? These stocks should be flying into the stratosphere right now. These stocks are earning well and most of them have a tremendous potential in the future.

The market is very risky right now. We have a tendency to think in our own minds where these stocks should be right now. When you are looking for stocks to put in your portfolio, leave these ones out. They will kill your investment. We have a tendency to believe that these stocks are now at very attractive entry points…..If you would have invested in these stocks at their high point, you would have lost a lot of money. Investing in them now is just asking for further losses . You see all of the stocks previously mentioned were valued very high due to future expectations which have yet to happen. Wait for market condition to improve and wait for these stocks to prove themselve's.

I am not saying that these are bad stocks and that they may not do very well in the future….but these stocks are not performing very well in today’s market. We also do not have a very clear view of what is going to happen in the near future. Let the present condition of stocks and stocks like these be a warning for what might transpire in the near term. Take your investments to less risky stocks.

Good luck investors

2006-08-26T16:22:00.000-07:00

Crox is it a shoe in or does it get the boot?

The company’s name is Crocs and it trades under the ticker symbol CROX. They produce a shoe that looks much like a clog but is made of a closed cell resin called Crosolite ™. This is a material that has a consistency of rubber. The shoes are water proof ,super comfortable, and conform to the wearer’s feet These shoes which were originally intended for the boating industry are now becoming very popular in mainstream fashion. In fact they are selling like hot cakes. CROX has been on the move and has both long term as well as short term potential.

Crox went through an IPO in February of this year. In the short time that they have been public, they have seen their brand explode. They have close to a billion dollar market cap. Their first quarter EPS of this year was $.17 handily beating the consensus estimate of $.14. For the second quarter of this year, they Where expected to post an EPS of $.22 and posted earnings of $.39……..Wow what is it going to take to get this stock to move. The third quarter earnings will be announced after the strongest quarter which is the summer. What will they earn? Could it be around $.50

If Crox beats their earnings estimates, they could very conceivably produce earnings this year of well over a $1.00 and maybe over $1.50 in 2007.

Crox is currently at $26.66 and has been as high as around $32.00. Could CROX be a $60.00 stock at 40x $1.50. Could it go even higher with a potential short squeeze?

Crox is a heavily shorted stock. Crox has a float of 24.22 million shares of which 6.38 million are short. The reason Hedge funds are shorting this stock is because it is unproven. With the high amount of short interest on this stock, it has the potential of going through a short squeeze. Could it go to a $100.00?

It seems like right now CROX would be a no brainer but the are going to have a secondary offering of 8.3 million shares. The number of shares available will be in excess of the short interest and may ruin the short squeeze. This also will severly dilute the issue.

With all of Croc’s potential it may tempting to get in when the stock price is low. Please understand that Crox is a very new issue. It is unproven and many say it will be a fad which may run it’s course in a year or two. This could be a $10.00 or less stock in a year or 2. I don't feel that it is worth the gamble.

There could be a lot of money to be made with this stock…..But I would wait to invest for about a year (if at that time CROX is worth of your investment). Maybe you won’t get in on the ground floor but then again you will be safe. This is currently a risky stock.

Good luck investors

2006-08-26T14:46:00.000-07:00

Fellow Investors,

I appreciate everyone taking a look at my new blog. I hope you enjoy reading my posts as much as I enjoy writing them. I will write general topics on investing and trading. We will look at stocks and sectors and I will do a basic series on equity option trading. My intent will not be to give stock picks or targets but to give information on how to trade and to look inside particular issues. With this information you can formulate a basis for your own trading.

Thank you for stopping by.

2006-08-26T14:20:00.000-07:00

When Valuations shift

Future multiples are a way of valuing growth stocks. We banter about a value for a stock like GOOG, CRM, HANS, or WFMI saying to ourselves maybe40x, 50x, or 60x should be a reasonable multiple.

Well, you know what....we don't value a stock....The market does.

If you look back at the year 2000, MSFT, CSCO, & INTC where all valued at forward multiples in the 30's. If you checked lately, they are all sub 20. Now I know that I can't make a direct comparison between say WFMI and CSCO.....But what was reasonable for MSFT pre 2000 changed. We politlely call these corrections. Hence the valuation for a high multiple stock can change also.

When we were kids maybe our parents bought us shoes that were a couple of sizes too big....Saying that we will grow into these shoes.This is what the market does with growth stocks. Beware, though, there may be a point in time where your parents say we are going to get you shoes that are the exactly the right size. The market does this also.

There may become a point in time where the valuations shift. This can be due to things like the general market or forward risk....Or a market correction. It is better to watch the market and to watch a stock like GOOG as opposed to conjecturing where it should be. The market will actually tell you alot. If you believe a stock should be at a certain price point maybe 6 months from now, most of the time you will be wrong.There is alot of risk right now in the market and I'm going to tell you that I have no idea where the GOOG will be in a year from now. I have no targets to give.....etc. I will tell you that it is not a good market to take new positions. Be careful and let the market tell you where it is going....You will be taking less risk and going where the market is going instead of where you think it should go.

Good luck investors

2006-08-26T13:39:00.000-07:00

Growth and risk and a look a GOOG

Growth is the very definition of risk. Many people try to mistake a growth stock with a value stock. The risk with a growth stock is that there are so many unknowns and the growth stock's value is realized in the future.We have to decide for ourselves if we want to take the risk and have the potential of a higher reward with a higher potential of loss. Google's stock has been a flurry of speculation as well as a very fast growing stock. When we invest in GOOG is it now undervalued or is it right where it should be?

Lets take a look at GOOG
When looking at growth stocks like GOOG, we sometimes invision a stock that may be at $2000.00 in five years. While $2000.00 is utterly preposterous, many people have a view in their minds of some high number......So lets look at several scenario's and ascertain the risk:

Scenario 1: Let's say that GOOG earns $10.00 EPS this year and grows earnings 30% per year for 5 years and stops growing after 5 years. At the end of 5 years GOOG would earn $37.13 EPS. Now on a comparitive basis, mature tech (MSFT, CSCO, INTC) is trading at forward multiples of around 15. But for comparitive purposes analysts are saying (by their estimates and targets of MSFT, INTC, & CSCO) that these companies should have a forward multiple of 17%-18%......let's call it 20. At a multiple of 20, GOOG would be at $742.60. Next let's carry $742.6 to todays dollars @ 5% (what would we get in the broad general market if we didn't have our money in GOOG....It would probably be more like 10%). The number would be $581.97 in todays dollars.

Scenario 2: GOOG stops growing after this year and earns $9.57 (lowest analyst estimate) and trades at a forward multiple of 15 just like MSFT, CSCO, & INTC. GOOG's stock would be at $143.55....This would take probably a year to set up.

Both examples are extreme cases....And I know some people believe GOOG is going to grow at 50% per year and the stock will be much higher in a couple of months. Others believe that GOOG is way over valued and should be worth no more than around $200.00.

When we evaluate stocks, we need to define our risk and decide if the potential for growth is worth our risk. If we look for value in our growth stock and this stock does not produce reslults in the future, we will loose alot of money.

We need to think for ourselves and not let news media, analysts, or friends tell us where a stock should be. All examples can be changed by putting different numbers in the formula. Everyone has a different idea of where the market will be in the future. However none of us know at a 100% certainty what will happen in the future......But you need to decide for your self. I personally think there is alot of risk in a stock like GOOG....But my point is not to convince you of that....It is to give you a basis for your own understanding.

Good luck investors