Motorola unveils recyclable phone, boosts volatility as demand for call options surges
by Andrew Wilkinson - January 6th, 2009 1:16 pm
Today’s tickers: MOT, RIO, ICE, ERTS & CHK
MOT – Motorola Inc. – In an attempt to revamp its product line-up and find a successor to an unsuccessful Razr, Motorola just announced a new cellphone operable over third-generation networks to be made available in North America, Latin America and Asia. The phone will be made of recyclable plastic bottles and will be available through TMobile. Motorola came under fire for failing to stem seven consecutive quarterly earnings declines, along with failure to follow the lead of Apple or Blackberry by adopting touchtone screens and full keyboards. The news boosted shares at Motorola to $4.62 as they stretch towards $5.00 for the first time in two months. The option market was set alight by heavy demand for call options reserving rights to buy the stock at a fixed price of $5.00 per share ahead of the series February expiration. Overall option volume of 49,000 was heavily weighted towards call buying at the February 5.0 series where some 39,000 contracts changed hands as shares advanced. Implied volatility jumped one-fifth to 89% as dealers raised the premium on the speculative play.
RIO – Cia Vale do Rio Doce - ADRs. – Much optimism surrounded commodity and emerging market theories Tuesday as the first concrete signs of President-elect Obama’s economic stimulus plan was revealed. Despite a broadly stronger U.S. dollar, which is usually commodity price bearish, emerging market currencies including the Brazilian real rose in value to express support for strengthening actual and anticipated flows back into those economies predicated on the success of the American spending package. Shares in Brazil’s largest copper producer, RIO jumped 5.6% to $14.89 to reflect a resumption of demand while option traders dove into bullish call options expiring in January. Heaviest-trafficked was the 15 strike where 13,500 calls were bought at around 1.00 each. Investors also bought 3,800 calls at the 18.75 strike where current open interest reads 5,228 lots. Implied options volatility of 82% was steady. Further forward contracts reflected even more bullish expectations as investors appeared to sell put options expiring in 12 months time at the 10.0 strike while buying 25 strike call options. The trade resulted in a net credit of 65 cents to investors.
ICE – Intercontinental Exchange – Despite an annual rise in futures volume, ICE yesterday shook investors’ confidence and confounded analysts’ predictions when it reported a 22% drop in commissions generated by over-the-counter energy trading.…
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Testy Tuesday Morning
by Phil - January 6th, 2009 7:56 am
Fed minutes come out at 2pm.
Keep that in mind today as it’s very unlikely they lowered the rates to zero following the 12/16 meeting where they chatted about how nicely the economic outlook is improving. The last Fed minutes were released on 10/29 and we spiked down but recovered in our election rally that took us to 9,600 on Nov 4th, after which we plunged to 7,500. Now we are in our inauguration rally and we are expecting to see roughly the same high - we just hope they aren’t followed by the same lows after the excitement wears out!
David Fry’s monthly chart of the DIA gives us a good view of where we are in the big picture. Note the extremely low RSI and the bottomish-looking MACD but we haven’t turned up the moving averages yet and that makes this a very dangerous time when we could still get another bottom test before we make a real move. Looking at the volume in 2002, when we turned the last bear market, you can see that we are far from putting in a high-volume reversal that can give us more confidence. First things first this morning though - we got half the dip we expected in yesterday’s choppy session and got the famous "stick save" into the close but, overall, it was not the kind of day you want to see following a $750Bn bailout announcement that includes tax cuts.
During member chat, I noted that 8,900 was holding up suspiciously well and, sure enough, right at 3:30 somebody punched the buy button and the market jumped 60 points into the close. Now we have to watch the same levels as yesterday for a break out but we may have to flip short if we run up to our opening levels (see yesterday’s post) but can’t break them ahead of the Fed as that could be the catalyst that sends us lower. Also, we may see oil pull back sharply off $50 if they are rejected there, especially with yet another build in inventories expected in tomorrow’s report.
This morning I posted an update on our very successful (up over 30% from our hedged entries) list of "Stocks to Buy at the Bottom" from Dec 1st and we’ll be adding many more entries as earnings season begins to take shape and we get an idea of where to put our sidelined cash. One addition to the list is going to be the XHB (homebuilders),…
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Stocks to Buy - Update
by Phil - January 6th, 2009 7:53 am
Last month I made a bottom call at 8,200 and published a list of stocks to buy and since Dec 1st the average return on these plays has been over 30%.
Several members have asked for an update and it is a good time to see if we still like our list or if we feel the need to change. Generally, we were picking up these stocks following our strategy of "How To Buy A Stock For A 15-20% Discount" a buy/write strategy we have been pursuing since October, when many stocks got attractively low and the premiums to sell became attractively high.
I will point out to members that the chat section in October and November contains close to 200 additional plays so this is not a definitive list but these were a group of stocks that fit our criteria for solid portfolio holdings that fit our core strategy, most of them are dividend payers that we don’t mind owning long-term (and we NEVER write a put on a stock we don’t want to own at the strike price).
Several things have changed since I made my original list: The VIX is way down so we aren’t getting the same front-month premiums, the market is 10% higher and it’s earnings season so every entry we take carries the additional risk of a big move up or down on earnings. That means we need to rethink these positions very carefully if we are entering them new. Down 10% with a 20% cushion, these stocks were no-brainers and I was emphatic making the point when the Dow was at 8,000 and the VIX was at 80 that this was possibly a once in a lifetime opportunity to pick up these great American companies at amazing discounts. Right now, we are in the higher end of our trading range (Dow 8,650 +/- 5%) and we are expecting a small breakout on the Obama rally but that doesn’t mean we expect to hold it as earnings can be very nasty.
Keep in mind that our call and put writing strategy put us in these stocks 20% BELOW the 12/1 prices. The cushion is fantastic in a choppy market as it lowers your need to cover with naked puts (you already have 10-15% downside protection) and it lets you ride out the dips - skipping the ulcers. The idea is to be DIVERSIFIED, picking no more than 20% in the same sector (you can…
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Telecom downgrade fails to deter option bears
by Andrew Wilkinson - January 5th, 2009 1:35 pm
Today’s tickers: VZ, T, AAPL, RIMM & SYMC
VZ – Verizon Communications Inc. – The severe crimp on consumer spending as unemployment bites has lead Bernstein Research to predict a slowdown in wireless growth as well as the performance of the landline segment for telecoms. The analyst downgraded Verizon from ‘market perform’ to ‘underperform’ and said that it was skeptical of the share price pattern in the fourth quarter where Verizon traded more like a staple than a late-stage cyclical stock. Today, investors paid heed to the call for a target of $27 per share rather than $32 per share and pummeled VZ hard as its shares fell by 7.25% to $32.13. Implied volatility jumped by as much as 16% to 44% as uncertainty over the company’s prospects were put into the spotlight. However, the option trading patterns told a more reserved story. January calls at the 30 strike were bought at 2.77 and those at the 32.50 were sold for a 94 cent premium. On the put side, there was decent activity in the 30/35 spread in which investors sold the higher strike and bought the lower strike for a net 2.60 credit. One might have expected a bearish strategy to involve a debit spread, but in this case investors don’t necessarily share the pessimism of the analyst.
T – AT & T Inc. – Implied volatility gained 13% to 43% at fellow telecom provider AT&T as its shares reacted to the Bernstein downgrade as they fell 4% to $28.22. The broker now forecasts a share price of $27 instead of $35 for its shares. Although there was notable put buying using January 29 and 30 strikes, investors seemed more inclined to spend option premium on 27.5 strike calls expiring later this month as they scooped up more than 8,000 calls at a cost of 1.05.
AAPL – Apple Inc. – A short and brief message aimed at the Apple community explained that Steve Jobs would triumph over speculation about his tenure at Apple. So it seems that last week’s rumors over severe health deterioration of the CEO were ill-founded. The direct news that Jobs might have a hormone imbalance starving his body of necessary proteins and so causing weight loss has put a bid under shares of the iPhone-maker today sending them 4.5% better to $94.80. There is good two-way traffic in its options especially at the January 95 and 100 strike calls…
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Just Another Manic Monday
by Phil - January 5th, 2009 8:27 am
A $300Bn Tax cut!
That’s the word in the WSJ this morning as Obama-mania sweeps the investor class. That goes a long way to explaining what the catalyst was for last week’s rally - we knew we were going to be getting a run-up into the inauguration - we just didn’t think it would come so early but it doesn’t take too many people to hear whispers of tax cuts (as part of an $800Bn stimulus plan) to kick start some into taking the plunge.
While I’m happy that the cuts are geared more to the middle class than the Bush cuts were, it’s not yet clear whether these cuts replace, or are in addition to, the existing tax cuts. We’re not even thinking about who’s going to pay for this all as I’m not sure if Obama’s team has done the math on how far down tax collections are already going to be this year with the financial sector (which booked over $2Tn in profits in 2007) declaring almost no income for 2008. Either way, the message to Wall Street is loud and clear with these tax cuts: "Meet the new boss - same as the old boss" and we will get fooled again!
Still I refuse to get disillusioned 2 weeks before Obama is sworn in - let’s give him until the end of January before we decide his policies aren’t working! Obama is up on Capitol Hill today speaking about his stimulus program and also scheduled for Congress’ back-to-work week are hearings on how the SEC could totally fail to catch Madoff before $50Bn went down the tubes as well as the usual squabbling over what the US response should be to what is now a much more serious war in the Gaza, which threatens to drag on during the next two very lame duck weeks.
Also in politics, congrats to former SNL writer, Al Franken, who is now the newest Senator from Minnesota as they finally finihsed the recount and, after the likely court battle to stop him, will take his seat in the Senate and begin writing his next book. It would be smart for other Senators to read his other books and I imagine many will be giving Al a very wide berth lest they become fodder for his lecture tours. Governor Bill Richardson, on the other hand, will NOT be the new Commerce Secretary as there is a Federal probe of…
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Swing trading portfolio - Optrader
by Optrader - January 4th, 2009 8:13 pm
Let’s start the new year with a new post and a new portfolio.
2008 was an amazing year for us with the portfolio up 725.49%. We have to be thankful for all this volatility! Let’s hope 2009 is very good to us as well.
Thank you to everyone who participates in the comments in the optrader’s section, we have a smart group of people, with great ideas.
Live portfolio and comments are only available to members of the swing trading portfolio.
To learn more about the swing trading portfolio (strategy, membership etc.), please click here
- Optrader
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...