Frantic Friday

Was it only Wednesday that I said to take the GOOG Apr $370s for $6.70 as insurance against the May $310 puts for $10? Holy cow is that one going to be a jackpot. We may even get paid both ways, one on the way up as Funds frantically buy a shortage of Google shares and the longer one on the way down as the earnings miss drops the stock 100 points! This is a tough call but I think I’m going to half out the calls on today’s irrational exuberance, even thought it may go well over $400, I will just feel better taking the boatload of cash and having free Google options for a month. Other than the Nasdaq, which is artificially inflated by Googlemania, the other indexes don’t look so hot… Asia was mixed but Europe is up so we could/should end up with a good day but it will be market chaos as everyone watches Google all day. I find it stunningly irresponsible of the S&P to bring Google in right before earnings. Maybe they know something that I don’t but basically, if you invest in a fund that invests in the S&P then you are being forced to bail out anyone who wants to sell at this point prior to earnings! No only that but you get to ride Google all the way down as index funds don’t sell one of the components until they are delisted!!! Just ask anyone who was forced to by CNXT (1/28/00) for $100+, now $3.22… As near as I can figure, Google will be about 1% of the S&P 500 forcing about $10Bn of new money to flow(30M shares/3 days avg volume) into the company. While you may think that will only be good for 10% what will be interesting is how willing people are to part with their shares. The funds must buy and the more sellers hold out, the more they have to pay and the more they pay the bigger Google becomes in the index and the more they need… So there are 2 major possibilities 1 – The retailers that hold 100M shares are smart and don’t sell – driving the price back over $400 in short order 2 – The current fundholders take the opportunity to sell into the rally. If this happens (Google can’t break $400) then this stock is in terrible shape and should be avoided. At this point the stock will be almost impossible to play but I like the $400s which (and I am totally guessing) should go up to about $7 at the open as long as people don’t bid it up too much. This is a super risky position because, if people start bailing, this thing will be worthless in seconds! The problem is that, even in a major bull run, you will see some large funds totally dumping their positions at certain points so it could be a very ugly chart! So unless you have nerves of steel and money to lose I would suggest staying away from this one other than perhaps laddering into May puts about $20 out of the money as it goes up but this is very risky too as the stock could go right back to $470 if nobody sells by the end of next week. Yahoo doubled the week it was added to the S&P on 12/07/99 (announced 11/30) and it had a bigger float! The p/e of Yahoo at the time was 900 with a market cap of $56Bn. ===================================== Oil is backing off slightly so I am anxious to see what scary rabbit they are going to pull out of their hats today to jack up the price. Gold is still going down which indicates the rest of the world isn’t worried about anything. There’s a huge Lucent merger with Alcatel ($33Bn) that would be a big story if not for Google so I like VZ, S and, of course MOT on pin action from that deal. In the Pharma sector, Bayer Germany is buying Scherring Germany for $20Bn so mid cap pharma may get a boost (I think CEPH is on sale!) but it’s a minefield out there. The real winner of two mergers and Googlemania is: Come on, do I have to give you the answer on this one? That’s right – the Financials!!! GS, BSC, OXPS, ET, AMTD, SCHW, MS – BUY BUY BUY!!! ===================================== I like BSC best at the moment but I’d like it to come in a bit and maybe get the $135s for $2.50 or less (now $4). The 50 dma is down at $130 and I’m hoping we get a test. If it starts getting away from us there are the $140s for $1.70 but only after it makes a new high over $138. OXPS has come down enough that I like it again. It seems to me, as a user, that they are swamped with new users so I want to take the May $30s for .90 to give me a look into earnings but only a small entry as it has been going down for 3 weeks. MS is also poised for a new high and this may be the boost it needs so I’m taking the $60s for $2.10 (a small, .60 premium). It might come down a bit in the morning so be careful. GM’s got a lot of nerve going up to $22 but the $20 puts make a nice gamble at .40. CEPH resumed trading at 8am (how is that fair to the average investor?) at $61, down 15%. I’m not going to touch this one as it could become part of merger mania but maybe not before it hits the low 50s. AMLN will be up on a very nice (possibly) new diabetes medication that lasts a whole week. Expect this to be fast-tracked as it would drastically improve tens of millions of people’s lives if it works. This was already rumored and the stock has doubled since August so I don’t want to play this. One of the Indian plays I’ve been watching VOCL just announced a government contract to provide VOIP to the Indian government – this could be an interesting buy at $8.85 but the need money and may do a secondary! One of our aerospace plays, BEAV, picked up 200M in new contracts – very nice as sales are only $800M per year! I like the Jul $22.50s for $3.20 so we can hold on through earnings and guidance. YHOO May $30s will probably run away this morning if you don’t already have them. They will run up with Google until people say they are all overvalued but it is more likely there will be an upgrade parade on the sector as analysts try to whip up a retail frenzy to justify Google’s ridiculous price. I’m going to take my money and run on the oil puts today as I have no idea what will happen over the weekend! Have a good one, – Phil