A tiny little bit option play

Here is my plan for THE stock

Assumption:

If the activist prevails, the stock should get a nice bump over 75 resistance. On the larger scale chart, there is a clear overhead resistance zone from 77-86. My best guess is it is going to at least re-visit that area. I didn’t do detailed research but I believe the 2010 peak of 86 bucks is also related to similar movement.

If they fail again, it should go down a little bit. Per my reading, the supports are 62.5-60 area, then the bottom zone of 50s.

 

Based off the reading above, here are couple possible plays.

1.      75-80 vertical

a.      Breakeven: 76

b.      Investment: 113

c.       Max Loss: 113

d.      Max Gain: 387 (3.4:1)

 2.      77.5-82.5 vertical

a.      Breakeven: 78

b.      Investment: 75

c.       Max Loss: 75

d.      Max Gain: 425 (5.7:1)

3.      Close stock long and short 62.5 put.

a.      Breakeven: 62.5 – 77.5

b.      Max Loss: unlimited

c.       Investment: 26

d.      Max Gain: 474 (18.2:1)

This is my favorite structure. If stock goes higher, my gain will be capped at 82.5 which I can totally live with. If stock doesn’t move after THE meeting, I will close with minimum loss of 26 bucks. My tolerable range expanded to 62.5. If the stock is going lower than 62.5, I will be assigned stocks. I will have to live with THE Ram Man’s guidance.

Overall I believe this stock still has good quality. I’m indifferent which side wins. I think in the long run it will do fine. If I can buy stock at 62.5, I will do it.

The 3^rd strategy needs margin as you could be assigned the stock. Theoretically the stock could go down to 0. The calculation is like this. If you plan to own 1000 shares of this stock in a long run, you should sell all current holding to avoid the downside, and open 10 combo. Meanwhile you should have 75K cash / margin in account to get ready for it.

LMP May 2013

No change in market signal. No change in my view.

The 5 IVY portfolio components are 

• SP 500 (Risk ON) 
• MSCI EAFE (The Most Famous International Index) (Risk ON)
• U.S. 10-Year Government Bonds (Risk ON) / USD (Risk ON)
• NAREIT (U.S. Real Estate Index) (Risk ON)
• SP GSCI (Goldman Sachs Commodity Index) (Risk off) / GLD (Risk off)
• US Dollars / UUP (Risk ON)

I don't like broad index for millions of reasons. I will discuss it if I get time. As mentioned last month, I believe it is time to think of individual stocks or ETFs to catch alpha. Below are some of my trading ideas.

Growth:
Here are the small-cap 3: 




Value Play, the WB's way:
to add

Dividend Play:

I still think AGNC is good stock. Real Estate is going to be the next bubble again. After the earning release, the risk is over. Just enjoy the dividend for the next couple quarters. (Dividend yield is at 16.31%.)



My view on Metal:
As discussed last post, I still believe Gold is bottomed. It was good chance to add at low 1300s. I am not doing it at this moment. I think there is good chance we will see double dip sometime this year. I will take trades then.

 

Hedge in point 1530-1535

As discussed earlier here, if you are still holding risky positions and you have different reasons that you cannot exit the market, the hedge-in-point remains at SPX 1530-1535 ａｒｅａ．

In general hedge here means to add another layer in your portfolio to protect your existing holdings. There are bunch of ways to put the hedge on, such as reverse ETF, put options on the stocks you are holding, as well as volatility products. The most obvious choice is puts. If you are not  comfortable about options, then you can use reverse ETF.

Here is a list of ETF. (Due to blogspot limitation, PDF cannot be uploaded. Download this picture then enlarge, you can read better.)

My experience is never use leveraged ETF unles you are 100% sure what you are doing.

1 more choice is HDGE. Here is the product link.

Metal crash

It's a bad day for metals and all other commodities. In my previous chart I said if gold breaks 1534, I don't know where it can go. Actually there is another level on the chart, 1337. At that time I don't think it is feasible. 

Well, anyway, for those who followed me to exit Gold in March, congrats. For those still holding gold, I think there will be chance to average down. YES, average down. I usually never do that, but for Gold, I can make exceptions.

Here are some links to read:

What Happened The Last Time We Saw Gold Drop Like This?

Gold, Silver Hammered; End of the Precious Metals Bull Market? What's Next?

 Special thanks to Zero Hedge for putting all things together.

Why Is Gold Crashing?

Me is always in conspiracy theory. Read the last line of the last link.

As Congressman Grayson pointed out in a recent letter, right after the Federal Reserve’s Open Market Committee leaked valuable inside information to big banks, Goldman told its clients:

We recommend initiating a short COMEX gold position ….

4/10 spike is just so artificial. Is it inside trading? I'm really eager to find out.
Here is another article from BP.

Quick Charts on Gold

LMP April 2013

Me is back in town.
The financial media celebrated the new high of SPX, everywhere, all over the place. Even I thought the divergence between DJI and SPX is solved for a while. BUT hold on a minute, when I check the charts, it tells a totally different story. SPX did record the highest close price, but it did not close above the October 11, 2007 high at 1576.09.

 
From a technical perspective, it is easy to understand the celebration was a bit premature since there is a difference. Some selling at the old high could be expected so now the challenge is to close above that old high. My reading is SPX has to close higher than 1576 this month, or the correction will come in no time. If SPX cannot hold 1530 area, you need to think of hedge your long position.

Daily price momentum oscillators have been diverging bearishly in recent weeks while price indexes rose to higher highs. Momentum oscillators have remained below their 2011-2012 highs and below their highs of late January. Bearishly diverging momentum is a problem because momentum is a leading indicator of price. This is still a fact worth noting, even though the bullish majority has been ignoring it in the first quarter just ended.

From an Elliott perspective, this is the third momentum wave with a well-defined upward sloping trendline confirmed by public attention from news media reports about the new highs. It is during third waves that everybody wishes they were long the market much like last year. The fourth wave, called profit taking, is the counter trend correction so be prepared with a hedging plan since today is the first day of April.

Monthly LMP update:
As disclosed in the previous post, I exit the market on 3/13. I don’t plan to get back in this month, even though all sectors except commodity are showing hold signal. This is not the time to bet anything.
Also I think the impulsive movement is over. Now is a better time to think of individual stocks or ETFs to catch alpha. Starting from this month I am going to post some of my picks.