OptionPundit

Category: Stock screens

  • Magic Formula Investing revisited

    You all know how much I love this little book that I had earlier profiled in Jan’07 and also gave an example on how one can play using this strategy. Since then the market have reached a great high and in fact some of the good companies in the original list have also performed very well. Now since the markets are at new high, I decided to dive into the list once again to find suitable underlyings for a good income trade.

    MFI-1 MFI-2  

    Here is the list, plenty of fishes out there.

    Choose your pick and play well. Make sure it has good liquidity, fundamentals are taken care of by the screen, and has good premiums so as to be a good underlying for options trading. I shall be doing detailed analysis and will share mytake with OPnewsletter susbcribers.

    Profitable trading, OptionPundit

  • Top 25 Picks by MFI

    Attached is the latest screen from magic formula investing (for greater than $500 million market cap). I ran this screen to find out if there are great bargains available after the recent sell-off.  screenhunter_30.jpg  

    I have extensively discussed this strategy in several posts. Pls find out from “Magic formula investing” under OP reading category.  There are several interesting names that one could look for to create a positive delta bullish spread strategy to use at the first sign of market turning direction to bull. Profitable trading, OptionPundit

    ikoni

  • How to find stock picks, quickly?

    How to find stock picks of the day easily and in one click?

    Well, most pay huge sums to find those “pick of the day, or night or fortnight” and so on. There are tons of stock screeners both paid and unpaid type that suggests a list of stocks that one may go long or short. One of the good ones that I like is MSN screener but I will discuss that some other time (as that is good if you have a screening criteria).

    What if you don’t have a screening criteria? Here is what I found to be pleasing to eyes and good for business. Say three cheers to clear station! Pick your choice, be it fundamental event, a technical event, or something that reading community is recommending, check out industries or check out sector. Don’t like to get in all details, it’s alright to be lazy, check out only A list (bullish) as well as Z-list (bearish). Simple. You may choose to show all the graphs in bulk or one by one.

    Here are two snapshots from the screener.

    screenhunter_27.jpg  screenhunter_28.jpg

    But be mindful of the results. It gives you penny stocks as well. I personally don’t like to play penny stocks and therefore I try choosing best of the breed. This is just one of the ways to find some interesting plays where I can use several option strategies. For instance, for A-list stocks that are expected to be bullish I may choose to do bull put, bullish calendars, bullish call and so on. Similar is the case of bearish.

    This is one of many wonderful tools that are part of OP’s Toolbox. Browse the toolbox over the weekend and you maybe be surprised to find what it holds. I will try sharing some play based on clearstation’s A or Z list next week.

    Stay tuned!

    Profitable trading, OptionPundit

  • Magic Formula Investing

    How to find quality stocks to for creating a profitable stock option trading strategy! Today I would like to introduce you to “The Little Book That Beats the Market. An investment guide for all ages”. It is a recommendation for something that I found brilliant and thought it might be of interest to my readers. I shall share later on how to use it for options trading.

    As published on the website: Two years in MBA school won’t teach you how to double the market’s return. Two hours with The Little Book That Beats the Market will. Let Joel Greenblatt, Founder and Managing Partner at Gotham Capital (with average annualized returns of 40% for over 20 years) show you how “beating the market” can be made simple and easy. The Little Book does more than simply set out the basic principles for successful stock market investing, it provides a “magic formula” that is easy to use and makes buying good companies at bargain prices automatic.
    Though the formula has been extensively tested and is a clear breakthrough in the academic and professional world, the common sense method is convincingly explained using 6th grade math skills, plain language and humor. Readers will learn how to use this low risk method to beat the market and professional managers by a wide margin. Along the way, readers will also learn: how to view the stock market; why success eludes almost all individual and professional investors; and why the formula will continue to work even after everyone “knows” it.

    The Little Book That Beats the Market This is not a get-rich-quick book. He explains what really matters and what’s behind successful investing and it’s so simple that you may not believe it. Magic formula investing is an essential tool in OptionPundit’s Toolbox Please note, it’s a free tool and you can browse their website and get stock list everyday after registering. You don’t have to pay to those “magic investment letters” to get this list.

    So how do we use it for options trading? My interpretation is that the screened stocks will go up over the long term so we need to use strategies that are bullish over long term. So put it simply, a strategy that has positive delta, positive theta so we gain from upwards movement in stock and time decay due to long term holding. For instance, long leaps and short current month (same strike) as theta for current month will be higher than leap month so you get positive theta (i.e. Calendar spreads or diagonal spreads). Let me know via comments if you would like to discuss more on how to play this.

    Top 25 companies with a minimum market cap. of $1 billion (as of Jan 20,2007)(Companies are listed in alphabetical order)
    Name Ticker Market Cap
    ($ Millions)    		 Pre Tax
    Earnings Yield    		 Pre Tax
    Return on Capital    		 Price
    From    		 Most Recent
    Quarter Data
    Barr Pharmaceuticals Inc BRL 5,875.09 10% > 100% 01/19 09/30
    Biovail Corp BVF 3,357.05 15% > 100% 01/19 09/30
    CGI Group Inc. GIB 2,325.17 10% > 100% 01/19 09/30
    Career Education Corp CECO 2,405.30 13% 50 – 75% 01/19 09/30
    Deluxe Corp DLX 1,441.08 9% > 100% 01/19 09/30
    Fording Canadian Coal Trust FDG 3,166.38 21% > 100% 01/19 09/30
    Freeport-McMoran Copper & Gold Inc. FCX 10,628.15 23% 75 – 100% 01/19 12/31
    Frontier Oil Corp. FTO 3,001.80 21% > 100% 01/19 09/30
    Getty Images Inc GYI 2,412.70 10% > 100% 01/19 09/30
    Herbalife Ltd HLF 2,334.36 10% > 100% 01/19 09/30
    Holly Corp HOC 2,839.11 14% 75 – 100% 01/19 09/30
    K-Swiss Inc KSWS 1,065.38 13% > 100% 01/19 09/30
    King Pharmaceuticals Inc. KG 4,254.50 16% > 100% 01/19 09/30
    Labor Ready Inc. LRW 1,003.98 12% 75 – 100% 01/19 09/30
    Motorola Inc. MOT 46,585.23 12% > 100% 01/19 12/31
    Nucor Corp NUE 17,278.01 16% 50 – 75% 01/19 09/30
    Pacer International Inc PACR 1,079.85 10% > 100% 01/19 09/30
    Palm Inc PALM 1,394.34 13% > 100% 01/19 11/30
    Patterson-UTI Energy Inc PTEN 3,775.40 26% 50 – 75% 01/19 09/30
    Quest Diagnostics Inc DGX 9,996.69 10% > 100% 01/19 09/30
    Southern Copper Corp PCU 16,454.42 16% 50 – 75% 01/19 09/30
    Teck Cominco Ltd TCK 14,897.51 21% 50 – 75% 01/19 09/30
    Verigy Ltd VRGY 1,051.63 15% > 100% 01/19 10/31
    ViroPharma Inc VPHM 1,045.02 12% > 100% 01/19 09/30
    Western Refining Inc WNR 1,724.95 19% 75 – 100% 01/19 09/30

    Note: See The Little Book That Beats the Market for full instructions. In general, purchase 5 to 7 top ranked stocks every 2 months or 7 to 9 top ranked stocks every 3 months. After 9 or 10 months, this should result in a portfolio of 20 to 30 stocks. Sell each stock after holding for one year (for taxable accounts refer to Step-by-step section of the book) and replace with a new pick. Remember, maintaining a diversified portfolio over a long period of time is an integral part of the Magic Formula strategy.