OptionPundit

Tag: CF

  • A Terrible, and A Fantastic Week

    It was a terrible week for U.S. stocks and equally for almost every major stock markets worldwide. The Dow fell 157.47 points, or 1.5%, on Friday to close at 10,325.38, racking up a 7.3% drop for the week. The Nasdaq Composite Index fell 29.33 points, or 1.5%, on Friday to close at 1,947.39 and lost 10.8% for the week. The broader Standard & Poor’s 500 Index dropped 15.05 points, or 1.4%, on Friday, ending the day at 1,099.23. For the week, the index was down 9.4% for the week. But all this shouldn’t come as a major suprise to OPNewsletter subscribers especially those who were following this general market comments thread of OPN member’s only section. I also mentioned clearly that I wouldn’t trade for stock pinning for Sept expiration cycle. This is not a “praise myself” post, but to state clearly how we handled first hurrcane of the season, that has just passed.

    If I say this was the most volatile weeks since 1987 market crash, I think I wouldn’t be too far-off from reality. Too much of uncertainty, hopes and dreams surrounded the stock markets world-wide. Starting with the hope that bail-out package will be passed without issues; it was dashed to zero when markets were taken by surprise upon defeat of the bail-out plan, markets tanked on Monday, and the worst 1-day performance since 1987. Soon after there was revised hope that package will be passed and markets started to go back up, one of the best one day performances in past 5 years. Dow was up nearly 300points when bill was to be voted on Friday, I wrote to OPN subscribers at OP discussion forum to stay away from rally and also on my twitter account, that it might be “Buy in anticipation and Sell on news” event.

    For income trades, OPNewsletter stayed on the sidelines. We opened only one trade, a RUT iron condor that we officially closed for +9%, some might have had minor losses due to the fills that received during a very fast moving market that it was. For OPN, I invested only 8% of capital in that. Since I invest majority of my capital in income trades, I preferred and shared with OPN subscribers to stay in cash since mid September. Preservation of capital is of utmost importance to a trader or investor. Market environments were not such that I could leave the income trades on and not watch it. It required one to be nimble, closely monitor markets and always be “on”. Staying in cash proved to be a good strategy, we could sleep well while markets were gyrating.

    Though I had my own share of losses, it was a great week. Attached snapshot is just for few profitable trades. A fantastic week for those who played bearish on my fantastic fours (POT, MON, MOS and CF) as MOS missed the earnings and was punished by markets really ruthlessly. I also mentioned in the speculative sections of the forum when Apple (AAPL) was drowning below $100 watermarks due to rumors. I had been a net buyer of puts and sold some as market closed, but still in bearish position. WFC went down within minutes of S&P putting it on Credit Watch negative. It was a quick trade, generating +25% in less than 1hr time in a very volatile market environment. A bear call spread was also opened (37.5/35) Oct, which is also yielding +45% as of Friday close. Due to its highly speculative and directional nature I didn’t write on forum. Then was GE, VIX (+25%) and many more directional trades. Overall a great week for “directional/speculative” trader!

    Where are we now, as per my indicators, we are in for trouble ahead. But this is market which has defied several rules and indicators and therefore I would like to prepare for worst but hope for the best since most of the past major bull markets kicked-in during worst market sentiments.

    Preserve capital, stay cautious and be profitable,
    Profitable trading, OP

  • Pre-Market Losers

    A fantastic day (of course assuming that one embraces volatilities well) for some bearish play.

    Bearish plays on a bearish day can yield significant returns but one needs to be very careful and should clearly defined entry and exit points well in advance. Before I share the list, pls note that we may play some speculative trades for OPNewsletter subscribers as bonus alert, so pls stay in touch with the forum.

    TTWO, AAPL, RIMM, FSLR, GOOG, AIG, BAC, JPM, GS, CS, EWZ, POT, CF, MOS, MON

    One you have determined your entry exit points, choose whichever bearish strategy you would like to play (Put diagonal, bear call, bear put, straight put and many more).

    Trade carefully, trade profitably, OP

  • POT (+54%), CF (+28%)

    Before market opened I talked about Fantastic Four (POT, MOS, MON and CF) and to keep an eye for bearish strategy. Here are the intraday trading results of the two bearish play I used for my intraday trading set-ups (POT and CF). Though these fell even further, but double digit gains for less than 1 day holding aren’t bad by any measure.

    Few month’s back I had written about where we were headed and what were the key points. Those I still consider to be valid and something that my readers should be watchful. These are tough times and hence careful trading and due dilligence is of utmost importance.

    Profitable Trading, OP

  • Ospraie to shut flagship commodity hedge fund

    Ospraie, It took 8 years to reach where it was, one of the largest commodities fund. It took nearly (or less than) 8weeks for it to close! According to a news published on Reuters, Ospraie Management LP is shutting its flagship commodity hedge fund after losing 27% in August and almost 40% this year, according to a letter that the firm sent to investors on Tuesday.

    Ospriae Fund Ltd., which had roughly $2.8 billion in assets at the start of August, is (was) one of the largest commodity hedge funds in the world. It’s down 38.59% so far this year; it plunged 27% in August on losses in energy, mining and natural resources equity holdings, making it one of the biggest ever closures of a commodities-focused hedge fund.

    Dwight Anderson, founder of the firm, launched Ospraie Fund in February 2000 and generated annual returns of 15% until the end of 2007. The firm, one of the most influential in commodities markets, still manages more than $4 billion in assets, including $1.2 billion in a special opportunities fund. Lehman Brothers Holdings Inc. (LEH ) bought 20 % in the firm few years back (April 2005). Fast forward 3 years, Ospraie is closing down, and Lehman is on Sale (almost). The landscape is entirely different. This also serves a reminder that the past performance doesn’t mean future performance will be similar. And in today’s world, complacency has no place.

    Since losses suffered by Ospraie Fund have exceeded 30%, investors don’t have to abide by its “lockup.” Lockups tie investors’ money into a fund for a specific period — usually between three months and a year. But the lockup provision for the Ospraie Fund disappears if losses top 30%, so this allows investors to pull their money more quickly.

    The Fantastic fours (POT, MOS, CF and MON) are all weak, giving technical signals of bearish trends. I am not sure but it might be quite possible that other commodities funds are also strugling and want to get out of the these underlyings. These stocks had wonderful runs, and don’t be surprised if we continue to see downtrend for a while with dead cat bounces along the way.  

    Profitable trading, OP

  • Where is the Bull?

    Amongst all the bearishness in the market you might think there is none except one obvious answer OIL. There are many areas that are just moving up with their own share of correction along the up way.

    I have been mentioning my “Fantastic Four” for quite sometime. Even since my last post, in just less than two weeks POT is up >+10%, MOS is up >+20%, CF is also up >+10%, and MON >+5% after touching 52wk high. In fact, Intrepid Potash (IPI) touched 52wks high today (My post here). But keeping them is not easy and requires guts, well more than guts it is how well one hedges against any sharp corrections on the way up. A very simple and popular way will be buy puts and fund the cost by selling calls. For instance POT is currently $223, so you buy 220 puts and sell OOM calls to offset the cost of puts. I shall cover this in more details some other day.

    Another sector on the roll is coal. Check out the PCX, ANR, BTU, FDG, and ACI. Oil has its impact of alternative energy fuels as well. As Oil prices are climbing higher, all other energy resources are becoming cheaper relative to oil. One may argue why Rails are falling apart, but there is more to rails than just oil’s rise. But still it’s not a beaten down sector if you look at short term horizon of say 3months.

    Above are just two examples. You may find even more. However, as these are moving-up, the risk of their fall is also increasing. So be careful about your entry and exit points.

    Last point, the bull is on the downside as well. It’s all a matter of perspective. Almost similar strategies can be created for the downward move. However, the risk is higher. Our human brain in general is “bullish” so at the first moment of upward move (assuming I am bearish), I am more “panicked” than if I would if I were bullish and if there was a reversal.

    Have fun, Profitable trading, OP

  • Fantastic Four Does it Again

    Mosaic (MOS), CF Industries (CF), Monsanto (MON) and Potash (POT) are my fantastic four of the agriculture and farming sectors. I mentioned those here and then again asked a question about a month ago, when the four were travelling earth from the sky. Whoever has the medicine to manage trading constipation did pretty damn good. And guess what, on Tuesday when crude slipped, it seemed as if these were dumped again. See today’s action and all four are flying CF up +10%, MON +5%, MOS +7% and POT +4%. Those may not sound big % gains, so look at absolute dollars, and if you are an option trader, I think you will be pleasantly surprised. POT has been my 4th biggest profit contributor of the 2008 (so far). They have a particular behaviour and in case, you are on the wrong side, these four could easily be money losing machines. That’s why I called in my last post “Hot is tough to handle, so handle carefully”. These continue to be on my watch list as long as agri and commodities business is booming. They will also be the first ones to get out any signs of “commodity bubble” bursting.

    It’s beautiful if a computer modeling can help you multiply your investments, but I shall be careful. Quant Asset Management, a Singapore- based hedge fund which uses computer models to pick trades, said it plans to double the assets it manages this year after beating its peers Oh btw, The top three countries to invest in now would be the U.S., South Korea and the U.K., according to Quant’s computers, and the industries, marine transportation, general mining and exploration. Read more.

    But I will not leave Vietnam behind. It has excellent potential. Read recent free economic paper from Goldman Sachs (GS) to understand more about the Potential country that could be the next Asian Tiger in the making. Be mindful this is the same Goldman sachs that coined BRIC and also told the world about N-11 so Ignore it at your peril.

    Food For thought– JPMorgan Chase & Co. analyst Kenneth Worthington became the latest to cut his fiscal second-quarter earnings estimates on Investment Banks. This includes Lehman Brothers (LEH), Goldman Sachs(GS) and Morgan Stanley (MS). As per Bloomberg, Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, needs more capital even after raising $6 billion to recover from credit-market losses, said David Einhorn, a hedge fund manager who’s betting that Lehman shares will fall.

    Love it or hate it, it’s called WallStreet,

    Profitable trading, OP