OptionPundit

Tag: MON

  • Google (GOOG)- A Bearish Play

    It was an intense sell-off day with down volume accounting for over 90%. All of the major indices have now broken and closed below their September 25th lows and their uptrends dating from the July 8th. Chicago PMI had already provided hints that things aren’t that rosy yet. But hey, who knows. This might be a short term pull back, to quench the bears’ thirst, before new advance resume. Whatever your outlook is, play it cautiously.

    Bearish Call on GOOG Oct 2009

    Usually not many traders want to play bearish trades on Google (GOOG) but sometime one has to take a chance. Based on current market behavior of Google , based on a very simple technical analysis, there was/is high probability that it was/is ready to be cooked for a bearish recipe. Albeit, that was two days ago when I shared “Speculative trade idea” to the OPNewsletter subscribers.

    I am bearish on GOOG (yes i know everyone else is drumming on a different beat)…I am in with a 500/510 BCS and 450/470/430 put butterfly (roughly about $2). If you do decide to play…play only if your risk capital is less than 1-2%..and something you can afford to lose…else just stay away and let’s see how the trade unfolds.

    Goog Risk Reward Oct 09The above trade will make money as long as Google stays below $501 by Oct expiration and a greater deal of money if Google were to retarce just by 5-7% or even midway to rising trend line support.  Attached is the Risk/reward curve of the combination trade. So here we are, as yesterday close, the trade is up +19.6%.

    We also have another bearish play (FXP) on China. Yes, now you may wonder why bearish play on China, here is why-

    Here is another speculative trade idea-
    This is linked to China’s 60th anniversary on Oct 1; this is a bearish trade (FXP). The Chinese markets have been on a roll for the whole of this year driven by stimulus spending, etc. I am not sure if this will continue or not post celebrations. If it doesn’t, the payouts could be big. If not, then we might just lose some of the option value.

    Choose whichever strike/expiration cycle suits your taste.

    I personally chose FXP Nov 9 calls which are up almost +100% since then. Even the underlying FXP is up +15%. Hong Kong is down almost 2.5% today, but we shall see how Shanghai behaves once markets re-open post holidays.

    These are two of 5 total trades (other ones are POT, MON and GLD) that were shared as part of the speculative trades/bonus alerts to the OPNewsletter subscribers.  For Oct’09 OPNewsletter, we are up +5% so far with 88% capital invested across 5 different income portfolios.

    If you would like to sign-up for the OPNewsletter, pls join the waitlist here.

    Profitable Trading, OP

  • Is It a Follow Through Wednesday?

    A few days back I mentioned about “show me the volume“; It was no different yesterday in spite of such a huge market rally. And even after what might look like a resumption of the bullish trend, it was no way closer to a 90% upside day for NYSE. So handle with care. Pete of option-1 suggests not to buy into this rally. We’ll see if markets can follow through yesterday’s gains to push it to higher levels. Be on the lookout for volumes.

    The coppock curve has stopped declining, for the time being, and now flattening to turning positive.  This is has been one of the most accurate indicators to predict market’s turn but do note that this is a lagging indicator and often recovery might have taken place before it gives a signal. But more often there is room for further play once this gives a signal.

    The US economy will begin to expand next quarter, according to 74 percent of economists in a National Association for Business Economics survey. Key Highlights-

    • The NABE forecast panel expects a further decline in economic activity during the second quarter, making for the most severe economic contraction in over half a century.
    • The near-term weakness is largely due to a sharp retrenchment in business investment.
    • Rising government spending will provide vital support to the economy, as the only major expenditure area posting positive growth in 2009.
    • A modest second-half rebound in real GDP is still expected.
    • Growth in 2010 is slated for a return to near its historical trend, with real GDP rising 2.7% on a fourth quarter- to-fourth quarter basis.
    • Labor productivity remains impressive and is expected to improve.

    Government Motors (GM) is about to file for bankruptcy. GM bondholders had until midnight to trade $27 billion in debt for a 10-percent ownership stake in the reorganized company that U.S. officials have said could emerge from a quick trip through bankruptcy court. Markets hardly seem to bother with the “potential” news. Gone are the days when a move in GM was a move for the America, or at least for the stock markets.

    Monsanto (MON) is down almost 4% in pre-market. It may find support at around $80. It may influence other agrochemical stocks i.e. POT, AGU, etc. Watch-out for weakness as well as weakness or strength in US$.

    Trade carefully, also be aware of window dressing,

    Profitable Trading, OP

  • 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

  • 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