MorningWord 2/7/13: Mind the Gap – $IBM

MorningWord 2/7/13:  With S&P 500 earnings more than two thirds complete for Q4, the data suggests a fairly healthy beat rate by most of the super-sectors in the index.  Yesterday, Bespoke ran a chart showing 64% of the companies that have reported beat on earnings and 63% have beaten on sales (below).  I guess the one obviously cynical caveat is that the expectations that companies have been beating have for the most part been coming down for the better part of the last 4 months.

Bespoke Investment Group   Think BIG   Earnings and Revenue Beat Rates by Sector

Courtesy from Bespoke

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One More thing, last night I saw what I think is the BEST band in the WORLD right now, Mumford & Sons perform at the Barclays Center in Brooklyn.   Here is a clip I took, I Will Wait from their fairly new album Babel.

 

Here is one more, Holland Road, also off of Babel.


 

 


MorningWord 2/6/13:  Since the June 2011 announcement that AAPL’s retail head, Ron Johnson was leaving to become JCP’s CEO, the stock and its investors have been on a wild ride.  The announcement alone sent the shares soaring 20% in a day, only to have investors realize that the job facing Johnson – to turn the beleaguered retailer around -would be a herculean task despite the brilliant job he did with AAPL over the previous decade.  Johnson is facing a similar but opposite challenge that John Sculley faced in the early 80s when he joined AAPL to become CEO.  Sculley found out the hard way that selling high end computers was VERY different than selling sugar water to the masses. Johnson is grappling with the challenge of trying to create a great retail experience focused on what Steve Jobs would likely have called “crappy products”.  To be fair, this is not lost on Johnson, and he is spending a good bit of their restructuring on creating stores within the store featuring brands like Disney, Levi and Lacoste.  

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MorningWord 2/5/13:  All that talk of last week of fresh highs in the Dow Jones Industrial Average was bit silly to me, the Dow, Really??  1960 called, they want their stock index back.  The Dow consists of 30 of the safest well owned equities the world over and let’s be honest, if AAPL was in the index over the last few years there would have been material out-performance resulting in new all time highs last year while the world was still focused on such blase topics like European Austerity, Blue & Red States, and Fiscal Cliffs.  Because the Dow is price weighted, AAPL would have made up well over 25% of the index at any point last year, compared to IBM’s current ~11% weighting………traders on the NYSE would have been dusting off those Dow 20k hats they had printed back in early 2000.  Quoting the Dow is a fairly meaningless endeavor and I am not really sure why the financial media continues to do so, 99% of U.S. equity traders I know stare at the SPX or corresponding futures for the better part of the day as it is a much clearer indication of breadth even though the top 10% of the index make up 50% of the weighting.  

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MorningWord 2/4/13:   As a trader, I make my fair share of mistakes, usually not the same one over and over again, but often times it takes a few attempts to break a bad habit   A week ago Friday, while Bill Ackman and Carl Icahn were duking it out on CNBC (below) over their opposing views/positioning on HLF (among other things), my sense was that the spike in short dated implied volatility offered an opportunity to sell Feb to own options in March expiration that would include HLF’s next quarterly report.  I bought a Feb/March 40 Put calendar when the stock was ~$44.50, and my play was that the stock would remain btwn the high 30s and the mid to low 40s btwn then and Feb expiration.

And here is the mistake, using options to get too cute trading a potentially binary event where the timing is uncertain……….this morning, the NY Post is reporting that the FTC is looking into HLF’s sales practices, which is a main tenet of the Ackman’s short thesis.   My cynical predisposition and Ackman’s very public accusations against HLF led me to side with his bearish argument, yet the fact that Ackman is short nearly 25% of the float made me nervous to commit capital to an outright short position. Outright put purchases would have been very profitable in hindsight.  IN the  trade that I put on, I sold the Feb 40 Put at 1.20 to buy the March 40 Puts for 2.70.  The Feb 40 Puts closed Friday at 5.50 and they will be worth a heck of a lot more this morning with the stock trading ~$32 in the pre-market.

Hindsight is obviously 20/20 and if I had thought the stock had the potential to drop 30% like a rock in less than 2 weeks,  I would have obviously bought puts or put spreads, or sold call spreads, and for the most part the trade that I chose offered a much higher probability of success.  I have said it before in this space, trading is hard, and sometimes those of us who use derivatives of the underlying make it harder than it needs to be, but the longer I do this the more interesting the trading opportunities become, aside from just being long or short.  Stay tuned for a trade update on how I manage this trade.

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