Tuesday, February 22, 2011

Tuesday after President's day - the markets are going to stink

As I close the night I begrudgingly check the futures for a sense of what is to come tomorrow. I have followed some of the events over the weekend, and today regarding Libya, and others so it wasn't a terrible surprise. But, when I did check tonight I am regretful I did not buy protective puts, or at least keep a few protective puts on a few of my positions. (see more regarding put options at 888options.com).

I am at least thankful I have several call contracts on the USO and GLD...and thankful even more I closed my Feb11 short GLD call vs. rolling it up and out to the Feb weekly option expiring this Friday or the one in March. It is also nice to think about the fact I do still have a put contract on the S&P out in September $130 strike price.  What this means is while I will likely not be happy tomorrow, I won't be as upset because I won't be down as much if I had not acquired GLD, USO and SPY option contracts several days ago.  If you aren't yet familiar with option trading, or option protection I would suggest you become familiar if you do any investing in personal funds. This way you can at least trade with reduced risk by buying or selling option contracts as you best see fit.

Well that is it for tonight as I have to be up early tomorrow morning :).  Enjoy your Tuesday and unless you're protected or brave just ignore the next few days in the markets.  Then when it calms down do your buying. And, in case you're wondering the primary exit for both my USO and GLD options are 100%+ return since I bought them mostly as portfolio protection. Secondary exits will be to sell for no less than a 25% loss & sell short calls as necessary in diagonal formats.


Monday, February 21, 2011

What a busy weekend - Conference, trades, B-day's, Social Security

Wow...the weekend is coming to a close and I can't believe how busy it has been...as I sit here with a nice glass of Bowmore scotch it is time to reflect on the weekend and everything which has taken place.

The weekend was filled with a dinner out Friday evening, an awesome conference on Saturday, with some sadness I missed both of my boys scoring goals on Saturday.  Finally on Sunday we celebrated the birthday of my oldest son...albeit many days afterwards it turned out to be a perfect time to celebrate with friends especially considering the awesome weather we had today in Texas! Thankfully earlier Sunday I had an opportunity to relax, play some Sudoku and read a few articles from the Statesman, Barron's and elsewhere.... so on to the updates.

Like most people who have been married for several years (or a decade plus in my case) my wife and I chose to forgo heading out on Valentine's Day.  Instead we chose to enjoy a calm (not rushed) dinner out Friday evening.  Our choice was Freda's mostly because my company handed out a few gift certificates a few weeks ago.  The restaurant itself was nice, unfortunately I can't say the same about all the food we ate Friday evening.  Still it was nice to get out even for a while and enjoy a meal...little did I know it was going to turn out to be a longer weekend than I had anticipated.  All-in-all I think the restaurant is good, but I think they need to work on their seasoning of the entrees.  The appetizers we had were good and I have heard the desserts they make are excellent, but maybe Friday night was just not the right night....we'll give them a try again, but only after hearing positive remarks from others on Yelp, or elsewhere.

TEDxAustin conference
If you haven't heard of TED before I would suggest you check it out.  TED stands for Technology, Education and Design and the x from this weekend indicates it is an independently organized event.  Hence TEDxAustin was held this past Saturday February 19th at the Austin music hall, and WOW what an event. I was turned on to TED last summer while visiting my brother in Illinois and boy was my mind blown by the talks we watched and the hundreds of talks I have watched since that time. So, Saturday was to be my first live conference for any TED...and I was certainly not let down.  The event opened with MotherFalcon a local band in Austin, and even though I somewhat expected live music I did not expect the caliber of music I heard on Saturday. Videos from the conference won't be posted for a couple of weeks but to give you some concept...the talks ranged from conscious capitalism, food and the changes over the past decade, synthetic biology, the declining male, the Haynesville shale, cartography, rethinking the way we visit the Internet and a new language, enlightenment of others challenges, the amazing growth of Texas compared to the rest of the US, changing the bureaucracy (er...crazy), the future of payments, a little psychotherapy, an award winning word artist / teacher, and formula one racing in the Austin TX area. The event was spectacular thanks to the tremendous effort from the sponsors and staff organizers...which says a lot because the entire event is self-organized!

The first talk I enjoyed thankfully turned out to be he first of the conference ... conscious capitalism. As this talk began I was very skeptical since it began with Capitalism is dead! I am a very strong believer in capitalism so it was a tough pill for me to swallow at first and I was kid you not I was thinking...what the hell have I gotten myself into...this is Austin after all.  As Sunny Vanderbeck continued during his talk I became more convinced of his concepts and focus that Capitalism is indeed not dead, rather it is the way it has been practiced is dead and not working because we need to change and work on the next revolution of capitalism here in the US and abroad.

The next talk that was a personal favorite and crowd favorite was by Robyn O'Brien and the changes in our food over the past 10 - 15 years. Robyn had a very passionate story and one which she turned into a passion to find out what has changed in our food supply over the past several years ... unfortunately after one of her children got sick at breakfast one morning. Robyn showed and talked about the dramatic increase in food allergies in children, the fact the EPA actually watches corn crops, and the startling nature about how the chemicals the US allows into their food, but the rest of the world STOPS! I am all for improved production of crops so we can produce enough food for the world...but we must always ask at what cost! When countries including Canada and most of Europe prevent the hormone injections in cows to produce more milk, why is the US continuing to make this mandatory. Why is the US paying subsidies to the farmers to inject 'foreign' substances which is what the body is attacking...then charging the farmers who don't several taxes thereby substantially increasing all organic items we consume.  If you would like to learn more you can visit Robyn's site at Allergy Kids Foundation.org.

Osama Bedier was also a favorite talk of the day especially when comparing the future of payments to why we still can't reach Mars using the space shuttle. Do you know why?  One of the reasons is the rocket boosters. Did you know the rocket boosters are built in Utah (?)...the boosters are then transported by railroad, but since they are transported by railroad they can only be so wide...why because the railroads have to travel through the mountain side, and why else...they tracks are only 4'8" apart and have even more limited space between them.  I'll link to the site when his talk is posted...but short story is the size of the railroads date all the way back to the roman chariots and the size of two horses asses! If you'd like to learn more between now and then let me know and I'll do my best to recall the correlation.

Dustin Haisler, former city manager of Manor TX also was a very engaging and wonderful speaker. He discussed how Manor made use of game theory and crowd-sourcing concepts to improve the community in Manor. Game theory is very close to my heart right now as I think about and work with our team at work to apply the concepts to what and how people use our software to deliver better service to their end customers. Dustin's talk also tied in closely with a quasi-forum type panel where the representative from AMD talked about how they are working to tie in game-theory to improve classroom learning.  I'm only sorry I don't recall her name and unfortunately I can't find her name in my book either, but once I learn I will update and re-post.

The last two talks which really captured my interest were from Gary Thompson, a member of the founding team of Kimbia, and from Dr. Lionel Tiger author of the book "The Decline of Males".  Gary talked about his thoughts on changing the way we use the internet and the web. Gary's family has had some personal challenges with cancer where is where he likely got the idea of changing the way we use the internet from HTML to a Contextual markup language. The general premise was let's make use of the connected nature of everything to choose who and where we decide to share information about ourselves to help doctors, and various other organizations make better informed decisions, quicker and with more information than they previously had in their hands.  Again I've likely not done as good of a job describing in this brief blurb his thoughts, but ping me and I'll share more.  Lastly on my list was the frank talk from Dr. Lionel Tiger regarding the decline of males...and in effect the babying of the males today and our need to get over it and let boys be boys. The fact we have over-sensitized males and over-hyped their need to 'get in touch with their feelings' has contributed to why many females are choosing to 'go it alone' and have children without any male involvement... Hence where have all the good men gone these days :(.

The other talks were great as well, but these were among my top favorites and you can learn more in the coming weeks once they post the conference talks. If you have a chance apply to attend the event next year, and check out TED to learn more...I'll bet you learn a lot, and likely even get a few new ideas about how to transform your life, operations, perspective on life, or just get a good laugh..."Moz Jobrani: Did you hear the one about the Iranian-American?" at TED is great!

Nvidia trade update
On Saturday I also needed to evaluate how things looked after the recent earnings release from NVDA. As you may recall from my post earlier in the week I bought protection (option puts) in case the earnings were bad. Thankfully the earnings from NVDA were better than expected and I closed my put positions as early as I could on Thursday morning since NVDA broke out.  I subsequently also sold short February $26 strike price calls since I viewed that level as resistance and I knew there was only two days left in the February expiration contracts. Unfortunately...yes...buy buying protective puts my overall trade is at a loss right now, and I am perfectly okay with that because if it had crashed and I had not bought protection I would have been very pissed...ask me about the time I completely forgot about a company announcing earnings and did not buy any protection :(.  As the weeks and months progress I'll update you more, but at the time my strangle position is stagnant, though my collar position is looking nice since the stock has appreciated since I purchased.

Sunday morning, the Statesman and Social Security?
Look, I have not been a fan of the Austin American Statesman, but Sunday's business section regarding Social Security hit right on...RIGHT NOW for me given the recent talk from Saturday at TEDxAustin with the theme of RIGHT NOW. I am not getting any younger and unfortunately the same goes for our Social Security fund...it is under-funded, mis-managed, and worse a ponzi scheme worse than Madoff. It seems my feelings are not alone either. Scott Burns from the Statesman wrote an article for Sunday's business section which aligns closely with my thoughts regarding this fleecing/ponzi-ing of American - "You've been robbed of Social Security - what can we do? by Scott Burns".  I started to write a blog back in 2009 during the height of the debates between McCain and Obama only to find out :( I never posted the article. In short I was making the case we must make sense of the Social security and soon...we are digging ourselves into a deeper problem since we started stealing from the fund. I can appreciate not everyone has the thought or capability to save for retirement, and in some cases it is used for disabilities putting people out of work...but I am sick and tired of the government abusing the fund and not putting my money I've paid in to good use. As of December 2009 I have paid over six figures into Social Security when you consider the amount my employers have paid over the years. That would be perfectly okay with me if I ever thought I was going to see a penny of those dollars repaid. What could I do with that amount...A LOT, and so could YOU! I hope Scott's article gets someone thinking soon and hopefully it is the collective US (you and me) pushing those in Washington to an answer before we sit there and try to rub two pennies together wondering where all the money went.

Finally we celebrated
Sunday afternoon we celebrated the birthday of my oldest son Dylan. Dylan's birthday was actual earlier this month, but with soccer games, travel and crummy weather we chose to celebrate with his friends later. Dylan is doing great and both my wife and I are so excited he is doing well in school. Dylan had a good time with all his friends, and I'm sure they had a blast especially since they got to decorate their own cupcakes...including how much frosting they put on their cupcakes. Thankfully the weather cooperated and we all enjoyed a nearly 80 degrees sunny afternoon in the Austin, TX area.

In closing last week was great, filled with lots of stuff at work, a great conference on Saturday, confirmation others think what I do on Social Security, and a great party for my oldest son. This coming week I am going to keep my eye on overall market since I'm very surprised we have had almost zero pullback in the market, and right now gold is trading up $11.7 at $1396.8 in the futures market and Oil is trading up $2.625 at $91.475 Monday morning February 21st. Thankfully my short call positions against the USO and GLD either expired on Friday or were closed. I am also going to be closely watching my positions in AAPL, AMZN, NFLX, APA, FFIV, DECK, and FAST.

Have a great week, great trading and I hope if you have the day off Monday you get to enjoy.


Tuesday, February 15, 2011

Finally back on the wagon with both Trading and Blogging - Ahhh...Nvidia.

I won't bore you with the should've / would've / could've.  Instead I'll just say I've been delinquent in updating my blog and tonight I'll start again with a variety of topics - ranging from finance, recipes I've doctored, places to eat, world stuff, etc.

Tonight though I'm going to begin with one of my "geeky" passions...financial markets.  Specifically I'm going to explain my thoughts on Nvidia (NVDA) and the equity and options trades I have in place for the earnings announcements tomorrow. I have had these trades in place now for a few weeks, but tonight's blog from the WSJ (Tomorrow’s Tape: NVIDIA, Deere and a Slew of Economic Data) reminded me of the earnings announcements and economic data coming out early tomorrow morning.

Starting at 8:30am EST we get the following data points

  1. 8:30 - Housing starts
  2. 8:30 - PPI (Producer Price Index)
  3. 9:15 - Industrial Production
  4. 10:00 - Geithner talks to Congress
  5. 10:30 - EIA Petroleum status
  6. 14:00 - FOMC meeting minutes released
WOW - that is a lot of data points being provided to the market tomorrow.  

Things I'll be paying attention to out of all these are #1, #2, #3 and #6.  I am by no means an expert, but I am expecting us to see a continued slow pace in Housing starts.  I expect this because we still have a high un-employment rate, getting a new mortgage is still requiring a big upfront investment...and my perception is we still have a huge inventory of existing and empty houses.  I am much more interested in the second data point as it will give us some indication of what to expect in the coming months. The PPI is what producers are charged for taking inputs before they grow, build, (whatever) the final goods for the Consumer. If we see a significant increase in the PPI we will likely see a significant increase in the CPI (Consumer Price Index).  That increase will translate into higher prices for the Consumer when we are just coming out of a pro-longed and some are calling the 'Great Recession'. Finally we'll get the meeting minutes from the FOMC (Federal Open Market Committee) which you may know better if I mention the head Ben Bernanke :).  Some of the comments I've seen recently indicate a few of the members of the FOMC are becoming hawkish...which roughly means they are starting to discuss raising interest rates.

All of that is likely a lot to think through...which is why those data points coupled with the fact NVDA is announcing their earnings for last quarter tomorrow I have put on a few different trades. I'll make all of my following comments first by saying I'm not suggesting or providing any investment advice or providing a buy or sell opinion...only my thoughts and actual trades I have placed on NVDA in preparation for tomorrow.  Secondly if you have not traded options before and don't understand them...please do not do so until you fully understand the risks associated because while they are very lucrative they can be very risky if you don't understand how they work.  If you'd like I can walk you through options and options trading, but 888options.com is a great resource, and if you are willing to pay money to learn more about options I'd point you at OptionsAnimal.com.

So...on to my trades.
First I've been a shareholder of NVDA for quite some time now so my first trade is to protect the recent run-up in NVDA since the beginning of this year.

As you can see there has been quite a bit of price appreciation since that time...in fact we have seen a 46% increase. The other details you see in my chart are 5, 21, 55, 100 and 200 EMA (Extrapolated Moving Averages), Bollinger Bands, RSI indicators and MACD.

  1. Covered stock - Bought March $20 strike put options 
  2. Collar w/ stock - Bought 100 shares @$23.52, sold a Sep $30 call strike for a $1.40 credit and bought  a Mar $20 strike put for $.47 - with a max return of $7.41 per share and a max loss of $2.59 per share.
  3. I have a few additional trades, but we'll keep them simple this time as protective options...in case you're interested though my additional trades are Calendar strangles which you can learn more about in future posts or at 888Options.com (I think they talk about these).

The first trade is to protect my existing stock 225 shares at an average cost basis of $20.005.  To do this I bought two March $20 strike put options @ $.33 on February 7th - creating a Covered Stock position. Doing this protects my investment should the stock fall below my CB (Cost Basis). Even if the stock does not fall below $20 I should make money if the price nears the $20 strike price. As of today's close the price dropped $.56 and my options are now worth $.665 already a 50% increase. Yes, I have a downside from the current level of $22.55, but in reality my actual cost basis is likely lower with selling covered calls against the stock over the past few years.

The second trade is a nice trade where I have a very clearly defined primary exit. In this case I am planning to keep the stock until September fully acknowledging if the price rises above $30 by options expiration on the third Friday of September the stock will be taken away (e.g. sold). This would be a a return of $7.41 per share or an Annualized return of 62% in 214 days, and yes there could be much further upside I'm okay with that since I have more stock.  I also have other trades in place to protect against just that case (exploding collar).  On the downside as mentioned above I'm also protected in the case the stock gets killed by bad earnings.  My $20 March strike put option will make money if the stock declines closer to and/or past $20 and the call I sold short ($30 September) will continue to lose money and I would buy back, or more likely roll up and into front months creating covered calls. Doing this will further reduce my cost basis and keep me sane :).  

All in all with the fundamental analysis I've done in the past few months I believe NVDA is in good shape especially with their recent announcements with Samsung and others. Anything is possible, but I'm pretty happy with what I've uncovered in my analysis and will be happy continuing to hold this stock before, after and during earnings.

I'm sure it isn't all clear if you aren't familiar with trading options, but I can tell you once you learn and have a good grasp ... options are a good tool for investing and trading in these markets (bull and bear).

Well that is all for tonight...later this week I'll write an update on how the Nvidia trade is faring and also provide some insights into how my Investment Club is also faring these days.

Good night and good trading / investing / working tomorrow.