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Thursday, November 20th, 2008
The Dow fell 425 points yesterday to close below 8,000 for the first time since 2003 as economic news and worries over the fate of the big three automakers pushed the market lower in the final hour of trading. The selling really heated up in the final minutes and only the bell saved the market from falling flat on its back.
I have mentioned that the real threat of a lower market would be upon us if General Motors (GM, $2.79, down $0.30, Ford Motor (F, $1.26,down $0.42) and Chrysler do not get the $25 billion rescue package they are seaking. The CEOs told lawmakers “that time is running out”, and that if one of them collapsed it would have a disastrous impact on many people and industries.
Although we should have some type of resolution by the end of the week, the market is nervous and Wednesday’s decline only proved that point. The Dow dropped 427 points, or 5%, to 7,997 while the S&P 500 fell 52 points, or 6%, to 806. On a percentage basis, the Nasdaq was hit the hardest, falling 6.5%, or 97 points, to close at 1,386.
All three are rapidly approaching their lows of the 2000 to 2002 bear market and the sell-off in 2008 will go down as one of the largest declines in history if we don’t recover. For the year, the Dow is now down 40%, while the S&P has tanked 45%. The Nasdaq has suffered the worst as technology spending and electronics have slowed causing the index to fall a whopping 48%.
The numbers are insane and they will only get worse if we can’t save GM and Ford.
Rick Rouse
Rick@OptionsMentoring.com
Tags: 000, Dow Below 8, Ford, GM
Posted in Market Analysis | No Comments »
Wednesday, November 19th, 2008
Yesterday morning I mentioned the option activity in AutoZone (AZO, $100.48, down $6.68) from Monday’s trading session. The stock closed at $107 on Tuesday which allowed us to get into a couple of November and December put option plays at lower prices.
Today’s 6% drop in the stock can be attributed to the testimony of the auto makers which has not been going smooth. There has been talk that if Congress approves the $25 billion bailout package will the auto makers be willing to share that money with some of their partners. That is telling us the fallout from the auto industry will spread to many other sectors. AutoZone could suffer as well.
The November 95 puts (AZOWS, $1.50, up $0.75) were profiled at 90 cents and closed yesterday at 75 cents. They have doubled today. I have mentioned that the November options expire this Friday so you will have to watch these carefully. If you got into the puts at 90 cents you could set stops at $1.35 to ensure a 50% profit. If you got in at 75 cents you could set stops at $1.25.
The December 95 puts (AZOXS, $7.90, up $1.60) were profiled at $5.40 and have also done well today. However, I was pounding the table on the December 75 puts (AZOXU, $2.90, up $0.90) which were going for $1.80. I said to buy them up to $2.00 and if you got into this trade, you are up 50% right out of the gate.
We are targeting a drop below $100 for AutoZone but it would be prudent to place stops on the December puts as well. Any good news out of Washington today could help AutoZone recover.
Rick Rouse
Rick@OptionsMentoring.com
Tags: AutoZone, December put options
Posted in Company Commentary | No Comments »
Wednesday, November 19th, 2008
The big news today is the testimony of America’s car industry as CEO’s of General Motors (GM, $2.60, down $0.49), Ford (F, $1.45, down $0.23) and Chrysler are pleading their case for a $25 billion bailout before the House Financial Services Committee.
The testimony is endearing and heated at the same time but the market is acting like the support is not there. GM and Ford shares are at fresh 52-week lows. GM says it could need $10-$12 billion but its CEO was squirming like a kid in church when directly asked exactly how much they will need to survive until March 31, 2009.
These companies are asking for a bridge loan but a lot of people in Congress are asking what exactly is on the other side of that bridge? The general consensus is that even if the bailout is approved, these companies are just delaying the inevitable which is bankruptcy.
While these companies may have been aggressively cutting costs, scaling back production, and putting in pay freezes, the bottom line is that they are simply running out of time. They may be reducing engine sizes and making smaller cars but they are not environmentally friendly. Until that happens, the auto makers are fighting a losing battle.
The big picture here is that if this bailout doesn’t go through and GM and Ford have to declare bankruptcy, it will not be good for the stock market. There are whispers the Dow could fall to 6,000 if that were the case but no one really knows.
This market can change direction on a dime which is why this is becoming one of the best environments ever to be trading options. The volatility could increase as the day progresses.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Bailout package, bridge loans, Chrysler, Ford, General Motors
Posted in Company Commentary, Sectors | No Comments »
Tuesday, November 18th, 2008
Jerry Yang might not be Yahoo’s CEO anymore but he did stay at a Holiday Inn Express last night. Shares of Yahoo (YHOO, $12.10, up $1.47) are up nearly 15% today on news that co-founder Yang will step down from his CEO duties once the company finds a replacement. In what has been one of the worst performances Wall Street has ever witnessed, it is hard to believe that dude is stepping down after blowing up the company right in front of shareholders.
Yahoo shares have lost 60% of its value since Yang took over last year. His claim to fame will be the botched deal with Microsoft (MSFT, $19.33, up $0.14), which had offered $33 per share, or $47 billion, to buy the company. The departure of Yang now clears the way for us to get a clearer picture on what Yahoo’s plans will be.
Although Yang will remain on the company’s board, the new CEO will likely give hints as to what direction the company will be taking. Will Yahoo actively seek a merger or will it try and remain independant? No matter what happens, somewhere, Carl Icahn has to be smiling.
The Yahoo November 11 calls (YHQKK, $1.27, up $0.70) are the most active in the November call chain. For December, option traders seem to be targeting the December 13 calls (YHQLM, $1.30, up $0.50). One would expect Yahoo to fade as the day wears on but sentiment could be changing on Wall Street.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Jerry Yang, Microsoft, Yahoo
Posted in Yahoo / Microsoft | No Comments »
Tuesday, November 18th, 2008
Let’s see how this one turns out.
Citigroup (C, $8.89, down $0.63), whose stock has been in shambles recently, initiated coverage of AutoZone (AZO, $104.59, down $1.17) yesterday with a “Buy” rating on the stock. Citigroup blew its chance to close a deal for Wachovia (WB, $5.27, down $0.22) and when that fell through, its stock started collapsing. The nearly 50% drop in Citi since then has pushed the stock below $10 thus limiting our downside potential.
Here’s where it gets interesting.
Although Citigroup theoretically only has about $9 to go before it reaches $0, AutoZone has way more potential than a $9 move because it is a $100 stock. Now we have to determine if we are bullish or bearish.
The bulls will argue that AutoZone will benefit from a slowdown in the car industry because people will be fixing up there cars instead of buying new ones.
The bears will argue that AutoZone will fall just like many other retailers because of declining same-store sales. There’s even been “whispers” on Wall Street that some of the auto industries’ partners are looking for a “bailout bonus” and that could mean quite a few things.
The important thing to focus on is the chart for AutoZone. The stock made a run from $80 to $140 from mid-2006 to mid-2007. Since then it has bounced between $110 and $140 and even tested its all-time high this past summer.
It’s been a slow drip since the start of November as the stock has fallen over $20 a share and has broken major support levels. The $100 level will be the first major battle ground that the bears will try and overtake. If successful, they could take the bulls all the way down to $80.
The November 95 puts (AZOWS, $0.90, up $0.05) saw a few darts thrown their way but options traders really went after the December put options. Although the November 95′s had decent volume (300 contracts traded), traders weren’t really placing huge bets on strike prices below this level.
By contrast, the December 95 puts (AZOXS, $5.40, up $0.60) and the December 75 puts (AZOXU, $1.80, up $0.75) each had volume of nearly 3,000 contracts. There was scattered buying in the strike prices between 75 and 95 but these were the two that were getting smothered and covered. And it happens to coincide with what the chart is telling us.
Another morsel to munch on is the fact that the company will be reporting earnings on December 9. The December options expire 10 days later. Lottery option players may wish to gamble on the December 75 puts with an entry price of up to $2.00-$2.10.
If we can get a drop to $90 this week in AutoZone’s stock then these calls should double.
Rick Rouse
Rick@OptionsMentoring.com
Tags: AutoZone, Citigroup, December put options, Wachovia
Posted in Company Commentary | No Comments »
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AutoZone Poised to Fall Below $100
Wednesday, November 19th, 2008
Yesterday morning I mentioned the option activity in AutoZone (AZO, $100.48, down $6.68) from Monday’s trading session. The stock closed at $107 on Tuesday which allowed us to get into a couple of November and December put option plays at lower prices.
Today’s 6% drop in the stock can be attributed to the testimony of the auto makers which has not been going smooth. There has been talk that if Congress approves the $25 billion bailout package will the auto makers be willing to share that money with some of their partners. That is telling us the fallout from the auto industry will spread to many other sectors. AutoZone could suffer as well.
The November 95 puts (AZOWS, $1.50, up $0.75) were profiled at 90 cents and closed yesterday at 75 cents. They have doubled today. I have mentioned that the November options expire this Friday so you will have to watch these carefully. If you got into the puts at 90 cents you could set stops at $1.35 to ensure a 50% profit. If you got in at 75 cents you could set stops at $1.25.
The December 95 puts (AZOXS, $7.90, up $1.60) were profiled at $5.40 and have also done well today. However, I was pounding the table on the December 75 puts (AZOXU, $2.90, up $0.90) which were going for $1.80. I said to buy them up to $2.00 and if you got into this trade, you are up 50% right out of the gate.
We are targeting a drop below $100 for AutoZone but it would be prudent to place stops on the December puts as well. Any good news out of Washington today could help AutoZone recover.
Rick Rouse
Rick@OptionsMentoring.com
Tags: AutoZone, December put options
Posted in Company Commentary | No Comments »