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Thursday, August 25th, 2011
1:30pm (EST)
We mentioned on Tuesday we could be nearing a bottom for Financial stocks and it seems Warren Buffet got the message. Buffett’s Berkshire Hathaway will invest $5 billion in Bank of America (BAC, $7.63, up $0.64) to shore up the company’s balance sheet and provides a much needed vote of confidence for the sector.
Shares of Bank of America surged on the news and are up 9% but have come down from a high of $8.80 which was hit shortly after the open.
The deal between the two sides involves 50,000 shares (at $100,000 each) of preferred stock that will pay a 6% annual dividend and includes warrants to buy 770 million BofA shares at an exercise price of $7-and change over the next 10 years.
The company can buy back the preferred shares at any time providing it pays Mr. Buffett a 5% premium.
It was a big bet by Uncle Warren, who did a similar deal with Goldman Sachs (GS, $109.13, down $1.18) back in 2008, on a company still dealing with billions of dollars in problem mortgage loans. There have been worries BofA might need to raise outside capital of up to $50 billion to deal with losses and meet new industry capital rules and the company said it didn’t need cash but took the money anyway so some questions are being raised.
We have been mentioning over the past few weeks that BofA has a tangible book value of over $12 a share and we were hoping to buy the stock (or options) once it traded in the $5’s. On Monday, shares hit a low of $6.01 and we thought we would get a chance this week to get in, but as you can see, we really may have put a bottom in some of these names. For those of you who participated in our BofA strangle trade that was on our Watch List, congratulations, you have made money on both sides.
Despite the surprise announcement, the market took a turn for the worse after posting solid gains at the open and testing the next layers of resistance. The selloff comes in response to water-cooler talk that Germany may lose its AAA credit rating which pounded their stock market (DAX: 5,584, down 97 points) into the close. The reaction spread to other foreign exchanges and has affected our major indexes which headed lower on the news.
Although both S&P and Fitch recently reaffirmed their Triple A ratings on Germany, it appears short-sellers and the machines are looking for new opportunities.
We have mentioned resistance levels all week and they have been holding just like we thought they would heading into Friday’s Bernanke update.
After reaching a high of 11,405, the Dow is down 125 points to 11,195 while the S&P is off 16 points to 1,161 after kissing 1,190. We don’t know if there would have been, or still is, enough mustard to get over 1,200 but the bulls will be trying to hold at least 1,150 into the close.
The Nasdaq made a trip higher despite the Apple (AAPL, $371.94, down $4.24) news and reached a peak of 2,482 at the open. We have been targeting the 2,500 level as a make-or-break rally point and Tech is currently at 2,427 – down 40 points, or 1.6%.
We like our positions heading into the Bernanke Watch on Friday so let’s see how it plays out. Subscribers, check the Members Area for the current trade updates.
Tags: AAPL, bac, option alerts, option trading, option trading services, options momentum trading, options on stock, options trading, options trading service, Steve Jobs retiring, stock option trade, trade in options, weekly options trading
Posted in Apple, Market Analysis, Market Commentary | Comments Off
Wednesday, August 10th, 2011
1:45pm (EST)
The market continues to see-saw as Europe’s woes came back in focus today on the possibility of a downgrade of French debt which has rattled the major indexes. Naturally, the Banking stocks here at home and across the pond are getting pounded. Bank of America (BAC, $7.10, down $0.84) is flirting with disaster once again and is down 7% after surging 18% yesterday. Shares have hit a low of $6.78 and the 52-week low is $6.31 which was set on Monday.
Yesterday’s support levels are coming back into play and there is a chance we could see new lows this afternoon if the selling pressure continues. Once the European markets close, the U.S. market will be on its own. The focus will then turn to Tech as Cisco Systems (CSCO, $13.93, down $0.13) will announce earnings after the close. We will go over their numbers in the morning but the big catalyst for tomorrow will be the jobs number which comes out before the opening bell.
Initial Claims are expected to come in at 395,000 and a print above 400,000 will spell disaster for the bulls. If there is a better-than-expected print of say, 390,000 or less, then it could help provide stability and another rebound.
A lot of the talking heads are complaining about the “high frequency” traders but it is what it is. The problem with the market pundits is that many of them do not follow support and resistance levels for the major indexes or stocks so they don’t know the downside targets or where the rallies will fade. Of course, we spend double-digit hours looking at charts every day and we point a lot of this stuff out in our daily updates.
We’ve got much more we could Ramble On about but we have a slew of stuff we have to cover inside our Members Area. We got some great entry prices on some of the trades we profiled on our Watch List this morning and we had two openings after closing 2 put option recommendations yesterday. Rambus (RMBS, $10.08, down $0.27) made our subscribers over 1,100% when it collapsed from $14 to current prices and another trade recommendation returned 205% in less than a week!
Folks, these are the types of returns this market is providing and we have been beating the drum that volatility and chaos would be extreme in July and August and that it would be an incredible time to trade options.
As we head to press, the Dow is lower by 344 points to 10,895 while the S&P is down by 34 to 1,138. The Nasdaq is getting punished for 65 points and is at 2,417.
Levels to watch into the close – Dow 10,800; S&P 1,125; Nasdaq 2,400. Above favors the bulls, below favors the bears going into Thursday’s action. Subscribers, check the Members Area for the updates.
Tags: bac, Option Trades, put option trades, put options, what are put options
Posted in Company Commentary, Market Analysis, Market Commentary | Comments Off
Monday, August 8th, 2011
1:05pm (EST)
The market is reeling following Friday’s downgrade by Standard & Poor on the U.S. government’s AAA credit rating. The move dropped us to a AA+ rating but with a negative outlook. The reason was simple as S&P said the U.S. government had become less stable, and their plan to deal with the debt ceiling was not good enough as they wanted to see more cuts.
If that weren’t enough, S&P tossed salt on the wound as they also downgraded the credit ratings of Fannie Mae and Freddie Mac (FMCC, $0.28, down $0.05), as well a slew of other agencies linked to long-term U.S. debt.
All the downgrades were from AAA to AA+, which reflects the same downgrade from Friday. We said this morning money will be getting more expensive to borrow because most interest rates are pegged to the yields on Treasuries. Fannie and Freddie’s fall from grace have been well documented by us and it’s hard to believe they still own or guarantee about half of all U.S. mortgages.
The current turmoil has taken its toll on Bank of America (BAC, $6.99, down $1.18) which is hitting new 52-week lows faster than Congress can take a vacation. We profiled the September 7 puts (BAC110917P00007000, $1.00, up $0.55) at 15 cents last Thursday but the options have gapped higher the last two sessions at the open. We aren’t sure if they will continue higher, and we don’t want to chase, but shares look like they are headed to $5 or worse.
Somebody call American International Group (AIG, $23.09, down $2.01) a wAmbulance. The company is crying and plans to sue Bank of America and its Merrill Lynch and Countrywide units over the quality of mortgage securities that were sold to the insurer.
AIG is attempting to recover nearly $10 billion of the $28 billion it invested but that might be harder than squeezing blood out of a turnip if BofA keeps tanking. Perhaps BofA can call S&P to the witness stand when it goes to court because they were the ones who gave the subprime mortgages the AAA ratings.
As far as the market, all of the talking heads and professional money managers are telling you to get out of the market. We don’t get it and it’s why the general public doesn’t know how to short the market. We told you if there was continued selling pressure to NOT get nervous or scared. We have been telling you put options could do very well on a continued selloff.
As a matter of fact, we have more good news to report on some of the current positions we opened. Our recent Rambus ($10.50, down $1.08) put option recommendation is up over 1,200% and another trade we opened last Thursday is up over 200%. Of course, we still have to be on the lookout for a snapback rally but we have been locking in profits on half positions and will continue to do so.
We plan on playing both sides of the market over the next few weeks and months and the Trade Alerts will be coming fast and furious. We try to keep to our scheduled print times of 9am and 1pm but please sign up for our Twitter alerts to catch any updates posted outside of these times. Due to the volatility, we expect the current environment to continue and we don’t want you to miss the action.
As we head to press, the Dow is lower by 304 points to 11,140 while the S&P is off by 42 points to 1,157. The Nasdaq is down 95 points to 2,437. Subscribers, check the Members Area for the latest and greatest.
Tags: About options trading, bac, BAC put options, option trading, Rambus puts, RMBS, stock and option, stock exchange, stock to buy, stock trading, trade online, trading futures, trading online, trading system, what are stock options, what is a call, what is option trading
Posted in Market Analysis, Market Commentary | Comments Off
Monday, July 18th, 2011
1:15pm (EST)
Futures were pointing towards a rough open this morning as continued concerns over Europe and U.S. debt continue to plague the market. Overseas markets have traded lower for much of the morning on a weaker euro while the Financial stocks here at home continue to take a pounding.
Bank of America (BAC, $9.64, down $0.35) is at fresh 52-week lows (and a 2-year low) ahead of its earnings announcement tomorrow, before the bell. The company is expected to report a loss of 90 cents a share on revenue of $12.34 billion. BofA “preannounced” their results in late June after saying they were taking a $14 billion charge to settle their mortgage issues. Otherwise, the company would have earned near $0.30 a share or so.
Goldman Sachs (GS, $127.78, down $2.38) is also at fresh 52-week lows and will report their Q2 earnings on Tuesday, before the market opens. Wall Street is looking for earnings of $2.27 a share on revenue of $8.14 billion, on average. Analysts’ estimates range from a high of $3.36 to a low of $1.80 with revenue ranging from $7 to $10 billion. Given these numbers, there is a chance for an earnings surprise or a big disappointment.
We have covered both companies for years and we said once Goldman broke below $135, it would be a sign to back away from the sector for a few months. In mid-May, here were our thoughts on BofA:
“Bank of America (BAC, $11.99, up $0.06) broke below $12 a share on Friday and is on its way of testing its 52-week low of $10.91. At some point folks, this is a $20 stock but it might take a few years to get there. Most of the financial websites will list the “book value” of Bank of America at $20 which means shares are trading at half their book. However, we like to look at the “tangible” book value which for BofA is $12-$13.
The tangible book value is what shareholders can expect to receive if Bank of America goes bankrupt and its assets are liquidated. The higher the tangible book value, the better, as it provides shareholders with more insurance. At some point, the Financial stocks will bounce back but we are hoping shares of BofA can come down a little more.” (END)
There is still further risk for the Financial stocks and our feeling is in 3 months they will be a buy, if not sooner. At some point, we may use LEAP options to play a rebound as some of these stocks approach their 2009 levels. For those of you that haven’t been with us for long, take a look at our 2009 Portfolio Track Record inside our Members Area. If you are not a member we can email you our results but it is starting to “feel” like we are repeating a process that could payoff big-time in 6-12 months.
For instance, in March 2009, Bank of America was at $5 a share and we suggested buying the May 6 call options which were trading for 75 cents at the time. A month later, shares had rebounded and were at $10 while the call options we recommended were at $5.00. The stock returned 100% in a month while the options returned 567%!
If you would have bought 20 contracts for $1,500, you would have netted $8,500 in 30 days. At the same time, we also suggested the Bank of America July 10 call options at 30 cents which our subscribers closed out at $1.60 which comes out to a return of 433%.
Our point is this quarter will be lousy for some Financial stocks while others will come in with better-than-expected numbers. Now might be a good time to continue shorting or buying put options on some of these names but we are waiting for the right opportunity to go long both Goldman and BofA which may be 3-6 months.
As far as the market, the support levels we covered this morning are being tested to a “T” as the Dow is down 145 points to 12,334 while the S&P is off 17 points to 1,299. The Nasdaq is lower by 40 points to 2,750.
We have a lot to cover in our Members Area so let’s get to it.
Tags: About options trading, bac, GS, option trading, stock and option, stock exchange, stock to buy, stock trading, trade online, trading futures, trading online, trading system, what are stock options, what is a call, what is option trading
Posted in Earnings, Market Analysis, Strategies | Comments Off
Wednesday, June 8th, 2011
8:45am (EST)
The bulls were looking good for much of Tuesday’s session as they started strong out of the gate and held their gains for much of the session. Although there was some slippage as the day wore on, the possibility of ending a 4-session losing streak was right there at the finish line. However, we warned of Ben Bernanke’s speech just before the close and in the final hour of trading the bears started to make a move.
Bernanke has done all he can do with the printing presses but said the U.S. economy has not grown as quickly as the Fed has been expecting. He went on to say that he expects the economy to pick up steam in the back half of the year (naturally) and there are no plans for another round of quantitative easing (poker face?).
Of course, Big Ben also blamed temporary setbacks such as the earthquake in Japan and higher gas prices for the weakening U.S. economy but overall his comments were a drag and did nothing to help the bulls’ case.
The Dow was up nearly 90 points after the open and reached a peak of 12,178 before falling 19 points by the close to end at 12,070. We had expected a run up to 12,200 but we kind of felt early on the rally would fade. The market went out on its lows and is with spitting distance of breaking down below 12,000. These two areas will be crucial today as far as momentum. The blue-chips have now fallen for five-straight outings, their longest losing streak since August.
The S&P slipped a little over 1 point and settled at 1,285 but never really managed a threat to take back the 1,300 level. The index traded to a high of 1,296 but a test down to 1,275 and then 1,250 appear to be on the bears’ agenda.
The Nasdaq also fell 1 point and finished at 2,701 after leading the pack for much of Tuesday’s trading. Tech reached a high of 2,723 but folded like a cheap lawn chair into the close. The index did manage to hold 2,700 but there is still risk down to 2,650-2,625 over the near-term if this level fails.
The Financial sector once again rolled over and we have been saying all year their lack of leadership could hurt the bulls. After an initial pop in the morning, many of the familiar names we often discuss continued lower. Bank of America (BAC, $10.65, down $0.18), another 52-week low. Wells Fargo (WFC, $25.77, down $0.49) looks to be headed below its 52-week low of $23.
Futures are pointing towards a lower start this morning following yesterday’s weak close. Dow futures are down 50 points to 12,022 while the S&P futures are off by 6 points to 1,279. Nasdaq futures are off by 16 points to 2,257.
We may release a trade shortly after the open that is on our Watch List. If we can get our price, look for a Trade Alert before our regularly scheduled 1pm update. Subscribers, check the Members Area for the updates.
Tags: bac, call options, high beta stocks, Hot stocks, momentum options, Momentum stocks, option tips, options, options mentoring, options trading course, stock market options, weekly options, wfc
Posted in Financial Stocks, Market Commentary | Comments Off
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Buffett Backs Bank of America (BAC)
Thursday, August 25th, 2011
1:30pm (EST)
We mentioned on Tuesday we could be nearing a bottom for Financial stocks and it seems Warren Buffet got the message. Buffett’s Berkshire Hathaway will invest $5 billion in Bank of America (BAC, $7.63, up $0.64) to shore up the company’s balance sheet and provides a much needed vote of confidence for the sector.
Shares of Bank of America surged on the news and are up 9% but have come down from a high of $8.80 which was hit shortly after the open.
The deal between the two sides involves 50,000 shares (at $100,000 each) of preferred stock that will pay a 6% annual dividend and includes warrants to buy 770 million BofA shares at an exercise price of $7-and change over the next 10 years.
The company can buy back the preferred shares at any time providing it pays Mr. Buffett a 5% premium.
It was a big bet by Uncle Warren, who did a similar deal with Goldman Sachs (GS, $109.13, down $1.18) back in 2008, on a company still dealing with billions of dollars in problem mortgage loans. There have been worries BofA might need to raise outside capital of up to $50 billion to deal with losses and meet new industry capital rules and the company said it didn’t need cash but took the money anyway so some questions are being raised.
We have been mentioning over the past few weeks that BofA has a tangible book value of over $12 a share and we were hoping to buy the stock (or options) once it traded in the $5’s. On Monday, shares hit a low of $6.01 and we thought we would get a chance this week to get in, but as you can see, we really may have put a bottom in some of these names. For those of you who participated in our BofA strangle trade that was on our Watch List, congratulations, you have made money on both sides.
Despite the surprise announcement, the market took a turn for the worse after posting solid gains at the open and testing the next layers of resistance. The selloff comes in response to water-cooler talk that Germany may lose its AAA credit rating which pounded their stock market (DAX: 5,584, down 97 points) into the close. The reaction spread to other foreign exchanges and has affected our major indexes which headed lower on the news.
Although both S&P and Fitch recently reaffirmed their Triple A ratings on Germany, it appears short-sellers and the machines are looking for new opportunities.
We have mentioned resistance levels all week and they have been holding just like we thought they would heading into Friday’s Bernanke update.
After reaching a high of 11,405, the Dow is down 125 points to 11,195 while the S&P is off 16 points to 1,161 after kissing 1,190. We don’t know if there would have been, or still is, enough mustard to get over 1,200 but the bulls will be trying to hold at least 1,150 into the close.
The Nasdaq made a trip higher despite the Apple (AAPL, $371.94, down $4.24) news and reached a peak of 2,482 at the open. We have been targeting the 2,500 level as a make-or-break rally point and Tech is currently at 2,427 – down 40 points, or 1.6%.
We like our positions heading into the Bernanke Watch on Friday so let’s see how it plays out. Subscribers, check the Members Area for the current trade updates.
Tags: AAPL, bac, option alerts, option trading, option trading services, options momentum trading, options on stock, options trading, options trading service, Steve Jobs retiring, stock option trade, trade in options, weekly options trading
Posted in Apple, Market Analysis, Market Commentary | Comments Off