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Tuesday, December 2nd, 2008
Here’s a quick update on what is going on with our Chesapeake Energy (CHK, $14.25, down $0.75) trade. The stock lost 5% today and over $2 on Monday after Wall Street seemed disappointed with OPEC having deferred a decision on cutting crude oil production over the weekend.
Other energy stocks have been falling in sympathy as oil futures continue to plunge. Oil fell 10% on Monday and another $2 and change today to settle at $47 a barrel. OPEC’s “decision” to delay a decision on output until later this month has driven oil prices to nearly a four-year low and has helped our bearish position in Chesapeake Energy.
The December 17.50 puts (CHKXW, $3.85, up $0.65) opened at $1.65 last Friday and have easily doubled. These calls were selling for $2.65 yesterday morning when I mentioned them again as we were targeting a run to $3. We got that by yesterday’s close. We are now well above our $3 stop so let’s raise it to $3.50.
The 52-week low for Chesapeake is $11.99 and all signs are pointing to a retest of those levels. However, if by some chance the stock rebounds our stop will protect our profits.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Chesapeake Energy, put options
Posted in Company Commentary | No Comments »
Monday, December 1st, 2008
Despite what was initially thought as a “successful” start to the holiday season, the Dow is down over 400 points as we hit mid-day. The figures from Black Friday were higher than what many analysts had been expecting as sales rose 3% to $10.6 billion. However, this is supposedly the biggest shopping day of the year and it is clear Wall Street is certainly concerned the news isn’t indicative of the rest of the weekend.
As a result, the Dow is down 435 points to 8,394 while the S&P 500 is skidding 53 to 853. The Nadaq is down nearly 90 points to 1,446.
Most consumers spent November waiting for Black Friday and many of the deals that come along with it as stores try to lure in customers. It has been quite apparent that people are bargain hunting and will continue to right up until Christmas. The strength from Friday will probably not be enough to carry the rest of the weekend, as reports also surfaced that business fell off sharply on Saturday.
There were a couple of economic reports that were also released this morning that has also added to the negative sentiment. The Institute for Supply Management said its index of manufacturing activity fell to a 25-year low in November and another said construction spending fell by a larger-than-expected amount in October. No surprises here.
On the bright side, Ford (F, $2.86, up $0.17) and General Motors (GM, $4.94, down $0.30) have held up well although GM has slipped after trading as high as $5.75. I mentioned the option activity in these two companies on Friday and today is no different…it is heavy.
Citigroup (C, $6.88, down $1.43) is getting an 18% haircut after surging all last week. The December 5 calls (CLP, $2.25, down $1.20) hit our stop of $3 on the way down this morning. Here is yet another example of why sell stops are so crucial. I had mentioned the short-term target for Citigroup was $8 and we got to $8.48 on Friday. The stock opened this morning at $7.90 and has been drifting lower ever since. The trade was good for a 200% return. Citigroup could get cheaper again and there will certainly be another trade coming.
I also mentioned Chesapeake Energy (CHK, $15.95, down $1.23). The December 17.50 puts (CHKXW, $2.60, up $0.55) opened at $1.65 on Friday and are up over 25% today. We are targeting $3.00 for the puts but set stops at $2.25.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Chesapeake Energy, Citigroup, Ford, GM, Institute for Supply Management
Posted in Company Commentary, Economic News, Market Analysis | No Comments »
Friday, November 28th, 2008
The market is closing at 1PM today and we’ve got about a half hour to go. Here’s what we’re watching:
Citigroup (C, $8.27, up $1.22) has moved above $8. This was my near-term target for the stock and the December 5 calls (CLP, $3.40, up $1.00) are now deep-in-the-money and are trading in tandem with the stock. Many of you got into this position for under a $1 as the calls traded to a low of 60 cents last Friday. Set stops at $3.00.
Chesapeake Energy (CHK, $16.95, down $3.29) is down over 15% as they plan to sell stock to raise nearly $2 billion in cash. Talk about diluting shareholder value. The December 17.50 puts (CHKXW, $2.10, up $1.15) are up 120% and opened at $1.65.
Yahoo (YHOO, $11.00, up $0.42) is up today on news that Carl Icahn is increasing his stake in the company. Apparently he has been buying shares this week and has plunked another $70 million down. More on this story next week.
Ford (F, $2.68, up $0.53) and General Motors (GM, $5.29, up $0.48) are getting nice pops. I’m hearing the two companies could be meeting around December 8 with Congress again and there’s a good chance they get some bailout bucks.
The Ford December 3 calls (FLG, $0.31, up $0.09) have traded over 20,000 contracts while the GM December 5 calls (GMLA, $1.00, up $0.15) have traded nearly 6,000 contracts. These two options could post huge gains if Ford and GM continue to rally. If Ford can get to $4 over the next week or two, the December 3 calls will be worth at least $1, or a triple from current levels. If GM can get to $8, same return. Big risk but big reward if you get in these options but I do like them.
Looks like the Dow is headed for its fifth straight winning session.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Black Friday, Chesapeake Energy, Citigroup, Ford, GM, Yahoo
Posted in Company Commentary, Market Analysis | No Comments »
Thursday, November 6th, 2008
Yahoo (YHOO, $13.92, up $0.57) was back in the news again on Wednesday. The stock had a strong day despite the fact that Google (GOOG, $342.24, down $24.70) backed out of its advertising outsourcing agreement with the company. At one point, Yahoo traded as high as $14.84.
There were many on Wall Street who had speculated this deal would fall through mainly because Google didn’t want to have to deal with the anti-trust issues. That was loud and clear when Google’s legal rep had this to say:
“We’re of course disappointed that this deal won’t be moving ahead but we’re not going to let the prospect of a lengthy legal battle distract us from our core mission. That would be like trying to drive down the road of innovation with the parking brake on.”
Sweet analogy.
Of course the bulls and bears immediately began to battle as bulls are hoping for another bid from Microsoft (MSFT, $22.08, down $1.45) while the bears are saying this is the end for Yahoo. What? You think it’s a coincidence that Yahoo’s CEO Jerry Yang had this to say after the closing bell: “To this day, I believe the best thing for Microsoft to do is to buy Yahoo,” ..
Yeah, that dude is drowning and begging Microsoft for a life jacket. Yahoo had an easy $33 a share, or nearly $48 billion in its back pocket when Microsoft was really wanting to buy the company and Yang held out for a few dollars more a share. It’s amazing sometimes how egos can get in the way of doing what is right for a company. This is a clear example of why America needs more shareholder rights. Afterall, you are not just buying stock of a company, you own part of the company when you buy stock. Shareholders could have gotten $33 a share a few months ago, now they will be lucky to get $20. It is what it is but Yahoo blew its chance of doing what was right for its shareholders.
The January 17.50 calls (YHQAW, $1.25, up $0.35) were one the plays we had in our Lottery portfolio. These calls were profiled around the same price that they are trading at now but did trade as high as $1.40. The November 15 calls (YHQKC, $1.30, up $0.80) were certainly a huge winner as they advanced 150+%. They traded as high as $1.38.
Yahoo’s rally was driven, in part, by rumors that Yahoo and Microsoft are close to an agreement of $17 to $19 a share — speculation that both companies denied. I had mentioned that companies are getting “cheap” again that would could see some M&A (merger and acquisition) activity. Chesapeake Energy (CHK, $24.83, up $1.88) and Yahoo are making the rounds and there is even fodder that Disney (DIS, $24.23, down $1.79) should buy Electronic Arts (ERTS, $22.37, down $1.03). M&A is coming and when it does it could be fast and furious.
I think Microsoft will make another run at Yahoo and I would expect it to be sooner rather than later. Microsoft still wants Yahoo but is trying to get it as cheap as it can. Microsoft is a cash cow and it needs Yahoo’s search engine and huge audience if it ever wants to mount any serious threat to Google.
The November options are a big risk as time would be working against you waiting for this marriage to happen. The contracts expire in 15 days and I don’t think anything will get done that quick. It could but that is why we went out to the January options from the get-go. If Yahoo gets a minimum $20 bid then the January 17.50 calls would be worth at least $2.50 or a double from current levels if Microsoft comes in with that kind of bid.
Maybe by Christmas a deal gets done but I have been telling you the $33 bid from Microsoft six-months ago would continue to haunt Yahoo shareholders once Yang blew it.
Keep holding the Yahoo call options and remember that they are a lottery play. You could take the profits you have now but it would be like winning $5 on a $5 lottery ticket. We are at least trying to double our money.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Chesapeake Energy, Disney, Electronic Arts, Google, Jerry Yang, Microsoft, Yahoo
Posted in Google, Yahoo / Microsoft | No Comments »
Wednesday, November 5th, 2008
With a half-hour left to go in today’s trading session, the Dow is down 400 points to 9,225 but there are some pockets of strength in certain sectors. Chesapeake Energy (CHK, $26.10, up $3.15) is having a monster day as Wall Street seems to believe that Chesapeake and other natural gas producers will thrive because of Barack Obama’s historic victory.
The theory is that a Democrat-led Congress will lead to huge tax breaks for petroleum producers and that Obama will likely push for use of compressed natural gas (CNG) in automobiles. How long and how fast it takes for CNG stations to start popping up around the country remains to be seen but they are coming.
Companies that are in this field will likely see incentives to install CNG pumps at stations which should encourage Americans to buy CNG-powered cars. CNG is an exceptionally efficient fuel for return-to-base fleets, as analysts believe it produces 50% to 70% fewer pollutants and saves $5,000 to $20,000 in fuel costs annually per vehicle than diesel, the fuel most commonly used today.
There are a couple of pure-plays on this sector like Clean Energy Fuels (CLNE, $7.35, down $1.74) and Sinoenergy (SNEN, $3.22, down $0.13) but they are both trading lower today after California voters struck down Proposition 10, which would have paid rebates for fuel-efficient cars and cars that run on natural gas. T. Boone Pickens, the company’s founder, is obviously not having a good day. Not only is the stock taking a hit, he is the one who paid for nearly all of Proposition 10′s $22.5 million campaign fund.
Meanwhile, Chesapeake is getting some action despite the weakness in the energy sector today, amid reports that it could be a takeover target. I mentioned the stock back in October and at the time it was good for a quick trade as it made a run from $20 to $24ish.
The November 25 calls (CHKKE, $2.75, up $1.90) were trading for $2.10 at the time of the blog and I said the stock had a chance of getting to the $24-$27 range quickly. It did and faded but now the stock is gaining momentum again. The November calls have hit a high of $3.60 today and I encouraged many of you to keep holding them.
The January 25 calls (CHKAE, $3.90, up $1.15) which were profiled at $3.70 and they are only slightly higher than where they were profiled at. They hit a high of $5.00 when Chesapeake shares hit a high of $26.95 earlier in the day. It’s hard to say just how serious the takeover talks are but it does show that others think this stock is cheap.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Chesapeake Energy, Clean Energy Fuels, compressed natural gas (CNG), Sinoenergy
Posted in Company Commentary, Oil, Sectors | No Comments »
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Chesapeake Energy Put Options Hit Target
Tuesday, December 2nd, 2008
Here’s a quick update on what is going on with our Chesapeake Energy (CHK, $14.25, down $0.75) trade. The stock lost 5% today and over $2 on Monday after Wall Street seemed disappointed with OPEC having deferred a decision on cutting crude oil production over the weekend.
Other energy stocks have been falling in sympathy as oil futures continue to plunge. Oil fell 10% on Monday and another $2 and change today to settle at $47 a barrel. OPEC’s “decision” to delay a decision on output until later this month has driven oil prices to nearly a four-year low and has helped our bearish position in Chesapeake Energy.
The December 17.50 puts (CHKXW, $3.85, up $0.65) opened at $1.65 last Friday and have easily doubled. These calls were selling for $2.65 yesterday morning when I mentioned them again as we were targeting a run to $3. We got that by yesterday’s close. We are now well above our $3 stop so let’s raise it to $3.50.
The 52-week low for Chesapeake is $11.99 and all signs are pointing to a retest of those levels. However, if by some chance the stock rebounds our stop will protect our profits.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Chesapeake Energy, put options
Posted in Company Commentary | No Comments »