Pre-Market Weak Sign or Strong Sign?

When it is earlier than midnight many argue that pre-market futures cannot predict anything. I think that they do predict a lot, and possibly the entire trading day. I always check the pre-market before I go to sleep or check on it throughout the night, and I have to say that it does indeed predict the market opening. It seems when pre-market is down and Asian markets open stronger, it influences the U.S. markets more than people think. I have watched the futures turn around after the Asian markets open many times, and it predicts the open for the U.S. markets. This gives me an idea of how the trading day should play out, or at least the opening (assuming that there is no ground-breaking news). Anyway I thought I would share this. I am working on a gadget that allows people to check the pre-market data on this blog, as well as the market throughout the day.



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Update to Wyeth and Pfizer Deal

Just released from the WSJ, Pfizer is doing a 2/3 cash deal 1/3 stock deal for roughly $50.19 a share. As stated in the previous blog entry this should heat up the sector and bring speculation to names similar to Wyeth.



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CAT Earnings Before the Bell 1/26/2009

Tomorrow CAT will report 4th quarter earnings at 6:30 AM. I think numbers could come in slightly weak and if there is a sell off I will be selling puts. I think with all this money we have been printing that the price of gold could heat up to $1500/oz by 2010. CAT has quite a few mining machines that could become in high demand if gold surges to these levels. Therefore if CAT stock gets beaten up I will be selling longer term PUTS in the money as high as $45 possibly. I will also be in on the conference call at 11 AM.



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Nice to know you Thain

I really liked Mr. Thain... Taking over a company (my favorite Investment bank by the way) that was destroyed by a former CEO, that will not get his name mentioned in my blog, because he is a such a disgrace. Anyway, the key word is liked. And I did until the fact that he wanted his $10 million bonus from a company that he really could do nothing for, other than sell to BAC (which we find out now that BAC was pretty much forced to buy)... Although he gave up the bonus, it should have been a no-brainer! Today as he was let go from BAC I was certainly not disappointed... However I am very disappointed because I have a lot of BAC stock, mostly converted from Merrill Lynch stock I owned, that is worth next to nothing. As I write tonight I am scared that BAC may get nationalized and I'll have no hope of ever getting my money back from BAC. My strategy for this since I hold so many shares is to buy as many as 5x the contracts as I have shares (5 PUT contracts for every 100 shares) for 9-12 months out at the $5-7 PUT region. Yes If BAC is not there than my cost basis will be $2-$3 more a share but if they get that far, without being nationalized, I think (and really hope) they might be in the clear, and I have a chance of making my money, as well as the 2-3 a share back... If they do get nationalized I could see the stock around $1 a share, so I could recover $7 to $10 a share and still have my worthless $1 a share stock... I plan on doing this if we get a nice pop in the market anytime soon, because I would really like to spend less than $100 per contract. If news comes out such as doing away with mark to market accounting (which I think is the best solution), or they make this "bad-bank" then I will not buy PUT protection. Meanwhile for all you investors trying to find the bottom, or waiting for the bottom, in these financials, my strategy would be to sit on the sidelines and buy the stock on the way up, and just forget about the bottom.



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Wyeth Might Get Bought by Pfizer

News is out that Wyeth could get a takeover bid by Pfizer. Estimates assume a 20% premium cash and stock acquisition. Market looks like it will open fairly ugly, so this might help stabilize things a bit. The sector might heat up at some point during the day due to speculation that those companies may be taken over as well (I know unlikely in this economy, but worth a look), so check out similar companies pre-market, they might be able to rally for a quick trade throughout the day. Reminds me of a time when I rode a company, Rochester Medical (ROCM), from $8 to $30 when takeovers in the sector were happening every week it seemed...



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Update to Apple, TNA & More

Okay, so I couldn't have called that Apple news any better. Two days before it happened! So as I said I would be putting limit orders in today, well I now have 300 shares at a cost basis of $79.55 which I will write out tomorrow if Apple breaks above 85 a share. I will most likely sell 3 contracts for the Feb 95 CALL. These premiums will be huge considering how volatile this stock has become, and the entire market as well. I assume to lower my cost basis by about $2-$3 per share. Honestly Apple has awesome products already in the pipeline so it's not like they'll just stop! I hope the best for Mr. Jobs and the faster he recovers the better.

As for the TNA, today the shares dipped below my $26 target (as low as $23.50) and I sold PUTS for the FEB 25 when the stock was below $24 for $490 a contract or $4.90 a share! This means if I do get the stock at $25 come February expiration, my cost will be $20.10. I assume I won't get the stock, but I really won't mind if I do. (After hours bid for TNA is at $27.80- up 43¢ from close)

I also sold some PUTS for the JAN $17.50 American Express (AXP) for $105 per contract or $1.05 per share. Bid for AXP is currently at $17.45 after hours so I would be golden if American Express closed above $17.50 tomorrow. If I do end up getting the stock I haven't decided if I want to flip it or write it out for the FEB contract ($25 region). I have a feeling we could see a very strong open on Wall Street tomorrow (1/16), depending on earnings before the bell.

**MARKET INFLUENCE FOR 1/16/2009**
BAC has moved their earnings before the bell, this could have a major impact on all financials. Low estimate for BAC is loss of 25¢ per share (-25¢/share), and high estimate is profit of 49¢ per share (+49¢/share), and I would have to assume they come in with positive numbers (remember this is for Q4 2008) but not better than 49¢ per share. However if BAC beat high estimate this stock would probably get to $10 or more by close of session. I think the most important thing is if BAC comes positive, as JPM did this morning, we could see financials strong tomorrow. Week guidance and a dividend cut (almost guaranteed!) may cancel out good earnings, or even throw everything negative for the day. I have a feeling they will slash dividend by 50% or more- they may even decide to eliminate the dividend altogether (really bad for the stock I would assume). However my assumptions are rational and this is an irrational market. Other news that may come out tomorrow is if the government gives BAC more money for swallowing up Merrill Lynch, this could have a significant positive or negative effect on all sectors (I assume any money given or the backing of their assets would be positive).

***HOT OPTION ALERT***
Check out the Goldman Sachs Leap 10 or 11 CALLS if you think GS will be in better shape by then. I am looking to add to my GS 100 Leap 11 CALLS if the market gets hammered again tomorrow.



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Apple Looking Pretty Tasty

Today the most traded contract was the AAPL JAN 90 CALL. After hours the current bid for Apple is $88.80 which means it is trading up about 14¢. This indicates that traders are expecting to see Apple above 90+ premium (today's low for the contract was $1.27 and close was $1.57) by Friday. That is a pretty risky bet, but considering it is only a 3% move up it is very feasible. I would assume we end the week strong, maybe not as high as we closed Friday 1/7 but I assume we close this Friday higher than we finished today. I really like Apple and I have several bets on their longer term options that they will go higher. Rumor has it that they could be reveiling something new at the Super Bowl this year, but that is just a rumor. The Steve Jobs news rumors/news is keeping this company down. The company won't stop if and when he has to leave! If something severe happens and Apple takes a severe beating over it, I am definitely going to be putting limit orders for AAPL that day. If news struck that Apple was working with Verizon, Sprint etc... I think we could see an easy 20% rally in the stock, the question is if and when that news will come out. I honestly hope they don't resign with AT&T for exclusivity rights. If you want exposure to Apple but think it is still too risky check out QQQQ they have a large position in Apple.



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Stocks I'll Be Keeping My Eye on for the Week Ahead

I usually don't post on the weekends, but since this week will be chaotic for school/work I decided to post tonight. I have been keeping my eye on TNA which is from the same ETF company who puts out the BGZ stock I trade. TNA is an ETF that invests in small cap stocks and seeks a return of 300% of the entire basket. This means when the basket of small caps goes up/down 1% the ETF will move with it 3% (not an inverse fund). This stock is around $30 and I might try to sell puts (25 strike) if I can't get my order filled, otherwise I may put orders in for the $26-$29 range. Small caps outperform mid and large caps over the long term (reason being they have a lot of room to grow) which is why I like this name, not to mention I need some exposure to some small caps. Remember this fund is almost double of its 52 week low, and it could reach that level again which is why I will put orders in to fill on the way down. This stock is extremely volatile which makes it even better (greater premiums) for writing covered calls on. The first day I am more than 5% unrealized gain on this stock I will look to write some covered calls out of the money.

Another name I wil be watching is Citi. I think if this stock gets beat down over bad news it could be a good chance to pick some up. If this stock gets to the $5-$6 range and then some decent news comes out about them, a 20% move could be as easy as 1 day! I really don't need any exposure to financials therefore I would strictly be buying light blocks of this stock with intention to trade within 72 hours.

Another ETF I like is the inverse of SDS or the pro S&P double up fund SSO. If the S&P is down 90 points or more (or close to 10%) anytime during the week, I will be trying to purchase some shares os SSO (a close to 20% decrease in the value of SSO). This stock moves with the S&P 2 to 1 so if the S&P goes up 1% this ETF goes up 2%, if the S&P goes down 2% this ETF will go down 4% etc...

These are some name I will be watching for the week of January 12.



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PALM Lookin' HOT

Today I was finally able to write my PALM common shares out for the MAY $7.50. I have a cost basis of $1.18 on PALM and received $30 per contract to sell it for $7.50 in May. If this new phone the "PRE" is a huge hit, we could see PALM rocket past $7.50. Like Buffalo Wild Wings PALM has huge short interest, and a short squeeze could push this stock much higher! If Palm can just pull a positive quarter, we could see a massive rally. A week or so ago there was a $100 Million private investment in PALM. and personally I think there could be more to come. For those speculators out there, looking at a long Call out of the money could seriously pay off. One could purchase the LEAP 11 $5 CALL for$155 per contract, and if PALM was to be profitable by then it could easily be a $15 stock. The future of PALM relies on this new phone, and I am confident in the company, considering they have some top X Apple employees now. I do not think Palm will reach $7.50+ by May considering the amount of debt the company has, but it could come close. I took my premium today hoping I made the right move, but a near 35% pop today forced me to make that decision. In a sick way I don't want to be called out (and take a near 700% gain) on my PALM because I am bullish on the future of the company!



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SPY PUT'S Outweigh CALL'S BIG, But I'm Still NOT "that" Bearish

The top 4 traded option contracts today were the SPY JAN 91, JAN 90, JAN 92, and JAN 93 PUTS. The SPY according to TDAmeritrade is: "The investment seeks to correspond generally to the price and yield performance, before fees and expenses, of the S&P 500 Index. SPDR Trust is an exchange-traded fund that holds all of the S&P 500 Index stocks. It is comprised of undivided ownership interests called SPDRs. The fund issues and redeems SPDRs only in multiples of 50,000 SPDRs in exchange for S&P 500 Index stocks and cash". This indicates many are bearish on the market at least for another 10 days. The JAN 90 PUT (with 10 days left until expiration), which is not yet in the money, traded as high as $225 per contract and closed at $191 per contract up over 74% today. I am a bit surprised to see this many bears in the market considering Obama will be announcing a more detailed stimulus plan tomorrow, and with his inauguration coming in less than 2 weeks.

Therefore with the market getting hammered today, I sold some covered calls on my SDS for a juicy premium, and speculated by buying the FEB 30 CALLS on EEM for $65 per contract, and the FEB 30 CALLS on SSO for $120 per contract. I was waiting for a pull back in the market to purchase both of these CALLS, so today I finally got my chance and unloaded. I plan to swap out my cost if the market is stronger tomorrow and hold some "free" contracts until expiration. So with the money I received from selling the SDS covered CALLS, I turned into a speculation bet on EEM and SSO. These are the types of gambles I like to take!

We are about flat for the first 4 trading days of the year and tomorrow being the fifth trading day of January, which if you follow historical data, the probability is high that the first 5 trading days of the year will indicate the direction (+/-) for the entire year... So we'll see how we finish tomorrow. Personally I think and hope the worst is over, therefore I have completed all of my shorting for the time being. I still hold some SDS which I cannot seem to get called out on (my cost basis is below 40 a share now with the covered calls I have been writing!



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