Financials on FIRE After Hours

Some news came out after hours and is sending bank stocks higher. I have a feeling we could see a very strong open, but it may die off mid to late day. I will be selling most of my covered calls as early as possible bargaining for the best premiums. I hope the rally continues, it would be excellent for the market!

Earlier tonight while looking online I typed in the Google Finance BAC message boards about how I feel mark to market accounting should be done away with, well some other writers disagreed with that... Not like I care, I still stand by that honestly because I think it will get us out of this mess the quickest, cheapest, and easiest! I have pasted my post from the message board below. Click on the link to view that message board discussion.

ME at 6:44 PM:

Do away with mark to market for the short term... Don't nationalize
banks! No I don't see this stock at $10 unless this happens...

ME at 12:29 AM after numerous replies:

I am just saying they should do away with mark to market at least for
time being... Why mark assets at $0 when they haven't been realized
losses yet! Technically all of us that hold BAC at am unrealized loss,
haven't lost a dime, because it is not out of our portfolios yet... If
you don't take the loss realized, it is not a loss yet! When the asset
sells you can then see what the loss/gain is. We wouldn't need to
throw billions at banks and continue to see it disappear before our
eyes. This way would be a lot easier and cheaper! Why should we keep
granting billions to the banks when the problem can be solved without
the tax payers help! I stand with many brilliant minds on wall street.
This is not a transparency issue anymore, we already know its bad! Why
make these banks suffer to the point where they'll be nationalized?
Simply to make shorts happy? If banks get nationalized you'll see the
entire market sell off due to a lack of confidence; if they take over
banks why can't they take over other sectors etc...?

Option Maestro



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Update to CAT Earnings 1/26/09

Just as I thought CAT numbers came in weak, but who would have guessed that would revise 2009 numbers like they did. Cutting 20,000 jobs is bad for economy overall but good for CAT. Today as planned as the stock traded belwo $32 a share, I was out selling LEAP 11 PUTS for the $45 (VKTMI) and fetched $1890 a contract (cost basis come JAN 2011 assuming CAT is lower than $45 (which I don't think it will be) is $26.10). If CAT continues to sell off I will sell more. If CAT gets to the $25 range I will sell some more 2011 PUTS. I hope we've seen the worst for CAT but who knows...



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Today's Common is Tomorrow's Option

Today I picked up some FAS (Financial Bull 3X). for $8.35 a share and expect to write out a few covered calls on it tomorrow for the February $15 range. Looking at the last trade for this option (FASBC) it went for 55¢ a share. I will most likely try to get around 70¢ or so a share or $70 a contract. This is one I have been keeping my eye on and finally I pulled the trigger. Judging by the futures now I might be able to sell it within the first hour or so of trading for my desired premium.

I am also looking at selling some PUTS on one of my favorite stocks GLW (Corning Incorporated) tomorrow if earnings cause the stock to get beaten up. I am looking at the 7.50 leap 11 PUTS (VGCMU) which last traded at 1.70 a share, but I will try to get between $2 and $2.75 depending on how beat up (if it even gets beat up) it gets, I will also look at the leap 11 10 PUTS on GLW if I can get a better premium such as 40% down (meaning $4 a share) versus 36.67% (at $2.75) on the $7.50. I don't think GLW will be below this level come January 2011 therefore I am confident in this PUT strategy.



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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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