Buzz's Blog History

May 9, 2008

Next weekend is expiration weekend. It comes early this month. Expiration is always the Saturday after the third Friday of the month. The time between expirations is either 28 or 35 days, depending on where the days occur each month. The annualized return for stocks that are called or stocks that have the same price will vary depending on if it's 28 or 35 days till the next expiration date. Annualized returns are always bigger for the shorter time period.

Last week, we introduced Exchange Traded Funds (ETFs) buy/writing using the Analyzer. ETFs are packages of various investment vehicles that allow the investor to diversify their portfolio. They are explained here. ETFs tend to be a more stable investment strategy, because of diversification and options can be sold on them. ETF options may have $1.00 increments rather than the $2.50 or $5.00 increments for equities.  For example, the Analyzer's first result last month was Buy 300 shares of PROSHARES ULTRASHORT OIL& GAS (DUG) at $30.22 and sell 3 contracts of DUG EK (May$37.00) at $0.55.  DUG is and ETF that sells oil and gas futures short (expecting them to go down). Even though the price of oil and gas continued to go up in the last month, DUG didn't do too badly. And the high strike price ($37) means that the ETF will probably not be called this month and we can write more calls. We may be able to continue selling calls for many months as added (but slow) income. There can also be a dividend element in the returns for ETFs.

May 1, 2008

Yesterday the government announced that the GDP grew at a 0.6% rate. So, for the last two quarters the rate was 0.6% and we were not in a "recession" even though many media and politicians had said "we are in a recession" during the last six months. Interestingly these same people have now tempered their comments to "it feels like a recession". So we continue to bounce along the bottom. As I said last week in this blog, people are starting to ask tough question and we, as investors, need to be alert to what is really the right answers to these tough questions. For example, "why is food so expensive?"  Panera Bread (PNRA) announced very good earnings yesterday and shares jumped 15%. My wife love Panera. The Analyser listed PNRA as a possible "gem" when run 10 days ago with default parameters. This jump occurred even though profits fell 17%. Panera's CEO, in a TV interview, said that the company was able to raise prices (wheat went from $5.50 to $13.00 a bushel in one year) but still retained their customer base, including my wife. Their customers understood that "food prices were going up", and were willing to continue eating there. The real "alert" in Panera's case is "the price of wheat has been coming down for the past seven weeks" (see chart) . If Panera can continue to maintain their new pricing because the general public thinks food prices are going up, while paying less each week for their wheat, their profits will soar. Insiders and professionals have analyzed PNRA and figured this out - something most of us can't take the time to do. The Analyzer still finds these gems in this "feels like a recession" economy.

April 25, 2008

It's time to really pay attention to the world around us. You might even say we are getting into critical times. Many more people are changing their thinking about many things that have been taken for granter for many years. This change in thinking is being exacerbated by the economy that is being affected from many sides. The general public is going to start asking tougher questions of our government. They are all going to be related to energy, which means oil, which means food, which means technology. Some questions that are going to be asked are:

Why aren't we drilling for more oil?  Why aren't we building more refineries?  What's wrong with nuclear energy? Do we need ethanol? Why are food prices so high? Should we be eating genetically altered food? Why are we importing so much of their stuff? Why are we exporting so much of our stuff? And on and on. Our citizens are starting to turn inward, looking for answers locally - in the US. As investors, we have to be alert to the changes that are going to be made in the near future. It is an election year and the government is going to try to make it look like they are addressing theses questions of the people. Today Texas asked for a waiver on the use of ethanol in gasoline. What will happen if ethanol is not required in gasoline any more? The stimulus package will start hitting pocketbooks next week. Retailers are jubilant - but will they see much of it? Volatility is down to around 20 from a high of 32 within the last year. Does this mean the "news" isn't hyping the markets as it has in the past year? Are the markets finally getting serious?  Important things will happen in the near future that will affect the markets in dramatic ways. As investors, we need to be attentive to what's really going on. More on this later.

April 19, 2008

This expiration weekend we are introducing Exchange Transfer Funds (ETFs) Analysis with the Analyzer. ETFs offer a different perspective on investing, with funds that provide diversity through a variety of international and domestic stocks, sectors, commodities, currencies and other investment vehicles into baskets that are traded like equities and have options. The same Analyzer algorithms apply to ETFs and will help you find the ones that the professionals are buying (More on ETFs).  We are re-adding "Analyze a Single Stock" at the request of several subscribers.

I want to restate that the values shown in our lists, portfolios and results do not represent the trades that our subscribers will make after reviewing our monthly updates or after running the Analyzer. There is always a time lapse  before trades are executed. We need to use some basis point on expiration weekend to establish those buy/writes that the Analyzer has found. We use the closing prices on the Friday of expiration weekend. By the time these buy/writes can be executed on Monday morning, prices have changed. Similarly, we use a flat $0.05 if we have to buy back the calls if the stock drops below our get-out price. The key thing to remember is that since stock prices and their calls move in tandem, the results should be pretty much the same as what we show in the "Results" the next month. Often, subscribers will email us and say they "actually did better" than our published results. Subscribers can download a spread sheet that allows them to put in their actual trade prices and monitor their progress (daily if they want) on up to four individual portfolios.

April 14, 2008

Today on MSNBC's "the Call", the commentators were talking about all the earnings reports that are coming out this week, including INTC, CSX, EBAY, IBM, AMD, AXP and of course the biggie GOOG. They had a segment where they looked at the option activity for these stocks in hopes of finding out whether they could learn something about how the earnings would be. Their supposition was that if someone on the "inside" knew something about the earnings, they would be trading the options instead of the stocks. Well now, this is the premise that the Analyzer assumes. Someone knows something so let's go find it by analyzing the option activity.

We will be adding two new features this weekend (expiration weekend) - Single stock analysis and analysis of Exchange Traded Funds (ETFs). They are HOT. Check us out this weekend.

April 7, 2008

The new buzz saying from  analysts and brokers is "Plunge Protection".  These words are described as finding some investment vehicle that will not be affected by the next big "plunge". There have been a lot of plunges in the last year and almost all of them have been tied to credit. Mortgages, personal debt (credit cards) and bank liquidity are all tied to borrowed money. How many time have we heard "people in this country need to save more". For a while, companies (and individuals) that are going to do well will be those with cash. Plunge Protection advocates will begin to look more closely at balance sheets. We should be able to ride their coattails with the Analyzer as they find cash rich stocks and start buying their calls. I have been advocating for some time that we are not in a recession. Officially we are not in a recession but the media is preaching a lot of fear right now. Much of it is unfounded as identified in The 'Recession' is a Media Myth by John R. Lott Jr. We need to stay alert to what is happening in the markets and not let our investment decisions be dictated by fear. There are opportunities out there right now. We just need to find some "Plunge Protection" and the Analyzer might just be just the right protection. Our returns have held up quite well so far this year even with all the "gloom and doom" in the media.

April 2, 2008

Well, are we going to bounce along the bottom for a while? We are still in a "high" volatility period and the markets will surely continue in their up and down pattern. Some might argue that the trend since March 10 is up. And it is, if you look at the chart, but it's a pretty short trend. There are a lot of factors at play here. The media continues to preach gloom and doom - "we're in a recession", "things aren't getting better", "when is the next shoe going to drop?". You also have to understand the background of the person who is talking - is it biased politically or personally? The Secretary of Treasury. Paulson, works for the President (political). Bernanke, the FED Chairman, is supposed to be "independent" but has to report periodically to Congress and is trying to establish his creditability (political and personal). The media and TV investor pundits all have their own agenda (personal). One thing is certain - the markets begin to turn up well before everyone "gets-it". I think we are going to bounce along the bottom for a while. But I also think the Analyzer is going to be able to find those opportunities that will make money during this period. There are a number of analysts and insiders who are privy to "stuff" we are NOT privy to. The Analyzer can tap into that "stuff". Many of our March (expiration weekend) picks are above the strike price already. For example, four of the six picks in our $10,000 Aggressive Portfolio are currently above the strike price, and the other two are close. That means we can bounce a little here and not be hurt too much. Subscribers can follow along with these bounces by downloading the portfolio spreadsheet and filling in the particular portfolio or list they are following with actual prices each day.

March 24, 2008

The Market took off like a rocket this morning. Those subscribers who visited here this expiration weekend and made their decisions about what trades to make probably were not able to make them at Fridays closing prices early on Monday morning. This is not a problem. Since stocks and calls move in tandem, if you got in anytime today, you probably maintained the same potential returns. The markets shot up and then leveled off and stayed near their highs. Let's take a look at some of the Analyzer picks and what would have happened if the trades were executed after 10:00am (CDT) on Monday. We will use today's closing prices for our calculations. We will arbitrarily pick the fifth trade from the top on our lists and portfolios for review. RMBS was the fifth on our Aggressive Stocks-to-Consider list and was projected to have a return of 22.4%. If this stock was purchased at the close today and the call sold (stock price $18.75, Apr20 call bid price $2.10) the return would be 17.5%. TSL was the fifth on our Conservative Stocks-to-Consider list and was projected to have a return of 26.3%. If this stock was purchased at the close today and the call sold (stock price $29.24, Apr35 call bid price $0.70) the return would be 21.4%. JEF was the fifth on our Retirement portfolio and was projected to have a return of 14.9%. If this stock was purchased at the close today and the call sold (stock price $17.87, Apr20 call bid price $0.75) the return would be 24.3%.  IDCC was the fifth on our $10,000 Aggressive portfolio and was projected to have a return of 22.4%. This stock blew right past the strike price (Apr20) this morning and closed at $22.31. But buying the stock at this price and rolling out to the next out-of-the-money strike (Apr25) would yield a return of 14.2%. Over all, the returns remain bullish.

March 22, 2008

I really like Ben Stein's articles. He seems to always identify what's going on in the markets and interprets the situation with optimism rather than pessimism. His recent articles  have blasted what has been going on in the economy and the markets. However his theme is always "there are opportunities in these times". In his March 18th article he states "The good times will come back when you least expect them". With all the bad news and turmoil in the markets, most people feel the worst is yet to come. But history shows that turnarounds start before the hubris and hand-ringing end. One of Ben Stein's articles talks about the fact that housing values in Manhattan have not gone down, while the the rest of the country has seen sharp drops in house prices. Manhattan is filled with investment bankers, analysts and traders that end up in good and bad financial years making a bundle. They play both sides of the trading game. Our covered call lists and portfolios are continuing to do well against the major markets in 2008. One of the reasons we are doing well is the Analyzer finds those buy/writes that these professionals are trading.  Our subscribers using our service should feel good about this.

March 7, 2008

What should I do with my favorite stocks in my portfolio in a falling market? Holding on to stocks in an IRA, college or retirement account, that have done well, that have grown over time, can cause severe angst in these falling market times. You may want to consider a covered call strategy. This goes against our basic strategies in our covered call lists and portfolios, where we want to have the stock called away in a short period, like thirty days, take the profit and move on. However, if you have good stocks in your portfolios, and you intend to ride out the drops, you could sell short term out-of-the-money covered calls on these favorites. It works this way. Suppose you have a stock that you bought five years ago for $20.00. It rose to $40.00 in the middle of last year and since has been moving down to $30.00 today. If you thought the recession talk, mortgage debacle, and other economic factors were going to put downward pressure on your favorite stocks back then, you could have sold short term out-of-the-money covered calls against them. Selling the $45 call back in the middle of last year for $1.00 expiring in one month, would have given you a $1.00 hedge on the stock price. If the stock dropped to $38.00 at expiration you could have sold the $40 call at the next month for perhaps $2.00. Now your hedge is up to $3.00. And so on. You say, “Well what happens if the stock starts to go up and gets called away?” You buy the stock back at the current price and leave it in your portfolio for future growth. If you think your favorites and going to continue to go down in the next few months, you may want to implement this strategy now.

February 29, 2008 (Leap day)

The markets have been “leaping” and falling back so far this leap year (see chart). Some people are making a lot of money, playing both sides of these ups and downs. Others are frustrated that they don’t know what to do in this environment. The DOW has been moving in a 1,085 point range since the year began. The high (13,056) and low (11,971) is a spread of only 9%. Many feel the swings have been much more than that and that the markets are in a downward spiral. Actually we are trading in a “narrow range” that is highly volatile. Our covered call lists and portfolios have been doing nicely so far this year. One of the reasons is that we have been able to take advantage of high call premium prices that are the result of volatility. This cushion has been significant in our lists and portfolios. Since initiating our retirement portfolio in 2005, we were happy to get about $2,500 call premium a month as income. Our actual average for those three years was $2,142. So far in 2008, we are averaging over $5,500 per month in this portfolio. In our $10K aggressive portfolio, the average monthly call premium has been $529 per month since starting the portfolio in March of  2005. So far in 2008 the monthly call premium is averaging $644, up 22% over the previous average. We will continue to take advantage of high call premiums as long as they last. Many non-covered call investors are complaining that “volatility is killing me”. We are not complaining about volatility.

February 16, 2008

Let’s talk about recession. Everyone else is. Politicians, media and the general public are saying “we are in a recession”. The definition of recession is two consecutive quarters with negative Gross Domestic Product growth. The December 2007 quarter GDP was +0.6% (close but not negative). We don’t know what the first Quarter of 2008 will be. If it is negative, that will be the first quarter (March 2008) and it will take another consecutive negative quarter (June 2008) to confirm a recession. Let’s wait and see what happens before we say “we are in a recession”.

Volatility (^VIX) continues to be high, resulting in better call premiums. As a result, we have changed some of the default parameters for the Analyzer – hilo ratio (to 60%), spread and minimum call price (to $0.50), open interest (to 1000), call volume (to 300), and both returns (up 10%)We are off to a very good start for all our lists and portfolios and are well ahead of the market averages. Subscribers may notice that the Analyzer is finding more buy/writes for the second out-of-the-money calls which have very high returns if the stock is called. This indicates that the market makers are willing to run up call premiums for higher strike prices. Take a look at GRA, GIGM and NFLX in our January Conservative Stocks-to-Consider. All three of these buy/writes suggested the second out-of-the-money strike price, and all three were called at these higher prices yielding a very large appreciation before being called. If you are not a subscriber, why not join us?

February 10, 2008

Several analysts and fund managers questioned this week on CNBC about what to do in “this market” responded “consider covered calls”. Most were suggesting that out-of-the-money covered calls be sold against stock in an investors existing portfolio that had declined in price over the recent months, in order to recoup some of their losses. Others on CNBC were suggesting that there are still some good stocks out there that are bucking the trend and rising in this market. “The trick is to find them” they said and then were listing their “favorites”. It’s good to see that these specialists are recommending strategies that are basic to the Analyzer – “find ‘em and sell out-of-the-money calls against ‘em”. If you look at our two covered call lists and our two covered call portfolios opened on January 19 (last expiration weekend), you will see that of the 37 buy/writes found by the Analyzer and published here at our website, 19 are already above the out-of-the money strike price and only one required using the get-out price at -15%. That’s pretty good job of findin’ ‘em. If you add up the call premium realized by the sale of these 37 buy/writes, you get a pretty nice cushion of 6%. In this same period (January 19 to February 10) the DOW went up 0.06%, the NASDAQ went down 1.49% and the S&P500 went up 0.04%. In between there was a lot of volatility (see the VIX index). Next weekend, February 16, is expiration weekend and we will be publishing new lists and updating the portfolios using the Analyzer. By subscribing now you will have access to these updates.

February 1, 2007

Thanks to our subscribers for sticking with us during the last half of 2007. Volatility went crazy with a series of events starting with subprime, then credit, banks, foreclosures, debt and world markets. Although volatility will continue, we think opportunities will increase as we move further into 2008. The basic premise of the Analyzer is to find stocks, and their accompanying calls, that have a good chance of moving up to the out-of-the-money strike price. Our algorithms find stocks that the professionals are buying calls against. They usually know something most of us don’t. There are a lot of good companies still out there. Many were trashed in the recent volatility activity. But they are still good and the professionals are looking closely to find them. The Analyzer found some on January 2 and they have moved up nicely throughout January and all our lists and portfolios are up nicely (see above). Why not join us as subscribers?

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