Is your favorite television program being shut off for the New Year? In a statement released earlier today, Viacom (VIA), which controls MTV, Nickelodeon, Comedy Central and 16 other cable channels, stated that Time Warner Cable (TWC) is undervaluing Viacom’s cable programs.
"Time Warner Cable has dismissed our efforts at a fair compromise," Viacom said in a statement. "As a result, we are sorry to say that for Time Warner Cable customers our networks will go dark as of 12:01 on January 1st."
The channels that would be affected are: Comedy Central, CMT: Pure Country, Logo, Palladia, MTV, MTV 2, MTV Hits, MTV Jams, MTV Tr3s, Nickelodeon, Noggin, Nick 2, Nicktoons, Spike, The N, TV Land, VH1, VH1 Classic, and VH1 Soul.
Viacom is currently seeking a fee increase from Time Warner that would amount to only $0.23 per month per customer. With TWC currently having some 13 million subscribers, the total would come in at roughly $36M in lost revenues.
Time Warner, on the other hand, cites that Viacom is owed nothing and representative Alex Dudley said Viacom was asking for a fee increase that was too steep, despite the fact that "ratings are sagging" at most of its networks.
In response, "We make this request because TWC has so greatly undervalued our channels for so long. Americans spend more than 20% of their TV viewing time watching our networks, yet our fees amount to less than 2.5% of what Time Warner generates from their average customer," Viacom added. "Throughout the country, we have negotiated equitable license agreement renewals, or are in the final stages of renewals, with virtually every cable and satellite carrier. Nevertheless, Time Warner has dismissed our efforts at a fair compromise and has effectively chosen to deny its customers some of the most popular TV shows on the air."
One of the thorns in the side of Time Warner is that many of the shows that are first broadcasted on Viacom’s network are re-aired on the Web where Viacom receives additional advertising revenues, which is then not shared with Time Warner.
In late afternoon trading, shares of Viacom were up over 5% to trade at $20.24 per share, while shares of Time Warner Cable were down nearly 1% at $21.58 per share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Wednesday, December 31, 2008
Tuesday, December 30, 2008
Holiday Sales Not So Merry For Retailers - December 30, 2008
Was it a Merry Christmas for you? For retailers it wasn’t. Even with huge price reductions and promotional sale items, consumers were still affected by the financial crisis that has gripped the country over the past several months.
In a survey by MasterCard’s (MA) SpendingPulse analysis, it showed that retail sales during the holiday season plummeted between 2% and 4%, despite the huge incentives to get cash-strapped shoppers into their stores. Even Cyber Monday, the busiest day of the shopping season, couldn’t save retailers from the economic crunch.
Within the data released earlier today, SpendingPulse provided data that showed that sales of men’s clothing dropped 14% during November and December compared to last year’s results. Additionally, women’s clothing sales plummeted almost 23% during the same period versus last year’s tally.
On top of that, sales from electronics and appliances fell an astonishing 27% from last year’s figures. Footwear sales dropped of by 13.5%, while the luxury sector, mainly jewelry were hit the hardest, falling more than 34%.
Consumer strategists at Global Hunter Securities LLC stated, “The whole pricing system is becoming an old-fashioned bazaar. They’re going into the stores, they’re looking at the stuff, and they’re saying ‘You know what? I know that that price is way too high,’ and they have figured out that the signage doesn’t mean that much.”
Not only are the brick-and-mortar stores taking their lumps, but so too are the online retailers. Within the same MasterCard survey, the data showed that online holiday sales decreased by 2.3%.
As consumers spent less, companies needed to find a way to increase their business position amidst the current economic condition. However, many failed to maintain their doors open. With countless store closing, bankruptcies and takeovers taken place over the past month or so, next months release of retail sales could shape up to be the worst figure in more than 40 years.
When the figures come out next month, the International Council of Shopping Centers (ICSC) projects that 148,000 stores would have closed during 2008. That number compares only with 151,000 closings seen in 2001, the last recession the country went through.
With the economy contracting, retailers may see upwards of 3% of all retail locations shutting their doors forever. In the last survey, held in 2002 by the Bureau of Labor Statistics, the U.S. had some 1.11 million retail locations throughout the nation.
Looking ahead to 2009, the ICSC predicts that more than 73,000 stores will be shut down by retailers in the first half of the year. Leading into the New Year, more than a dozen retailers have already filed for bankruptcy protection.
Included, are companies such as Circuit City, Linens ‘n Things Inc., Sharper Image Corp. and Steve and Berry’s LLC., which have all looked for protection during the credit crisis.
“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,” said Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York. “There are a number that are real causes for concern.”
For more information on the stock and options markets check out the wealth of information at BetterTrades.
In a survey by MasterCard’s (MA) SpendingPulse analysis, it showed that retail sales during the holiday season plummeted between 2% and 4%, despite the huge incentives to get cash-strapped shoppers into their stores. Even Cyber Monday, the busiest day of the shopping season, couldn’t save retailers from the economic crunch.
Within the data released earlier today, SpendingPulse provided data that showed that sales of men’s clothing dropped 14% during November and December compared to last year’s results. Additionally, women’s clothing sales plummeted almost 23% during the same period versus last year’s tally.
On top of that, sales from electronics and appliances fell an astonishing 27% from last year’s figures. Footwear sales dropped of by 13.5%, while the luxury sector, mainly jewelry were hit the hardest, falling more than 34%.
Consumer strategists at Global Hunter Securities LLC stated, “The whole pricing system is becoming an old-fashioned bazaar. They’re going into the stores, they’re looking at the stuff, and they’re saying ‘You know what? I know that that price is way too high,’ and they have figured out that the signage doesn’t mean that much.”
Not only are the brick-and-mortar stores taking their lumps, but so too are the online retailers. Within the same MasterCard survey, the data showed that online holiday sales decreased by 2.3%.
As consumers spent less, companies needed to find a way to increase their business position amidst the current economic condition. However, many failed to maintain their doors open. With countless store closing, bankruptcies and takeovers taken place over the past month or so, next months release of retail sales could shape up to be the worst figure in more than 40 years.
When the figures come out next month, the International Council of Shopping Centers (ICSC) projects that 148,000 stores would have closed during 2008. That number compares only with 151,000 closings seen in 2001, the last recession the country went through.
With the economy contracting, retailers may see upwards of 3% of all retail locations shutting their doors forever. In the last survey, held in 2002 by the Bureau of Labor Statistics, the U.S. had some 1.11 million retail locations throughout the nation.
Looking ahead to 2009, the ICSC predicts that more than 73,000 stores will be shut down by retailers in the first half of the year. Leading into the New Year, more than a dozen retailers have already filed for bankruptcy protection.
Included, are companies such as Circuit City, Linens ‘n Things Inc., Sharper Image Corp. and Steve and Berry’s LLC., which have all looked for protection during the credit crisis.
“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,” said Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York. “There are a number that are real causes for concern.”
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Monday, December 29, 2008
Joint Venture for Dow Chemicals Dissolves - December 29, 2008
In an announcement made early Monday morning, the Kuwaiti government confirmed reports that a joint venture with U.S. chemical giant Dow Chemicals (DOW) has been banished. The proposed deal was signed last month and was valued at $17.4B, and would have created the petrochemical joint venture had it not been for the deteriorating global financial crisis.
The agreement was presented for Kuwait state-owned Petrochemicals Industries Co. to front a $7.5B stake in a 50-50 venture with Dow to be named K-Dow Petrochemicals. If Kuwait had waited until after the New Year, the country would have been liable for a $2.5B penalty related to a breech of contract.
The new company, had it succeeded, would have been brought to market such products as polyethylene, polypropylene, and polycarbonate. These products are the main chemicals used to manufacture such items ranging from plastic bottles to compact discs to computers and agricultural compounds.
The strength of the venture began to show signs of weakness as the price of crude took a nosedive since hitting its record highs in July. Since then, the price of crude has fallen more than $100 a barrel, which has put tremendous pressures on Kuwait, along with their Arab neighbors.
With crude’s price plummeting, the Kuwaiti stock exchange has also taking serious hits, losing nearly 35% of it total value since the beginning of the year. Dow has not fared much better since the beginning of ’08. Beginning in the upper $30s, Dow’s stock is currently trading in around $15, down 60% from January 1, and nearly 65% from its 52-week high of $43.43 set back on May 16.
Today’s events could have dire consequences on Dow’s financing capabilities of a proposed takeover of Rohm & Haas (ROH), which was announced in July for a price tag of $18.8B. Analysts now believe that Dow will return the negotiation table to seek a lower acquisition price for Rohm & Haas.
In respect to the joint venture, Dow was planning to use $9B in proceeds from the deal to fund the purchase of Rohm & Haas. However, a representative from Rohm & Haas acknowledged that the failed joint venture would in no way affect attempts for the two companies to merge.
Dow officials went on to say that they were "extremely disappointed with the decision by the Kuwait Government, and is in the process of evaluating its options pursuant to the Joint Venture Formation Agreement." The Dow representative went on to add that they "remain committed to its Middle East Strategy."
Without expected funding from the joint venture, Dow must rely on previous measures in which the company enacted a few weeks ago. Having reduced their workforce by some 5,000 employees, Dow has also stated that they will be shutting down 20 facilities and divest non-strategic businesses in order to cope with the current economic conditions.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
The agreement was presented for Kuwait state-owned Petrochemicals Industries Co. to front a $7.5B stake in a 50-50 venture with Dow to be named K-Dow Petrochemicals. If Kuwait had waited until after the New Year, the country would have been liable for a $2.5B penalty related to a breech of contract.
The new company, had it succeeded, would have been brought to market such products as polyethylene, polypropylene, and polycarbonate. These products are the main chemicals used to manufacture such items ranging from plastic bottles to compact discs to computers and agricultural compounds.
The strength of the venture began to show signs of weakness as the price of crude took a nosedive since hitting its record highs in July. Since then, the price of crude has fallen more than $100 a barrel, which has put tremendous pressures on Kuwait, along with their Arab neighbors.
With crude’s price plummeting, the Kuwaiti stock exchange has also taking serious hits, losing nearly 35% of it total value since the beginning of the year. Dow has not fared much better since the beginning of ’08. Beginning in the upper $30s, Dow’s stock is currently trading in around $15, down 60% from January 1, and nearly 65% from its 52-week high of $43.43 set back on May 16.
Today’s events could have dire consequences on Dow’s financing capabilities of a proposed takeover of Rohm & Haas (ROH), which was announced in July for a price tag of $18.8B. Analysts now believe that Dow will return the negotiation table to seek a lower acquisition price for Rohm & Haas.
In respect to the joint venture, Dow was planning to use $9B in proceeds from the deal to fund the purchase of Rohm & Haas. However, a representative from Rohm & Haas acknowledged that the failed joint venture would in no way affect attempts for the two companies to merge.
Dow officials went on to say that they were "extremely disappointed with the decision by the Kuwait Government, and is in the process of evaluating its options pursuant to the Joint Venture Formation Agreement." The Dow representative went on to add that they "remain committed to its Middle East Strategy."
Without expected funding from the joint venture, Dow must rely on previous measures in which the company enacted a few weeks ago. Having reduced their workforce by some 5,000 employees, Dow has also stated that they will be shutting down 20 facilities and divest non-strategic businesses in order to cope with the current economic conditions.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
IndyMac Sold? - December 29, 2008
Is failed IndyMac Bank being sold? In a report released early Monday morning that answer seemed to be yes. In an article released by the New York Times on Saturday, is appears that the once-profitable bank, which was seized by the FDIC, could be purchased by a trio of private-equity firms.
The three major players, J.C. Flowers & Co., Dune Capital Management and hedge-fund operator Paulson & Co. were the leading candidates to obtain the insolvent bank, which was seized by the Federal Deposit Insurance Corp. back in early July.
At the time of their demise, IndyMac had more than $32B in assets related to mortgage industry, more than $19B in deposits and 33 banking branches throughout all of California. The collapse of IndyMac marked the second largest bank failure during the year, only behind Washington Mutual’s collapse back in September.
In the proposed deal, the equity firms would post nearly $14B in order to acquire the bank. However, the FDIC would need to set up a loss-sharing agreement. The FDIC estimates that the failure of IndyMac cost the agency nearly $9B. Deutsche Bank AG (DB) and Barclays Capital Inc. (BCS), the investment-banking unit of London-based Barclays Plc, are advising the FDIC on the sale.
The seizure of IndyMac by the FDIC came in July 11, after customers made a bank run and withdrew more than $1.3B in deposits over an eleven-day span. Of the 25 banks that have failed thus far this year, IndyMac is the only remaining one that the FDIC has yet been able to sell.
The potential sale of IndyMac to private firms comes as the government has reduced restrictions pertaining to theses types of sales. Previously, private firms could not hold a stake in a bank that exceeded a 24.9% stake. If that portion were exceeded, it would then have to become a bank-holding company, and would limit the potential investment spectrum of the firm to invest mainly within the banking industry.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
The three major players, J.C. Flowers & Co., Dune Capital Management and hedge-fund operator Paulson & Co. were the leading candidates to obtain the insolvent bank, which was seized by the Federal Deposit Insurance Corp. back in early July.
At the time of their demise, IndyMac had more than $32B in assets related to mortgage industry, more than $19B in deposits and 33 banking branches throughout all of California. The collapse of IndyMac marked the second largest bank failure during the year, only behind Washington Mutual’s collapse back in September.
In the proposed deal, the equity firms would post nearly $14B in order to acquire the bank. However, the FDIC would need to set up a loss-sharing agreement. The FDIC estimates that the failure of IndyMac cost the agency nearly $9B. Deutsche Bank AG (DB) and Barclays Capital Inc. (BCS), the investment-banking unit of London-based Barclays Plc, are advising the FDIC on the sale.
The seizure of IndyMac by the FDIC came in July 11, after customers made a bank run and withdrew more than $1.3B in deposits over an eleven-day span. Of the 25 banks that have failed thus far this year, IndyMac is the only remaining one that the FDIC has yet been able to sell.
The potential sale of IndyMac to private firms comes as the government has reduced restrictions pertaining to theses types of sales. Previously, private firms could not hold a stake in a bank that exceeded a 24.9% stake. If that portion were exceeded, it would then have to become a bank-holding company, and would limit the potential investment spectrum of the firm to invest mainly within the banking industry.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Wednesday, December 24, 2008
Wal-Mart Settles Lawsuits - December 24, 2008
In a statement released yesterday by the nation’s largest retailer, Wal-Mart Stores Inc. (WMT) confirmed that the company has settled more than 60 lawsuits against them regarding the violation of hourly workers pay and making employees work through personal breaks.
In claims that have been ongoing for several years, Wal-Mart has agreed to shell out nearly $640M in the 63 lawsuits that were pending against the company. If the settlement reaches the upper end of the $640M, it would only represent less than 0.1% of the company’s total revenue in 2008 of $378.8B.
Even after yesterday’s settlement, the company still has some 12 lawsuits pending against them for various claims.
“Resolving this litigation is in the best interest of our company, our shareholders and our associates,” Tom Mars, Wal-Mart executive vice president and general counsel, said in a joint statement by the company and the plaintiffs. “Many of these lawsuits were filed years ago and the allegations are not representative of the company we are today.”
These suits against Wal-Mart appear to be a frequent occurrence. Earlier this month, the company settled an additional suit against them in Minnesota wherein workers also claimed violations of wage and hours worked laws. Wal-Mart settled for $54.3M.
In the Minnesota case, the circuit judge found that Wal-Mart had violated wage and hour laws more than 2M times. The company agreed to pay workers more than $6.5M in back pay. If the case had gone to trial, the jury would have been asked to render judgment for damages of upwards of $2B.
Dating further back, Wal-Mart has also settled other cases involving workers’ rights and break privileges. In 2006, a Pennsylvania jury ruled against Wal-Mart in a $78M case in which the company refused workers’ personal breaks, along with unpaid wages. In 2005, a California court awarded plaintiffs more than $172M over meal breaks that were not provided.
These cases, along with those that are pending or recently settled, have caused mass concerns and outrage by consumers, environmentalists, politicians and labor groups.
By the close of trading today, shares of Wal-Mart increased marginally, adding $0.15, or 0.3%, to end the shortened session at $55.44 per share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
In claims that have been ongoing for several years, Wal-Mart has agreed to shell out nearly $640M in the 63 lawsuits that were pending against the company. If the settlement reaches the upper end of the $640M, it would only represent less than 0.1% of the company’s total revenue in 2008 of $378.8B.
Even after yesterday’s settlement, the company still has some 12 lawsuits pending against them for various claims.
“Resolving this litigation is in the best interest of our company, our shareholders and our associates,” Tom Mars, Wal-Mart executive vice president and general counsel, said in a joint statement by the company and the plaintiffs. “Many of these lawsuits were filed years ago and the allegations are not representative of the company we are today.”
These suits against Wal-Mart appear to be a frequent occurrence. Earlier this month, the company settled an additional suit against them in Minnesota wherein workers also claimed violations of wage and hours worked laws. Wal-Mart settled for $54.3M.
In the Minnesota case, the circuit judge found that Wal-Mart had violated wage and hour laws more than 2M times. The company agreed to pay workers more than $6.5M in back pay. If the case had gone to trial, the jury would have been asked to render judgment for damages of upwards of $2B.
Dating further back, Wal-Mart has also settled other cases involving workers’ rights and break privileges. In 2006, a Pennsylvania jury ruled against Wal-Mart in a $78M case in which the company refused workers’ personal breaks, along with unpaid wages. In 2005, a California court awarded plaintiffs more than $172M over meal breaks that were not provided.
These cases, along with those that are pending or recently settled, have caused mass concerns and outrage by consumers, environmentalists, politicians and labor groups.
By the close of trading today, shares of Wal-Mart increased marginally, adding $0.15, or 0.3%, to end the shortened session at $55.44 per share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Tuesday, December 23, 2008
Ford's New Top Seller? - December 23, 2008
In an effort to revitalize their market position within the struggling auto industry, Ford (F) received a letter of certification for their all-new 2010 Fusion Hybrid from the Environmental Protection Agency (EPA) today.
In what is now the highest rated, mileage wise, mid-sized sedan, the new Fusion has an estimated 41 miles per gallon in the city, and 36 miles per gallon on the highway. The company introduced the car earlier today, in efforts to compete with rival Toyota (TM) and their hybrid Camry.
With the Big Three in dire straits, the auto industry needed a shot in the arm, and Ford was able to provide that today.
The introduction of the new hybrid today makes it the second most fuel-efficient car on the road today, behind the Toyota Prius which gets somewhere in the neighborhood of 60 miles to the gallon.
"Consumers are completely reconsidering everything about buying a car, in terms of what attributes they're looking for," says Stephen Berkov, executive director of client strategy at consumer website Edmunds.com.. "Now, the No. 1 factor would be fuel efficiency — that's a paradigm shift. Automotive marketing has always been about performance, and now it's about fuel efficiency."
Ford’s new Fusion can travel upwards of 47 mph on battery power alone. Once that speed is reached, the car switches over to gasoline power, the company’s new four-cylinder engine, which in turn recharges the battery.
The smaller, lighter nickel-metal hybrid battery produces 20% more power than the company’s previous technology, which accompanies the Escape Hybrid models. The battery is also 50 pounds lighter than the previous version.
Another improved technology in the new hybrid system is the conversion of the air conditioner from gas to battery operated. In previous models, the ac unit was driven by the gas-powered engine. In the new Fusion, the ac is powered solely from the battery pack, improving gas mileage even further.
One of the greatest improvements to the car comes from the braking system. In what is referred to as “regenerative” braking, the new system captures energy lost in the braking process and stores it for future battery use. Ford claims that the new Fusion braking system recovers 94% of the energy lost in braking.
Although the price of gas has retreated from its all-time high of $4.11 a gallon in July, consumers were blindsided by the price then, and have now become more leery of gas prices. Fuel economy is now one of the highest selling points for new and used cars these days.
As one of the Big Three, Ford slides right into the media spotlight with a vehicle that provides consumers with an alternative to the top-selling hybrids from Toyota. Moreover, it gives the Detroit automakers a positive spin in a time when Congress was giving them grief for not producing enough “green” cars.
Upon receiving their final certification from the EPA, the Ford Fusion Hybrid was originally unveiled at the L.A. auto show last month, along with the Mercury version of the Milan Hybrid.
In trading today, shares of Ford were pummeled, falling more than 14% to trade at $2.23 per share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
In what is now the highest rated, mileage wise, mid-sized sedan, the new Fusion has an estimated 41 miles per gallon in the city, and 36 miles per gallon on the highway. The company introduced the car earlier today, in efforts to compete with rival Toyota (TM) and their hybrid Camry.
With the Big Three in dire straits, the auto industry needed a shot in the arm, and Ford was able to provide that today.
The introduction of the new hybrid today makes it the second most fuel-efficient car on the road today, behind the Toyota Prius which gets somewhere in the neighborhood of 60 miles to the gallon.
"Consumers are completely reconsidering everything about buying a car, in terms of what attributes they're looking for," says Stephen Berkov, executive director of client strategy at consumer website Edmunds.com.. "Now, the No. 1 factor would be fuel efficiency — that's a paradigm shift. Automotive marketing has always been about performance, and now it's about fuel efficiency."
Ford’s new Fusion can travel upwards of 47 mph on battery power alone. Once that speed is reached, the car switches over to gasoline power, the company’s new four-cylinder engine, which in turn recharges the battery.
The smaller, lighter nickel-metal hybrid battery produces 20% more power than the company’s previous technology, which accompanies the Escape Hybrid models. The battery is also 50 pounds lighter than the previous version.
Another improved technology in the new hybrid system is the conversion of the air conditioner from gas to battery operated. In previous models, the ac unit was driven by the gas-powered engine. In the new Fusion, the ac is powered solely from the battery pack, improving gas mileage even further.
One of the greatest improvements to the car comes from the braking system. In what is referred to as “regenerative” braking, the new system captures energy lost in the braking process and stores it for future battery use. Ford claims that the new Fusion braking system recovers 94% of the energy lost in braking.
Although the price of gas has retreated from its all-time high of $4.11 a gallon in July, consumers were blindsided by the price then, and have now become more leery of gas prices. Fuel economy is now one of the highest selling points for new and used cars these days.
As one of the Big Three, Ford slides right into the media spotlight with a vehicle that provides consumers with an alternative to the top-selling hybrids from Toyota. Moreover, it gives the Detroit automakers a positive spin in a time when Congress was giving them grief for not producing enough “green” cars.
Upon receiving their final certification from the EPA, the Ford Fusion Hybrid was originally unveiled at the L.A. auto show last month, along with the Mercury version of the Milan Hybrid.
In trading today, shares of Ford were pummeled, falling more than 14% to trade at $2.23 per share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Tuesday Trading Tutorial - December 23, 2008
Following last week’s discussion of Selling Puts, this week’s article will focus mainly on credit spreads and how options traders can benefit from learning this trading strategy.
What is a credit spread? Well, it is the difference in value of two options on the same underlying security when the value of the option sold exceeds the value of the one bought.
It could also represent the yield difference between Treasury securities and comparable non-Treasury securities such as mortgage-backed bonds, expressed in basis points. Credit spreads widen in recessions and grow tighter in economic expansions.
However, for today, we will be dealing mainly with the options portion of the definition.
A credit spread involves the simultaneous purchase and sale of puts, or calls, that expire at the same time but have different strike prices. Puts are used if you are bullish on the underlying stock, while calls are used for a bearish outlook.
This strategy allows investors to have potentially fixed rewards and manageable risks. This is accomplished by collecting a premium up front and waiting until expiration, when the positions expire worthless, hopefully.
With credit spreads, the effect of time decay is working for you, not against you. Time decay is defined as the ratio in the change of an options’ price to the decrease in its time to expiration.
The two types of credit spreads that we will explore will be Bull Puts and Bear Calls. Each will put money in your pocket at the start of the trade, but one uses puts as the trading vehicle and one uses calls.
A Bear Call spread is a when the investor takes advantage of the market’s decline. Here, a call option is sold (typically out of the money), and a higher strike price call option is purchased for insurance purposes.
An example of a Bear Call Spread would be if a trader anticipates the decline of a stock, say QWE from its current trading price of $40, then the following would take place. The investor could write, or sell, a January 45 call for perhaps $3.00 and buy the January 50 call for $1.00. The spread received would total $2.00, or $200 per contract sold ($2.00 x 100 shares in a contract).
If the stock remains at or below $45 by expiration, then the option would expire worthless and the investor would keep the net credit of $200.
If the stock trades between $45 and $50, your gain or loss would depend upon how much above $45 the stock trades on expiration day. If the stock were trading at $46, you would still show a gain of $100 (you were paid $200, but lost $100 by the stock closing a dollar above $45).
If the stock trades above $47, you will experience a loss on the trade. Your loss will be capped however at $300. This is due to your having bought the $50 Call option. Even if the stock were to go to $60, with the $50 call option you have the ability to buy the call for $50 and turn it over to the person who exercised the $45 you sold.
Ideally, however, you would roll out of the position before your losses mounted. To roll the position into the forward month. The trader would buy back the $45 calls, and sell the $50 calls that were bought. You would then sell an out of the money option for the next month and buy a call at a strike price above the one you sold, essentially entering the trade again but with another month of time value.
On the other side, if a trader believes that the stock is in a bullish position, they would use a Bull Put spread. This is an options strategy that involves using puts to take advantage of a rising market.
For example, if the trader believes that QWE, which is trading at $30, will go up in the near future, then the following could occur. The trader could write, or sell, a January 15 put for perhaps $2.00, and buy the January 10 put for $0.50. The spread received here would be $1.50, or $150 per contract (1.50 x 100).
Here, if the stock were to remain at its current price of $20 or increase in value, then the investor would see the options expire worthless, thus retaining all of the net credit of $150. If the stock were to close between $15 and $10, then the losses or gains would be reduced, depending on the value left in the options at expiration.
However, if the stock were to trade below the $10 mark, then the investor could again roll into the forward month by buying back the January 15 put and selling the January 10 put. There would likely be a loss in the buying and selling of these puts. Subtracting the net credit received at the opening of the trade, the maximum loss on the overall trade would be reduced.
Credit spreads offer two primary advantages over straight put or call purchases. The first, by using out-of-the-money options, an investor can profit from a wide range of outcomes, including the markets moving, to some extent, against your initial outlook.
The second advantage to credit spreads is that no commission costs are incurred to exit your trades when the options expire worthless. Worthless options require no closeout actions, thus do not incur commission costs. This feature increases an investors’ net return on a winning credit spread trade.
Credit spreads are used mainly as a conservative strategy. It gives the investor the potential for modest gains while limiting their overall losses. Whether using Bear Calls or Bull Puts, these strategies can help supplement wages for those traders who study the strategy vigorously.
Some of the more beneficial credit spreads come from investors using index options rather than equity options. If a stock within an index were to gap up or down drastically, it would not have a devastating affect on the index as a whole. However, if you were invested strictly in an equity option and it moved violently, it would give the investor less control over his risk potential, more often resulting in a loss.
Check back after the New Year as we delve into the analysis aspect of the broader markets. Have a safe and Happy Holiday and we hope to see you back here at the first of the year.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
What is a credit spread? Well, it is the difference in value of two options on the same underlying security when the value of the option sold exceeds the value of the one bought.
It could also represent the yield difference between Treasury securities and comparable non-Treasury securities such as mortgage-backed bonds, expressed in basis points. Credit spreads widen in recessions and grow tighter in economic expansions.
However, for today, we will be dealing mainly with the options portion of the definition.
A credit spread involves the simultaneous purchase and sale of puts, or calls, that expire at the same time but have different strike prices. Puts are used if you are bullish on the underlying stock, while calls are used for a bearish outlook.
This strategy allows investors to have potentially fixed rewards and manageable risks. This is accomplished by collecting a premium up front and waiting until expiration, when the positions expire worthless, hopefully.
With credit spreads, the effect of time decay is working for you, not against you. Time decay is defined as the ratio in the change of an options’ price to the decrease in its time to expiration.
The two types of credit spreads that we will explore will be Bull Puts and Bear Calls. Each will put money in your pocket at the start of the trade, but one uses puts as the trading vehicle and one uses calls.
A Bear Call spread is a when the investor takes advantage of the market’s decline. Here, a call option is sold (typically out of the money), and a higher strike price call option is purchased for insurance purposes.
An example of a Bear Call Spread would be if a trader anticipates the decline of a stock, say QWE from its current trading price of $40, then the following would take place. The investor could write, or sell, a January 45 call for perhaps $3.00 and buy the January 50 call for $1.00. The spread received would total $2.00, or $200 per contract sold ($2.00 x 100 shares in a contract).
If the stock remains at or below $45 by expiration, then the option would expire worthless and the investor would keep the net credit of $200.
If the stock trades between $45 and $50, your gain or loss would depend upon how much above $45 the stock trades on expiration day. If the stock were trading at $46, you would still show a gain of $100 (you were paid $200, but lost $100 by the stock closing a dollar above $45).
If the stock trades above $47, you will experience a loss on the trade. Your loss will be capped however at $300. This is due to your having bought the $50 Call option. Even if the stock were to go to $60, with the $50 call option you have the ability to buy the call for $50 and turn it over to the person who exercised the $45 you sold.
Ideally, however, you would roll out of the position before your losses mounted. To roll the position into the forward month. The trader would buy back the $45 calls, and sell the $50 calls that were bought. You would then sell an out of the money option for the next month and buy a call at a strike price above the one you sold, essentially entering the trade again but with another month of time value.
On the other side, if a trader believes that the stock is in a bullish position, they would use a Bull Put spread. This is an options strategy that involves using puts to take advantage of a rising market.
For example, if the trader believes that QWE, which is trading at $30, will go up in the near future, then the following could occur. The trader could write, or sell, a January 15 put for perhaps $2.00, and buy the January 10 put for $0.50. The spread received here would be $1.50, or $150 per contract (1.50 x 100).
Here, if the stock were to remain at its current price of $20 or increase in value, then the investor would see the options expire worthless, thus retaining all of the net credit of $150. If the stock were to close between $15 and $10, then the losses or gains would be reduced, depending on the value left in the options at expiration.
However, if the stock were to trade below the $10 mark, then the investor could again roll into the forward month by buying back the January 15 put and selling the January 10 put. There would likely be a loss in the buying and selling of these puts. Subtracting the net credit received at the opening of the trade, the maximum loss on the overall trade would be reduced.
Credit spreads offer two primary advantages over straight put or call purchases. The first, by using out-of-the-money options, an investor can profit from a wide range of outcomes, including the markets moving, to some extent, against your initial outlook.
The second advantage to credit spreads is that no commission costs are incurred to exit your trades when the options expire worthless. Worthless options require no closeout actions, thus do not incur commission costs. This feature increases an investors’ net return on a winning credit spread trade.
Credit spreads are used mainly as a conservative strategy. It gives the investor the potential for modest gains while limiting their overall losses. Whether using Bear Calls or Bull Puts, these strategies can help supplement wages for those traders who study the strategy vigorously.
Some of the more beneficial credit spreads come from investors using index options rather than equity options. If a stock within an index were to gap up or down drastically, it would not have a devastating affect on the index as a whole. However, if you were invested strictly in an equity option and it moved violently, it would give the investor less control over his risk potential, more often resulting in a loss.
Check back after the New Year as we delve into the analysis aspect of the broader markets. Have a safe and Happy Holiday and we hope to see you back here at the first of the year.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Monday, December 22, 2008
What Country is the Only One Growing Economically? - December 22, 2008
Can you name the only industrialized nation that has positive economic growth? If you said China, you would be correct. As the fourth largest economic country, and the only one posting above breakeven growth, China has begun to address the country’s slowing economy as the worldwide crisis is beginning to drag the country’s progress down.
Marking the fourth time since mid-September, China reduced their deposit rate by 0.27%, dropping the rate to its current level of 2.25%. Today’s announcement comes on the heels of last month’s rate cut, which had pushed the deposit rate to its lowest levels since 2004.
In addition, the country’s benchmark one-year lending rate was also reduced by 0.27%, to an adjusted rate of 5.31%.
For the year, China’s economy is expected to grow by 9%, and impressive number in these times. However, that figure comes in well below last year’s growth rate of nearly 12%. The country also faces countless job cuts as analysts forecast next year’s growth rate to be in the low 6% range.
Throughout the nation, thousands of factories have closed as global demand for Chinese exports plunged. Furthermore, laid-off workers have clashed with police in protest over unpaid wages by their former employers. Domestic industries, such as real estate and auto sales, also have laid-off workers, leading to more job losses and uneasiness.
In Beijing, officials are trying to evoke consumers and businesses to spend more in order to support a government-initiated stimulus package to help defend the nation against the global recession while revamping domestic economic activity.
As for the country’s production and activity. In November, China’s factory output grew at a 5.4% rate, its slowest pace on record, with exports declining for the first time in more than seven years.
A recent development regarding Chinese workers has come up again before President-elect Obama even takes office. In a petition filed by the AFL-CIO, the U.S.’s largest labor organization, wants to investigate China’s "persistent denial of basic workers rights" which gives the country an unfair trade advantage that warrants U.S. sanctions in response.
The labor group had petitioned the Bush administration in 2004 and 2006 to no avail. Not only did the Bush Admin reject those proposals, but three others that fell on his desk during 2004, 2005 and 2007. It was requested that Bush look into China’s possible manipulation of currency in order to boost imports and exports.
In 2006, the AFL-CIO estimated that Chinese exports had a 43% cost advantage over U.S. exports, in which the labor organization attributes the loss of some 973,000 U.S. manufacturing jobs on top of an addition 260,000 jobs in other industries and sectors.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Marking the fourth time since mid-September, China reduced their deposit rate by 0.27%, dropping the rate to its current level of 2.25%. Today’s announcement comes on the heels of last month’s rate cut, which had pushed the deposit rate to its lowest levels since 2004.
In addition, the country’s benchmark one-year lending rate was also reduced by 0.27%, to an adjusted rate of 5.31%.
For the year, China’s economy is expected to grow by 9%, and impressive number in these times. However, that figure comes in well below last year’s growth rate of nearly 12%. The country also faces countless job cuts as analysts forecast next year’s growth rate to be in the low 6% range.
Throughout the nation, thousands of factories have closed as global demand for Chinese exports plunged. Furthermore, laid-off workers have clashed with police in protest over unpaid wages by their former employers. Domestic industries, such as real estate and auto sales, also have laid-off workers, leading to more job losses and uneasiness.
In Beijing, officials are trying to evoke consumers and businesses to spend more in order to support a government-initiated stimulus package to help defend the nation against the global recession while revamping domestic economic activity.
As for the country’s production and activity. In November, China’s factory output grew at a 5.4% rate, its slowest pace on record, with exports declining for the first time in more than seven years.
A recent development regarding Chinese workers has come up again before President-elect Obama even takes office. In a petition filed by the AFL-CIO, the U.S.’s largest labor organization, wants to investigate China’s "persistent denial of basic workers rights" which gives the country an unfair trade advantage that warrants U.S. sanctions in response.
The labor group had petitioned the Bush administration in 2004 and 2006 to no avail. Not only did the Bush Admin reject those proposals, but three others that fell on his desk during 2004, 2005 and 2007. It was requested that Bush look into China’s possible manipulation of currency in order to boost imports and exports.
In 2006, the AFL-CIO estimated that Chinese exports had a 43% cost advantage over U.S. exports, in which the labor organization attributes the loss of some 973,000 U.S. manufacturing jobs on top of an addition 260,000 jobs in other industries and sectors.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Toyota to Take First Ever Loss - December 22, 2008
More than a feeling?.....It is now reality. The world’s largest automaker, Toyota Motor Corp. (TM) confirmed reports early this morning that the Japanese car company had forecasted its first yearly operating loss as the recent jump in the price of the yen, and lack of demand, solidified their first loss in their 70-year history.
Over the past several months, Japan’s Economy has been battered just like most of the world’s industrialized nations. Some of their demise is directly linked to the devastating crash of the U.S. auto industry.
Toyota’s announcement today ends a string of nine consecutive years of global vehicle sales growth. However, with the surge in oil and gas prices of the summer, the maker of fuel-efficient and hybrid vehicles could not overcome the dismal sentiment of car buyers.
Like the major U.S. automakers, Toyota has confirmed reports to idle assembly plants throughout the world in order to scale back expenses during this economic downturn.
Of their 75 assembly lines worldwide, Toyota plans to cut 16 of those plants to a single shift, down from their normal three. The company has also made it clear that bonuses would not be issued this year for the company’s directors.
As for the company’s current projections for a yearly loss, through March 2009, the end of their fiscal year, Toyota predicts an annual net income loss of $555M. That compares in sharp contrast to the previous year’s earnings of $18.87B.
Overall, the company expects an operating loss for the year of $1.66B. The last time the company had recorded a loss was their first year of operation, 1938. In the previous year, Toyota had posted a yearly profit from operations of $25.2B.
Today’s announcement marks the second time this year that Toyota has reduced their yearly forecast. In November, the company lowered their projections from $13.9B to $6.1B, before the announcement made earlier. Toyota also reduced their sales forecast as well, lowering it by 18% and now expects that figure to come in at $239B.
One of the biggest contributing factors to the company’s expected loss, besides the lack of demand and sales within the auto industry, comes from the exchange rate. In recent weeks, the Japanese yen has climbed to 13-year highs against the Dollar, and currently is trading at 90:1 ratio against the greenback.
The adverse exchange rates will result in a reduction of earnings for Toyota of nearly $2.2B. The company will also take on an additional hit of $6.3B due to Toyota’s increased marketing programs to help entice customers amidst their declining sales totals.
During the early afternoon session, shares of Toyota (TM) slipped more than 5% to trade at $60.90 per share. Over the past 52-weeks, shares of the world’s largest automaker have traded in a range between $55.41 and $117.59 per share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Over the past several months, Japan’s Economy has been battered just like most of the world’s industrialized nations. Some of their demise is directly linked to the devastating crash of the U.S. auto industry.
Toyota’s announcement today ends a string of nine consecutive years of global vehicle sales growth. However, with the surge in oil and gas prices of the summer, the maker of fuel-efficient and hybrid vehicles could not overcome the dismal sentiment of car buyers.
Like the major U.S. automakers, Toyota has confirmed reports to idle assembly plants throughout the world in order to scale back expenses during this economic downturn.
Of their 75 assembly lines worldwide, Toyota plans to cut 16 of those plants to a single shift, down from their normal three. The company has also made it clear that bonuses would not be issued this year for the company’s directors.
As for the company’s current projections for a yearly loss, through March 2009, the end of their fiscal year, Toyota predicts an annual net income loss of $555M. That compares in sharp contrast to the previous year’s earnings of $18.87B.
Overall, the company expects an operating loss for the year of $1.66B. The last time the company had recorded a loss was their first year of operation, 1938. In the previous year, Toyota had posted a yearly profit from operations of $25.2B.
Today’s announcement marks the second time this year that Toyota has reduced their yearly forecast. In November, the company lowered their projections from $13.9B to $6.1B, before the announcement made earlier. Toyota also reduced their sales forecast as well, lowering it by 18% and now expects that figure to come in at $239B.
One of the biggest contributing factors to the company’s expected loss, besides the lack of demand and sales within the auto industry, comes from the exchange rate. In recent weeks, the Japanese yen has climbed to 13-year highs against the Dollar, and currently is trading at 90:1 ratio against the greenback.
The adverse exchange rates will result in a reduction of earnings for Toyota of nearly $2.2B. The company will also take on an additional hit of $6.3B due to Toyota’s increased marketing programs to help entice customers amidst their declining sales totals.
During the early afternoon session, shares of Toyota (TM) slipped more than 5% to trade at $60.90 per share. Over the past 52-weeks, shares of the world’s largest automaker have traded in a range between $55.41 and $117.59 per share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Friday, December 19, 2008
Christmas Comes Early in Detroit - December 19, 2008
Have no fear Underdog is here….well not exactly. In an announcement made early Friday morning, the well anticipated bailout relief from the government for the auto industry has finally arrived.
As one of the nation’s largest employers, Detroit’s auto industry got an early, and very expensive, holiday gift, $17.4B. Following last week’s rejection of a $14B plan by Congress, today’s news was well received and even played a hand in the surge in morning trade on the major indices.
The final say on the matter came from President Bush, which singed the agreement with the understanding that the companies involved would radically restructure their business model and show signs of profitability in the near-term.
“If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation of the automakers," Bush said at the White House, in remarks carried live by the national broadcast networks. "In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action. The question is how we can best give it a chance to succeed."
The total amount of the loans, $17.4B, will come from the bailout program passed by Congress in October. In it, $13.4B will be paid out by the end of this month, and into January. General Motors (GM) is slated to receive $9.4B, with Chrysler receiving the remaining $4B.
The last $4B in funds will remain contingent on Congress discretion on when and how much of the remaining balance will be disbursed.
Under the current terms, GM and Chrysler are obligated to provide the government with company stock warrants, which will entitle the government to purchase shares of the companies at a specified price.
If the companies cannot show a new and implements plan of action by March 31, the government will call in their loans to the automakers, which would prove nearly impossible for the companies to pay. The company will only be deemed profitable if their net present value is positive by the set deadline.
One of the major addendums to the agreement will be the elimination of job banks that the companies provide. A job bank, negotiated by the United Auto Workers (UAW), is a program that provides laid-off employees with unemployment benefits and supplemental pay from their company for upwards of 48 weeks.
If a worker remains unemployed after those weeks, they move into a job bank, which then provides nearly 95% of their pay and benefits. One could technically stay in a job bank for years on end.
Of the Big Three, Ford (F) was left out of the emergency aid. The reasoning, Ford had established a line of credit already, before the financial lending crisis really took hold.
In closing, the president went on to say that the government has a responsibility not to intervene or undermine the private business sector. However, he also has the duty to safeguard the country in regards to the health and stability of the economy as a whole.
"Under ordinary economic circumstances, I would say this is the price that failed companies must pay," the president said. "And I would not favor intervening to prevent the automakers from going out of business. However, these are not ordinary circumstances.”
For more information on the stock and options markets check out the wealth of information at BetterTrades.
As one of the nation’s largest employers, Detroit’s auto industry got an early, and very expensive, holiday gift, $17.4B. Following last week’s rejection of a $14B plan by Congress, today’s news was well received and even played a hand in the surge in morning trade on the major indices.
The final say on the matter came from President Bush, which singed the agreement with the understanding that the companies involved would radically restructure their business model and show signs of profitability in the near-term.
“If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation of the automakers," Bush said at the White House, in remarks carried live by the national broadcast networks. "In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action. The question is how we can best give it a chance to succeed."
The total amount of the loans, $17.4B, will come from the bailout program passed by Congress in October. In it, $13.4B will be paid out by the end of this month, and into January. General Motors (GM) is slated to receive $9.4B, with Chrysler receiving the remaining $4B.
The last $4B in funds will remain contingent on Congress discretion on when and how much of the remaining balance will be disbursed.
Under the current terms, GM and Chrysler are obligated to provide the government with company stock warrants, which will entitle the government to purchase shares of the companies at a specified price.
If the companies cannot show a new and implements plan of action by March 31, the government will call in their loans to the automakers, which would prove nearly impossible for the companies to pay. The company will only be deemed profitable if their net present value is positive by the set deadline.
One of the major addendums to the agreement will be the elimination of job banks that the companies provide. A job bank, negotiated by the United Auto Workers (UAW), is a program that provides laid-off employees with unemployment benefits and supplemental pay from their company for upwards of 48 weeks.
If a worker remains unemployed after those weeks, they move into a job bank, which then provides nearly 95% of their pay and benefits. One could technically stay in a job bank for years on end.
Of the Big Three, Ford (F) was left out of the emergency aid. The reasoning, Ford had established a line of credit already, before the financial lending crisis really took hold.
In closing, the president went on to say that the government has a responsibility not to intervene or undermine the private business sector. However, he also has the duty to safeguard the country in regards to the health and stability of the economy as a whole.
"Under ordinary economic circumstances, I would say this is the price that failed companies must pay," the president said. "And I would not favor intervening to prevent the automakers from going out of business. However, these are not ordinary circumstances.”
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Thursday, December 18, 2008
Is the Price of Oil Too Low? - December 18, 2008
Is the current price for gas good or bad for the economy? Following OPEC’s announcement yesterday to cut crude production has not really had an affect on the lack of demand for oil.
Late yesterday, the 12 members of the Organization of the Petroleum Exporting Countries (OPEC) confirmed that they were cutting output by 4.2M barrels per day from its September production level, effective January 1. The cut now leaves the members to produce 24.845M barrels per day.
With oil reaching record highs over $147 a barrel in mid-July, consumers have conditioned themselves to drive less, or carpool, and not take long road trips for the holidays or vacation.
Correspondingly, the price of retail gasoline was on an 86-day decline until the beginning of the week. During such time, the price dropped from its high of $4.114 a gallon to today’s national average of $1.656 per gallon. Over the past month, retail gas has dropped over $2 a gallon and nearly $3 a gallon over the past year.
The International Energy Agency went on to acknowledge that, despite the cut in production, the markets will not respond immediately due to the strong decline in demand as the economic and financial crisis continues to deepen.
To take steps even further, the U.S. planning commission, the Cabinet’s National Development and Reform Commission stated today as well that the price of diesel with be cut by 18%, while the price of gasoline will drop nearly 14% effective tomorrow. On top of that, jet fuel prices will be cut by 32%.
By the close of the oil markets today, it was evident that the cut in production had mixed results. The January contract for crude, which ends tomorrow, dropped more than 9% in today’s session, giving up $3.75 to settle at $36.31 a barrel. Oil has not seen these prices since July of 2004.
However, the February contract, which showed greater volume in trading today, slipped by 7% or $2.93 to settle at $41.64 a barrel.
In response to OPEC’s cut, JPMorgan (JPM) cut their 2009 average crude oil price from $69 a barrel to $43. Other market analysts, including those at JPM, expect additional price cuts until unless a significant amount of surplus in oil is taken off the markets.
Economists, and analysts alike, believe that if the price for a barrel of crude slides near the $30 level, that OPEC will reconvene to discuss further daily production cuts.
With a deepening recession reaching worldwide, the falling price of crude is great for consumer in general, but terrible for the producing countries as a whole. "You must understand the purpose of the $75 price is for a much more noble cause," the Saudi Oil Minister said. "You need every producer to produce and marginal producers cannot produce at $40 a barrel."
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Late yesterday, the 12 members of the Organization of the Petroleum Exporting Countries (OPEC) confirmed that they were cutting output by 4.2M barrels per day from its September production level, effective January 1. The cut now leaves the members to produce 24.845M barrels per day.
With oil reaching record highs over $147 a barrel in mid-July, consumers have conditioned themselves to drive less, or carpool, and not take long road trips for the holidays or vacation.
Correspondingly, the price of retail gasoline was on an 86-day decline until the beginning of the week. During such time, the price dropped from its high of $4.114 a gallon to today’s national average of $1.656 per gallon. Over the past month, retail gas has dropped over $2 a gallon and nearly $3 a gallon over the past year.
The International Energy Agency went on to acknowledge that, despite the cut in production, the markets will not respond immediately due to the strong decline in demand as the economic and financial crisis continues to deepen.
To take steps even further, the U.S. planning commission, the Cabinet’s National Development and Reform Commission stated today as well that the price of diesel with be cut by 18%, while the price of gasoline will drop nearly 14% effective tomorrow. On top of that, jet fuel prices will be cut by 32%.
By the close of the oil markets today, it was evident that the cut in production had mixed results. The January contract for crude, which ends tomorrow, dropped more than 9% in today’s session, giving up $3.75 to settle at $36.31 a barrel. Oil has not seen these prices since July of 2004.
However, the February contract, which showed greater volume in trading today, slipped by 7% or $2.93 to settle at $41.64 a barrel.
In response to OPEC’s cut, JPMorgan (JPM) cut their 2009 average crude oil price from $69 a barrel to $43. Other market analysts, including those at JPM, expect additional price cuts until unless a significant amount of surplus in oil is taken off the markets.
Economists, and analysts alike, believe that if the price for a barrel of crude slides near the $30 level, that OPEC will reconvene to discuss further daily production cuts.
With a deepening recession reaching worldwide, the falling price of crude is great for consumer in general, but terrible for the producing countries as a whole. "You must understand the purpose of the $75 price is for a much more noble cause," the Saudi Oil Minister said. "You need every producer to produce and marginal producers cannot produce at $40 a barrel."
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Big Three Plant Closings - December 18, 2008
Is anyone out there car shopping these days? As the Big Three continue to wait for Congressional approval of a bailout, Detroit’s automakers have begun to take action to stave off bankruptcy that their companies are surely headed for.
In what appears to be a drastic move by one of the Big Three, Chrysler announced this morning that the company is closing all 30 of their North American production plants for at least a month, if not longer.
Chrysler, in efforts to cut costs, stated that they were extending the normal two-week Christmas break, which begins tomorrow, to January 19 at the earliest. The reason, auto sales have been horrific over the past several months, and with the company’s mismanagement, the company needs to cut production to save as much money as possible.
Back in November, Chrysler dismissed nearly 5,000 salaried employees to reduce costs, and by the end of the year, the company plans to cut an additional 1,800 hourly employees in order to save money.
Chrysler claims that they will have $2.5B in cash at the end of this year, the bare minimum for the company to meet the needs for payroll, pay suppliers and keep the company operational. Chrysler, which is privately held by Cerberus Capital Management, is seeking $7B in loans to make it through 2009.
To top it all off, there are customers out there that are willing to purchase Chrysler, Jeep and Dodge products, but with the crisis within the consumer credit markets, the dealerships aren’t able to close the deals due to the lack of credible financing.
General Motors (GM), another intrical part of the equation, confirmed reports that they would temporarily suspend production in 20 factories across North America, along with reducing output in the remaining plants.
Recently, GM petitioned Congress for a $4B handout for the company to remain solvent by the end of the year. GM also has their hand out for an additional $14B in federal loans to help them get through 2009.
So where is Ford (F) in of all this? They too are suspending production at their assembly plants. However, they are only shutting down 10 plants, and only for an additional week in January after the holiday break.
With U.S. sales down 31% in November, and off more than 20% so far this year, Ford still sits in a better position than the other two. Ford requested a line of credit of $9B from the government, but states that they have enough cash to get through all of 2009.
While Detroit’s automakers continue to wait for a decision, the affects of the economic downturn has reared its ugly head around the globe.
Honda Motor Corp. (HMC) acknowledged today that the company would impede their expansion of plants in Japan, India, and Turkey, while cutting nearly 500 jobs in Japan through February. Honda also stated that they would cut vehicle production by nearly 120,000 in the company’s upcoming 1Q.
Toyota Motor Corp. (TM) announced today that the company would delay the construction of a plant in Mississippi, which was scheduled to start producing the company’s hybrid-model Prius in 2010.
Finally, the Nissan Motor Co. (NSANY) affirmed that the company would reduce vehicle production by 78,000 in the upcoming quarter, along with relieving some 500 workers of their duties.
The fate of the auto industry lies solely in the hands of Congress on whether the much needed financial aid will be allocated to Detroit’s major players in order to establish some sort of economic stability. If action is not taken, the ripple affects could cause catastrophic consequences that could take decades for the country to recover.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
In what appears to be a drastic move by one of the Big Three, Chrysler announced this morning that the company is closing all 30 of their North American production plants for at least a month, if not longer.
Chrysler, in efforts to cut costs, stated that they were extending the normal two-week Christmas break, which begins tomorrow, to January 19 at the earliest. The reason, auto sales have been horrific over the past several months, and with the company’s mismanagement, the company needs to cut production to save as much money as possible.
Back in November, Chrysler dismissed nearly 5,000 salaried employees to reduce costs, and by the end of the year, the company plans to cut an additional 1,800 hourly employees in order to save money.
Chrysler claims that they will have $2.5B in cash at the end of this year, the bare minimum for the company to meet the needs for payroll, pay suppliers and keep the company operational. Chrysler, which is privately held by Cerberus Capital Management, is seeking $7B in loans to make it through 2009.
To top it all off, there are customers out there that are willing to purchase Chrysler, Jeep and Dodge products, but with the crisis within the consumer credit markets, the dealerships aren’t able to close the deals due to the lack of credible financing.
General Motors (GM), another intrical part of the equation, confirmed reports that they would temporarily suspend production in 20 factories across North America, along with reducing output in the remaining plants.
Recently, GM petitioned Congress for a $4B handout for the company to remain solvent by the end of the year. GM also has their hand out for an additional $14B in federal loans to help them get through 2009.
So where is Ford (F) in of all this? They too are suspending production at their assembly plants. However, they are only shutting down 10 plants, and only for an additional week in January after the holiday break.
With U.S. sales down 31% in November, and off more than 20% so far this year, Ford still sits in a better position than the other two. Ford requested a line of credit of $9B from the government, but states that they have enough cash to get through all of 2009.
While Detroit’s automakers continue to wait for a decision, the affects of the economic downturn has reared its ugly head around the globe.
Honda Motor Corp. (HMC) acknowledged today that the company would impede their expansion of plants in Japan, India, and Turkey, while cutting nearly 500 jobs in Japan through February. Honda also stated that they would cut vehicle production by nearly 120,000 in the company’s upcoming 1Q.
Toyota Motor Corp. (TM) announced today that the company would delay the construction of a plant in Mississippi, which was scheduled to start producing the company’s hybrid-model Prius in 2010.
Finally, the Nissan Motor Co. (NSANY) affirmed that the company would reduce vehicle production by 78,000 in the upcoming quarter, along with relieving some 500 workers of their duties.
The fate of the auto industry lies solely in the hands of Congress on whether the much needed financial aid will be allocated to Detroit’s major players in order to establish some sort of economic stability. If action is not taken, the ripple affects could cause catastrophic consequences that could take decades for the country to recover.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Wednesday, December 17, 2008
Motorola Takes Drastic Measures to Combat Losses - December 17, 2008
In an announcement made earlier today, Motorola Inc. (MOT) confirmed plans to reduce executive pay, permanently stop its U.S. pension plans, and suspend its matching 401k contributions for the time being, in order to slow the current downfall the company is in since this time last year.
As part of the program, Motorola’s two top officials, co-CEO Greg Brown and Sanjay Jha have both reportedly taken voluntary pay cuts of 25% to help reduce costs within the company. Both CEO’s have a base salary of $1.2M per year.
In dealing with the stoppage of the pension fund, any member of the company hired after the end of 2004 would not be able to draw from the pension fund. For those members that were hired before that date, can keep any benefits accrued, but would not accumulate any additional benefits in the future.
The company went on to say that they would still invest in funding the pension plan to meet obligations for current and future retirees. Motorola also confirmed that they will cease to match contributions to their 401k plan, but employees are still allowed to contribute if they so desire.
These cost-cutting measures are expected to save the company some $100M amidst the global economic turmoil. Today’s announcement comes on top of the $800M cost-reduction plan instituted back in October.
In the October plan, the company stated that they were laying off some 3,000 workers, the same day the company announced a net loss of $397M in their 3rd quarter. During the quarter, the company saw overall revenues drop 15% to $7.48B. Over the past year, the company has cut more than 9,000 jobs.
Since 2005, the company has been under tremendous pressured to duplicate their success of the introduction of their most popular cell phone model, the Razr. From that point on, the company’s cell phone division has been hemorrhaging money and market share.
During the last quarter, Motorola’s market share slipped to just over 8% of the global phone market, from more than a 20% market share just over two years ago.
With the release of the Razr, shares of MOT were trading right around the $25 mark. In today’s trading session, shares of Motorola were only $1.50 higher than its 52-week low of $3.00 a share, set back on November 21.
Earlier this year, Motorola announced plans to spin off the company’s cell phone/handset division and form a separate entity to be traded publicly. However, with the economic environment the way it is, and the company’s dismal earnings release in October, those plans were shelved for the time being.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
As part of the program, Motorola’s two top officials, co-CEO Greg Brown and Sanjay Jha have both reportedly taken voluntary pay cuts of 25% to help reduce costs within the company. Both CEO’s have a base salary of $1.2M per year.
In dealing with the stoppage of the pension fund, any member of the company hired after the end of 2004 would not be able to draw from the pension fund. For those members that were hired before that date, can keep any benefits accrued, but would not accumulate any additional benefits in the future.
The company went on to say that they would still invest in funding the pension plan to meet obligations for current and future retirees. Motorola also confirmed that they will cease to match contributions to their 401k plan, but employees are still allowed to contribute if they so desire.
These cost-cutting measures are expected to save the company some $100M amidst the global economic turmoil. Today’s announcement comes on top of the $800M cost-reduction plan instituted back in October.
In the October plan, the company stated that they were laying off some 3,000 workers, the same day the company announced a net loss of $397M in their 3rd quarter. During the quarter, the company saw overall revenues drop 15% to $7.48B. Over the past year, the company has cut more than 9,000 jobs.
Since 2005, the company has been under tremendous pressured to duplicate their success of the introduction of their most popular cell phone model, the Razr. From that point on, the company’s cell phone division has been hemorrhaging money and market share.
During the last quarter, Motorola’s market share slipped to just over 8% of the global phone market, from more than a 20% market share just over two years ago.
With the release of the Razr, shares of MOT were trading right around the $25 mark. In today’s trading session, shares of Motorola were only $1.50 higher than its 52-week low of $3.00 a share, set back on November 21.
Earlier this year, Motorola announced plans to spin off the company’s cell phone/handset division and form a separate entity to be traded publicly. However, with the economic environment the way it is, and the company’s dismal earnings release in October, those plans were shelved for the time being.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
The Affects of the Fed's Rate Cut on Consumers - December 17, 2008
So what does yesterday’s Fed rate cut mean for the average consumer? In a statement made Tuesday afternoon, Fed Chairman Ben Bernanke confirmed the report that the government was reducing the federal funds rate from 1% to a range between 0% and 0.25%.
The previous rate of 1% was the lowest the rate had seen in more than 50 years. Nevertheless, with the country in a recession since last December, Bernanke needed to step in and halt the deterioration of the economy along with heading off the possibility of inflation.
The Fed rate is defined as the short-tern rate that commercial banks pay to other banks in order to borrow money. With lowered rates, consumers will most definitely see lower costs to borrow money.
In an immediate reaction to the Fed announcement, commercial banks responded by cutting their prime lending rate, the standard rate for millions of consumer and business loans, by 0.75% to 3.25%.
The financial crisis has reached out globally, as the European Central Bank recently reduced their interest rate from 4.5% in July to 2.5% this month. In addition, the Bank of England reduced their lending rate from 5.75% in July to 2% this month as well.
In many ways, the cut does benefit the average American consumer. The biggest impact the cuts will have will be on prime rate loans. These loans are tied directly to the prime interest rate. It would be here that home-equity line of credit and certain credit cards with variable interest rates are tied to the prime rate.
The home equity loans stood at 5.5% in October before the Fed made a 0.50%, which in turn dropped the rate to 5.26% for loans. Analysts believe that this rate will once again drop on the rate cuts. However, some may not be able to take advantage of the percentage decline because rates may already be at their lows.
However, long-term loans, such as mortgage rates, are less likely to be affected by yesterday’s rate reduction.
“What the Fed’s action seems to indicate is that they are willing to do whatever necessary to not allow our economy to collapse or continue in a recession for an extended period of time,” said Professor Lowell Broom from Samford University.
Announced late last month, a new Fed program was instituted to purchase $600B in debt and mortgage-backed securities from mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), which could be largely credited with having helped push mortgage rates down.
With the lending rate lowered, and the prices on cars and real estate continuing to decline, the price to borrow money for these purchases is considerably lower than this time last year.
Although the interest rates can’t go below zero, the next possible move for the Fed is to increase liquidity. To do this, the Fed would have to begin printing money and dispersing it into the money supply until they begin to see the economy start expanding once again.
The negative effect on printing more money and putting it into the supply means that it will weaken the Dollar even further against other major currencies.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
The previous rate of 1% was the lowest the rate had seen in more than 50 years. Nevertheless, with the country in a recession since last December, Bernanke needed to step in and halt the deterioration of the economy along with heading off the possibility of inflation.
The Fed rate is defined as the short-tern rate that commercial banks pay to other banks in order to borrow money. With lowered rates, consumers will most definitely see lower costs to borrow money.
In an immediate reaction to the Fed announcement, commercial banks responded by cutting their prime lending rate, the standard rate for millions of consumer and business loans, by 0.75% to 3.25%.
The financial crisis has reached out globally, as the European Central Bank recently reduced their interest rate from 4.5% in July to 2.5% this month. In addition, the Bank of England reduced their lending rate from 5.75% in July to 2% this month as well.
In many ways, the cut does benefit the average American consumer. The biggest impact the cuts will have will be on prime rate loans. These loans are tied directly to the prime interest rate. It would be here that home-equity line of credit and certain credit cards with variable interest rates are tied to the prime rate.
The home equity loans stood at 5.5% in October before the Fed made a 0.50%, which in turn dropped the rate to 5.26% for loans. Analysts believe that this rate will once again drop on the rate cuts. However, some may not be able to take advantage of the percentage decline because rates may already be at their lows.
However, long-term loans, such as mortgage rates, are less likely to be affected by yesterday’s rate reduction.
“What the Fed’s action seems to indicate is that they are willing to do whatever necessary to not allow our economy to collapse or continue in a recession for an extended period of time,” said Professor Lowell Broom from Samford University.
Announced late last month, a new Fed program was instituted to purchase $600B in debt and mortgage-backed securities from mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), which could be largely credited with having helped push mortgage rates down.
With the lending rate lowered, and the prices on cars and real estate continuing to decline, the price to borrow money for these purchases is considerably lower than this time last year.
Although the interest rates can’t go below zero, the next possible move for the Fed is to increase liquidity. To do this, the Fed would have to begin printing money and dispersing it into the money supply until they begin to see the economy start expanding once again.
The negative effect on printing more money and putting it into the supply means that it will weaken the Dollar even further against other major currencies.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Tuesday, December 16, 2008
Are You a Last Minute Shopper? - December 16, 2008
Have you made your list, checked it twice, found out who’s been naughty or nice? With a little over a week to go until Christmas, countless Americans have put off holiday shopping until the very last minute.
In a report released by the National Retail Foundation (NRF) earlier today, the survey showed that more than 47% of consumers have completed their holiday shopping. That compares to last year’s tally of nearly 53% of consumers who had already completed the majority of their shopping.
In another survey conducted by BIGresearch, their findings showed that only 8% of consumers have completed their holiday shopping. Without much surprise, men appear to be the biggest procrastinators, with nearly 21% of men haven not even stated their shopping.
As the season draws nearer, the hot spots for sales will come mainly from discount and department stores. However, there will be a large majority of shoppers that will execute their shopping needs online. In fact, more than 40% of last-minute shoppers will do business online, up from last year’s figure of almost 35% of shoppers.
BIGresearch also went on to say that with the growing economic crisis and the state of the financial environment, most shoppers this year will be using more cash and shying away from credit purchases. Thus far, their report showed that of the purchases already made, some 66% of them have used cash, debit cards or personal checks.
"Most Americans have put themselves on a budget this holiday season and are sticking to it," said Phil Rist, executive vice president of strategic initiatives at BIGresearch. "Retailers are finding that consumers who pay with cash or a debit card may be less likely to make impulse purchases, but recognize that these shoppers are also trying to put themselves in a better financial situation to spend in the future."
Another sign of a weakened economy lays with the decrease in gift card purchases. With gift cards being one of the fastest growing categories over the holiday season, experts see purchases for gift card slipping to 24%, down from last year’s tally of 30% of holiday buys.
A contributing factor to the decrease in gift cards could be increase in bankruptcy filings by retailers over the past several months. Included in those filings would be the likes of KB Toys and Circuit City. If a consumer is skeptical about the current business model of a retailer, then most likely that person is not going to buy a gift card from them.
With five fewer days this year between Thanksgiving and Christmas, the holiday season is quickly approaching its end. Retailers will do all they can to accommodate the last-minute shopper by staffing more employees, extending shopping hours and posting countless sales and promotional advertising to get more shoppers in their stores.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
In a report released by the National Retail Foundation (NRF) earlier today, the survey showed that more than 47% of consumers have completed their holiday shopping. That compares to last year’s tally of nearly 53% of consumers who had already completed the majority of their shopping.
In another survey conducted by BIGresearch, their findings showed that only 8% of consumers have completed their holiday shopping. Without much surprise, men appear to be the biggest procrastinators, with nearly 21% of men haven not even stated their shopping.
As the season draws nearer, the hot spots for sales will come mainly from discount and department stores. However, there will be a large majority of shoppers that will execute their shopping needs online. In fact, more than 40% of last-minute shoppers will do business online, up from last year’s figure of almost 35% of shoppers.
BIGresearch also went on to say that with the growing economic crisis and the state of the financial environment, most shoppers this year will be using more cash and shying away from credit purchases. Thus far, their report showed that of the purchases already made, some 66% of them have used cash, debit cards or personal checks.
"Most Americans have put themselves on a budget this holiday season and are sticking to it," said Phil Rist, executive vice president of strategic initiatives at BIGresearch. "Retailers are finding that consumers who pay with cash or a debit card may be less likely to make impulse purchases, but recognize that these shoppers are also trying to put themselves in a better financial situation to spend in the future."
Another sign of a weakened economy lays with the decrease in gift card purchases. With gift cards being one of the fastest growing categories over the holiday season, experts see purchases for gift card slipping to 24%, down from last year’s tally of 30% of holiday buys.
A contributing factor to the decrease in gift cards could be increase in bankruptcy filings by retailers over the past several months. Included in those filings would be the likes of KB Toys and Circuit City. If a consumer is skeptical about the current business model of a retailer, then most likely that person is not going to buy a gift card from them.
With five fewer days this year between Thanksgiving and Christmas, the holiday season is quickly approaching its end. Retailers will do all they can to accommodate the last-minute shopper by staffing more employees, extending shopping hours and posting countless sales and promotional advertising to get more shoppers in their stores.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Tuesday Trading Tutorial - Selling Naked Puts - December 16, 2008
Following last week’s discussion of writing covered calls, this week’s article will cover a similar concept in options trading known as Put Selling, or Selling Puts.
Selling a put is very similar to a covered call, only with a somewhat different perception. With a covered call, you must own the stock. Selling a put, however, does not require you to own the stock in advance. This would be considered a “naked” position.
When you write a covered call, you are theorizing that the stock will go up or stay the same. Therefore, your risk involved in the investment of losing money is only if the stock price falls beyond your adjusted cost basis. You make money with a covered call when the stock goes up or even just trades sideways.
When you sell puts, a "premium" is collected for the trade and is thus deposited into your account on the day your trade is entered. When selling a put, it is possible to make money investing in the options in several different ways, including when the stock is going down.
When selling an out-of-the-money put, if the stock goes up, your put expires worthless and you retain the premium. If the stock stays unchanged in price, your put would also expire worthless, leaving you to earn the premium received at the beginning of the trade.
If the stock drops less than the difference of the selling price and the put, you would again earn the premium. If you were to sell a QWE $20 put at $19, and received $2 in premiums at the beginning of the trade, you would still earn $1 on the deal, even though the price of the stock dropped below the purchase price.
For more advanced investors, if the stock shows a temporary weakness, you can buy back the options and roll it out to the forward month. The investor, basically, would buy back the current option, and then sell the put for the next month. Essentially, this would buy the investor extra time for the stock to move in a more positive direction.
If an investor needed to roll out to the forward month, he would first need to buy back his put option. If the investor sold the put for a $3 premium, and had to buy back the put at $2, he would only profit $1 per contract for the trade. However, the investor would then sell another put on the same security for the forward month, thus receiving an additional premium, say of $2.
As the seller of puts, the time-decay within options works in favor of the investor. Time-value in options continuously decline with time and eventually hits zero at time of expiration. Therefore, it is wise for an investor to sell puts with one month or less until the expiration date.
A put selling strategy possesses several great benefits. Not only can it be used in an IRA account, but it can also be used as a long-term investing plan.
One benefit for selling puts would be if the puts you sold were exercised, then you would be obligated to purchase the asset at the exercise price. Since you have already agreed to purchase the asset at the exercise price if put to you, the price of the falling underlying asset is further discounted by the option premium that was collected at the opening of the trade.
If you were to sell a QWE $40 put contract and receive $4 in premiums, and the stock was trading at $35, if the contract was put to you, you would purchase the stock for a cost basis of only $31 per share. the is calculated by taking the selling price, $35 a share, and subtracting the $4 premium received for selling the put, thus totaling $31.
There are only a few that will make this trade lose money. First, if an investor were to hold a falling stock past its strike price and sell, a situation would be created wherein the investor would lose money on the investment. If you were to sell a $20 put contract and get a $2 premium and let the price of the underlying stock fall as low at $15, even with the $2 premium the $18 cost basis is higher than the current stock price, thus resulting in an overall loss of $3 per contract.
A second way your money could be lost in selling a naked put would be if the stock drops below the put price, minus the premium received, and someone puts the stock to you, you would lose money. Similar to the example given above.
If the underlying stock is put to you, a wise investor could turn around and sell covered calls on the stock to help reduce their cost basis of the stock even further.
For example, if QWE stock trades for $65 and its front-month $60 puts trade for $3. A put writer would sell the $60 puts into the market and collect the $300 ($3 x 100) premium per contract. The investor thus expects the price of QWE to trade above $57 in the coming month. However, the investor is exposed to escalating losses if the price of the stock falls below $57. At a stock price of $55, the put seller is still obligated to buy shares of QWE at the strike price of $60.
To close out a put position prior to expiration, the put seller would buy back the put contract in the open market. If the price of the stock has remained unchanged or increased in value, the put seller will most often earn a profit on their position due to the loss of time value in the option.
If, however, the price of QWE, from the example above, had fallen dramatically, the put seller will be either forced to buy the put option at a much higher price or forced to purchase the shares at $60 when they are put to them.
In the case of QWE with the stock trading at $55, the put seller would be either forced to pay $500 to repurchase the put at expiration or forced to have the shares "put" to them at $60, which will require $6,000 in cash or margin. In either case, the put seller generates a loss of $200 at expiration. The $200 loss is calculated as the ($5500), current market value, - ($6000), the price paid for the stock, + ($300), premium collected at the beginning of the trade.
Check back next week when we explore another options trading strategy, credit spreads. Have a great week in trading and hope to see you next week.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Selling a put is very similar to a covered call, only with a somewhat different perception. With a covered call, you must own the stock. Selling a put, however, does not require you to own the stock in advance. This would be considered a “naked” position.
When you write a covered call, you are theorizing that the stock will go up or stay the same. Therefore, your risk involved in the investment of losing money is only if the stock price falls beyond your adjusted cost basis. You make money with a covered call when the stock goes up or even just trades sideways.
When you sell puts, a "premium" is collected for the trade and is thus deposited into your account on the day your trade is entered. When selling a put, it is possible to make money investing in the options in several different ways, including when the stock is going down.
When selling an out-of-the-money put, if the stock goes up, your put expires worthless and you retain the premium. If the stock stays unchanged in price, your put would also expire worthless, leaving you to earn the premium received at the beginning of the trade.
If the stock drops less than the difference of the selling price and the put, you would again earn the premium. If you were to sell a QWE $20 put at $19, and received $2 in premiums at the beginning of the trade, you would still earn $1 on the deal, even though the price of the stock dropped below the purchase price.
For more advanced investors, if the stock shows a temporary weakness, you can buy back the options and roll it out to the forward month. The investor, basically, would buy back the current option, and then sell the put for the next month. Essentially, this would buy the investor extra time for the stock to move in a more positive direction.
If an investor needed to roll out to the forward month, he would first need to buy back his put option. If the investor sold the put for a $3 premium, and had to buy back the put at $2, he would only profit $1 per contract for the trade. However, the investor would then sell another put on the same security for the forward month, thus receiving an additional premium, say of $2.
As the seller of puts, the time-decay within options works in favor of the investor. Time-value in options continuously decline with time and eventually hits zero at time of expiration. Therefore, it is wise for an investor to sell puts with one month or less until the expiration date.
A put selling strategy possesses several great benefits. Not only can it be used in an IRA account, but it can also be used as a long-term investing plan.
One benefit for selling puts would be if the puts you sold were exercised, then you would be obligated to purchase the asset at the exercise price. Since you have already agreed to purchase the asset at the exercise price if put to you, the price of the falling underlying asset is further discounted by the option premium that was collected at the opening of the trade.
If you were to sell a QWE $40 put contract and receive $4 in premiums, and the stock was trading at $35, if the contract was put to you, you would purchase the stock for a cost basis of only $31 per share. the is calculated by taking the selling price, $35 a share, and subtracting the $4 premium received for selling the put, thus totaling $31.
There are only a few that will make this trade lose money. First, if an investor were to hold a falling stock past its strike price and sell, a situation would be created wherein the investor would lose money on the investment. If you were to sell a $20 put contract and get a $2 premium and let the price of the underlying stock fall as low at $15, even with the $2 premium the $18 cost basis is higher than the current stock price, thus resulting in an overall loss of $3 per contract.
A second way your money could be lost in selling a naked put would be if the stock drops below the put price, minus the premium received, and someone puts the stock to you, you would lose money. Similar to the example given above.
If the underlying stock is put to you, a wise investor could turn around and sell covered calls on the stock to help reduce their cost basis of the stock even further.
For example, if QWE stock trades for $65 and its front-month $60 puts trade for $3. A put writer would sell the $60 puts into the market and collect the $300 ($3 x 100) premium per contract. The investor thus expects the price of QWE to trade above $57 in the coming month. However, the investor is exposed to escalating losses if the price of the stock falls below $57. At a stock price of $55, the put seller is still obligated to buy shares of QWE at the strike price of $60.
To close out a put position prior to expiration, the put seller would buy back the put contract in the open market. If the price of the stock has remained unchanged or increased in value, the put seller will most often earn a profit on their position due to the loss of time value in the option.
If, however, the price of QWE, from the example above, had fallen dramatically, the put seller will be either forced to buy the put option at a much higher price or forced to purchase the shares at $60 when they are put to them.
In the case of QWE with the stock trading at $55, the put seller would be either forced to pay $500 to repurchase the put at expiration or forced to have the shares "put" to them at $60, which will require $6,000 in cash or margin. In either case, the put seller generates a loss of $200 at expiration. The $200 loss is calculated as the ($5500), current market value, - ($6000), the price paid for the stock, + ($300), premium collected at the beginning of the trade.
Check back next week when we explore another options trading strategy, credit spreads. Have a great week in trading and hope to see you next week.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Monday, December 15, 2008
What Two Companies Weren't the Right Mix? - December 15, 2008
Is money so tight that companies can’t even get funding to buy other companies? In what would have been a $6.5B agreement by Hexion Chemicals Inc. to take Huntsman Corp. (HUN) private, the deal turned out to be a $1B settlement agreement with Apollo Global Management LP, the parent company of Hexion.
In a deal that was first announced back in July of 2007, Hexion then tried to back out of the deal citing that Huntsman’s financial standing was deteriorating. When Huntsman relayed the abandonment of Hexion from the buyout, a Delaware judge ordered Hexion to maintain their course of action and keep the arrangement alive.
Hexion’s main creditors for the deal, Credit Suisse (CRP) and Deutsche Bank (DB), left the deal back in October amidst the collapse of the financial markets and the demise of the credit industry to be specific. Find out more about Hexion’s settlement with Huntsman at Bloomberg.
As part of the $1B settlement, Huntsman will receive a $325M termination fee, paid by Hexion, and another $425M cash payment made by the parent company, Apollo. On top of that, the remainder of the balance, $250M, will be in exchange for the 10-year convertible notes the company offered in the deal. Huntsman expects to receive at least half of the settlement by the end of the year, with the balance to be paid in full by March 31, 2009.
Leon Black, Apollo's chairman, said the agreement put an end to months of uncertainty. He also added, "We are happy to be resolving this situation in the best interest of our investors. It puts to an end the six-month disagreement and distraction between our companies. As the majority stakeholder in Hexion and now an investor in Huntsman, we look forward to both companies traversing this economic cycle and prospering."
Huntsman President and Chief Executive Peter R. Huntsman said the settlement would improve his company's balance sheet and takes uncertainty out of the business. "A billion dollars in today's market is a lot of money," said Huntsman. He would go on to say that he felt his company would not only "survive," but also "prosper."
In today’s trading session, shares of Huntsman plunged $3.00, or 51%, to $2.86 per share, after sinking to a 52-week low of $2.82 earlier in the session. The stock has fallen about 88% from its 52-week high. When the deal was first announced back in 2007, Hexion had offered $28 per Huntsman share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
In a deal that was first announced back in July of 2007, Hexion then tried to back out of the deal citing that Huntsman’s financial standing was deteriorating. When Huntsman relayed the abandonment of Hexion from the buyout, a Delaware judge ordered Hexion to maintain their course of action and keep the arrangement alive.
Hexion’s main creditors for the deal, Credit Suisse (CRP) and Deutsche Bank (DB), left the deal back in October amidst the collapse of the financial markets and the demise of the credit industry to be specific. Find out more about Hexion’s settlement with Huntsman at Bloomberg.
As part of the $1B settlement, Huntsman will receive a $325M termination fee, paid by Hexion, and another $425M cash payment made by the parent company, Apollo. On top of that, the remainder of the balance, $250M, will be in exchange for the 10-year convertible notes the company offered in the deal. Huntsman expects to receive at least half of the settlement by the end of the year, with the balance to be paid in full by March 31, 2009.
Leon Black, Apollo's chairman, said the agreement put an end to months of uncertainty. He also added, "We are happy to be resolving this situation in the best interest of our investors. It puts to an end the six-month disagreement and distraction between our companies. As the majority stakeholder in Hexion and now an investor in Huntsman, we look forward to both companies traversing this economic cycle and prospering."
Huntsman President and Chief Executive Peter R. Huntsman said the settlement would improve his company's balance sheet and takes uncertainty out of the business. "A billion dollars in today's market is a lot of money," said Huntsman. He would go on to say that he felt his company would not only "survive," but also "prosper."
In today’s trading session, shares of Huntsman plunged $3.00, or 51%, to $2.86 per share, after sinking to a 52-week low of $2.82 earlier in the session. The stock has fallen about 88% from its 52-week high. When the deal was first announced back in 2007, Hexion had offered $28 per Huntsman share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Friday, December 12, 2008
Pillar of Wall Street Collapses
What do an Italian immigrant, the NASDAQ and 50 billion dollars have in common? They are all associated with a Ponzi scheme. Today, the “Ponzi scheme” seems to have become a part of our every day lexicon and it has once again reared its ugly head in the world of high finance, involving one of Wall Streets most respected personalities.
Named after an Italian immigrant by the name of Charles Ponzi, a Ponzi scheme involves offering abnormally high, short-term returns that entice investors into the scheme. The existing scheme investors are paid off with the money obtained from the new investors, which requires and ever-increasing flow of money into the scheme to keep it afloat.
Late yesterday, a longstanding leader in the financial services industry, and former chairman of the NASDAQ, Bernard Madoff, was arrested and charged with securities fraud involving a Ponzi scheme. The U.S. Attorney for the Southern District of New York, and the Federal Bureau of Investigation allege Madoff was involved in a Ponzi scheme involving over 50 billion dollars.
Madoff currently serves as the founder and chairman of Bernard L. Madoff Investment Securities LLC. It was his dealings over the last decade within this company that led to his arrest. Madoff's assets have been frozen and a receiver has been appointed to run the firm during the resolution of the charges.
Madoff is alleged to have invested and lost investors' money, and then, to cover up his actions, paid off some investors with the principal he received from others. His continued losses and cover ups eventually snowballed into billions of dollars in losses. Madoff began to have a hard time keeping the scheme going and the stress was getting to him.
So, how did this scheme come to light? Well it was apparently Bernard himself that exposed the scheme. The stress from the cover-ups began to overwhelm him. Over the last couple of weeks he is alleged to have made several statements exposing the scheme.
According to reports he is alleged to have told senior employees that he is “finished” and that everything was just “one big lie”. He himself, according to federal prosecutor's statements stated he was running “a giant Ponzi scheme”.
As with all Ponzi schemes, the enormity of it all was its downfall. It is not easy keeping new money flowing in while paying off existing clients. Madoff's firm is alleged to have had a client seeking to redeem $7 billion in deposits and Madoff was struggling to meet that obligation.
Madoff's firm was involved in an investment advisory business with over $17 billion in assets under management. The firm had a number of large hedge fund investment firms and some large European banks on his client list. The effect on the funds and banks could be devastating.
Madoff's lawyer is attempting to minimize Bernard's culpability stating that "Bernard Madoff is a longstanding leader in the financial services industry with an unblemished record," "He is a person of integrity. He intends to fight to get through this unfortunate event."
More information will come to light as this story unfolds. But one thing is for certain, there will be some major fallout from the losses from this scheme.
Read more on the Madoff Ponzi arrest at Market Watch.
Named after an Italian immigrant by the name of Charles Ponzi, a Ponzi scheme involves offering abnormally high, short-term returns that entice investors into the scheme. The existing scheme investors are paid off with the money obtained from the new investors, which requires and ever-increasing flow of money into the scheme to keep it afloat.
Late yesterday, a longstanding leader in the financial services industry, and former chairman of the NASDAQ, Bernard Madoff, was arrested and charged with securities fraud involving a Ponzi scheme. The U.S. Attorney for the Southern District of New York, and the Federal Bureau of Investigation allege Madoff was involved in a Ponzi scheme involving over 50 billion dollars.
Madoff currently serves as the founder and chairman of Bernard L. Madoff Investment Securities LLC. It was his dealings over the last decade within this company that led to his arrest. Madoff's assets have been frozen and a receiver has been appointed to run the firm during the resolution of the charges.
Madoff is alleged to have invested and lost investors' money, and then, to cover up his actions, paid off some investors with the principal he received from others. His continued losses and cover ups eventually snowballed into billions of dollars in losses. Madoff began to have a hard time keeping the scheme going and the stress was getting to him.
So, how did this scheme come to light? Well it was apparently Bernard himself that exposed the scheme. The stress from the cover-ups began to overwhelm him. Over the last couple of weeks he is alleged to have made several statements exposing the scheme.
According to reports he is alleged to have told senior employees that he is “finished” and that everything was just “one big lie”. He himself, according to federal prosecutor's statements stated he was running “a giant Ponzi scheme”.
As with all Ponzi schemes, the enormity of it all was its downfall. It is not easy keeping new money flowing in while paying off existing clients. Madoff's firm is alleged to have had a client seeking to redeem $7 billion in deposits and Madoff was struggling to meet that obligation.
Madoff's firm was involved in an investment advisory business with over $17 billion in assets under management. The firm had a number of large hedge fund investment firms and some large European banks on his client list. The effect on the funds and banks could be devastating.
Madoff's lawyer is attempting to minimize Bernard's culpability stating that "Bernard Madoff is a longstanding leader in the financial services industry with an unblemished record," "He is a person of integrity. He intends to fight to get through this unfortunate event."
More information will come to light as this story unfolds. But one thing is for certain, there will be some major fallout from the losses from this scheme.
Read more on the Madoff Ponzi arrest at Market Watch.
Thursday, December 11, 2008
How Tight Has Your Wallet Become? - December 11, 2008
Exactly how bad is our country’s economy? With the massive devaluations of homes, along with monumental losses within the stock markets, Americans have decreased their personal debt spending for the first time ever.
In a report released by the Federal Reserve earlier today, households have curtailed their debt levels by 0.8% during the 3rd quarter. The report also showed that the average households’ net worth declined by 4.7% during the same time. Net worth has declined throughout the last four quarters.
As for consumer credit, it advanced at a slowed rate of 1.2% annually, compared to the 3.9% increase from the 2nd quarter. Consumers also saw the growth in home mortgage debt recede to an annual rate of 2.4%, down from a 0.1% drop in the previous quarter. The 2.4% decline marked the largest drop ever in home mortgage debt.
Net worth totaled $56.54 trillion during the 3rd quarter, down from $59.35 trillion in the 2nd quarter. During the 2nd quarter, net worth decreased by 0.7% from the 1st quarter. Read more about the decline in households’ net worth at Bloomberg.
"Consumers are going through a major change in their spending and savings habits," stated Lyle Gramley, a former Fed Governor. "Throughout the housing bubble, consumers had a savings rate of zero, relying on the rising price of their homes. Now they're saving money for the future instead of spending it."
The data also showed that non-financial debt, a.k.a. “flow of funds,” increased more than 7% in the 3rd quarter, up from the previous quarter’s increase of only 3.2%. These non-financial debts represent the governments borrowing figures.
In the same regards as the “flow of funds,” non-financial borrowing by businesses grew at a much slower rate during the recent quarter at a rate of 2.9%. Down from the prior quarter’s borrowing rate increase of 5.6%.
For the 3rd quarter, the total amount of outstanding non-financial debt equated to $32.98 trillion, up from $32.39 trillion in the 2nd quarter.
Outside of personal debt and net worth, the government’s debt rocketed higher in the 3rd quarter, jumping 39.2%, its largest increase ever. It also followed the miniscule 5.9% increase the quarter before.
State and local government debts increased as well, but on a much smaller scale. For the quarter, their debts advanced at a 2.9% annual rate, coming off a 0.8% growth in the previous quarter.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
In a report released by the Federal Reserve earlier today, households have curtailed their debt levels by 0.8% during the 3rd quarter. The report also showed that the average households’ net worth declined by 4.7% during the same time. Net worth has declined throughout the last four quarters.
As for consumer credit, it advanced at a slowed rate of 1.2% annually, compared to the 3.9% increase from the 2nd quarter. Consumers also saw the growth in home mortgage debt recede to an annual rate of 2.4%, down from a 0.1% drop in the previous quarter. The 2.4% decline marked the largest drop ever in home mortgage debt.
Net worth totaled $56.54 trillion during the 3rd quarter, down from $59.35 trillion in the 2nd quarter. During the 2nd quarter, net worth decreased by 0.7% from the 1st quarter. Read more about the decline in households’ net worth at Bloomberg.
"Consumers are going through a major change in their spending and savings habits," stated Lyle Gramley, a former Fed Governor. "Throughout the housing bubble, consumers had a savings rate of zero, relying on the rising price of their homes. Now they're saving money for the future instead of spending it."
The data also showed that non-financial debt, a.k.a. “flow of funds,” increased more than 7% in the 3rd quarter, up from the previous quarter’s increase of only 3.2%. These non-financial debts represent the governments borrowing figures.
In the same regards as the “flow of funds,” non-financial borrowing by businesses grew at a much slower rate during the recent quarter at a rate of 2.9%. Down from the prior quarter’s borrowing rate increase of 5.6%.
For the 3rd quarter, the total amount of outstanding non-financial debt equated to $32.98 trillion, up from $32.39 trillion in the 2nd quarter.
Outside of personal debt and net worth, the government’s debt rocketed higher in the 3rd quarter, jumping 39.2%, its largest increase ever. It also followed the miniscule 5.9% increase the quarter before.
State and local government debts increased as well, but on a much smaller scale. For the quarter, their debts advanced at a 2.9% annual rate, coming off a 0.8% growth in the previous quarter.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
How Many Foreclosed Homes Are On Your Block? - December 11. 2008
Is the housing market finally reaching a bottom? In a report released by RealtyTrac, the number of U.S. homeowners thrust into the housing crisis declined in November as newly enforced state laws helped prevent further foreclosures.
Those newly enacted state laws, which lengthened the foreclosure process and adjusted loan modification programs, curtailed the number of foreclosures for any homeowner whose mortgage is held by Fannie Mae or Freddie Mac.
In the report, foreclosures for November dropped 7% from October’s reading, but compared to this time last year, the number of foreclosures jumped 28% year-over-year. That amounts to one in every 488 households received a filing for foreclosure. A filing is defined as any notice of default, auction sale or bank repossession.
On a national scale, more than 260,000 homes received at least one notice. Within those figures, more than 78,000 domiciles were repossessed by their lenders in November. Delve deeper into America’s foreclosure crisis at Bloomberg.
Housing experts have stated that nearly 70% of all subprime foreclosure in the U.S. are beyond the controls of mortgage modification programs. With that, mortgages that are more than 30 days past due in the 3rd quarter has increased by nearly 7%, and those that are already in foreclosure increased by almost 3% during the quarter, according to the Mortgage Bankers Association.
The FDIC and the Federal Reserve estimate that banks will foreclose on more than 2.2M homes by the end of the year. That would put the rate of foreclosures at more than double last year’s rate of 1M homes, before the country fell into the housing crisis.
Additionally, RealtyTrac revealed that Nevada remains the worst state for foreclosures with one in every 76 households receiving some sort of notice. Nevada’s rate is more than six times that of the national average and marks the 23rd consecutive month that the state has led the nation in foreclosures.
With other states, Florida ranked behind Nevada with one in every 173 households receiving a notice, followed by Arizona, California, Michigan, Georgia, Ohio, Colorado, Utah and Idaho, to round out the top ten.
As for the total number of actual claims filed, California was the leader in that department, with more than 60,000 filings in November, up 51% from the previous year.
In retrospect, “I'm afraid we're looking at a bit of a false promise," Rick Sharga, senior price president at RealtyTrac announced today. He went on to add that “It's basically a stay of execution. I am fearful that we're going to see a pretty significant spike come January. Most economists are of the opinion that until you stabilize housing, the rest of the economy is not going to get better. For all the hundreds of billions of dollars that have been injected into the financial system, we still see the foreclosure rates go up."
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Those newly enacted state laws, which lengthened the foreclosure process and adjusted loan modification programs, curtailed the number of foreclosures for any homeowner whose mortgage is held by Fannie Mae or Freddie Mac.
In the report, foreclosures for November dropped 7% from October’s reading, but compared to this time last year, the number of foreclosures jumped 28% year-over-year. That amounts to one in every 488 households received a filing for foreclosure. A filing is defined as any notice of default, auction sale or bank repossession.
On a national scale, more than 260,000 homes received at least one notice. Within those figures, more than 78,000 domiciles were repossessed by their lenders in November. Delve deeper into America’s foreclosure crisis at Bloomberg.
Housing experts have stated that nearly 70% of all subprime foreclosure in the U.S. are beyond the controls of mortgage modification programs. With that, mortgages that are more than 30 days past due in the 3rd quarter has increased by nearly 7%, and those that are already in foreclosure increased by almost 3% during the quarter, according to the Mortgage Bankers Association.
The FDIC and the Federal Reserve estimate that banks will foreclose on more than 2.2M homes by the end of the year. That would put the rate of foreclosures at more than double last year’s rate of 1M homes, before the country fell into the housing crisis.
Additionally, RealtyTrac revealed that Nevada remains the worst state for foreclosures with one in every 76 households receiving some sort of notice. Nevada’s rate is more than six times that of the national average and marks the 23rd consecutive month that the state has led the nation in foreclosures.
With other states, Florida ranked behind Nevada with one in every 173 households receiving a notice, followed by Arizona, California, Michigan, Georgia, Ohio, Colorado, Utah and Idaho, to round out the top ten.
As for the total number of actual claims filed, California was the leader in that department, with more than 60,000 filings in November, up 51% from the previous year.
In retrospect, “I'm afraid we're looking at a bit of a false promise," Rick Sharga, senior price president at RealtyTrac announced today. He went on to add that “It's basically a stay of execution. I am fearful that we're going to see a pretty significant spike come January. Most economists are of the opinion that until you stabilize housing, the rest of the economy is not going to get better. For all the hundreds of billions of dollars that have been injected into the financial system, we still see the foreclosure rates go up."
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Wednesday, December 10, 2008
When is Your Pink Slip Coming? - December 10, 2008
What is the worst day of the week to lose your job? If you work for Yahoo Inc. (YHOO) that day could be Wednesdays. After what could be construed as one of the worst year’s in company history, today’s news just made it that much worse.
Company officials began early this morning by informing some 1,500 employees that their services were no longer needed. Today’s cuts amounts to 10% of the company’s 15,000 workers. Learn more about Yahoo’s layoffs at BoomTown.
The reduction in workers is aimed to cut annual costs by more than $400M. Other efforts, such as outsourcing, consolidating their office buildings and increasing their technology platforms are all part of the restructuring process.
The tumultuous times for the company began when Jerry Yang took over as CEO in June 2007. With a new head honcho, the company was poised to turn things around, especially when Google (GOOG) and Microsoft (MSFT) came calling.
Yahoo dismissed Microsoft’s proposal of acquiring the whole company for $47.5B just a few months ago. Google’s proposal was thwarted by anti-trust laws, which claimed that the joining of the two companies would create a near monopoly within the search engine and online advertising industry.
In a letter sent to Yahoo officials today, shortly after the job cut announcement, Ivory Investment Management LP, one of Yahoo largest investors, strongly urged the company’s board to get back to the negotiating table with Microsoft to see if they are still willing to purchase their search engines entity.
Ivory seems intent on looking out for the shareholders and not for Yahoo’s front office. Ivory holds more than 21M shares or 1.5% of the company and claims that Microsoft would be willing to buy the search platform for roughly $15B.
If the deal goes through, that would equate to an approximate value of $24 to $29 per share, more than double what the shares were trading at today, $13.22.
The deal appears to make sense. A representative from Ivory Management went on to state that “It is widely acknowledged that neither company has kept pace with Google's innovation and investment spending. As a result, both companies appear to have fallen further behind in a business area they have each repeatedly referred to as a top priority."
Whether or not Yahoo and Microsoft can come to some sort of an agreement remains to be seen. However, the most important factor today was the fifteen hundred people that were let go, and right before the holiday season. God bless and good luck in your future endeavors.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Company officials began early this morning by informing some 1,500 employees that their services were no longer needed. Today’s cuts amounts to 10% of the company’s 15,000 workers. Learn more about Yahoo’s layoffs at BoomTown.
The reduction in workers is aimed to cut annual costs by more than $400M. Other efforts, such as outsourcing, consolidating their office buildings and increasing their technology platforms are all part of the restructuring process.
The tumultuous times for the company began when Jerry Yang took over as CEO in June 2007. With a new head honcho, the company was poised to turn things around, especially when Google (GOOG) and Microsoft (MSFT) came calling.
Yahoo dismissed Microsoft’s proposal of acquiring the whole company for $47.5B just a few months ago. Google’s proposal was thwarted by anti-trust laws, which claimed that the joining of the two companies would create a near monopoly within the search engine and online advertising industry.
In a letter sent to Yahoo officials today, shortly after the job cut announcement, Ivory Investment Management LP, one of Yahoo largest investors, strongly urged the company’s board to get back to the negotiating table with Microsoft to see if they are still willing to purchase their search engines entity.
Ivory seems intent on looking out for the shareholders and not for Yahoo’s front office. Ivory holds more than 21M shares or 1.5% of the company and claims that Microsoft would be willing to buy the search platform for roughly $15B.
If the deal goes through, that would equate to an approximate value of $24 to $29 per share, more than double what the shares were trading at today, $13.22.
The deal appears to make sense. A representative from Ivory Management went on to state that “It is widely acknowledged that neither company has kept pace with Google's innovation and investment spending. As a result, both companies appear to have fallen further behind in a business area they have each repeatedly referred to as a top priority."
Whether or not Yahoo and Microsoft can come to some sort of an agreement remains to be seen. However, the most important factor today was the fifteen hundred people that were let go, and right before the holiday season. God bless and good luck in your future endeavors.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Do You Have Enough Printer Paper? - December 10, 2008
Whom do you get your office supplies from for your business? If you said Office Depot Inc. (ODP), then you might have a further drive than normal in the upcoming months. In an announcement made earlier today, the company confirmed reports that they plan to close 126 stores nationwide as the economic condition has lowered demand for office supplies.
Over the next three months, the company plans to make the closures of 112 stores, along with an additional 14 stores in 2009. Included in the closings, Office Depot is expected to shutdown six of their 33 distribution centers. Read more about the store closings at Yahoo! News.
With the retail sector taking huge losses over the past several months due to the financial crises and the lack of consumer spending, the company still plans on opening 20 new stores during 2009. However, that number is half the original number the company had planned on opening.
The company anticipates taking financial charges of $270M to $300M for the 4th quarter and parts of 2009 due to the closings. The charges throughout 2009 are related to lease expenditures that the company is still obligated to paying despite stores being closed at those locations.
Office Depot currently employs more than 49,000 workers, and with today’s news, the company released totals that more than 2,200 employees will be affected by the closings. In November, the company announced that nearly 250 corporate employees would be out of work due to the lack of sales.
Over the past year, shares of ODP have been bruised and battered, losing more than 82% of its value during that time. Despite the dismal news, shares of Office Depot added nearly 7% in today’s session at the time of posting, trading at $2.60 per share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Over the next three months, the company plans to make the closures of 112 stores, along with an additional 14 stores in 2009. Included in the closings, Office Depot is expected to shutdown six of their 33 distribution centers. Read more about the store closings at Yahoo! News.
With the retail sector taking huge losses over the past several months due to the financial crises and the lack of consumer spending, the company still plans on opening 20 new stores during 2009. However, that number is half the original number the company had planned on opening.
The company anticipates taking financial charges of $270M to $300M for the 4th quarter and parts of 2009 due to the closings. The charges throughout 2009 are related to lease expenditures that the company is still obligated to paying despite stores being closed at those locations.
Office Depot currently employs more than 49,000 workers, and with today’s news, the company released totals that more than 2,200 employees will be affected by the closings. In November, the company announced that nearly 250 corporate employees would be out of work due to the lack of sales.
Over the past year, shares of ODP have been bruised and battered, losing more than 82% of its value during that time. Despite the dismal news, shares of Office Depot added nearly 7% in today’s session at the time of posting, trading at $2.60 per share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Tuesday, December 09, 2008
Sony Plans on Reducing Workforce by 4% - December 9, 2008
How many more people will lose their jobs this year? You can add another 8,000 workers to that list, as Sony Corp. (SNE) announced early this morning that the company is reducing their workforce by 4% worldwide.
Of the 185,000 current jobs within the company, the cuts are in efforts to reduce costs by $1.1B a year by 2010 as the global economic crunch has taken hold in Japan. An additional 8,000 temporary or contractual workers will also be on the chopping block.
With such products as the PlayStation3, the Walkman, digital cameras, Blu-Ray disc players and the Bravia liquid crystal TVs, the company confirmed that all the cuts would come from the company’s electronic division.
In regards to the job loses, the company has announced that they will be closing five or six plants, or nearly 10% of their 57 factories. Analysts believe that, despite the recent moves, Sony may not fully recover from the economic downturn that has weighed heavily on the company’s profits.
In the company’s most recent quarter, which ended in September, Sony’s profits plunged more than 72% from last year’s totals. It has not been made public whether or not Sony plans on adjusting yearly expectations before they announce earnings for the next fiscal quarter. Sony reports their 3rd quarter earnings in January.
Recently, the company has made concessions about the lowering of full-year earnings expectations, claiming that net earnings are projected to come in at $1.5B, 59% lower than 2008’s yearly profits
A contributing factor to Sony’s troubles has been the recent surge in currency trading. With the Japanese yen increasing in value against the Dollar and the Euro, Sony has seen their profits reduced and their products less competitive in foreign markets. One way to combat reducing profits is to increase the prices for their products.
Along with additional measures, such as streamlining production and reducing inventories, the company has also shelved their plans for a substantial investment aimed at increasing production of their liquid crystal TVs.
Today’s announcement from Sony comes after the markets closed in Tokyo, where shares of Sony increased nearly 4% to trade around $20. In the U.S. markets, shares of SNE mirrored those in Japan, gaining 2.3%, to trade at $20.50 at the time of posting.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Of the 185,000 current jobs within the company, the cuts are in efforts to reduce costs by $1.1B a year by 2010 as the global economic crunch has taken hold in Japan. An additional 8,000 temporary or contractual workers will also be on the chopping block.
With such products as the PlayStation3, the Walkman, digital cameras, Blu-Ray disc players and the Bravia liquid crystal TVs, the company confirmed that all the cuts would come from the company’s electronic division.
In regards to the job loses, the company has announced that they will be closing five or six plants, or nearly 10% of their 57 factories. Analysts believe that, despite the recent moves, Sony may not fully recover from the economic downturn that has weighed heavily on the company’s profits.
In the company’s most recent quarter, which ended in September, Sony’s profits plunged more than 72% from last year’s totals. It has not been made public whether or not Sony plans on adjusting yearly expectations before they announce earnings for the next fiscal quarter. Sony reports their 3rd quarter earnings in January.
Recently, the company has made concessions about the lowering of full-year earnings expectations, claiming that net earnings are projected to come in at $1.5B, 59% lower than 2008’s yearly profits
A contributing factor to Sony’s troubles has been the recent surge in currency trading. With the Japanese yen increasing in value against the Dollar and the Euro, Sony has seen their profits reduced and their products less competitive in foreign markets. One way to combat reducing profits is to increase the prices for their products.
Along with additional measures, such as streamlining production and reducing inventories, the company has also shelved their plans for a substantial investment aimed at increasing production of their liquid crystal TVs.
Today’s announcement from Sony comes after the markets closed in Tokyo, where shares of Sony increased nearly 4% to trade around $20. In the U.S. markets, shares of SNE mirrored those in Japan, gaining 2.3%, to trade at $20.50 at the time of posting.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Tuesday Trading Tutorial - Writing Covered Calls - December 9, 2008
After last week’s discussion on the process of exercising options, this week’s topic will delve deeper into a specific trading strategy, writing covered calls.
A trade involving a covered call consists of a long stock position with the writing (selling) of call options against it. This strategy is best suited in a highly volatile, bullish-to-neutral market wherein an increase in the market price of the underlying stock is expected.
Profits are the name of the game, and when using covered calls, these profits are obtained from the credit received from the option’s premium at the opening of the trade. For example if you purchase 100 shares of a stock at $14 and sell a $15 call option for $0.75, you pocket $75. This has the effect of bringing your cost basis on the stock purchase down to $13.25.
Writing covered calls helps provide protection against any decreases in the price of the underlying stock. This allows investors to withstand declines in the stock’s price due to the premium received when selling the options.
Since the majority of the profits made on covered calls come from the premium received, it is paramount that the premium received is priced high enough to offset the risk involved in the trade.
When looking for a covered call play, investors typically look for options priced out-of-the-money (OTM). The most beneficial period to trade covered calls would be with those options that have no more than 45 days until expiration.
Even though the premium received would be greater by selling covered calls with expiration dates several months away, it is generally better to sell a front month covered call and, if you are not called away, do it again in the second and third month. Each month you sell the covered call reducing your cost basis.
In the chart below you can see the premium listed for two months worth of calls. Although the February 55 call has much premium than the January 55, it only allows the price of the stock to move $3.50. This is a small move before the possibility of assignment occurs.
So, what is your possible profit on a covered call trade? As discussed above, there is the premium you receive when you sell the covered call. For instance, if an investor were to buy 100 shares of QWE stock at $51.50, while selling (writing) 1 covered call contract on the January 60 call, the investor would receive $2.10 in premium. The profit to be made from the trade would be $210, ($2.10 x 100).
Call Strike Price January February
45 11.40 13.60
50 7.50 10.10
55 4.30 7.20
60 2.10 4.90
65 0.80 3.10
In addition, if the stock were to be called away at $60, there would be an additional profit of $850. This $850 is obtained from selling the 100 shares at $60 after purchasing them for $51.50. Therefore, the total profit from the trade would be $1060, $210 from selling the covered call and $850 from selling the stock.
When writing a covered call you need to consider your exit strategy. Because covered calls only protect the writer if the stock remains within a certain trading range, it is crucial that the investor keeps a close watch on the stock’s price on a daily basis.
When exiting the trade, a few scenarios may take place. First, if the stock increased above the $60 strike price, then the option will be exercised and the investor must deliver the shares at that price, the $60. Read more about exercising options here.
A second possible outcome is if the stock remains below the $60 strike, then the contract will expire worthless and the entire premium is obtained. The contract writer (seller) will be able to retain the entire premium obtained.
The final possible outcome is if the stock price retreats below the purchase price. The investor will still show a profit as long as the stock stays above the reduced cost basis of the stock. For instance, in the example above, the stock was purchased for $51.50 and a covered call was sold for $2.10 so the new cost basis for the stock would be $49.40. As long as the stock price stayed above the $49.40 mark, the trade would show a profit.
Check back next week when we explore a similar trading strategy, writing naked puts. Have a great week in trading and hope to see you next week.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
A trade involving a covered call consists of a long stock position with the writing (selling) of call options against it. This strategy is best suited in a highly volatile, bullish-to-neutral market wherein an increase in the market price of the underlying stock is expected.
Profits are the name of the game, and when using covered calls, these profits are obtained from the credit received from the option’s premium at the opening of the trade. For example if you purchase 100 shares of a stock at $14 and sell a $15 call option for $0.75, you pocket $75. This has the effect of bringing your cost basis on the stock purchase down to $13.25.
Writing covered calls helps provide protection against any decreases in the price of the underlying stock. This allows investors to withstand declines in the stock’s price due to the premium received when selling the options.
Since the majority of the profits made on covered calls come from the premium received, it is paramount that the premium received is priced high enough to offset the risk involved in the trade.
When looking for a covered call play, investors typically look for options priced out-of-the-money (OTM). The most beneficial period to trade covered calls would be with those options that have no more than 45 days until expiration.
Even though the premium received would be greater by selling covered calls with expiration dates several months away, it is generally better to sell a front month covered call and, if you are not called away, do it again in the second and third month. Each month you sell the covered call reducing your cost basis.
In the chart below you can see the premium listed for two months worth of calls. Although the February 55 call has much premium than the January 55, it only allows the price of the stock to move $3.50. This is a small move before the possibility of assignment occurs.
So, what is your possible profit on a covered call trade? As discussed above, there is the premium you receive when you sell the covered call. For instance, if an investor were to buy 100 shares of QWE stock at $51.50, while selling (writing) 1 covered call contract on the January 60 call, the investor would receive $2.10 in premium. The profit to be made from the trade would be $210, ($2.10 x 100).
Call Strike Price January February
45 11.40 13.60
50 7.50 10.10
55 4.30 7.20
60 2.10 4.90
65 0.80 3.10
In addition, if the stock were to be called away at $60, there would be an additional profit of $850. This $850 is obtained from selling the 100 shares at $60 after purchasing them for $51.50. Therefore, the total profit from the trade would be $1060, $210 from selling the covered call and $850 from selling the stock.
When writing a covered call you need to consider your exit strategy. Because covered calls only protect the writer if the stock remains within a certain trading range, it is crucial that the investor keeps a close watch on the stock’s price on a daily basis.
When exiting the trade, a few scenarios may take place. First, if the stock increased above the $60 strike price, then the option will be exercised and the investor must deliver the shares at that price, the $60. Read more about exercising options here.
A second possible outcome is if the stock remains below the $60 strike, then the contract will expire worthless and the entire premium is obtained. The contract writer (seller) will be able to retain the entire premium obtained.
The final possible outcome is if the stock price retreats below the purchase price. The investor will still show a profit as long as the stock stays above the reduced cost basis of the stock. For instance, in the example above, the stock was purchased for $51.50 and a covered call was sold for $2.10 so the new cost basis for the stock would be $49.40. As long as the stock price stayed above the $49.40 mark, the trade would show a profit.
Check back next week when we explore a similar trading strategy, writing naked puts. Have a great week in trading and hope to see you next week.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Monday, December 08, 2008
BetterTrades looks at Detroit's possble Bailout - December 8, 2008
Is Detroit positioned for a government bailout? In an announcement earlier this morning, White House officials stated that they were close to reaching a deal with Congress that would enact a bailout plan for the Big 3, General Motors (GM), Ford (F) and Chrysler.
In a proposal that could be signed sometime today, it seems apparent that the plan, which will be drawn from the program that was originally meant for the automakers to produce fuel-efficient vehicles, may total upwards of $15B.
Over the past several weeks, the Big 3 has petitioned Congress for $34B worth of bailout capital. However, analysts believe that the total price needed to revive the industry could reach levels near $125B.
Just last week, GM requested an additional $4B in short-term loans from the government by January, on top of the $4B they asked for to help them through the remainder of the year. Ford, meanwhile, asked for a line of credit worth $9B, while Chrysler needs $7B, both desperately needed by December 31.
In exchange for the emergency funds, the Big 3 would be subject to terms similar to those placed on the banking institutions, which received capital under the $700B Wall Street bailout plan. Stipulations within the auto industry plan places limits on their top executives' salary packages and the discontinuation of paying dividends.
Additionally, the automakers would have to give the government a chunk of future gains and guarantee that taxpayers would be reimbursed before any other shareholders. One last provision includes the creation of a so called “car czar.”
Within the new position, the “car czar” would oversee the bailout plan, the progress of corporate procedures and any additional concession made by the United Auto Workers union. The position would also take the lead on an oversight board to be made up of five cabinet secretaries from the Department of Treasury, Labor, Commerce, Energy and Transportation, along with the head of the Environmental Protection Agency (EPA).
As a side note, there may be the possibility of merger talks resuming between GM and Chrysler. Back in September, GM and Cerberus Capital Management LP, which is the parent company of Chrysler, began discussions of combining the two automakers. However, talks subsided when the financial crisis reared its ugly head.
If merger talks were to take up again, analysts believe that some 40,000 workers could potentially lose their jobs with the combining of the two companies. Read more about the merger talks at Reuters.
Shares of Ford and GM, the two that are publicly traded, surged in trading today, as Ford shares jumped over 26% to $3.19 a share, while shares of GM added nearly 19%, to $4.74 a share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
In a proposal that could be signed sometime today, it seems apparent that the plan, which will be drawn from the program that was originally meant for the automakers to produce fuel-efficient vehicles, may total upwards of $15B.
Over the past several weeks, the Big 3 has petitioned Congress for $34B worth of bailout capital. However, analysts believe that the total price needed to revive the industry could reach levels near $125B.
Just last week, GM requested an additional $4B in short-term loans from the government by January, on top of the $4B they asked for to help them through the remainder of the year. Ford, meanwhile, asked for a line of credit worth $9B, while Chrysler needs $7B, both desperately needed by December 31.
In exchange for the emergency funds, the Big 3 would be subject to terms similar to those placed on the banking institutions, which received capital under the $700B Wall Street bailout plan. Stipulations within the auto industry plan places limits on their top executives' salary packages and the discontinuation of paying dividends.
Additionally, the automakers would have to give the government a chunk of future gains and guarantee that taxpayers would be reimbursed before any other shareholders. One last provision includes the creation of a so called “car czar.”
Within the new position, the “car czar” would oversee the bailout plan, the progress of corporate procedures and any additional concession made by the United Auto Workers union. The position would also take the lead on an oversight board to be made up of five cabinet secretaries from the Department of Treasury, Labor, Commerce, Energy and Transportation, along with the head of the Environmental Protection Agency (EPA).
As a side note, there may be the possibility of merger talks resuming between GM and Chrysler. Back in September, GM and Cerberus Capital Management LP, which is the parent company of Chrysler, began discussions of combining the two automakers. However, talks subsided when the financial crisis reared its ugly head.
If merger talks were to take up again, analysts believe that some 40,000 workers could potentially lose their jobs with the combining of the two companies. Read more about the merger talks at Reuters.
Shares of Ford and GM, the two that are publicly traded, surged in trading today, as Ford shares jumped over 26% to $3.19 a share, while shares of GM added nearly 19%, to $4.74 a share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Friday, December 05, 2008
Invest In "Will Work For Food" Signs!
If you haven't heard, its ugly out there. Today's job report just drove that point home. Analysts had a consensus estimate of around 320,000 jobs lost. This, in and of itself, is nothing pretty. But, the news was even worse.
Employment for the month of November fell by 533,000 jobs. This was the largest single month decline in jobs since the mid-1970's. The unemployment rate in the United States now stands at a painful 6.7%...OUCH!!
But, not to scare anyone...the picture is actually worse than this. The unemployment report is compiled by the Department of Labor. They conduct two surveys, one survey polls businesses and the other polls households. The highly touted "unemployment number" is the result of the business poll. But what about the household surveys?
The household survey uncovers and additional 637,000 workers who have just given up. They are not counted in the unemployment number because that number only counts people actively looking for work. Well, there’s a large number who have just stopped looking.
Add to that number 621,000 people who have only been able to find part time work. A number of these people choose to work part time, but the number is also made up of many who have been looking for full time work and cant find it so they are working part time to make ends meet. These people are not counted in the unemployment number because they are technically employed.
Well surely that’s the end of the bad news right? I wish it were so. There was a number in the report that many looked to as a positive sign, but beware a wolf in sheep's clothing. The number? Weekly pay rate. The majority of the "still employed" saw an increase in income of about 2.8 percent over the last year. Great!! Right?
Nope, hate to keep pouring it on, but the rate of inflation stands above 3%. So, despite an increase in pay, workers who have managed to hang on to their jobs have not been able to keep up with inflation. This effects the amount of disposable income families have, which, of course, has a negative impact on spending and just keeps the economic snowball rolling downhill.
According to the New York Times, "the share of men ages 16 and over who are working is now at its lowest level since the government started keeping statistics in the 1940s". See Workers Give Up
Well, with all that bad news things are certainly about to get better, right? Don't shoot the messenger, but I don't think so. Just yesterday, AT&T (T) announced it was cutting 12,000 jobs, DuPont (DD) is cutting 2,000, Viacom (VIA) is reducing by 850 and Credit Suisse (CS) is going to cut more than 5,000.
If you have a job, hang on to it. At the same time, you may want to keep your resume fresh and start networking just in case things turn south at your place of employ. You don’t want to get caught unprepared.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Employment for the month of November fell by 533,000 jobs. This was the largest single month decline in jobs since the mid-1970's. The unemployment rate in the United States now stands at a painful 6.7%...OUCH!!
But, not to scare anyone...the picture is actually worse than this. The unemployment report is compiled by the Department of Labor. They conduct two surveys, one survey polls businesses and the other polls households. The highly touted "unemployment number" is the result of the business poll. But what about the household surveys?
The household survey uncovers and additional 637,000 workers who have just given up. They are not counted in the unemployment number because that number only counts people actively looking for work. Well, there’s a large number who have just stopped looking.
Add to that number 621,000 people who have only been able to find part time work. A number of these people choose to work part time, but the number is also made up of many who have been looking for full time work and cant find it so they are working part time to make ends meet. These people are not counted in the unemployment number because they are technically employed.
Well surely that’s the end of the bad news right? I wish it were so. There was a number in the report that many looked to as a positive sign, but beware a wolf in sheep's clothing. The number? Weekly pay rate. The majority of the "still employed" saw an increase in income of about 2.8 percent over the last year. Great!! Right?
Nope, hate to keep pouring it on, but the rate of inflation stands above 3%. So, despite an increase in pay, workers who have managed to hang on to their jobs have not been able to keep up with inflation. This effects the amount of disposable income families have, which, of course, has a negative impact on spending and just keeps the economic snowball rolling downhill.
According to the New York Times, "the share of men ages 16 and over who are working is now at its lowest level since the government started keeping statistics in the 1940s". See Workers Give Up
Well, with all that bad news things are certainly about to get better, right? Don't shoot the messenger, but I don't think so. Just yesterday, AT&T (T) announced it was cutting 12,000 jobs, DuPont (DD) is cutting 2,000, Viacom (VIA) is reducing by 850 and Credit Suisse (CS) is going to cut more than 5,000.
If you have a job, hang on to it. At the same time, you may want to keep your resume fresh and start networking just in case things turn south at your place of employ. You don’t want to get caught unprepared.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Thursday, December 04, 2008
BetterTrades looks at Capital One purchase of Chevy Chase Bank - December 4, 2008
What’s in your wallet? If you were a patron to Chevy Chase banks, then you will now be a part of the Capital One Financial Corp. (COF) family. In a statement released earlier today, Capital One announced the purchase of Chevy Chase Bank for $520M in cash.
Under the agreement, COF will use $445M of its own funds to finance the deal, and an additional 2.65M shares of COF for the remainder. The use of shares amounts to $75M, or about $29.30 per share.
Chevy Chase, with branches surrounding the D.C. area and into Maryland, currently has over $15.5B in total assets and runs nearly 240 branches in the Mid-Atlantic region. The bank also possesses some $11B in bank deposits, which COF will have full access to and will increase COF’s net deposits by nearly 10%.
In a time when it has become increasingly difficult to raise capital, COF embarked on this journey to help transform the image of the financial institution into one more of a consumer-based bank. Read more about Capital One purchase of Chevy Chase at Bloomberg.
With a long-standing reputation as being known as a credit card company, Capital One took steps to enter into consumer banking sector three years ago when they made two crucial purchases, the Louisiana-based Hibernia Corp. and the New York-based North Fork Bancorp.
With the purchase, Capital One may now become eligible for a bigger chunk of the $350M bailout fund that the Treasury Department has set aside for financial institutions. Just over a month ago, COF received $3.55B in funds from the government and now, with the purchase of Chevy Chase, may take part in the $450M allotment that may have been allocated to the bank before Capital One’s purchase.
Chevy Chase customers will have access to the full range of products and services that Capital One offers. Customers can now take advantage of a full-line of credit card offers along with additional financial products currently available. To date, COF has more than 50 million credit card holders.
Despite the recent demise of the economy and the financial environment, Capital One has been one of the few institutions to remain profitable during these turbulent times. The company currently has nearly $99B in deposits in which they can use to help offset the $7.2B in bad loans.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Under the agreement, COF will use $445M of its own funds to finance the deal, and an additional 2.65M shares of COF for the remainder. The use of shares amounts to $75M, or about $29.30 per share.
Chevy Chase, with branches surrounding the D.C. area and into Maryland, currently has over $15.5B in total assets and runs nearly 240 branches in the Mid-Atlantic region. The bank also possesses some $11B in bank deposits, which COF will have full access to and will increase COF’s net deposits by nearly 10%.
In a time when it has become increasingly difficult to raise capital, COF embarked on this journey to help transform the image of the financial institution into one more of a consumer-based bank. Read more about Capital One purchase of Chevy Chase at Bloomberg.
With a long-standing reputation as being known as a credit card company, Capital One took steps to enter into consumer banking sector three years ago when they made two crucial purchases, the Louisiana-based Hibernia Corp. and the New York-based North Fork Bancorp.
With the purchase, Capital One may now become eligible for a bigger chunk of the $350M bailout fund that the Treasury Department has set aside for financial institutions. Just over a month ago, COF received $3.55B in funds from the government and now, with the purchase of Chevy Chase, may take part in the $450M allotment that may have been allocated to the bank before Capital One’s purchase.
Chevy Chase customers will have access to the full range of products and services that Capital One offers. Customers can now take advantage of a full-line of credit card offers along with additional financial products currently available. To date, COF has more than 50 million credit card holders.
Despite the recent demise of the economy and the financial environment, Capital One has been one of the few institutions to remain profitable during these turbulent times. The company currently has nearly $99B in deposits in which they can use to help offset the $7.2B in bad loans.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Wednesday, December 03, 2008
BetterTrades looks at the Possible Takeover of Constellation Energy - December 3, 2008
Can it be? Someone has actually challenged Warren Buffet in a proposed takeover of another company. In news released early Wednesday morning, France’s state-controlled power company contested the offer made by the “Oracle of Omaha” in the purchase of Constellation Energy Group (CEG).
Electricite de France SA (EdF) offered the Baltimore-based company $4.5B for only half of CEG’s nuclear power business. Today’s offer matches the total bid from Buffet’s MidAmerican Energy Holdings Co., which was for the entire company. Buffets’s offer, which was made nearly three months ago, is believed to be too low. Numerous lawsuits have already been filed by shareholders.
Electricite de France SA, which is already the largest shareholder in Constellation Energy, owns 9.5% of the company and values CEG near $52 per share. Meanwhile, Buffet’s proposal values the company at only $26.50 per share. Read more about the Constellation bid at Yahoo! News.
Also included in the offer, EdF is willing to post $1B upfront to put into Constellation as part of the proposed deal, along with allowing CEG to sell non-nuclear generating assets to the French company for an additional $2B. MidAmerican was also willing to place $1B upfront to CEG in the deal proposed earlier.
Non-nuclear assets from CEG include coal- and natural gas-fired electric plants, in addition to oil and renewable energies such as geothermal, hydropower and solar.
Constellation's nuclear power business includes three nuclear power stations with five nuclear reactors located in New York and Maryland. The company’s nuclear power accounts for 61% of all Constellations’ electricity generating capacity of nearly 9,000 megawatts.
One of the benefits from EdF’s offer comes in the form of having a partner within the U.S. to help develop and new European nuclear power generating program. Another benefit would be that EdF could avoid strenuous government regulation to a foreign company by owning a U.S. nuclear facility.
In order to expand beyond the countries boundaries, Electricite de France SA recently purchased British Energy, in what was the company’s largest takeover in history, for $19B. It was here that the company took a foothold in Britain’s nuclear power industry.
At the time of posting, shares of Constellation Energy Group surged more than 11% on news of a possible buyout. Shares were trading near $28 per share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Electricite de France SA (EdF) offered the Baltimore-based company $4.5B for only half of CEG’s nuclear power business. Today’s offer matches the total bid from Buffet’s MidAmerican Energy Holdings Co., which was for the entire company. Buffets’s offer, which was made nearly three months ago, is believed to be too low. Numerous lawsuits have already been filed by shareholders.
Electricite de France SA, which is already the largest shareholder in Constellation Energy, owns 9.5% of the company and values CEG near $52 per share. Meanwhile, Buffet’s proposal values the company at only $26.50 per share. Read more about the Constellation bid at Yahoo! News.
Also included in the offer, EdF is willing to post $1B upfront to put into Constellation as part of the proposed deal, along with allowing CEG to sell non-nuclear generating assets to the French company for an additional $2B. MidAmerican was also willing to place $1B upfront to CEG in the deal proposed earlier.
Non-nuclear assets from CEG include coal- and natural gas-fired electric plants, in addition to oil and renewable energies such as geothermal, hydropower and solar.
Constellation's nuclear power business includes three nuclear power stations with five nuclear reactors located in New York and Maryland. The company’s nuclear power accounts for 61% of all Constellations’ electricity generating capacity of nearly 9,000 megawatts.
One of the benefits from EdF’s offer comes in the form of having a partner within the U.S. to help develop and new European nuclear power generating program. Another benefit would be that EdF could avoid strenuous government regulation to a foreign company by owning a U.S. nuclear facility.
In order to expand beyond the countries boundaries, Electricite de France SA recently purchased British Energy, in what was the company’s largest takeover in history, for $19B. It was here that the company took a foothold in Britain’s nuclear power industry.
At the time of posting, shares of Constellation Energy Group surged more than 11% on news of a possible buyout. Shares were trading near $28 per share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Tuesday, December 02, 2008
Tuesday Trading Tutorial from BetterTrades - December 2, 2008
Over the past several weeks, we have been talking about options and the many facets that make up their design. In today’s discussion, we will journey into the topics of exercising options and expiration dates for options. When trading options, a few key factors need to be taken into account. One is when do options actually expire.
For practical purposes, options expire on the third Friday of every month. However, technically speaking, the options actually expire on the Saturday following the third Friday. This is done to prevent scheduling conflicts, such as holidays.
When investors purchase an options contract, they are betting on both the timing and the directional move of the underlying security. Knowing the expiration date provides the investor with the knowledge of exactly how much time is left on the contract.
When first introduced to options, many traders have little trouble understanding the risk/reward characteristics of options but often have difficulty deciding which strike prices to use.
Deciding whether to use strike prices that are in-the-money, at-the-money, or out-of-the-money, will affect how big the underlying move needs to be in order for the trade to reach profitability. It also determines whether the trade will have any value if the underlying stock remains unchanged.
One of the biggest misconceptions regarding options is that 90% of them expire worthless. This could not be further from the truth. Actually, only about 30% of all options contracts expire worthless in each monthly trading cycle.
Another figure that may surprise some people is that approximately 10% of all contracts are exercised during the month. In options trading, a buyer of a call contract may exercise the right to buy the underlying stock at a particular price by informing the option seller. A put buyer's right is exercised when the underlying stock is sold at the agreed-upon price.
Options are most often exercised in the final week leading up to the expiration date.
The remaining 60% of options are traded within the marketplace from the time of purchase, up until the final week before expiration. It is here that traders sell their options in the market to close out their “buy” positions, while traders buy options in order to close out their “sell” positions.
For those options that are exercised and, subsequently, assigned to an investor, it becomes paramount to understand what has actually taken place. First, assignment is transferring of ownership from one entity to another.
In the case of options, assignment occurs when the options writer must fulfill their obligations under the options contract. If the option sold was a “call” option, then the writer must sell the underlying security at the posted strike price to the person exercising the option. If the option was a “put” option, then the writer must buy the underlying security at the posted strike price from the person who is exercising the put contract.
Another factor that one needs to take into account is the style of options that they are planning to invest in. As a rule, all standardized equity options are considered American-style. This exercise style states that any investor can exercise their contract on any day leading up to the expiration date.
In contrast, most index options use a European-style exercise procedure. Here, an investor is restricted to exercising their option only on the expiration date itself.
When placing an options order most often, through a broker or an online account, the sole issuer of all options listed at the Chicago Board Options Exchange (CBOE) and other U.S. exchanges is done through the Options Clearing Corporation (OCC). As the issuer of all options, the OCC positions itself on the opposite side of every trade.
Virtually becoming the seller for every buyer, and the buyer for every seller, the OCC permits traders to purchase and sell options within a secondary market. When options are exercised, the investor will not necessarily be exercised directly against the person/entity that sold it in the first place. It is the OCC that matched contract buyers with the contract sellers.
Check back next week as we talk more in depth about selling “puts” and “calls’, and more specifically, covered and uncovered calls and covered and uncovered puts. Hope to see you then. Enjoy your week and happy trading.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
For practical purposes, options expire on the third Friday of every month. However, technically speaking, the options actually expire on the Saturday following the third Friday. This is done to prevent scheduling conflicts, such as holidays.
When investors purchase an options contract, they are betting on both the timing and the directional move of the underlying security. Knowing the expiration date provides the investor with the knowledge of exactly how much time is left on the contract.
When first introduced to options, many traders have little trouble understanding the risk/reward characteristics of options but often have difficulty deciding which strike prices to use.
Deciding whether to use strike prices that are in-the-money, at-the-money, or out-of-the-money, will affect how big the underlying move needs to be in order for the trade to reach profitability. It also determines whether the trade will have any value if the underlying stock remains unchanged.
One of the biggest misconceptions regarding options is that 90% of them expire worthless. This could not be further from the truth. Actually, only about 30% of all options contracts expire worthless in each monthly trading cycle.
Another figure that may surprise some people is that approximately 10% of all contracts are exercised during the month. In options trading, a buyer of a call contract may exercise the right to buy the underlying stock at a particular price by informing the option seller. A put buyer's right is exercised when the underlying stock is sold at the agreed-upon price.
Options are most often exercised in the final week leading up to the expiration date.
The remaining 60% of options are traded within the marketplace from the time of purchase, up until the final week before expiration. It is here that traders sell their options in the market to close out their “buy” positions, while traders buy options in order to close out their “sell” positions.
For those options that are exercised and, subsequently, assigned to an investor, it becomes paramount to understand what has actually taken place. First, assignment is transferring of ownership from one entity to another.
In the case of options, assignment occurs when the options writer must fulfill their obligations under the options contract. If the option sold was a “call” option, then the writer must sell the underlying security at the posted strike price to the person exercising the option. If the option was a “put” option, then the writer must buy the underlying security at the posted strike price from the person who is exercising the put contract.
Another factor that one needs to take into account is the style of options that they are planning to invest in. As a rule, all standardized equity options are considered American-style. This exercise style states that any investor can exercise their contract on any day leading up to the expiration date.
In contrast, most index options use a European-style exercise procedure. Here, an investor is restricted to exercising their option only on the expiration date itself.
When placing an options order most often, through a broker or an online account, the sole issuer of all options listed at the Chicago Board Options Exchange (CBOE) and other U.S. exchanges is done through the Options Clearing Corporation (OCC). As the issuer of all options, the OCC positions itself on the opposite side of every trade.
Virtually becoming the seller for every buyer, and the buyer for every seller, the OCC permits traders to purchase and sell options within a secondary market. When options are exercised, the investor will not necessarily be exercised directly against the person/entity that sold it in the first place. It is the OCC that matched contract buyers with the contract sellers.
Check back next week as we talk more in depth about selling “puts” and “calls’, and more specifically, covered and uncovered calls and covered and uncovered puts. Hope to see you then. Enjoy your week and happy trading.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Monday, December 01, 2008
Cyber Monday - Will It Be A Retail Savior?
Most people are familiar with the “Black Friday” phenomenon. That is the day after Thanksgiving when retail stores receive the most traffic. There’s a relatively new phenomenon that has joined the ranks of Black Friday, known as Cyber Monday.
Cyber Monday is a term coined in 2005 by the National Retail Freedom group. It occurs on the Monday that immediately follows Black Friday. It derives its name from the fact that it is ceremonial kick-off to the online holiday shopping season in the U.S. For many online retailers it is their busiest day for shoppers.
With the world in economic turmoil, retailers are on edge. Not knowing for certain how things are going to play out this holiday season, they are bracing for the worst.
Preliminary results for the Black Friday shopping day are slightly encouraging. While the numbers were not great, they were better than originally expected. The true numbers will not be known, however, until Thursday when the November sales results will be posted.
Cyber Monday sales are predicted to be flat, or only up slightly compared to last year. Online retailers, and brick and mortar retailers as well, are offering deep discounts, as much as 75% off, in hopes of drawing in more shoppers.
Online retail sales this year were already weakening compared to years past. There has been a long streak of double digit sales increases for online retailers. This year, however, has only seen a 7% increase.
So, as workers return to work this Monday, many will turn to their company's fast Internet connections to do a little shopping. How much they do still remains to be seen, but analysts are in agreement it will not be near the amount of shopping done in years past.
Shoppers looking for online deals are likely to turn to reliable sites like Amazon (AMZN), Target (TGT) and Wal-mart (WMT). J.P. Morgan conducted a survey of 766 consumers and nearly 50% of the respondents indicated they would be shopping with the online giant Amazon.
You can read more about Cyber Monday at CNNMoney.com
For more information on the stock and options markets, check out the wealth of information at BetterTrades
Cyber Monday is a term coined in 2005 by the National Retail Freedom group. It occurs on the Monday that immediately follows Black Friday. It derives its name from the fact that it is ceremonial kick-off to the online holiday shopping season in the U.S. For many online retailers it is their busiest day for shoppers.
With the world in economic turmoil, retailers are on edge. Not knowing for certain how things are going to play out this holiday season, they are bracing for the worst.
Preliminary results for the Black Friday shopping day are slightly encouraging. While the numbers were not great, they were better than originally expected. The true numbers will not be known, however, until Thursday when the November sales results will be posted.
Cyber Monday sales are predicted to be flat, or only up slightly compared to last year. Online retailers, and brick and mortar retailers as well, are offering deep discounts, as much as 75% off, in hopes of drawing in more shoppers.
Online retail sales this year were already weakening compared to years past. There has been a long streak of double digit sales increases for online retailers. This year, however, has only seen a 7% increase.
So, as workers return to work this Monday, many will turn to their company's fast Internet connections to do a little shopping. How much they do still remains to be seen, but analysts are in agreement it will not be near the amount of shopping done in years past.
Shoppers looking for online deals are likely to turn to reliable sites like Amazon (AMZN), Target (TGT) and Wal-mart (WMT). J.P. Morgan conducted a survey of 766 consumers and nearly 50% of the respondents indicated they would be shopping with the online giant Amazon.
You can read more about Cyber Monday at CNNMoney.com
For more information on the stock and options markets, check out the wealth of information at BetterTrades
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