rovo's Market Journal -- 2011

[rovo]

Let's see if Obama's record of a market destroying speech remains intact.

[rovo]

Well the market continued to rise after Obama's little talk. Phew. I thought he would again destroy the rally. Of course there is still time for a decline.

Currently TBT is up 10%
but SOXL is up 18%.
and even Ford, F, is up 6%.

For a while it looked like I might have had a +$100K day but the port is backing off of its highs. Drat. I need AAPL to close at +$11 to make it and that isn't going to happen. Everything is dropping fast as I type this note.

[rovo]

Looks like traders are trying to lock in gains for today and driving the market downward. Tomorrow could be interesting.

[rovo]

Futures are looking good, green, going into the open. I think we have broken the back of the downturn and we will see the VIX decrease dramatically as well as stock prices going up for the immediate future. Bargains galore out there even at this point. For sure, just my opinion.

Options expire next Friday, well, actually Saturday the 20th, and it will be fun watching my positions in AAPL. I own a handful of Call contracts at $400 & $410 and they are pretty much worthless with AAPL trading at $373.70. AAPL has the potential to trade above $400 next week but a lot depends on the mood of the market. So I'm watching a race to see if AAPL can get above $400 by next Friday.

There are all kinds of ways to value a stock but by almost every technique AAPL is grossly under valued. PE (ttm) = 14.79, PEG = 0.71 is a value range number. I'm expecting earnings of $40 for the next 4 quarters so my PPE = 9.4. All three of these numbers are ridiculously low considering the: EPS Growth (MRQ) = 122%; EPS Growth (TTM) = 90%; Revenue Growth (MRQ) = 81%; and Revenue Growth (TTM) = 75%. No debt, huge amount of cash on hand and in investments.

[rovo]

I picked up some Call options on Ford yesterday afternoon. I bought 50 contracts of Ford Mar 17 2012 $13.00 Call for $0.78 per share ($.779498) including all fees.

50 contracts locks in 5,000 shares as far as gains or losses.

[Driftr]

Sorry for the noob question and I can try googling calls/puts if you'd prefer, but does that mean you paid $3,897.49 for the right to purchase 5000 shares of Ford at 13.00 on March 17, 2012? So theoretically you're expecting the shares to be worth $13.78 or more on that day?

[yclept]

Man, I just don't know about F, or for that matter any auto manufacturer. Mr. Ruff and I walk pretty often by the Ford dealership -- one of the biggest ones in the bay area. It could take a broadside from the Mahmudiye with no danger of harming a hair on a non-salesman's head.
en.wikipedia.org/wiki/Mahmudiye_(ship)
Of the ones local to me, this is also true of the Chevy dealer, the Volvo dealer -- oh wait, they closed, the GM truck dealer -- oops, also closed, the Mitsubishi dealer -- no wait, also gone; well the sparsity of customers clearly continues at the Nissan, Kia, Hundai, Buick (whoops, closed) dealers around here. We don't have a Toyota dealership on the auto row near me. I drove up the Nimitz Fwy the other day, it looks like the Lexus dealer near the Coliseum is closed.
I have a reasonable number of friends. We are all pretty much "cars fall into a buy-with-cash type of purchase (unless financing is made so cheap that it's less expensive than cash)". I can't think of anyone I know who has bought a car this year. We all have the money, none of us is using it to buy a car.
I think somewhere along the line stuff like that has to figure into the equation. Do you know anyone who has bought a car this year?

[rovo]

Driftr, Your question made me LOL because when I wrote the previous post I was thinking whether or not to offer an explanation of the meaning and what would have to happen to Ford's stock price to make the option worth something at expiration.

Options can be very complicated and I don't claim to understand all of the plays made by someone like Danshirley. There are many factors affecting the current price of an option.

The short answer to your question is yes. The $13.78 share price at expiration is the break-even point. The key phrase is "at expiration" because much can happen before then. Prior to expiration the most significant factor is the "expectation of price" at expiration or even just the likelihood of exceeding the strike price.

[ugonow]

I just bought some TEF.Nice yield, low pe. It almost sounds too good .What is holding it back? Any input?

[Driftr]

Aug 12, 2011 9:42:49 GMT -5 @yclept said:

Do you know anyone who has bought a car this year?

My wife got a new Highlander this year. We are on a schedule where we each get a new car every 8 years using 3 year financing with the 'off' years' 'savings' going towards the down payment on the next one.

[Driftr]

Aug 12, 2011 9:43:03 GMT -5 rovo said:

Driftr, Your question made me LOL because when I wrote the previous post I was thinking whether or not to offer an explanation of the meaning and what would have to happen to Ford's stock price to make the option worth something at expiration.

Options can be very complicated and I don't claim to understand all of the plays made by someone like Danshirley. There are many factors affecting the current price of an option.

The short answer to your question is yes. The $13.78 share price at expiration is the break-even point. The key phrase is "at expiration" because much can happen before then. Prior to expiration the most significant factor is the "expectation of price" at expiration or even just the likelihood of exceeding the strike price.

Thank you. I did a little wiki checking after Iposted the question and saw that US call options look like they can be excercised prior to the exp date. I therefore hope to see F at 15+ before year end.

[livinincali]

Options are an interesting game, but buying options with the VIX so high is usually not a very good idea. Basically the VIX measures the premium portion of the option so when it's high the premiums are high. For example we could see the market start to stabilize and rise, but a call option on F even though the stock is risings might decline. For example look at out of the money call options on SPY today. SPY is up but the calls are down.

SPY +1.08 0.95%
SPY 119 August call 120 -0.06 or down about 3%.

VIX is down 9%.

The problem with buying a call in this environment is that if the market goes the way you want which is higher the VIX is likely to do down. If the VIX rises then it's because the market is heading down. Bull market VIX is usually around 20 so I don't like buying calls until the VIX is in the 25 or lower range. I would consider buying puts though as another move down might panic the VIX.

[rovo]

Thank you. I did a little wiki checking after I posted the question and saw that US call options look like they can be excercised prior to the exp date. I therefore hope to see F at 15+ before year end.

True statement above. But, the options can also be sold at any time prior to expiration. It is not my intent to exercise this option at any time but to make a few bucks off of the option price by selling it prior to expiration. I too think the price of Ford stock is too low for this company. I could just buy shares of Ford common stock and hold them until the price reflects what I consider to be a fair value for the stock. The problem with buying the stock is that I already have 50K shares of Ford common stock and this is quite enough for me to be holding. But since I think the stock is under valued and will rise significantly by the end of the year, then the use of a Call Option allows me to HOPEFULLY leverage a few dollars into many dollars.

[rovo]

I have no argument or rebuttal for Cali's comment as he is absolutely correct. It just depends on one's expectations for the price movement of the underlying stock.

The Ford option previously mentioned has done little since I bought it even though the share price has risen. The current Bid / Ask of the option is $0.82 / $0.86 and this is only a tad higher, 5%, than my buy cost of $0.78. The VIX is fighting against me. The time value is fighting against me. The share price is fighting for me.

[rovo]

ugonow, Why don't you start a new thread with your thoughts and questions on TEF. It will get a better response with a separate thread than buries in my journal.

[rovo]

looks like we will drop going into the close for the weekend. Not surprising with all the volatility and world-wide chaos taking place.

[rovo]

Futures are slightly green this evening. Dow at +59, S&P500 at +7, and NASDAQ100 at +13.

The basic sentiment on this board seems to be looking for a down week. I think we will see a significantly up week. I believe the last few market weeks have been worse than is justified and we are due for a pop upward.

[mtntigger]

I hope you are right, rovo.
I know you like to follow technicals; do you not believe in the Elliot Wave Principle?

[2kids10horses]

rovo,

I think so, too. But I think it's only a short term pop. I think (unfortunately) that we're just begining a 2 year bear market.

Remember we discussed 'resistance' a couple of weeks ago.

I think resistance won the battle.

[rovo]

Yes, I try to follow technicals but only for entry and exit points. Longer term I believe the fundamentals rule the price of a stock. The current market is basing its pricing, to a large extent, on world-wide events on a day to day basis. If things calm down a bit I think we should see the market go upward until some news item reverses it yet again.

Elliot Wave? It would be nice if we could predict the future by looking at the past but I do not think we can do so. What I've seen of the Elliot Wave predictions is about the same as flipping a coin.

[rovo]

Options expiration is on the 20th of August, Saturday. This generally causes a little more volatility going into the later part of the week. This month I'll be watching with interest because I have a few contracts set to expire this week. There is zero "time value" in these and a minor "volatility" component also.

The options are:

AAPL Aug 20 2011 400.0 Call .... Currently $0.55
AAPL Aug 20 2011 410.0 Call .... Currently $0.11

To make any money Apple has to close or go above $407 for the $400 Call and $414 for the $410 Call. If AAPL does not get above the strike price this week they will be totally worthless.

[rovo]

Big news in the mobile phone market this morning as Google has announced they will be purchasing Motorola Mobility. This effectively destroys the old Motorola company. Motorola was big in the radio/TV market in the 1950s onward, then they were a major semiconductor market force, then a force to be reckoned with in the wireless phone market, now they are dead. The reason? Very poor management over the last 25 years.

Google to buy Motorola Mobility for $12.5 billion
10:13a ET August 15, 2011 (MarketWatch) SAN FRANCISCO (MarketWatch) -- Google Inc. unveiled plans on Monday morning to acquire Motorola Mobility for about $12.5 billion in cash in a bid to step up its ability to compete in the fast-growing mobile computing market � as well as protect its Android platform from an increasing number of legal challenges.


Google will pay a 63% premium over Motorola Mobility Holdings Inc.'s most recent closing price in what will be the Web giant's largest acquisition to date. The deal not only makes Google the owner of some of the well-known Droid family of smartphones, it will also give the company access to Motorola's base of more than 17,000 issued patents related to wireless technology, which may help it fend off legal challenges from competitors such as Apple Inc. and Microsoft Corp. .

"We think that combining with Motorola and having that kind of patent portfolio to protect the Android ecosystem is a good thing," Google's chief legal counsel David Drummond said on a conference call Monday morning.

Google shares fell 1.1% to $557.61, while Motorola Mobility shares surged 57% to $38.46. The Nasdaq Composite was up 1%.

Motorola Mobility has been under pressure from its largest shareholder --billionaire activist Carl Icahn -- to do something to capitalize on its large portfolio of intellectual property. See story on Icahn and Motorola Mobility

The company's shares have come under pressure since Motorola Mobility became its own company in January, spinning off from the public safety business that now goes by the name of Motorola Solutions. Motorola Mobility had one of the first successful handsets on Google's Android operating system, but the company has suffered from disappointing sales of other devices this year. It has also struggled to carve out a strong position in the growing tablet market against the popular iPad. Motorola's Xoom tablet sold about 690,000 units over the last two quarters compared to about 14 million iPad units for the same period.

For Google, one risk to the acquisition is the relationship with other key handset makers who compete with Motorola, in particular Asian manufacturers such as Samsung and HTC who have become key players in the Android market.

Larry Page, Google's CEO, and Andy Rubin, who runs the company's Android business, both said Monday that the company has been in communication with "key partners," who are in support of the deal.

Rubin also said Android would remain open to other phone manufacturers. "Android was born as an open operating system. It doesn't make sense to go with a single OEM," he said.

[livinincali]

GOOG purchase of MMI was mostly a patent buy. Apple has been getting rather frisky with lawsuits against the various hardware markets using android as an operating system so GOOG needed a patent portfolio to protect them and the android operating system as a whole. AAPL has gone after Samsung and HTC recently but won't even think about going after HP because HP has Palm's patents. Now they might be discouraged from going after GOOG which I'm sure was part of the plan at some point. I understand the need for patents but technology/software patents has gotten pretty ridiculous lately. I view this as slightly negative for AAPL, but probably more negative for Microsoft which was likely to be the company expecting to get a share of the mobile market money with lawsuits as their Mobile Windows operating system has not done very well.

[Trongersoll]

I don't think the purchase affected Motorola either way since the division was spun off in January. This isn't the first time Motorola messed up, but it managed to keep going. I'm not sure what they are doing at present, they may find another winner. I mean, when Apple started using Intel processors that was supposed to be the end of Motorola but they survived in the cell phone industry.

[rovo]

Apparently Motorola was split into two companies MSI and MMI.

MMI was the company purchased (pending) by Google.

Motorola Mobility Holdings, Inc. is a provider of technologies, products and services that enable a range of mobile and wireline digital communication, information and entertainment experiences. It is the parent of Motorola Mobility, Inc., its main United States wholly owned operating subsidiary, through which it conducts all of the business activities. Motorola, Inc. changed its name to Motorola Solutions, Inc. effective on separation on January 4, 2011. It has two segments: Mobile Devices and Home segment. Its product portfolio includes mobile devices, wireless accessories, set-top boxes and video distribution systems, and wireline broadband infrastructure products and associated customer premises equipment. Its integrated products and platforms deliver multimedia content, such as video, voice, messaging and Internet-based applications and services to multiple screens, such as mobile devices, televisions and personal computers. In May 2011, it acquired SunUp Digital Systems.

MSI, Motorola Solutions Inc, is now the remaining piece of the old Motorola.

Motorola Solutions, Inc. (Motorola Solutions), formerly Motorola, Inc., provides mission-critical communication products and services for enterprise and government customers worldwide. The Company’s portfolio includes products, such as two-way radios, barcode scanners, radio frequency identification (RFID) readers, mobile computing devices, wireless broadband networks and wireless local area network (LAN) products. On January 4, 2011, the separation of Motorola Mobility Holdings, Inc. from Motorola Solutions was completed. During the year ended December 31, 2010, the Company completed the sale of its Israel-based wireless network operator business. In April 2011, the Company completed the sale of its Networks business.

[rovo]

Item .......................... Date ...... Actual .. Consensus
Housing Starts ............08/16 ..... 604K ..... 608K
Building Permits ...........08/16 ..... 597K ..... 606K
Export Prices ex-ag. ... 08/16 ...... 0.2%
Import Prices ex-oil .... 08/16 ......0.2%
Industrial Production ... 08/16 ..... 0.9% ..... 0.4%
Capacity Utilization ..... 08/16 ..... 77.5% ... 77.0%

Today's data points are all reported and I'm OK with the numbers. New Housing was weaker than expected but I don't have a problem with fewer NEW homes because of the number of houses on the market. We have to work down the inventory.

Industrial Production surprised to the up-side and this is really good. These are important data points as it defines the need for more jobs going forward as well as industrial construction when capacity utilization gets into the upper 80%s.

Apparently auto production was strong and this aided the production numbers. This may help Ford's share price get out of the funk it has been in.

Overall I think the market will start a tad in the red but end in the green for the day.

[rovo]

It is time for the market to get out of the funk it has been in. I was very heartened by the production numbers yesterday but the market thought differently than I did. Things are not great but they are better than the market is predicting. I've pretty much given up on expecting a "double dip" recession but I see a long period of slow growth. There will be bright spots going forward as well as a bunch of losers. Hopefully my holdings in Ford and Apple will be some of the bright spots. My expectation is they will do better than the market is currently indicating but one never knows with any certainty.

[mtntigger]

Hopefully my holdings in Ford and Apple will be some of the bright spots.

I know it's still a rumor, but do you think that the acquisition of the Sharp plant will help Apple?

[rovo]

No knowledge of item you mention. Link please.

[mtntigger]

uk.reuters.com/article/2011/08/17/sharp-apple-factory-idUKL3E7JH0F520110817