Halftime Report for 2.17.2012

UNUSUAL OPTION ACTIVITY:In FTR, they sold 20,000 MAR 4 Calls, post earnings for $.60. This could be against Feb positions that a customer has been building over the last few months. We have seen a customer sell 22,000 GFI Jul 18 Calls for $.45. In XLF, a customer bought 175,000 May 16 calls for $.21. This is a huge bet on America that things are getting better. Perhaps risk is here to stay.

By: Greg Zimny

A Compelling Long-Term Opportunity in the Energy Area By Ben Hoben

Halcon Resources (HK)
Halcon Resources was formed on February 8th in what was basically an acquisition and recapitalization combo. RAM Energy Resources was recapitalized by receiving $550 million in securities from Halcon Resources, LLC. This includes $275 million in new common stock and $275 million in convertible notes as well as warrants to purchase 110 million more shares at $4.50 per share.

Why I Like This Transaction

What gets me excited about this transaction is the fact that the $550 million was put in by Floyd Wilson who will now be the new CEO. Wilson was the former CEO of Petrohawk (who had the symbol HK). Petrohawk was a company Wilson built and sold last summer to BHP Billiton for a hefty premium.

Wilson obviously knows what he is doing and how to create shareholder value. After looking through their recent presentation they made at the Credit Suisse Energy Summit on February 9th you can see the path they are going down. Now flush with cash they are going to commence a drilling program focused on oil and liquids while at the same time monetizing their non-core assets by selling some of there properties.

Slide 26 Says Everything You Need to Know

The reason I love this opportunity so much can be summed up on their slide number 26 from their presentation. The slide is titled “Creating Value” with the following steps listed. Establish Well-Capitalized Platform (This has been done with the recapitalization.) Grow Reserves and Production (With the cash they received in the recapitalization they will put to good use to commence with a drilling program to beef up production but more importantly reserves.)

Minimize Operating Costs/Maximize Price Realizations

Divest High-Cost and Non-Core Assets (They’ve already announced three properties for sale so they can focus on their core assets.)

Built to Sell (Emphasis Added!)

This is the key reason here. Wilson built Petrohawk and sold it. Now he is stating he is going to build Halcon and sell it. Add to that he has $550 million reasons to follow through with this pledge. He even went back to the same symbol (HK) as Petrohawk.

Tremendous Long Term Opportunity

This isn’t a fast trade stock; rather it is for your long term portfolio. This is an opportunity to buy a company where the CEO has a history of building a company then selling it and has come right out and told you this is what he intends to do here. With a $300 million market cap this stock has plenty of room to get bigger and then be sold for a premium. While this could take years, I think you can start a position and buy the dips and follow along with a shrewd operator and make a healthy profit.

Disclosure: I bought a sizeable position in HK and intend to keep adding to it here over the next several weeks/months. Right now I see it becoming the largest holding in my long term account.

Morning Rage 2.17.2012

Friday, should be somewhat of a quiet day today in the US equity markets as investors scramble to plan their positions ahead of ECBs Greek debt swap deal over the weekend. EUR/USD seems to be trading with some conviction as it trades higher all morning around the 1.315 level. The USD is trading sideways as it awaits further news flow regarding the credit crisis and Gold stays above $1735 level. US CPI number is tomorrow morning and will be a market moving event. Will the VIX hold its key $20 level or sell off as the market takes off to the moon? Only time will tell..

Societe Generale’s CEO was optimistic regarding the banks future in 2012. He said that the LTRO program will aid European Banks if further capital injections were necessary. Societe Generale posted a quarterly profit that was way worse than analysts predicted(down 88%). Societe Generale’s CEO states, “our bank has only $3.5 Billion of exposure to PIIGS.” Might be a good time to cover your Emerging Market short positions as a lot of bad news seems to be already priced in a lot of these names.

By: Greg Zimny

Cam at the Closing Bell 2.16.2012

This thought was quickly destroyed as seen by the trend up day. The SPY made a morning low of $134.33 and traded up to $135.97 by the end of the day. Like I said yesterday, the uptrend is still very much in place and shorting this market as a whole yesterday would have been an amateur move. One day does not make a trend and tops are always harder to call than bottoms. Casino stocks continued their rampage today. Las Vegas Sands, Mel-crown Entertainment and MGM were up 2.34%, 2.29% and 1.3% respectively. MGM seems to have no problem going directly up in a straight line. I would watch this name for signs of weakness and a trend line break. The July high on MGM is $16.05, but if the overall market rolls over, I believe a move back to $12.40 would not an unrealistic scenario. RSI is a very basic tool, yes I know but on a 14 day RSI, MGM has bearish divergence. Microsoft soared higher today and was up over 5% at one point. Stock closed up 4% to $31.25. Price really does have memory. The highs on MSFT on 12/31/09 were $31.50 and $31.58 on 4/23/10. Today the stock touched $31.55 and then sold off during the last hour of trading. You want to see a break of that $31.60 level on volume for the MSFT move to continue higher.

Written by Cameron Patrick
@Cam_Patrick

Earnings Trade of the Day (BIDU) 2.16.2012

Unprofitable: This trade is unprofitable if BIDU Closes under $128.50 or above $151.50 by February 17, 2012. The most I can lose on this trade is the amount the spread can be worth, $5.00 minus the amount I sold the spread for $1.50 for a total of $3.50.

Reason I like this Trade: I looked at the amount of movement that Bidu has had over the last 4 quarters and it has been very tight. The stock is implying a 7.1% move and it has only moved at most 5% on any earnings. I want to sell movement, but always define my risk vs reward. I am risking $350 per 1 lot to make $150, but I think it is great risk vs reward.

UPDATE 2.17.2012 With BIDU selling off, but staying above $130 this trade will be worthless after today.  No trade is profitable until it is closed, so I will have to monitor it but looks like a BIG winner at #KOTM.  This spread is worthless in an hour and a half, taking profits and moving to the next trade.   

UPDATE 2.21.2012 This spread expired worthless, so it is on to the next trade, another winner at KOTM.