Author: Andrew Keene
A golden Opportunity 11.13.2012
It has been reported that the Chinese have imported more Gold from Hong Kong; further diversifying away from king dollar; more specifically, in September Chinese total imports increased by 30%. This figure is in line with historical efforts by the Chinese…rising to a total of 69.7 tons.
Another headline includes the looming fiscal cliff. Perhaps the closest thing to look at historically was how the respective markets acted during the USA debt ceiling and debt downgrade debacle. During this period of volatility, there was a clear divergence between gold and the equity markets. The current correlation coefficient is around a 0.64 (weekly bars over ten periods). Should the fiscal cliff happen tomorrow, given the aforementioned coefficient, one would expect the gold market to fall with the equity market. However, this coefficient has been anything but smooth over the years. It has flipped around from positive to negative many times over. The only thing that can be guaranteed it basically volatility.
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Andrew Keene has been an independent equity options trader on the Chicago Board of Options Exchange for the past 10 years. Over the past couple of years, Andrew has become one of the CBOE’s most recognized faces in the media, making regular appearances on Bloomberg TV’s Street Smart, CNBC’s Squawk on the Street, nationally syndicated First Business, and CBOETV’s In The Money with Angela Miles.
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First Business Interview 10.29.2012
CNBC Interview 10.30.2012
Market Refresh: Post Sandy and David Einhorn Stocks 10.31.12
Ford (F) reported third quarter EPS of $0.40 vs an estimated $0.30; 33% beat. Revenue came in at $30.9 billion vs an estimated $31.07B. This was the best third quarter ever for F…mostly fueled my North America. F battled above its 150 day moving average (DMA) on 10/26/12. The 50 DMA sits at $10 even. The USA automotive sector seems to be running on all cylinders, in related news famed and feared hedge fund manager, David Einhorn, recently talked up shares of GM at the Value Investing Congress.
Mr. Einhorn also talked down shares of CMG. Here Mr. Einhorn pointed out that competition from Taco Bell, YUM, should be taking incremental share away from the higher priced CMG. While there is no doubt in the minds of value investors, especially given the record of Greenlight Capital (Mr. Einhorn’s Fund), he is correct…the technical picture is what some traders will be looking at however. CMG is quickly approaching the earnings gap day open, more specifically 10/19/12’s open of $251.95. Perhaps a close above this figure could trigger short covering into said gap, just as a trade, for the market has been favoring the shorts for some time now…and when most are leaned to one side of the boat, maybe it is best to fade them…for a short while.
Another controversial stock has been HLF. Here Mr. Einhorn appropriately pointed out some items of interest during their conference call, and since then the stock has tumbled 28%. HLF released earnings while the market was closed. HLF guided FY13 EPS $4.40-$4.55 vs $4.52 estimated and guided Q4 EPS $0.97-$1.01 vs $0.98 estimated. For Q3 HLF reported $1.04 vs $1.01 and revenue of $1B vs $996M. Management pointed out double-digit volume growth in all their geographic locations, but it will be interesting to see what the stock actually does considering all this news and HLF’s short interest (14%).
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Max Out the Credit Card on Visa Volatility? 10.31.12
Visa has turned itself into a solid stock since its IPO in late 2008. V opened at $59.50 and is trading around $138 now… returning a cool 133%. The ride has been anything but steady however, the crash of 2008 and numerous regulation attempts have shaken some out of the trade, but the question remains…is IV too cheap for the week of a major catalyst like earnings?
Should one subscribe to history, the straddle has not been a profitable trade during earnings. As seen in the excel sheet below, buying the ‘at the money’ (ATM) straddle has been a loser five of the last six times…six observations because weekly options were not available prior to 5/5/11 before earnings. It is important to point out that the IV during these trades were all in line with the average, but now the IV is outside minus two standard deviations of the mean or 97.51% of the observations are above it. It may not be a prudent strategy to fade such low premium, as one may be selling into a hole. Fading the straddle is a popular trade among ‘gun slingers’, but the key variable in options, being implied volatility, may persuade one to think again…and maybe flip it as a long trade.
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S&P Emini & Unusual Options Activity Daily Vid Recap 10.26.2012
S&P Emini Pivot Points for 10.29.2012
