Written by |

GOOG & AAPL v SPY Alpha Options Review (AVSPY & GOOSY) 10.17.2012

[shareaholic app="share_buttons" id="24556347"]

The index is simply a function of the absolute difference between the performance of AAPL and SPY. On 10/12/12/ the SPY closed down 0.34% while AAPL closed up 0.26%. So calculating the outperformance of AAPL would be adding SPY’s 0.34% to AAPL’s 0.26%, thus coming up with AVSPY’s close of up 0.60%. One could think of this product as long AAPL and short SPY, but not having to worry about weights, the proper amount of compensating shares, or borrowing costs.

Nearly any financial media outlet will have guests on touting this market as very unique, for it’s been a ‘stock pickers’ market…as if there is a market where you don’t have to pick the holdings in your portfolio. These managers try to beat market returns with their unique strategy and insight into companies.  They attempt to pick excellent management with positive industry trends for example. The unfortunate part of this is that after all the fees and headache, most funds have returns just like an index fund.  NASDAQ OMX alpha options are a convenient way to track and trade this performance, if one was really inclined to invest in management vs the S&P 500. This is just one way to view this product; another could just simply be hedging an individual long with a short index. This could especially be valuable, for the market has been known to trade on news from individual companies with large business scope and market clout… like GOOG & AAPL; both of which have alpha options.

The AVSPY also only has one implied volatility (IV) traders need to worry about, for if speculators wanted to play this otherwise in a pair trade, there would be two different contracts with different IV profiles. Considering AAPL earnings are only about seven trading days away, this product will be an interesting variable to look at when constructing a trade.

Screen shot 2012-10-13 at 1.45.35 PM

Feel free to e-mail any comments, feedback, suggestions, or general inquiries to…

mark@keeneonthemarket.com

Written by |

Unusual Option Activity 10.16.2012

[shareaholic app="share_buttons" id="24556347"]
Paper sold 3485 ISIS Oct 11 Puts for $.95 (8.6 times usual volume) when stock was trading $11.50
Paper bought 36,210 TYC Jan 2013 30 Calls for $.50 (14.1 times usual volume) when stock was trading $27.70

Paper bought 6000 PTEN Oct 17 Calls for $.40 (9.0 times usual volume) when stock was trading $17.14

Written by |

Will Big Blue Bleed Red on Earnings or IBM @ $280 by 2015? 10.16.2012

[shareaholic app="share_buttons" id="24556347"]

The next catalyst is their earnings announcement today!

For a complete review of what the options market, charts, statistics, and history are implying for IBM today see the link below for it is very important to know every angle.

LINK HERE

http://www.keeneonthemarket.com/blog/1551-pregame-ibm-earnings-from-every-angle-ibm-qqq-10152012

The analyst community has an average price target of $219 on IBM and many analysts are expecting about $3.61 in EPS. Credit Suisse, who has a neutral on the stock, recently adjusted their Q3 2012 EPS to $3.69, they go on to note that IBM will face tough times bringing revenue back up to par, but also noted their migration to higher margin businesses that compensate for said headwinds. Credit Suisse later went on to state that IBM is actually more or less a defensive type of stock, for it will get 50% of their incremental EPS from M&A and buybacks over the next five years. While this is not the most shareholder friendly or organic way to grow it still boosts the bottom line and hopefully shareholder value.

IBM will benefit from the mainframe refresh cycle for they have been expanding their mainframe ecosystem as they have been growing inorganically, for example in the software services and cloud space. This cycle is where IBM is sensitive to macro events and trends. The mainframe cycle is expected to be weak and damper the announcement today. Credit Suisse expects systems & technology revenues to be $3.98bn (-11% YoY) in the quarter; which may be confirming IBM’s recent focus shift into other businesses. Meanwhile, software is going to be increasingly important for IBM. Their $3.5bn in acquisitions need to prove their value and boost growth. Analysts are expecting software revenues to be up mid single digits YoY.

The analyst community has 13 overweighs, 19 holds, and zero sells currently. The median PE for next year is 12.3, below the market, but next year IBM has about $16 in forecasted EPS, implying about a $192 price, below where we are now.

 Feel free to e-mail any comments, feedback, suggestions, or general inquiries to…

Author

mark@keeneonthemarket.com

Screen shot 2012-10-14 at 1.12.39 AM