Archive for the ‘Uncategorized’ Category

Fed Leaves Rates Unchanged

September 26th, 2016

As expected, the Federal Reserve’s (Fed) policymaking arm, the Federal Open Market Committee (FOMC), opted not to raise interest rates at the conclusion of its two-day policy meeting on Wednesday, September 21.

The FOMC did upgrade its assessment of the economy from its July statement, and noted that the case for an increase in the fed funds rate had strengthened. But it decided to wait for evidence of further progress toward its objectives. The FOMC statement said the Committee would continue to monitor global economic and financial developments. Fed Chair Janet Yellen and the FOMC statement noted that future rate hikes are dependent on the economy, labor market, and inflation tracking toward the FOMC’s forecasts.

The Fed dropped a strong hint to the markets that it is leaning toward raising rates in December. The FOMC’s language suggests to us that barring a very bad run of economic data between now and December, a surprise out of the U.S. presidential election or Brexit negotiations, an unexpected move from China, or a terrorist attack that disrupts economic activity for a long period of time, the Fed is likely to raise rates at the December FOMC meeting. One rate hike is not expected to cause a big disruption in financial markets, especially given the signal from the Fed; however, a pickup in volatility would not be surprising following several months of steady and solid gains for stocks.

These are unusual times with unconventional monetary policy. As always, we are here to help you understand the complex investing environment and will continue to keep you informed of relevant developments. If you have any questions, we encourage you to contact us.

Thank you for your continued trust and confidence.

Sincerely,
Westside Investment Management

a few observations

November 25th, 2012

Here are a few observations today, November 20th. By the time you read this, of course, it will be completely out of date:

1. Apple stock seems to have hit bottom, at around 520, and now seems on the way back up. A friend of mine that follows it closely says it should be back to the mid 600s by Mid January. I believe it, but of course it depends on holiday sales. Even though it has come up 7% just today, to 565, I still consider it a “buy.” We have a new IPAD mini and we love it.

2. Wal-Mart stock is starting to look pretty good. It seems to be going up every year, and as it fixes up its website, it seems to be a better competitor for Amazon. And, as I see it, internet shopping with quick delivery is where it’s at now. The new smart phone feature, to help you find stuff in the stores, seems like a good idea. With a 2.3% dividend and a 14 PE, at anything under $70 it seems like a good buy. Here’s how it looked over the past three months:

screenshot

3. A friend sent me a detailed report on the world economy, and especially on problems with debt structure around the world. A lot of the article talked about Japan, which it selected as the country that is in the most financial trouble of all—even more than Greece and Portugal and the EU in general. Germany was not spared. The article was so scary it’s enough to make you want to go short on all of the country ETF’s. But the bottom line for my friend was that he shorted the Japanese yen.

Shorting the currency of a major economic power, even if it is in trouble, takes internal fortitude. I never do it. I think of it as the weather forecasters: do you notice that they cannot always get the weather forecasts right because there are so many variables. A little breeze comes in from here or there, and the forecast proves to be wrong. And so it is with currencies. There are so many variables it seems to me to be hard to forecast. Standard economic factors are only some of the variables.

If I were going to short any country, it would be France. Under the current leadership this has to be a country about to fail. But with the currency tied to the Euro one can’t short the currency. How do you short a country?

4. I read a lot of reports from economic and investment advisors. One recently wrote that it makes no sense to invest in bonds right now, when good quality stocks at low PE ratios are paying dividends that are higher than bank interest or safe bonds. I tend to agree. In this period of really low interest rates, the usual reason to invest in bonds, safety, no longer applies. It’s never safe to invest in something that returns less than the expected rate of inflation. That’s investing in a guaranteed loss.

5. By the time you read this Green Mountain Coffee should have reported third quarter earnings. Just before the report I note that the stock has moved up. Do some of the investment community know something the public doesn’t know? In any event I expect the earnings to be pretty good, and to get even better during the holiday season. This is the kind of stock I like for naked put writing. Taking in premiums anywhere around a $20 strike price seems almost like a gift.

6. And, finally, have you ever heard of the “skillet?” Probably not. It’s an invention by my friend Harvey, who writes the complex computer research tools for my website DoubleYourYield.com. Since he started working on my website he became interested in options, and now has made an average of $6,000 a month over the past 6 months with very little investment (but a stock portfolio to support margin requirements). I don’t recommend what he does, because it’s a strategy that requires you to watch it every day, and I never like those. And I never invest in a way that doesn’t have a guaranteed limit, by hedging, on the potential loss.

Nevertheless, the skillet is an interesting investment strategy. Harvey buys a put and a call, or several of each, at the current market price. That gives him a profit if there is enough movement in either direction over the following 30 days. At the same time he sells a large number of puts below the current price, and a large number of calls above the current price. He titrates the sales so that the proceeds from the sales exceed the cost of the straddle by $1,000.

That means that if there is no significant movement in the stock price over the 30 days period he makes a $1,000 profit. But usually there is movement. And if there is enough movement the profit goes way up. Unless it’s too much movement, beyond the strike prices of the puts and calls. Then there is a very large loss potential. So he watches it closely every day, and if the stock moves anywhere close to the potential loss points, he closes it out and takes his profit.

It’s a terrific strategy for the right kind of investor. If you graph it out, which some of the tools on the website do, it looks like an upside-down skillet, with a flat surface in the middle and steep drops on the ends (the losses). It seems like a great strategy for someone confined to his home who can watch the market every day. But that would be a big detriment to my golf game, which is already suffering!

Merv Hecht
November 19, 2012

why the closing of the markets because of the storm is good news

October 29th, 2012

The markets are closed today, and probably tomorrow. That means, for option writers, that there
is a decay in the option value without the risk of the stock moving against you. So, for example, if
you sold calls on a stock, while the market is closed the stock can’t go over the call price, but the
value of the calls continues to slide to your benefit.

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Every cloud has a silver lining.

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merv

BOTTOM FEEDING

October 29th, 2012

BOTTOM FEEDING
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With the Dow dropping, as predicted, about 250 points its time to think about buying. Certainly this should be true of Apple stock, which dropped from over 700 to under 600 for a brief moment. A hundred point drop is worth a look.
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As a covered call writer, of course, some of this made money for me. Some of the stocks I’ve mentioned recently are down slightly, but some are up. For example, I’ve been following a test strategy on Bank of America for the past five months, based on holding a long term put at $5, and selling short term puts against that hedge each month. This strategy has been very successful, but I don’t think I can attribute the success completely to the option strategy. BAC has moved up steadily from about five to over nine, and that’s what has made the positions profitable. Had I bought the stock at 5 I would have made twice as much money, but that’s option writing.
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Another example of a stock that’s remained really hot during the decline is Whirlpool. You might remember my mentioning that I bought some at $55. That position was called away on a call option at $85, at a really nice profit. But the stock has continued to move up toward $95. Yes I thought it was a good stock, but not THAT good, and I have no idea why it is moving up so strongly.
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The housing market ETFs have continued to be good. The Freeport-McMahon gold and copper play has remained pretty flat, but with FCX at $38 during this dip I feel it’s a good purchase. The experts say that the demand for copper is stable, and while China is buying less of it right now, the supply has dwindled considerably so another shortage looms in the future.
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Exxon, another of my favorites, has gone up so much I sold off the positions and took the profit. Green Mountain Coffee, where I wrote puts at $20, has shown good strength and, while it might not go back up to $100 a share where it once was, it seems like a good solid company, and I’ve made a nice profit on the put premiums.
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So what’s gone down? Nothing else can compare to Apple’s drop. When the stock was at $690 I sold a put spread that would have made $4,000 for the month if the stock did not decline below $625. But it did, and for a while I had an unrealized loss of $25,000 (after gains of $17,000 earlier in the year). Now the stock has shown some strength and I’m optimistic that it might go back up over $625 before the expiration date on November 16th.
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Meanwhile, however, when the stock was about $600 I sold five naked puts at $580 and took in a premium of $12,500. I think that Apple is still one of the best companies in the world, and still has a lot of innovative products to come. I’m impressed with their potential for TV and remote speakers controlled by the IPAD, and I love the look of the new mini IPAD. So if I have to buy the stock at $580 a share I’m OK with that. And if the stock goes up and I just keep the $12,500 premium I’m OK with that as well, and that will also mitigate my loss on the November put spread.
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So much for what has happened so far this month. What’s going to happen in the future?
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Some are unhappy with the projected increase of 2% per year growth. I don’t see why. As long as we are continuing to grow, especially after such a bad period, I think it’s a good sign. And the experts are saying there are lots of good signs.
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For one, there is usually a growth spurt right after an election. For another, corporate earnings continue to do well. Third, Europe seems to be coming out of their slump. And forth, China, while not growing as it once did, continues to grow. So it is very likely that 2013 will be a good year. Let’s look at some data:

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(chart showing history of Dow Jones during election cycles not available in this format)
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If the past is any predictor of the future, the market will go up later this year.

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And finally we come to the same stock I’ve complained about for the several years that I’ve held it and it hasn’t moved up, Walgreen. It seems like such a good company, with good stores, and new stores opening up all the time. The experts said that I should have bought CVS instead, and based on price for a time, they were right. But, in looking at the data, I’m holding on to my WAL. The PE is much lower than CVS, and the dividend is much greater.
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On the other hand, I might have to sell it to pay for my Apple stock if that goes below $580 next January.
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Merv Hecht

I AM HOLDING MY POSITION IN GMCR IN SPITE OF ITS DECLINE

July 26th, 2012

In spite of the fact that GMCR is below my prediction of $20 a share, I’m sticking with it, and holding on to my put spread (the 20’s vs the 16’s as a hedge). Here is what a friend writes:

GMCR has grown their revenues from 800 million in FY09 to an expected 4B in FY 2012. The Keurig branded K-Cup coffee maker is in close to 12 million homes which constitutes approximately 13% of total coffee drinking households. Last year, single serve coffee makers represented 50% of the dollar sales of all coffee/espresso makers. GMCR has licensing agreements with Starbucks, Dunkin Doughnuts, and many other leading premium brands. The licensing agreements are clearly less lucrative than selling their own branded coffee. This is a classic razor/blade business model. This market for single serving coffee should grow in excess of 20% for quite some time. Will SBUX selling single serve branded coffee cut into GMCR’s sales or SBUX’s? Will generic competition market penetration exceed the rate of growth of the market?

The recent downdraft in the stock from the 50’s was due to a missed inventory forecast. There could be stale product that needs to be written off. This adjustment could be more than a 1 quarter issue. How do you accurately forecast inventory when you are growing over 75% per year? I think the stock is very inexpensive here but could go lower on further inventory/demand data. The market is telling you that this will happen. I do not believe that this is a long term issue. Why would 2 of the leading branded coffee makers sign licensing agreements with GMCR if they could do this on their own? The patents that are rolling off in Sept/Oct are for less advanced technology than they currently are using. Coffee is a basic business that is not going away. Who will own this business? The single serve coffee is the fastest growing market in the grocery channel.

There are other issues which are germane. There is a informal SEC inquiry into their accounting. Management has credibility issues. Private label coffee is coming into the market. The coffee makers are actually pretty cheap looking and do have some quality issues. All said, I think this stock is much higher from here in 1-2 years. How soon it regains its footing remains to be seen. They report on August 1st.

merv

MANY THINK THE EURO IS GOING DOWN–HERE’S ONE WAY TO PROFIT IF IT DOES

May 9th, 2012

Here’s a trade from a happy member, but if you do it you might want to put stop losses on it:
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I think the Euro is going down, now that the European electorates have rejected ‘austerity’. They’re going to have to start deficit spending to satisfy the crowds, and the inflation will drive the euro down vs. the dollar.
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So I gave the program a list of all the euro ETFs I could find. The best turned out to be EUO. Since it’s short the euro I can expect it to go up.

But, being a conservative kind of guy, I didn’t buy it, but sold a very wide hedge, which brings in a few cents profit, but I sold 100 of them, so there’s decent cash up front.

This flat-fee deal I have with my broker is fantastic, in that it lets me trade almost like an arbitrageur, without worrying about transaction fees, which probably would have eaten up my profit on this hedge.
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Here’s the deal:
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Sell 100 of the EUO May 34 calls and 100 of the May 14 puts.

The sum of the bids is currently .06, so that should bring in $600, with no loss anywhere from $14-$34. It’s now ~ $20. The extreme range for EUO since its existence has been 17-26, well within my profit range.

I told my broker to do it if we can bring in >= $400, and I’d plan on doing that every month as long as premiums stay relatively high. And there’s no margin fee for naked puts, so it’s gefunene gelt.

It’s ALWAYS better to sell the nearest options possible, so long as you don’t have to worry about transaction costs.

HEALTHCARE PREDICTIONS

March 24th, 2012

There is a lot of buzz right now from investment analysts about healthcare. That’s because the Supreme Court is about to
rule on the recently passed healthcare law, and the outcome will have a major impact on the finances of the healthcare
industry. Whenever there is something about to happen that impacts a financial sector, there’s some buzz.

From what I’ve seen, the consensus is that the law will be upheld, and that as a result there will be more money spent
on healthcare. That seems a little counter-intuitive, since what we’ve been told is that the US is going to save money
on healthcare, but when you figure that as many as an additional 20 million people are suddenly going to start to
go to doctors for healthcare, and that the doctors will be paid by insurance, it makes more sense.

And so some of the big investment firms are recommending investment in healthcare related securities in advance of
the court ruling. Since it’s a relatively short period before the ruling comes out, it seems to me to be a good idea to
make such an investment. And if the law is upheld, the psychology of the market will probably raise the prices of
healthcare stocks, at least for a short period of time.

The best way to invest in a sector is either buying an ETF long, or buying short term calls. In this scenario, most
people are going to want to buy an ETF at the outset, and then consider selling calls against it after the ruling comes
out and level out.

Buying a long call is usually not a good idea when you don’t have a fixed time frame with a definite event, such as
a dividend date, and selling a put spread seems risky when based on a decision of the Supreme Court.

So here is a list of potential ETFs that could be considered:

Health Care Select Sector SPDR Fund (XLV) Top 100
First Trust Health Care AlphaDEX Fund (FXH)
iShares Dow Jones U.S. Healthcare Providers Index Fund (IHF)
iShares Dow Jones U.S. Healthcare Sector Index Fund (IYH)
iShares Dow Jones U.S. Medical Devices Index Fund (IHI)
iShares S&P Global Healthcare Sector Index Fund (IXJ)
MSCI ACWI ex US Health Care Sector Index Fund (AXHE)
Powershares Dynamic Healthcare Sector Portfolio Fund (PTH)
ProShares Ultra Health Care Fund (RXL)
ProShares UltraShort Health Care Fund (RXD)
Rydex S&P Equal Weight Health Care ETF (RYH)
S&P SmallCap Health Care Portfolio ETF (XLVS)
SPDR S&P Health Care Equipment ETF (XHE) NEW!
SPDR S&P International Health Care Sector ETF (IRY)
Vanguard Health Care ETF (VHT)
BMO Equal Weight U.S. Health Care Hedged to CAD Index ETF (ZUH-TSX)

Each of these has its advantages and disadvantages. The XLVS certainly seems like one likely to
have a wider swing potential. And the IYH might be the most conservative. Let me know what
you think.

Merv

PROTECTING AGAINST A DOWNTURN, CONTINUED

March 20th, 2012

I was recently asked if I thought that the VXX was a good idea to buy as a protection against a downturn in the market.

My answer is NO. The VXX moves according to a formula that only Einstein might understand. It’s called the “fear index”
because it allegedly moves according to apprehension in the marketplace. How it determines that is a mystery.

But my experience with the VXX is that you never know how it’s going to move. For example, today the market was down.
My hedge against a downturn, the HDGE, went up a slight bit, which is what I would expect. The VXX went down.

WHY? Is there less fear in the market as it moves down? I don’t think so.

So i’m sticking with the more traditional methods of hedging against a downturn, such as the purchase of SH. But
remember, when the downturn does come, don’t try to guess the bottom, and don’t treat the hedge as a long term
hold. It should be for short periods when the market has made a big move up, as it has now. And after a correction,
get out and stay long.

Merv

THOUGHT FOR THE DAY

February 20th, 2012

I just went into the online access for one of my brokerage accounts. The account has a number of put spreads and call spreads in it.

It was not very helpful. First of all, the underlying price of the stock used in the options was not listed, so I had to go into Yahoo Finance
separately to find that.

Secondly, my cost was not displayed, just the current market value. So I couldn’t tell if I had a profit or a loss so far.

My point is simple: with the DYY portfolio manager, by going into “preferences,” I can have all that information available on all my accounts
at one time. It’s much better.

Merv

results of a complex trade from an avid option writer in California

December 24th, 2011

Anthony Hills
Hills Motors/Hills Industries
4011 Pacific Blvd
San Mateo,CA 94403.
650 573 7425
Fax 650 573 8721

— Grand total profit on this trade was $50 since the VIX drop killed long premiums as I suspected could happen. Closed it due to low weekly premiums available to sell and time for the holidays.Tony
10 SPY 12/23/2011 124.00 C-10$0.89
70 SPY 01/21/2012 131.00 C70$0.39
10 SPY 01/21/2012 115.00 P10$0.89

SPY 12/23/2011 124.00 C
-10
$2.15
($2,150.00)
$760.00
($914.97)
($1,235.03)
— Trade
SPY 01/21/2012 131.00 C
70
$0.65
$4,550.00
$700.00
$9,338.37
$1,800.00 — Trade

SPY 01/21/2012 115.00 P
10
$0.40
$400.00
$90.00
$915.03
($515.03)
Trade
————
+$50- profit