Facebook becomes interesting now

I was very bearish about Facebook (FB) since its IPO and watched its price to plunged over 40% below $20 back in Aug 2012. But now I'm kind of changing my mind and think FB starts to become interesting now. Why? Well, when facts change, I change my mind as well.

Last week, FB reported its earnings, which blew away the estimates by a wide margin. What happened to FB that has made it suddenly rise? Long story short, it has totally redirect its strategy by focusing more on the mobile business now. Last year FB bet heavily in its mobile application. As a result, the amount of mobile users were expanding by 51% over the last year and the company has gained roughly 41% of its revenue through mobile advertising. The FB stock jumped 30% with its impressive earnings. But don't get me wrong. FB is still an extremely expensive stock. I suspect that this hyped sentiment was a bit overreaction and likely short lived. When it cools down, the stock price will likely recede as well. But if FB comes back to below $30, I think it could be a good speculation entry point. Although it is still unbelievably expensive, the market is not always rational. It likes companies with great potential in growth. The new FB probably fits into this kind of market mentality, which will push its price to even more unreasonable level before coming back to reality. If you like speculation, FB may be a good choice. But don't jump into it too soon and watch your position size!

Two quick wins for a nice income within days

So, it is Friday, the expiring date for the 2 options I posted a few days ago.

First the APPL Jul 26 $410 puts I wrote on Wed. If you sold/wrote these puts, you hoped that APPL would stay above $410 so that you would get all the money for free. This is exactly happening today. APPL closed at around $440 and these puts expired worthless (to the benefit of put-writing). So indeed within 3 days, you would get over $600 for free, if you did manage to sell them 3 days ago.

Now the MSFT Jul 26 $35.50 puts. Well I thought MSFT would close below $35.50 today and one had to buy MSFT at this strike price (called "being put"), since almost all day long MSFT was changing hands below $35.50. But miraculously at the last few minutes, MSFT was pushed up through and closed at $35.62. So another $120 clean and free money within days if you have sold this put early this week. This happens quite often with good companies at a good valuation that they simply refuse to go down much further. These are the good candidates for such trading.

 
For the IBM Aug 2 $195 puts, it is still too early to know the result but its price action is moving in the right direction as it is trading above $195 now. We will see the final result next Friday when the puts expire.

I understand not many people understand what I’m talking about here. But I want to post these real world examples here for future reference, since I’m putting together an idea for a FREE training of this powerful technique for my friends who are interested in. Stay tune and I will post it shortly.

Fast money with APPL within 3 days

Apple (APPL) reported good earnings after the hours and the market loved what they heard. APPL shares are moving up after hours (around $440) and likely it will be trading high tomorrow. I really like APPL valuation at this price, which is very cheap. So I think there is a great opportunity to make some quick money (income) by writing APPL naked puts. Here is the one I think one can reasonablly expect to make money from within 3 days. APPL Jul 26 $410 put is closed at $6.44 per share today. It expires in 3 days on Friday this week. As long as APPL stay above $410 at Friday's closing, the put will expire worthless and the naked put writers will get the money full and clean, about $644 per contract (100 shares). If APPL drops below $410 on Friday, then one has to buy APPL but with a price equivalent to $403.56 per share. This is a big discount from its current price and I will be happy to own APPL at this price.

AAPL 26 Jul 2013 $410.000 put (AAPL130726P00410000)

6.44 2.64(69.47%) 

Quick income ideas on MSFT & IBM

Just quick thoughts on two stocks' options, which I may use for future reference for something I'm working on.

I think MSFT has shown good valuation at the current price (closed at $32 today) and if you know how to write naked puts, you may make a quick $120 within days (by Friday this week) per 10 contracts. Here is the quote today for this put, expired on Jul 26 (Friday). If MSFT stays at or above $31.50 at close this Friday,  the puts will be worthless, i.e. those writing the naked puts will get the full profits at around $120 per 10 contract. Let's see on Friday. Otherwise, you can buy this already depressed MSFT at a more discount price at around $31.38 (another 2% discount from its current price)

MSFT Jul 26 '13 $31.50 Put

Bid (Size) 0.12 (100)	Ask (Size) 0.13 (975)

The other stock is IBM. Again a great value stock at this price (closed at $194 today). If you write its naked puts at $195 expired on Friday next week (Aug 2), you either get free money for about $260 per contract (100 shares) in 10 days if IBM goes above $195 at closing on Aug 2 or get to buy IBM at a discount around $192.4. IBM Aug 02 '13 $195 Put Bid (Size) 2.62 (31)    Ask (Size)    2.70 (40) Closing Price 7/22/13 3:33:00 PM ET

How to benefit from increasing long-term interest rates?

By now I'm sure it has become very clear to you that the long-term interest rates are increasing. This is the trend which will last for long long time! The long term interest rates are determined by the long-term Treasury yields. As we have discussed many times here, the Treasury yields have been relentlessly increasing in the past several weeks. This is just the beginning of a very long trend and we are entering into the high interest rate era. While the long-term interest rates are heading much higher, the short-term interest rate is still near zero, which is not likely increase any time soon as promised by Bernanke. In other words, the spread (or the difference) between the long-term and short-term interest rates are becoming bigger. So who will benefit most from this widening spread? The bank industry. Basically it means that the bank can borrow cheap money but lend out expensively for higher interests and therefore can pocket more money by doing so.

With this understanding, it can be easily understood that the bank industry is at the sweet spot at the moment and you man notice that bank stocks are overall moving high these days. This bull trend will continue. One specific bank sector that I think will benefit more is the regional banks. Unlike the big banks which rely more on trading and other business income, regional banks are more involved in loans serving for local communities. Therefore they are better positioned to reap stronger profits from these long-term rate hikes with widening interest spread.

KRU is a leveraged ETF for regional banks. As you can see it is in a well defined uptrend. You may notice that it has jumped almost straight up in the past 2-3 weeks, in tandem with the sharp increase of the long-term interest rates during this period. While short-term volatility is inevitable, the long-term uptrend will continue with this sector as long as the mega-trend is not changed: higher long-term rates. I firmly believe it will continue for years to come!

Short Caterpillar

Caterpillar (CAT) manufactures and sells construction and mining equipment. It has made a lot of money in the past 5-10 years due to the booming economy of China. It looks like its fortune is coming to an end, at least for now. More and more evidence is suggesting that China's economy is significantly slowing down, which is obviously hurting CAT's business tremendously. When I'm looking at CAT's chart, it is absolutely bearish, likely pointing to a sudden and sharp downward movement. Both fundamentally and technically, CAT is a good candidate for shorting. Now I just saw the CNBC report that the shorting master, Chanos, is also adding CAT as his newest shorting target. I guess this will add a lot of success probability for a profit to short CAT.

http://www.marketfolly.com/2013/07/jim-chanos-short-caterpillar-cat.html

Follow the big trend on corporate staffing

What is the mega-trend on corporate staffing? If you are employed by companies, it should not be a surprise to you that it is a major theme that companies are generally downsizing and are outsourcing a lot as a whole. It is impacting on almost all the sectors and none seems immune to the phenomenon! I guess all of us need to be prepared and consider a backup plan if the worst comes to you and me as well some day. While the US economy is slowly but surely improving, this trend is only accelerating due to more use of modern technologies and increasing costs of man power. Moving forward, I don't think this mega-trend will reverse but rather will become more and more pronounced! If you agree with this projection, what will be the natural choice of companies which will benefit from it? Well, this is how Corporate Resource Services, Inc (CRRS) will come into play nicely.

CRRS provides diversified staffing, recruiting, and consulting services in the United States. It offers trained employees in the areas of insurance, information technology, accounting, legal, engineering, science, healthcare, life sciences, creative services, hospitality, retail, general business, and light industrial work. The company’s staffing solutions include customized employee pre-training and testing, on-site facilities management, vendor management, risk assessment and management, market analyses, and productivity/occupational engineering studies. It provides administrative and light industrial staffing solutions; permanent and temporary professional, administrative, and clerical solutions to financial services, entertainment, media, advertising, fashion, and other companies; and professional insurance industry staffing solutions for personnel in claims processing, customer services, and related fields. As you can see, CRRS covers a wide range of staffing services in many different sectors and industries. That's why its business is really booming with this mega-trend. That's why its revenues have been increasing tremendously with a year over year growth rate of 35%. This bright prospects for CRRS have been reflected in its stock price now. As you can see below, its share price has doubled twice this year. Since this is just the beginning of this mega-trend, much more upside is very likely for CRRS. While I don't know how long it will take, I think this business will make the stock price up another 5-10 times eventually from this level. CRRS is on the top of my radar screen and I will get in at its weakness.

NOTE: I wrote about this company over a week ago but did not publish it right away (as you may notice the stock price on the chart above which was at around $2.2). I just noticed that its price jumped 20% today (closing price $3.20), likely due to its submission of the application to be listed on NASDAQ. Well good for the company but I'm not sure if such kind of price move will hold for long.

 

I wish I had taken a 3400% ride with Sirius XM Radio

Sirius XM (SIRI) is a subscription-based satellite radio service that currently offers music as well as exclusive shows and content.It hires a very popular star host, Howard Stern, who attracts over 12 million listeners per week. About 6-7 years ago when SIRI was trading around $10, I shorted SIRI because it was very expensive. It was a good trade as SIRI did declined substantially and I made some money. I then moved on and did not follow it. But if you look back at its price movements in the past years, SIRI got totally crashed during the financial crisis in 2009 and its stock price went down as low as $0.10; yes, it is not a typo, it was 10 cents. Since then however, SIRI stocks did something amazing: it has come back to a 5-year high of over $3.6 recently. This is a gin of 35 times or 3500%! I wish I was smart enough to have bought it at $0.10. Right now SIRI is trading at a P/E of 7.4, reasonable valuation. It is generating a lot of free cash flow and is buying back a big amount of its own stocks. Sirius is aggressive in expanding its business into the new-car market and is also trying to penetrating more into the used-car market. At the moment, SIRI is challenging its 5-year high of $3.65. If it can break up this resistance level, there is a good chance that SIRI will go up much higher.

 

Short Japanese Yen again

Early Apr, I talked about buying the J-stocks and shorting Yen via. EWZ and YCS. Here is what I said: "please keep in mind this is not a short-term trade as Yen may likely fluctuate in the near term. However, 6 months to one year from now, I'm quite confident that this trade will be quite profitable." Well my timing was nearly perfect as both these trades went up +20% within just a few weeks. But also as I said, they could fluctuate over the course. Indeed, both J-stocks and Yen crashed in days about 2 weeks ago. There was some concern that the J-government money-printing might not continue as they intended. But what has been happening next? Both have bounced back strongly and recouped most of the loss. Keep in mind, it is very unlikely that the Japanese central bank will slow down their money-printing as long as the current government is still in power. After all, it is Abe's mandate to boost the J-economy with the loose money policy and he hopes that he can re-write the history by taking the J-economy out of the 20-years long muddy pool. It is quite possible that Yen will further weaken from the current level of 100 (US$ to Yen) to 115 or even more. I think now is another good opportunity to use any short-term Yen strengthening to short Yen again by buying YCS. It is a 2 x leverage ETF shorting Yen. So if Yen indeed weakens 15% by year end, YCS should jumps 30% higher. The big trend should be on your side.

A seasonality trade

Different sectors may follow different patterns. Seasonality is one type common to certain sectors. I found one stock which has clearly shown such a seasonality. The stock is China Petroleum & Chemical Corp (NYSE: SNP). See below its chart. In the past 5 years, SNP has, like a clock, always significantly gone up starting around mid-year and started to come down early next year. I know currently it is rather scary to think about about Chinese stocks but given how much the Chinese market has crashed, it is actually the time with much less risk. In addition, SNP is in a business with a strong demand internally in China and it pays a high dividend at 6.3%. If you have the gut, buying SNP now and collecting a dividend in Sep and planning to sell it around Jan/Feb will likely be a profitable trade.

Reasonable bet for a double of Intel

Shortly after I talked about Intel (INTC), suggesting it was the time to buy this great stock for retirement in April, Intel shot up through its 6 month trading upper band. This has clearly established its uptrend (see below). Right now, Intel is pulling back a bit and may test its support line around $23. This will be another great buying opportunity. Actually I think there is a reasonable chance that Intel may double in the next 12-18 months. Intel has just got a new CEO and is catching up with its plan to aggressively move into the hottest business, the mobile sector. It has just released its most advanced power-efficient microchips (called Atom) which will likely be adopted by more and more smartphones. It has just teamed up with Apple and Samsung to more effectively expand its business in this sector. With a $4 B cash hoard at hands, no one can nearly compete with this chip giant! Here is the best part. Even if I'm wrong that Intel does not double, you can safely earn nearly 4% dividends and sleep soundly at night! I will be buying more definitely with any of its weakness as a great opportunity.