Is Snap a good buy now?

Following the tremendous success of FaceBook, social media has already become an intimate part of our daily life. You won’t be an Earth man but someone from the Mar if you don’t use some sort of social media nowadays! Inevitably, tons of startup companies are created for managing all kinds of different social media activities and all of them are dreaming to be successful like FB. Twitter is of them but unfortunately is still struggling to stand up. Most recently we have seen SNAP debut. Will it be more life FB or Twitter? Certainly too early to say but I doubt it will be another FB like stock if it keeps its current business model. You see, its technology is by no means sophisticated enough that others cannot copy. Within just a few weeks after the SNAP IPO, FB’s Instegram has already developed its own version of SNAP type of functionality. Will there be no others to offer something similar? I really doubt! Another much bigger problem for SNAP is its targeted users. The main SNAP users are those young people aged between 18-24. Yes it is super popular but these are the ones who don’t really have much buying power for shopping because they simply don’t have much money in general. Unless SNAP can find some magic to suddenly allow this young population to spend a lot of money, I’m afraid it will be more like Twitter that has a lot of active users but just cannot make money from them. At the current stage, trading Snap for some quick move is fine but if you are thinking to put in some serious money for long term holding, think twice. You may more likely experience the similar pain as those who chased up Twitter and then desperately witnessed its relentless sliding down till now. Don’t be one of them!

A firework is for sure to play out tomorrow

Heard about ODAC? Probably not many of you unless you are familiar with the oncology drug development business. This is an external expert consulting committee for the US FDA, which at the request of the FDA will review oncology drugs that are submitted for approval but the FDA has something unsure about. While the FDA is not obliged to follow the ODAC recommendation, it often does. As such, the ODAC date is almost like a live or death decision date for small biotech companies, especially if they only have one or two drugs under development. Regardless of the eventual FDA decision for a drug, traders will go panic buying if with a positive ODAC recommendation or panic selling if with a negative recommendation. This may mean a 50%+ swing for a biotech stock on that day. We are going to see this tomorrow, Wednesday, May 24!

The company that is undergoing this ordeal is called Puma Biotech (PBYI). As one with first hand experience with ODAC, I can tell you this is really not a fun to go through, nothing short of a hell like process. Companies have to spend millions of dollars to be well prepared for the ODAC months before the meeting as they need to think about all kinds of potential questions that may be asked by the experts and prepare good slides for them that can be shown within seconds if asked. This often means hundreds to thousands of slides but most of which will never be presented at all! And then frequent rehearsals by inviting experts who have got previous ODAC experiences or even as the past ODAC members. Well, this is actually nothing to do with what I want to say about PBYI as a trading idea but just as a side story so that you at least learn something about why oncology drugs are so expensive! Now back to the real talk for PBYI. A JP Morgan analyst had made a prediction a few days ago that PBYI would have a 63% up or down swing based on the ODAC result. It turned out this was even too conservative. Yesterday, PBYI shot up 80% higher just because the FDA’s review report released before the meeting was perceived as better than expected. It ended up with “just” a 40% jump by closing. I was initially trying to play with dual speculative positions for either direction it might go on Wed. But I was too late to do so given the option prices have already been so much inflated, especially for the calls. A lot of upside swing should have already been priced in with a 40% jump yesterday. It is difficult to get a good risk reward setup for the upside now as the calls are simply too expensive. But how about the downside risk? ODAC is an unpredictable monster to say the least. Those experts have their own strong egos to show and they won’t care too much about what the FDA reviewers are saying. Based on the released data, there are still a lot of safety concerns for the breast cancer drug neratinib like serious diarrhea that caused most of patients stopped the treatment prematurely. More problematic is probably the unplanned changes about some statistical analysis. Will this become a black swan as a show stop for Puma? I don’t know but we will know for sure by tomorrow afternoon. If indeed we get a thumb down tomorrow, what kind of firework you can imagine for PBYI when so much hyper and euphoria have already been priced in. We may see a 80% plunge for it! I cannot help but want to play for this kind of possibility but with very limited cost of course. I placed a put order yesterday for Jun 2 $30/20 put spread. It costed me $1.5 per contract for a potential $8.5 profit, if indeed PBYI fails at the ODAC tomorrow. Honestly I did not think I could get the positions filled due to very much inflated option prices yesterday but to my surprise, I got them filled by luck! If you want to test your luck, you may still be able to do so in the morning tomorrow before the ODAC decision is announced. I’m excited to see what will happen by then!

Of course, don’t bet with your mortgage as this is purely a speculation with a high probability of losing all the money in it. After all, you rarely see the FDA has more positive notes on a drug that they are seeking an ODAC review. I merely want to test my lottery type of luck with very limited cost involved. Don’t blame me if you don’t see your money again!

A tradable 3D printing stock

We are in an era with flourishing innovations occurring on a daily basis. 3D printing is one of them that will change our life in a revolutionary fashion. It may impact on all aspects of our daily living. The toy industry is the most obvious and first one that will benefit or be hurt by this technology as ordinary people like you and me can easily print out the toys we want without having to shopping around. Maybe soon we will be able to print out a car? How about printing out an living organ for transplantation? Simply using your imagination what the 3D printing technology can do for us. Its future is very bright. But as with any new technology, it often goes too fast and too far ahead of itself, especially at its early stage. This is what happened to the 3D printing 2-3 years ago when there was a huge euphoria prevailing and it seemed that we would be able to widely adopt the 3D printers immediately. Ihighly doubted about the hype and couldn’t help but shorted the leading 3D printingstock, 3D Systems (DDD). It was a right call and I made some money from the shorting. DDD indeed plunged from over $30 at that time all the way down to around $5 at is bottom. Since then, It has bounced back but spent the last year in a side way consolidating manner around $17-18. Then last week it finally broke out to the upside after a better earnings report. This is a very bullish move and it should go up much more, likely to challenge its old high over $30 in the weeks or months ahead. Having said that, be aware that in the very short term, it is a bit overbought and also considering we are entering into a bearish season, I won’t be surprise to see DDD to draft down first in the days ahead, towards two support lines (the green of its recent high around $18 and the pink of the sideway trend around $17). If more severe correction arises, then it can also come down to kiss its 50 DMA around $15.5. But I’m confident that DDD will mount another more significant leg up soon after accumulating enough energy, for probably a 50% jump!

Hot dogs may feed you with some money

Do you like hot dogs? I don’t as it is a typical junk food for me. I have never got used to it but it’s undeniable that it is one of the most loved foods in the US. Going anywhere in the city busy streets, you will likely bump into someone selling hot dogs. I saw somewhere saying that Americans eat 9 billion hot dogs each year on average. It is a huge business regardless if you like it or not. I figure that we may make some money by trading hot dog stocks, especially if we know the hot season for it. I have got an idea for you.

I just saw some interesting statistics about hot dog consumptions in the US: the hot season for hot dogs is from Memorial Day to Labor Day, which sounds reasonable as it is the most active season for outdoor activities. Almost 80% of the 9 billion hot dogs are consumed during this period, which means over 800 hot dogs are eaten up every second in the US. Just July 4 one day, Americans swallow over 150 million hot dogs! So here comes the idea, if we find out a stock that is famous for hot dog and buy it during the hot season, it will likely be profitable, right? Here how Nathan’s Famous (NATH) can come in to play for this idea. It is an food company but really famous for hot dogs. If you don’t know, Americans love to watch Joey Chestnut on July 4 at the Nathan’s Famous annual hot dot eating competition. Because it is so famous, the company’s hot dog sales shoot up a lot during the hot season, especially on July 4. Buying NATH now and hold it for a few months may likely bring you some extra money!

Get out of Junk Bonds

In the extremely low interest world, people are simply hungry of looking for high yield assets. Junk bonds are one of them. There is a reason why they are called junk bonds because the companies issuing such bonds are of noninvestment-grade and are at increased risk of default due to questionable prospects. As such, they need to offer higher yield to attract bond investor for financing. Logically if one can get a comparable yield from a much safer asset, they will much less interested to go with such risky bonds, unless the spread (difference) is substantially large to justify the risk. One common gauge used in the bond investment is the spread between yield on high-yield bonds and the yield on similar-duration government bonds. When the spread is large, it means junk bonds are paying much more than the safer government bonds. Historically, the spread should be at least 6% or higher for junk bond investors to carry a reasonable safety. But this is not the case today. Actually now is an extremely dangerous time to buy or hold junk bonds. Let me explain.
For almost a decade, the government bond yields have steadily gone down to the low level never seen before. The 10 year Treasury yield hit < 1.5% last year and even it has recovered a lot since then, it is still yielding below 2.5% as I’m writing. While the general trend for Treasury yield is going up in the years ahead, it is just not possible for it to go up very quickly given the current fragile US economy as a whole. In other words, people relying on fixed income don’t get enough money for their return and they are forced to go for higher income with more risky assets. That’s why junk bonds have been chased up for years. The iShares iBoxx High Yield Corporate Bond Fund (HYG) is up over 15% from its bottom in Feb 2016. This is a lot considering bonds typically don’t move up much. But the hungry fixed income investors don’t care about risk anymore as they simply need to find more income these days. When bond prices go up, its yield goes down as they are inversely related. Now junk bonds yield only about 6% now. With the government bonds yield about 2%, the spread is only 4% at the moment. It may not sound alarming but if you look at its historical data, this is in an extremely dangerous zone. We have only seen 2 times in the past decade when the spread was so narrow. One was in mid 2007 just before the Great Recession and you could certainly guess what had followed: a massive 30%+ plunge in the high yield bonds. Then we saw a similar situation again in 2014, which was followed by a 20% decline of junk bonds within the next 2 years. Of course I cannot tell the exact time point when the crash for junk bonds will come but if the history is any indicator, I’m pretty sure it is coming. I won’t be surprised to see another 20-30% plunge for junk bonds that may come any time soon! Let’s wait to see when and how the firework will play out in the months ahead.

Why can life insurance benefit everyone?

I have some discussion with a good friend of mine regarding life insurance vs investment. Here is the question I got, which triggered me to put together some thoughts on the interesting topic.  

Question: For sake of argument if i don't buy WL, just invest $100,000 in index fund, assuming growth 7% per historic performance, I will have $196,715 in 10 yrs, $386,968 in 20 yes and $761,226 in 30 yrs. If I pay nursing care using this money 30 yrs after, I withdraw $12000/mo, ie 150,000/yr; roughly the money will last for 5 yrs. I pay tax on the gaining portion 150k-20k=130k; I pay 25% or $32500 tax/yr, so I have  $117,500 remaining to pay nursing care. This is pretty good supplement. The benefit is I'm in total control, and I don't pay WL management cost. If I have extra money left for kids, within 10.9 million it's tax free. Can you please check if my thinking is logic and making sense?

This is a great question, worth further discussion indeed. But first of all, I really don’t think we are suggesting that investment and life insurance are two mutually exclusive choices. Rather, I’d think life insurance should be one important pillars of the retirement planning for everyone, big or small. For most of us, I think we have already a lot stakes in at least one of the two: investment (stocks/bonds) and real estate. The 3^rd one is precious metals (physical or mining stocks) that most of people are still lacking probably. Then life insurance. Over years, I personally have accumulated sizable portfolio for the first three but only recently are starting to get into life insurance (LI) in a big way for a reason. More I study and learn about LI, more I find it is a great asset that one should not overlook.

So for the sake of discussion, let’s do assume one has to choose either the investment with the S&P stock index or LI. In the past, I probably would go with your logic and put money into the index, not LI. But nowadays, I’m not so sure and may be likely more lining towards LI, more specifically the special Whole Life (WL) that I love to have. Let me give you the answer first before getting into a bit details: Except the seemingly more flexibility/control as you point out with investment (which is not necessarily less with the WL), in my mind  WL has unbeatable advantages that integrate all the great features that one needs to have as a retirement planning: guaranteed compounding growth, tax-free living benefits, legal protection, long-term care & terminal illness benefits, and tax-free asset transfer (the death benefit within a limit)! All of these are just captured within one policy but one has to pay big money to set them up separately. Here are more details:

Investment return: Indeed historically the S&P index may likely generate a 7% annual return. But don’t forget, there is no guarantee about this, especially in terms of the timing that one can never predict what the market may do in 15-20 years from now when we mostly need reliably incomes! Yes, we have entered into almost a 10 year bull market without much corrections and people tend to believe this will just continue with the momentum. I also believe we likely have not seen the exact top yet and there could be a couple of more good years for the stock market. But here is the thing: no bull market can last forever and extended bull market may be followed by extended bear market as well. Personally I think we may be at 8^th inning of the bull if 10 is the peak. Historically, the market took 15-20 years to get out from the Great Depression in 1930s-40s and it took over 15 years to finally recover from the dot.com crash in early 2000s. Then for Japan, it has been 30 years since its peak but it is still struggling to get back on its foot, not mentioning returning to its peak of the stock market. Can we be so sure that we won’t see anything like this down the road in the US? At least I’m not so sure. What happens if it just so occurs unfortunately that during the period of time when we need the safe money most, the stock market is entering into a prolonged depressing bear that cut your early returns by half or more? With a good quality insurance company, you won’t see this kind of risk for your WL as the currently 5% return is virtually guaranteed for your life. Actually I even think life insurance companies are likely entering its golden earning period that may last for 10-20 years if we truly start to see high inflation moving forward. If so, we may see 5-10% dividend returns from WL on top of the guaranteed 4% interest return, based on the historical performance in similar settings. But let’s be simply more conservative and stick to what we have for now. Even though,  the situation will become even better when taking into consideration the tax aspect!

Tax advantage: Don’t need to say each penny gain from any investment outside of a tax shelter is taxable. So a taxable 7% return is actually only about 5.25% after tax return if one has to pay a 25% income tax. This is also a very uncertain aspect actually since there is good possibility we may need to pay much higher tax in 15-20 years from now given the huge debt crisis brewing in the US and short-founded social security and Medicare/Medcaid. But even treating the tax return as a constant, WL will be very comparable to the indexed investment after the tax is factored in. If so, why I want to take a lot of uncertainty and risks for the investment and not go with WL for a safe return that I can rely on?

So how about the estate tax? It is true that there is no tax for the first $10 million estate for a couple but don’t forget this is the after tax money. If one has $5 million from WL, it will be all tax-free for heirs but if one has $5 million from investment, the parent has to pay the income tax first on the day of death and can only pass the after tax amount (i.e. less than $4 million with a 25% tax rate) to the heirs. Again, WL has a much better tax advantage over investment, although the illustration is very simplified for easy discussion.

Legal protection: This is a state-dependent issue but many states have full or partial legal protection for insurance benefits. For practicing physicians, this is probably a much important aspect to consider regarding asset protection due to high legality risk involved. LI could be one easy step to do so without involving high legal fees for other more complicated types of asset protection strategies.

Long-term care/Terminated Illness: As illustrated in the question, for sure a good performing investment can provide good supplement to the LTC expenses. But this is only limited to the amount of after-tax gain from the investment. For WL, there is actually a multiple or leveraged factor that can allow one to use much more money for LTC than the investment return. The special WL will not only increase the cash value consistently and safely, it will actually also substantially increase the death benefits (DB) in a much faster pace. Usually after 10-15 years, the DB can easily be 3 times more than the total paid premium amount. And it is the DB (not CV) that will determine how much fund is available specifically for LTC (usually it is portion of DB, e.g. up to 50% or more of the DB). Obviously the more DB is, the more LTC will be available and this can be much larger than the amount the investment can generate. So a good WL will allow the policy holder to reliably cover the LTC cost if needed, which has no extra fees involved to include this option in the policy. Even without considering the magnitude difference, relying on investment is understandably subject to the market risks that no one can control! The last thing anyone wants to face is there is not much money available when he/she needs to use the money for critical illness.

Estate planning: We’ve already talked about this as part of the tax advantage for IL.

Flexibility/control: This is one most obvious advantage for investment in general as mentioned in the question, but this is also the most under-understood aspect for WL. People generally think for the money put into a WL policy, it is locked and cannot be easily used. This is totally wrong actually. The cash value (CV) generated in the policy is actually very liquid and can be easily used for any purpose with just a phone call or online request. You can simply treat it as a home equity line of credit that you can use at any time. The better part? It is often a zero loan at your disposal! Here is how it works: if one has CV say $500K in the policy, he can ask to take out a loan of any amount within this limit any time for any purposes. Not question will be asked by the company and no one will chase you to pay back the loan. Let’s say you want to take about $100K from your policy. This amount is actually not deducted from your policy but is borrowed out from the company’s general account. So your policy is still generating the said return (e.g. 5%) as usual as if you  never took out a loan. But there is no free lunch of course, as the company will charge you a loan interest. Actually the company will usually match the loan interest against your policy return (e.g. 5% return vs 5% loan), which in essence allows you to take a zero interest loan. In other words, your money is used twice at the same time, one for keeping your life insurance intact and you continue to enjoy the DB protection that is important for other aspects like LTC etc. But at the same time, your money is also used for other purposes. Of course, if the loan plus interest is not paid back during the life, it will be deducted from the DB at death. But there is simply no urgency or pressure when you need to pay it back and it won’t impact on your credit whatsoever! For investment, it is totally other story: when the money from any investment is used for other purposes, it gone forever and cannot be used to generate investment returns, right?

For more aggressive people, this great WL feature can be used to generate additional investment returns actually. E.g. if one think he can make more than the 5% after tax gain, he can take out a loan  e.g.  to buy a rental property or even in the stock market. In this case, the extra gain, say 1-2% more than the 5% will be his extra income than the guaranteed life insurance return. This will be an enhanced version of one stone for two birds from the WL on top of all the other great advantages. A simple index fund investment can never allow you to do that for sure!

I hope this discussion can better explain why I’ve become so much a fan of life insurance as part of retirement planning. Just one caution though, life insurance is very deep muddy water with a lot of complexity. There are simply too much misunderstanding and misleading promotions out there and as with anything else, there is no one shoe suitable for all sizes. Try to find out a reliable agent with good education first to determine which one meets your needs best before making long term commitment. A wrong initial decision may cause one dearly down the road!

Not back to the initial question, which one I will choose if only one choice? I will set up a special WL first and then take out the loan to invest as well. So I don’t miss either of them :)

Wearable Chair

I assume everyone wish to have a chair to sit at some point when wandering on the streets or travelling on the road but oftentimes we can only sit on the ground since we cannot always carry a chair. Now the dream has come true that we can wear a chair that can allow you to sit without a chair. What a genius idea! See the introduction here: http://www.huffingtonpost.com/2014/08/21/chairless-chair-noonee_n_5697782.html

and the video: https://www.kidzsearch.com/kidztube/invisible-chair-prank-julien-magic_c65b39039.html

I wish I can buy the company stock but it is still a Swiss startup. But remember the company name: Noonee. Someday we may be able to buy its shares!

Long term care crisis

We are going to see a crisis for long term care (LTC), period! Due to a fast aging population in the US together with fast increases of healthcare costs in general but particularly for long term care, it will be a nightmare situation for anyone if he or she is not well prepared. Let me give some statistics about the current situation:  The annual cost for a semiprivate room in a care facility is around $82,000. A private room is $92,000. And this is only for the room, folks. The in-patient care can run as high as $182,000 per year. This is just for today’s prices. You will be utterly stupid to even think that 10-20 years down the road, the cost will still be at today’s level! A double or more is very reasonable to expect!!

 

Therefore we can safely assume the LTC costs will skyrocketing in the future. The most obvious option is to buy LTC insurance, but the dilemma we are facing is it is a very costly plan that you are not sure if you will use it in the future. The big upfront payment over years (easily over $70K as accumulated premium paid for a 20 years period) may be wasted if you are not qualified eventually. Even if you unfortunately do need to use it, the current seemingly appropriate coverage may become very insufficient in 10-20 years down the road as the LTC costs may go up much more that you can imagine now.  One evidence we are seeing now is that more and more insurance companies are existing from this LTC business due to fast increasing costs that even make them not affordable. In 80s and 90s, LTC plans typically covered with unlimited stays and no exclusion periods but this gracious time is long gone. Nowadays, most plans limit you to three years of care or less. And even with this much limited coverage, the number of companies offering LTC has dropped like a stone, from 50 last year to only 10 by now. I won’t be surprised to see even less companies or eventually none of them that would like to do this business anymore in the years ahead. We really have to find out some alternatives that can prepare us for the coming crisis.

 

One alternative is to buy a good whole life insurance (WL) with free LTC rider that will allow you to use a big portion of your death benefit when you need due to critical illness. I know currently the hottest and mostly promoted life insurance is so-called Indexed Universal Life (IUL) that is believed to generate a higher return similar to the stock market. Just be aware that there is no guarantee that you will get this kind of return and the risk is certainly there that in 15-20 years later when you need the money, you may not see it available if the stock market is not performing as well as projected. If you want to have some assurance that your money is available when needed in the future, WL will be a much better choice. I certainly know WL has got very bad name as well due to its high cost but most people don’t know is that there is a special type of setup for WL that will cut the cost by 70% or more and it will allow you to use the WL as a saving type of plan with a guarantee that your cash value and death benefit will grow year after year regardless what the market is doing. This is a rather complex topic that I’ll not go into details here but I’m glad quite a few of my friends have taken the time to learn and got it set up. I’m sure they will be happy to have the cash rich policy available when such kind of critical time comes. Relevant to this LTC topic is the great feature it offers that the cash value safely accumulated in your policy over years can be used anytime as you want for any purposes, including of course for medical expenses like LTC. If this is not sufficient, you can then use the option to withdraw money from your death benefit (DB) for qualified illness that usually makes you need LTC. Normally the DB is only for your heirs when you pass away but this clause will allow you to use some of it, e.g. up to 50%  or more of your DB when you are still alive but suffering from some critical illness. Of course, if you don’t need LTC, your money will never be wasted like the LTC insurance but will be either available for your own use for other expenses or passed on to your heirs. What a great alternative for managing the LTC crisis that is for sure to come! At least I firmly believe it!

 

In addition to the WL strategy as one option, I have a wild idea that actually I expect the LTC may become much less expensive than we currently project to be. How so you may ask? As discussed above, one of the major costs for LTC is the need to be cared by a live-in senior care center. Think about it, if in the future the need for institutionalization is reduced and seniors can be more routinely cared at home, this hefty cost can be cut down significantly, right? While it is still like a fantasy, I bet this may increasingly become a reality in our life time, that is to widely use humanized robotics to manage a lot of our daily living, including senior cares. You see, with the fast advancing Artificial Intelligence (AI) technology, a lot of things that couldn’t be dreamed in the near past can become reality in a much faster pace than you can imagine. Just think about 10 years ago without iPhone, we almost lived like in the stone age that no one would think that we now can manage almost all kinds of daily activities with just one small smart phone. Why not just imagine that in 10-20 years from now, we may be able to enjoy “robotic beings” that can learn and master a lot of human intelligence and will be able to take care of daily life to a large extend? If this becomes a reality, seniors who need living assistance currently requires to be hospitalized many just need robotic beings to help for most of their daily activities. Then in the event that they need more direct care by healthcare providers, the robotic can either call for home services or will let the automated driving car simply send the senior to the nearby healthcare center! I know what a wild dream I’m having but I’m seriously thinking this will become part of our life during our life time. Regardless how much you believe me for this fantasy dream, investing in the AI trend will not be wrong at all. I wish I can tell you exactly which companies are the pure players that will for sure thrive along with the advancing AI but I couldn’t as this is still in its infancy. As such, it is way premature to know which ones will be successful as a pure players in AI. One indirect way for AI is via high-tech stocks, including  my beloved stock, Microsoft. Believe or not, MSFT is also sitting at a front seat in advancing the AI technology given it enormous leading power in the software business. Due to its very successful and profitable businesses in many other areas, almost no one is talking about its prospects in the AI development. Someday you will hear more. I’m a happy investor for MSFT for its long term values with high growth dividend. I’ll certainly be more happy to see its success in AI. A more direct but diversified way to ride on the AI trend is to put money into a bunch of relevant stocks. Fortunately there is a dedicated ETF, called ROBO, that includes many companies which are involved in AI one way or the other. Given the substantial uncertainty for this area, this diversified approach will be much less risky but allowing you not to miss the megatrend that is fast growing.

A hedge if a black swan flies over the weekend

We all know that the final French president election is coming over the weekend on May 7 and this could be a huge market mover, if the result is not what is expected. Per the first round result just 2 weeks ago, it appears the EU-friendly candidate, Macron, is largely expected to win. If so, I think the positive result has likely been priced in and the market may not respond too much to it. But what if the result goes in the other direction that the anti-EU Le Pen wins the election? Although the chance is probably low but when everyone bets for one direction, the opposite may often come to fruition. I just don’t think we can be so complacent. I would rather be prepared for something unthinkable for a potential huge selloff following the French election. One way to do so is to short the weakest link that will suffer most if an anti-EU French president is in power. You can guess which one I’m thinking about. Yes, Greece again! 


As I said just a short while ago, Greece willlikely be among the biggest beneficiaries if French is still stable within theEU and I bet Greece stocks (via GREK) should go up significantly. Sure enough as if the market is listening to me that GREK has jumped about 15% since I talked about it in less than 2 weeks ago. This seems too fast too soon and it is also a sign of a great deal of complacent out there. I’m nervous about this and I think this is a great opportunity to use the very overbought GREK as a mean to hedge against the fallout of the French election. This is how I’m doing to use options in such a way that I won’t lose much if the result is expected but can get 5-10 times of gain if there is a huge selloff. You still have one day to act if you want to. For a more direct short of the French stocks, CRTO could also be considered as someone sold a huge number of its $52 calls yesterday, likely betting for a plunge of the stock if the result is unexpected.

A special COST you should love

No one loves any cost I’m sure but I’m also sure you probably will love this cost! I’m not talking about any expense here of course, it is the stock symbol, COST, for Costco! Costco is a great business, a rare retailer that has not been driven down by Amazon. On the contrary, it has been thriving while facing fierce e-commerce competition led by Amazon. I have been watching Costco for several years, patiently waiting for a cheap moment to get in for long term but it seems I’d never get this kind of moment. It has been simply going up. Unless there is a huge overall market correction or collapse, I don’t see the chance that it will really go on sales. Last year I did something a value investor should not have done that I just bought some shares of Costco, knowing it was not a good valuation that I got. But I simply wanted to have some of it. Well, it is not a bad decision as it turned out since COST has continued to go up since I bought. Using covered calls, I’ve also got some extra income from time to time to gradually reduce my cost. Now Costco makes me even more happy as it has announced to distribute a huge special dividend, $7/share, in addition to its regular dividend. For shareholders, this is a great bonus. But I plan to boost the bonus by myself for this special Costco treat: this is a great time to do special covered calls for dividend purpose. I have introduced this idea a few years ago and you can read here to learn how to do it if you also want to try.
  

A couple of things to remember though: There is only a very short time window to do this as the ex-dividend date is May 8, the coming Friday. In other words, in order to be qualified for this special dividend, you must hold the COST shares at least on Thu, May 7. If you like, you can sell your shares the next day but will still get the dividend. But here is an important trick to know: given the fairly large amount for the dividend, the COST share price will also be adjusted to decline by about $7 on Friday. Short term it is a wash, therefore it is usually not a good idea for those short-term traders. Longer term, good stocks like COST will likely come back to overcome this artificial decline. If you like Costco and would like to hold it for long term, this should be a great opportunity for you to get your feet wet. For me a frenetic dividend reinvestment lover, I’d like to get more to boost my shares of COST as the big special dividend will add a lot more than the regular dividends to my share count! Near term you won’t feel much about the difference but over a long haul, it could mean tens of thousands of differences for your wealth! Time to love COST!