Friday, June 27, 2008

Wild Ride: Weekly Wrap 6/27/2008

And What a Ride it was!

WEEKLY WRAP

6/27/2008

Stock

P=Put

C=Call

Purch. Date

Purch. Price

per share

Friday

Close

6/27/

2008

Net

Gain/Loss

Week Ending

6/20/2008

Net

Gain/Loss

Week Ending

6/27/2008

BAC 1/30s P

6/4/2008

3.00

7.40

92%

147%

XLK 1/25s C

5/22/08

1.70

.85

(17.6)

50%

COF 1/50s P

4/28/08

8.10

14.80

58%

83%

NCC 10/10s C

4/09/08

1.30

.10

(96%)

96%

NCC 10/8s P

4/07/08

1.55

3.40

106%

119%

BAC 1/27.5 P

6/12/08

3.15

5.60

37%

78%

COF 1/40s P

6/12/08

6.00

8.10

18%

35%

HBC 12/75s P

6/24

3.90

6.10

N/A

56%

BAC 1/22.50s P

6/24

2.25

2.93

N/A

30%

*Yellow highlight represents new positions.

The BAC BUG
My first position in BAC was a 1/30 P on 6/4. Since then, I added a second position of 1/27.50s on 6/12. This week I added a third position of 1/22.50s on 6/24. Everything I have read, and the credit climate I see tells me this stock has the potential to drop down into the teens like Citi (C). While Citi has an unbelievable amount of exposure to the consumer lending market...BAC has a similar risk in its extremely heavy credit card portfolio. Of course, this also comes on the tail of a ill-advised merger with CFC. To brighten the day on Wall Street, one story congratulated the brilliance of BAC management because the CFC purchase had garnered the bank a tax write-off over teh next 20 years. My belief is BAC should worry more about the here and now, and forget about the back slapping of "brilliant" ideas. Now, there was more reason to cheer as BAC announced it was going to "lay-off" more than 7,500 employees over the next two years. (1) It is my belief between the CFC merger and credit card exposure BAC still has a distance to run down.

What's in Your Wallet?
Unfortunately, Capital One (COF) is taking a beating here. And it may only be the tip of the iceberg. According to Fitch Ratings analyst Christopher Wolfe,
"The deterioration in credit cards is accelerating faster than many had expected." (2) Organizations like Capital One went to great lengths to ensure anyone who had a pulse got a credit card. Clever T.V. marketing ploys made Capital One credit cards a household name. Now, I am sure the executives at COF are re-evaluation their decision. In this case, the genie is already out of the bottle. COF can only go into damage control mode at this juncture. I am still contemplating a well OTM call on COF...this company may well drop into the single digits like NCC has.

National City's Nuisance
When you have the reputation of playing the get-rich scheme, and then paying the piper no one ever feels sorry for a company. In most cases though, it is usually the employees and endowments that suffer. Much is the case for NCC. (3) Motley Fool, who occasionally over-exaggerates a story even mentioned NCC as an Enron waiting to happen. This one could very well drop into the $3.00 range by the end of summer. Too bad the workers and good soldiers of this organization are left paying the price for management's mistakes.

Techs Fizzle
After unloading the dead weight of TRLG last week, I was feeling pretty good about this portfolio's position. After all, you can't be short on everything right? I gave XLK a chance to recover a bit of lost ground. I was rewarded by watching this call option slip into the 50% loss category. I actually tried to unload it on Friday but set a limit price that was too high. What's the old saying, a penny wise and a pound foolish.

The New Kid in Town
HBC is probably one of the most responsive banks to the sub-prime debacle. It has gone into proactive mode to work with risky loans that were made inside the United States. (4) That being said, there are several reasons why I choose a bank with such a good track record. Regardless of the mortgage end of the business, HBC has substantial risk on the Household Finance portion of its business. For one, the business is no longer growing. Secondly, and more importantly the banks had loaned out considerable amounts of money during the credit boom. According to one lender, "A 584 score was no problem for loans even last year. Now, we won't even talk to them." If this was the only problem we would still not have a lot of reason to short this stock. However, it is easy to go back to the theme of credit cards again. As a matter of fact, there are several pending class action suits against this lender. (5) It should also be duly noted that HBC broke the $80.00 resistance point. To me a simple bearish sign. The question is if it breaks another resistance point at 70...it could really get ugly.

Points to Consider
1. BP, XOM, TOT, RDS.A were awarded no-bid contracts to Iraq's oil fields.
2. GLD on a pull back as we are sure to get a positive bump on Wall Street...Why? Who knows...the reason is being manufactured this weekend.
3. Energy particularly VDE
4. Transportations...CSX, BNI



Thomas Lee JP Chase...No Ninjas Here!
XLF down 12% from original purchase price of $23.33.
XLY down 4% from original purchase price of $29.70.
XLE up 1% from his purchase price of $86.02.

Sources Cited
1. http://www.fool.com/investing/dividends-income
/2008/06/27/the-2008-banking-crisis-continues.aspx
2. http://www.smartmoney.com/breaking-news/on/
index.cfm?story=ON-20080627-000596-1054&afl=yahoo
3. http://www.fool.com/investing/small-cap/2008/06/25/a-nation-of-enrons.aspx
4. http://biz.yahoo.com/bizwk/080627/0827b4091038376313.html?.v=1
5. http://householdwatch.com/news/interactive/568

3 comments:

AX said...

Several questions.

1. Why is my blog so low on the list?

2. Great work with your puts but why so many strike prices? Remember that trading costs eat up profits so why not just buy 3x # of contracts on BAC instead of 3 difft. strike prices? Difference in return at each price probably will not be significantly difft.

3. Again I ask, who the hell is this Lee joker?

Tiger Coach said...

Hey Ax...Your blog was low on the list because it was listed top to bottom by the most recent posts...I changed it to alphabetical order.

Thomas Lee JP Morgan top U.S. Equity strategist. Has over 2.3 billion dollars in management...Lee was on Bloomberg a while back stating that his data suggested a major turn-around in the markets. Specifically, consumer discretionary,energy, and financials. So he became the guy I am tracking...and holding him to his word. Wouldn't it be nice to have a blog dedicated to the stock analysts called the truth police?

Last, about my strategies, at multiple strike prices. I buy on value. I noted that at time a lower strike price meant lest cost...and more leverage. Right now BAC 1/15s are at .79. Ten contracts there would limit cost, and possibly earn homeruns. Once again, you are 100% correct about the trading costs.

Have you looked at HBC today? I am worried all of a sudden. One analyst said to short it first thing on Monday...It this the kiss of death?

In the mail I received an offer from BAC...a $16,200.00 line of credit...bank checks, and a great introductory rate. This is jsut the reason I am short on credit card companies!

BD

AX said...

Have no fear on any of your shorts. Like I said, hoping for a false uptick today next week so a company like STI can be shorted. Not a bad idea to buy some really oom puts to load up on contracts.