Russell’s Round Up – Weekend Review

This past weekend I spent a good part of my Sunday at my father-in-law’s surprise 70th birthday party. He will be happy to know that I mention he’s still a few days shy of his 70th so at this moment not quite a septuagenarian. However, there was a funny and concerning moment at the party. One of the guests is a car dealer in our area and I made a comment about how many times I see his name on the back of cars, his response, “You mean all those people driving around that are behind on their payments?” Hearing things like that makes me wonder if we truly are out of the woods yet as far as the economy goes.

With that pleasant thought –

Barron’s this past weekend had a bullish article on Macy’s which trades using the ticker M. One analyst points out the stock should trade closer to 40.00 than around 24.00 where it closed on Friday. When I see things like this, situations that may take some time to come to fruition, I always check to make sure there are LEAPS available and there are on M. If you check out the article and find the bullish argument compelling enough to consider buying Macy’s shares, take a look at the LEAPS before jumping in.

The Strike Price column avoided mention of my favorite topic, the VIX, for the first time in a few weeks. The major theme of the article was how to play Gold and Silver based on your outlook for inflation and the potential ending of the quantitative easing program this summer by the Fed. Without giving a directional opinion, it was noted that the volume on the GLD and SLV ETF’s has risen dramatically over the past 20 days or so as traders position themselves in front of a change that may result in higher or lower inflationary pressures.

In addition there was a trading recommendation in the Striking Price column that involves a bullish outlook over the next few weeks in Amazon (AMZN) stock. Specifically a bull call spread with a long

June 200 call and short a June 210 call, which could be initiated for a cost of $3.40 (also the maximum loss if AMZN is under 200.00 at June expiration). The break even level for this trade would be met if the stock is at 203.40 and a maximum profit of $6.60 could be realized if the stock were to trade at 210.00 or higher at expiration. AMZN was trading at 193.95 when this recommendation was made. The stock closed Friday at 195.81, but even though the stock has risen a couple of points the risk reward for this bull call spread is still pretty much the same. That is as of the close on Friday.

On Options Action there was a lot of discussion about Research In Motion (RIMM) and all of it was pretty bearish. A bearish put spread was recommended using July options. A July 35/40/45 Butterfly with puts would cost 0.70 to initiate and if the stock is trading at 40.00 on July expiration the outcome would be a profit of 4.30. RIMM closed at 48.65 on Friday so to hit this 40.00 price target the guys are looking for a price drop of 20% in about 10 weeks time.

Also, there was much discussion of the price of Silver and the SLV ETF. You have to like when there is overlap between Barron’s and Options Action – that means something really big is going on. Using the price of Silver as an SLV proxy a chart was displayed showing that the price of Silver has not been this high since the Hunt Brothers attempted to corner the silver market in the 1979 – 1980 period. Google “Hunt Brothers Silver” to learn more about this. Everyone on the panel feels silver is over done to the upside and they are all cautiously bearish. The recommendation was to buy a put option at a strike that is below where the ETF is trading right now to attempt to benefit from a pull back. Probably the best advice for those considering a short position in the SLV was to use an option position that has a known maximum potential loss in place instead of taking an outright short position in the SLV.