Weekend Review – 6/14/2013

Options Action –

The traders addressed the impact of higher interest rates on the stock market.  One thought is that stocks that pay big dividends that have benefitted from lower rates, may come under pressure.  It was mentioned that several of these types of stocks have been under pressure already, but many also still appear expensive.  Finally it was mentioned that the types of holders of these stocks have changed from long term holders to short term hedge fund type players.  As the stocks appear to break the hot money may abandon these stocks.

The first trade was on Verizon (VZ – 51.07) which has a yield of 4.10% as of Friday.  With the thought that the stock is going to trade lower a bear put spread was recommended looking out to August.  The trade buys 1 VZ Aug 50 Put at 1.35 sells 1 VX Aug 47 Put for 0.50 and a net cost of 0.85.  If VZ is at or below 47.00 at August expiration the trade will realize a profit of 2.15.  It should be noted that there was a lack of consensus around this trade with one panelist feeling the dividend yield may act as support.

VZ PO

The second trade focused on Zynga (ZNGA – 2.82) which has been anything but loved.  As speculative trade the feeling is that there may a change in sentiment to the bullish side.  It was also mentioned that ZNGA has 2.50 per share in cash.  The trade is a unique structure in the form of a call spread risk reversal.   The trade goes out to next year and sold 1 ZNGA Jan 2014 2.50 Put at 0.37, bought 1 ZNGA Jan 2014 3.00 Call at 0.50 and then finally sold 1 ZNGA Jan 2014 5.00 Call at 0.13.  All together this comes to even excluding commissions.  It was mentioned that keeping an eye on ZNGA with the hope of putting this trade on at a credit may be a wise move.  Based on these prices, if ZNGA is below 2.50 at January expiration you are put the stock.  Above 3.00 and up to 5.00 there is a profit with the profit being capped at 2.00 if ZNGA is over 5.00 early next year.

ZNGA PO

 

A final trade discussed was on Amgen (AMGN – 97.42) on the bullish side.  The stock appears poised to break out and fundamentally is cheap relative to the market.  Also, there are new drugs in the pipeline that may be a catalyst to the upside.   A very basic recommendation is to look out to October and buy 1 AMGN Oct 105 Call for 2.85.

AMGN PO

 

Barron’s –

The Striking Price column was a nice history of Interactive Brokers (IBKR – 15.74) and some speculation of future moves by the company in the market making space.

An interesting recommendation came in the form of a bullish article on Advanced Micro Devices. (AMD – 3.94) that appeared in the Technology Week column.  Through an acquisition, AMD is making a push into the server computer market where Intel (INTC – 24.92) currently dominates.  Dan Niles is a bull on AMD and was one of the best technology analysts back when I followed that market sector years ago.  Niles believes the stock could trade to over 8.00.

Finally, this issue contains the Mid-Year version of Barron’s Roundtable.  There are always great ideas floated and discussed.  Even if you do not intend to follow any recommendations, it is always worth reading the roundtable to see how some of the best professional investors approach the markets.  The number of ideas is too numerous to cover in this blog, but a special shout out goes to Felix Zulauf who is preside not Zulauf Asset Management in Zug, Switzerland.  One of Zulauf’s recommendation is to be long VIX futures.  He believes that the market will top in the summer with rising volatility to follow.   He suggests that a portfolio could benefit from what he calls volatility insurance in the form of long VIX exposure.