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My First Christmas

I'm often asked why I don't celebrate Christmas. I shrug off the question with a simple, "I just don't." It's really only the half-truth... My family has never really celebrated Christmas in the traditional sense. My mom did put up a tree for me for a few years when I was really young, but that was basically it. Maybe we're lethargic or apathetic - or a combination of both, but we never got into the holiday.

However, as I got older, I started to learn more about my history and realized how I should celebrate the holidays. The story of my first Christmas is very unique and tells a tale about struggles, oppression, and finally, freedom. The events that occurred on that day has allowed me to appreciate everything in life, from the mundane to the those that really matter. This is the story of my first Christmas.

My parents were caught up in a conflict known as the Vietnamese border raids in Thailand. It was a conflict that occurred from 1979 to 1988, which dispersed millions of Vietnamese and Cambodian citizens across three nations, many of which ended up in the refugee camps on the Cambodia-Thai border. This infamous region is known as the Dangrek Mountains; a site that is associated with inhumanity.

They made the decision to escape Vietnam shortly after they got married and had to reach Thailand where the conflicts were much more subsided and refugees were being relocated all across the world. With literally nothing, they trekked hundreds of miles from Soc Trang, Vietnam to Phnom Penh, Cambodia. To say the trek was long and arduous would be an understatement considering the war-like conditions of Asia. Years of conflict through multiple wars really did make the regions unsafe as minefields littered the country. After arriving in Phnom Penh, they had to take a train to Battambang, but were too poor to pay for a train ticket. My parents, along with dozens of others, sneaked onto the train which led to the first obstacle.

Mom and dad were quietly looking out the window as the train voyaged on. A train inspector entered the car and looked towards my parents immediately. He saw the lighter skin tone and lack of characteristics commonly found in Cambodians. If he could find out they were not Cambodian, my parents would be forced off the train as trespassers. The inspector asked a question in his native tongue. My dad replied back in Cambodian to the shock of the inspector. The inspector looked at my mom, who did not speak Cambodian and did not understand what he was saying. Quickly, my dad interrupted and said "My wife, she is both mute and deaf." The employee stared at my parents and dismissed them as lighter-skinned Cambodians, and gave them a pass even though they lacked ID and a ticket. A sigh of relief. My dad, a life-saving skill perhaps, was able to pick up the Cambodian language, very fluently in fact, during a short period of time. This allowed them to continue their way north under this ruse.

This train ride was frequently interrupted with stops as the train tracks had been destroyed from the war. Passengers would have to exit one train and board a new train, sometimes miles away. At times, transported by bus, motorcycle, or by horse to the next train stop.

Finally arriving in Battambang, they were not greeted with cheers. Instead, my parents were sent to an outskirt town and put in a prison. The prison loved taking people in because humanitarian organizations like the Red Cross and the UN would pay rice in exchange for the release of prisoners. My parents were fortunate enough to be selected as trade bait and were placed on the Red Cross's list to leave to Canada, but the ordeal was not over as they still had to go to another camp, known as Nong Samet, for placement.

The camp was situated in the jungle and the trail into it was a sliver wide, where a small error in judgement would result in catastrophe. It was covered with mines and where there were no mines were dead bodies. My parents described the refugee camps as filthy and full of disease. While residing in the refugee camp, I was conceived. I was born so thin that my body looked undeveloped, as the silhouette of my organs could be seen. Not given much chance to live, but my parents did what they could.

But my mom was malnourished. We had no food, and my mom weighed just 65 pounds that day. She was unable to breast feed her own son. Luckily, other mothers were very giving and fed me their excess breast milk, and other families fed my parents congee and water. It was months of pure starvation for my parents but they survived, barely.

My dad recalled it may have been Christmas Day, and we were told that we were being taken away to freedom, but suddenly, tanks started rolling in and my family was right in the middle of a war zone. Bombs, gunfire, and tank shells blasted the camps. 60,000 refugees took cover and tried to escape the mayhem, not wanting to be a casualty of war. Hundreds, including my own family, hid underneath a cliff that was a waterfall in the summer, but a dry well in the winter. The Thai soldiers that accompanied us were also hiding there. They were forced to shoot or beat babies that cried, often to death, for fear that their cries would alarm their enemies towards us, yet by some miracle, I did not cry. This allowed us to remain alive among the dead.

When the sun rose, the battle had ended. The dead and alive were covered in ashes from fire that destroyed parts of the camps and jungle. The chaperones started calling the names of those who were listed on the Red Cross's list to stand on one side and the rest on another side. One man that had not been selected ran to the selected group and tried to give us a letter to give to his loved ones, but the Thai soldier shot and killed him for disobeying them. It was unruly and vicious, but it was the law and order of the times.

The bus awaiting for the lucky folks was seven miles away, understandably being cautious as to not enter the camps just hours after a battle. My dad, holding me and an empty bag for food, and my mother, too weak from giving birth still, would become abandoned by the rest of the group because we were too slow.

The remainder of the group had been at the bus waiting for us, but many were getting impatient and restless. An argument ensued between refugees and staff. "The Luu family is dead! Get us out of here," someone yelled.
"My job is to make sure we count everyone on the list. We cannot leave until we find them, dead or alive," replied the driver. Staff and refugees continued to fight over the process when suddenly a man yells. "There they are!"

My parents emerged from the jungle with cuts all over their body. Their clothing torn to bits from the thorns and bushes. Blood soaked my dad's body and clothing. The Red Cross associates ran towards us and helped us get onto the bus. They gave buns the size of a fist and one hard-boiled egg. It was not very much, but for my dad, after having not eaten in more than 24 hours, it felt like a buffet. My mother received a blanket and turned it into a Tarzan-like tunik for me. Up until that point, I had been naked since birth, but that blanket was my first Christmas gift ever courtesy of the Red Cross.

My family was relocated to Edmonton Canada in May 1985 - a place I now proudly call home. I couldn't be prouder to be Canadian and I have always been so thankful for those that accepted us into their country when a lack of trust existed towards Vietnamese and Asians at the time.

Remember how people often ask me why I don't celebrate Christmas. I shrug off the question with a simple, "I just don't." It's only the half-truth. I feel blessed everyday knowing that each moment is a gift. I am surrounded by people that matter more than any present. The whole truth is "I just don't need to."

Post-Script
After years of research, we recently found the historical event on a Wikipedia page "https://en.wikipedia.org/wiki/Vietnamese_border_raids_in_Thailand" and I contacted the Associated Press for more details in 2018 about this article, however they have not yet responded to date. Thank you for reading my family's story!

Market Falling on Options Expiration Week

Playing the Expiry: December 17, 2011

It is the final options expiration week for 2011 and the markets look spooked, still. A Christmas rally does not look like it is in the works, at least, not this week anyways. The US markets are showing some negative signals and it's best we take advantage of the higher prices before the selling continues.

The S&P 500 and Dow Jones broke below the 200-day moving average today. Both charts also show a negative DMI and MACD forming. These signals often predict a short-term market sell-off, or in the worst case (for traders), a lack of a rally.

Netflix [NFLX:NSD] has been a weekly candidate for options writing. A potentially volatile stock which lacks the massive volatility needed. The shares have been range-bound for quite some time, and with the market most likely getting ready to fall a little further, take advantage of the December 72.50 call. After a sudden spike in a few minutes on Wednesday, the call options have added extra premium for us writers to hope and pray. The shares are trading at $71.00 right now and the calls are $1.11. That is a return against market value of 1.56 per cent and upwards protection 3.68 per cent.

Las Vegas Sands [LVS:NYSE] has shown some weakness over the past week. The shares have not broken below its support in the $40 range, but I do not expect the shares to rally against the market's trend either. Consider writing some out of the money call options, with the December 42 calls appearing to be the most attractive. The shares are trading at $41.00 and the calls are bidding $0.26 per contract. That is a return against market value of 0.63 per cent and upside protection of 3.07 per cent. Another added bonus could be if the shares do rise tomorrow, consider writing a put as well for an extra return.

There weren't too many attractive trades this week to implement on Wednesday. It looks like many of the call options have lost a lot of value due to investor sentiment. The shares above are the usual ones I trade, so there's nothing special here.

If you want to take on less risk, considering writing the McDonald's [MCD:NYSE] 97.50 call and put for a short straddle trade. Premiums would net you about $1.08 on a low-volatile stock. The shares are at $97.43. Remember to close out the option on Friday by the way.

Other considerations would be an IBM strangle at 185 and 190. You'll earn about $1.20 here.

The table below breaks down the real-life returns and margin required. Remember that returns below assume full expiration on all options, including straddled trades. Consider your investment needs and objectives before implementing any uncovered option trades.

Company Name Premium
(per pair)
Approx. margin
(per pair)
Return Against
MV
Real Return
Netflix $111$2,175 1.56%5.10%
Las Vegas Sands $26$1,260 0.63%2.06%
McDonald's $108 $2,9251.10% 3.69%
IBM $120$5,700 0.64%2.10%


Sideways Plays

Playing the Expiry: December 9, 2011

Detecting the sideways action of the American markets has given option traders yet another upper hand in the battle for riches. Although I have not posted a PTE blog post in a while (I mean, maybe ten people read this anyways), you surely would have beaten the market by doing absolutely nothing! Let's take a look at some trades I implemented this week which could prove profitable.

The sideways market has kept many shares trading in a tight range with no sign that volume will re-enter to push it one way or another. Shares of Las Vegas Sands [LVS:NYSE] have been caught between $42 and $48 with most of the price-action in between $44 and $47. A short combination or strangle is an appealing trade here. The December 9 call and put options are bidding $0.31 and $0.32 respectively. That nets $0.63 a pair or 1.40 per cent return against market value. The shares, trading at about $45.10 currently, would have to fall 3.84 per cent to $43.37 or rise 3.39 per cent to $46.63 before a loss would occur. Considering we have two days and one hour left, those are pretty good odds.

International Business Machines [IBM:NYSE] also known as IBM, has broken above the $190 resistance level and has continued to slowly push higher. It is currently trading at roughly $193.50. Although some technical traders might see the shares moving higher, I don't believe it will make a massive move in the short-term. The shares should remain above $190 but will most likely stay below $195 by Friday. Consider writing the 195 call and 190 put options. The current bids are $0.83 and $0.48 respectively; that nets $1.31. The break-even range is $188.69 to $196.31 or a fall of 2.49 per cent to a rise of 1.45 per cent. The return would be just 0.68 per cent because IBM is a very low volatile, stable company.

Lastly, this sideways market has also affected commodities too. Silver has shown a lack of volatility over the past three months and especially over the last 30 days, where a trading has constricted to $30 to $32. The iShares Silver Trust [SLV:NYSE] is currently at $31.54; consider writing a strangle with a 31 and 32 strike price. The 31 puts are only $0.20 and the 32 calls now only $0.24. But at $0.44 against the market price, that represents 1.40 per cent return for the next few days. This trade also gives you a break-even range of $30.44 to $32.44, which provides downside protection of 3.49 per cent and upside protection of 2.85 per cent.

I thought it would be more effective to also include the real-life returns to show that returns against market value (as posted above) are well below the real returns. The average options writer should be able to earn 3 per cent a week. This table will now be included in the final section of each PTE post. All trades assume normal margin requirements and options expire worthless by Friday.

Company Name Premium
per pair
Approx. margin
per pair
Return Against
MV
Real Return
Las Vegas Sands $63$1,380 1.40%4.56%
IBM $131$5,850 0.68%2.24%
iShares Silver $48 $9601.40% 5.00%


Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker. Reminder that all Playing the Expiry posts are considered and executed transactions for my account and should not be taken as professional advice.

Remembrance Day Options

Playing the Expiry: November 11, 2011

Don't expect a lot of activity leading up to and including November 11, where both Canadian and Americans will celebrate Remembrance Day and Veterans' Day respectively. Strangely, both Canadian and Americans markets are open on the statutory holiday, but as usual, there will be no settlement. So, with the markets having fallen more than 3 per cent today, a flat week or even a short-term rise could be in the works. Fortunately, intra-day volatility continues to exist, allowing us options writers to make a fortune.

Here are some trades to consider which were executed by me today.

Las Vegas Sands [LVS:NYSE] has found a home between $40 and $50 over the past year. The shares had reached $48.08 yesterday but have fallen with the market to just above $46. The 45 puts for this week look like a good deal. The shares have slipped below $45 many times, but have always crawled back above 45, which is an advantage if you get caught in the money on Friday. The puts are $0.40 per contract. That represents a return of 0.87 per cent return and downside protection of 3.38 per cent. The shares have already fallen 3.87 per cent today, so there is an argument that the shares won't fall another 3.38. Shares don't often fall 7.5 per cent over three days under normal circumstances.

Baidu [BIDU:NSD] has also taken a hit today and put premiums are up. Consider the 130 put for $0.60 per contract. This is only a return of 0.44 per cent, but it's a safer play, especially since the shares have fallen below a short-term support level of $140. You are protected from an additional drop of 4.85 per cent. A riskier play could be the 135 puts which are $2.03. That is a return of 1.49 per cent, but has only 2.22 per cent protection.

Netflix [NFLX:NSD] has shown an inability to remain above $90. Writing the 90 calls would earn you $1.10 at least. That is about 1.21 per cent yield against the market price. And the shares would have to rise 3.52 per cent in two days before you lose money. If you believe that the shares will remain sideways, consider writing the 85 puts as well for an additional $0.85 or so. Note that the shares have had massive volatility on Thursday and Friday in the past few weeks, so taking one side of the trade might be more wise. Over the past weeks, I had written only puts, but have seen the shares create a rounding top formation at just above $90, indicating the rally after earnings is fading.

Before I finish, I want to say one last thing. This Friday, we celebrate our soldiers that lived or died through wars and courageously fought or sacrificed with their lives so that we can live in a peaceful country. Although this world still has its woes, as represented by current military soldiers, we can not thank our brothers and sisters in arms enough.


Occupy Wall Street? No, Occupy Humanity


My opinions on Occupy Wall Street (OWS) and any other derivative form won't earn me any new friends. The demonstrations represent the ideals of free speech and protest in a democratic society and I for one hope these values stand the test of time, but the Occupy Wall Street movement, which apparently stands for nothing or everything, is a hypocrisy, and I'm starting to question if protestors are eating their cake and having it too.

Let's get this straight. I am not a right-wing nut job like Rush Limbaugh or Glenn Beck claiming that they are lazy, unemployed, angry hippies trying to ruin American capitalism. I believe they are angry at a system they perceive to favour the rich at the expense of the poor. I believe they view themselves as the victim of a government system that can be bought. I believe they want an end to corruption at the top. But we are being manipulated by the "fair" media that tend to shift from facts to finger pointing because it is the ideal thing to do. And don't anybody dare say the media is not to blame here, when in every situation, the media is always to blame. I also believe that many have never been in a position of power and that the participants of the demonstrations asking for the end of "moral greys" are morally no better than the people in positions of power. It just happens the latter are; the ending results would very likely be identical.

The democratic system that so many perceive as no longer representing the 99 per cent is being questioned through the voices of the rally. The general problem is that these rallies are against a large entity, known as the corporation. In reality, a corporation is run by thousands of workers making conscious decisions to benefit their company, their family, or themselves. A corporation exists because it is run by the 99 per cent but a corporation itself is not corrupt; it is that humans are corrupt - easily persuaded by money and power. This is the underlying issue that has created a broken democracy.

For us 99 per cent, it is unfair to criticize and slander those in positions of power for making greedy decisions. I have seen many instances where the common man has taken bribes, stolen from family to make a few extra bucks, and compromised their own values for supposedly justified reasons. Money can motivate men to do both good and evil. People know the laws of their countries, the commandments of their religions, the policies of their company, but people break them for selfish gains. I just find it ironic, perhaps hypocritical, that occupiers can whine about the rich and then go back to work and try to earn that promotion.

Here's something to think about. It is believed that up to 15 per cent of Americans are defrauding unemployment benefits from their government at a time when so many Americans are against wasteful government spending. Other taxpayers are bailing out these lazy bums for up to 99 weeks while they sit on their couches (or occupy Wall Street) criticizing banks for accepting money they don't necessarily deserve. To clarify to some, the bail out packages were loans and have largely been paid back. Another thing, thousands of Americans have purposely claimed bankruptcy just so they don't have to repay their mortgages because they want to protect themselves first. As we see, greed exists in humans at all levels of wealth.

I read on a MarketWatch forum from a poster that the 99 per cent do not have a say in capitalism anymore, and elections are too few and far away for our voices to be heard, but this is just not true. As consumers, we have the most powerful voices in a capitalistic economy with our wallets. We as individuals choose what companies we support by purchasing their brands, but we never put money where our mouth is. I have a friend that is against the child-labour practices of Apple, but justified purchasing an iPhone for its look. I know many people who are against outsourcing jobs, but they choose to buy the cheaper product made in China. Americans want to secure health care, but there is a battle against raising taxes half a per cent to help millions. People will fight for their environment, their democracy, their norm, but people do not change habits or take action where it really counts. This rally against corporate America is meaningless and hypocritical.

Upon Steve Jobs's death, occupiers set up a temporary memorial in his honour, which I deemed to be undermining. Protestors grieved and lamented at the former Apple boss, with one person saying that he made the world a better place. That biased opinion just wouldn't sit with me. He didn't change the world for the better, he changed lives for the wealthy Westerners living in North America and Europe, at the cost of the poor, at the cost of children in China working in their factories, and at the cost of the environment. This individual appeared in front of the camera and did not support the antics of Wall Street, but, for the decisions of Jobs; a greedy and egotistical boss that did not promote charitable donations; whose company is valued as the largest in the world by market capitalization; and has the most cash ever in the history of the world, more than the US Treasury; never once giving a dime back to shareholders, he approved because he probably owned an iPhone, iPad, or iPod somewhere and did not want to seem like a hypocrite. Occupiers can not unite against the destruction of their world by corporations while revering them too.

The super wealthy are wealthy because of our decisions. They have not stolen from the poor; they have earned a large piece of the pie. They created great companies offering great products and services that we all loved and admired a few weeks ago, but demonize today. It is strange that the protestors are shamelessly receiving free Starbucks coffee, free wifi, and free fancy tents. That's a thousand times more than a child in Ethiopia would ever see in their life time if he even made it to adulthood. This child has more of a reason to protest wealth inequality than we do, that's for sure. I for one would like to know that if I worked my butt off, I could one day be wealthy without the evil eye from the common man staring with envy.

But how rich would I have to be before I am considered the evil 1 per cent playing the role of "backwards Robin Hood?" In Canada, to be classified as a top 1 per cent earner, an individual would have a salary above $200,000. These include doctors, lawyers, engineers, small business owners, and professional athletes, hardly an enemy by any definition.

The protestors are rallying against something unclear, but it represents anger at the economy, at government, at everything that has not gone right in their lives. My Canadian government provides free education and subsidized post-secondary education so that its citizens can achieve great heights, universal health care because they want its citizens to be healthy and help run a democracy, multiple political parties to represent a wide array of opinions and beliefs with checks and balances, the ability to walk safely anywhere I choose. My Canadian democracy is not perfect. It might be guided by corporate hands. It might be somewhat corrupt at all levels. So what? It is run by humans who are not perfect. Honestly, the people of Occupy Wall Street, Occupy Toronto, Occupy Edmonton have never seen real poverty, real government corruption, real oppression. These people are 83 per cent luckier than the entire world and will always be.

The resolution of our problems do not involve changing the rules of democracy or destroying government or redistributing wealth. The resolution exists only when people realize we all act corruptly, have a thirst for money and power, and every action has a reaction, and decide to change our collective behaviours, but that will never happen. The rally lacks clarity and objectives. I have not heard one demonstrator make a suggestion on how to make this free world better. I have only heard criticisms and attacks at corporations and governments. The rally has not conceived a solution, just garnered attention at the belief this is the start of change. I don't think it's remotely similar enough to even compare Occupy protests to spring time Middle East revolts; it is unfair and blind. I think these demonstrations are a farce and this is why I do not support Occupy Wall Street and its derivatives forms. Instead, we should be occupying humanity.


How to Properly Use a Credit Card


When my friend told me that he took my advice and found the advantages of using a credit card for every purchase, I realized that I must share this advice on here. I've seen many people who owe thousands of dollars on credit cards. I can not fathom how they have put themselves in such a worrisome position.

A credit card is the best personal finance product available to consumers. It is essentially a product that pays you to borrow from them at an interest-free rate. The problems that arise from overusing a credit card is a result of a lack of education and discipline. So here's the advice and information I tell my friends.

First and foremost, use a credit card only when you would make a regular purchase in cash or debit, such as lunch or groceries. This avoids large debt. There is no advantage in using cash or debit, so put it on the credit card and keep your money in your bank account. In theory, that money in your bank account will earn interest for you. If you do receive a discount when purchasing with cash, make sure that the discount per cent is greater than your bank account interest rate. In today's low interest rate society, any discount will do.

Secondly, most credit cards, even annual-free credit cards, will give you "cash back" on purchases. The range can be as high as 2 per cent to as low as 0.5 per cent. Take advantage of this. The cash back rewards can total up to hundreds of dollars per year. Don't forget that this "income" through the cash back program is also tax free because it is a penny saved versus a penny earned. Saving $10 on a purchase is equal to earning approximately $14 at a job, so don't ever undervalue a few dollars saved.

A third tip is to find out the billing cycle of your credit card. Mine is the 14th of every month. So if I were to buy something today (Oct 13), it would show up at the end of this month's bill. If I postponed it to tomorrow, it would show up in next month's bill, pushing the debt to a future date while earning about 47 days of additional bank account interest. This was also a tip my instructor told me during my college days. It is great for financing non-essential items that can be purchased at a later time.

The fourth tip is to pay the credit card on the required pay date, never before. By paying days earlier, the money in your bank account will lose potential interest. Just make sure you don't forget. Most credit card companies give you a grievance period before they will charge you fees or interest anyways, but make it a good habit to pay on the day. Set up a reminder or have a post-dated payment from your bank account.

The last tip is really a summary of the first tip. Use the credit card only to replace common purchases and for emergencies. Personally, I use my credit card mainly for lunch, gas, and my cell phone bill. With a few other purchases for entertainment, my credit card bill is very consistent, which makes life easy because I don't need to keep track of my purchases.

If you happen to be someone with spending problems, start by ensuring your total credit card purchase per day is less than the amount you make at work per day. Once that becomes habit, alter it to the disposable income per day through basic calculations. Maybe talk to a financial advisor to determine this value for you. If you can follow my above tips, you should be spending your credit card at most twice a day which should never put you in debt. You will even profit, tax-free, from it too!


Calculated Risk on Netflix, IBM, and Yahoo!

Playing the Expiry: October 7, 2011

The American markets barely escaped bear market status yesterday afternoon when equities rallied more than 3 per cent in the final hour of trading. That was followed by another round of buying today which led markets higher by more than 1 per cent. So, with the markets showing some upward stability and support in these areas, is it time to start writing puts? The answer is yes.

After several weeks of massive volatility, yet very sideways trading, the market has been able to show strength at lower levels, and although the charts are still trending downwards, increased put activity and premiums are become attractive once again. It's time for another installment of Playing the Expiry for October 7, 2011.

Before the markets surged on Tuesday, I attempted to write puts on Microsoft which was trading close to $24. Over the last two years, the stock has shown significant support at these levels and has risen to nearly $28 every time. The stock has gone sideways which is perfect for trading. Unfortunately, I could not get a fill and the stock rose to $26 over the past 24 hours. However, continue monitoring the price-action for future opportunities.

With that trade missed, I chose to go a little riskier and selected Netflix [NFLX:NSD] instead. The stock plummeted from $300 to $110 in a matter of weeks, but is showing support at these prices. Consider writing a 115 put for the remainder of the week. At close, the bid on the puts were $1.25 with the shares at $119.76. Based on the stock price, this pays out 1.04 per cent over the next two days. This also provides protection of 5.02 per cent. That is, the stock must fall 5 per cent or below $113.75 by Friday's close before an investor would lose money. This payout and strong downside protection makes this trade very attractive. For disclaimer purposes, my fill was at $1.87.

If you're looking to go less risky, consider writing International Business Machines [IBM:NYSE]. The stock closed at $176.85, the short-term mid-range point. One may consider writing a put on IBM at 175. At close, the bid was $1.20. Against the market price, one would earn 0.67 per cent, with protection of 1.72 per cent. This may look less attractive, but IBM's stability and blue-chip status makes it easier to handle and it often avoids volatility, unlike Netflix. If the stock trades below $173.80, a loss could be absorbed, or you could consider rolling out the option to the next week or taking assignment and selling the shares once it rose back above your optimal price.

Going against the grain, one trade to consider could be Yahoo! [YHOO:NSD] call options. The stock surged in the afternoon today with rumours (again) that Microsoft would be dishing out the dough to acquire the company. The 16 calls for this week were bidding at close $0.45; the stock closed at $15.92. Many believe this rumour will turn out like it did in 2008, when Yahoo decided not to get bought out, only to see their stock fall 50 per cent since, but I digress. Writing these calls pays out 2.82 per cent for the next two days. Although the loss is unlimited if the shares rise, the odds of the rumour becoming reality by Friday are quite low. The stock would also have to rise 3.33 per cent before a loss would occur. Note, the stock is now at $15.33 in the after-hours market, so before attempting this, consider the values tomorrow.

Because I wrote this blog after the market closed, the values of all puts and stocks will vary tomorrow morning, but these are the three ideas that came to my mind today.

Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker. Reminder that all Playing the Expiry posts are transactions placed in my account and should not be taken as professional advice. As already mentioned, I have an uncovered put on Netflix.

Let Greece Fail Already


To promote and encourage the default of a nation is very uncommon and a bold statement about your opinion on such matters. The consequences of such drastic actions would cause a violent macroeconomic catastrophe. But history has shown that a sovereign default is often a revitalizing last resort and for Greece, a country whose fiscal problems are worse than many other nations, it may be in its best interest and for the world to implement an orderly and properly controlled default on its debt. Let's take a look at some reasons to support such extreme proposals.

For the last two years, Greece has taken austerity measures to help reduce its debt and revive a current four-year recession. When Greek's debt crisis became relevant, the nation cut and froze salaries of public and private workers and cut holiday bonuses on government employees. It is also reported that many have not been paid for nearly two years. Most recently, the country increased taxes on incomes, created new taxes on purchases (like GST in Canada), and sold national property and assets to raise revenues. These austerity measures forced a heavy burden on its citizens that made significant sacrifices to save their nation. The final result: an August 2011 report revealed the nation's revenue fell 1.9 billion euro and spending rose 2.7 billion - laughable.

Good money is being thrown at bad money. The European Central Bank (ECB) and the International Monetary Fund (IMF) has aided Greece so long as Greece took necessary financial steps to prove they were working towards fiscal balance, but as mentioned above, these austerity packages have proven unsuccessful. The risk of a default is high and credit default swaps on Greek debt are at record prices. Two-year notes are yielding more than 70 per cent and investors are pricing in a 98 per cent chance of a default. But with worldwide sentiment so bearish, the IMF and ECB continue to fuel a dying fire. Continued talks for loan packages are still in the works. They might believe that current debt restructuring plans will save Greece, but it will only stave the inevitable.

The country has had a long standing history of high debt. Since 2000, the country has never had debt as a percentage of GDP under 97 per cent, with most of those years well above 100 per cent. The nation defaulted four times in the 19th century, so it would not be an unusual circumstance, although in fairness, a different time and setting. There are many possible reasons to blame for the continuous spending problems, but the current mood of world investors is manifested in the phrase, "German taxpayers are funding Greeks to retire at 50."

Greek citizens can retire at 50 with a near-full pension. That is wonderful, but therein lies the problem. The average lifespan in Greece is 80.2 (as of 2009 data), which means that the government is providing an income for about 30 years after retirement. Greece has taken massive steps, but should they consider raising the pension payout to 60 or 65 like most nations? Other nations are already proposing retirement at 71 to keep their government pension programs afloat as the baby boomers start retiring.

There are many around the world who are proponents of a Greek orderly default as well, including a former Argentinian leader who was at the helm of their debt restructuring plan in 2001. Unlike a company default, a sovereign default holds no legal consequences because a country controls its own affairs. A "haircut," as is called, allows a nation to pay back a portion of its debt, with many experts expecting it should be around 35 to 50 per cent, but Greece continues to deny this will happen. Some claim that those who purchased Greek bonds will lose all of their money regardless. By avoiding an orderly default, it is only hurting its neighbours who are forced to fund Greece, regardless of their stance on the issue. It would also remove massive uncertainty in financial markets which have once again become volatile.

A default would also allow Athens to leave the Eurozone and the euro currency and coin a new currency, which gives the country the ability to create money to repay debt obligations, as is similar with most nations, like America. However, this would assure that the euro was a failed experiment and likely why many don't want Greece to fail.

It is a common theme to hear that Greek is nearly insolvent. When I started writing this blog, two-year notes were yielding 26 per cent. That was two days ago! It has nearly tripled, and regardless of what the IMF and ECB decide to do with the debt restructuring plan, one thing is certain: Greek is on the brink of default and things are about to get ugly.

America's Spending a Problematic Staple

America is a country addicted to spending; always has been, always will be. Its economy functions most effectively only when its citizens spend. Nearly 70 per cent of its gross domestic product is consumer spending. We are now seeing a massive shift in consumer spending which has put a damper on a recovery. Because of this, we're seeing America's fleeting dominance fall into a hopeless downward spiral. The government believes that it must spend its way out of the recession. It worked before, so it shall work again. But this concept of government spending, whether it be an addiction, a cure, or a habit, has created a $14.3 trillion deficit that is so large its value seems completely arbitrary. The mindset of massive consumerism and materialism built the country that dominated the 20th century; it is also this mindset that will destroy the country in the 21st century. It is a troubling evolution that has led America to its current hopeless conditions.

Masked in the financial irresponsibility was sustained long-term economic prosperity that took the nation to the top. The idea that America would topple seemed unimaginable. Its debt has been rated the safest global investment for decades and that image still stands today. Its economy recovered strongly after the Great Depression, as did everyone else I suppose, but also thrived for decades after, unlike so many. It contained the wealthiest individuals and corporations on the planet, proving once and for all that capitalism was an overall effective method of financial success. America's rise resulted in consumption and materialism by its citizens so envied by third-world nations. Complacency in the economy proved to be powerful as saving rates were some of the lowest in the world and goods were more important than saved assets. But all this changed in the late-2000's, when the biggest and safest companies in the world started showing signs that giving citizens the power to buy at their own will without accountability was not sustainable.

It started with the issuance of sub-prime mortgages, mortgages issued to higher risk individuals that did not meet the criteria for traditional mortgages. Under stricter regulations perhaps, these individuals would not have received loans in the first place, but since the practice of issuing sub-prime mortgages persisted for so many years, it seemed the norm. These individuals would hold loans that carried higher interest rates as they were considered high-risk. The housing market peaked in 2007, followed by drastic declines in home values. Refinancing became immediately difficult and it resulted in massively high amounts of mortgage delinquencies, which lowered the values of mortgage-backed securities held by the biggest financial firms.

Shortly after in 2008, global markets collapsed as confidence in the financial system eroded directly from troubled mortgage-backed securities. Names like Merrill Lynch, Lehman Brothers, and Bear Sterns, the biggest names on Wall Street, some of the oldest companies in the history of America, bankrupted. Soon thereafter, banks implemented stricter lending policies, which halted economic growth. Suddenly those who qualified for loans two years ago, would be denied access to capital funding. America's economy, which heavily relied on consumer spending, was in jeopardy. Business investment ceased, which would have eased negative growth. And governments spent billions bailing out banks trying to save the country instead of normally investing in infrastructure and programs.

Fast forward to August 2011. America is technically not in a recession, but its "positive" GDP growth doesn't inspire confidence. Millions of Americans are pinching every penny and low interest rates aren't bailing out the innocent victims of a troubled system. Banks still have bad debt on their books and nobody has money left to fund them. Bank of America and Citigroup probably won't make it to the next federal election. Business spending has ceased and companies are still laying off workers. Signs of a recovery disappeared months ago and optimism is a shadow of today's state.

Consider that over the past three years, the country's multiple plans to restore confidence in the market and economy required spending or borrowing through quantitative easing strategies and low interest rates to "spur" growth and spending. The lack of creativity and imagination from lawmakers have been ineffective and continued bailouts of banks, automobile firms, and government-sponsored enterprises pushed spending to the $14.3 trillion debt limit. Consequently, the country is in worse condition than it was three years ago and the country was on the brink of default.

It was clear that nobody would ever allow this to happen, not even the Republicans, but the stalemate drew worried eyes. Republicans prevented the debt ceiling from being raised for what seems like political motives. Although a deal eventually passed, it resulted in the first ever downgrade of the country's debt by the Standard & Poor's because of political ineptitude, along with other reasons. After all, the US debt ceiling has been raised nine times since the turn of the century, some of which occurred during Bush's presidency. In fact, the US has only twice gone more than three years without raising its debt since 1939 (See link). So why the fuss? It seemed Republicans decided it was time to cut the massive spending and show some fiscal responsibility and they would not budge on this concept. Brilliant!

But wait a minute... The debt deal that raised the ceiling to nearly $16.7 trillion passed through bipartisan cooperation is expected to be revisited in 2013, after elections (coincidence?). Even with the Republicans spending cuts, the country is still borrowing more money than it earns and saves. The deal did not raise taxes which ultimately puts the burden of debt reduction on savings programs. The country is expected to save $2.4 trillion over the next decade, yet the country is expected to spend a net of $2.4 trillion over the next 18 months. Not only that, the "savings" is expected to be withdrawn from public programs aimed to help those who need it the most, such as social security, Medicare, and education. Can someone explain how this leads to the resolution of spending addiction in American government while restoring economic sustainability?

The economy is highly dependent on one facet, consumer spending, therefore it lives and dies by the sword. Now that we are witnessing consumers drop their spending and pay off credit cards, loans, and save, a majority of the economy has been affected. It is a shame that the plethora of personalities and opinions of US government has become too large to be effective. The government's inability to resolve its economic woes leads me to believe that its lawmakers lack or will not pursue creativity. Other countries have escaped a long-term recession, and although conditions are not near pre-financial crisis levels, growth in many sectors are relatively strong. Yet, signs of a real recovery has started to dissipate everyday.

With rumours swirling that the Fed is about to act, maybe they can do something else other than spend another trillion dollars keeping interest rates low so that the few that still have money left to spend or wish to spend eventually do. Or maybe, America is too addicted to spending it will never find another way to resolve its problems.


Juicy Option Premiums on Tesla and HP

Playing the Expiry: August 20, 2011

It's August options expiry tomorrow, which means traders are looking for massively low risk options to sell for a nickel or a dime. But consider two option trades that might prove to be more profitable with just a little more risk.

Tesla Motors [TSLA:NDQ] can be considered a volatile stock. Just like any other stocks, it has its good and bad days, but its option premiums are pricing some sort of event that shouldn't be existing in the next 29 hours. The company's earnings were two weeks ago and showed growing revenue. With that in mind, take a look at a short straddle trade at 24.

The shares are trading at slightly above $24.00 at the moment, and the call and put options are bidding $0.40 and $0.50. The spreads are ridiculously large, so you might be able to earn an extra dime on each leg too, but low volume on the options might mean a lack of a fill on the sell and the buy back tomorrow, so trade wisely. Anyways, you would earn $0.90 minus Tesla's deviation away from $24 tomorrow. That is, if Tesla trades at $23.50 tomorrow, you would earn $0.40 per contract or 1.67 per cent in a day. This trade requires you to close out at least one side, but the closer to $24, the better.

A second trade consideration would be to play Hewlett-Packard [HPQ:NYSE] earnings. The company reports earnings after market close today and is expected to report $1.05 per share. Writing options on earnings historically is a very profitable thing to do, as buyers bid up option premiums in anticipation of a heavy move up or down.

If you're looking to do a short strangle or combination, try to cover yourself from a 7.5 per cent move. I have found that to be the safe area since many blue chips do not often move that much after earnings. With that strategy, you would be looking at the 33 call and 28 put. Both options are bidding about $0.39. The stock sits right in the middle at $30.50. As long as the shares move less than 8.1 per cent, you would not have to buy anything back. However, one warning is that HP's last two quarterly earnings have seen the shares move well over 10 per cent overnight, so it is up to you to decide if another big move is in the works this earnings play.

Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker. Reminder that all Playing the Expiry posts are transactions that may be or have been placed in my account and should not be taken as professional advice. I own shares of Tesla Motors.

Stick With the Market

If there were any lessons from last year's market correction in August, it was that those who sold in the summer lost out on massive gains in the winter. And those who have panicked and sold this summer will surely miss out on another fall and winter rally.

Historically, the summer is often the most volatile and least profitable months. It just happens to be for whatever reason. But those who stick with the market over the years have seen the resilience of stocks through optimistic eyes.

Short-term corrections like this often clean house. Investors and traders who are reactionary or lack discipline in their long-term strategies are weeded out of the market. It enables the major players, hedge funds and banks, to start adding to their portfolios. Those who generate income on a monthly or quarterly basis will now be able to put their cash into good use. The market has no reason to be negative this year and there are many good reasons why to get ready to start buying again.

Even if American debt gets a downgrade, it is expected to be AA (highest is AAA), which is still healthy. The rating on government bonds has no real correlation to American corporations and profitability. Yes, the government will have to pay more on their debt, but let's not forget that American corporations are not as connected to the government as they once were. And so far this year, 78 per cent of stocks on the S&P 500 have beaten estimates, suggesting that American corporations are still extremely healthy and have hired executives who know how to make money, unlike the lawmakers Americans voted in. Just look at today's big earnings. Proctor & Gamble [PG:NYSE] recorded profits that rose 18 per cent or 84 cents per share, beating estimates handily. Same goes with clothing retailer Abercrombie & Fitch [ANF:NYSE], construction giant Fluor [FLR:NYSE], and online travel company Priceline.com [PCLN:NSD], whose shares all rose significantly today.

Low interest rates won't attract many buyers. Bonds and treasuries aren't exactly paying you much money for borrowing your money and you'd be lucky to earn a penny on a thousand dollars in the bank. Investors should not be happy with returns that par inflation, so expect money to be injected into the healthiest and most efficient system, the stock market.

Many established companies have dividend yields that exceed most 5-year US notes and even Canadian bonds. Add hedging strategies like covered calls to top up your profits and you could be earning well over 15 per cent annually. Remember that as you age, your investment accounts should be geared toward income strategies and not overall growth.

Low interest rates have also allowed companies to borrow cheap money to purchase their shares back (often termed buyback programs), which lowers their float, and eventually increases share value. A company's profit is measured in two ways, net income, but more importantly, earnings per share (or EPS). The larger the float (or shares outstanding), the more profits must be divided evenly by shares. But if a company has fewer shares in the market, that $1 billion is divided into fewer shares, which increases EPS. And if you've ever read anything before about investing, the P/E ratio is the price of the stock divided by the EPS, so a higher EPS means a lower ratio, and a lower ratio means a better time to buy, all things being equal.

Another reason why it's time to buy, or even to argue, the time not to sell, is that even with all the fear that has appeared in the market over the last week, the economic reports that have been released have not differed much from what we've been seeing over the past three years. Factors that helped the market rally and create the bull market are still relevant today. Yes, growth is very stagnant and jobs are not being created fast enough, but this isn't something new. And until the market hears that unemployment has risen to 13 per cent, GDP is actually negative, and manufacturing data has consistently been below 50, I will not sell. Fear always subsides once rational thinking re-enters the market.

The governments know that their nations are in turmoil and they will do anything and everything to get their country back on track. Whether that country is America, Italy, Greece, Canada, Brazil, Russia, or Japan, governments have nearly total control on the supply of money, thus currency, interest rates, taxes, and many macroeconomic factors. And we're seeing an international battle for devaluing one's currency. This means inflation and an increase in asset values. They also want to stay in power for as long as they can so doing what's best for the nation isn't just their job, but it's how they keep their job.

Of course, it's hard to get out of the moment. There is so much negativity, but if you stick with the market, you will handsomely be rewarded.

In 2010, the market peaked in April then corrected in August. As referred to in the opening paragraph, after an autumn rally, the stock market gained roughly 15 per cent by the end of the year. In 2011, the market peaked in April then corrected in August. What autumn has in store for us this year has yet to be seen, but considering that the stock market is a gauge of the health of companies that comprise it, I'm confident that those who sold in the past week will regret their final decisions.

Post-Earnings Option Plays

Playing the Expiry: July 29, 2011

We're halfway through the earnings seasons here in North America and many US stocks are beating estimates through the roof. As mentioned earlier, the big boys like Apple [AAPL:NDQ], Google [GOOG:NDQ], and IBM [IBM:NYSE] all reported stellar earnings, pushing stocks to new heights. This week, China's Baidu [BIDU:NDQ], Las Vegas Sands [LVS:NYSE] and Amazon.com [AMZN:NDQ] posted earnings that also pushed their stock up.

Implementing an options strategy before earnings is always a good way to make money, but if you've missed the opportunities by waiting on the sidelines, then a post-earnings spread or combination could still hold profitable.

Baidu, whose earnings were on Monday, saw its stock soar nearly $10 the following day to $165. Now that investors have given a new valuation on the company, we are seeing some stability and support above $160 and resistance at $165. A short combination (or strangle) could prove to be successful if the stock's lack of volatility remains for the remainder of the week.

The options still have some significant time value on them. The 160.00 put and the 165.00 call for July 29 expiration are both priced just above $1.00. Depending on the fill, this would provide roughly 2.8 per cent downside and 2.8 per cent upside protection with the stock trading at around $162.50.

Amazon.com is trading higher by $11 this morning on good earnings and a better-than-expected forecast. The shares are at an all-time high, at around $225 today. A short straddle at 225.00 for July 29 expiration looks extremely tempting. The premiums on the 225 calls and puts are about $2.80 and $2.60, providing a net return of $5.40 or 2.4 per cent protection from the strike price.

The only warning to this trade would be that the shares are now above the Bollinger Bands. Some may view this as a bullish moves as traders are willing to push it up higher than the normal trading range, others may see this as an opportunity to short the shares, hoping it will fall back into the regular trading range.

Lastly, Las Vegas Sands, whose shares are up $1.56 this morning to $47.86 courtesy of good earnings, could also provide for a good trade. The shares, which are also above the Bands, still has massive premiums for out-of-the-money calls and puts. Both the 49.00 call and 47.00 put have more than 30 cents of value. This would net over 60 cents. If you're more neutral and think the shares will remain very close to $48 for the remainder of this week, you could write a straddle and collect 60 cents and 74 cents on the call and put respectively.

The shares however, have seen resistance at $48 and is having difficulty pushing upwards. This also occurred three months ago just before earnings. With this in mind, one may consider keeping more downside protection and being more aggressive with the call.

Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker. Reminder that all Playing the Expiry posts are transactions placed in my account and should not be taken as professional advice. I currently have weekly call options (long and short) on Baidu.com and uncovered weekly calls and puts for Las Vegas Sands at 49 and 48 respectively.


Playing Baidu Earnings

If you've bought even just one at-the-money call option on Apple, Google, or IBM this quarter for its earnings, you've made yourself some good money. Google up $60 the next day, Apple up $25, and IBM, normally less volatile than the former two, up $10 on knee-jerk reactions. All moves greater than expected volatility priced on the weekly options.

Later today, Baidu, the Google of China, will release its own second quarter earnings and the stock is being pushed to new heights. Trading currently at over $157.40, the stock is at a new all-time high, with growth nearly doubling every year. That's unbelievable growth, but also unbelievable expectations.

There are typically four ways to make money on an earnings via the options route. If you're bullish on the earnings report, and think that the stock will fly higher, even at nearly 100 multiple, then a bullish options trade might be best.

Today, I implemented a bull call spread. This type of trade mimics buying the stock and writing a call, without risking an additional $150 per share. I purchased the July29 calls at a strike of 155.00 for a cost of $7.70. I later sold, after the stock made a move, the 165.00 call with the same expiration for $3.77. This comes to a net cost of $3.93. Instead of buying the shares for $157.50, I only paid $3.93 to make the same gamble. The only difference is that my profits are capped if the stock moves above $165, but I would still earn $6.07 or 154 per cent return with the best-case scenario.

The reason one may implement a bull call spread versus a regular call purchase is that it lowers the cost to something reasonable. It also significantly lowers the cost if one were to purchase the shares, with the loss limited to just the net cost.

Let's hope the only time I do open up a bull call position is the time it doesn't fall. Happy trading.

Disclaimer: All trades mentioned are real-life trades implemented by the author and is not meant to be taken as investment advice. When trading options, consider its risks and investment objectives. Speak to a licensed financial advisor or representative.

Marble Slab for Cheap

I hate paying $5 or $6 for Marble Slab ice cream, just because I don't think it's worth the price, but when I saw an advertisement at the movies a few weeks ago, I was elated. Marble Slab is having a summer special that allows you to buy their ice cream for half-off.

Save your movie stub from a recent movie and get a good deal. Have a friend that doesn't like ice cream (blasphemy I say) or is lactose-intolerant? Keep their movie stub and use it to treat yourself. Or, if you don't want to justify spending $12 at the movie to save $3 at Marble Slab, then maybe go through the trash, if you're really that desperate.

I recently exercised the coupon and found that although they have strict rules, which are available on their Facebook page, I found the cashiers and attendants did not enforce it entirely. Actually, the employee did not even verify the paper I gave him was a movie ticket! The seven-day period after is meant only to ensure customers do not forget about the promotion and is not actually a requirement, but use it as early as you can, because the deal ends August 4.

In mid-May, there were some locations that were unaware of the promotion, but I believe most stores know about it now, so you should not face any conflicting information. However, if there are still issues, Marble Slab has suggested people call 1-888-337-7522, their customer service hotline.

Other than that, I hope everyone enjoys their summer. I'll get back to financial posts when I have some spare time.


Canada Day Options for Research in Motion

Playing the Expiry for July 1, 2011

Canadians will be celebrating their national birthday this Friday, but inter-listed stocks like Research in Motion [RIMM:NDQ,RIM:TSE] won't get a day off down south.

RIMM weekly options are still pricing in two full days of trading, but don't expect much movement on RIMM on Friday because of the holiday, unless significant news is announced.

The stock, trading at roughly $28.78 on the NASDAQ, in essence, has one and a half days until expiration, if you believe that there will be little price-action on Friday, which historically is true. The 29 call last traded at above 35 cents, giving you a break-even price of $29.35 or 1.98 per cent. The stock has been beaten down from $70 to new historic lows, and not too many are giving it a fighting chance in near- and long-term.

Whether this is covered or uncovered, it's a good chance to earn a pretty penny before the long weekend.

Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker. Reminder that all Playing the Expiry posts are transactions placed in my account and should not be taken as professional advice.

Reversing Six Weeks of Bloodshed

The American markets have been unkind since the start of May, but the markets might finally be giving investors a reprieve from a six-week correction. Chart patterns and techhnicals are indicating that a rally, maybe just a dead-cat bounce, is in the cards in the upcoming days. We've already seen three consecutive up days in New York, so there are still buyers out there.

The first positive sign is a convergence of negative indicators. Both the DMI and MACD on the Dow Jones have become less negative and might become bullish this week. Secondly, the Dow Jones is showing support at 12,000 and has held steady over the last three days, a good sign. Lastly, peculiar volume spikes have occurred only during reversals.

I don't need to talk too much about the DMI and MACD, as I've touched on it many times before, but as you can see, the "blue lines" are moving closer to the "red lines" on both lower indicators, suggesting that the selling is about over. A crossing of the blue above the red is considered a buy signal.

With the Dow approaching its inclining 200-day moving average, this could prove to be support for bullish traders. It also helps that the Dow is very close to its 3-year weekly trend line establish back in 2008 and a second dip in mid 2009. The Bollinger Bands have also stopped pushing downwards, constricting at these levels.



Daily volume on the Dow Jones barely budges above 200 million; most days, it doesn't even trade above 150 million. But there have been three instances where daily volume picked up and peaked just below 400 million shares. This occurred in the middle of March, when the markets massively corrected and touched annual lows. Days later, the market would rally and pare all losses in the prior weeks.

The second instance of abnormally high volume occurred in the final days of April, when the Dow Jones and other markets reached multi-year highs. After volume returned to normal on the last day of April, the market started its six weeks of bloodshed.

The third instance of high volume occurred just last week, when the market was preparing itself for the possibility of a Greek tragedy. Although no aid has officially been given to Greece, there is much belief that Greece will not default on its debt. Since the peak in volume, the markets has moved up about 2 per cent. If the abnormal volume is an indicator of reverse trading, we could see a nice move upwards.

The US stock market has not had weekly losses for six consecutive weeks since 2002. After that, the market rallied more than 40 percent in the following year.


Connecting with LinkedIn Options

LinkedIn [LNKD:NYSE] has seen some massive volatility since its IPO date, and as a result, its options, which started trading on May 30, have seen its premiums priced accordingly. At the start of June, options trading $15 out of the money were holding more than $1 in time value. Even today, $4 out of the money puts are holding nearly $1 in value. If you are an options writer, you may want to consider opening up some positions.

On Monday, I opened up bullish position on LinkedIn. Although I firmly believe the stock is well over valued at current levels, I believe that the shares are ready for a dead cat bounce. I sold to open put options at 72.50 for June, gathering $1.40. The share have climbed a few dollars since, but the put option is still bidding 80 cents at the close of Tuesday. The 75 puts look more attractive, bidding $1.55 at today's close, but also provide less downside protection.

Writing the 72.50 puts and earning a conservative 80 cents would provide you with 6.07 per cent protection, for the remaining three days of the week. You would also earn 1.05 per cent over the next three days by completing this trade. That's better than a GIC over a year! The margin requirement is also very limited, and required less than $2,000 margin per contract.

If you are less bearish (that is, more bullish or neutral), a 75 put may be more for your liking. At close, the June 75 puts were valued at $1.55, returning 2.03 per cent over the next three days. However, you would only be protected 3.78 per cent.

Considering the stock's volatility, expect the value of the options to hold significant risk value until the final hour of the week. Being patient on LinkedIn may reap benefits.

Those who are more neutral should consider writing the 77.50 or 80 call options. This would require no additional margin, because it would be a short combination trade, something I will most likely be attempting later this week. The 77.50 call was bidding $1.35 while the 80 call was 60 cents.

One final consideration would be an immediate short straddle at 75. The premiums on the call and puts at bid were netting $4.10. You would profit if the stock traded between $70.90 and $79.10 on Friday. This trade gives you substantial up and downside protection, more protection than the 72.50 put and the 77.50 call alone. However, your total profits will be limited depending on when you close the in-the-money option.

Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker. As already mentioned, I currently have option positions and have plans on making more trades on the above mentioned stock in the next 72 hours.

How Rich People Think

Statistics in the first week of June have shown that another recession may be on the horizon. And to think, we just got out of a recession two years ago. But author Steve Siebold claims that more people will emerge as self-made millionaires than ever in the past during the next five years.

Let's be frank, America is a country full of problems in dire need of solutions. But America is also full of smart entrepreneurs, creative thinkers, and inventors that can turn problems into profitable opportunities. Siebold says that the amount of resources available at our finger tips has never been seen before. Technology has given us the tools to connect with the right people and find information. These tools along with significant problems with energy, the environment, the financial system, and education will breed millionaires.

Steve Siebold, author of "How Rich People Think" (link to view item on Amazon on the left) interviewed hundreds of millionaires over 27 years to determine how these people think and why they succeed where so many have failed. In a recent television interview, he pointed out a few subtle differences in their mindset.

The first thing he mentioned was that millionaires use money as an opportunity rather than a means and they view money as something positive, not as a negative or a fear-based asset.

Siebold writes that millionaires use the money to make more money, while the rest of us save money in fear that we will need it for retirement or that we will be laid off. They earn money and work towards something they want instead of earning money to move away from something they don't want, which is what the masses do. It's like working at a job you dislike and saving enough to leave the place, or you can think like a millionaire and work at a job you dislike, but save enough to start a new life. They may have the same result, but the subtle difference in mindset is key.

He also explains that millionaires view money as something positive, where most people view it as something negative. People who do not have a millionaire mindset will think rich people are greedy, narcissistic, and don't pay their fair share of taxes. It's a very common belief from low and middle income earners. For the first 23 years of my life, I thought rich people were all snobby, and then I worked at a brokerage, soon realizing that the millionaires I dealt with everyday were more optimistic, more respectful, and more tolerant of others. It completely changed my perceptions on rich people. Strangely, I found those who were "poor" had a unique sense of entitlement, wanting things for free, wanting refunds, and complained over the smallest things for reasons they found justified.

Another reason rich people are rich is because they seek resolution during dark times. They reject middle-class cynicism during recessions. It's difficult for people to move forward when the media, friends, and family are negative, yet the ones that rise to the occasion are often spoiled with the riches and goals they desire. It is a little known fact, but more millionaires were made during the Great Depression than in any era of American history. Think for yourself, over the last three years, since the recession started (and ended in 2009), did you find yourself saving money for a rainy day or did you find yourself investing it in assets and creating solutions?

It seems so simple, so why do so few of us ever become high net-worth? It's because we've been trained by those who do not possess riches and think like the common man. We have been taught by people like our parents, friends, church leaders, and maybe an entry-level banker on how to save money. But who in your life has ever taught you to create opportunity with the few dollars you have?

When you treat money as something you earn for being an employee then you become stagnant. Financially, you will never grow. But if you treat money as your employee, as a tool to become wealthier, then you grow as a person, as will your riches.

The Lost NHL City of Atlanta

I will be blunt when I say this - the city of Atlanta no longer deserves an NHL team. It is the second time the city had an NHL team, but ultimately lost it due to financial hardship. This is not to disrespect the few NHL fans living in Atlanta, but even you must admit your city can not support an NHL team.

In life, you'd be lucky to find a boss willing to give you a second chance after you've screwed up, and luckier to find a girlfriend willing to forgive you on your first mistake. And for the city of Atlanta known more for its Braves, there's no three-strike rule here. The city's inability to attract fans and more importantly, revenue and profitability, for a second time is proof that the hockey market in southern USA is very small and limited.

Success also breeds interest and a lack of success by the Thrashers does not attract the casual fan. Once Kovalchuk was traded, what's left to watch? The team was essentially a stopping point for many teams in the southwest, a way to practice and get their kinks out. I only remember this franchise making the playoffs once, and it ended in the first round. Now, let's see if Winnipeg owners can do something about their mediocrity and make them a half-decent team.

I feel bad for the hockey fans that do exist in Atlanta, as they have lost a team twice now. Moving a team is always the last thing a league wants to do because it uproots families and players, and adds uncertainty into a league. The expectations that the NHL will revert back to a 20-something-team league is definitely a possibility as many markets in the sunbelt are showing signs of thinning margins and there are fewer cities in Canada and the United States that can support a team than teams losing money.

Anyways, without getting too off topic, Winnipeg has been given a second chance by the NHL, well, as we wait for the vote next week, which will almost certainly pass. The city is the smallest market in the league, with just 750,000 citizens. It also has the smallest arena by capacity and television deals and season ticket sales are unconfirmed numbers at this point. The city must support their team financially and emotionally, or else this should also be the final time Winnipeg gets an NHL team. Fair is fair.


Copper Stocks Signal Buy

Short-term buy signals have been triggered on some major copper stocks over the past few days, including Teck Resources [TCK.B:TSE] and Freeport-McMoran [FCX:NYSE], with an anticipated crossing on the DMI and MACD for BHP Billiton [BHP:NYSE] within the next few hours.

Teck Resources A Canadian play on copper would have to be TCK.B. Shares of Teck Resources had a buy signal on the MACD about one week ago, indicating the massive correction was coming to an end. Today, the DMI has had a positive crossing, suggesting an upward move to the top of the Bollinger Bands could be expected.



Freeport-McMoran Shares of FCX had two buy signals occurring on the same day, just three days ago on May 24. The stock has moved from $49 to $51.77 since that confirmed opportunity.



BHP Billiton The stock has already had a $5 move since copper hit $4 last week, but a buy signal is emerging on both the DMI and MACD. Its signals have not yet fully developed, but based on the moves on other major copper stocks, a trade on BHP with a call option, an uncovered put option, or an outright buy today would be an anticipative play, considering it has already moved 5 per cent in a week. Another consideration is that today's price action has moved the stock above the downtrend and the 20-day moving average - bullish notes.



Disclaimer: I do not own any of the equities mentioned in the article nor any derivatives of the underlying names. I do have a household position on Teck Resources and will most likely be trading the above-mentioned names in the next 72 business hours.


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Playing the Expiry for May 18: CBOE Volatility

The CBOE Market Volatility Index [VIX:INDX], also known as the VIX, is a market tool to calculate risk and volatility in the market. Unlike regular equity options, VIX options expire 30 days before the following month's regular options expiry. This typically means the VIX and many other index options that follow this rule expire on a Wednesday. The VIX is an AM settled product, which means the index value is calculated using the opening price on Wednesday. Therefore, all positions must be entered before the close of Tuesday.

The VIX is roughly valued at 18.40. The VIX has not had substantial volatility in the past few weeks, with exception to a large spike in March. Consider writing out-of-the-money call or put options. There is still substantial value for one day. The 20 strike, about 1.60 out-of-the-money, still holds 20 cents per contract. The 21 strike is currently bidding 10 cents.

VIX options may require larger account equity. Index options are settled by cash, not by an underlying asset, like a stock. However, one major advantage with index options are the low margin requirements. 20 contracts will require no more than $3,000 margin, but writing 20 contracts on a similarly priced stock would require as much as four times the margin. This does not mean firms deem index options less risky, it's just that the requirement for trading is smaller, so ensure you fully understand the potential consequences of larger contract sizes.

Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker.

Playing the Expiry for May 21: Yahoo!

Shares of Yahoo! [YHOO:NDQ] have taken a turn for the worse as controversy lingers in regards to a transfer of payment from Alibaba. The stock has plummeted from just under $19 to about $16.25 currently in a week. The stock is now trading near a medium-term support at $16. The massive support has held at least five times prior, with a few minor dips into the $15.xx trading range only to be pushed back up above (see chart below).


Chart courtesy BigCharts.com

There are two ways one can play this trade. Personally, I would rather look at writing the put options. The May21 put option at a strike of $16 (this is the regular monthly option as well), are bidding about 22 cents. The premium received represents 1.35 per cent income against the value of the stock and protection on a drop of 2.89 per cent or less.

Another trade consideration would be to buy the call. I normally buy at- or in-the-money options, never out-of-the-money. The current time value on the options for May is relatively small against the volatility of the stock. Expect to pay 20 cents of time value for the remaining four and a half days on the May $16 calls. The current price is 47 cents.

Based on the chart patterns, if the stock were to drop below $16 by Friday, consider taking assignment and wait for the stock to push back above $16. However, any change in fundamentals related to the Alibaba payment could create volatility downwards (or hopefully upwards).

Note, normally I take a position and then post it on my blog, however, due to my uncertainty on the outcome, I have no position at the moment. The technical pattern looks promising, but due to the underlying issue with Alibaba, I have decided to wait a few more days.

Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker.

Playing the Expiry for May 13: Las Vegas Sands

Have you had enough of hearing about Las Vegas Sands [LVS:NYSE] nearly every week? Well, hopefully not, since every post here has shown to be profitable.

I took a short straddle position on Las Vegas Sands just now with the 44 strike price. As usual, they are the weekly options, thus, they expire on May 13, which is two days and a half away. The current option premiums available by writing both the call and put at the same time nets out to just over $1.00. I got $1.11 with a fortuitous spike up and down, but you should be able to gather a premium of about $1.03.

The current stock price is about $44.12. $1.03 represents a 2.33% payout for the rest of the week. Your break even range is roughly $42.97 to $45.03 (again, it varies on the total premium received).

The margin requirement is surprisingly small, roughly $1,300 per pair of legs, which earns you over $100. That's a very efficient use of margin. Again, the stock is quite volatile, so for those who want a more conservative approach, writing a short combination using the 45 call and 43 put will also be very reasonable. The net premiums received on these pair of legs will net you roughly 45 cents, giving you a break even range of $42.55 to $45.45.

Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker.


Citigroup $4 to $40

Since the week has started, I've had two friends ask me about Citigroup [C:NYSE]. On Monday, my one friend thought his shares had skyrocketed ten times over the weekend, while the other, today, asked me if I had purchased any. For the record, I did own Citigroup, but sold the shares above $5 in the spring of 2010, but I digress. The move from $4 last week to $40 this week did not represent a significant rise in the company, but a reverse-split that was announced back in late March or early April. Understanding the reverse-split process is often confusing, so I am going to attempt to explain it in the simplest way possible.

A reverse split, not uncommon, is a process in which the shares of a company are moved up a factor of n with the amount of shares decreased by the same factor. In this case, Citigroup did a 10-for-1 reverse split; 1,000 shares at $4 on Friday would be show in one's account as 100 shares at $40. Note that the equity of the shares still remains at $4,000.

What does a reverse split normally entail? Many believe a reverse split could be treated as a sign that the management team lacks confidence in the share price. Stocks trading below $5 normally have a stigma associated with them, even if the company is worth billions of dollars. Companies like to have stock prices trading between $20 and $50. If the company believes the shares won't move back into that eye-catching price, they will do a reverse split.

Historically, reverse splits have not boasted well for stocks in the short term. Because of the above factor, a short-term sell off often follows, as we have already seen on the shares of Citigroup. Conversely, announcements of a stock split (where the shares are reduced by a factor and the shares are increased by the same) prove to be good ways to attract new investors into the mix and push up the price. This is because investors like to buy in board lots. If a stock is too expensive, investors are reluctant on buying 23 shares of a stock. A split would lower the cost of a board lot.

Another possible, but very unlikely, reason for the sell-off is a misunderstanding of the value of the company. People might think they have made a significant return and will sell all their shares, oblivious they own fewer shares. In reality, most brokers will have a prompt indicating they do not own 1,000 shares, unless the investor just clicked sell in their account without looking at the share count. As well, most brokers, leading up to the pay date of the new shares will have messages and notices about the reverse split. I know I did, even though I don't own the shares, so this theory is not entirely practical in today's computer world.

Option traders holding contracts should also be cautious when entering orders in. The old option chains will probably remain the same, but the new option chains might have an indicator of a stock reorganization. Although most option traders are sophisticated enough to know what the contract is, it is always safer to ensure the options are the correct strike and have the same delivery expectations.

If you are trying to sell your shares today, for unrelated purposes, check to see if the new shares are in your account. You should see a journal entry that shows a disposal of 10n shares and a purchase of n shares at the new price. If this has not happened, you may not be able to sell them because the shares in your account are not the proper Citigroup shares; they will have a different stock identification number. Again, just call your broker if you have concerns. All this should clear up by the end of the week.


Silver Technicals Reversing

A third increase to silver margin requirements in just eight days has triggered another sell off on the commodity. After failing to break above $50 a contract last week, silver has plunged to the $42 neighbourhood. Stocks and ETFs that track silver have started to break below the line of uptrend.

The iShares Silver Trust [SLV:NYSE], the world's largest silver-backed ETF, today, broke through below the uptrend on the logarithmic chart. As well, on the linear chart, the ETF closed right at the support level. Volume on SLV has increased substantially since peaking at $48.52, some days trading at three times normal volume. More than 200 million shares exchanged hands today, almost 9 times more than the 200-day average of under 29 million.

Increased volume can be used as a confirmation of a signal, validating that trader and investor mood's have changed. In this case, massive volume on down days suggests that buyers of silver and silver trusts have decided it was time to take profits, as the risk to reward ratio no longer favours longs.

Other technical patterns also indicate the rally is over, at least temporarily. The MACD and its Divergence moved into negative territory. The DMI has converged, a tool that is used to measure the directional movement of an asset. The positive DMI might possibly fall below the negative DMI tomorrow, a bearish sign. Its ADX has also peaked and is reversing as well.

Another telltale sign was that silver stocks had not participated in a rally. When the stocks of companies that mine or sell silver do not move up with their product, it is often a sign that the underlying commodity is mispriced for the short-term. Investors did not believe silver was worth $50 and would not push up the value of their stocks. This also holds true when an asset, such as silver plummets to serious lows, but silver stocks do not fall.

So, where is silver headed? Many bold predictions have been flaunted in the market. Some say $35 by June, others say $100 by December 2011. They could all be right or they could all be wrong. The only thing that is for certain is that silver is now at an impasse and a move in any direction will be chased by many. Expect massive volatility for the next few sessions.


Are the Canucks For Real?

Imagine this - a Vancouver Canucks team that did not finish with 54 wins and 117 points this year. Instead, they finished the season having to fight to the bitter end to get that Presidents' Trophy, but lost out to the Sharks by a single point. Despite having the most goals scored and fewest allowed, despite having a top ranked power play and third ranked penalty kill, the team only finished second. In that situation, I ask you this, "Would Vancouver still be favoured to win the Stanley Cup?" Imagine that.

It's a hypothetical situation that isn't so far-fetched. Consider the idea that if the Northwest Division was more competitve, Vancouver may have had fewer wins within the division. The Canucks won 18 out of 24 games against their divisional foes, an impressive feat on its own under normal circumstances, but not as impressive when 12 of those games happens to be against the rebuilding Avalanche and Oilers and the remaining 12 were against the Flames and Wild, who also did not make the playoffs.

Had the division been a little better, Vancouver probably would have only finished with 12 or 13 wins against the Northwest, the amount of wins against the other two Western Conference divisions. In that sense, the team would have earned about 10-12 points fewer, putting them on par with the Sharks or Red Wings.

Last season, the Washington Capitals won the Presidents' Trophy but were ousted in the first round by the Montreal Canadiens. Questions about the team's inflated place in the standings has been raised for many seasons now. The Southwest Division has never had more than two representatives make the playoffs since Ovechkin was drafted. And last year, no other team made the playoffs. The Capitals have had a dominant record against their division rivals, reaching the same win levels as the Canucks did this season against their own respected division. However, the Capitals record outside the Southwest was mediocre at best, barely posting above .500.

So are the Canucks built for the playoffs? Based on their elite statistics, you could easily argue they are, but seeing them almost lose to an eighth place team that's a shadow of their former glory should have fans concerned.

Ryan Kesler, who is having a break out season, managed to score an impressive 41 goals, tying him with team mate Daniel Sedin, and tied for fourth overall in the league. However, Kesler managed to pocket just 11 goals against playoff teams, and it's not like he only played 25 games against playoff teams. The amount of games versus playoff and non-playoff teams is almost exactly even at 41. This lack of productivity has continued into the first eight games of the playoffs, with zero goals.

Even Don Cherry says you need your best players to score in the playoffs. After all, you can only lean on your third and forth line for so long; their roles are not to score. The Sedin brothers just haven't really showed up statistically. TSN pointed out some poor defensive play by Henrik which ultimately lead to at least two goals against Chicago. Maybe it was a weakness that nobody was aware of because it was not exposed during the regular season. I don't really know.

To say that Vancouver does not deserve the Presidents' Trophy would be the voice of a bitter Oilers fan. Vancouver and Calgary success just isn't allowed in Oil Country, but as a realist, I know that Vancouver is a good team, arguably the best Vancouver team since 1996. They do deserve the Trophy, no doubt about it. However, with that said, I truly believe this team is a 48-win team. So to answer my own question above, no, the Vancouver Canucks real odds of winning the holy grail is about as good as the Sharks or the Wings. That's going to set up a very good third round.


A Small Wager on Las Vegas Sands

About two weeks ago, I wrote how Las Vegas Sands [LVS:NYSE] had been trading in a small range for several weeks, giving arise to great option writing opportunities (click here). Those that heeded the trade suggestions and continued, would have seen healthy profits.

Well, the shares of Las Vegas Sands are still trading in a tight range, although the range has shifted upwards by about $2. The shares have continued to resist breaking through above $46.50 and has held support in the high $46.00 range, give or take a few cents. It also helps that the upper Bollinger Band, which have also thinned over the last few days, indicating lower volatility, is floating below $47. I took the opportunity this week, earlier than usual, to write a short straddle on Las Vegas with the weekly 46.00 calls and puts.

The current premiums received on the pair is roughly $1.20, giving you a break even range of $44.80 to $46.20 (excluding commissions and SEC fees). This range gives downside and upside protection of over 2.6% each from the strike price.

Normally, I write the options on Wednesday or Thursday, but decided that I would rather take advantage of one extra day to capture a few more cents on time value. My outlook on the stock most likely won't change over the next few hours, unless significant news were to change that.

If you are slightly more bullish or bearish on the company over the next four days or risk adverse, consider implementing a short combination trade, instead of the short straddle mentioned here. One could cut their potential earnings today by writing a higher strike on the call or lower strike on the put. The 47 call expiring April 29 are trading at about $0.26 while the 45 puts are roughly $0.22.

A combination is less risky but also potentially more profitable, as it may require only two trades instead of three. It is only more profitable if the stock deviates further from $46 but still remains between $45 and $47. With a short straddle, one leg must be closed out, and the further away from $46, the lower the net profit. In this situation, if the stock closes near $45.30 or $46.70, the short combination would be more profitable than the above short straddle.

Disclaimer: Writing uncovered (or naked) options requires substantial margin and is only available to sophisticated traders. Uncovered calls have unlimited risk and can have infinite losses. Before making any trade, always discuss this with your advisor or professional broker.


Intertainment: When a Stock Goes Viral

Every so often, a tiny company posts news that send traders into a frenzy. These penny stocks soar hundreds of percent in a matter of days making early investors very wealthy. Volume could jump from as little as 25,000 to 100 million, as traders get a little envious and want in on the price action. This is what we're seeing with Intertainment [INT:TSXV], the next penny stock that just went viral.

The stock went from being worth a dime a share to over $3 in less than three months, but the move was not a nice steady line most value investors look for, it was a bumpy three months where price action occurred at the start of February and just this week, a gap of ten weeks. And those who bought it the first time it went exponential would have seen themselves buying into massive exuberance, often irrational, followed by roughly half their investment wiped out in two days. If they had waited ten more weeks, they would have seen their investment, or more accurately, gamble, grown to almost three times their original purchase.

Of course, having worked in the investment industry for years, I know that those who bought near the highs are often not sophisticated traders and were buying into the hype. Eventually, these traders will get burned (as we've already seen today alone). As well, their level of patience is no where close to a fund manager or a value investor who might wanna wait it out.

Historically, penny stocks that make major moves and go exponential eventually succumb to reality. Earlier in the year, rapper 50 Cent tweeted about a stock called H & H Imports [HIHN:OTC], sending the stock up ten times its value in days. Several weeks later, it had another bullish move, sending it to $1.75. The stock was 4 cents before the tweet. Where is it now? 73 cents. That's about 40 per cent from its highs obtained when five million shares moved it up in March.

Last year, Electrovaya [EFL:TSX] had major news and went from under $1.00 to over $4.00 in just over a week. Volume surged to over 6 million from just a few thousand per day. Where is this stock now? $2.12.

Before that, there was Resverlogix [RVX:TSX]. It almost tripled from about $3 to $8 in a few days. The stock today is at its lowest point in the last three years, $1.97.

And one final example, Weststar Resources [WER:TSX], a stock I sadly own, and bought at the start of my trading days. The stock, which has done a reverse stock split last fall, went from $2 to $14 (it was actually about 15 cents to $1.10 pre-split) only to have fallen from grace as well. Today, it is 95 cents, and was as low as 17 cents in the summer.

If there is any lesson in this, it's that if you have never heard of the company before it went viral, your best bet is to stay the heck away from it. Most traders are unable to short against the hype, which I have done to two of the stocks above. The truth is, Intertainment will be a long, forgotten stock by the end of April whose securities will probably be sitting in someone's account, along with Nortel, Weststar, and the rest.


 
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