Investment Strategy

Kroger declares earnings: put options generate huge gains

Remember Kroger? On October 27, I discussed the huge volume buying of Kroger Put Options by an investor on the possible expectation of a bad earnings release for the quarter. Well, guess what? Kroger (NYSE: KR) declared their earnings this morning and they are definitely not good. The stock is down almost 14% from its close yesterday at the time of this writing.

What did that do to my December 2009 Put Options? I had purchased the $22.50 put options at a premium of $70 per contract. Today morning I sold the put options at a premium of $285 per contract. That is a gain of 307% in about 6 weeks. Needless to say, I am very happy.

Note that this play was purely on hunch and without much technical or fundamental analysis. It was purely a result of me reading news items and following up on the big moves made in the market. Are these trades always profitable? Probably not. And I am the first person to say that these plays are basically blind plays. The trick is to make sure that only a small investment is made and there is a clear understanding of the capital at stake. I call these plays highly speculative and I do believe that one has to keep some capital set aside for speculative plays. I usually keep around 20% capital in speculative plays.

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Citigroup: My Bank investment compared to JPMorgan Chase and Bank Of America

I was reading an interesting article today on which are the safest Bank stocks and decided to do a quick analysis of the 3 major ones from their performance perspective over the last 6 months. The 3 stocks I am looking at are JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC) and Citigroup (NYSE: C).

Note that I do own Citigroup stock which I picked up when it was trading at $1.70 per share. It was a bet that the company would survive and it was clear to me that if the company survived, I could not loose on this investment. Note that I call it an investment. I did truly buy it for long term.

But after reading today’s article as well as the repeated calls by experts that JPMorgan is the 1 bank stock to own, I decided to just look at the charts to see the relative performance of the 3 stocks.

JPM BAC C stock charts

As expected, JPM does seem to have done better in the last 6 months than the other 2. In fact my Citigroup is last among the 3. So, have I been holding the wrong stock? Maybe so. But the point is that my bet was very specific to my belief that Citigroup would continue to exist. It was a “fallen star sure to rise” play and the stock was really cheap. I sure cannot complain as the stock is showing a 140% gain at this time within my portfolio and I am planning to keep it till it goes to $15.

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FOREX / Investment Strategy — Comments Off
4
Dec 09

Canadian economy delivers FOREX trade gain in CAD/JPY of over 250 pips within 2 days!

canada economy FOREX currency This usually makes me nervous. What I expected to happen with my CAD/JPY FOREX currency pair in a week or so has happened within 2 days. My CAD/JPY FOREX trade from December 2 has already delivered over 250 pips of gain. This is of course not surprising given the strength of the Canadian economy and the corresponding weakness in the Japanese economy.

I am going to keep track of what is happening and what is next for Canada, but for the time being, I am going to take my gains and be happy. My buy price of the CAD/JPY FOREX currency pair trade was 83.063 and I sold this morning at 85.702 giving me a gain of 263.9 pips. That is the highest FOREX gain since I started tracking my trades in this log.

Interestingly, during these 2 days, the USD/CAD FOREX currency pair as actually gained only a few pips. That shows how important it is to not only be sure about which currency will go up but also which one will go down (strength and weakness) against it. While the US economy has been weak, it is not as weak as the Japanese.

Sponsor: Auto FOREX trading system

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FOREX / Investment Strategy / Options — Comments Off
3
Dec 09

Mexican Peso FOREX trade call options moving up

Mexican Peso FOREX Currency My Mexican Peso FOREX call option is finally moving in the right direction. I have the February 2010 XDM $73 call options. The XDM is the Mexican Peso against the US Dollar and the options for the XDM index are traded at the NASDAQ’s Philadelphia exchange. My purchase price is $450 premium per call option contract and currently the options are trading at a premium over $500 per contract looking higher.

The interesting thing here is that the XDM is currently trading at around $78.65 as of this writing. So, the call options are in the money and actually have a intrinsic value of $565 per contract. But given the vagaries of the Mexican economy, the market does not give it much premium. Hence the call option premiums are riding around the intrinsic value. The good news in this is that with every $1 move in the XDM index value, my call option premium will at least move by $100 premium per contract. That will equate with at least a 20% gain for every $1 move in the Index value.

The leverage of options at play again!

Sponsor: Auto FOREX trading system

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FOREX / Investment Strategy / Options — Comments Off
30
Nov 09

FOREX trading outlook post Dubai World

Dubai effect on FOREX trading I do not want to add to the Dubai noise as one expert calls it, but I do need to review my positions and overall short-term strategy post the Dubai situation. Primarily I want to analyze what immediate impact there could be on the FOREX trading side of things.

It seems like the UK banks had bigger exposure than the US banks to Dubai World. So, the GBP (British Pound) is taking a hit which means that my XDB put options are up a bit. However, these are December 2009 options and I need to keep an eye out this week as to how things shape up. I am definitely going to take a big hit on this one, but I do want to salvage something out of the trade.

I do think that another fallout will be in the commodities market. That means the Australian Dollar (AUD) may be under pressure. I am holding XDA call options and need to keep a lookout on this. As of now it seems that the bullish Australian economy will prevail and any weakness will be abated at least until the RBA (Reserve Bank of Australia) meets in the near future.

The Canadian Dollar (CAD) may not be affected by the Dubai situation. The CAD is doing well due to the fact that its economy is out of recession.

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FOREX / Investment Strategy / Options — Comments Off
25
Nov 09

Sold Gold Call Options for gain of 157%

GOLD Bullion Trading I went ahead and sold the SPDR Gold Trust (NYSE: GLD) January 2010 GLD 120 call options for a gain of 157% in under 3 weeks. I had gone long on the GLD call options at a premium of $107 per contract and I sold the call options today at a premium of $275 per contract.

I do think that the price of gold is going to appreciate further. But I also expect a small retracement in the interim period. When that retracement comes, I am going to get in again with a long position. As long at the USD FOREX is trading lower against all the other currencies, gold bullion is going to remain strong. So, it is a two-pronged attack — go short on the USD FOREX trades and go long on Gold.

I think gold reached a 52-week high today (but I am not checking).

Here is an interesting article from an expert of the relationship between USD FOREX and Gold.

As things stand now, this will be te strategy for some time at least.

P.S. I am running out of gold picture ideas, so I may start recycling some old images!

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FOREX / Investment Strategy — Comments Off
25
Nov 09

Watching the next EUR/USD FOREX trade

EUR USD FOREX I am looking at the charts for the EUR/USD FOREX pair and notice that the EUR (Euro) has broken some resistance levels against the USD (US Dollar). Within the last 4 hours or so (between 11:00 AM ET to around 3:00 PM ET) it has gone up from around 1.505 to over 1.514 which is about 90 pips on the FOREX trade.

But more significantly, it has broken through some major resistance levels that it had not been able to break earlier. It has also touched a 13-month high which means that the USD is at its lowest against the EUR over the last year. It is consolidating a little around the 1.5135 level. The next resistance levels are at 1.515 and 1.5185.

If it breaks 1.515, I will be getting in with a long position. I have not had good luck in EUR/USD FOREX trading recently, but am willing to forget that and move on.

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25
Nov 09

Collected gain of 39 pips on the AUD/USD FOREX trade

Self-Discipline in FOREX Trades I had a good exit from the AUD/USD FOREX play from yesterday. I did not exactly make the 50 pips, but was quite close. I got out of the FOREX trade at 0.9287 which gave me a gain of 39 pips. I had gone long on the AUD/USD FOREX trade at 0.9248 yesterday. I did not want to risk going into the 8:30 AM ET hour when all the numbers (durable goods, unemployment claims, etc.) were going to come in. In most cases I like to avoid playing the “announcements” market. It is very tricky and there are no well-defined rules that one can follow.

I am quite satisfied with this particular trade. It is not just because I ended with a gain. It is because I followed all the rules that I have set for myself. The first rule is to follow the trend. As they say, the “trend is your friend”. The second one is to clearly have a target which I had set at 0.93. (Note that the FOREX trade did touch the 0.93 mark and then retraced back — so technically I should have set a limit order at 0.93 to get the gain of 52 pips. But I am not that disciplined either). The third is to get out of the trade at the slightest movement away from the trend OR before any major announcements — which I followed.

So, kudos on being a well disciplined FOREX trader.

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Investment Strategy / Stocks — Comments Off
24
Nov 09

Looking for smart companies

smartcompanieslogo Are we at the point of analysis paralysis yet? The stock markets have been anything but predictable of late and there is no dearth of analysis being done as to correctly predict its future direction. I read another story about the market going up 5 – 10% in the next few months before it goes back down again.

I have a feeling that now is not the time to figure out the direction of the general market. It is the time to identify the smartest companies who know how to generate profits in difficult markets. One of the reasons that the market has been up in this down economy lately is because people feel that companies will use this opportunity to become lean and the companies that survive will be the ones who are able to do more with less.

We have already seen the trend of unemployment increasing but companies being able to generate more productivity. These companies are generating more with less. I have discussed the flaws in the productivity numbers before. But, in general that has been the trend always. When things are good, there is also excess. When things are not so good, the excesses are gotten rid of. So, in essence, this economic downturn will end up making companies much more sharper, leaner and profitable.

In the end the profitablity numbers will be translated into better earnings per share as companies keep shedding non-productive assets (and products that will not sell in the new consumer market) and we will see the smart companies coming out stronger from all the mess that we are in now.

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FOREX / Investment Strategy — Comments Off
23
Nov 09

Traded FOREX – the EUR/JPY currency pair

euronotes Today I traded the EUR/JPY currency pair solely based on the technical charts. The details of the trade are:

07:06 AM ET: Bought EUR/JPY 133.04

10:57 AM ET: Sold EUR/JPY 133.30

That is a gain of 26 pips.

I am going to start documenting these short-term quick trades (Quick Pips as I call it) in the FOREX market on a regular basis as I do the actual trades. However, these will not be documented under tracking on a daily basis as that can really overload the tracking page. Instead, I will have a weekly summary of these trades posted there.

So, why did I trade the EUR/JPY today? Primarily because I did not want to risk trading the US Dollar. Today there was the impending news on existing home sales and that number could have been anywhere. I was not prepared to risk taking sides. So, the safest bet is staying away from the dollar. I did expect the Japanese Yen to be weak today as, in general, I expected more risk appetite in the markets. Thus I selected the EUR/JPY. Also, since I expected the JPY to be weak, I decided to trade the EUR/JPY on the long side.

I made 26 pips gain on the trade. However, the EUR/JPY had gone as high as 133.60 during the New York session. So, technically, I gave up on around 30 pips of additional gains that I may have been able to eke out. But that is not the point as I am willing to leave some on the table to manage my risk.

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