Rebounding Gold?

Totally inadvertently TrashStock called the timing for gold's correction.  As of Wednesday night, though, Trashstock thought that the correction had been overdone, and sold his GLD Jan 12 130 & 140 puts Thursday morning, and traded them for a calendar spread consisting of GLD calls, Oct 11 170's and Jan 12 170's, in anticipation of something of a reactionary rally, coupled with hesitation about Bernanke's Jackson Hole, Wyoming talk.  Who knew (TS didn't factor this tidbit in) that GDP would be reported down this morning, which has added a boost to yesterday's rebound.

Incidentally, TrashStock has been using Kitco.com's site for tracking the spot gold prices - very useful. Also, this recent foray into the commodity to outlast all commodities has taught TrashStock that in a game with heightened volatility, positions closer to the money are probably more likely to produce results than those further afield.  The Jan 12 130's barely budged, though the 140's did return about 90%.

..TS.

$CROCS Has Bite

You may hate the shoes, but you cannot possibly hate the news.

Before the report:
"Wall Street Analysts consensus calls for a profit of $0.43 a share on $281.64 million revenue."

After the report:
"Crocs Q2 beats estimates"
"Crocs Inc. posts 72% profit gain"
"Crocs (CROX) Flys Higher On 'Beat and Raise' Q2"

How should you take advantage of this news at 9:30 am tomorrow?  Here're my suggestions, which comprise buying call options for maximum bang for the buck:

buy the Aug 2011 $32's,
buy the Sep 2011 $40's,
buy the Dec 2011 $40's, and
buy the Jan 2012 $40's.

..TS.

$CTRN's Perfectly Good Balance Sheet...

...does not necessarily translate into a company with a happening Income Statement.  Apple is the epitome of a company: reporting down and later blowing analysts out of the water, as in yesterday's quarterly report.  Citi Trends, while well positioned in a niche industry segment and targeting growth with 50+ new stores, seems to be at the other end of the spectrum.  I've run into this before: find a company with a fairly stellar balance sheet, and what seems to be a good business model, but then stumble into near term earnings misses.  This occurred ten years ago with a company now called Woodstock Financial Group (originally Raike Financial Group).  I still hold shares in the severely-underperforming member of the independent brokerage industry--perhaps they'll poke their head above water at some point this century.

Now it's happened again, but with a company that trades more than once a week, and in fact has decent daily volume: Citi Trends, an urban clothing store.  A stellar balance sheet--cash which has grown to $80M over the past 8 quarters, no debt--and a YoY improving income statement...but near term misses and new forecasts that point even lower is deep-sixing any recent investments in the company.  The following shows the dangers in buying calls in such a company... fortunately the calls have expiration dates far enough out that the value could come back (Nassim Taleb's warnings about such thought processes nag in my mind...).

-CTRN 111119 C17.5	CALL (CTRN) CITI TRENDS INC NOV 19 11 $17.5 (100 SHS)	30	$1.05	$0.05	$3,150.00	$150.00	-$3,000.00	-95.24%
-CTRN 111119 C20	CALL (CTRN) CITI TRENDS INC NOV 19 11 $20 (100 SHS)	90	$0.45	$0.45	$4,050.00	$4,050.00	$0.00	0.00%
-CTRN 120218 C17.5	CALL (CTRN) CITI TRENDS INC FEB 18 12 $17.5 (100 SHS)	25	$1.60	$0.35	$4,000.00	$875.00	-$3,125.00	-78.13%

The only reason to get out now is to retain some capital, and the only reason to stay in is to see how the August and November earnings reports for Citi Trends affects the pricing of the underlying and these calls.  Will the underlying price come back up enough to make these phenomenal investments?  Probably not (phenomenal in my mind is 300-500% return, which is attainable with call options), but probably will come back up to break even.  While fundamentally sound, the performance of this company could be something of a clarion call for investors to be wary of lower-income-targeted clothing store industry... while the run-up from 2009 to 2011 may have helped, the recent languid performance of the US economy is reflected here.

A note about sell or trading rules:  Taleb talks in "Fooled by Randomness" about the star traders who crash their accounts by hubristically shunning stop-losses and other sell rules, "knowing" that their chosen direction will win, and then it doesn't.  I've developed just two loss-limiting rules: I sell only when I have another direction to go in which needs funding, and I only buy and sell with limits; too often a retail investor gets caught up in making "market" buys or sells...with the likes of AAPL or CITI it's a no-brainer, but then the investor accidentally does that on weak volume, and gets an atrocious price.

..TS.

$NOK as Penny Stock

[guest post by ..TS.]
You probably would have never thought of Nokia as a penny stock, especially has it still has some $60B in sales and a $20B market cap, but it's stock price recently dropped below $6, putting it in spitting distance of the $5/sh definition for a penny stock.  Just as Citigroup, Ford were once penny stocks, and very nearly GE, Nokia, which has been a major force in mobile telecommunications for decades, has nearly touched these fabled depths.

How do we play penny stocks?  Well, generally, we're advised to steer clear of them.  But, remember, penny stocks can generate the greatest returns in one's portfolios, especially if news and/or results bring them back from the proverbial brink.  Realistically, what company with some $15B in cash is really at the brink?  Well, RIMM has $20B in cash, and look at it's gyrations.

Now, I have not implemented exhaustive research on $NOK, but based on a couple of flimsy items, I plunged into a bunch of calls at $9 and $10 for Jan 2012 early this morning:  they just leaked details of a Windows Mobile touch phone, they just hit a 52-week low, and... I just have a vague feeling their management doesn't want to be seen as roadkill along the telecom/info highway.  A Windows Mobile phone? Really?  With new iPhones coming out every two weeks?  Well, now that Microsoft and Nokia are the mobile underdogs (and better positioned than Palm ever was), they should be able to gently gobble marketshare back from Apple.

What do you think?  Rash?  Ridiculous? Irresponsible? Let us know.

..TS.

$WGO Fell Off the $RIMM

[guest post by TS]

The only reason to include $RIMM and $WGO in the same blog title is to highlight their earnings woes reported Thursday. RIMM, the former champion of the smartphone, has been cored by both Apple and Google.  Winnebago, maker of big ticket RV's, is merely a victim of the economy.

Somebody is playing Winnebago in the options market.  Yesterday's (or just recent?) volume in $10 Jul 11 Calls was some 2000 contracts, and in the $7.50 Jul 11 puts some 1000.

My view on Winnebago is it represents the bottoming of the RV/manufactured housing market.  The recession did a Lehman on Fleetwood Industries, and WGO is feeling the heat (or cold?) through way depressed sales.  But, as jobs and housing creep back up, expect to see great things from WGO (at least from the current lows).  Check out Winnebago's balance sheet - quite healthy (though perhaps cashflow ain't what it was).

..TS.

How Are You Wearing $CROX?

Whether you wear $CROX shoes or think they're the antithesis of any fashion sense is immaterial - what matters is: do you think the secondary market for the stock has any future?  I do, and have since the Fall of '08, when $CROX was bottoming out.  I had read the 10Q's and 10K's and saw nothing but strength and common sense in the management of this company.  People around me echoed the "ugly shoe" and "going bankrupt" mutterings that the company inevitably attracted, but they had not read the SEC filings, they had not seen the evidence of a rabid customer base and an expansionist new management structure.

While the stock has been the place to be over the past 28 months, the real glory has shined in the near- and long-term call options.  I'm currently positioned in a vertical spread involving strike prices at $20, $30 and $35 for the Jan 2012 calls.  While the $20's are nicely in the money (I seldom buy ITM, but it's nice to do periodically), the $30 & $35 will only pay off if $CROX appreciates significantly, which is in no way guaranteed.

Clearly, I'm not concerned about loss, merely about maximizing upside.  Is this too risk-tolerant for your portfolio?

..TS.

[Note/Quote 6/16/2011:
"WJB Capital's chennel checks indicate the new Crocs Chameleons are selling "like hotcakes." The analyst said the biggest concern is that the company didn't realize just how big of a hit they and and didn't make enough of them. Shares are Buy rated with a $26 price target."  ..TS.]

Parabolic Metals

When you begin to see words like "parabolic" used to describe the run-up of an investment, ya gotta begin looking at the other side of the mountain.  How do you play the upside? How do you play the inevitable downside? And, of course, when will the downside occur?

The scorching run in silver has been even more impressive than that of gold, but now some traders are betting on a sharp reversal by year's end.

The iShares Silver Trust (NYSEArca:SLV) hit another new high this morning, currently up 1.65 percent on the day to $44.85. The exchange-traded fund, which was below $18 in August, found support at $26 in late January.  [ Large trade bets silver will reverse course ]

 Now, if you thought the ups and downs of tech stocks caused butterflies in your stomach, that's nothing compared to the Sopwith Camels that put and call options can generate, but the options market is the place to play both upside and downside.  There's nothing like the certainty of the final stages of a bubble in which to hone your understanding of when to use calls and when to use puts:  my puts on ZSL are perfectly weird example--profiting from the downward pressure of an inverse ETF caused by the upward pressure of the underlying commodity.

One thing to note about options: people spend oodles of time trying to figure out the bid/ask spreads to identify best in/out times, etc., and to identify the value of an option, being overly mindful of both time decay and intrinsic value, if any.  My advice: forget all that.  Just be aware that you'll generally buy in at the ask and sell at the bid. As soon as you buy, your option will be priced at the bid price, versus what you think you bought it for--the price gyrations of that bid price is what you're watching, not your buy-to-open price.  Also, unless you have the support of your convictions and the market be damned (like my OOTM leaps on CROX), consider buying options that others have clearly bought (based on open interest)... that way you know others have also considered the possible outcomes of the trade in question.

..TS.