Howdy, let’s do this. I had lunch with a proud Apache who I’m proud has been a lifelong friend of mine. Had a fascinating discussion about preserving the Mescalero and related Apache cultures. Now let’s talk stocks and economy and porfolios.
Q. Cody, Thanks for the advice on $PLUG! I made money on that trade. I am trying to learn about options. Please tell me the reasoning that you picked the 12-15 strike range for puts on $PLUG, which were about 2-4 dollars IN the money–and for $XRT you picked an 80 dollar strike which was 6 dollars or so OUT OF the money. What is the trigger for buying a put in the money vs. out of the money? Thanks!
A. Great question. The biggest reason for the doing In-The-Money (ITM) vs Out-of-the-Money (OTM) when buying an call or a put option is this: 1. The “premium” that the market is asking for on the option vs the common stock. That is, on the XRT, the premium on the options is very cheap, and I’m able to buy short exposure on the XRT below $80 for the next 90 days for about a $1 for each put, which gives me 100 shares of short exposure for each for. Meanwhile, the premiums on the $PLUG put options are HUGE and the stock is impossible to borrow in size because so many shortsellers have already borrowed it. So I used the ITM puts which gave me immediate exposure to the downside on PLUG from the $10-11 levels that the common stock was trading at when I bought the ITM puts. PLUG had to drop about 50 cents or so on those options for them to be straight out 1-to-1 moving with the stock itself, whereas the OTM puts had a premium of $1-2 or more and the stock would have had to drop below those strikes and then another $1-2 for them to kick in with the same direct short exposure as the stock. Does all that make sense? This is, as always, as direct as I can be, but I want to make sure it makes sense because its a bit complicated.
That does make sense. Great information, thanks!
Q. Cody is $XONE dead money for now or until maybe er?
A. There’s certainly a lot of hot momentum-oriented money and traders running from the 3-D stocks, and without a new catalyst to spike ’em in general, $XONE might very well be dead money for the near-term. Earnings are next Wednesday, and I’d rather be long than short into the report with that as a catalyst for this particular stock.
Q. Also $DDD ?
A. What about $DDD? I’ve sold my DDD a few weeks ago a lot higher than its current quote after making big profits on it over the last year. I detailed that here: Know Your Enemy and Keep on Revolution Investing and Trade Alert – Victory, conviction, discipline.
Q. Cody, how do you think Apple is going to do in the next few months? There seem to be a lot of sideway movements since the big drop after last earnings. The volume has been light for a while.
A. Wrote this about $AAPL this morning: Meanwhile, I’m going to buy some $AAPL call options here, as it looks ready to head higher as a safe haven stock if the momentum money flees the highflyers and is likely got upside along with a continued broader stock market rally if I’m wrong about buying the above mentioned insurance via puts. I am buying the July $550 AAPL call options.
Thanks. I’ll read your post this morning.
Q. I’m glad to see your interest in $AAPL is perking up. It’s been a while since you bought any calls. Do you think the AAPL culture will ever change to talking about their aspirations, dreams, prototypes, or forth coming products?
A. I’m picturing Apple turning Apple TV into an iOS-iPad-like platform that runs the same apps as your iPad does, but on your TV. That and a bigger iPhone and a bigger iPad are all likely this year. But that’s my speculation.
Q. I know you are sensitive to the financial situation of each individual so you do not publish how many shares of a particular stock or option that you purchase. It would be very helpful however if you could provide a model based on percentages of total investible assets. For example, in a posting earlier today you mentioned that you are buying July $550 AAPL call options. It would be helpful if you could share something along the lines of “I’m allocating 1-2% of my investible portfolio to this tranche of APPL calls.” Can you foresee being able to do something along these lines in the future?
A. No, I’m sorry, but I just don’t think I’ll ever give people that kind of detailed information about how much weighting something has in a particular portfolio. Indeed, as I’ve pointed out before, it’d probably be rather inaccurate for me to put a percentage estimate on such a position anyway, as my income and my privately-held assets like Scutify continue to climb in proportion to my existing portfolio exposure. Make sense?
Q. Most of us have set aside a pool of assets we invest in the market. An entrepreneur would consider their privately owned business as a separate asset from their “market investible” assets. My focus was only on market investible assets.
A. Yes, but if my income itself is climbing and the risk/reward I feel comfortable taking in my stock portfolio is greatly impacted by my exposure and value of the privately-owned businesses grow from the valuation of Scutify in its recent offering, then it all becomes jumbled in translating to a percent exposure concept.
Q. Do you have any idea what has been giving $FIO a boost of late? I know you left the stock a while back, but have you been keeping an eye on it?
A. Speculation that the company’s turning it around. Not impressed with the fundamentals that I’ve seen though. Mostly, it’s a bubble blowing bull market that loves speculative stocks and that’s benefitting $FIO.
Q. Hi Cody, if as you previously had stated that you thought $FB could likely reach $100 this year I wondered why you have not been more aggressive in buying or recommending out of the money LEAPS on FB. On Monday morning I read a post on Scutify Monday regarding a large purchase (3,000) of FB Jan 2016 $80 strike calls at the open. I have been looking at this option all week and there is huge volume and open interest.
A. $FB‘s been my biggest position since it was in the $20s and that means it’s REALLY big for me at $70 even as I’ve trimmed it down on occasion and have sold all my $FB call options. I’m not a momentum chaser, so I’ve no appetite for FB calls at all-time highs for the stock.
A. I like both $CIEN and $JNPR about equally. I’ve got a bit of exposure to both via common stock at much lower levels from a while ago, but I’ve considered nibbling on a bit of both lately. Each company is positioned to benefit from the future of broadband infrastructure.
Q. Cody: any ipos look worth a look to you? I mean non public yet ones.
A. Future IPOs are always hard to call ahead of time, because valuations, pricings, shares offered, etc, all change as do general market/economic conditions.
Q. Any pure play cloud stocks interest u CRM/WDAY/NOW? Or the valuations are too high right now ?
A. Valuations in the cloud are in the clouds. My bad, my bad. But yeah, I think we’ve got all the highflying stock exposure we can handle already.
Dun dun, dun dun, dun dun. “Aye aye aye!”