Chat Transcript for Apr 25, 2012: Psychological scars, health care fallacies, and much more

Here’s the transcript of today’s chat. See you next week at 2pm EST at http://tradingwithcody.com/chat for more Q&A where you can ask me anything.

Hi guys, let’s rock n roll. And by the way, if you want your profile picture to show here in the chat room and in the side bar chat on TradingWithCody.com, just go register your email and upload a pic to http://gravatar.com.

Q. Hi Cody, what are your thoughts on the FFIV pullback from earnings last week? I’m seeing some negative articles on Seeking Alpha, but I was thinking of adding to my small position. Thanks.
A. The FFIV pullback is probably mostly due to Riverbed’s problematic earnings report which came just a day after FFIV’s blowout earnings. I’ve got a tiny position in RVBD and a much larger FFIV position and I’m considering adding to my own FFIV position, though it might take a while for it hit new highs for all I know. Fundamentally, FFIV is cooking.

Q. First, thanks Cody for your advice on AAPL. I hope no more correction will occur soon. Second, any thoughts on GLD?
A. Congrats on the AAPL trade! It takes guts and more importantly, discipline, to buy weakness and sell strength and you did it. If it does correct again — and at some point, it certainly will, but maybe from higher levels — we’ll want to have the flexibility and discipline to buy more again. As for GLD, I covered my SLV short yesterday and I’m leaning towards taking the GLD off until/unless it cracks lower again. If GLD is truly topped out and in a cyclical bear market again, we’ll have plenty of time to rebuild the short. Timing is key.

Q. Cody, as a trader who made a living from daytrading and an automated HFT for the last 15 years, you have helped me manage my investments from those trading profits. Your tranche method, option strategy, and feel for the market has helped me to be patient, not chase, to lighten a position when confidence is high & increase when fear is present. And, how not making a trade is sometimes the best trade. Your wisdom and temperance is priceless.
A. Wow, thank you so much for such kind words. I work very hard and I will continue to drive home the hard lessons of patience, discipline and letting the pitches come as they may. Let’s continue to maximize our risk/reward and complement our steady gains with occasional high-risk earnings and other high-risk trades when the opportunities present themselves with huge potential returns. Thanks again for the kind words and congrats on your career as a daytrader who made it out with money!

Q. Hi Cody, thanks for your input. Its helped a lot! I too sold my JNPR calls and AAPL 600 May calls today, holding on to LSI Jan calls. Any input on that?
A. And also thank you for the kind words and congrats on trading well. That LSI is a tricky one. It’s not expensive and when you catch the cycle right, you can see a double or triple on your investment. That said, the stock is already doubled from its lows. Now that said, TXN and INTC both told us that the semiconductor cycle has bottomed and the inventory levels in the demand chain are reasonable, so the upshot is that I like LSI here, but not enough for me to personally own it.

Q. On a day where Apple targets are plentiful,  can you repeat your target on GOOG and by when? I was just wondering if GOOG deserves an overweight position in my portfolio?
A. I’m looking for Google to get to $2000 by 2020 and I put that target out there when the stock was below $500 a share. I first bought and recommended Google to my subscribers the day it came public and my cost basis was $95 or so per share for years before I sold it all to close my hedge fund and become at TV anchor. I think a $1500 by 2018 target might be a more reasonable target unless this tech bubble truly grows to dot-com bubble-type dimensions. Such long-term targets need to be constantly monitored though. I’m technically rather “overweight” in Google myself and plan to continue to be for the foreseeable future.

Q. Cody, bought a bunch of LVLT Jan calls on your suggestion. What do you see happening with their earnings report next week? Thanks.
A. LVLT’s earnings outlook is up in the air. This is a long-term bet that the demand for Internet backbone services will continue to explode higher and that eventually over the course of the next few quarters that LVLT gains huge pricing power and we see margins expand. The balance sheet at LVLT is precarious which makes this one heckuva a potential loser but also means that shareholders will really benefit from that leverage if the business turns. This one’s a turnaround bet though and it’s a risky one both for the near-term and the long-term. Feet to fire, I think LVLT will deliver strong results and guidance this quarter, but I have no out-and-out edge on that prediction per se.

Q. Cody can you comment on the FIO trade that we made last week? Its been chopping around for a while now, and I’m getting nervous about it. Do you think FIO might go the same way as the RVBD and SNDK results went?
A. FIO’s another long-term bet that I plan to own for a long-time as long the market they are developing continues to grow and they continue to execute. This company is just so new and their product is still so new to the marketplace that it’s possible that they’ll have some missed quarters as sales don’t close on “time”. However, I expect that they’ve had some strong demand and no problem with sales closing although I am more worried that about their ability to scale to meet the demand and service that their products require. I’m holding my FIO calls steady and will buy more if the stock sells off on the report and if my analysis says that the long-term picture remains in tact.

Q. Thanks Cody I’m in the money with LSI calls today looking to trim half of them by market end today.
A. You know that I always think it’s a good idea to scale into and out of any position and if locking in some hard-fought gains before an earnings report tonight but leaving some of the calls in place means you can have your cake and eat it too no matter what happens tomorrow. Of course, if you sell half and keep half then no matter what happens tomorrow, you’ll also kick yourself for not having either sold them all or kept them all.

Q. Cody, thanks for the advice on APOL. First put I ever bought, and I’m sitting on it. Any sense of how low we can expect the stock to go?
A. The stock can fall to zero if they truly lose all federal subsidies for their schools and the students who get suckered into going to their schools. But I’m not sure how long that will take. I’ve been “rolling over” my APOL puts and I suggest you do the same with the put you bought on it. What “rolling over” means is that now that these higher-priced APOL puts we bought back when the stock was at its highs for $1 are going for $10, we sell them. Then you take the proceeds from that sell and you use a small part of it to buy a new put that is dated out into next year sometime and has a much lower strike price than the put you just sold did. So in this case if you originally bought at June $42 put when APOL was at $47 and you paid $1 for it, and now you’re selling it for $10, you would look to buy an APOL January 2013 put with a, say, $30 strike price on it. If the stock falls below $30, you’ll keep making big money. And if the stock rallies from here for some reason, you’ll have locked in your big gains from the original put you bought and now sold. Does this all make sense to everybody? If not ask, any of you please ask for specific clarifications and I’ll explain further.

Q. Cody, the healthcare industry could be big. Do you have any view on CERN or GWAY? Thanks–great call on AAPL!
A. The health-care industry is fully dependent upon government-subsidies, protections, laws and welfare and I can’t wait for the day it cracks like the housing and banking and alternative energy and every other industry that depends upon government-subsidies, protections, laws and welfare ALWAYS HAS CRACKED AND ALWAYS WILL CRACK. On that note, can someone please explain the concept of “Universal Health Insurance” to me? I understand the concept of Universal Health COVERAGE, but not Universal Health INSURANCE. If EVERYBODY is supposed to have access to health care then what purpose does an insurance model serve at all? The insurance model can only function in a private market where it profits by taking the premiums of lots of people and paying out only a part to those who actually win a claim against the insurance company. Shouldn’t the government simply pay for everybody’s health care bills if the government is going to get into “Universal Health” instead of forcing an oxymoronic and impossible concept of “Universal Health Insurance”? The upshot is that at some point I’ll be short lots and lots of health care insurance and other health care sector stocks when the completely dysfunctional profiteering system of health care in this country finally collapses upon itself.

Q. If you think Google and this tech bubble can ever gain enough steam to last to 2018 and Google could be at $1500 a share, what kind of scary number could Apple be at by that date if the bubble ever sees that many years inflating?
A. I don’t know and nobody else knows just how high AAPL could climb if the burgeoning tech bubble truly goes insane. I expect that I’m probably going to be a pretty big seller of my AAPL if and when it gets to $950 a share or so because at that point the mainstream noise and momentum traders and other weakhanded bulls will be clamoring for AAPL to get to the $1000 price target that you and I were looking for when AAPL was back below $300 a share and I first started writing about the $1000 price target. We’ll re-evaluate what to do with a four-figure AAPL quote if and when we get there.

Q. Any thoughts on a good reentry point for GLW?
A. I just got burned so badly on my GLW trades last go-round that even as I’m a bull from these levels and the stock is lower than it was when we sold it, I am not emotionally healthy in my GLW pysche. I had a long history of nailing the GLW cycles, starting with having shorted it from $18 and covering that short when it was below $3 a share and then building a long position in the stock below $5 a share back. Much of that goes back ten years ago. But I’ve been mostly wrong on my GLW trading outlooks since I returned to trading so let me leave it at that. There’s a lot of insight into a trader’s psychological mindset for you investors and traders in what I just wrote there.

Q. Hi Cody, any edge on MOLX going into earnings?
A. You saw that MOLX was one of the three Apple Supplier stocks I highlighted for potential earnings beats last week? I still think that. Molex is a great “tell” for LSI’s and the other semiconductor companies’ future prospects by the way, as Molex connector-stuff goes into all kinds of chipsets and hardware.

Q. When does GOOG split? Do you plan on owning both classes of shares?
A. I don’t actually know when the quasi Google stock split will take place. I think it’s much ado about nothing for us shareholders and the stock is headed higher over time no matter the new class of shares vs. the old class or whatever they’re doing with the voting shares/stock split thingee.

Q. Great call on AAPL and swinging the bat the correct time. Can we have a chat session just for people who signup for long term?
A. Thanks and congrats on AAPL yourself. It’s hard to swing the bat when stocks are down even when you’re reading someone’s missive who is pleading with you to do so. What’s with excluding the monthly subscribers though? I’m ok with the idea of chatting with you guys who paid $999 upfront for a yearly subscription because that’s a big chunk of change upfront. But then again, I don’t think I want to open a can of worms where I’ve got a two-tiered subscriber system at TradingWithCody.com, you know?

Okay guys, that’s it for today. I’ll take the last couple questions home with me and try to get them answered via email to you all tonight or tomorrow. Thanks again and see you later!