Chat transcript from this week: S&P options, Netflix, Corning and more…
Here’s the transcript of today’s chat. We broke the questions and answers down into two sections as usual — Economy/markets/trading/strategy and Stocks. See you next week at 2pm EST at http://tradingwithcody.com/chat for more Q&A where you can ask me anything.
Economy/markets/trading/strategy
Q: As we are approaching the top of the current trading range of 1200 in the S&P, what are your thoughts on shorting it short term at this point?
A: I wouldn’t short the S&P or the broader markets right now. I do think we might pause a bit here after this 5% plus move we’ve seen recently. But I don’t think the downside risk just now is such that I’d try to short the markets.
Q: Hi Cody, do you use stop losses with your Common? If yes, what is your strategy for it? For example, when I bought in the spring GLW was at $19.5; I think it would be reasonable to get rid of it after 10% going down, and then start repurchasing at current lows.
A: I don’t use true “stop loss orders” as a means of stopping myself out of a position, but I do sometimes draw an informal line in the sand on a position and will sell it out if it crosses that threshold. That said, I used GLW call options back when it was that high, and those were out of the money at the time (which was clearly dead wrong now with hindsight, mea culpa) but that served to cap all my losses as the stock fell away from those strikes.
Q: I am a small investor from Europe and mostly I cannot purchase call options for the stocks that you are recommending, but just warrants instead. What do you think about warrants as a sort of equivalent for call options?
A: Warrants don’t usually trade as liquidly as options which don’t exactly trade liquidly anyway. If you’re making long-term bets and can get a fair price on warrants, then thumbs up, but I wouldn’t use them as a short-term trading vehicle.
Q: Do you ever by calls or puts against the S&P500? I have been doing that a bit between the 1120 & 1200 trading ranges, but stopping for a while because feel like we are going to bust through the range either down if fears take over or up if earnings take over. Thoughts?
A: Yes, I do buy calls and puts on the broader indices and their respective ETFs sometimes. In fact, I’ve been thinking about doing some more of that when I make the kind of market direction calls I’ve been making so that we can juice our navigating.
Q: You’ve said that Greece would enter into default, but not now–but after two years or more, now you think that Greece will enter into default soon and we could approach the end of the Euro?
A: I don’t think Greece, and whether or not it’s part of the EU, matters to my trading or my investing at all. Greece and its disastrous government and economy might create opportunities for us. But only because so much of the world thinks it matters when it doesn’t, and we can take the other side of that as we have repeatedly — and very profitably — over the last few months.
Q: Do you have a “percent profit” number in mind where you would sell half of your position and hold the rest?
A: No, there’s no set rule for taking profits. If I’d sold even half of my Apple when I made my first 100% on it, I would have missed out on the 1600%. But other times, like with our having caught a huge one day pop in Ciena when I then turned around and sold those calls the next day for a big profit, yes. It just depends on the analysis, the situation, the timing, etc.
Stocks
Q: Thoughts on AZO?
A: AZO, as any AutoZone customer can tell you, is run very well, and that alone is a great competitive advantage for the company. But the stock’s not cheap and I’m not attracted to this retail play at these levels.
Q: Hello Cody, thank you for GLW call tip. What are your insights for GLW now? Though today it’s flat, can I be optimistic? Thank you.
A: Let me be clear that my GLW call buying the other day wasn’t a bet that the stock was suddenly about to turn back up. And I almost never read anything into a single day’s market action in a single stock. I wanted to buy some more GLW today too, but discipline dictates spacing out the buying, and since I just bought some more the other day at lower levels, I’m not adding to it yet.
Q: NFLX at 52-week lows…thought the DreamWorks deal would give it a boost, but no…your thoughts?
A: Why would a DreamWorks deal set to start in a couple years reverse the decline in the stock? Two years out isn’t going to help what looks like the more immediate problem, that of customer loss instead of customer gain, which is what the huge P/E multiple in this name requires for the short-term. I wouldn’t touch NFLX just yet, either long or short, but I’d probably look for more downside than upside in the near-term.
Q: Cody what do you like about ADSK?
A: Take a look at the ADSK write-up in my new book, The 100 Most Important Tech Stocks on the Planet, which you get for free. Long story short, the company will grow, and might even end up a takeover target in coming years.
Q: What are your thoughts on gold? AUY, GLD, etc.
A: For the very-short term, measured in days, I’d expect GLD and gold to have some upside ahead of them. For the intermediate- and longer-term, I think GLD is headed lower.
Q: Cody, any pre-3rd quarter earnings chatter out there for Google and Apple that might result in adding any more calls in those names?
A: I’m worried about trying to game the AAPL action around the release of the new iPhone in the next week or so. I’m thinking we’ll probably have some opportunity to swing at some Apple pitches after that’s over. But AAPL is a big position for me and I’m holding it steady for now. Google’s starting to really look like it’s set up to be a great trade into earnings again. Google+ is exploding in growth and Google’s learning to better monetize all their assets all the time. I’m probably going to add to some Google calls, which I already own, soon.
Q: An update on your opinion of BK please, Cody.
A: BK isn’t a day trade and the stock has fallen just a bit from where it was when we initiated the short. I don’t have an update for BK yet. Let’s let some time and price and news develop.
Q: Any near term thoughts on NUAN? Thanks and great work.
A: Nice 5-day move in the NUAN, eh? http://finance.yahoo.com/q/bc?s=NUAN+Basic+Chart&t=5d I’m still holding both longer-term calls and common in that one.
Q: What do you think about NetSuite (N)?
A: NetSuite is growing its top line nicely but it’s not as profitable as I’d like it to be. And the stock ain’t cheap. Not for me.
Q: Hey Cody, what are your thoughts on Fusion-io, Inc. Common Stock (FIO)? Apple co-founder Steve Wozniak is Fusion-io’s chief scientist.
A: I haven’t done the work on FIO yet. I was working on the site redesign and the new book. I will do so now though.
Q: Are you still short CVC, or have you taken your money there?
A: I’ve taken some nice profits on the CVC. Here’s the analysis from the new book: “The stock is now up and has been a strong performer in the last few months as the company’s been doing some financial engineering and spinning of some assets. At this point, it is trading at a lofty 30x next year’s earnings estimates, which I think will likely be trending lower by the end of this year as consumers revolt against cable companies bundling all that excess, worthless video with the little bit of stuff you do want to watch. It will do to companies like Cablevision what the consumer revolt against forcing consumers to buy full album CDs did when they could simply get the same content online for free. With top line growth expected to barely be better than the broader economy’s growth and competition swarming, I expect this stock to head back into the lower $20s in coming quarters. Just in case, I’d put a loose $40-$45 stop loss target on the stock, too, but I’d be willing to take some pain and use the strength to build up short positions and longer-dated put option positions. Cablevision got crushed on their most recent earnings report after confirming our thesis that they are losing subscribers to a secular trend of Internet video consumption. And while I do think the company’s likely to struggle with this trend for a while, some of this has certainly been priced in during this recent crashing.”
Q: Your thoughts on TTMI?
A: TTMI is in the new book: “TMMI is another example of a company that should be benefiting from being inside the hottest tech gadget of all time, the iPad, but it just isn’t. The nature of its business, printed circuit boards, is low-margin and it’s frittered away the cash it had, with debt now standing at ~30% of market cap. Quarter after quarter of disappointment has Wall Street quartering its sales forecast to 6.9%. TTMI hasn’t been able to live up to its promises, and the market is reflecting an unwillingness to listen to its side of the story. The problem is that they keep having to guide the next quarter lower than Wall Street keeps projecting. It’s become a vicious cycle of over promising and under delivering and the stock price reflects that. If top-line growth picks up and they demonstrate that their components can’t just be phased out by Steve & Co for next couple generations of the iPad, the stock could catch a decent multiple, maybe 10X, and take off. Revolution Investing rating: 5/10.”
Q: Why are SINA, BIDU, all the Chinese stocks getting killed? Forced liquidations?
A: No idea why they are acting the way they’re acting right now.
Q: Nice new site design. Any thoughts on OVTI?
A: OVTI is in the new book too: “How cheap can a growth stock get? At less than 4x next year’s earnings estimates, OVTI is stock is very cheap and it’s a company that’s expected to grow top line 10% this year and next. The reason the stock is so cheap is because estimates have been scaled down relentlessly in the last three months as inventories in the chain got overfilled. And consumer spending trends have been worrisome too, though smartphones with cameras will continue to sell strongly. But see, there’s the other issue with this one — even the old handsets that people are trading in for smartphones had the camera modules that OVTI is selling in them already, so it’s not as pure a growth play on the smartphone trend as some others like CY and GLW are. Revolution Investing rating: 5/10.”
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