Cody Kiss & Tell: IEF Option Strategies, Bold Gold Targets, and No “Puttering” in the Chat
Here is the transcript to this week’s Live Q&A chat. Join me next Wednesday at 2pm EST at http://tradingwithcody.com/chat or send me an email with your question at support@tradingwithcody.com.
Howdy folks, let’s rock n roll.
Q. Question on my January ’14 $106 IEF puts. Thank you very much, Cody (and the market) — I’m up about 60% . Surely I’ll hold on to them (right?) — but should I double down with additional puts, and if so – how far out and at what strike? It seems rate rise is inevitable…or is that baked into all IEF put prices these days?
A. IEF is another one that seems stagnated here. If you want to try to trade some IEF options for alpha, then I’d look at shorting IEF CALLS instead of BUYING new IEF puts.
Aha!
So, stick with me here — if you think Treasuries are in a bubble that means when that bubble pops, rates will go higher. If you want to bet on higher rates using the IEF, which reflects the price of Treasuries themselves rather than the rates those Treasuries are currently paying like the TNX does, then you can — 1. short shares in the IEF ETF outright. 2. You can buy an IEF put option. Which means that the guy writing that call option to you is getting short IEF puts on the opposite side of your buying that put option. Which means that he’s promising to buy from you 100 shares of IEF at a certain price at a certain date for every 1 put option he writes and you buy from him. 3. Likewise, you can “write”/sell a call contract to someone promising to sell him 100 shares of IEF at a certain price at a certain date. — You guys please look over all my explanation there and help make sure I didn’t get any wires crossed to confuse people.
Q. Got a suggestion of strike and date?
A. I’d go out a few months or early next year and go a few dollars in the money.
Q. Sounds right to (simple) me. But (last Question, guaranteed) what’s the ultimate diff btw? Buying puts and shorting calls on it? More advantageous pricing right now? And thanks for the strike date and price info. Sorry to slow down this chat, all.
A. Simplistically speaking, if you BUY an option, you can double, triple your money or even like we have recently done in our FB calls, see your trade go up tenfold. That means somebody out there shorted/wrote that FB call option and is down an equivalent amount, and is looking at their own “Short FB call” position and its down 1000%. If you think the IEF is about to crash, you want to buy puts. If you think the IEF might go down but might also just sit around here at these levels, then you short calls. Make sense?
Q. Cody: You have been VERY bold on your gold targets, buying now for the next many decades. If indeed it sees anywhere near your if I’m not mistaken your 6 figure targets as things collapse who will be around to sell it to if such dire occurrences do occur? GREAT calls on FB, CIEN,AMZN,LNKD.
A. If the value of the dollar collapses in a great heat-up of the currency wars that are indeed heating up around the world right now as we type, gold and silver will really go crazy higher in value vs. the dollar, thus my six figure target for gold sometime in my lifetime.
Q. Any thoughts on DIA right now? Should I buy some puts?
A. I bought some VIX calls instead of DIA puts to help hedge my long side of the portfolio recently. I do think I’ll be looking at using some DIA and/or SPY puts at some point in the next few weeks. Not today yet though.
Thanks Cody. Appreciate the info. I also bought the VIX for the same reason.
Q. AAPL has $147 billion in cash. Same as previous quarter. And that is after it bought back about 20 billion in last quarter and didn’t even have a great quarter. With new products coming it seems to me the cash will keep growing even after buybacks. This seems so compelling that I keep buying more Apple. Am I missing something?
A. When I first bought AAPL back in 2003 it had $7 billion net cash. Now it’s as you say about $150 billion net cash and generating tens of billions in cash flow per quarter. The multiple can stay contracted and contract further, but that cash balance and cash flow certainly provide a floor somewhere above probably $300/share as long as the cash flows don’t reverse lower on big revenue misses in coming years, which I don’t expect.
Q. Cody, I have a question about AAPL’s cash. We all know most of their cash is overseas, and if they bring it back to the US, they will have to pay taxes. Should an analyst discount the cash pile accordingly?
A. I hate to say that I fully expect that there will be a tax holiday given to all the giant corporations holding all those earnings in the form of cash overseas. Small businesses pay 30% plus income taxes and Apple should have to pay the same rate as everybody else. Won’t happen though. You watch at some point in the next downturn, the RepublicanDemocrat Regime will give a tax holiday to cash repatriation for giant corporations.
Q. Hi, do you feel FB will be higher by the end of this year?
A. I like FB a LOT, as you know, back in the mid $20s because, as I wrote, I thought it was going to run closer to $40 by year’s end. Well, this morning it got within 8% of that $40 target and I’m just not looking to add to it with all the upside leverage I’ve still got with the call options that are up 1000% or so in the last week, not to mention the common stock I kept scaling into as it fell to $18 last year. In sum then, I want to take some of those profits and buy some higher-strike-priced, longer-dated calls but I’ll probably wait til the stock’s below $35 or so. Otherwise, I’m planning to just ride my current position.
Q. What is a good entry point to buy FB on a pullback?
A. See above my thoughts on buying FB on a pullback.
Q. ZNGA is at 3 bucks-is it worth a buy here for long term holder/ and what’s a catalyst for higher prices?
A. At $3 per share for ZNGA, with the company also having nearly $2 per share in net cash, we’ve got a decent cushion on the downside. As for the catalyst, if the company rolls out ANY new hit games or other kinds of apps, the revenues will turn around and earnings will grow and the stock will go up.
Q. Would also like your comments on ZNGA’s earnings, decision not to pursue real money gambling in the U.S. Does any of this change your approach? I don’t think you ever commented on it after the earnings report and announcement.
A. Nothing changed for the ZNGA off the report. Remember that it’s just a call option on the company’s future years’ potential upside and part of the Social Network Decade basket.
Ok…sounds like the non-pursuit of gambling in the US didn’t bother you regarding ZNGA.
Q. Expanded Question on ZNGA: I know you have it in a long-term basket, but at this price and with what the new CEO said/projected, is it a buy for SHORT term (and by short I mean months, maybe a few quarters…not a decade basket)? Thanks.
A. I would wait for a big crash or something, maybe closer to $2.50 before I’d go in for a short-term bet on the ZNGA for now.
Thanks.
Q. Any new thoughts on LNN…kinda ******* around on the comments that they are digesting low margin business in Iraq, I believe. After earnings you mentioned that you wanted to add but I haven’t seen it. Might LNN be a takeover target for a company like Deere?
A. I don’t think LNN is quite right for Deere, but maybe GE or some other industrial conglomerate might snap it up at some point. I haven’t added mainly cuz I’ve bought near these levels already and just waiting for now.
Q. Don’t know what “puttering” was censored… I think it is a technical profanity filter, not human moderation.
A. Ha, yup. From the settings for this chat app we use here on TradingWithCody.com – “Bad words list (comma separated): 4r5e, 5h1t, 5hit, a55, ar5e, arrse, arse, b00bs, b17ch, b1tch, ballbag, balls, bastard, bi+ch, bitch, bloody, boobs, booobs, boooobs, booooobs, booooooobs…” You get the idea. Guess puttering is in there too. Ha.
Who types “booooooobs” anyway?
I believe “puttering” is the past perfect plutative of “putz.” Something like that.
“puttering” is the past perfect plutative of “putz.”” That is some all right and even awesome alliteration allowed all at once on our site.
Perfect.
Q. With today’s recommendation in mind, what percentage of your value in common would you risk on the puts hedge?
A. I’d look to hedge my LNKD common stock with an equal or slightly higher amount of puts heading into its earnings call tonight. So if you have 1000 shares of LNKD, that’d be about 10-15 puts. We have huge gains in our LNKD common and unless the call is just terrific, the stock has $10-20 potential downside after the call. I think there’s already been a lot of short-covering in LNKD since FB’s strong earnings call. Just some active portfolio maintenance with this LNKD put for me. Nothing major. Is that what you’re asking?
Yes, thank you!
Q. Hi Cody, first thank you for providing your valuable opinions! Question about LNKD: why wouldn’t you be selling volatility into earnings? Sell call or sell call ratio spread, instead of buying the put.
A. If the report is great, I’ll be happy to let my LNKD common do the working for me. If the report sucks, the puts will kick in and protect me and even give me some profits on the downside. That’s about it.
Thanks Cody. Appreciate the comment.
Q. What are your expectations for FSLR Earnings report next week?
A. I think there’s potential for big upside in margins if the revenues are even just slightly above analyst estimates for FSLR’s report next week. I’ll be watching SPWR’s report tonight and how the stock trades tomorrow for a better idea as to what we might see from FSLR next week.
Q. Any concern with SNDK’s big pull back, downgrades and reports that there will be much more NAND memory available moving forward?
A. Yes, I’m always concerned about the potential for price pressure and oversupply in a commodities-driven business like flash storage and Sandisk. We’ve trimmed that position down and locked in huge profits on our call options in that name from over the last year and I think there’s at least a quarter or two of big upside potential in the estimates before that new supply comes online.
Q. Now that RVBD is way down, would you still recommend the call options you suggested yesterday?
A. No, I’m going to be selling my RVBD calls which are down about half or so. The quarter should have been better in this environment given FFIV, JNPR, CIEN, et al seeing business boom right now.
Q: Dear Cody, can you please comment on OCZ? Nice performance from its low, but still big laggard in 1Y+ horizon? Could it repeat its 2Q 2010 performance, from approx. same 2 usd level as now to 8 usd? Regards! Your service is the only one I follow and read regularly and do appreciate it! Stay tuned please!
A: The good news is this: “The company said results were affected by “continued tight supply of NAND flash” chips. It also said it is selling more parts to the “mainstream and higher-end client markets,” and that its backlog at quarter’s end was $23 million, which couldn’t be realized in the quarter because of supply constraints.” That supply constraint, if it really is the problem and not just the fact that the company’s business is continuing to deteriorate, will ebb in the next quarter and that means there’s likely upside to analyst numbers. That said, it’s a crappy company and I wouldn’t want to risk more than a lottery ticket’s worth on the stock. Here at $1.80 with $1.00 in net cash per share, I think there’s a good risk/reward ratio for the next six months on this stock. OCZ, I mean.
Q. Hey C.W., just wanted to stop in and say my portfolio looks great! Thanks!!
A. Thank you for telling us that! That makes my day. Now, remember right now what it was like the last time the portfolio DIDN’T look great, ok? It was a great time to buy when it looked horrible. It IS a great time to trim when it looks great. Please, please, please take some profits and get yourself and flexible for the next time I look like an idiot with my picks and timing. 🙂
Okay, that’s it. Wow, great discussion all around. Thanks all! Please spread the word about how well you’re doing at TradingWithCody.com and all the lifetime investment and trading lessons you’re getting. I need new subs! 🙂
Thanks, Cody.
