BTO May Weekly 5 73.50 TIF PUT 1.20 Prem
Earnings Tuesday 5/28 BMO
Current EPS (2 Qs trailing + 2 Qs forward looking) = 3.20
Average Annual P/E ratio 2011 & 2012 = 19.00
Current Value = 60.80
If their guidance stays inline with previous estimates (Q2 ’13: .78 | Q3 ’13: .61)
New Current EPS 3.32 @
P/E of 19.0
Market Price: 63.08.
I like my risk to reward, max pain = $120
During the 20th century the global equities market has shown an arithmetic average return of 7.2% over inflation. [1] We have carefully selected three different companies to invest in that we believe are primed to generate returns greater than any other publicly traded company over the next 3-5 years. These companies have also been selected due to their resilience thru difficult macro economic conditions. When determining the optimal portfolio we gave consideration to the correlation coefficients among the stocks that show a lower correlation value. Combining uncorrelated securities allows for the risk or standard deviation of the portfolio to fall. We are able to reduce non-systematic risk by allocating 60.87% of funds to FMX, 19.18% to MYL and 19.95% to QCOM. We have an expected yearly return of 27.84% with monthly volatility of 5.17%.
Correlation Coefficients
| Security | FMX | MYL | QCOM |
| FMX | 1.0000 | 0.310952 | 0.400570 |
| MYL | 0.310952 | 1.0000 | 0.446206 |
| QCOM | 0.400570 | 0.446206 | 1.0000 |
Femsa (NYSE: FMX) an investment holding company that takes part in the bottling and distribution of Coca Cola products as well as running convenience stores throughout Mexico. Femsa has reported impressive year over year sales growth boasting a 17.4% increase to sales at the end of the 2012. We expect to see continued growth into the foreseeable future as Femsa has made their way into the successful drug store business – similar to CVS or WAG.
| Description | Market Cap | P/E Multiplier | Return on Equity | Net Profit Margin |
| Sector: Consumer Goods |
214432.1B |
20.43 |
15.57 |
7.01 |
| Industry: Beverages – Brewers |
9518.0B |
29.10 |
40.30 |
37.30 |
| FMX |
42.2B |
25.74 |
15.05 |
8.69 |
We have seen an average monthly return of 2.76% with a standard deviation of 5.80% over the past 3 years. Femsa reported a 4.6% increase to revenue in the first quarter of 2013. Compared with last year’s parabolic growth of 17.4% in the first quarter– this lead to a quick sell-off. The revenue differences are due to local Mexican currencies being devalued at a rate greater than expected. This does not concern us – as the US is quickly devaluing their currency and the conversion rates will reach an equilibrium that will translate into impressive earnings reports again.
Mylan (NASDAQ: MYL) is a value investor’s diamond in the rough with a P/E multiplier trading 53% below the industry average. We do not see any short-term catalysts that would cause increased volatility until mid-2015 when competing drug company Teva launches one of Mylan’s best selling products Epipen in a generic version.
| Description | Market Cap | P/E Multiplier | Return on Equity | Net Profit Margin |
| Sector: Healthcare |
71528.8B |
25.77 |
20.03 |
18.70 |
| Industry: Drugs – Generic |
1442.4B |
41.80 |
8.00 |
5.10 |
| Mylan |
11.4B |
19.31 |
18.63 |
6.55 |
We have seen an average monthly return of 1.49% over the past 3 years with an 8.08% standard deviation. Nonetheless, over the next five years approx. $290B worth of prescription drugs are due to come off their patent. With consumers being more price conscious Mylan has positioned themselves well for long term growth opportunity.
Qualcomm (NASDAQ: QCOM) has been posting record-breaking earnings year over year with first quarter revenue topping the charts at an increase of 34%. With the demand of smartphones reaching global markets, Qualcomms’s licensing business has been able to collect $2 in licensing fees from nearly every 3G/4G portable device sold worldwide.
| Description | Market Cap | P/E Multiplier | Return on Equity | Net Profit Margin |
| Sector: Technology |
143316.1B |
27.62 |
11.24 |
7.66 |
| Industry: Communication Equip. |
5056.9B |
309.80 |
2.90 |
1.80 |
| Qualcomm |
110.2B |
17.89 |
17.87 |
30.47 |
Monthly returns have averaged 1.78% over the past 3 years with a standard deviation of 7.44%. Qualcomm is positioned to grow quickly with analysts estimating that earnings per share will be at the $5.00 mark at the end of 2014 giving QCOM a PT of $89.45 – an increase of 40.27% or 25.43% annualized return.
[1] Dimson, Marsh and Staunton “Triumph Of The Optimists: 101 Years Of Global Investment Returns” (2002)
See Excel figures here: FIN 136 PROJECT-BrianUpdated
I’ve become extremely defensive about the investments I choose for the remainder of the year, here’s why:
Execution:
BUY LUK APR 1 @ $27.44
SOLD to open SEPT $30 Call $1.00 Premium
Explanation:
By selling the calls I am bringing my cost basis down by 3.6% and limit returns to 13% (5 months).
Possible Scenarios when SEPT 2013 Call expires:
Execution
BUY TFM APR 9 @ $40.28
SOLD to open SEPT $40 Call $4.30 Premium
Explanation:
By selling the calls I am bringing the cost basis down by 10.7% and limit returns to 10.7% (5 months). 80% of the shares owned by the fund have the $40 calls sold against them, the remainder 20% are not being controlled by any call options at this time. Looking for opportunities to participate in further upside and then sell the $45 SEPT Calls.
Possible Scenarios when SEPT 2013 Call expires:
I would normally prefer working capital to be closer to 20% – however, my sentiment right now doesn’t quite align with the action we’re seeing in the market lately. So I sit on my hands until I find other opportunities while accruing additional capital from outside projects to add to the cash position. If we see a sell off in May or any weakness from LUK – I plan to add to the position bearing I don’t find a better investment in the mean time.
Using 3 years trailing data from March, 2010 -March 2013
Y axis: Monthly Return Average
X axis: Standard Deviation
3/14/2013 Ulta Conference Call Number & Password
Estimates for 2012 Q4 EPS: $0.98, sales of $753.6 Million, full 2012 sales estimates of $2,215 Million.
2012 Estimated EPS: $2.65 & 2013 EPS of $3.65
MarketWatch Analysts on ULTA
If we see $0.98 EPS for Q4 2012 at the current price per share we’ll be trading at a 33.88/trailing P/E ratio. With expected growth and rapid store expansion I believe ULTA has the capacity to command a current P/E ratio of 35. Giving us a price target of $102.55 with an estimated EPS of $2.93.
How I’m trading ULTA
Buy to Open: APRIL 80 CALLS
P/L & Greeks:
ULTA Options
Notable Greeks: Delta: 83.30 (Beautiful), Theta: -3.48 (Not bad)
Ulta daily
Ideally enter trade @ $88.98 or below, keep a close eye to make sure if we break the trend line we find support @ $87.42 or $87.00 continue buying down to $85.40.
AAPL is way oversold right now and primed to go higher based on technicals and fundamentals.
AAPL 1 Day
The Trade: Write the Jan 2014 $400 Put, and collect $35.00/share or $3,500/contract
By writing this put, I am like the insurance company. An investor gives me $3,500 and I will buy 100 shares of AAPL from him if the shares drop below $400.
But I don’t start losing money until AAPL drops below $365/share – which would imply a $66.72 drop or 18.27% decrease in the share price.
In order to write this put I need to have $40,000 cash on hand, in case AAPL does drop and I need to buy the shares back, which I don’t think would happen, and I’d use a stop loss before I lost more than 3%
$40,000 initial investment, $3,500 cash inflow or 8.75% 9 month return, 18.27% downside protection.
It’s low risk, easily managed, and exploits the fear of those who are afraid of losing money in the stock market.
Holding or on the radar: TFM, S, SNE (JAN 2015 10 CALLS) SPXU (Hedge Long Postions), NFLX (Weekly PUTS), LTM, SBH.
NFLX Charts 5m/5d & 15m/5d: Showing overbought.
Buy to Open Weekly 1 190 Puts: 3.40/share
Price Slices with Profit and Lose define a specific price levels:
Downside risk/contract: 53.15 (15.63%)
Take profits at : 384.38 (113.05%)
Other Positions:
SPXU from 30.41 to hedge long positions short term ( 1-3 days)
S March 6 Calls: looking for a little momentum on the 1Day/1Yr Chart to push us up above the sub 6.00 range before March 15th.
PAY March 19 & 21 Calls. Conference Call March 5th, 2013 4:30 ET
LFMG price valuation: 23.00-25.50. Position according to sentiment.
LTM: Buy the open, follow the trendline on the 15m. Watch to see if we break below the 15m trendline @ 41.74. Set tight stops. Look for re-entry in the 40.49 range if we break the trendline.
Holding PAY. It appears we found our base and we’re primed to go up from here. 5m & 15m show overbought conditions, though I continue to be bullish and hold my position. Scaling out today if we see 20.50+
Just a snapshot of current positions, planned positions and news ahead.
Planned Longs 2/20/2013
SNE @ $14.65, add to position down to 13.50 – Playstation 4 being announced at 4pm ET. (Time Frame: 22 months)
Looking at Jan 15 $10 Calls 5.50 Prem (Time Frame: 22 months)
*Might* look to see if GLD presents it’s self with any opportunities – FOMC Minutes @ 2pm ET (Time Frame: Intraday)
Holding
S March 6 Calls from $.07 (Time Frame: 3 weeks)
SPXU from 30.14 (Time Frame: 3 days)
SPXU 29 March Calls from $1.55 (Time Frame: 1-2 days)
TFM from $44.99 (Time Frame: 6-12 months)
Planned Shorts
NFLX from 196-198, Stop @ 198.40 (Time Frame: 3-4 weeks)
News
Wednesday there are 3 important economic events
(suggestions in parentheses for stocks to look at, not inclusive, just to get ideas)
Housing starts (HD, BLDR, LOW)
PPI (XOM, COG, CVX, EOG, RETL)
FOMC Minutes (GLD, S&P 500 futures = /ES, DJI)
Thursday there are 5 important economic events
CPI
Jobless Claims
PMI Manufacturing Index
Existing Home Sales
Philadelphia Fed Survey
***Get your trades from LMFG first 
***
Looking Back on TFM:
1. I evaluated TFM because an interested investor asked what I thought about the company. After a quick analysis on 12/27/2012 (Seen Here) I felt confident placing a price target on the stock:
I set price levels I thought TFM would trade within the short future. Using 12 months trailing EPS, I suggested TFM should command a current valuation of $44.80. The valuation aligned nicely with the charts providing many entrance points.
After an initial analysis we saw a low of $44.65 on 1/8/2013
2. Knowing the volatility and sluggishness of TFM could be concerning to shareholders- I was interested in delving deeper into a valuation that looked at every influencing factor that could influence the price. After looking over every minute detail I remained bullish and reaffirmed my buy rating on TFM with a price target of $59.15. I completed and posted the valuation before the market opened on 1/8/2013 (Seen Here) which I believed would be the best day to take a full position.
Looking Forward
3. TFM reports Q4 earnings and will be providing forward guidance on their next conference call; March 4, 2013. Until more information becomes available my previous valuation remains the same.
Can’t win ‘em all, though I try to only tell share investment opportunities I’m most certain about.
A great transition into my next follow up;
Not a lot has changed with my sentiment towards NFLX. I believe the stock is trading with a very rich valuation. Closed @ $196.45 2/19/2013
Fundamental analysis by several analysts, including myself give NFLX a 1 year price target of $125 – $160.
Marketwatch NFLX
Valueline NFLX
With the information available today, it is enough to build the short case for NFLX with conviction. Albeit, this is why defining your downside risk- as seen in the last post about NFLX is so important before entering any trade.
Building the short case today for NFLX?
1. One could make a shell trade by shorting or longing NFLX on an earnings beat or miss by DISH. DISH has their conference call today at 12PM ET and reports earning BMO
ENGLEWOOD, Colo.–(BUSINESS WIRE)– DISH Network Corporation (NASDAQ: DISH) will host a conference call at noon ET on Wednesday, Feb. 20, 2013 to discuss its fourth quarter and year-end 2012 financial results. The dial-in number is (800) 616-6729.
DISH will distribute a financial results press release prior to the call. It will be available to view on the company’s Investor Relations website at http://dish.client.shareholder.com/releases.cfm.
2. FOMC Minutes @ 2PM ET, could indicate a reduction in QE and the market will take a breather as a whole…
It’s best to define your downside risk going into any trade, if you’re wrong you have control of how much your willing to lose. You move on to your next and curse NFLX once in awhile. If you’re right, you take what the market will give you and move on.
Should I buy NFLX? I wouldn’t buy at these levels.
In fact, today, I thought today was a good day to start scaling into a bearish short term position. Longer term I think there is great upside potential. If you’re holding NFLX right now or thinking about getting long, see how you can protect yourself from downside risk below.
My Recent NFLX Positions:
I was long NFLX yesterday from 175.98, sold going into the close @ 178.08 -woulda, coulda, shoulda held, but was apprehensive holding overnight with the volatility seen from NFLX and substantial, short term downside risk. (Volatility Average 76.31)
Today 2/13/2013 I bought the Feb Weekly 4 190 Puts going into the close @ 8.90
P/L Price Slices I plan to follow: (P/L is per contract)
176.40 Profit: $629.75 | 70%
(190.20 Loss: $253.97| 28%)Loss side might seem a little high, usually I set my losses at 7-8% range. However, during the week of option expiration’s (3rd Friday of the month) NFLX among others stocks (not options) are heavily manipulated by Market Makers and there is a chance of them trying to test and break out from the 52 week highs.
This Week
Looking at the option premiums and volume on the chart below, 11,001 185 call FEB 2013 options exchanged ownership today with premiums ranging from $1.85 to $4.30.
CALLS on the left & PUTS on the right
NFLX Option Chain 2/13/2013 at the close
For the person who purchased the call option at $4.30 today, NFLX would have to be above $189.30 on or prior to 2/15 before he is able to execute his option at a profit.
A savvy option trader would know at a minimum the Delta & Theta of the option being traded. On 2/13 at the close Delta was @ .54.. This means that if a share of NFLX was to drop by $0.50 during the trading today, the option value should drop by $0.27/share representing a 6.2% loss on the value of the option contract. Theta was @ .58, which is the measure of time decay. As we get closer to the option expiration date, the extrinsic value of the option decreases (Time Value of Money). This means if the underlying shares of NFLX were to open at the same price it closed at, the value of the option would be worth less than 60% of the original contract price.
Who’s buying the Options?
There are a few type of people who would buy Feb 2013 185 Call options that command such a high premium of $4.00. Pipe Dreamers/CNBC Junkies/Gamblers who believe that NFLX is going to jump another 2.3% in the next 2 trading days with no catalyst after we saw an 87% return in the last 15 tradings w/ 13 out of 15 days being in the green. Another buyer: Insiders, those who have inside information and use options to leverage their funds to the rafters.
Disclaimer: NFLX very well may go to $195 or higher in the next 2 days for all I know, though from past experiences and observations I have seen weekly option holders get burned again and again. The only control we have as traders is how much we’re willing to lose on a trade.
Who’s Selling the Options?
Typically large investment institutions who may or may not own the underlying shares of NFLX will sell call or write put options to those who are overly bullish or bearish. The reason being, mathematically the option premiums are so high that they cover any downside risk and there would have be a catalyst to bring the shares any higher. If the price of the underlying security stays below the strike price (185 in the example above), the person/institution who sold the contract owes nothing to the person who bought the contract. The person who sold the contract gets to keep the premium and underlying securities.
But wait there’s more…The institutional market makers are able to manipulate the stock price fairly easily in the short term- sometimes with the help of news media sources. With NFLX market makers (MMs) can easily bring the share price up to $190, causing more investors (who think they can turn an easy profit) to buy the weekly call options. At the same time, the MMs are buying back the later expiration put options they wrote when NFLX was trading lower.
What Happens on Option Expiration Day?
Historically with momentum stocks come Friday when the options expire, the market makers want to make as much money as possible and not have to deliver many securities, or have to purchase many securities from the put option holders.
NFLX; typically the closing stock price on option expiration day will be pinned or pegged at a price that causes the greatest financial loss for those who bought the options. This is also known as MAX PAIN. Looking at the open interest values I could see the price being pinned between 179.00 and 181.00 at the close on Friday.
Historical Data (as of 02/13/2013)
YTD: 96.52%
1-Year: 37.47%
Technicals
NFLX stock has been showing support around $171.22 and resistance in the $186.92 range. The technical indicators I use to trade show a sell set up below denoted on the stochastic oscillator directly below the volume chart.
NFLX 5 day, 5 minute aggregate chart
Active Traders:
Bulls make money, bears make money, but pigs get slaughtered. I think it would be prudent to take profits now, that’s also why I bought the puts. I think other people will begin taking profits shortly.
Passive Traders/Bag Holders:
For those who believe NFLX will stay above 155.00, look at the May ’13 $175.00 covered call. Allowing 154.XX to be the break-even stock price for this trade. This covered call has a duration of 94 days, provides 13.29% downside protection and an assigned return rate of 13.42% [1]
Option traders:
A lower-cost hedged play would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the Jan ’14 $92.50 call and selling the May ’13 $175.00 call for a total debit of $65.80. The trade has a lifespan of 94 days and would provide 11.04% downside protection and an assigned return rate of 25.38% [2]
Fundamentals:
There is significant execution risk here at 186.xx. Costs associated with international expansion ought to pressure net profit margins in the near term. The company is using profits from its domestic business to fund international expansion. The strategy of prioritizing long-term gains over short term profitability may well pay off in time, but it does create near term uncertainty.
NFLX is in a highly competitive market which is subject to rapid technological changes with fewer barrier to entry for streaming businesses. This means more competition. [3]
My Price Targets:
With consideration to the financials and forward looking guidance given on their most recent conference call I give NFLX a 1 year price target of 158.80
In the next 2 weeks when I look into my crystal ball, I see a low of 171.22 and a high of 190.20.
Other Analysts:
Analyst on NFLX with price target [4]
NFLX news 2/13/2013
Sources:
[1] http://www3.valueline.com.proxy.lib.csus.edu/vlquotes/quote.aspx?symbol=NFLX
[2] http://www3.valueline.com.proxy.lib.csus.edu/vlquotes/quote.aspx?symbol=NFLX
[3] http://www3.valueline.com.proxy.lib.csus.edu/secure/vlispdf/stk1700/vlispdf/f17604.pdf
[4] http://www.marketwatch.com/investing/stock/NFLX/analystestimates?subview=snapshot&pg=analyst
