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Options Trading Pit Has Launched


Not your typical options trading letter...

Monday, August 18th, 2008 - By Ian Cooper

Options Trading Pit Has Launched

With the fall of the UK economy, subprime, Alt-A, and banking institutions, the major breakdown of the Dow... and my latest predictions of US and global economies spiraling out of control, the markets in the coming months will offer some incredible investment opportunities.

While some of you may know me from past options trading services, my 4,500% cumulative gains of 2007, and gains such as these...

...we've decided to launch Options Trading Pit, looking to profit from the market's demise as well as its upside.

But know this... We're not your typical options trading letter. We use an aggressive trading approach... taking gains in as little as days to months using options and LEAPS to fully maximize gains.

Just ask yourself... Will you have a problem profiting as others suffer? And will you have a problem raking in profits from oversold gems?

If the answers are no... click here for more.


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Caution: High Risk Trade Ahead


Do Not Risk the House...

Monday, August 11th, 2008 - By Ian Cooper

JA Solar Holdings (JA) August 15 calls are seeing heavy volume of 6,397 ahead of Tuesday earnings.  But it's an earnings trade, which warrants a tight stop loss policy of at least -25%.  Be sure not to risk the house.  Earnings, regardless of who is bullish, can go either way.

While the stock has seen better days, firms like AmTech still believe it'll double over the next 12 months.  Here's what AmTech had to say, according to ClusterStock.com: 

Again, this is an earnings trade.  Use tight stop losses.  Earnings can go either way.  Do not risk the house.  If you're interested, we'd recommend buying the September 15 JASO call (QJPIC).  We're speculating on good earnings with a high risk trade.


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Keep an Eye on Marvell


Calls are Being Aggressively Bought

Thursday, August 7th, 2008 - By Ian Cooper

After refilling a bullish gap at $15, and consolidating, buyers are lining up for call options.  There's also rumor of a buyout, with Texas Instruments named as a possible suitor.

So far today, here's what's been happening in the call option pits:

That's amazing volume for the stock.  While we're not sure what's happening behind the scenes, it's apparent that some one may know something.

If you're game, we'd recommend a buy on the November 17.50 calls (UVMKW).  But don't risk the house.  Part of the call volume may strictly be rumor-related.

Good Investing,

Ian L. Cooper


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Keep Chesapeake Energy on Radar


CNPC is "thinking" about bidding for minority stakes...

Monday, July 28th, 2008 - By Ian Cooper

We hold the Chesapeake Energy (CHK) underlying stock in Pure Energy Trader, but wanted to bring it to your attention, too.  And that's because of solid volume in August 50, 52.50 and 55 calls.

News is that China National Petroleum Corporation (CNPC) is "thinking" about bidding for minority stakes in CHK shale gas assets.  CHK is reportedly looking to raise as much as $5 billion from selling minority stakes in Arkansas and Pennsylvania shale gas properties, according to the South China Morning Post.

This follows early-July news that BP agreed to buy 90,000 acres of CHK's Oklahoma natural gas properties for $1.75 billion.

Keep it on radar.

 


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Let's Take Some Gains


180% Lehman Put Gains... Bank it.

Monday, July 21st, 2008 - By Ian Cooper

In the weeks preceding our options product launch, we've been issuing trades in this free blog. And to secure our hard-earned gains, we're closing five of our positions today.

Thirty nine days after urging caution over the Barry Diller / Expedia rumors, we picked up the Expedia October 22.50 put (UEDVX) at $1.80. It now trades just above $5.10 for a gain of 183%. Bank it.

On tough trends, we also spoke of Coca-Cola Enterprises, picking up the November 20 put (CCEWD) at $1.05. Thirty nine days later, it's at $3.80 - good for a 262% gain.

Thirty five days ago, we urged caution after the Masco Chairman bought 300,000 shares of the company between $17.80 and $17.99. We believed that unless the stock could hold multi-year support, the stock would drop further, as it did. It now trades at $15.86 and is headed lower.

Following that report, we bought Masco October 20 puts (MASVD) around $3.00. It now trades at $4.70 - good for a 57% gain.

On June 3, we recommended buying the October 25 put (LYHVE) with the following argument. "It's only a matter of time before Lehman (LEH) joins the latest list of casualties," we said.

"Having just broken multi-year support levels, the underlying stock could be headed to $20 near-term. The best way to trade the possible drop is to buy the October 25 put option (LYHVE). This is an aggressive trade."

After rising as high as $13 and change, the put now trades at $8.40 - good for a 180% gain.

We also recommended a buy on the UBS AG September 2008 22.50 put on June 10, 2008. At the time, it traded at $1.30. It now trades at $1.70 - good for a 31% gain.

Congratulations on the gains. Hold all other recommendations from your free Options Pit blog.


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AutoNation Death Spiral


Volume is up to 31,468 vs. open interest of 20.

Tuesday, July 15th, 2008 - By Ian Cooper

Let's make this short.  We're launching our new options product in the next two weeks.

But before we do, we want to bring another play to your attention.

Take a look at the October 2008 5 puts on AutoNation (ANVA).  Volume is up to 31,468 vs. open interest of 20.

It looks like economic hardship will send AN further south.  Tag along for the ride on the October 5 put option.

 


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Further Downside for American Express


Ignore it... or Go Short.

Tuesday, July 15th, 2008 - By Ian Cooper

In SC Trading Pit, readers just took a 12% gain on the second half of American Express July 40 puts.  We took 21% on the first half.

But we see further downside for shares of AXP, and would recommend that you buy the American Express (AXP) October 2008 27.50 put (AXPVA).

Here's why...

American Express (AXP) continues to be a favored short. And that's because they hold consumer debt, and fall prey to mounting delinquencies. So when I learned that UBS upgraded the stock Tuesday morning from Sell to Neutral, I had to laugh at the absurdity.

The argument remains the same, though.

If you want to own a credit card stock, buy Visa or MasterCard. They do not hold consumer debt. They simply process the cards.

American Express on the other hand deals directly with credit. It has to worry that as of November 2007, credit card debt "soared at an 11.3 percent annual rate in November following an 8.5 percent rate of increase in October" and is still on the rise."

 They're the ones where share values are being beaten stilly because of charge-offs, payment delays, and higher delinquencies. Why do you think Discover Financial Services (DFS:NYSE) stock plunged from a $35 IPO price to $13? It's a card lender, and concerns itself directly with cardholder debt.

Same goes for American Express, who's CEO said, "Business conditions continue to weaken in the U.S. and so far this month [June 2008] we have seen credit indicators deteriorate beyond our expectations."

It was January when AXP's CFO Daniel Henry predicted that the company's U.S. write off rate would peak between 5.1% and 5.3% in 2008. Unfortunately, a 5.3% write off rate was reached in March. It's now July and delinquencies and default rates are growing worse.

The United States of Cash-Strapped America

With homeowners struggling to stay above water, American Express has to worry about further delinquency problems, as credit card debt balloons. You're better off longing MasterCard stock and Visa, than naively risking bets on American Express stock.

Instead of just using credit cards for big ticket items (TVs, furniture), some are now charging gas, food, and even paying other bills with them. And some are only making minimum payments... if they can afford even that.

It's far more difficult these days for many consumers to dig their way out of debt, since other relied upon options, such as home equity lines of credit, are no longer readily available.

National revolving debt just hit a record $957 billion in April, from $800 billion four years ago. Total credit card debt was up by 0.4% in April, according to the Fed. And Moody's is reporting that the charge-off rate, which measures credit accounts considered uncollectible, hit 6.27% in April.

Q1 consumer borrowing skyrocketed to $34 billion, the biggest amount since 2001 when the U.S. was diving into a recession. And not all of that may be paid back. Credit card investors are becoming increasingly concerned that a weaker U.S. economy will hurt borrowers' ability to pay back debt.

But as long as there are naïve investors, and foolish upgrading banks, it's hard to get that reality to the investing masses. Still, downside risks remain at American Express... even Discover and Capital One. They'll slide long-term as subprime fiascos are replaced with Option ARM reset fiascos.

High Gas Prices, Housing Slump, and Rising Unemployment... Oh My.

Credit card issuers will face more losses than initially expected.

Hit by cash-strapped consumer reliance on plastic amid rising gas prices, a housing slump, and rising employment, credit issuers could see earnings thwacked by defaults.

"The deterioration in credit cards is accelerating faster than many had expected," said Christopher Wolfe, an analyst at Fitch, according to CNN Money. "The message we are trying to deliver is that things are going to get worse before they get better. Thus far, credit card businesses have been profitable but that could change."

Worse, according to the CNN Money article, "Fitch analysts are expecting an increase in prime charge-off rates - or losses from defaults on card payments as a percentage of loans outstanding - to at least 7% by the end of the year from 6.4% in May."

Vulnerable are credit issuers like American Express, Washington Mutual, Capital One and Discover, not the Visa or MasterCard-like companies.

Ignore or short American Express... and hold long-term.


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How to Play "Unmitigated Disaster"


Everything is not okay, as Dodd would have you believe.

Monday, July 14th, 2008 - By Ian Cooper

Methinks those in charge have lost their minds.

Senator Dodd believes Fannie Mae and Freddie Mac are "fundamentally strong" and that "this is not the time to be panicking about this. These are viable, strong institutions."

"The economics are fine in these institutions and people need to know that," Dodd said. There's no reason "to talk about failure," he added.

But if everything was fine, the Treasury Department wouldn't have increased its existing line of credit to Fannie Mae and Freddie Mac, nor would the Treasury have asked for power to buy stock in the two embattled companies, and nor would the Fed board of governors vote to open its discount window to them.

We're talking about two companies, which hold 50% of U.S. mortgages, or more than $5 trillion, that are teetering on the brink of disaster.

Everything is not okay, as Dodd would have the naïve believe.

The truth is that the mortgage lenders are "basically insolvent," says Jim Rogers. The Treasury's plan to boost Freddie and Fannie is an "unmitigated disaster."

Taxpayers, says Jim Rogers in a Bloomberg.com article, will be saddled with debt if Congress approves Paulson's request for authority to buy unlimited stake in and lend to Fannie and Freddie.

Not only does Rogers see further downside for the two companies, Goldman Sachs does, too. Analyst Daniel Zimmerman believes the two companies' shares could fall another 35% and lowered his price estimate on Fannie to $7 from $18, and lowered Fannie's from $17 to $5.

"These companies were going to go bankrupt if they hadn't stepped in to do something, and they should've gone bankrupt with all of the mistakes they've made,'' Rogers said. "What's going to happen when you Band-Aid and put some Band-Aids on it for another year or two or three? What's going to happen three years from now when the situation's much, much, much worse?''

Short or buy put options on Fannie and Freddie and sit tight. This is going to get ugly.

If you want to play the demise of Fannie and Freddie, consider buying:

Hold these regardless of Fed interventions, etc.

Oh, and please ignore Dodd.


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