Presented by Greg Jensen of OptionsANIMAL, and Jill Malandrino from The Streets – Options Profits.
Greg: I’m particularly excited about this event. I think we’ve got a great webinar in store for you today. Obviously, we’re not short on topics to talk
about. It’s been an extremely busy day. It’s been an extremely busy month, for that matter getting ready to close off the month of October here. We’ve
still got a lot going on this week. We are going to be cramming a lot of info into a very short webinar.
Before we get started, I just want to say don’t get overwhelmed, just take it as it goes. We are going to be recording this so everyone will have access to
a recording of this webinar. At the end of the webinar today, make sure you stay tuned. I’m going to talk about another special event we have coming up
next week. Again, we have a lot on the horizon here and I want to keep everyone engaged as possible in this market.
With that in mind and with time being the essence here, I’m going to go ahead and get started. I’m going to bring in our special guest today, which many of
you know, Jill Maladrino from thestreets.com. She runs the options profit portion of the site over there. A lot of great content. Bring Jill in and we’re
going to get this thing kicked off.
Jill is actually hosting the webinar from the floor of the street today in New York City. You might hear a little bit of background noise there with folks
walking by because it is quite busy over there. Nonetheless, we’re going to have some fun today. Jill, I’m turning it over to you.
Jill: Sounds good. Always, this is my favorite thing I get to do each month. Of course, looking forward to seeing everyone at “Invest Like a Monster” this
weekend in San Francisco. We can get to the west coast and meet our followers there, but we always hook up on these webinars 10 to 15 minutes prior, just
to test systems and make sure everything is working. Literally, after saying our “hellos,” At the same time this has been an incredibly difficult market to
chase. We’re constantly chasing new highs.
As a trader, you almost find yourself buying a market that you hate. We said this before in May and June where there’s days you’re literally long and
you’re almost disgusting with the idea of being long. I feel like that is the sense of a lot of traders and managers that we’re talking to. It’s tough
because if you’re classically trained as a chartist, if you’re classically trained in fundamental analysis, now that so many more traders are incorporating
volatility analysis now into their investment decisions; it’s almost like everything we’ve worked so hard for whether it’s your school or your trading,
it’s almost out the window. I find that to be very frustrating because you’re just chasing means that at end of market that doesn’t necessarily make sense
For anyone that’s been there for 2013, it’s been incredibly painful trying to call top. Even trying to call bottom, it works both ways, have obviously not
been the investment philosophy to follow. My focus isn’t on only going long, by any means. What I really want to focus on is recognizing risk versus
reward, right now, that comes with being long or being short.
For example, here’s what I’m looking at, many believe the VIX is the be all and end-all to explain sentiment. Yet there’s a huge misunderstanding out there
about what it really means and how to trade around it. There’s a big misconception that BVIX cash reading shows complacency, while a high reading reflects
fear. I hate using the word “fear.” I like “uncertainty” more because that’s really what it is.
What I’m looking at more so now … and this is something that Travis and I are working on together. The street, we recently launched, and we’ll have an
official launch over the next couple of weeks in conjunction with … well, the CME is sponsoring it. CME is putting out future educational content through
financial media outlets. We’re very excited about that, but we’re trying to get our readers more engaged in folks on the futures. If you go to
thestreet.com, go to the “futures” vertical … you don’t have to be a subscriber … and you’ll see all of the new video and written content that we’ve been
working on and very excited that Travis is a contributor of our written content.
We’re looking at the VIX futures more than VIX cash because we really only care about what the market believes movements will be in the future. Cash VIX
represents the sentiment at the moment. When that cash surpasses the future, which is what we saw over the past couple weeks, which is called [inaudible
04:33] not only in the financial futures, but you also hear this in commodity futures as well. We have had it a few times this year.
The condition of high fear had threatened that market. Recently, it happened again when we were going into the debt ceiling crisis. That excess fear has
receded, so we now see currently futures are up in an upward curving, which it’s been 98 percent of 2013. That reflects the bullish condition. When it
changes, that’s when we’ll know that we’re seeing a significant composure change. I’m also looking at the BVIX, which is BVIX, which is volatility of the
BVIX. I think looking at levels there is just as looking at the VIX and the VIX future.
That’s really what I’m going to be focusing on right now. What I think is going to happen here … and I don’t want to sound like an out of control bull, but
the price auction in this market, it’s been too positive to dismiss. You can sit here and you can debate it on the charts all day long. We can debate the
fundamentals all day long. We can take a look at the VIX, and say it’s incredibly low levels. It’s picked up a little bit today, but at the end of the day,
it’s been very costly to try and anticipate market tops.
At the end of the day, do I miss trading on fundamental and technical? Yes, but at the end of the day care about my P&L more? It is what it is, until
it isn’t anymore. Fighting the trend has just not worked. It’s as simple as that.
Greg: Hey Jill, before you go into some individual names, I want to … and before you get away from that thought, I want to throw my two cents in on there
as well because I completely agree with you that this market is … again, it almost feels out of control bullish. I’ve been saying this for a while to some
of the people who follow me.
Those of you who are OptionsAnimal students, this market feels very much to me like the 90s. Not in the fact that I think we’re about ready to top out.
We’re getting ready for this internet bubble burst type of 90s, but a market that there is a bid under everything, it seems. It doesn’t matter if the news
is good or if the news is bad, investors are willing to gobble up stocks on dips.
All the bad news that we have … that has potentially hit the market in the last six months from the fed talk about fed tapering. Back in the mid-summer to
the situation in Syria in August and September to the recent debt ceiling debate that we go through. all of them could have been potential very market
moving events to the downside. This market just seems to shrug them off by the dips and move on to higher highs.
I agree with you that, yeah, it can seem a bit frustrating if you’re trying to fight this and call a top. I think what you have to do as a trader, at least
what I’ve noticed, is don’t be the guy who has to change the trend and pick the top. You may not get the exact top, but ride the momentum. Right now, I
agree with you, the momentum is clear to the upside.
Sorry. I just had to throw my two cents in. I’ll turn it back over to you.
Jill: I could not agree more. Here’s what I think we’re going to see: This uptrend in … again, I’m not putting on the rah rah cheerleader hat. Like we
said, we care more about our P&Ls and fighting the trend is … why? Why do it when it’s not going to work?
The feds obviously not tapering any time soon. we have one of the most dubbish committees and overly accommodating policy. What’s interesting here is that
even if they do taper, that would be incredibly positive sign for the underlying economy. even more so than administration considering Yellen is so overly
dubbish. I think that would be almost a double positive, if that makes any sense.
My second reason is small, midcap stocks are at an all-time high. Yet, they’re still under owned by the large pulls of capital in the U.S.; your pension
funds, your endowments and insurance companies. Finally, hedge funds, they’re at their highest net short position since January. It’s massively trailed
every equity benchmark you can think of. The average hedge fund is up 3.5 percent, while the S&P is up just over 24 percent with dividends reinvested,
I presented on a webinar last week with the guys over at OM, and David and I were going back and forth. I’m just like, “You know what, David, is this the
next phase of the market evolving?” Just like Greg said before, it feels like 1999 all over again. Greg, the stocks that we’re trading now didn’t exist in
1999. You’re faced with your Pandoras, your Teslas, and all your high momentum names. We didn’t have high frequency trading to fight against. We were still
trading on paper with fractions back then.
Not only has technology evolved, the companies that we’re trading have evolved so much that maybe this is the next phase. Maybe those of us that are
classically trained in the charts and the fundamentals, maybe as the markets evolve, we have to evolve. This could just be the next phase of it.
I find where we are right now, not throwing around the word “capitulation” whether we’re going to turn to the downside, but I think we’re really at an
influxion point as investors and traders; which is kind of exciting because we really haven’t seen that shift since we went from trading electronic
decimals from paper and fractions. Could this be the next phase of the market, momentum based, social media based and so forth on our level. Maybe it’s a
little bit different for the pensions and the endowments and hedge funds.
They have to be way more frustrating because they can’t get trade off with the high frequency trading roadblock. What are your thoughts on that? Do you
think this is the next phase of the market?
Greg: I think it is. I think you’re seeing an evolution of what the market is and the fact that the individual investor has access to tools like they’ve
never had before; whether it’s tools that are provided by their brokerage firm, whether it’s education tools that are similar to the things we offer at
OptionsAnimal, whether its information and trade activity that you guys do over at the street.
With the speed at which the individual investor has information and how quickly we can make decisions, I think it’s actually turned the table back in our
favor. By “our” I mean, us as individual investor. I think we have an advantage that we haven’t seen before. I do think we are starting to see an evolution
in the market towards quick trading and … you’re right. A lot of these companies that exist now … I cautiously throw out that it’s like the 90s. One key
difference I know a lot of people are looking at, “yeah, look at Teslas PE and Netflix PE and Facebooks PE;” how can you justify this is just like the 90s?
Most of those people have forgotten how bubbly the 90s was. Yeah, I know, PE ratios are on the … some of those companies are still in the 400 to 500 range.
I remember PE ratios where companies were trading at several billion dollar market caps, and the company didn’t even have earnings yet. They weren’t even
close to earnings yet. Yeah, you’re right. I think the companies now represent a much better value, even though from a historical nature, if you’re
comparing Facebook to say, General Electric or Caterpillar. It’s definitely a higher valuation. At least that company is making earnings and there is a
very clear picture as to how those earnings are going to grow. I think you’ve got to trade the trend more often than ever in the past.
Jill: Could not agree more. Actually, it seems like you and I always have great timing. We either do this on a fed day or there’s always some big
announcement. I think it’s interesting, not even the day that is on, but it’s 1:00 o’clock and Apple’s live event is going on right now. We have a live
blog going on the street.com so if anyone wants to take a look at that and follow along. We have it for you live.
But this is how we have been looking at Apple options flow, it’s the event. There’s not necessarily a trade here, but this is a tool that you can use going
forward because it’s also applicable to any chatter you may hear in the market relative to Apple. Of course any earnings event. Anytime they have one of
these live product launches or product updates.
What we saw going into it … not only do we look at the stock itself, Apple’s volatility, there’s also another thing that we look at the VXAPL. Which is
essentially the volatility, the VIX for Apple options. We’ve seen some significant movement in that, approaching the date today. The sentiment has been
relatively bullish into the 100 o’clock event. It seems quite high.
We’ve also seen in the mini Apple options yesterday as well; 26,000 contracts traded. That’s a huge amount for them, which is more than double the average
daily volume. They only trade about 10,000 a day. Given the higher volumes, we saw an increase in overall implied volatility, not on Apple itself, but also
We saw a decrease in the last earnings report. It appears that investors are setting the bar quite high heading into today’s event. Of course, we have
earnings next week. I believe on the 28th. It’s going to be interesting to see how Apple trades through the event itself and then also following
the event because if expectations were high, I mean, the thing is up 24 percent since its last earnings report. Will it be a sell on the news type of
thing? Or will the numbers completely blow everyone away to justify the stock price, looking to make a move a bit higher.
Because they are reporting next week, those are a couple things you want to take a look at. How the volatility is trading on the stock itself. Then also
VXAPL. You can also find the volatility index on Google, and there’s a handful of other names. That’s something else to look at. Almost like we were
saying, look at the VIX, which is the volatility on the VIX. This is volatility on … it’s the BVIX index for Apple. The Google one is of the VIX index for
Google option. Those are things you want to have in your trading tool task to gauge some sense of what the market things Apple may continue to do.
If it looks like really bid up into some sort of event, the metrics that it’s priced in line. This has had a big move at 24 percent on a dollar capital
intensive stock like this. It’s pretty significant. That’ll be interesting to see as the event is going live. Greg and I talk about this all the time. It’s
had a great quarter. It’s hard for me to fall in love with this name.
I think there’s other areas of the market to spend the 24 percent move since last quarter. Revenue and margin compression is always going to be a concern
for me, but there’s just a lot of love for this name. My opinion really hasn’t changed that much. I’m not going to fight it. I’m just not really going to
do much with it. There’s a lot of great traders out there that I talk to all day long that will trade anything. But the one thing they won’t really get
involved with is Apple. It’s just such an emotional name.
Greg: I agree with that. It’s easy to fall in love with a company because of their products. If you use their products, although that can give you an
insight into the love that all their other customers are going to have, it’s also really easy to cross that emotional line and fall so much in love with
the products themselves that you invest blindly. You’ve got to just keep those emotions in check. If you’re a fan boy of Apple products like I am, then you
end up having a biased opinion of the stock sometimes. I agree, it’s a tough thing to do emotionally to keep those emotions in check.
Same thing, I was in an event in … I was down in Burbank this last weekend, speaking to some investors down there. The comment that I made to them was the
same thing along the lines of politics. It’s really easy for us to get really emotional, politically when something’s going on. Obviously, the market’s
been really focused on the political nature for the last month, two months or so. Will probably pick it back up again first part of the year when we
approach the debt ceiling issue again.
I think it’s really important that you not nix the emotions of your politics, or the emotions of your passion for a product into your trading decisions
because emotions, what I have found, although they’re good for making some decisions in your life, they’re definitely not or shouldn’t be part of your
investing decisions. Whether that’s the emotions of greed and love and uber optimism, bullishness or whether it’s fear and panic and uncertainty that
caused you to hesitate and fear or in some cases, panic sell. You should just adjust or ride the wave out.
Jill: Right. I happen to agree with you. That’s one of the reasons why I say, with Apple I think the emotional aspect of it, just it’s almost irrational at
times. We look for other opportunities. Speaking of Apple and really being in love with the products. We’ve spoken about Coach many, many times. We’ve done
well with the trades.
As much as I love them and have two closets dedicated to my shoes and pocketbooks, when a short opportunity presents itself and there is some trickiness in
the name, we will certainly look at it. My longer term thesis is still on tap despite some of the … if you take a look at the chart today and the
commentary from this morning that they’re concerned about COMs.
Again, this is something I like longer term. I think retail is going to have a very tough go of it for the last quarter. Retail is so typical. It doesn’t
matter what excuse is out there. Sandy was devastating to the east coast last year, west coast retailers claiming. They look for any excuse. You can expect
that the government shutdown and concerns about tapering in January are going to impact some of these names.
I expect that and I’m surprised that it’s actually not priced in a bit more, but what’s good about retail is you can identify your out and under
performers. Even if the entire sector gets killed, if COMs are just horrible across the board, some are going to be better than others. Why I love Coach,
which a big advantage it has over other retailers, it’s got a pristine balance sheet. You’ve got $4.03 in cash. You’ve got solid growth in the
international activities. I’m surprised it’s not getting more focus from the investment community with what they’re doing internationally. They’re looking
to stabilize the brand domestically.
You would think that would provide enough appeal at the moment, I realize the same store sales numbers and the COMPS spooked everyone a bit. I realize
you’re still concerned about promotional activity at the outlets, but it is one of … not even just retail, but looking at corporate management overall,
that rapidly returns cash to shareholders. They’ve been pretty consistent about it. They plan to buy 700 million in share repurchases.
You’ve got the dividend yield 2.5 percent, we’ll call it 3 percent after today’s shellacking. That provides and investor with a combined yield of over 7
percent. I just think that there’s still room to run here. It’s only trading about 13 times. I think it represents excellent value for the medium to long
term investor. As a day trade, this was a fabulous short. I love the products. I have two closets dedicated to it, but when a short opportunity represents
itself, you take it and you can also benefit from it on the long side as well.
That’s sort of my thoughts there. I just wanted to follow up on that because one, we talk about retail and our expectations for the sector overall, but
this is a name that we talk about frequently. We have done well with on the long side, and now I think it’s a great spot to pick up some shares here at the
levels. It’s an important level, but as we get through holiday and comps coming through as we roll through this season, this could be a great opportunity.
I also remind everyone, we mentioned this on the webinar; thanksgiving and the first day of Hanukkah are exactly the same day this year. You’re going to
see some numbers shifted around because of that. There’s also shorter timeframe because of the calendar from thanksgiving to Christmas. There’s going to be
a lot of volatility events to trade these things around.
Greg: Travis, can you pull up a chain on Coach right now? I think an interesting way to speak to Jill’s point … these types of pull backs in good quality
fundamental retail names, I believe are opportunities. I think there’s a couple different ways to potentially play this right now. The implied volatility
looks relatively low right now, but if you’re looking at this, the fact that this has $1 strikes, and relatively good levels of open interest. If you look
at the different strikes, both on the call side and the put side. You can see tens of thousands, thousands of contracts of open interest. Very heavily
Easily to potentially structure a lot of different trades. I love options chains that look like this. What that allows me to do then is I can go in and
structure potential. I would look at this as a bull put opportunity. Go in and sell a short put, maybe even write out the $50 strike right now for $1.50.
Look at some form of hedge. Maybe I buy the 48 as my hedge on the downside. Yeah, some people will say, “Why not just go short to put naked.” Right after
earnings, there’s sometimes a little risk in that.
I know you’re hearing us say, “Pick the shares up here at $40 or at $50.” Sometimes momentum can push it lower, so I’m going to say sell the 50 put and buy
the 48 along with it. I can get a $.60 credit on a $2 spread. From a risk to return standpoint, this is a very good trade. I’m looking at a 43 percent
return on risk, essentially.
An interesting opportunity here, I think that if you use your secondary exit point … what I mean by “secondary exit,” let’s say that Coach does continue to
slide to the downside in the short term because of some momentum with this earnings number, that you use your secondary exit to actually let your short put
get assigned, actually buy shares of stock that you anticipate holding through the fourth quarter. This is a way to go in and actually do some really high
return credit trades. In the short term, to put some money in your pocket, if in fact this terms out to be a bottom on Coach.
That’s one of the trades I like to do when I’m looking at potentially acquiring shares, is do some aggressive bull puts. By “aggressive,” I mean right at
the money with the intent that if they get assigned, great. I’ll turn this into a … some type of either covered call or caller trade type of strategy for
the fourth quarter. Actually let the shares get assigned and take advantage of the momentum. Clearly, as what you mentioned Jill, a very good fundamental
name that just happens to be having a bad day today.
Jill: It’s funny that you bring up selling puts naked because one thing we preach all the time is 100 percent risk control. We’re going to shift gears and
go to the text sector. I don’t like being unhedged, unless I’m 1000 percent, fundamentally in love with my thesis behind it. Not the stock or the products
but with my thesis behind it.
Another one that I talk about all the time is IBM and you’ve certainly gotten a gift with this one. It’s funny because names like IBM and GE for that
matter, it’s so cool that your momentum traders have had lots of opportunities over the past week with these. It’s been great for your longer term
investors as well, which tends to be more my discipline.
As I’ve said on every single webinar that I’ve participated in, the option animal guys or whoever else this stock will always, always be a core portfolio
holding for me. Like I said, we’ve got a lot of fabulous trading opportunities for the moment. The longer term case for holding and/or accumulating has
certainly been a gift in my mind. The decision to stick with and continue to purchase shares of IBM; it’s been relatively easy because the headline risk
has not hit the company’s ownings figures.
Blotchy revenue performance is nothing new to IBM shareholders. It fell $5 billion between 2004 and 2006, and earnings increase from $505 to $601. It fell
again during the great recession, but earnings climbed from $893 in to 2008 to $1152 in 2010. Decline revenue mixed with earnings per share growth, it
really has always been a part of IBM’s long-term story. I can’t remember which animal pointed this out to me, so I’m sorry I can’t credit them to that, but
showing the earnings progression relative to the revenue, I thought it was a great example to show everyone.
Another thing to remember with IBM, it always has a multi-year plan. That’s what they do. They do project planning, so obviously they are going for
customers, and they are going to do it for themselves. It’s going to decrease and abandon low margin. Business like hardware, look at the revenue mix over
the past 10 years, you’ll see that. Increased its presence in high margins like software. It seems IBM is on track to actually achieve its goal for $20 of
operating earnings per share in 2015. I certainly think they can.
I think trading around twelve times current earnings, nine to ten times for 2015 … I think it will overcome its short term hurdles. I really don’t … Again,
if you’re a momentum trader or a day trader, opposite is going to affect your P&L but longer term, it doesn’t really matter. On top of that, you’re
going to get that nice cash flow. The dividend yield probably little bit closer to 3 percent than 2 percent, but that’s fine. Look at their repurchase
history in this company.
I also think that you could see a dividend increase here at some point. They have a history of doing that. I think stocks would be phenomenal to get more
people involved. Going back to what I was saying before, I don’t like going naked on these because you run the risk of assignment, but I’m loving the
December 170 puts for sale here at 287.
I recommended this last week. They were at 340, so we’ve done well though. But if I had to earn … what is 170 minus 286, this year, owning IBM in the 167
issue range is a gift. I don’t think it will get there. I think we stay where we are or we move a little bit higher depending on what management does next.
If I had to own them at 167, it’s a gift. If I don’t and I’ve $2.87 in premium, I’m happy there too.
I don’t like going naked, but because I’ve loved this story fundamentally, I would absolutely take a look at this.
Greg: Jill, let me ask you a couple more pointed questions here because I get this question a lot from investors. On a name like IBM that has clearly seen
some weakness in the face of the rest of this really bullish market we’ve had the last couple weeks, what is it that you look at? I think you mentioned, at
least I picked them up as you were explaining the story there.
What are some of those key things that you’re looking at when you look at IBM’s story and you say, “Okay, this is an opportunity to pick up a good text
stock versus “this is blackberry” and just the beginnings of the end of this company.
Jill: From a longer term perspective, I’m not looking at any. That’s just simply momentum. IBM is obviously proven itself for a number of years. It has
built itself as a $200 billion … well, a little bit less now … $200 billion market company through consistency.
Again, think about what they do from an advisory service perspective. They teach clients how to get the right business mix. How to efficiently manage a
business, so you would think they would do that as well. That’s what they’re doing. They’re moving away from hardware, which is what they’ve been doing
over the past ten years. They’re moving into more software services analytics, per the Cloud. Yes, it’s going to take some time. these things don’t happen
overnight, but they’re doing a lot …all the acquisitions that they’re doing right now is what’s going to lead to organic growth.
It’s almost like … let’s use a baseball analogy because most of us love sports. I’m a giant Yankees fan, but I will say, as much as I don’t like the Mets,
the fact that they have such young, relatively inexpensive players that really were lighting it up at the end of the season, with the exception of a few of
them getting some injuries. That’s what I want to be in the next two to three years. As much as it pains me to be focused on the Mets like that and a
little bit scared for the Yankees because their players are so old and expensive, it’s almost the same thing.
They aren’t beginning of investing in the young businesses; acquiring them on a relatively cheap level. This is what they do, which is why during the great
recession and enduring times of revenue slow down, earnings have increased. They’re always looking for the next area to be in. It’s obviously not hardware,
so that’s why we’re focusing on the Cloud.
There will be some pain. It’s almost like spend money to make money. That’s what I’m looking at. Despite the hit that the stock has taken and the headlines
that have come out, and the fact that you’ve seen so many downgrades with the analysts now … I’ve tons of respect for analyst because of their work and the
data that they accumulate and the challenges that they do, which is why people like you and I can have these conversations. When they put in bottoms or
tops on stocks, that’s kind of what I hone in as well. We saw a lot of downgrades, a lot of 160 level price targets, which puts in that natural support.
We also saw a lot of activity in the 170 puts earlier in the week, which can also suggest a bottom; which is why I like selling these 170s. Despite all
this, their numbers haven’t changed. They’re very clear about it. This has nothing to do with the long term story, so I think there is something here for
the momentum guys. It’s also a gift for people looking in at better levels because they are pretty clear that they are going to meet these targets in 2015.
Greg: That’s a great piece of advice there, folks. If you didn’t, put that into your memory book. Listen to the recording of this after we post it because
there are a lot of really good points in there that Jill was making, as far as looking at the things that IBM is doing to plan for the future. You could
arguably say you do the same thing as an investor. You look at long term holdings, the stocks you have, and as long as they continue to perform, they’re
great. It’s also important to keep looking for new blood and new opportunity as the business in the investing community evolves. I think that’s an
important piece of advice there.
I think the way to trade IBM the same way as we were looking at Coach. If you want to acquire the shares, potentially long term, yet if the stocks going to
trade sideways for a while down here in the 165 to 175 range, the 180 range, if it’s not take a bottom and go back to the F side. A nice strategy is to do
a bull put again.
This is one I might even consider just the naked puts as you mention because I think the fundamentals are okay. If you want to hedge that risk, there’s
still a good trade right there, looking at the short 170, long 165, of the November put options. You can still generate a nice $.86, $.87 net credit on a
$5 credit. You’re looking on return over risk there, well over 20 percent on a thirty day trade.
I think that’s an opportunity to potentially play IBM down here at the bottom. Again, use your secondary exit point as taking the shares here at the 170
level, 175 levels, is not a bad investment on a company that fundamentally over the long run that they continue to reinvent themselves. What do they always
use in the sporting analogy? They are rebuilding is what IBM is doing. Back to you.
Jill: That’s what they consistently do. That’s what we’re looking for. To shift gears again, let’s take a look at what happened with Netflix this morning.
What have we been talking about over the past, what you said when we opened up the webinar … for key valuations, like Amazon. You and I, we both have the
Amazon Prime. I do my house shopping, for clothing, sports stuff, whatever. March can be depressing but the valuation keeps going up. We still have TESLA,
Amazon, Pandora, Chipotle, when they reported, my God. I could not even figure that one out.
Netflix this morning, when you have a CEO come out and say, “The share price is a bit lofty,” when you have management coming out and taking notice like
that, that’s a pretty big indication. They’re not coming to the market to buy back shares. To see that shift was pretty impressive to me. We saw the action
following his commentary. It was almost like today was one of those influxion points, for me in my mind. It’s very rare. I can’t remember a time in my
career where management has come out that blatant. This is a crazy level for this stock. I think we’re going to see some of these “Mo Mo names,” as we call
them. Maybe come back down to Earth.
If it wasn’t for the performance that we were talking about when we opened up the call, I would almost be fine, without being on a short position of
avoiding. I think we’re going to see some sort of influxion point, if you will, with these momentum names. You’ve got to think, as a holder of Tesla,
Pandora, any of those, LinkedIn. You’re going to start to hear more of that. If it wasn’t for chasing, I’d be comfortable putting on a bearish position.
That’s how I feel.
Greg: Yeah. I think it’s interesting looking at that chart. I don’t know if any of you saw that chart. If you can switch back to Netflix, Travis. If you
haven’t seen what Netflix has done this morning, all three of those candles, those red candles, that’s this morning. This stock opened almost … in fact I
think we have almost a 390 print of this morning. We’re at 334. This stock has slid $60 since the open this morning.
You wonder sometimes with Reed Hastings, you remember back in 2011. His commentary, it was really just commentary. It wasn’t a fundamental pricing change
where they were going away from the DVD delivery business and going just streaming. They were actually splitting them. Everyone’s long term use that means
that they are going away from the DVD delivery business and they’re focused on streaming.
It angered a lot of subscribers, the way Reed Hastings handled it. I don’t know. The price level is about the same on Netflix. The reaction today is, “Uh
oh, Reed Hastings is putting his foot in his mouth again.” Could we start to see some pullback in names like this?
You’re right. The one big question mark and the hard part … well, there are two of them. Right now where the direction this market might take. Even with a
big pullback in a name like Netflix, you have two things. You have the ever accommodative Federal Reserve, that continues to almost because of what capitol
hill is doing, forcing them into a long term commitment to quantitative easing. Who knows when the next time they’re actually going to taper.
The other one is, as you mentioned, the chasing that’s going to have to happen from hedge funds. Hedge funds and money managers, they have one measuring
stick usually. It’s the S&P 500. If we get to the end of this year and account holders, at the end of the year, see that “I’m only up 10 percent this
year,” “I’m only up 5 percent this year, and the S&P is up 25 percent this year, you’ve got a lot of unhappy clients who are going to turning to
different money managers or saying, “I’m going to do this myself.”
That is easy for clients to forget that had the market been the other direction, that hedge fund manager would have saved you some money. We won’t go into
that side of things. The other important thing is what that’s going to create is a chase scenario, where a lot of these money managers that have
underperformed the S&P are going to be forced to chasing names.
The question is will they step in and put a bottom under Netflix because there’s an opportunity to move it back to the upside? Will they put this bottom
under Tesla? I think we are stuck with some of these high flyer names, these Mo Mo names, that there’s … these potential types of move out there for them,
real big volatile moves. It could be the downside. I think there’s going to be a little more caution in some of these names until we get through this
earning season and see how the momentum starts to move in the fourth quarter.
Jill: It’s interesting, speaking of a new name, we have not spoken about. We’re going to shift gears back to retail, based on some options activity that
we’ve seen. Talk about Chico’s, which is so funny because it’s not like it’s the sexy stock or store on the planet, but what I find interesting here … we
saw some flow last week. Actually we picked it up on the trade monster. What is it? The heat seeker, is that what it’s called?
I think it’s an undervalued business upon its estimated trade valuation between 22 and 24 a share. I think that represents obviously significant upside
from current prices. Coach, of course. I think it’s an attractive entry point for a business that’s well positioned to use its strong balance sheet, to
grow it into Boston Proper brands, personal experience. I would say 50 percent of my work clothes are from White House Black Market. Love that store, which
is a Chico’s brand. Not talking about the stock itself, because I love the product.
What I find interesting is Blue Harbor disclosed at 5.6 percent stake in Chico’s last month. There were talks of management that could lead to proposed
changes of chains, including White House Black Market. While the shareholder didn’t specify steps it would take, JP Morgan said some investors are
indicating that Chico’s may become a buyout target. You have to take in that … you have to factor in that takeout bid as well.
You’re definitely going to see some premium there, but I think for a nice momentum trade this is going to be fun to look at. I don’t know. It’s so funny.
When we hear chatter of private equity coming in or rumors of acquisitions, 99 percent of them never come to fruition until those ones where you wake up on
Monday. It’s like, “Oh, merger Monday.” Things that no one ever thought of considering. It just comes out of the blue.
I think what’s good here is that regardless of what the outcome is, you’re definitely going to get that tradable action based on Blue Harbors disclosure,
why they think they’re undervalued and some speculation of what it may do going forward. I think that’s one that we can take a look at. That was a
tremendous opportunity there. That’s one isolated event. That’s my two cents.
Greg: I think those opportunities abound, one of them, a big story name for me that I pointed out on Twitter. It’s been a while ago, but there in the news
again today so I thought I’d bring it up. If you remember back when Herbal Life was having the big fight between Bill Ackman and Carl Ikon, and they fought
on TV and everything. One name that got drug down with them was New Skin. That’s a name that I trade a lot. It’s a local company here for me, so I’ve got
friends that work there. I used to work there when I was actually going through college. Since the big pullback, New Skin has just had an enormous move
north of $110 a share. I think the Herbal Life mess pushed these guys down in the 30s. They’ve almost tripled in the last 12 months, since that big fight
Those are the types of opportunities that if you recognize them and if you have the ability to be a “home gamer,” and act on opportunity, these markets are
expensive and they’re hard to chase; but there is opportunity. It’s just a matter of finding it and recognizing it, then knowing the strategies that best
take advantage of how to go in there and do that.
Jill, it’s a pleasure. I always enjoy spending time with you. Back to you.
Jill: I just want to put it really quick, and obviously, it’s not … we’re not with the stocks … IBM is the high in the Dow Jones industrial average. Again,
we’re not moving a stock like an IBM, but just pay attention to it because I think it’s the first time long time you can see a name like this really
represent some opportunities. It’s a hard to trade off the charts and nothing makes sense anymore.
I think there’s some good opportunities here. We’re at 174. Look at that to get to 175. I think it gets interesting today. Again, even just where we
recommend … where is it? Where do we recommend those options when we were talking in the beginning?
Greg: We were looking at the dips.
Jill: Yeah, they’ve gotten four or five-ish cents more expensive. These are the things that you want to take a look at. That’s why I really enjoy doing
these webinars with you guys monthly … and obviously Travis has been closer to you now day in and day out, because it gives us an opportunity to follow up
on our ideas.
We’re out of time. I could do this all day long. I’m kind of bummed.
Greg: That’s okay, Jill.
Travis: Jill, I appreciate it. I know you have extremely busy schedules, so it’s always nice to bring you guys together. For you folks who did jump on the
webinar today, I know when we kicked things off, I said we have another special event coming up next week. I want to make sure and show this.
For those of you who are current OptionsAnimal students, this won’t be as applicable to you because you already have access to it. Those of you who are new
to our community here at OptionsAnimal, we’re going to offer the opportunity for you to sit in on one of our educational classes for free.
Again, sit in on it. See how it flows, communicate with the students, communicate with the instructors, and see what you can take away from it, and how it
can help guide you in today’s trading. This is coming. We are an advanced and accredited curriculum here at OptionsAnimal. We are accredited, much like any
college or university. That is something that differentiates us from any of the other educators out there. We would love to have you sit in on a class. I
do apologize; this will be limited to the first 25 people. We’re tight on space in our classes. We have a lot of people in the webinar today, so we’ll be
limited to the first 25 people.
We have a phone number there. If you happen to be at work and you can’t get to a phone or you’re tied up, you can email us too. Just customer service at
optionsanimal.com. We’ll get you all set up. So you don’t feel like you have to call in if you’re tied up. You can certainly email us and we will get right
back to you and get you all set up for the class next week.
Again, it’s an absolute pleasure having you all with us. Greg, Jill, I thank you for spending some time, and I look forward to the next one. Thanks again.
Jill: Excellent. Thanks so much guys. Have a great week.
Travis: All right everybody, happy trading. Take care.