Archive for June 2008
CCRT Puts Have Been Sold
Markets continued to sink lower in Friday’s trading session. The US Consumer Confidence data for June came in below expectations at 56.4 (56.5 expected). This shows a drop in Consumer Confidence from May, when the data was at 59.8.
CCRT was down 7% at one point, which is when the put positions were in the green. They have been sold for negligible profit. Ares Trading was able to avoid the 75% loss the position had incurred two weeks earlier, before the FDIC announced its plans to penalize CCRT for “deceptive marketing practices”. PRGS, ZMH, and SSL will all be closed out in the next 2 weeks.
Current Position Performance:
| Total Invested: | $1,336 | ||||||
| Total Return: | $1,682 | ||||||
| Unrealized Profit: | $346 | ||||||
| Unrealized Profit %: | 25.86% | ||||||
| Total Positions: | 6 | ||||||
| Average Days Held: | |||||||
| Date | Qty | Company | Contract | Strike | Expiration | Price | Cost Basis |
| 6/18/2008 | 5 | PIR | Put | 5 | July 08 | $0.15 | $75 |
| 6/20/2008 | 5 | PIR | Put | 5 | July 08 | $0.52 | $260 |
| Days | 2 | Profit % | 246.67% | Profit | $185 | ||
| 6/18/2008 | 2 | PRGS | Call | 30 | July 08 | $0.70 | $140 |
| Open | 2 | PRGS | Call | 30 | July 08 | $0.10 | $20 |
| Days | Profit % | -85.71% | Profit | ($120) | |||
| 6/18/2008 | 5 | SJM | Call | 45 | July 08 | $0.28 | $140 |
| 6/20/2008 | 5 | SJM | Call | 45 | July 08 | $1.27 | $635 |
| Days | 2 | Profit % | 353.57% | Profit | $495 | ||
| 6/18/2008 | 1 | ZMH | Call | 70 | Sep 08 | $4.50 | $450 |
| Open | 1 | ZMH | Call | 70 | Sep 08 | $2.78 | $278 |
| Days | Profit % | -38.33% | Profit | ($173) | |||
| 6/18/2008 | 1 | SSL | Call | 60 | July 08 | $2.30 | $230 |
| Open | 1 | SSL | Call | 60 | July 08 | $1.85 | $185 |
| Days | Profit % | -19.57% | Profit | ($45) | |||
| 4/10/2008 | 2 | CCRT | Put | 7.5 | July 08 | $1.51 | $301 |
| 6/27/2008 | 2 | CCRT | Put | 7.5 | July 08 | $1.52 | $304 |
| Days | 78 | Profit % | 1.00% | Profit | $3 | ||
Market Continues Downward Movement
Current Position Performance:
| Total Invested: | $1,336 | ||||||
| Total Return: | $1,628 | ||||||
| Unrealized Profit: | $292 | ||||||
| Unrealized Profit %: | 21.82% | ||||||
| Total Positions: | 6 | ||||||
| Average Days Held: | |||||||
| Date | Qty | Company | Contract | Strike | Expiration | Price | Cost Basis |
| 6/18/2008 | 5 | PIR | Put | 5 | July 08 | $0.15 | $75 |
| 6/20/2008 | 5 | PIR | Put | 5 | July 08 | $0.52 | $260 |
| Days | 2 | Profit % | 246.67% | Profit | $185 | ||
| 6/18/2008 | 2 | PRGS | Call | 30 | July 08 | $0.70 | $140 |
| Open | 2 | PRGS | Call | 30 | July 08 | $0.10 | $20 |
| Days | Profit % | -85.71% | Profit | ($120) | |||
| 6/18/2008 | 5 | SJM | Call | 45 | July 08 | $0.28 | $140 |
| 6/20/2008 | 5 | SJM | Call | 45 | July 08 | $1.27 | $635 |
| Days | 2 | Profit % | 353.57% | Profit | $495 | ||
| 6/18/2008 | 1 | ZMH | Call | 70 | Sep 08 | $4.50 | $450 |
| Open | 1 | ZMH | Call | 70 | Sep 08 | $3.10 | $310 |
| Days | Profit % | -31.11% | Profit | ($140) | |||
| 6/18/2008 | 1 | SSL | Call | 60 | July 08 | $2.30 | $230 |
| Open | 1 | SSL | Call | 60 | July 08 | $1.38 | $138 |
| Days | Profit % | -40.22% | Profit | ($93) | |||
| 4/10/2008 | 2 | CCRT | Put | 7.5 | July 08 | $1.51 | $301 |
| Open | 2 | CCRT | Put | 7.5 | July 08 | $1.33 | $265 |
| Days | Profit % | -11.96% | Profit | ($36) | |||
The Dow dropped ~360 points and the S&P has retreated below 1300. Oil Futures spiked above $140 a barrel. Is the current oil spike caused by a fundamental supply/demand issue or is it being affected by speculators? The Fed didn’t change the Interest rate, which means that it will be at 2% through Q3.
Current positions:
All the open positions, except for CCRT, are currently calls (ZMH, PRGS, SSL), thus being effected very negatively today. CCRT continues to go down and the position should be closed with profit by the end of the first week of July. ZMH, PRGS, and SSL calls will need to be sold by the first week of July as well, because they are uncovered and are way too volatile in this market.
Progress Software (PRGS) actually beat their earnings but they lowered their guidance, which in turn lowered their multiple. The call positions have lost practically all their value. This was a speculative play based off PRGS beating their earnings.
Ares Trading believes it would be prudent to write off these positions, with loss, and start fresh with hedged positions better acclimated to the current market environment. The positions are currently around 3 weeks from expiration.
Locked in Gains on SJM and PIR
Here are the realized gains for the SJM and PIR puts. They were bought just before earnings announcements revealed weak earnings and a lowering of their yearly guidance.
Realized Gain
| Date | Qty | Company | Contract | Strike | Expiration | Price | Cost Basis |
| 6/18/2008 | 5 | PIR | Put | 5 | July 08 | $0.15 | $75 |
| 6/20/2008 | 5 | PIR | Put | 5 | July 08 | $0.52 | $260 |
| Days | 2 | Profit % | 246.67% | Profit | $185 |
| 6/18/2008 | 5 | SJM | Call | 45 | July 08 | $0.28 | $140 |
| 6/20/2008 | 5 | SJM | Call | 45 | July 08 | $1.27 | $635 |
| Days | 2 | Profit % | 353.57% | Profit | $495 |
The other positions can be see in the positions page. They haven’t been closed yet and are slightly down. PRGS (Progress Software Inc.), which also released earnings on Thursday, lowered their Q3 guidance. They were able to beet estimates for their EPS but since they lowered guidance and said it was going to be a slow year their stock fell. Ares Trading considers PRGS a long hold and believes that the PRGS July Call will be out of the red by expiration.
Betting on Earnings
With the dramatic shift in price commonly occurring when a company releases earnings (up or down depending on whether they meet analyst expectations), the strategy is to speculate whether a company will report favorably or negatively. Instead of using complex spreads, the strategy is to use naked calls and puts to simply bet whether the company will be going up or down.
Out of the 3 earnings speculation positions, 2 were spot-on and the third was incorrect. Ares Trading initiated positions on the following companies:
PIR (Pier One Imports Inc.) Earnings came out today – Short
PRGS (Progress Software Corp.) Earnings came out today – Long Incorrect
SJM (Smuckers Co.) – Earnings came out today – Short
SSL (Sasol Ltd.) – Medium Term Long
ZMH (Zimmer Holdings Inc.) – Medium Term Long
Unrealized Profit/Loss
| 6/18/2008 | 5 | PIR | Put | 5 | July 08 | $0.15 | $75 |
| 6/19/2008 | 5 | PIR | Put | 5 | July 08 | $0.45 | $225 |
| Days | 1 | Profit % | 200.00% | Profit | $150 | ||
| 6/18/2008 | 2 | PRGS | Call | 30 | July 08 | $0.70 | $140 |
| 6/19/2008 | 2 | PRGS | Call | 30 | July 08 | $0.33 | $65 |
| Days | 1 | Profit % | -53.57% | Profit | ($75) | ||
| 6/18/2008 | 5 | SJM | Call | 45 | July 08 | $0.28 | $140 |
| 6/19/2008 | 5 | SJM | Call | 45 | July 08 | $1.03 | $513 |
| Days | 1 | Profit % | 266.07% | Profit | $373 | ||
| 6/18/2008 | 1 | ZMH | Call | 70 | Sep 08 | $4.50 | $450 |
| 6/19/2008 | 1 | ZMH | Call | 70 | Sep 08 | $4.45 | $445 |
| Days | 1 | Profit % | -1.11% | Profit | ($5) | ||
| 6/18/2008 | 1 | SSL | Call | 60 | July 08 | $2.30 | $230 |
| 6/19/2008 | 1 | SSL | Call | 60 | July 08 | $2.40 | $240 |
| Days | 1 | Profit % | 4.35% | Profit | $10 |
These positions haven’t been closed so neither the profit nor loss is recognized yet. They will be closed tomorrow and a realized profit/loss statement will be posted.
February Performance Posted
The current state of the market is very murky. There are many issues to consider: increasing crude oil and commodity prices – is it a bubble?, increasing wholesale inflation caused by the 2% Fed Funds Rate, further financial write-downs on sub-prime and CDO assets, and the general state of the economy. Before opening positions, Ares Trading is looking at all the factors and determining the broad sector trends to exploit through options and other financial products.
In the meantime, the performance for February has been posted. Ares Trading had approximately $2,000 to invest but managed to gain 31% through 11 positions and an average holding period of 4 days. Details of February can be found in the “Performance” page. In addition, an excel with all the holdings can be downloaded.
Picks for July, with rationale, will be posted Sunday June 22nd.
Potential Plays
Ares Trading is currently looking at a few potential movers. Here is the initial perspective. Further analysis and due diligence are required before opening any positions.
ZMH – Zimmer Holdings Inc. Long
LEH – Lehman Brothers Inc. Short
SSL – Sasol Ltd. Long
CCRT – CompuCredit Corp. Short
AAPL – Apple Inc. Short (near short term)
GS – Goldman Sachs Group Inc. Long (Earnings Tomorrow)
Ares Trading is now online!
Stay tuned for the latest picks, research, and market analysis.
