Phillip, I have tried the strategy on three occasions. Two went successfully, and one I got called away. So overall the strategy has been fairly successful. What I have found to be the perfect implementation of the div arb strategy is implementing it on high yielding high beta stocks. I discussed this in another one of my articles. http://seekingalpha.co... Hope this help! Good luck and regards, Angad
Costly Mistakes I Have Made And How To Avoid Them Using Options [View article]
With all due respect selling front month covered calls seems to incur much greater trading costs and risk as apposed to selling long term call options once a year. Posing a much greater opportunity for error for a hands-off investor. There is a reason that the Buy/Write Index is strictly theoretical, and the corresponding ETF is a loosing play.
Granted the excess returns on the S&P 500 index are minimal but the real gain is the lowering of volatility, and as basic portfolio theory this is quite valuable. On an equity like Apple the strategy presents an interesting proposition.
I understand Management is an important factor, but by no means does a new management mean a company is transformed. A new high profile CEO is no a knight in shining armor that can rescue a company. As demonstrated most recently by J.C. Penny.
I have experience in the golf industry and know what moves products.Golfers always want to have the latest and greatest clubs that they saw their favorite tour player using on Sunday. Taylormade has this figured out. Do you think it is a coincidence that they have started marketing white clubs? It is all about brand recognition and Taylormade has it. Callaway has failed to differentiate their products since the last Big Bertha.
What technological innovations has Callaway had as of late? They were late to the party on MWT, Adjustability, and Aerodynamics. Looking at the future, what happens when Phil Mickelson retires? Who will be the brand ambassador? Additionally look at the bags of the younger golfers, most of them much prefer Taylormade. Callaway's customer base is aging.
Global markets will become increasingly more and more important for the large equipment manufacturers. As someone who has played golf at top courses in both India and China I can tell you first hand that Taylormade is far better represented. In fact Taylormade has set up stand alone stores in some of the top malls and areas of commerce in India.
Stockpicker, Callaway does still make a solid product, but the marketing and hype is missing and severely lacking when compared to its competitors. In the golf industry where products are quite similar marketing and the "cool" factor can make a large difference in sales. I do not recommend investing in a company solely because you believe it is a takeover target. If you see no other merits in a company other than it being a take over target, the chances are that potential buyers don't either.
The Rosetta Genomics Roller Coaster Ride [View article]
Great article, you provided a very balanced perspective. I personally feel, strictly from looking at the company's financials that owning this stock is like trying to catch a falling knife. There is no telling when and by how much management will dilute the shares. Additionally to get their products adopted by doctors they will need cash for marketing and such, which they do not have currently have. This means more dilution.
Rosetta Genomics: What Happens When The Music Ends? [View article]
I am not very familiar with bio-techs therefore cannot make any assessment about the current or future products, but ROSG's balance sheet is a train wreck. Shareholders will continue to get burned, this company is thirsty for cash and will issue shares any chance they get.
Inflation: The Next Crisis, And How To Protect Your Investments [View article]
Very apt analysis. Lack of liquidity is also the biggest reason real estate has not began rising. Consumers are unable to gain access to credit and therefore are unable to buy a home. Liquidity will start to return as banks become more confident in the state of the economy, which is a gradual process, but when that happens inflation will be extremely difficult to control. It is not a question of if but when.
Inflation: The Next Crisis, And How To Protect Your Investments [View article]
I anticipate inflation to start picking up when the mess in Europe begins to sort it self out. If you look at monthly inflation numbers, inflation was on the rise and was rising quite rapidly before the troubles in Europe escalated. The fear of a European recession has caused businesses and banks to freeze up liquidity and is therefore limiting inflation. Once Europe gets back on track I expect the trend of rising inflation to continue.
Khozem, I appreciate your input. An interesting Macro/Societal view of gold can be found by looking at India. India is the largest consumer of gold and this is causing the central bank of India to run into some problems. Not only is gold and unproductive asset, but the demand for gold is devaluing India currency as rupees leave the country in exchange for gold. The price of gold going up in terms of rupees is almost a self fulfilling prophecy. Imagine how much further India's economic development would be if citizens invested in productive assets such as equities or small businesses rather than gold.
Inflation: The Next Crisis, And How To Protect Your Investments [View article]
Natural Gas is a great opportunity but, the current surplus is quite worrying. For a long term investor that is not scared off by a little volatility Nat gas may be a great play.
Inflation: The Next Crisis, And How To Protect Your Investments [View article]
Denny, It may be tough to gauge because there are a few factors at play here being that TBT is a leveraged ETF, but just a rough guesstimate would lead me to believe that if treasury yields hit 4% TBT would trade about 70-80% higher than it is today.
Marc, Is there anything particular that I can clarify for you? I apologize if you found it to be confused. The VIX options market is quite complex.
Nc, "not based on the Black-Scholes method of pricing, but rather based on what will likely happen" Most options are based on the Black-Scholes method of pricing which takes into account many factors including the interest rate, implied volatility, strike price. This is largely not true for the VIX options market as there is no underlying asset therefore interest rate is not taken into account.
"VIX is zero sum, meaning that no actual wealth is created - it is just re-distributed" Every option trade on the VIX has two parties, a buyer and a seller. If the option becomes more valuable the buyer will make money and the seller will loose money. Since the options are cash settled the seller in the example will have to wire money to the buyer. This qualifies the VIX as a zero sum game.
"if the VIX was at 40 and strike 35 calls were selling at $2, someone could just buy the calls and exercise them upon purchase for a $3 profit" This is an oversimplified example I used to show that VIX options may be priced below their intrinsic value the (difference between the difference between the underlying stock's price and the strike price), this is because the market feels it highly unlikely that the VIX remain at the current levels by the time of option expiration. Due to the VIX being a European style option investors are not able to exercise the option before expiry, therefore eliminating the opportunity for arbitrage when options fall below their intrinsic value. Regards, Angad
Blue Chip Names That Missed The Rally And Are Set To Make A Comeback [View article]
Erick, I appreciate the insight. AA is a tough sell, but there is definitely opportunity there. Aluminum prices are at extremely low levels, but growth in India, China, and Brazil is still over 6%, and eventually demand from developing countries will buffer Aluminum prices. Additionally by selling options on AA you are providing yourself downside protection. All the best, Angad
When A Company Should And Shouldn't Pay Dividends [View article]
Robert, I stated that companies need the money more than you, for the following reasons. 1. Debt: Companies may have debt financed at rates much higher than rates individual investors can invest money at. Ex. Ford has debt costing them 7% a year, while as an individual investor your risk free rate of savings is less than 1%. It would be inefficient to return money to be invested at 1% when it could be used to pay down debt costing 7% 2. Acquisitions: Companies can acquire smaller companies that have synergy. Therefore making the business more profitable in the long run 3. Companies can invest in new technologies, upgraded plants, ect. making the companies more valuable and profitable in the future.
Implementing Dividend Arbitrage: Verizon Wireless [View article]
I have tried the strategy on three occasions. Two went successfully, and one I got called away. So overall the strategy has been fairly successful. What I have found to be the perfect implementation of the div arb strategy is implementing it on high yielding high beta stocks. I discussed this in another one of my articles. http://seekingalpha.co... Hope this help!
Good luck and regards,
Angad
Costly Mistakes I Have Made And How To Avoid Them Using Options [View article]
Granted the excess returns on the S&P 500 index are minimal but the real gain is the lowering of volatility, and as basic portfolio theory this is quite valuable. On an equity like Apple the strategy presents an interesting proposition.
Callaway: A Big Flop [View article]
I have experience in the golf industry and know what moves products.Golfers always want to have the latest and greatest clubs that they saw their favorite tour player using on Sunday. Taylormade has this figured out. Do you think it is a coincidence that they have started marketing white clubs? It is all about brand recognition and Taylormade has it. Callaway has failed to differentiate their products since the last Big Bertha.
What technological innovations has Callaway had as of late? They were late to the party on MWT, Adjustability, and Aerodynamics. Looking at the future, what happens when Phil Mickelson retires? Who will be the brand ambassador? Additionally look at the bags of the younger golfers, most of them much prefer Taylormade. Callaway's customer base is aging.
Global markets will become increasingly more and more important for the large equipment manufacturers. As someone who has played golf at top courses in both India and China I can tell you first hand that Taylormade is far better represented. In fact Taylormade has set up stand alone stores in some of the top malls and areas of commerce in India.
Callaway: A Big Flop [View article]
Callaway: A Big Flop [View article]
Callaway does still make a solid product, but the marketing and hype is missing and severely lacking when compared to its competitors. In the golf industry where products are quite similar marketing and the "cool" factor can make a large difference in sales.
I do not recommend investing in a company solely because you believe it is a takeover target. If you see no other merits in a company other than it being a take over target, the chances are that potential buyers don't either.
The Rosetta Genomics Roller Coaster Ride [View article]
Rosetta Genomics: What Happens When The Music Ends? [View article]
Inflation: The Next Crisis, And How To Protect Your Investments [View article]
Inflation: The Next Crisis, And How To Protect Your Investments [View article]
Gold: A Commodity Or A Currency? [View article]
I appreciate your input. An interesting Macro/Societal view of gold can be found by looking at India. India is the largest consumer of gold and this is causing the central bank of India to run into some problems. Not only is gold and unproductive asset, but the demand for gold is devaluing India currency as rupees leave the country in exchange for gold. The price of gold going up in terms of rupees is almost a self fulfilling prophecy. Imagine how much further India's economic development would be if citizens invested in productive assets such as equities or small businesses rather than gold.
Inflation: The Next Crisis, And How To Protect Your Investments [View article]
Inflation: The Next Crisis, And How To Protect Your Investments [View article]
It may be tough to gauge because there are a few factors at play here being that TBT is a leveraged ETF, but just a rough guesstimate would lead me to believe that if treasury yields hit 4% TBT would trade about 70-80% higher than it is today.
VIX Options, Explained [View article]
Is there anything particular that I can clarify for you? I apologize if you found it to be confused. The VIX options market is quite complex.
Nc,
"not based on the Black-Scholes method of pricing, but rather based on what will likely happen"
Most options are based on the Black-Scholes method of pricing which takes into account many factors including the interest rate, implied volatility, strike price. This is largely not true for the VIX options market as there is no underlying asset therefore interest rate is not taken into account.
"VIX is zero sum, meaning that no actual wealth is created - it is just re-distributed"
Every option trade on the VIX has two parties, a buyer and a seller. If the option becomes more valuable the buyer will make money and the seller will loose money. Since the options are cash settled the seller in the example will have to wire money to the buyer. This qualifies the VIX as a zero sum game.
"if the VIX was at 40 and strike 35 calls were selling at $2, someone could just buy the calls and exercise them upon purchase for a $3 profit"
This is an oversimplified example I used to show that VIX options may be priced below their intrinsic value the (difference between the difference between the underlying stock's price and the strike price), this is because the market feels it highly unlikely that the VIX remain at the current levels by the time of option expiration. Due to the VIX being a European style option investors are not able to exercise the option before expiry, therefore eliminating the opportunity for arbitrage when options fall below their intrinsic value.
Regards,
Angad
Blue Chip Names That Missed The Rally And Are Set To Make A Comeback [View article]
I appreciate the insight. AA is a tough sell, but there is definitely opportunity there. Aluminum prices are at extremely low levels, but growth in India, China, and Brazil is still over 6%, and eventually demand from developing countries will buffer Aluminum prices. Additionally by selling options on AA you are providing yourself downside protection.
All the best,
Angad
When A Company Should And Shouldn't Pay Dividends [View article]
I stated that companies need the money more than you, for the following reasons.
1. Debt: Companies may have debt financed at rates much higher than rates individual investors can invest money at. Ex. Ford has debt costing them 7% a year, while as an individual investor your risk free rate of savings is less than 1%. It would be inefficient to return money to be invested at 1% when it could be used to pay down debt costing 7%
2. Acquisitions: Companies can acquire smaller companies that have synergy. Therefore making the business more profitable in the long run
3. Companies can invest in new technologies, upgraded plants, ect. making the companies more valuable and profitable in the future.