Seeking Alpha
View as an RSS Feed

Mark Bern, CFA  

View Mark Bern, CFA's Comments BY TICKER:

Latest comments  |  Highest rated
  • Quick Chat # 285 [View instapost]
    May you all have a wonderful Thanksgiving and remember those times in life worthy of the occasion!
    Nov 25, 2015. 11:06 AM | 3 Likes Like |Link to Comment
  • Quick Chat # 285 [View instapost]
    Upward revision to Q3 GDP may make a Fed rate increase easier to justify. It comes down to U.S. strength vs global weakness. A rally may come as U.S. is viewed as the only safe place to put money (just as has be written many times in this thread). So, even in the face of weakness may come strength.
    Nov 24, 2015. 11:27 AM | 1 Like Like |Link to Comment
  • The Time To Hedge Is Now! November 2015 Update [View article]
    kg2931 - I apologize that I did not include this in my above response but there is more to the strategy that I outlined.

    If the stock remains within the $12 to $20 range through April 2016, you will need to roll the position forward into contracts that expire further out and continue to do so until either the company strategy begins to work (and then you will want to buy back the calls position) or the stock breaks lower and you have profits on your put position.

    If the later happens you will want to take profits when it appears that the stock has bottomed or that it hits a price at which you really, really want to own more shares. At this point, you sell the puts to take profits and use the gains to buy more shares for when the business transition strategy starts working, margins expand and profits shoot through the roof. In any event, if the share price falls below $5 I would take profits because there just isn't much more left on the table and greed often leads to losing the bird that was in the hand.

    Again, I hope this helps.
    Nov 23, 2015. 05:50 PM | Likes Like |Link to Comment
  • The Time To Hedge Is Now! November 2015 Update [View article]
    kg2931 - I hear you on the wait. MU does have future potential but if the U.S. economy falls into a recession I fear more downside is likely. I also believe (and this may be hard to take) that MU shares could get as low as $5 during a recession. What you might want to consider is selling some April MU calls with a strike of $20 for about $0.50 and using that money to buy some April MU puts with a strike of $12 for a similar amount. It might cost you the commissions and about a nickel a share. What this position would do is limit both your downside risk and your upside potential should the stock break one way or the other. Whether taking the risk that the stock might jump and hold above $20 at the April 15, 2016 expiration is a decision I cannot make for you.

    But if the stock falls your positions would be protected from any losses below $12. That might make the wait less harrowing. But you need to consider whether risking having the shares called away at $20 and having to recognize the loss is worth the cost of the downside protection.

    Of course, you would need to trade 20 contracts on each side to cover your full position. I do not know whether MU will fall more between now and January (or April for that matter) as I do not know when the next recession will hit. But the global economy seems very weak and central banks are running out of ammunition, so it could come when we least expect it. That is why I am hedged. I included a brief tutorial on options in Part III of the series. You can find the link here:

    Just click on the link and then click on Part III.

    I hope this helps.
    Nov 23, 2015. 05:02 PM | Likes Like |Link to Comment
  • Quick Chat # 285 [View instapost]
    DG - No need to be humble when you're probably right! :)
    Nov 23, 2015. 11:41 AM | 2 Likes Like |Link to Comment
  • Quick Chat # 285 [View instapost]
    shb - I agree. I'd much rather create jobs in the U.S., but if the only options are creating jobs in China or Mexico I'd vote for Mexico since that may weaken the resolve of immigrate illegally into the U.S.
    Nov 21, 2015. 06:40 PM | 4 Likes Like |Link to Comment
  • The Time To Hedge Is Now! November 2015 Update - Part II [View article]
    SRWCMW - I sell out-of-the-money "covered calls" only on stocks I own for extra yield. I generally do so only when the stock is near its high. I do not want to lose my shares by having them called away. I do not use them as part of my hedging strategy. I never, never, never sell naked calls (calls on stock that I do not own). That is extremely risky.

    I buy out-of-the-money puts on companies that I do not want to own as part of my hedge strategy. I sell out-of-the-money puts on companies that I do want to buy when the share price is in what I deem as bargain range in hopes of picking up more shares at a deep discount to value.

    Thanks for asking.
    Nov 21, 2015. 06:37 PM | Likes Like |Link to Comment
  • The Time To Hedge Is Now! November 2015 Update - Part II [View article]
    Grant - Good questions!

    First, I do not expect that a 25 bps rate rise by the Fed, whenever if comes, will have much direct impact on the U.S. economy. I think the equity markets have such an eventual move priced in. But the potential global repercussions could be mover pronounced. I wrote articles not long ago about the Energy Sector Outlook and Oil Producing Industry that goes into detail about my thoughts of how I expect it could play a role in emerging market turmoil similar to what happened when the Fed started to reduce QE. However, I think that while the results could be similar, the reasons that create the problems are different. Of the two articles the one with the better explanation is linked below.

    I like TLT and TBT when I expect a much larger move to occur over a shorter period that what is likely today. That does not mean a small profit cannot be made in these instruments in a quick in and out play. However, I do suspect that some of the move will occur prior to the actual rate changes and securities tend to price in expectations.

    I will be more interested in TBT when I expect inflation to rise again at some point in the future. I may be wrong but I really expect inflation to remain benign for at least the next five years, possibly more. Many resource, manufacturing and transportation industries have built far more capacity than will be needed for some time. Without demand rising to fill the void we should remain in a deflationary economic environment. That is why rates are being held artificially low and why central banks around the world are printing money in a feeble attempt to create inflation. A tidal wave of change in demographics in many developed countries is also contributing to this condition. Supply and demand need to be more close to a state of balance before I think we need to worry much about inflation. But when it comes, TBT could be a great hedge vehicle.

    Conversely, TLT is a good holding when interest rates are higher and the economy is weakening. When the Fed begins to reduce rates again from the top of the next cycle TLT will be a great way to hedge for those who do not wish to buy bonds.

    I hope this helps explain my opinion. I am not a genius and I, like everyone else, get some things wrong (especially in terms of timing), but those are my views.

    Nov 21, 2015. 03:02 PM | Likes Like |Link to Comment
  • Quick Chat # 285 [View instapost]
    DG I prefer the natural method of attaining clairvoyance: the peyote cactus.
    Nov 20, 2015. 04:21 PM | 3 Likes Like |Link to Comment
  • Quick Chat # 285 [View instapost]
    DG - I like your thought process.
    Nov 20, 2015. 11:18 AM | 3 Likes Like |Link to Comment
  • The Time To Hedge Is Now! November 2015 Update - Part II [View article]
    Impeccably timing! Now, if you bought them on May 23rd I'd really be impressed. Just kidding. Getting that close to what may have been the high was a good entry. What made you choose to hedge in the Spring?
    Nov 20, 2015. 11:06 AM | Likes Like |Link to Comment
  • The Time To Hedge Is Now! November 2015 Update - Part II [View article]
    Marty C - I explain why I don't use ETFs in Part V of the series. You can find a link to any of the articles in this series by going to this link:

    I hope that helps.
    Nov 19, 2015. 08:41 PM | Likes Like |Link to Comment
  • The Time To Hedge Is Now! November 2015 Update - Part II [View article]
    We don't know that the Fed owns stocks. I am not saying I would be surprised, but suspect that the Fed merely finances the purchase of stocks by others. China is more directly and openly involved. I would really like the Fed to be audited every year to understand what it really does and does not do.

    But beyond that I still believe that market forces will prevail in the end.
    Nov 19, 2015. 08:39 PM | Likes Like |Link to Comment
  • The Time To Hedge Is Now! November 2015 Update - Part II [View article]
    Sharbador - Generally, when a stock stock hits my target price I sell the put option for the increased premium price. I just want the gain and am not interested in owning the stocks I use in this strategy.

    I use put options to purchase stocks at a discount by selling them at a strike below the current price. I only use this strategy to buy stocks that I really want to own long-term and use strike prices at which I would really like to open a position. I also use options in other ways.

    A good example that I wrote about was Apple (APPL) back before the stock split. Here is a link to that full article if you are interested:

    I created a synthetic position in APPL without buying the stock. I use both puts and calls. The stock was trading at the time around below $600 and I expected it to go to $700 within the next few months (which it did). At the time I really would have liked to own the stock at $400 which represented a discount of about 32% to the price at the time. That seemed like wishful thinking then, especially with earning likely to skyrocket at the next quarterly report. I sold a put that expired in over a year with a strike of $400 at $38. I needed $20,000 of cash in my account to cover the puts in case of exercise. I then used a bull call spread with calls expiring in the same month as the put with strikes of $600 (long) and $650 (short). I just wanted to take up to $50 out of the stock movement. The stock went to just over $700 and I took profits on the call positions. Then I let the put expire worthless and collected the additional $38 per share. The cost of the bull call spread was $19 per contract so I bought two using the money collected from selling put. I had no investment except for the cash I use to secure the put (the term generally used is a cash secured put). I did it in a margin account so I only needed $20,000 to secure the position. If I had done it in an IRA account I would have needed $40,000 to secure the $400 put option. APPL stock ended up trading near the $400 price before the options expired so I bought some at $410. But it never got all the way to $400. If it had I would have bought some more. That equates to a price of about $57 today.

    I provided that example because it illustrates how we can use options for many things, even to simulate owning a stock without buying.
    Nov 19, 2015. 07:48 PM | Likes Like |Link to Comment
  • The Time To Hedge Is Now! November 2015 Update - Part II [View article]
    stratti - I have taken a hard, long look at the VIX and have found that in the last couple of years (as the bull has aged) it rarely gets much below $12.50. It has been below that level but does not stay there very long. I have considered buying call options on VIX when it gets that low. But since it is not an equity and only trades in options I have not tested the water yet. I may try a small position if we get there again.

    I realize that many investor like the VXX which is a leveraged bear ETF based upon VIX futures. But the decay factor keeps me away from that one as it rarely gives the 3X change as advertised from what I have observed. I've made money with leveraged funds before but it was a nerve wracking experience. When it goes right the adrenaline rush in awesome. But when it turns you have to be ready to bail quickly. It resembles gambling too much for my purposes.

    I do watch the VIX movements every day. And you are right: when volatility is lower we get better prices for hedging.
    Nov 19, 2015. 07:26 PM | Likes Like |Link to Comment