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As avid investors for years, our focus is on value and conservative investment ideas. We strongly believe in American capitalism, and understand today's unprecedented times, Never before have politics and investing been so closely linked. As avid tea party members, we know the frustration most... More
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  • Follow The VIX To Profits
    For some time now, we have been keen observers of the Volatility index (VIX) and right now we believe all investors need to try and understand what it meansWithout going into too many intricate details, it is one of the most reliable fear gauges in the marketWhen the VIX is rising like it is now, investors need to exercise more caution and be selective in what they are buyingYou can see right now how many consumer staples are outperforming the rest of market. Look specifically at Kimberly Clark (KMB), General Mills (GIS), Altria Group (MO), and Verizon (VZ) and you will see how well they are holding up.

    Getting back to the VIX, it is important to understand that when the VIX goes to extremes (above 40), we are almost always in the crux of a bottoming process and feeling the most painLike most painful events, it too will come to passLook at the chart below and see the last few times when the VIX made a significant spike.

    You will see the big spike in 2008 representing the Lehman collapse, the big BP oil spill in the spring of 2010, and now today

    Look at the chart below of the S & P and see what happened to the markets several months later.

    What you see is the markets eventually bottomed and moved higher once the VIX started to come downFear began to recede

    Right now it appears to us we are in the middle of a correction and would remain nimble and defensive until we see the VIX heading under 30 or a huge spike from here in which case we would be aggressively buyingTechnically the markets appear to want to grind lower and selling the rally's continues to work.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Sep 28 5:07 PM | Link | Comment!
  • Time to ring the register
    About the only thing certain in the markets these days is the fact that we are in unprecedented times.  The amount of uncertainty that prevails in the markets these days is unlike any other time in history.  Who would think that Greece would play such a role in what we are doing here in the US?   

    It's not just Greece that is wreaking havoc on portfolios but also the level of uncertainty that exists in policy(or lack of) coming out of Washington.  Many Americans are depressed and feel helpless about our country's current direction and are having trouble figuring out what the future holds.  Read any of the analyst's reports and you will see opinions all over the place as to where we are headed.  

    We are not convinced that the news flow is going to change much anytime soon and we would use the current bounce to take some trading profits off the table in the coming days.  Selling the rally's has been working since the summer and do not really see any reason why this will change.  We would note that in the very short term the markets seems to be grinding higher but that can change quickly as we have seen.

    Sticking with a conservative theme, a few stocks we continue to like longer term based on valuation are AT & T(NYSE:T), ExxonMobile(NYSE:XOM), Hess Corporation(NYSE:HES), Phillip Morris Int'l(NYSE:PM), and Cisco(NASDAQ:CSCO).  

    Our suggestion to ring the register is for those active traders who have managed to pick up a few winners near the recent lows and are sitting on short term gains or for those nervous investors looking to raise a little cash.

    We see some resistance at 1250-1260 on the S & P and would become more confident if we could close above it and hold in the coming weeks.  Until then, we are remaining cautious and looking for solid companies at reasonable valuations.  Earnings season is right around the corner and we will learn much more about how earnings are holding up.  

    Sep 20 4:16 PM | Link | Comment!
  • Consider using collars to protect long positions
    Having traded options for nearly 20 years, we have a bias to selling option premium since it carries a higher probability rateHowever, there are some occasions where the purchase of options makes sense and buying puts is one strategy to consider when you are looking to limit your risk to the downsideIn today's extremely volatile markets, some people might like to sleep a little easier at night and using collars makes sense.

    Using a collar strategy involves buying 1 put for every 100 shares of stock you currently ownThink of it as buying insurance on your stock in the event that the markets head lowerLike any insurance, there is a "premium" and that is the purchase price of the put option(s).

    One stock we like at current levels is Cisco Systems (CSCO) and believe it is a prime candidate for using the collar strategyTrading at less than 9x next year's earnings estimates, we believe the stock could trade back towards the $20 level in the coming months as the company makes strides in restructuring their businessHaving $8 per share in cash also bodes well for the company and should give investors some level of comfort

    Consider buying 100 shares of CSCO at 16.50 and at the same time purchase 1 December $16 put option for approximately $1.00Your maximum risk on this trade is if CSCO closes below $16 at expiration in DecemberYou would then be out $1.50 per share($16.50 + $1(premium)=$17.50).  Of course, anything higher than $17.50 is yours to keepIf the stock were to reach $20 by December, you will have made nearly double what you risked and still have further upside potentialWe also believe that on a technical basis, CSCO is showing signs of bottoming here and like the recent action.

    The collar strategy also works really well to lock in gains and still hold on to stocks for further upside without being stopped out of your winners.   In these volatile markets, it may make sense to hedge some of your gains.  

    Tags: CSCO
    Sep 13 6:05 PM | Link | Comment!
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