Chungst

A Low-Risk Cracker Barrel [CBRL Group] Options Play

Mr. Price:

You already contradicted yourself based on your comments here and your comments on MicroStrategy Inc. (source: seekingalpha.com/artic...)

You do these trades every day because you use leverage. Someone who doesn't want to use leverage, i.e. using cash collateralized puts, must provide more capital.

Third, take the challenge and perform the trade WITHOUT leverage.

The facts speak for themselves.

The Long Case for ThinkorSwim Group

In the 9 months or so that I was a subscriber to Investools, there was a character named "Andrew Neill" who came across as the poster child of Investools. Mr. Neill repeatedly claimed he could make 4% a month (that is 4% each month). Mr. Neill probably meant well but based on his numerous posts on Investool's message boards, it was clear he had no idea how to calculate performance returns. I specifically recalled how I challenged certain assumptions Mr. Neill had used in his BOOM options trade and thus arrive at his rosy performance numbers. The industry standard for measuring investment performance is GIPS, of course. Let's face one simple fact, some of the best and brightest minds in the investment community couldn't produce 4% a month, but Mr. Neill and so many others on Investools claim such feat is doable because they have done so themselves (without providing audited proof, of course).

That gets to my point. TOS will be like a hamster or rat on a treadmill. TOS boasts great trading statistics because Investools had been pushing Iron Condors, i.e. four-legged option trades (i.e. 4 commissions) as opposed to plain vanilla calls or puts. [As a side note, one company called Condor Options -- another seekingalpha contributor -- claims one could "generate consistent 10% monthly returns with just 10 minutes a week" (www.condoroptions.com/)] This brings up the key point that individual investors are drawn to the high monthly returns (be it 4% or 10% a month) without an eye to risks involved, taxes, commissions, or other frictional costs.

Here's my next point -- based on my observations of numerous posts of Investools subscribers over the 9 months -- it was clear Investools got these new subscribers to trade options and these people clearly didn't know what they were doing. Eventually they will wise up and stop trading options since it the frictional costs were not adequately accounted for. That means for TOS to continue its current projectory of trading stats, it has to find new option customers to make up for those that will quit trading options.

My main assertion is TOS' current positive operating trends have certain assumptions that needs to be vetted out via proper due diligence. As a result, David Makula's piece clearly shows he has begun to understand the Investools demographics.

A Low-Risk Cracker Barrel [CBRL Group] Options Play

I can only speak facts. It is a SCAM because a person with "original cash outlay of $19,920" CANNOT generate the "$10,440 gain" WITHOUT a margin account and WITHOUT using leverage.

I challenge Mr. Price to open a new brokerage account with about $20,000 (to help cover commissions) and try to execute these trades without a margin account and without using leverage (i.e. cash collateralizing the options).

It is simple deception to claim cash on cash returns when failing to disclosed the amount of leverage being used.

A Low-Risk Cracker Barrel [CBRL Group] Options Play

Separately, I challenge Mr. Price to submit a discounted cash flow analysis to determine intrinsic value to CBRL and supply the necessary inputs so the work can be replicated.

Since Mr. Price claims I am "clueless," then he MUST know the intrinsic value because he has an idea as to the worst case scenario.

A Low-Risk Cracker Barrel [CBRL Group] Options Play

It is a scam because the returns are misleading and that's why I pointed it out.

The original post stated: "That's a $10,440 gain or 52.4% cash-on-cash if CBRL finishes above $30 on expiration day next January" without disclosing the use of leverage. This is not how one would calculate return under GIPS.

Mr. Price himself admitted to his own mistake in his earlier piece on Microstrategy when he wrote:

"You do need a 'margin type' account and paid-up marginable equity to do these trades. You do not need to lay out any cash other than your net purchase price less the option premimums received. "

"If you make $635 on the expired option in your example by writing a put against stock you are already holding it is, indeed, a return on a negative cost of capital.

If you want to calculate the return on your theoretical margin requirement of 20% of your net committment of $6315 then the return on that would be $655/$1263 or 51.86% for the eight months until expiration [assuming the shares stay above $70]."

source: seekingalpha.com/artic...

Clearly, Mr. Price is trying to fool people again. If he agreed to the use of margin to put on the options trades, then he agreed cash on cash returns was misleading. He can't have it both ways (personally, he is the one who is cluesless regarding his hypocrisy).

A Low-Risk Cracker Barrel [CBRL Group] Options Play

It's a scam -- the writer wants you to use leverage (i.e a margin account for the option trades) and then uses "cash on cash" returns (I advised the writer many times before). It's basic smoke and mirrors designed to fool people.

Also, the writer doesn't have a clue to the intrinsic value of CBRL and then makes this dubious claim the worst case of "is that you'll end up owning 2000 shares of a fine stock at a price below the lows of 5 of the past 6 years." That is clearly not the worst case scenario.

If you read his other articles involving options, it's practically the same format -- long a stock, sell a covered call and sell a put.

Making Sense of David Einhorn vs. Lehman Brothers

"Mr. Einhorn’s repeated public slamming of Lehman Brothers reportedly has contributed to the decline in Lehman’s stock price."

Give us A BREAK!!!

Mr. Einhorn has been short LEH for quite some time (a number of months now!) and that has been BAKED into the stock price. LEH's stock declined quickly for a host of reasons, many of which will never be explained. Mr. Einhorn's comments may be a catalyst for said decline, but LEH's decline was due to the entire market forces at work and not solely due to an existing (limited) position in Mr. Einhorn's $6 billion hedge fund.

The current high volatility in LEH options reflect both GREED and FEAR in LEH stock.

GM Calls the Top for Oil

"Also everyone states that GM and the others where only building what the consumers wanted, well if GM and the others only built certain type of vehicles be then gas, diesel or hydrogen, or electric we would have bought them as we would have had no choice that is all there would be on the market."

That is completely nonsense. I, like so many people, want to buy a hybrid but are not willing to pay a huge premium for the hybrid technology. As a result, I will wait until the hyrbrid technology's premium declines to a level where it becomes a no-brainer to pay for the extra cost.

As for diesel, I would like to buy a diesel car and Mercedes has a product that can be sold in all 50 states. Unfortunately, while gas (87 octane) goes for $4.30 a gallon, diesel costs $5.00 a gallon and that alone will make the diesel engine uneconomical use to -- not to mention not all gas stations sell diesel. As for hydrogen (or natural gas) technology, there aren't enough refueling stations to allow to me to use a hydrogen car on extended trips.

Right now, the current refueling infrastructure in the US makes it compelling to buy a traditional gas-powered car, especially if you buy a used car. The costs of hybrid technology has reached the level, where it will displace a traditional gas-only vehicle.

Also, as I stated earlier, GM was willing in 2003 (almost 5 years ago) to selling hybrid vehicles so long as consumers were willing to step up to the plate and pay the premium. Obviously consumers didn't step up until recently.

GM Calls the Top for Oil

To IXLR8, the new Toyota Tundra is result of a paradigm shift at Toyota. In the past Toyota didn't want to compete against Ford & GM in full-size trucks -- that all changed when Toyota decided it wanted to the largest car manufacturer in the world. Plus the Tundra was a great way to bring competition to Ford after Toyota had taken so much car market share from Ford. Recall that the Ford Taurus (and Mercury Sable) was at one time the best selling passenger car in America.

GM Calls the Top for Oil

Having covered the auto industry for a few years -- I will say the auto industry are just like any other consumer manufacturer in that they give consumers what they want. GM, Ford, Chrysler wouldn't have built those SUV's and truks if the demand wasn't there. If you looked at the market studies, the market demographics, etc, the automakers have a good idea of what consumers want. Let's be fair to GM, Wagoner stated GM has the ability to produce as many as 1 million (mild) hybrids if consumers wanted that back in 2003 (source: www.usnews.com/usnews/...)

Here are the key words: "The world's largest automaker last month said it would put 1 million hybrid vehicles on the road by 2008, many of them the biggest trucks and SUVs in its fleet. That's if demand materializes." I still remember that speech. GM is huge on mild hybrid, i.e. stop and go technology. GM is also betting a huge amount on hydrogen / fuel cell technology. GM entered into the largest fuel cell project in 2003/2004 timeframe with Dow Chemical (source: www.dow.com/commitment...)

So the answer to your question: "When was the last time a US auto manufacturer got ANYTHING right?"

The get many things right -- the problem with any company is to forecast demand and when you have an industry that is capital intensive, highly unionized, selling expensive durable goods, facing huge amounts of regulation, it's not possible for a company to roll out new products on a dime. If consumers wanted mild hybrids back in 2003, GM would have built them.

Why Watching Bankruptcies Can Help Stock Performance

to fishlake99

My comments was about average "solo" driver (the guy that lives in the truck) limited to 10 hours a day. I understand trucking firms also use teams -- but the majority of long hual-trucks are driven by an individual driver.

Companies like FDX and UPS (or WMT) are separate from the tradition trucking companies. I think you will agree my comments are geared toward the trucking pure plays.

Also, my general comments are about the trucking industry as opposed to specific trucking companies. I can make a general comment that trucking pay is poor, but anyone who works in the industry knows how much WMT or UPS will pay (yes, a truck driver can make over 6 figures annually at UPS!).

Lastly, as for my 21st century comment, just recall the average class 8 truck is using an engine technology developed in the 19th century. Separately, the cost of diesel costs over $5 a gallon in some parts of the US -- what will happen when diesel reaches $6 or $8 a gallon? My point is the trucking (like the airline) industry was built on cheap fuel. If you do the math of an average truck going 150,000 miles a year at 6 mpg, it will require 25,000 gallons (ignoring idling, etc). When diesel was under $3 a gallon, the system was still profitable, but at $5 a gallon, the system is breaking. In the 21th century, the price of diesel will not be as cheap as what we had in the 20th century.

Cheers.

Why Watching Bankruptcies Can Help Stock Performance

Correction - a solo driver, on average, can't drive more than 10 hours a day so that truck is limited to 10 hours of use. The 14 hours is work time. I'm ignoring exceptions like the agriculture industry that run their drivers more than 10 hours.

Why Watching Bankruptcies Can Help Stock Performance

to biggus --

A few points to consider:

I covered the railroads as a buy-side high grade analyst for 2+ years a few years back and all I hear on the conference calls were how the big 4 railroads (UNP, BNSI, NSC, and CSX) were taking business from trucking companies. A railroad may run at 30 mph but it can run almost 24 hours a day in theory, far more than an average truck driver that is limited to 10 hours of drive time on crowded highways. I specifically recall UNP telling listeners how if the product got on its system, it could deliver across the US from the west coast to the east coast in as little as 3 days, maybe 2 days. Think about it for a second, a truck (which is an expensive piece of capital) with a solo driver can't be driven, on average, 14 hours of every day -- which is a waste of capacity (airlines typically fly 8 to 10 hours a day as well). Trucks just can't compete with these types of economics. Look at Warren Buffett and his acquisitions in railroads of late.

Companies like WMT cherry pick the best drivers (i.e. great safety records over a number of years) and paid them accordingly. It is not an internal fleet per se, it is when the internal fleet is an integral part of operations that is important. Not all internal fleets are the same.

IMHO, the biggest problem with the trucking industry is the employees. The high turnover, low pay considering the standard doesn't allow for overtime at 1.5x pay like most normal jobs, poor working conditions, living in a cramp box for long-hual drivers, etc. Compare that to WMT's internal fleet of highly paid drivers that are also highly motivated to do a good job. It's so obvious why the trucking companies are having a hard time succeeding -- the industry needs to get modernized into the 21th.

Again, don't take my word for it -- listen to Buffett who historically liked trucking firms to railroad companies and now switched his mindset once he saw how efficient railroad companies were moving products across the US.

Cheers.

Eye on Ennis Inc.

I own EBF because the earnings yield was over 10% when the yield on the 30 year US Treasuries was 4.50%, respectively. The annual 0.62 in dividends is quite sizeable for a stock at this price range.

The only thing about EBF is their capital structure -- before they were factoring their receivables and that made debt a lot less than it should be. With the current borrowing base lending facility, it gives people a better read on EBF's leverage position.

Also, while EBF hasn't repurchased material amounts of its shares, the company has been making sizeable acquisitions -- only time will tell if shareholders would have been better off with the share repurchase instead.

Cheers.

A Corporate Bond Strategy Worth Considering

to jswede:

Having worked in the industry for a long time, it was obvious for me to spot the sale's pitch (which were highlighted in bold per the writer):

"the tightening of corporate bond spreads has about run its course and is exhorting investors to buy protection against spread widening."

The spiel is if you want to continue to outperform your benchmark, talk to us about this trade (i.e. buy protection) because our shop knows exactly the right trade for your shop.

"(as far as "buying protection", that would be done in the CDS market, and this piece is certainly not targeting anyone involved there.)"

If jswede had worked in the industry, then jswede would know any buy-side shop can buy protection from the dealer -- which is what the dealer wants in the first place. The dealer has a huge informational advantage in his favor.

Cheers.