Chungst

Total Rating:
0 / 0

97 Comments

    • Fri May 16th 11:13 AM | Rating: 0 0
      Commented on:
      MicroStrategy: An Enterprising Small-Cap
      Again, you make no comment on taxes (on short term capital gains), which is a big killer on actual returns for options. That is to say your portfolio did not increase by "35.8%" on an after-tax basis.

      Second, you still did not address the risk-reward ratio.

      Third, if you acknowledge the role of using a margin account, then you must also acknowledge that your cash on cash return is "juiced up" -- i.e. using leverage. The alternative (non-leveraged return) is to use a cash collateral and that would in effect lower the return.

      Fourth, if you have been doing these trades for 30 years, all it means is you are comfortable taking this type of risk for 30 years.

      Cheers.
      View article »
    • Thu May 15th 15:42 PM | Rating: 0 0
      Commented on:
      MicroStrategy: An Enterprising Small-Cap
      The problem with trades like this one -- long 100 shares of a stock and short a straddle at or near the money strikes(1). Let's think about this for a second, you face 3 bid-ask spreads (as wide as $0.40 on the call side), you face 3 transaction costs, and you face short-term taxes on the options. The cash on cash return (1) is nice before commissions and taxes, but after these frictional costs, the trade is less desirable.

      The downside risk is that you have no idea as to the intrinsic value of MSTR so you are automatically assuming the about 15% price decline is an adequate cushion. Second, you looked at MSTR's historical valuation and you also assumed that was the correct valuation (stocks could be overvalue for long periods of time as evidenced by the dot com bubble!). Then you are hoping for the current P/E to expand to 19x.

      The first test would be a common sense test regarding risk and return, i.e. the ratio of upside return to downside risk. Since you never calculated the intrinsic value, you don't know the downside risk -- (btw, the intrinsic value should include the "$8.37" cash per share price). Therefore, you know your upside is capped at $19.81 a share but don't know your dowside risk (in theory, the loss could be $68.12).

      It's clear why people are so tempted by options, they can see the upside potential but fail to see the down
      risks involved. The reason why the cash on cash returns (1) looks so attractive is due to the excessive risks taking you are undertaking.

      Cheers.

      (1) The trade assumes the buyer has a margin account and sufficient buying power or capital to put on the option-side of the 3-legged trade. The actual return calculation needs to factor in this capital (which the author omitted), otherwise it distorts the true return calculations, i.e. the cash on cash return is ARTIFICIALLY INFLATED due to understating true capital requirement. Anyone can have inflated returns by omitting some or most capital required for the trade.
      View article »
    • Wed May 14th 15:51 PM | Rating: 0 0
      Commented on:
      A Look at Zhongpin's Modest Beat
      "Gross margin was 13.1% in the first quarter of 2008 compared to 13.9% in the first quarter of 2007. The year-over-year decline in gross margin was attributed to hog prices rising faster than the prices of pork products."

      This reminds of elevator analysis, something I was trained never to do as an analyst. Elevator analysis is something like sales went up, but margins came down more than sales, and thus EBIT is lower than prior year (akin to movements of an elevator), respectively.

      Stating the facts is nice and informative at a cocktail party, but it doesn't tell us the reason(s) why the facts happen as it did. Unless you know "why" gross profit declined, then you are just speculating because for we know, the company could have been testing a new product that positively impacted sales but since it carried lower margins, gross profit suffered. It could have been a timing issue as well. Anyone can make speculations.

      Cheers.
      View article »
    • Wed May 14th 15:16 PM | Rating: 0 0
      Commented on:
      Options Trader: Wednesday Outlook
      Mr. Davis:

      You wrote: " FSLR’s panels require Tellurium and it is a very rare metal that was $10/Kg when FSLR started using it in 2004 but ran up to $860 last year and, as of April 9th, was selling for $2,060 per kilogram (sic)!" and quoted the following article " seekingalpha.com/artic... " as your source.

      However, when I read that article, its uses "Yuan" and not US Dollars as the relevant currency. Here's the exact quote: "The charts show that tellurium price staged an incredible rally since mid January, raising from 860 yuan to 2100 yuan per kilogram, or US$300 per kilogram, a raise of 2.44 fold in less than three months. Tellurium went from US$10 a kilogram in 2004 to now over US$300."

      This clearly shows you are playing fast and loose with the numbers. It was 860 YUAN (not 860 USD) per kilogram in mid January (not at end of last year). It went from 10 USD per kilogram in 2004 to over 300 USD today as written in Mr. Anthony's article.

      In summary, Mr. Davis you need to check the investment thesis for your trade, especially since you failed to discern the difference between $10 and $300 as opposed $10 and $2,060, respectively. To most people, myself included, $300 is not even close to $2,060.

      Cheers.
      View article »
    • Mon May 12th 18:00 PM | Rating: 0 0
      Commented on:
      VIX to VXV Ratio Is Giving a Strong Bearish Signal
      You know it's a horrible index at spotting bearish trends when it fails to capture either the MLK / SocGen drop or Bear Stearns scare. In both of these cases, the major indices set trading lows that were not reflected by your VIX:VXV ratio. If it clearly doesn't work (since it fails the common sense test), then you shouldn't use it.

      That reminds me, with all the talk about VIX, VXV, etc. I should listen one of my favorite bands, VNV (Nation).
      View article »
    • Wed May 7th 16:08 PM | Rating: 0 0
      Commented on:
      Sears, Target, Office Depot, Walgreen: Bargains in the Retail Basket
      "This unique strategy is based on historical trends and levels of price to adjusted book value, and can be applied to stocks and indices."

      I sorry to say, but that sounds like investing by looking in the rear view mirror. If asset valuation metrics were insane in the past, do we than hope for the return of these insane metrics like some diety worshipped in ancient ways? Perhaps we should read entrails and bones as well. The intrinsic value of a business is based on two valuations -- (a) its liquidation value or (b) its going concern value.

      Any sound value investor should heed Mr. Munger's counsel and apply the wisdom of Talk 4 (2nd edition) from his book "Poor Charlie's Alamanck" and just ask the simple question how will a company like WAG survive the pressures of competitive destruction over the long term (i.e. the next 10 years)? I try to look into the future as best as I can and all I can see is that WAG in ten years from now will be a weaker company than WAG today based on the strength of WAG's competitiors, the ongoing competitive landscape in general, etc.
      View article »
    • Tue May 6th 15:30 PM | Rating: 0 0
      Commented on:
      Friday's Options Report: CFC, NMX, CPRT, AIG, CSCO, INTU, SWIM, MNST, JAVA, MSFT
      To User 187558, for options traders (and stock investors alike), the writer is giving "color" as to why these stocks and options had such high level of activity on a relative and absolute basis, respectively. We will never know the complete reasons why suddenly so many options were traded for XYZ stock, but being aware that such movement has taken place gives us readers an opportunity to see the writer's explanation of why these trades were being made based on the particular options bought and sold. That is to say I don't necessary agree with the writer's assertions, but I appreciate the "color" and the update on these sizeable moves.

      For SWIM, it recently announced that the SEC began an inquiry. In its form 8-k filing, SWIM stated:
      "The Company is cooperating with a non-public, informal inquiry by the U.S. Securities and Exchange Commission ("SEC") relating to representations by certain presenters in certain portions of their presentations at some of the Company's seminars. The Company has been cooperating with and intends to continue to cooperate with the SEC. Because it is ongoing, the Company cannot predict the outcome of this informal inquiry at this time, and, as a result, no conclusion can be reached as to what impact, if any, this inquiry may have on the Company or its operations."

      From my personal experience (at a paid seminar) -- SWIM put on a "full court press" (this is my opinion) to get people to buy more expensive courses -- their PHD course had a list price as much as $35,362 but was being discounted to $23,999 at the seminar good for two people. The upsell was unbelievable (again, my opinion) and continued one more time even after the formal seminar was over! It was supposed to be a 2-day seminar on learning their famed "3-green arrow system" and boy, did the instructor talk about options and 'complex' option-strategies (like an iron condor, a four-legged trade, that were beyond the scope of the basic stock course) and asserted numerous questionable investment strategies / results. I am not surprise by the SEC inquiry especially since SWIM members constantly "brag" (again, my opinion) how they can make "4% a month" on SWIM's dedicated message boards for paid subscribers. I understand GIPS and have worked in performance attribution so I know how difficult it is for a portfolio or a composite to each at a rate of 4% a month.

      This was a self-inflicted injury for SWIM. Notwithstanding my aforementioned comments, SWIM does have a real franchise like "Toolbox" and "Prophet" with recurring income streams and a highly ranked options firms called ThinkorSwim that is gaining accounts. In fact, SWIM reported a profit for its recent fiscal quarter.

      Cheers.
      View article »
    • Tue May 6th 02:44 AM | Rating: 0 0
      Commented on:
      INVESTools: The Bull Case
      Mr. Lewis, are you still bullish on SWIM? Please advise as I would like to hear your current investment thesis on SWIM if you are still long the name.

      Cheers.
      View article »
    • Tue Apr 29th 07:33 AM | Rating: 0 0
      Commented on:
      How To Buy a Bank (and Other Beaten-Down Stocks)
      I remember the banking crisis in the early 1990's -- back when NYC has numerous money center banks such as Manny Hanny, Chemical, Chase, etc. and Chase traded under $10 a share (back then Chemical was too big to fail). As I look at Mr. Davis' investment thesis on banks, it's clear to me he is a gunslinger -- shoots first and asks questions later -- since there is no analysis of a bank's stock price in relation to its book value, respectively.

      There's nothing wrong with taking risks or using options (a levered product) to employ these risks. But once you factor in frictional costs, i.e. wide bid-ask spreads, commissions (especially for the rolls), and short-term taxes on any gains, there's not much return left to justify the risk taking in the first place.
      View article »
    • Tue Apr 29th 07:24 AM | Rating: 0 0
      Commented on:
      Market Bulls: Everything's Coming Up Roses?
      People need to understand Herb Greenberg's background since he gets "leads" or "tips" from "knowledgeable&qu... people for his articles. And, when it's turn to speak for himself (live for TV), it's "maybe."

      So much for going out on a limb, having a conviction, or taking a position. It's so clear to me Herb prefers the safety of accessing his network to appear inciteful (not insightful!).
      View article »
    • Sun Apr 27th 17:05 PM | Rating: 0 0
      Commented on:
      Why We Doubled Our Position in Borders
      IMO, Mr. Tilson got it wrong.
      First, who wants to pay 6X multiple for a business that hasn't been profitable for the past two years?

      Second, why didn't Mr. Tilson factor in Capex in his valuation -- Capex averaged $160MM for the past three years.

      Think about it, it's a money losing business AND it requires $160MM, on average, for Capex needs. Based on these observations, Mr. Tilson believes it is worth $14 a share.
      View article »
    • Sun Apr 27th 06:19 AM | Rating: 0 0
      Commented on:
      What Is High Implied Volatility?
      Any person who trades options knows there are at least three types of volatility: historical, implied, and theoretical. Implied volatility is simply what some formula spits out as in garbage in garbage out. Given the advances in computing power of late, you would think someone would have worked out a way to solve for theoretical volatility (of an underlying security) so we don't have to work with such a horrible metric like implied volatility.

      N. Taleb already shown investors many times (at least in two books no less) the folly of looking at implied volatilities. Additionally, comments by Warren Buffett over the years has demonstrated that traditional measures of risks (i.e. market volatility or stock price volatility) are grossly incorrect.
      View article »
    • Sat Apr 26th 20:27 PM | Rating: 0 0
      Commented on:
      Time to Upgrade Wal-Mart! (What's 35% Among Friends?)
      I would be very careful regarding WMT. It's been a long time since I had to use inflation accounting to properly value WMT's true EBIT and cash margins. When you have price inflation that is as much as 25% in one month in the goods WMT sells, WMT clearly benefits from this due to its superior operating model -- this creates distorts in WMT's earnings and cash generating ability.

      What I am stating is that the rapid price inflation is making WMT's operating results look a lot stronger than what it really is, and the CONCERN for investors is that this is not sustainable.

      Remember, current accounting under US GAAP for WMT is based on constant dollars and historical costs. During periods of rapid inflation, these accounting numbers will not reflect economic reality due to the distortions caused by inflation.
      View article »
    • Tue Apr 22nd 06:22 AM | Rating: 0 0
      Commented on:
      Wal-Mart: Another 20%-40% Upside in Store
      WMT is benefitting from massive price inflation in the products they stocks. A number of the food items went up about 25% in about one month based on my ongoing trips to WMT. I even confirmed this with a number of the employees.

      This is clearly inflation driving the margins and earnings and I don't believe this type of inflation-based gains are sustainable.
      View article »
    • Mon Apr 21st 02:04 AM | Rating: 0 0
      Commented on:
      Zhongpin, Inc.: HOGS Can Fly
      I looked at this company by accident when I was trying to type HOG (the motorcycle manufacturer) and instead, I typed HOGS. I figured what the heck, I'll take a lot at the financials. I never got comfortable with the HOGS' accounting results. First, I didn't recognize the accounting firm from Utah. Second, I didn't understand why the company has $48.7 million in cash as of 12/31/07 but also had $47.7 million in short term debt -- effectively, no surplus cash on about $291 million of revenues and profits of $18.5 million, respectively (note that comprehensive income, i.e. under FASB 130 -- was higher at $25 million!). Third, the company lacked a long-term (and stable) history. Fourth, keep in mind this company generated something like $24MM in Funds From Operations and Cash Flow From Operation was about half-a-million for 12/31/07 and that was a HUGE red flag in my book.

      It may be a great stock, but I never could get my arounds around the firm. In the US, HOGS would be considered a "roll-up" and these types of deals involve considerable risks.

      Lastly, most people would rather quote Warren Buffett or Charlie Munger as opposed to Ken Fisher. I don't mean to disrespect Ken's wonderful salemanship skills to grow his asset management firm in the penisula, but it's just thet Buffett and Munger are clearly giants in the investment field. Yes, I read Ken Fisher's book "Super Stock" when it first came out so I knew about the guy and his "glitch" concept when he was relatively unknown. Now, I can't stand the guy due to his incessant commercials.

      Cheers.
      View article »
Loading...
Symbols:
Authors:
Quick Links:
Contribute an Article Become a Seeking Alpha Contributor

Transcripts

More Transcripts»