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clharley

clharley
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  • Acacia Research Corporation - Meeting Unmet Needs [View article]
    As an investor in ACTG at these $20 -$30 levels, I'd be a little worried if they aren't "patent trolls."

    As I see this investment (and I believe the author does a good job of describing the landscape), there is an evolution with NPE's going from being perceived as "pirates" to fulfilling a less controversial role of simply rationalizing an extremely important economic space.

    But...don't be fooled, the big money is in successful, aggressive trolling (not a business model one touts in public) while the more mundane outsourcing in a competitive world requires a more normal business model (i.e. you can't have half your staff being VP's.)

    This is a transitional company and may be one of the few big winners that institutionalizes its activities. Someone will do it, but spread your bets. Over time, the dominant players will have a large share of a multi billion market with good prospects for internationalization of their portfolio management and outsourcing for smaller patent holders.

    This is an opaque management and reporting leaves much to be desired. This can best be represented by the head scratching when the stock plummeted and the primary response was; "let's use cash and buy up shares to get the price back up!) While it may make sense to buy back shares, it would make more sense for management and professional staff to take little in cash comp and lots in bonus paid in the form of restricted stock. Much of the cash was raised based on a business plan for expanding and buying portfolios (i.e. using the expertise of the high priced talent for growing the business, not playing financial engineer - Goldman and dozens of others are better at that.) The danger is that the transition from pirate to institution never takes place with the crew that has been successful in building the original business.

    So, I own it and keep an eye on it. Option action is reasonably good for a firm of this size and can help manage any position you might establish. Now is not the time to cap upside on this stock.
    Jan 11, 2013. 12:12 PM | 4 Likes Like |Link to Comment
  • Intel: Enough Of The Nonsense [View article]
    Interesting article and good discussion of the challenges and potential rewards.

    A small comment that doesn't have to do with your analysis but with general portfolio management. You note that you are short ARMH and seem to be very long INTC. If I were coaching someone and reviewing their portfolio, I would recommend someone with a strong, well informed view on INTC winning the battle with ARMH would play the possibility of being wrong with a long OTM call on ARMH, - exact oposite of shorting. The short seems too emotional for good portfolio management.

    Also, I agree that INTC is a long term story. INTC has very interesting LEAPS at low volatility premium. Look at the 2015's as the way to play long term upside with well defined risk.
    Feb 11, 2013. 01:14 PM | 2 Likes Like |Link to Comment
  • As The Surface Pro Succeeds And The Surface RT Fails - What It Means For Microsoft [View article]
    Well, I always like the discussions. They give me some insight into what issues are hot and, especially, what people who care think is going to happen.

    My bottom line continues to be that technology will maintain or, more likely, grow its share of overall GDP and share of wallet. But the technology, whether for consumers or corporates, spend is still a part of overall economic growth.

    Who is going to win and with what product can be discussed forever. Often, the most passionate arguments seem to be light on statistical backing.

    In making investments right now in the real world, I like the prices of many tech stalwarts even though the pricing reflects huge amounts of uncertainty and competitive threat.

    Unlike a decade ago, the stalwarts pay a dividend and that dividend is frequently in excess of 20 year treasuries and growing. The payers of those dividends are healthy in financial terms (healthier than almost any government entity and much better managed.) Add to that some ridiculously low implied volatility and I keep buying the stock, selling deep ITM calls for Jan 2014 and buying OTM calls for Jan 2015 on a wide variety of names. Some will stall but the ITM call covers damage while collecting the dividend and some will win big. If they all go up about 15%, I will lag the market but meet my personal portfolio targets. Sort of like making your own convertible preferred for companies that don't over that class of investment.

    CSCO is one of dozens - closed at $20.76 and yields 2.65%, Jan 2015 $27 call costs $.66, Jan 2014 $20 call can be sold for $3.35

    So you might own CSCO at $18 net, you earn 3.5% with likelihood div will grow and you get all upside beyond $27. If it hasn't done much in year 1, you can roll the call to earn more premium.
    Feb 21, 2013. 07:02 PM | 1 Like Like |Link to Comment
  • Paybacks Are Hell, But Volatility Creates Opportunity [View article]
    I would strongly discourage naked long positions in ETN's like VXX until you are comfortable with the impied volatility and decay associated with the way the instrument is structured. It is an excellent tool (I use VIX related ETF's actively) but it is a trade for a day or two and should be tied to overall portfolio strategy.

    If you want an education (besides the many good articles on Alpha), buy 100 shares of VXX and sell an ITM covered call against it. Go out a couple months on the call, there is excellent liquidity. Watch it for a few weeks and unwind. For very little dough (and probably making a little), you will see how a long isn't something you "set and forget."

    The nature of the ETN is to go to zero over a long time with wild spikes upward in markets like 2008 and 2011. The issuers does reverse splits to reconstitute the instrument at prices above single digits. PLEASE look at a ten year chart of VXX, or other similar instruments!

    You can view the decay like paying an insurance premium. With insurance you spend a set amount and do not expect to get the money back in a normal underwriting cycle. You expect to get paid when an abnormal event takes place. You might use it for a short hedge when you don't like macro data but have to travel or can't trade day-to-day.
    Dec 22, 2012. 06:45 PM | 1 Like Like |Link to Comment
  • Welcome To Silicon Wall: Missive From Berlin [View article]
    My 23 year old daughter lives in Berlin and loves it after about a year. She has lived and worked in the Bay Area, Boston and NYC. She free lances in PR and travel-related areas. Things she likes about Berlin: cosmopolitan, high energy, 24/7 arts scene, her friends and acquaintances can find jobs and live reasonably well on entry level income, rental cost (bigger, safer, cheaper than SF or NYC.) Berlin is attracting a high number of non German, 20-30 year olds and there is a highly creative and entrepreneurial segment of European immigrants. I have been surprised by her take on the city.
    Dec 21, 2014. 02:56 PM | Likes Like |Link to Comment
  • Why Intel Is So Tough To Own [View article]
    I like INTC as both an income and speculative stock. I think you can do a lot better than average in a bull or bear scenario with the stock and a little finacial engineering.

    Currently, I believe the incredibly low implied volatility presents opportunities. Those who are call writers may want to stretch their horizons to think about buying some long dated calls as a part of their strategy.

    At current levels, I like INTC financial strength and yield and see it as a core holding. I have no idea which speculative scenario will play out in the chip world but my thesis is that, at worst, INTC is a cash cow in a, still important segment of global technology.

    I am more concerned that the S&P run up has less to do with real individual economic progress (real per capita income growth) than with the Fed's 5 year war on savers (near zero percent interest, 12% inflation).

    I am long INTC. I am writing Jan 2014 ITM calls ($18 and $20). I bought Jan 2015 OTM calls ($25 @ $.96 is stupidly cheap with today's IV and likelihood dividend with advance in next 24 months - with higher IV and Div, the option will move positively on pricing models even if the stock price is not)

    I am normally a call writer but believe a number of LEAPS for INTC-like companies (ORCL, MSFT, VZ - very strong LT players with a lot of cash flow and huge market challenges) present similar opprtunites that look good in downside, muddle-through and expansionary scenarios by combining ITM sell 2014, OTM buy 2015.

    If you have been pondering being sort of long AAPL, this is a way to do it albeit with very different option spreads than you use with sleepy old INTC

    Jan 27, 2013. 02:46 PM | Likes Like |Link to Comment
  • Random Charts Tell Interesting Stories [View article]
    Regarding the CW that there is a huge pot of liquidity that will flow to risky assets, Zerohedge presented a contrary view recently.

    It points out that CD's and checking account liquidity are being invested somewhere by the recipient banks...where? Not in loans to businesses and indivduals. Data shows that while CD's and deposits have increased dramtically (as you show) that loan totals are flat with loan to asset ratio of major banks dropping significantly.

    The analysis then goes to dissect what JPM was doing with its excess liquidity (while not lending it in a traditional manner which was supposedly a major part of the reason to have QE after QE.) In JPM case, the treasury area set up massive positions in certain derivatives and asset pools. It tuned out that their "hedging" wasn't well supervised and thus the "London Whale" tale of summer 2012 followed by the sacking of most everyone in the treasury ranks of JPM that touched it. Even if banks are taking cash and investing in 10 year treasuries, it is not going to be asy to unwind as rates go up and prices dow with accompnaying losses at same banks and a Fed that can no longer buy.

    Point is that if banks are putting the funds to work in illiquid assets as they try to squeeze out basis points, the said funds are no longer available as some deep accessible pool of liquidity.
    Dec 27, 2012. 07:22 PM | Likes Like |Link to Comment
  • 8 High Growth Stocks At A Big Discount And With Low PEG, Low Debt [View article]
    My experience with ACTG is that you cannot expect much information as to what is going on.

    I would be more bullish if insiders were stepping up buying rather than using cash for a buyback. There has been some management turn over and regulatory criticism of the business model in general.

    It looks attractive to me below $25 and there is an acceptable active options market (my experience is that, while spread can be large, mid point is hit in a reasonable time.) Given opaqueness, an OTM put is recommended. A covered call at this price level would not be recommended given upside and huge hit to share price in last 6 months. The hit came with no major news or financial developments that would seem to justify the decline.
    Dec 27, 2012. 07:01 PM | Likes Like |Link to Comment
  • QLogic: 72% Upside Potential With Minimal Risk [View article]
    I have owned QLGC at times over the years and traded options. It is a stock I stopped owning years ago. It is still a stock I take a look at every once in a while due to it being a real competitor in an interesting market, having plenty of cash and no debt plus an uncomplicated, plausible upside scenario.

    As I see this stock now, it is a decent value story with upside coming from Mt. Ranier or being acquired. Most likely scenario is it will continue to drift until someone validates Mr. Ranier.

    The options activity is miniscule and that indicates to me that few have bought the story of "game change acoming." There aren't many even taking a limited play. This article is excellent pushes me towards starting to establish some small positions rather than just looking or keeping on watchlist status.

    Watch the options...when you see some real volume in trading, you will still have time to invest a decent price.
    Dec 22, 2012. 06:19 PM | Likes Like |Link to Comment
  • The 10 Biggest Cash Generators On The S&P 500 [View article]
    Heere is a simple strategy for high rated, cash rich, range bound stocks like MSFT.

    The trade begins with buying a stock you don't mind owning for the LT. A core holding

    If you like the price, say $27 for MSFT, buy it and sell ITM Jan 2014 call. The more bullish you are abou the stock and the market in general, the less premium you will take. If the stock keeps bouncing around, it has a nice dvidend and limited downside.

    Use a little of the ITM premium to buy something like OTM $35 Jan 2015 call. You get all the big upside if their initiatives come together but can miss out a bit if a run up stops in low 30's since you will probably have the stock called away in late 2013.

    There is very good liquidity in options for MSFT although you need a little patience and price checking as you get to 2015. Easy to sleep with this trade and accompanying cash flow.
    Dec 20, 2012. 08:44 PM | Likes Like |Link to Comment
  • Yield Comes With Risk [View article]
    I would caution anyone buying TLT unless you clearly understand duration and can live with the pricing scenarios that will accompany rising interest rates.

    It is government policy to push savers to take inordinate risk so if you must reach for yield, TLT is better than individual bonds in that you can set up DIY hedges.

    If you want to decrease the risk, get marginally higher return, give up the upside of 20-30 year maturities on UST yields falling to 1% and can lock in for about a year; look at buying TLT, selling a Jan 2014 call at about $115. While the quote on 12 month+ dates for options will have a wide bid/ask spread, I have not had a problem getting fast execution at, or near, the mid point. If you are really worried about the Fed losing control of its zero interest rate policy, buy an OTM put at 80 or 85 (it wasn't that long ago that TLT traded in the 80's (2010))

    Example using Friday close numbers
    Buy TLT $124.5 - distribution yield is about 2.72%, monthly pay
    Sell Jan 2014 $115 call - take in $11 premium - your yield will now be almost 3%. You can buy a Jan 2014 Put at $85 for about $.30 if you want to pay some insurance against rise of LT interest rates to 5%+ during next 13 months.

    Lots of work for a little pick up in return so you need to be working with at least $50k...but we live with US, JPN, EU governments at war with savers. Alternative is a 13 month CD at .5% or .24% for a treasury bill, .42 for an agency
    Dec 8, 2012. 02:23 PM | Likes Like |Link to Comment
  • American Capital Mortgage: 15.5% Yield And Lower Prepayments Than Annaly [View article]
    I find it interesting to compare but a couple things are unclear. I have owned AGNC, MFA and NLY plus some preferreds in the past having bought heavily in 2008-09. I have unwound 90% of my bets in the sector, keeping some preferreds of WRI, MFA and NLY. I avoid the sector for now awaiting the blow-up that will follow the end of Fed's experiment in ZIRP. The insolvency at FHA is just another sign that the end is near and market pricing will emerge.

    Observations:
    First, the more highly leveraged player in a ZIRP market is more likely to outperform as long a the Fed can keep control of setting ST rates at, or near, zero.

    I am unclear about the NLY portfolio duration versus MTGE? If MTGE is more leveraged and runs slightly longer duration, it will pick up NIR so long as matched funding costs are roughly equal.

    Leverage and duration probably explain a part of the divergence but not all. If it is not leverage or duration, what is MTGE's secret sauce? As I read this, I conclude that most of the outperformance is due to superior management. I am extremely skeptical when ever this is the thesis in a large financial player but I have only been investing for 40 years and things may actually be different this time. Hedging, counterparty risk, inadequate documentation, liquidity risk, back up facilities are always opaque with these entities. Thus, ability to look at past performance by management in a crisis (crises bring out the hidden risks and strategic flaws) is important.

    This is especially true when operating in a government controlled, totally artificial environment that will eventually succumb to market forces. Having started in late 2008 shows good strategic timing but doesn't show what management can do in an adverse environment. ACAS almost went bankrupt at parent level by being overextended going into 2008-09. It is a credit to Wilkens that the company survived but it also reflects on a level of overconfidence in one's abilities that lead to disaster. Any investor, should look at history all the way to ACAS level. I am more inclined to invest in a BDC like ACAS than getting a lesson in what happens when ZIRP implodes.
    Nov 26, 2012. 02:27 PM | Likes Like |Link to Comment
  • Though the share price is down 67% YTD, the number of shares issued for the VIX ETN (VXX) has soared sixfold to 142M. Trading volatility is the equivalent of competing in the deep end of the pool - unless you're Mark Spitz (showing our age, let's make it Michael Phelps), you may want to avoid. [View news story]
    VXX is a good tool for managing a portfolio. Using options in conjunction with VXX is a powerful tool. If you are sure that VXX is a scam, just try selling a bunch of OTM naked calls (something I would not do.)

    If you buy OTM puts to protect downside on a stock, you usually expect that the most likely outcome is that they expire with zero value and certainly consider the probability that you will sell them at a lower price than which you bought. Hedging has a cost over the long term just as insurance has a net cost over the long term. The argument should be over whether VXX is a tool that is inefficient or too costly rather than whether there is a cost to hedging.

    My experience has been that VXX options can replace some of my buying of specific puts or address portfolio concerns (mainly broad, global event risk) when I will not actively manage my portfolio. I suggest any moderately active investor should try buying 100 VXX shares at the current price level and buy/sell VXX options to get a cheap education and feel for the issues. For example, buy 100 VXX at $11.25 Sell a Jan 13 $15 covered call at $1.15 - Buy a Jan 2013 put at $8 for $.45. Yes, you can lose about $375 if VXX falls to $8 but I would predict that if you have an underlying portfolio of stock that it will being doing OK and markets will be settled and bullish. If you are in the money on the call at maturity, you probably will have suffered some deterioration in your underlying equity portfolio.

    One thing that you will see is the concentrated spiking upwards and relatively slow descent back to 10 -15 range. You will see when studying charts that it is normal that the cost of going into VXX is quite high when panic has already rattled the market.
    Aug 17, 2012. 01:42 PM | Likes Like |Link to Comment
  • Volatility Contango Strikes Back [View article]
    My limited use of VXX has leads me to believe it is a great hedging tool for a large cap portfolio. I will continue to experiment and increase my use of VXX options.

    In general, the longer dated options curtail my gains and losses in line with what i expect. I have a fairly well constructed portfolio of stocks that pay dividends and are rated highly for financial strength. I don't want to lose long term upside and income associated with well operated companies that have shown ability to adapt to decades of change.

    I fear headline and policy uncertainties especially when non market players now dominate huge sectors of the economy like mortgages, education, healthcare, lending and pharmaceuticals.
    Jun 19, 2012. 12:53 PM | Likes Like |Link to Comment
  • Interesting stuff - the TIPS curve has inverted, the 1-year yield moving from -2.5% to zero in 4 months, meaning the market is now pricing in 0% inflation over the next year vs. 2.5% just weeks ago. Inflation expectations haven't collapsed like this since 2009. Might this chart be making the rounds with the Fed staff?  [View news story]
    I keep paying a premium for OTM puts on a TIP portfolio with big embedded gains and the puts stay OTM.

    An interesting plot is to compare TLT versus TIP over a decade. In a panic, you want to be in TLT . TIP picks trades like a long dated treasury in much of the market but lags TLT when there is a melt down.
    Jun 6, 2012. 11:45 PM | Likes Like |Link to Comment
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