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Saturday, January 22, 2011

RIP Taxco

Word on the street is that Taxco has been shutdown by the health department. While I hope it isn't true, my heart tells me it might be time to move on.

While there is no shortage of cheap cheesedip slingin mexican restaurants in Atlanta, this one will be missed. Fortunately there are about 20 equally skeezy mexican restaurants right down the road on Buford Hwy for me to try!

One man's trash is another man's treasure

Waste Management (WM) is the nations largest provider of waste management services in the US. It has a history or raising dividends and generates over $1.5 billion dollars in free cash flow that it can use to further increase dividends or execute share buy-backs.

Here is a descrition from morning star:

"Founded in 1894, Waste Management is the nation's largest provider of collection, transfer, recycling, disposal, and waste-to-energy services. The firm serves nearly 20 million customers in the commercial, industrial, municipal, and residential markets. It has 268 landfills that receive 115 million tons of waste per year. Waste Management is the largest provider of domestic recycling services and generates roughly 56% of its revenue from its waste collection business."

As states look to trim budgets, they will look at ways of outsourcing services previously provided by local governments. WM should be a big recipient of outsourced waste services. Furthermore, WM sports an attractive 3.4% dividend yield. Here is a way to play it:

Buy 100 WM @ 37.40 :            ($-3,740)
Sell 1 Jan 12 37.50 Call:            $235
Sell 1 Jan 12 35 Put:                  $245
Net outlay: $3,260

Potential return: $616 (235 +245+126 dividend +$10 appreciation) or a 19% return on a stock that needs to go up by <1%.

Breakeven: 33.85

Go Fish!

Friday, January 21, 2011

You won't like Google when it's angry!

Recently Google attempted to buy groupon for $6 billion. Thats Billion with a B. Foolishly, Groupon said "Thanks, but no thanks."

It appears Google just decided to copy their idea instead and hold onto their $6 billion.


Short burritos, Long GS

Chipotle (CMG) has had quite a run the past year. I personally enjoy Willy's but that's neither here nor there. CMG has gone from 93.81 to an astronomical 262 over the past 52 weeks. It's currently selling for 223 and a trailing p/e of 43.15. Expectations are extremely high for Chipotle, and one little slip up might cause the stock to plummet. One bump in the road I can foresee for Chipotle is rising food costs shrinking its already low margins. Also, if unemployment stays high, people might begin looking for cheaper alternatives. Because of this, I don't believe Chipotle can maintain its past performance. I am short chipotle by buying a bearish put spread of Jan 12 230/220. I purchased the Jan 12 230 put and sold the 220 put for a net costs of $480 per spread.

I decided to finance this buy selling 1 JAN 12 Goldman Sachs put for $1,105. I would never buy Chipotle at 223, but I'd love to buy GS $11.05 lower than it is today.

If Chipotle is lower than 220 come Jan 12, the max return is $520 or 108%

If GS is greater than $150, you keep the full $1,105. If not, then you have to own 100 shares of goldman at an effective price of $138.95.

The potential combined return is $1,625 on a trade that you don't even have to spend any money on initially.

Look out for the pullback!

This market has been rising non-stop since September. Many believe that it has gotten ahead of itseld and is due for a correction. People are looking for any excuse for a sell off, so you might want to think about hedging to the downside or taking off any positions that you don't feel comfortable holding for the long-term. I prefer to open up longer-term positions to avoid the temptation of trading day-in and out. Hopefully the pullback will allow me to find some bargains.

Check out these charts over at Beating Buffett showing the VIX creeping up.

The next financial catastrophe

Be wary of municipal bonds. This could easily be the next financial crisis. States all across the country have been overspending, short changing their pension obligations, and borrowing more money than they can repay. Rather than raising taxes and owning up to the obligations made in prior years, states are looking for a way to seek bankruptcy protection. See the article in the NYT today.

Even some of the most conservative states are in terrible shape. Many people consider Texas as the epitome of fiscal conservatism, but it turns out they are no better off than California, NY, Illinois, or New Jersey, according to Paul Krugman.

It also brings up a question of states rights. If the States declare bankruptcy and accept a federal bailout ala General Motors, does this  mean they forfeit their rights on certain issues? This is a very messy situation that could soon get messier.

GE Earnings

GE reported better than expected earnings this morning. GE is a stock that I kick myself everyday for not buying 2 years ago when it was trading at $6. I have personally been short GE $20 Jan 12 puts and long GE Jan 13 $25 calls. These are still relatively cheap at .83 per contract and don't expire for 2 more years. It has runup today due to earnings, but look at adding some in any pullback. Perhaps finance them by selling some puts on something such XHB or even GE itself.

You can currently sell 1 Jan 12 $20 put and buy 1 Jan 13 $25 call for a $1.60 credit per contract. So rather than shelling out $2,000 dollras for 100 shares, you can do the above trade and receive $160 dollars and still participate in any upside until Jan 2013. The risk is you might have to take ownership of the stock at $20, but considering this is cheap for GE historically, this is not such a bad thing.

The flying V (Visa)

Visa has been crushed in recent weeks because of pending legislation to limit the amount of fee's that debit card issuers can charge. This has driven visa down to a 52 week low of 67.50 recently. This has probably been blown out of proportion and will hurt banks more than it will hurt Visa. Visa has been delivering 20% earnings growth and shows no sign of letting up. As more people switch from cash to plastic, this should only help Visa out that much more. The best and least risky way to play this bargain is with a buy-write.

Buy 100 V @ 70.69:           (7,069)
Sell 1 V Jan 12 72.5 Call:     750
Sell 1 V Jan 12 75 Put:         1,000
Total cash outlay:                $5,319

Total return if V > 75 on Jan 2012:  $1,931 or   35% return on a stock that needs to go up by 6% in 11.5 mos      

Break Even:  $65 so you have downside protection of 8%

If V is < 75 in Jan 12, your short put will be exercised and you will have to buy 100 shares at a net price of $65, which probably isn't a bad thing.

The 1 yr target estimate via Yahoo! Finance is 96.27


Thursday, January 20, 2011

Inflation Trade

If you believe that inflation is going to pick up in the next year or so, heres a trade to take advantage of it.

Short 1 Jan 12 XLE 55 put for a $2.60 credit

Buy 1 DBA Jan 12 30/35 call spread for a 2.45 debit

Net costs: .15 credit.

Max Profit: $515 (3,400%)  if DBA is over 35 and XLE is about 55 in 11.5 mos. This trade can be closed anytime as well.  If DBA is lower than 30, but XLE stays above 55, then the max profit is the .15 credit received from the start.

Update: This trade is now trading for a 1.56 credit which is a 1,000% gain

Case or no case? "I fell....I fell in da fountain"

Perhaps you have seen this on the web recently. A woman was walking and texting at the mall and tripped and fell into a fountain. She is now considering sueing! Sound like she should sue herself....and perhaps gravity...and that jerk Isaac Newton.

Here is the link to the story discussing the lawsuit:

Apple will rule the world

Is apple a great company? Yes! Should you rush out and buy their stock at $340/share? Probably not!

Here's a better way to play it that can lower you entry, let you use less capital, and still profit whether apple goes up or down!

Most analyst are projecting apple to go up to $400/share. I personally don't have enough money laying around to buy enough apple shares to make it mean anything. So another way to participate in this rally is to sell some apple puts.

Currently, the Jan 12 $250 apple put is selling for around $10, or $1,000 per contract.

You can sell it today and collect $1,000 and still participate in any upside movement. If somehow Apple is below $250 on jan 2012, then you will be forced to buy 100 apple for $25,000. However, you can close this trade early, or roll the option out to a later date. The best part is that you can use the $1,000 to buy something else!

Hewlett Packard

I really like Hewlett Packard. It's one of the worlds largest consumer electronics company and makes some great products. Currently, its selling for 46.13 and has some pretty good option premium. The 1 yr taget price is 54.74 and the stock has a fwd P/E ratio of 8.13. They are also releasing some new tablets and smartphones this year based on their new operating system purchased from Palm. I'd maybe wait for it to pull back a little, but heres how you can enter it today.

Buy 100 HPQ @ 46.13:             ($4,613)
Sell 1 Jan HPQ 50 Call @ 310:    $310
Sell 1 Jan HPQ 45 put @ 435:     $425
Total cash outlay:                         3,878

Break-even: $41.89

Return if >$50 on Jan 12: 1,122+div/3,878 = ~29% on a stock that needs to go up by 8.3% over 11.5 mos

Wednesday, January 19, 2011


Apparently the best way to get rich in America is to find funny pictures of cats and put humorous captions in them! Check out this article in the WSJ.

I personally like dogs over cats, so heres a picture of a dog who just found out he's not the father!

"I told y'all it wasn't mine!"

Long Ford

The chinaman is buying up cars like its going out of style. They have begun to auction off licence plates via lottery to limit the amount of congestion and emissions. While this limits sales, they are still auctioning off 20 million of them. Why not buy some Ford to take advantage of this!

Perhaps finance it with the sale of some AAPL put options!

sell 1 apple Jan 12 255 put for $10.60

buy 5 F jan 12 25 calls for .70 and 5 Jan 13 25 calls for 1.82

Go Apple go!

Looking to buy some Vertical Call Spreads this week or next. Looking at $10 wide strikes and trying to get in for a net debit of $5 in order to realize profits of 100% or greater. 355/365 strike is around $4.50 this am.