According to the Yahoo earnings calendar, McDonalds is scheduled to release earnings on Monday. Options traders are taking a bullish view on McDonalds, as seen from the February option chain below. There are just under four weeks remaining before February options expiration. The 60 strike calls traded 10,870 contracts on Friday, more than the entire open interest (9,426) of contracts. Compare that level to the February Puts, which traded only a fraction of the volume, and it becomes obvious that somebody out there is taking a bullish stance ahead of McDonalds earnings.
Is following the herd the way to make money in McDonalds? In the words of Bruno, “Ich don’t think so”! Don’t forget it was also the herds that valued Goldman Sachs over $200, Citibank over $50, and Bear Sterns, Lehman Brothers and Indymac as solvent institutions! I won’t risk shorting McDonalds ahead of the insanity on Monday, but I will look into taking a new short position if the lunatics bid their shares up AFTER earnings.
You’ve heard of Moody’s Corporation. They are the geniuses that rated nearly every mortgage in the country held by unemployed home “buyers” as “AAA”. For the life of me, I still can’t figure out why Warren Buffett insists on buying this company as part of his Berkshire Hathaway holding company.
Not everything that passes by Moody’s desk is AAA rated. Occasionally Moody’s does downgrade companies and their debt, but it is almost always AFTER THE DAMGE IS DONE. Take a look at the 1 month chart of Royal Bank of Scotland:
At last check, RBS was trading at only $3.38 per share. It was down over 70% in Europe during Monday’s closed U.S. session. And it’s down another 70% today. It took two consecutive 70% daily declines for Moody’s to wake up and downgrade their debt to Aa3!
Moody’s Corporation wins my vote for the most useless financial rating company on the planet! Congratulations, Moody’s!
As for the fans of Warren Buffett, you may want to rethink your strategy of investing in his Berkshire Hathaway fund, which owns shares in Moody’s, Goldman Sachs, US Bank and other near insolvent financial institutions.
William Delbert Gann was born on a farm outside of Lufkin, Texas on June 6, 1878. Gann never graduated from grammar school or attended high school, but he did become one of the world’s best known and most successful traders. Gann initially worked in a brokerage in Texarkana, and moved to New York City in 1903. He started publishing his first daily market letter in 1919, called The Supply and Demand Letter. His first book – The Truth of the Stock Tape – was published in 1924. Gann thrived during the depression era, when most other investors and speculators were losing big. Recounts of his trading success show him reporting profitable trades 85-90% of the time.
For a more detailed view of his biography, and legendary “Gann Trading System”, check out the following book. Despite its age, Gann theory is still a legendary system that all top traders need to know.
Gann Theory uses three simultaneous indicators to predict future market direction – pattern, price and time. The pattern portion is based on a view of specific geometric price patterns and angles. Gann Theory was at the crossroads of what is now technical analysis. But despite the numerous indicators develped since the time of Gann, knowledge of Gann Theory is still highly sought after. As a sign of the popularity of Gann Theory even today, you can look to the number of new volumes on Gann, including summaries of his work and trading courses. Such volumes include:
Gann also was well known for his trading psycology expertise. He outlined the four qualities essential to successful traders more than 50 years ago.
Patience - This is the number one quality for trading success. There are always good opportunities for trading, but the key is to wait for them to occur. But Gann also recognized that amateur traders are to quick to close out profitable positions. The key is to close down losing trades and let the winners ride to higher profits.
Knowledge - The professionals may make it look easy, but trading is a serious and difficult business. The successful trader is always learnings something new, and continually analyzing past trades for lessons. Knowledge is crucial for all areas of trading – money management, fundamentals, technicals, psychology, and more. There is ALWAYS more to learn. Paper trading is an excellent way to help gain and test your knowledge. But paper trading should be taken as serious as real money trades, or the exercise is a waste. Trading real money should only be done when you are comfortable with the strategy being utilized. And new strategies and techniques should be learned. There are numerous great books at the Geldpress Bookstore to get you started.
Guts - Patience is still the number one quality, but without guts, that patience is wasted. When the time is right, it is time to pull the trigger. If the trigger backfires, you have to get up and try again. If you don’t have the guts, then you should pick a new game.
Health and Rest – Watching and playing the markets is exhausting. And with exhaustion comes bad decisions. Health and rest is key. Figure out what your concentration limits are, and stop playing when you are not ready.
Real estate developers were for years in DENIAL that there was even a bubble. Their attitudes have now changed. But any talk of the bubble is in pure historical terms, as in the ad shown below – “Life after the Bubble”.
Sorry guys, the bubble is anything but over in Seattle. By all objective measures, Seattle is still in the high froth area, with plenty of depreciation room on the downside. Prices will go lower. MUCH LOWER.
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element townhomes Redmond
The above image was cut from an e-mail ad that stated:
Own a 379k townhome for only $1,419/mo!
The details of the assumed terms for such a payment are as follows:
Limited Time offer expires 2/28/09 [Geldpress Note: Expect lower prices after that date, if not sooner!]
Assumed down payment of 10% – $37,900
4.875% 30 year fixed, with a 2/1 buydown [Geldpress Note: Not clear from the ad if the developer is paying for the buydown]
Monthly payment is for principal and interest only!
First year interest rate is 2.875%. Second year at 3.875%. Third year and beyond at 4.875%.
The real monthly outlay of owning this home is substantially higher than the advertised $1,419, and will look more like the following:
$1,805 per month for principal and interest on LONG TERM RATE of 4.875%. Teaser rate ads are for BANKRUPT mortgage lenders!
$142 per month in Private Mortgage Insurance for less than 20% down.
$200-$400 per month in mandatory flood insurance.
$200-$350 per month in association dues.
$400 per month in property taxes.
That brings the REAL COST of living in this place at somewhere between $2,747 – $3,097. The developer estimate was $1,419, or about HALF of the true cost. In addition, expect the following costs:
Expect closing costs of several thousand dollars.
Expect the association fees and property taxes to go UP 5-20% EVERY YEAR.
Expect the potential for occasional SPECIAL ASSESSMENTS, in addition to monthly association dues. These special assessments are VERY COMMON in the Seattle area.
Expect the value of the property to be stable at best, but likely to go DOWN each year.
Expect miscellaneous repair, furniture, services and tools costs of 1% of the home value per year, or about $3,790 per year.
Expect that the potential for appreciation is far less than the potential for DEPRECIATION or FLAT PRICES.
And for all the real estate agents and mortgage lenders that want to rave on about “Tax Benefits” of ownership, SAVE YOUR BREATH! Yes, interest and property taxes are deductible, with the following caveats:
Only the incremental amount of taxes and interest ABOVE the standard deduction is of any use. The standard deduction is high. From the IRS website, The new standard deduction is $10,900 for married couples filing a joint return (up $200), $5,450 for singles and married individuals filing separately (up $100) and $8,000 for heads of household (up $150).
You will likely have enough incremental deductions above the standard for the first few years. But after a few years, the ratio of interest to principal decreases, and your total deduction will approach and fall below the standard deduction, rendering your tax benefit USELESS.
The latest Beige Book from January 14 is now available here. The Beige Book is a report from the Federal Reserve Board produced eight times per year. It forecasts 12 cities and provides anecdotal information on current economic conditions, based on information gathered from interviews with business contacts, economists, market experts, and other. Selected notes follow on three select cities. I recommend reading the full report of the city closest to you.
Boston - Slowing business activity, and weak sales for the holiday months of November and December, but consulting and advertising firms enjoyed stable demand for business. Commercial real estate continued to weaken, with contacts describing the situation as “grim” and “depressing.” Southern Rhode Island has 4 to 5 years of supply of office space currently on the market. In the residential market, home prices continued to drop sharply. Read the entire Boston report here.
Chicago - Consumer spending decreased, despite heavy discounting. Business spending continued to decline. Construction activity declined. Manufacturing saw lower orders and production cuts throughout the region. Credit conditions remained tight, and loan demand has weakened. [Geldpress Note: this is not the first I have seen this. Some of the banks reluctance to lend is due to lack of demand!] Commercial developers are reporting more project delays and cancellations.
San Francisco – Commodity and energy prices continued to fall. Retail prices were held down by continued discounting. Demand for services declined, including demand for health care. [Geldpress note: Health Care is more optional than once thought.] Sales of technology products slowed substantially, accompanied with significant layoffs in some companies. Agriculture demand was stable. Housing market activity in the District remained “feeble“. Construction activity was “very limited“. Commercial and industrial loan volumes are at a very low level.
Check the Beige Book link for the full reports on all cities – Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
For only $3,700 a day, you too can help sponsor an executive. No longer can we sit and watch these poor executives despair over where the money will come from to pay the bonuses they already approved. Please open your hearts and your wallets provide the much needed executive support.
Here are a few more people who actually UNDERSTAND what is going on, unlike CEO’s and members of congress. And contrary to popular myths, they provided repeated warnings that were ignored by regulators and congress.
Let’s face it, the United States tax code is complex and difficult to understand, especially for investment income. And in the case of 2008 for many people, the investment capital loss accounting provisions and tax reporting are crucial to understand, if you don’t to sit through an audit.
There are several IRS publications meant to help investors and traders understand tax reporting:
Publication 550 - Investment Income and Expenses. Covers investment income such as dividends, interest income, preferred dividends, S corporations and investment clubs. It also discusses investment expenses but it is unfortunately not very clear on how or when they apply. And it covers the basics of capital gains and capital losses, short sales, wash sales and options.
Publication 17 – Your Federal Income Taxes. A higher level view of income taxes in general, but it does include limited information on interest income, dividends and corporate distributions.
Schedule D Form – IRS form to report investment gains and losses.
For trading certain types of futures contracts, options on futures, or forex currency market trading, then it is crucial to understand section 1256 of the IRS code. Depending on who you ask, there may be certain tax advantages to trading such vehicles. Rather than having to list every single buy and sell order in your taxes as in the case with stocks, certain futures, commodities and forex transactions may be taxed in a simple 60/40 long term vs short term split. Traders in such markets will receive a 1099 from their brokers and in theory it should be a quick 5 minute job to enter teh 60/40 split onto the tax forms.
Even with the above handy IRS links to useful forms and publications, it can still be overwhelming to understand the rules. For a single and much more simple in depth resource on trader taxes, I recommend the following book. It goes into great detail related to every topic on trader taxes. But it also provides insight into the often misunderstood “IRS Trader Status”, and the steps involved to achieving this mark. If you really want to be a “professional trader” from the IRS point of view, then buy this book. If you just want a better and more understandable resource for understanding your own taxes, then buy this book. Even if you intend to hand over your taxes to an accountant, it is still a wise choice to buy this book for your own understanding. In my experience, tax accountants CAN AND DO make mistakes, especially when accounting for the complexities of capital gains and losses. BUY THIS BOOK.
First, this is **NOT** in any way to be considered advice! But I do like the action on AAPL, with the stock trading BELOW the $80 support level in after hours due to the announcement relating to Steve Jobs’s leave of absence.
At or near the $80 level, I like the following combination calendar collar play:
Buy 100 shares of AAPL (target $75-$82)
Sell (1) April $80 covered call – (target $11-$13)
Buy (1) February $75 Put – (target $2-4)
Apple should report earnings next Wednesday January 21st – after January options expiration. The February PUT is used for protection from what may be a catastrophic earnings report. If AAPL tanks after earnings, then I will look to take profits on the February PUT. Timing is important as it is best to take the PUT profits when you think AAPL reaches a good and stable BOTTOM. I may also close the covered call early and take profits, and perhaps sell a lower strike covered call at some point.
If AAPL reports good earnings and the stock remains stable after earnings, then I may close the February PUT early – probably for a small loss. In closing the PUT, the covered call will still offer decent protection, but it is limited.
One last note. This is not a premium service. There will likely be no trade updates. You should only attempt this or similar options trades if you are comfortable managing the positions yourself.
If you want to read an excellent book on stock option adjustments, please purchase the following:
The information on this site is provided for discussion and entertainment purposes only, and are not investing recommendations. Under no circumstances does any information on this site represent a recommendation to buy or sell securities. There are no accuracy guarantees for any of the information on this site. Any securities listed in options education posts are purely arbitrary examples. Trading can be dangerous and you can lose money! Take Responsibility for your own Trades!
