Geldpress

Optionsxpress just announced that they have acquired an online education company Optionetics.  From Businesswire:

Optionsxpress Holdings Inc. announced today that it has signed a definitive agreement to acquire Optionetics, Inc. in an all cash transaction for approximately $20 million, plus additional cash consideration based on future performance

David Fischer, CEO of OptionsXpress, said “With its focus on derivative products, we believe Optionetics will help us further one of our stated objectives of providing education to our customers with the goal of helping them be more successful in their investing.”

George Fontanills, the founder of Optionetics, has also released a new options course book, Trade Options Online.   If its good enough for the best options trading broker to purchase the company, then its good enough for me to buy the book. Regardless of your level of options trading knowledge, its always a good idea to keep studying and reading new ideas.

If you have been holding your breath in anticipation of the bank stress tests, then you may want to start breathing again.  The actual results were not officially released, the summary is already available thanks to the leaks.

From Turner Radio Network, which admitted to already having a copy of the stress test results, “Of the top nineteen (19) banks in the nation, sixteen (16) are already technically insolvent.”

But wait you ask, what about all those banks “operating as a profit” and clamoring to repay the TARP funds early.   It’s all a public relations scam.  As Barron’s points out in their TLGP Sweet Deal article, TARP is just a drop in the bucket of the taxpayer funded handouts to banks; TLGP (Temporary Liquidity Guarantee Program) is the real pain in the taxpayers side.  And the TLGP handouts are something insolvent financial institutions can not do without.

The government continues to provide major benefits to financial companies and, arguably, should have some input. But TLGP, not TARP, is the feds’ biggest source of largesse to financial firms…

Goldman would love to repay TARP and get back to doing business more or less as usual, paying its employees whatever it wants to pay them…

SOME WALL STREET ANALYSTS WONDER if Goldman will be given regulators’ approval to repay TARP, partly because it hasn’t been able to sell much debt without an FDIC guarantee.

The bottom line is that there are a dozen 4-letter words comprising programs of taxpayer funded handouts to incompetent and insolvent financial institutions.  It’s easy to lose site of them all, but any bank repaying TARP has only scratched the surface of making the taxpayer whole again!  And based on the leaked stress test results, making the taxpayer whole again will not be occurring anytime soon.

This site discussed a play on DNDN just a few days ago, with this article.  Implied volatility had spiked in DNDN due to the announcement of an April 28th conference with the AUA (American Urological Association) that DNDN was invited to.  The conference is not the FDA, and had no capacity to approve or deny Dendreon’s Provenge drug.  But nonetheless, the spike in volatility provided ample opportunity to sell some premium.  With my own account, I took the conservative approach with a calendar collar (Buying the shares and the April 5 PUT’s, and selling the May 5 Calls).  I also announced a more aggressive play of just buying the shares and selling the May 5 Calls or May 7.50 Calls (without the added PUT protection).  Take a look at the chart of DNDN – before and after our entry into the DNDN calendar.

If you played along with the DNDN play, then regardless of which play you did, you have already collected over 90% of the profit potential well ahead of the May option expiration.  This is due to the delta effect.  Prior to the GAP UP, the May 7.50 strike options were out of the money.  After the gap, those same options are now deep in the money.  The more in the money the option is, the more it behaves like a stock,which means that most that time premium sold from the original covered has already been collected.  Here is a recent snapshot of the option chain data:

• DNDN last traded at $17.20
• May 7.50 strike call is about 9.85
• Adding 7.50 (strike) to 9.85 option price comes to $17.35, which is just 15 cents higher than DNDN shares.

If you stay in this particular trade through May expiration you will only collect another $15 per covered call contract, but you risk making it through potentially damaging conference news on April 28th.  Rather than risk everything for a few dollars more, covered call players on DNDN have the opportunity to close the entire position on the delta effect.

To close the position, simply buy back the originally covered call you sold (BUY TO CLOSE), and then *IMMEDIATELY* sell the Dendreon shares.

Disclaimer: This post is informational only, and not advice of any kind.   Trade at your own risk!

Also see:

• Time for cover – the covered call
• Covered Calls – Scottrade, Tradeking, Fidelity
• Covered Call Writers Love High Volatility
• The VIX index and covered calls
• Covered calls – removing the covers and going naked
• Dendreon Calendar Collar Or Covered Call Looking Interesting
• Portfolio Protection And Adjustments With Stock Option Collars

Dumb Money – How our greatest financial minds bankrupted the nation, by Daniel Gross, is now available in paperback from Amazon.  Originally, this book was published as a Kindle only edition, but with surprisingly good sales numbers.  If you don’t yet have a Kindle, you may still want to buy one for the convenience of immediate over the air downloading of new books.  And if you haven’t heard of Daniel Gross, then buy his newest book for a taste of his humorous and informative writing style.

Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation by Daniel Gross

Also See:

• How To Buy Preferred Stock Shares
• Collection Of Great Depression Books
• American Dream – Nickel And Dimed Or Scratch Beginnings
• Obama And Fiscal Disaster, Worse Than Bush

Back in September of 2008, money market funds made historic news by “breaking the buck”. These funds which were designed to offer slightly better returns than bank deposits or certificates were showing signs of weakness in the form of capital losses. From a September 17, 2008 marketwatch article:

Money market funds pride themselves on their liquidity and the safety of their investments. All money market shares are priced at $1 — a figure so important to the industry that fund companies take losses to keep the share price from dipping below $1, which is known as breaking the buck.

But with investment losses from repeated bank failures, firms found it to difficult to fight off the losses.  The result was that money markets across the nation were “breaking the buck”.

“They didn’t just break the buck, they shattered it,” said Don Phillips, managing director at investment research firm Morningstar Inc.  This is only the second time that a money market fund’s net asset value has dipped below $1. In 1994, Denver-based Community Bankers U.S. Government Money Market Fund returned 96 cents on the dollar to investors when bad derivatives investments forced it to liquidate.

With the scare of losing money in what was supposed to be safe, investors started withdrawing en masse.  It was then that the government stepped in to guarantee all capital investments in money market funds, but this was a temporary measure.  That temporary guarantee is now set to expire in just two weeks.

Check out this excerpt from the T. Rowe Price Prime Reserve Fund:

Notwithstanding the preceding statements, the T. Rowe Price money market funds are participating in the U.S. Treasury’s Temporary Guarantee Program for Money Market Funds. The Program generally does not guarantee any new investments in the funds made after September 19, 2008, and is scheduled to expire on April 30, 2009.

If you think you are safe from an implosion in your money market, think again!  If you think you have no money market to worry about, think again!  If you have a brokerage account, then you probably have a money market.  Every brokerage treats uninvested cash balances different, but in general they are swept into a money market fund of the brokerage’s choosing.  In some cases, while the default behavior is to sweep the cash into a HIGH RISK MONEY MARKET, account holders can elect to choose only an FDIC insured sweep account instead.

If you are not worried about your cash balances, then you probably just don’t like cash.  If you are worried, then call your brokerage immediately, and demand that your cash be swept to only FDIC insured accounts.

Unless Obama-san passes another emergency money market insurance extention, then you can expect that the “breaking of the buck” will continue in May.  You have been warned!

April 17 update: One reader pointed out that the money market guarantees were recently extended through September 19th.  From the Treasury website:

The U.S. Treasury Department today announced an extension of its temporary Money Market Funds Guarantee Program through September 18, 2009, in order to support ongoing stability in financial markets.  The Program was scheduled to end on April 30, 2009.

As a result of this extension, the temporary guarantee program will continue to provide coverage to shareholders up to the amount held in participating money market funds as of the close of business on September 19, 2008. All money market funds that currently participate in the Program and meet the extension requirements under the Guarantee Agreements are eligible to continue to participate in the Program.  Funds that are not currently participating in the Program are not eligible to participate.

But take careful note of the last sentence above.  It does imply that some funds are not participating in the federal guarantees, so it is probably wise to double check with your broker anyway.  On another note, it does beg the question as to why these emergency guarantees are needed at all.  If the money markets were solvent and safe, there would be no need for emergenecy guarantees!

Also check out:

• Closing DNDN Covered Call With The Delta Effect
• Dumb Money For Kindle Or Paperback
• Portfolio Protection And Adjustments With Stock Option Collars
• Technical Analysis – Simple, Complex, and Black Swan
• Overbought And Oversold Stochastic Indicators
• The United States Has Not Had A Balanced Budget Since 1957!

When Rick Santelli originally announced the Chicago Tea Party, it was just a semi-bluff.  It was just a metaphor, and he had no intention of actually organizing such a protest in Chicago.  In fact, he backed off his tea party stance entirely, and even apologized for his remarks (“responsible people having to pay the mortgages for the losers who are not”), probably with some prodding from CNBC, the network where he works.

Well, Rick may have started it, but even without his help the tea parties go on.  Nationwide tea party protests are being organized all over the country for tomorrow.  To find your local protest center, be sure to check out the tax day teaparty website.

If you are a subscriber to Barron’s, and you are not yet tired of all the negative housing news, then you should read their latest take entitled “More Meltdown”.  For those who are not subscribers, let me block quote the essential summary of the entire financial fiasco (aka housing gone mad, Wallstreet gone stupid), direct from Barrons.

To produce ABSs and CDOs, Wall Street needed “a lot of loan product,” of which mortgages proved a bountiful source. It’s unfortunately quite simple to generate ever-higher volumes of mortgages. All you need do is lend at “higher loan-to-value ratios, with ultra-low teaser rates, to uncreditworthy borrowers, and don’t bother to verify their income and assets.”

The only catch is that the chances of such a mortgage being paid off are just about nil, a trifling caveat that bothered neither lenders nor pushers one whit. The result of that cavalier approach, as we all have reason to lament, in the end has been anything but happy: Today, mortgages securitized by Wall Street represent 16% of all mortgages, but a staggering 62% of seriously delinquent mortgages.

The Barron’s author shares the same opinion as T2 Partners, who just released the second edition of their famous and richly detailed housing presentation.  The newest version is entitled “An Overview of the Housing / Credit Crisis and Why There is More Pain To Come“.

The presentation is freely available at this link, and it is definitely worth reviewing – especially if you are considering a new home purchase, and don’t want to lose money.   The smart money is still building equity by renting, and patiently waiting out the declines.  What are you doing with your money?

Notable quotes from the T2 presentation:

• “24% of homeowners with a mortgage owe more than the home is worth, making them far more likely to default”
• “Foreclosures in February [2009] rose 30% year over year and 6% sequentially”
• “Realtytrac estimates that over 1.5 million bank owned properties are on the market, representing about a third of all properties for sale in the U.S.”
• “Home prices need to fall another 13% to reach trend line”
• “We expect housing prices to decline in the 45-50% range, bottoming in mid-2010″
• “The wave of resets from subprime loans is mostly behind us, but a wave of Alt-A resets is ahead of us“
• “The timing indicates that we are still in the middle innings of the bursting of the great mortgage bubble”

The T2 partners report is not all gloom and doom, though.  Near the end, the presentation details out the best opportunities amongst the wreckage, including:

• Some blue chip stocks such as McDonald’s, Johnson and Johnson, Coca-Cola, Wal-Mart and others
• Out of favor blue chips such as American Express and Target
• Balance sheet plays – companies that are cash rich and with little to no debt.  EchoStar and Delia’s are listed as examples
• Turnaround plays such as Winn-Dixie, Crosstex and Huntsman

The T2 Partners group also has an excellent book coming out in May:

More Mortgage Meltdown + URL: 6 Ways to Profit in These Bad Times by Whitney Tilson

Dendreon is up to its old tricks again.   For most of 2006, this stock (symbol DNDN) hovered around the $5 mark.  Then it briefly shot up to the $15-$20 range on hopes for a quick FDA approval of its Provenge prostate cancer drug.  After an unfavorable FDA decision, the stock quickly dropped to the $5 range, and was as low as $2.55 over the last month.  The stock recently got another boost from renewed rumors on Provenge and it currently trades around $6.35 at last check.

The DNDN stock chart can be seen here.

For option traders and speculators, the volatility in Dendreon’s shares is much more interesting than the back and forth discussions between Dendreon and the FDA.  And with high volatility comes opportunity.  According to this AP article, Dendreon was invited to present data to the American Urological Association on April 28 in Chicago, and that news likely sparked the recent rally in its shares.

As an option trader, here is the play that I like on DNDN:

• Purchasing shares in 100 lot increments – trading near $6.39 at last glance
• Selling the May $5.00 in the money COVERED CALL – last glance near $3.10 per contract
• Buying the April $5.00 PUT – last glance near $.50 per contract

The above trade is what I executed this morning.  I may or may not close the April 5 PUT early.  More aggressive option traders may like one of the following:

• Purchasing DNDN (~$6.39) and selling the May $7.50 strike covered call for roughly $2.30 per contract
• Or…Purchasing DNDN and selling the May $5.00 in the money call

Note the lack of PUT protection in the last two choices.

Disclaimer: As always trade at your own risk!  The author is long DNDN, with a covered call and put protection in place.

Goldman Sachs is now trading again near $115, where Warren Buffett purchased the bulk of his shares.  I don’t follow Buffet’s trades, but I do recognize that his purchase price acts as a good support level.  Goldman Sachs is still mostly a big black whole of finance, and I would never risk my money on an unhedged position in Goldman.  But for a short term trade, I do like, and just initiated an option collar on Goldman Sachs.

• Purchased 100 shares of GS (around the 115 mark)
• Sold a May 125 covered PUT for around $6.50
• Bought a May 115 PUT for around $6.50

Implementing the collar for May was essentially free, since I collected the covered call premium to pay for the PUT protection.  Goldman Sachs earnings are scheduled (according to this Yahoo Link)  to be released on APril 14th, just a few days ahead of April options expiration.  For that reason, I opted for the May collar, which gives me more time to adjust the collar (depending on how it looks after earnings) if need be.  With no adjustment, my profit is capped beyond the 125 level (about $1,000 max profit), which is the upper end of the collar, and my losses are capped below the 115 level.

Goldman Sachs has recovered significantly off its low of $47, and in the short term they will probably endure more financial pain.  But two of their competitors have sustained near fatal blows – Bear Stearns and Lehman Brothers.  I say “near fatal” because those organizations have been partly absorbed into other defunct organizations.  In the last month, Goldman has displayed an upward trend of higher lows and higher highs.  The chart could easily be null and void as far as an indicator of whats to come after earnings.  But based on the recent insanity in the markets (investors buying financial companies again), I like the risk/reward of this trade and just executed it for my own account earlier today.

Disclaimer: This is **NOT** trading or investment advice.  Trade at your own risk!

For more insights on option collars:

• Portfolio Protection And Adjustments With Stock Option Collars
• Model A Stock Option Collar With Op-Eval Pro Software
• Married Puts, Collars, And Hybrid Hedging
• Bring Your Collar Into These Volatile Markets

For a great book on adjusting option positions:

The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading) by George Jabbour

From the April 4 edition of Seattletimes, governors in some states are rejecting payments from the stimulus program.  And some states who originally rejected the stimulus payments are now backing down and accepting portions of the federal aid.

South Carolina Gov Mark Sanford backed down Friday from his standoff with the White House over stimulus funding, becoming the last governor in the nation to officially say his state will accept economic recovery aid…

Despite his reversal, Sanford said he will not draw from a $700 million portion of the stimulus for education and law enforcement unless he reaches a deal with South Carolina’s Republican controlled Legislature to help pay off some of the state government’s debt…

Twice, the Obama administration rejected Sanford’s bid to repay debt, saying the money must be spent on public safety and schools…

Other states that rejected, or at least initially rejected some of the federal stimulus aid were Mississippi, Alaska, Louisiana, and Texas.  While it’s certain that most of this rejection was just political pandering, it’s nice to know that some governor’s are at least half heartedly thinking on the lines of fiscal responsibility.  These same federal stimulus rejection states certainly had not adhered to fiscal responsibility over the last few decades as they were running up their debts!

Links to state government debt information for those rejecting stimulus on the grounds of “responsibility”:

• South Carolina debt report from June 2008
• Summary of Texas debt outstanding
• Alaska department of the Treasury

Please share any other links of state debt information via comments.

Also see:

• Fed Monetized Debt When Foreign Debt Holders Stop Buying
• Obama Flip Flops On Fiscal Discipline And National Debt
• States Crumbling Under The Weight Of Their Debt
• California’s Exploding Debt Problem
• Washington state debt history – does Dino Rossi understand it?
• The United States National Debt Limit Has Become A Joke
• The United States Has Not Had A Balanced Budget Since 1957!