SPY Puts Purchased

Earlier today, I was able to get a Put position in on C. At about the same time, I put in a limit order for some SPY April 130 Puts at $1.89. I wasn’t really watching the market later in the day as it just seemed to be doing nothing and next thing you know…my order was filled. Then, the S&P proceeded to go down the rest of the day. So, almost immediately after purchasing, I was up. I like trades that start off like that.

My thesis is the same as it was last week. This week is going to be employment, employment, employment — or lack thereof. As we all know, earnings get started next week with Alcoa, but this week, I think the market will have to digest a bad employment report. This trade is also a hedge against my long positions which have been doing nicely over the past 5 trading days. I want to protect those gains without selling the positions.

Building Short Position in Citi

I tried to get short C on Friday via puts at a decent price, but nothing was really working out for me. I was looking for some sort of up-tick before I got in. Well, today, that came. Breaking news out of C that they are restructuring its global business into three regional units and breaking out its credit card business from its broader consumer banking segment. I guess traders liked the news because the stock is actually trading up.

I picked up some May $17.50 Puts at $0.75. I only put on 1/2 of my position, so I am hoping it does some rallying so I can get the rest of my position. My thesis: They report on April 18 and during that same week, other financials report as well. This company will take time to turn around. It’s just too big to take a hair-pin corner.

Altria to Phillip Morris

I was incorrect on Friday when I assumed that Altria (MO) would be spinning off Phillip Morris International with the ticker symbol PMI. The new ticker symbol is PM. My apologies to the PMI Group.

Georgia On My Mind

Today, I left Raleigh and headed south to Savannah, GA. I had to get out of the cold weather or at least make an attempt to get warmer. Yesterday, Raleigh’s high was 44 F. The day before was absolutely beautiful. The wild swings just weren’t working for me anymore.

Let me update everyone on my stay in Raleigh. I arrived from Greensboro, NC on Friday afternoon and decided to stop by Duke University. I had to eat and I did at Chipotle Mexican Grill. The place was buzzing with college kids. It felt good. Education was in the air. The Duke campus is absolutely amazing. I took a drive through the campus and had to do the stop for pedestrians as is customary at virtually every college campus. It was a great stop-through and I would have loved to throw the backpack on and attend a class or two. Downtown Durham seemed a little dilapidated though. Few notable landmarks were the Lucky Strike ciggarette smokestack and the Durham Bulls baseball field which was top-notch.

Raleigh was great. I stayed at a nice Courtyard by Marriott on the northside of the city. I found a nice little area for shopping and eating called North Hills mall. I ate at Panera Bread yesterday for lunch. I didn’t get a chance to get out and experience the city on Saturday because the weather was just lousy. It rained pretty much the whole day and the temperature just plummeted. I watched the Final Four most of the day and did some laundry later on that night. I had pizza for dinner and really just wanted to get to a warmer climate. So, I got on my laptop and booked a room in Savannah, GA. My original plan was to either go to Charlotte, NC or to stop in Charleston, SC. I had been to Charleston once before and at that time I just wanted to go South. Anyone else ready for real Spring weather?

So now, I am in Savannah. I will be staying here through Thursday and I am looking forward to my stay. It is a little chilly here right now, but tomorrow it is supposed to be in the 70’s. Will I be able to wear shorts for the first time on this trip tomorrow? I hope so. Midtown Savannah is not all that wonderful. It’s definitely got an old South feeling, but not that “good” old South feeling. I will definitely go downtown in the next day or so to see what everyone calls one of the most beautiful places on earth. I think Kevin and Dad would assert that Augusta National is that place, but I will keep an open mind until I check it out. I do have to eat at that place Alexander recommended. I will have to look through my previous posts to get the name.

Breaking Up Altria is Easy To Do

Today, Altria (MO) is spinning off Phillip Morris International to separate an overseas growth company and a value domestic. The breakup will happen today and for each share of MO you own, you will get one share of PMI (by the way, what is happening to the PMI Group, Inc. which already has that symbol??). I own MO and have for almost a year. The question is…what to do after the breakup?

PMI has the ability to grow through expansion and through acquisitions. PMI, which will be based in Switzerland, will keep its stock trading on the NYSE, keep its books in dollars, but will essentially be outside of the regulatory arm of those pesky bureaucrats that want everyone to be healthy and give up smoking. Plus, PMI will be outside of the litigation of the US which seems to have slowed from a decade or so ago.

MO has a steady business with great cash flow and a nice dividend. It is also trying to diversify it’s tobacco business by getting into smokeless tobacco and cigars. And don’t forget it’s 28.6% stake in Miller Brewing.

So what to do after the breakup? Being that I am relatively young, I am leaning towards trading in my MO shares for more PMI shares. Let me explain.

1. Dividends are not nearly as important to me as they are to someone twice my age. Growth is king for me.
2. Louis Camilleri, current Chairman and CEO of Altria, will be moving to the same post at PMI. I think he – along with his current management team at MO - are the best in the business.
3. Since they will be keeping their books in dollars, they will definitely benefit from the weak dollar.
4. They have barely tapped into growing markets like India, China, Vietnam and Bangladesh which currently account for 2.3 trillion cigarettes per year. They also have a deal in place to launch a licensed Marlboro brand in China.
5. Growth in India and China is off-the-charts. Think of it like the United States in the 1950’s. Who knows. It may be cool to smoke in China and Vietnam especially if PMI can advertise that it is – which it probably will.

I am extremely bullish on PMI long-term. All they have to do is break-out the playbook from 50 years ago and they will probably achieve unbelievable success.

All of this leads me to think that I will swap out of MO and into PMI on Monday.

Heading to Raleigh

Today I leave Greensboro and head to Raleigh. Only staying 2 nights in Raleigh and then I am going to try and go to Charlotte, provided I can get a room for a decent rate.

Yesterday, I pretty much relaxed all day. Ran some updates and scans on my computer and watched television. Last night, I ventured out a bit to a local Starbucks to do a little onlining.

I woke up late this morning and now I have about 45 minutes to checkout. Better get going. Need to pack up.

Can You Short the Financials?

For the most part, you can’t short any of the financials. The Fed is on the case. However, I think there is one financial you can short before earnings next month and that is Citigroup (C). I think this company is a disaster. Remember when it was at $50 a share with a 5% dividend last year? BAC was trading in lock-step with it and it was a toss-up which one to buy. Investors looking for a “safe” dividend wanted to pick C because it really hadn’t moved that much and surely it was due for a turnaround. No one saw the impending doom this stock would soon see.

So where is the stock trading now? $21.79 with a 5.87% dividend. How many traders are thinking the worst has to be over and $18 was the low. Especially with that Island Reversal on the chart (thanks Helene Meisler for pointing that out). Plus, how can you pass up that hefty “safe” dividend? I say “safe” tongue-and-cheek because a lot of people are saying the dividend was already cut once. Plus, didn’t they raise a bunch of capital already? Surely, the kitchen sink was thrown out last quarter, right?

You must pass it up. Do not buy C. You can probably even short it. This company is just too big and in too much disarray to move around easily. It’s like an elephant trying to get out of a phone booth without breaking anything. I tend to agree with Meredith Whitney from Oppenheimer. The numbers will not be good for the first quarter 2008.

I think C is in big trouble. Pandit is in now as CEO following the departure of Chuckie Prince. The board seemed to love Prince even though he did so very little for that company while he was there (in regards to share price appreciation). So Pandit is in the top spot now. Why does this feel a little like Bear Stearns (BSC)? CEO exits amidst turmoil. New guy comes in. I’m not sure if Pandit has a grasp as to what he is truly working with inside the company. That company is just as complex as the financial instruments they own.

I am looking at the April $20 and May $17.50 Puts. I might buy a little of both over the next week or so. I sure would like a nice rally day so I can load up though.

Same Old Itchy Feeling

Sometimes this market makes me feel like I have some sort of skin-itching disease. It’s all quiet on the bull-market front. That makes me feel uneasy. Sometimes even queasy. I hope I don’t need a trashcan for tomorrow’s action as I will be traveling.

It’s just too quiet and the action too weird. Everyone is still really scared. The oscillators show that we are barely overbought. We don’t really have any economic news coming out that is going to be good. Anyone think the PCE Chain or Personal Income will be good tomorrow morning? I know everyone is expecting a bad number, but chances are it won’t be a good number. So what propels us forward? End of month is too near for mark-ups. So how do we get green?

Looking forward, late next week could be fun as we get more unemployment data. ADP starts us off on Wednesday. Last month ADP was bad, but since this is a pretty new metric that doesn’t really correlate with the unemployment numbers, traders do not really pay attention to it. It doesn’t carry a lot of weight. However, I think if the ADP numbers fall off a cliff, traders will pay attention to it. If it is a better than expected number, traders will just laugh it off.

So what is going to make us go higher right here right now? That’s the question I have been asking myself all day long. I am sitting pretty good with 65% in cash. Even though I am overweight cash, that doesn’t mean I could care less about the other 35%. In fact, I care very much about it as they are all long positions. I am long the following: PG, MO, NYX, UNG, and V. I’m not real concerned with PG, MO, or UNG. NYX I feel a little better about since I sold half my position yesterday. However, V does have me concerned. I think it could get beaten down badly if we have a horrible tape. I have been waiting for big strength to dump it.

For the bulls case, the action today didn’t help. Only 2 DOW 30 stocks were up - KO and MRK. Both defensive stocks and neither were up at least 1/2 of a percent. Just horrible. The only shred of good news was that we weren’t down more than we were. But traders have been saying that for 2 days now.

So what’s the game plan? I sure would like to see a rally tomorrow so I can put on some index shorts. In fact, every rally we get in the market until next Friday, I will look to put on some index shorts. I have to say that I am really concerned about the unemployment number next Friday. I think we see 5.1 percent unemployment and a loss of 125,000 jobs. I’m no economist and I have no idea yet what they are expecting, but I doubt they are expecting a big number. Don’t get me wrong, I don’t want to see a big number. But, I think a big number could help wash-out more of this market. Maybe we see a big swoosh down. Seems everyone has been looking for it anyway.

Relaxing in Greensboro

I have slept so good over the past few nights. I think it is the bed in my hotel room. King-sized bed with four fluffy pillows. Yeah baby! Yesterday, I stayed in my hotel room for most of the morning watching CNBC and doing some online things. There is a free breakfast in my hotel. For lunch, I tried to eat healthy at Boston Market. Then, I ventured to a brand-new Starbucks near Guilford College. After leaving, I had to stop by Target to pick up some razors.

I was a little confused when I first got here because I stopped by a Starbucks in High Point (South of Greensboro) and ordered a Naked Juice Protein Smoothie and the cost was $2.25. Add in tax and I paid $2.30. That’s only 2% sales tax. What? After doing a little investigation, I still don’t know why it was that cheap. I have been to other places in Greensboro and the sales tax is about 6.75%. A quick look online and the state sales tax is 4%. I think I need to go back to that Starbucks and investigate what that was all about.

Last night I stopped by a Steak-n-Shake (never been there) and had a double steak burger, cheese fries, baked beans, and a Chocobanana shake. Yummy. Bad for me, but still yummy. I would say that if you have never been to a Steak-n-Shake, you should go there at least once. It’s a pretty neat atmosphere and it tastes pretty good.

Today, I really have no plans. Just going to take it easy. One more day of relaxation in Greensboro. Tomorrow I leave for Raleigh, NC. Actually, I am really looking forward to seeing this capital city.

Marginalize Margin Use

Are you using margin in your trading account? I read all the time about people who use margin in their trading accounts. Everyone has heard about margin calls lately, but what does that really mean? Should you use margin in your account to leverage your trades?

Let me first say that I have never used margins to trade. I really never thought I would ever want or need access to margins until recently when I began to think about how I would love to be fully invested when the bottom is put in and maybe even completed margined as well. So, I thought I would look into it a little further to see if it is something I should do.

I remember in 1999 hearing about people borrowing money off their credit cards at 18% to put it into the stock market. Ouch! Borrowing money at that rate is not a good idea. When you borrow money on margin from your broker, they will usually charge you between 8 and 10 percent until you pay it back. If you look at the dividends of good stocks, usually 4% is a good dividend return. That means if you borrow money to buy a stock, and the stock doesn’t move but pays a good dividend, then you will lose money in interest payments to your broker.

So when should you use margins? I say so rarely that you should probably go through your whole life trying to never use it. Look at it like speeding. I am a very cautious individual and I have never had a speeding ticket (that I didn’t have fixed). I have had a warning, but not a ticket. I know people who have had hundreds of tickets. They look at it as a normal part of life. They like to drive fast and the ticket and higher insurance rates are just simply the cost of flying down the road.

What if your idea doesn’t work out in the near term and you used margin to trade? Well, you will probably get a margin call where the broker asks you to put up more money to cover your losses or they will simply liquidate your position to ensure they don’t lose money. Since I have never used margin, I have no idea what that would feel like. Even some of my “no brainer” trades have turned against me and I know if I had used margin I would have got a margin call and probably liquidated before my original thesis on the stock move played out. That would be depressing to say the least.

So instead of margin, I suggest using options. That’s the natural remedy to gaining leverage. So what if the market does put in a bottom and I am fairly confident of it? I will buy the common and buy some call options. Remember, when you buy an option, you are essentially controlling 100 shares of the underlying stock. The downside is that it is a decaying asset and price movements can be big in either direction. But at least you control your losses and are not using borrowed money for additional leverage.

There really is no reason to use margins if you have less than $1 million in discretionary trading assets. This is my minimum on margin usage and you may have your own, but unless you can borrow money for less than the dividend paid out by a very safe stock (like PG), then it is just not worth it at the current rates.