The Food and Drug Administration (FDA) plays a key role
Responsible for regulating the development of new drugs
Has developed rules regarding the clinical trials that must be done on all new drugs
Companies must test drugs through four phases of clinical trials before they can be marketed to individuals
Every year the FDA monitors the testing of 3,000 new drugs on nearly 200 million people to determine their effects
The FDA is relevant for investors specifically in regards to biotech and pharmaceutical companies
FDA approval can literally make or break the stock of a small company involved in developing new drugs
It is very common to see the stock of these companies skyrocket (or plummet) as test data is released
Upcoming Events In Biotech’s
SLXP (Approval decision date: March 24)
Drug: Xifaxan for hepatic encephalopathy
SOMX (Approval decision date: March 21)
Drug: Silenor for insomnia
CTIC (Approval decision date: April 23)
Drug: Pixantrone for non-Hodgkin's lymphoma
DNDN (Approval decision date: May 1)
Drug: Provenge for prostate cancer
POZN (Approval decision date: April 30)
Drug: Vimovo for pain relief
Large (relatively safe) Biotech Stocks
Amgen (AMGN)
Genzyme (GENZ)
Gilead Sciences (GILD)
Biogen Idec (BIIB)
Cephalon (CEPH)
Celgene (CELG)
Amylin Pharmaceuticals (AMLN)
OSI Pharmaceuticals (OSIP)
Big Pharma
Pfizer (PFE)
Merck & Company (MRK)
Johnson & Johnson (JNJ)
GlaxoSmithKline (GSK)
Sanofi-Aventis (SNY)
Novartis (NVS)
Abbott Laboratories (ABT)
Bristol-Myers Squibb (BMY)
Eli Lilly and Company (LLY)
New Trade Idea in Biotech!
Genzyme (GENZ)
High Risk Category
Bull Call Spread
Contingent on stock being >= $58.02
Buy to open: July 2010 60.00 strike call Sell to open: July 2010 65.00 strike call
Limit debit: 1.65 (or $165 per spread traded)
Maximum reward: 3.35 (or $335 per spread traded)
Wednesday, March 10, 2010
Monday, February 22, 2010
Metals & Mining ETF (XME)
Bear Call Spread
Expectations are to convert into an Iron Condor
Sell the March 55.00 strike call
Buy the March 58.00 strike call
Total credit = 0.70
Expectations are to convert into an Iron Condor
Sell the March 55.00 strike call
Buy the March 58.00 strike call
Total credit = 0.70
Tuesday, February 16, 2010
Where does the market go from here?
The article below are the views of Michael Markowski one of my trading associates. While I do believe the market is going lower overall in the coming months, I am not nearly as bearish as he is. I am expecting a 10-15% further decline in the market, he obviously is expecting much worse. There are always companies (stocks) with great value regardless of market conditions. If what he believes actually comes to fruition you will almost certainly be able to get those stocks later at lower prices.
Author: Michael Markowski
Written in the February edition of Equities Magazine.
Feb. 12, 2010 article: “Stocks Poised for Massive Sell Off”
The Euro’s recent steep decline versus the U.S. Dollar, which began in December is very bad new for the U.S. economy, stock market, commodities markets and the price of gold.
Did you know that since the Euro’s inception in 1999, its highs and lows as compared to its exchange rate with the U.S. Dollar have been accurate in predicting every significant rally and sell off in the U.S. stock market?
The Euro’s steep declines versus the U.S. Dollar in the late summer of 2008 and winter of 2009, preceded or precipitated the crashes in the U.S. stock market, which occurred in the Fall of 2008, and the Spring of 2009, respectively. Even the bursting of the dot com bubble in April of 2000 and the ensuing economic downturn in the U.S. can be blamed on a steep 15% decline in the Euro which began on January 3, 2000.
Since the Euro has already declined by 10% and continues to fall I expect that next shoe will soon drop, which will be a sharp sell-off in U.S. stocks. I am advising all of my family and friends to get into an 80% cash position in their stock portfolios, mutual funds and retirement plans.
Author: Michael Markowski
Written in the February edition of Equities Magazine.
Feb. 12, 2010 article: “Stocks Poised for Massive Sell Off”
The Euro’s recent steep decline versus the U.S. Dollar, which began in December is very bad new for the U.S. economy, stock market, commodities markets and the price of gold.
Did you know that since the Euro’s inception in 1999, its highs and lows as compared to its exchange rate with the U.S. Dollar have been accurate in predicting every significant rally and sell off in the U.S. stock market?
The Euro’s steep declines versus the U.S. Dollar in the late summer of 2008 and winter of 2009, preceded or precipitated the crashes in the U.S. stock market, which occurred in the Fall of 2008, and the Spring of 2009, respectively. Even the bursting of the dot com bubble in April of 2000 and the ensuing economic downturn in the U.S. can be blamed on a steep 15% decline in the Euro which began on January 3, 2000.
Since the Euro has already declined by 10% and continues to fall I expect that next shoe will soon drop, which will be a sharp sell-off in U.S. stocks. I am advising all of my family and friends to get into an 80% cash position in their stock portfolios, mutual funds and retirement plans.
Sunday, February 7, 2010
Adobe Systems (ADBE)
Low Risk Option Category
Option Trade
Buy to open: March 34.00 strike calls
Sell to open: March 36.00 strike calls
Limit Debit: 0.50
Max reward: 1.50 (or $150 per spread)
Max risk: 0.50 (or $50 per spread)
Option Trade
Buy to open: March 34.00 strike calls
Sell to open: March 36.00 strike calls
Limit Debit: 0.50
Max reward: 1.50 (or $150 per spread)
Max risk: 0.50 (or $50 per spread)
Compound Returns
Suppose you invest $10,000 into Gregory’s Tequila Company
Ticker Symbol: WORM
The first year, the shares rises 20%
Your investment is now worth $12,000
Based on good performance and incredible management, you hold the stock
In Year 2, the shares appreciate another 20%
Therefore, your $12,000 grows to $14,400
Rather than your shares appreciating an additional $2,000 (20%) like they did in the first year, they appreciate an additional $400, because the $20,000 you gained in the first year grew by 20% too!
If you extrapolate the process out, the numbers can start to get very big as your previous earnings start to provide returns
In fact, $10,000 invested at 20% annually for 25 years would grow to nearly $1,000,000
And that's without adding any money to the investment!
Scenario #1
You have $5,000 starting capital
If you can add $5,000 per year for the next 20 years
Total of your funds invested: $105,000
Compounded at 20% annual return
You would have $1,300,000
Scenario #2
$10,000 starting capital
Add $5,000 per year for the next 20 years
Total of your funds invested: $110,000
Compounded at 25% annual return
You would have over $3,000,000
Scenario #3
$20,000 starting capital
Add $10,000 per year for the next 30 years
Total of your funds invested: $320,000
Compounded at 25% annual return
You would have over $56,000,000
It takes some money to invest
It takes knowledge to get better returns
It takes time to compound
It takes patience!!!
All numbers below are hypothetical (expectations)
Swing stock trades (2-8 days in duration)
Expected returns for each type of stock traded:
Low risk stock trade expected return: +1% to +2%
Medium risk stock trade expected return: +2 to +4%
High risk stock trade expected return: +3 to +7%
Some will grow to become double digit performers!
Position stock trades (2-8 weeks in duration)
Expected returns for each type of stock traded:
Low risk stock trade expected return: +2 to +5%
Medium risk stock trade expected return: +5 to +10%
High risk stock trade expected return: +10 to +20%
Some will grow to become +20% performers!
Expected returns for each type of option traded:
Long Calls & Puts: Average return 20-50% of capital placed into the trade
Covered Call or Naked Put: Average return 5-15% of capital placed into the trade
Collar (Conversion): Average return 30% of capital placed into the trade
Calendar or Diagonal Spread: Average return 30% of money placed into the spread trade
Straddle or Strangle: Average return 30% of money placed into the spread trade
Butterfly or Iron Condor: Average return 50% of capital placed into the trade
Risk Reversal: Average return 30% of money placed into the spread trade
Vertical Spread: Average return 20-50% of capital placed into the trade
Ticker Symbol: WORM
The first year, the shares rises 20%
Your investment is now worth $12,000
Based on good performance and incredible management, you hold the stock
In Year 2, the shares appreciate another 20%
Therefore, your $12,000 grows to $14,400
Rather than your shares appreciating an additional $2,000 (20%) like they did in the first year, they appreciate an additional $400, because the $20,000 you gained in the first year grew by 20% too!
If you extrapolate the process out, the numbers can start to get very big as your previous earnings start to provide returns
In fact, $10,000 invested at 20% annually for 25 years would grow to nearly $1,000,000
And that's without adding any money to the investment!
Scenario #1
You have $5,000 starting capital
If you can add $5,000 per year for the next 20 years
Total of your funds invested: $105,000
Compounded at 20% annual return
You would have $1,300,000
Scenario #2
$10,000 starting capital
Add $5,000 per year for the next 20 years
Total of your funds invested: $110,000
Compounded at 25% annual return
You would have over $3,000,000
Scenario #3
$20,000 starting capital
Add $10,000 per year for the next 30 years
Total of your funds invested: $320,000
Compounded at 25% annual return
You would have over $56,000,000
It takes some money to invest
It takes knowledge to get better returns
It takes time to compound
It takes patience!!!
All numbers below are hypothetical (expectations)
Swing stock trades (2-8 days in duration)
Expected returns for each type of stock traded:
Low risk stock trade expected return: +1% to +2%
Medium risk stock trade expected return: +2 to +4%
High risk stock trade expected return: +3 to +7%
Some will grow to become double digit performers!
Position stock trades (2-8 weeks in duration)
Expected returns for each type of stock traded:
Low risk stock trade expected return: +2 to +5%
Medium risk stock trade expected return: +5 to +10%
High risk stock trade expected return: +10 to +20%
Some will grow to become +20% performers!
Expected returns for each type of option traded:
Long Calls & Puts: Average return 20-50% of capital placed into the trade
Covered Call or Naked Put: Average return 5-15% of capital placed into the trade
Collar (Conversion): Average return 30% of capital placed into the trade
Calendar or Diagonal Spread: Average return 30% of money placed into the spread trade
Straddle or Strangle: Average return 30% of money placed into the spread trade
Butterfly or Iron Condor: Average return 50% of capital placed into the trade
Risk Reversal: Average return 30% of money placed into the spread trade
Vertical Spread: Average return 20-50% of capital placed into the trade
Thursday, February 4, 2010
Exit: Berkshire Hathaway Trade (BRK-B)
The stock was added to the S&P 500 as anticipated. The market looks shaky and I would be very inclined to short aggressively into the market (we just entered GES short). We will get out of the option "risk reversal" trade now.
Buy to close: March 65 strike put
Sell to close: March 75 strike call
Credit: 1.40 per risk reversal traded
We entered this trade at a debit or cost of .20 or $20 per risk reversal traded. We are taking it off and receiving a credit of 1.40 or $140 per risk reversal traded. That is a profit of 1.20 or $120 per risk reversal traded.
The margin requirement in this type of trade is 25% of the value of the underlying stock (roughly $1,750 per risk reversal). Given our margin requirements in the trade, it comes out to a 7% gain on money invested in under two (2) weeks time. To put that in dollar terms, for every $10,000 invested you have a profit of $700 in under two (2) weeks.
Buy to close: March 65 strike put
Sell to close: March 75 strike call
Credit: 1.40 per risk reversal traded
We entered this trade at a debit or cost of .20 or $20 per risk reversal traded. We are taking it off and receiving a credit of 1.40 or $140 per risk reversal traded. That is a profit of 1.20 or $120 per risk reversal traded.
The margin requirement in this type of trade is 25% of the value of the underlying stock (roughly $1,750 per risk reversal). Given our margin requirements in the trade, it comes out to a 7% gain on money invested in under two (2) weeks time. To put that in dollar terms, for every $10,000 invested you have a profit of $700 in under two (2) weeks.
Monday, February 1, 2010
New Trade Idea
Guess (GES)
Stock Trade
Short the stock with a stop-limit 0rder
Stop = 39.44, Limit = 39.35
Place a buy stop above at 41.14
Stock Trade
Short the stock with a stop-limit 0rder
Stop = 39.44, Limit = 39.35
Place a buy stop above at 41.14
Friday, January 22, 2010
Buying: Berkshire Hathaway Shares (BRK-B) With Both Hands!
Berkshire Hathaway (BRK/B) just had a stock split. The class B shares split 50 to 1. In full disclosure: I already have a position and it is one of my largest holdings.
I see fair market value at $88/share, current price is $70/share.
I am also willing to bet the stock will be added to the S&P 500, this should cause an additional spike higher in the shares.
If you don't want to buy the shares outright and want to use leverage, here is the trade idea:
Option Risk Reversal
Sell the March 65 strike put
Buy the March 75 strike call
Debit will be around $.20 or $20 per spread
There will be a margin requirement of around $1,700 per risk reversal
Worst case scenario you own shares at a cost basis of $65.20
Best case scenario is unlimited upside profit potential
I see fair market value at $88/share, current price is $70/share.
I am also willing to bet the stock will be added to the S&P 500, this should cause an additional spike higher in the shares.
If you don't want to buy the shares outright and want to use leverage, here is the trade idea:
Option Risk Reversal
Sell the March 65 strike put
Buy the March 75 strike call
Debit will be around $.20 or $20 per spread
There will be a margin requirement of around $1,700 per risk reversal
Worst case scenario you own shares at a cost basis of $65.20
Best case scenario is unlimited upside profit potential
Tuesday, January 12, 2010
Goldcorp (GG) Longer-Term (April) 1 x 2 Put Spread
Important note: You are naked half of the puts traded so, becoming long Goldcorp (GG) shares at a cost basis of $34.00 (20% lower than today's price) is a real possibility at April expiration. The initial margin requirement is likely in the ballpark of $1,000 for every 1 x 2 put spread traded.
Buy to open @ ratio of 1: April 42.00 strike puts (GAGPP)
Sell to open @ ratio of 2: April 38.00 strike puts (GAGPC)
Limit credit: .05 (try to put this trade on for at least breakeven of a zero debit/credit)
Maximum risk = unlimited below lower breakeven of 34.00/share. This because half of the puts traded are naked.
Maximum reward = 4.05 (or $405 per 1 x 2 traded)
NOTE: A gain of the entire 4.05 is a low probability, some portion of that is what we are gunning for.
The stock price moving higher and we make a small profit in the credit (.05). The stock price declining between 2% - 20% from current prices we make some good profit. If the stock falls further than 20% by April expiration and we are still in the trade, we will be long the stock and under water in the trade.
Buy to open @ ratio of 1: April 42.00 strike puts (GAGPP)
Sell to open @ ratio of 2: April 38.00 strike puts (GAGPC)
Limit credit: .05 (try to put this trade on for at least breakeven of a zero debit/credit)
Maximum risk = unlimited below lower breakeven of 34.00/share. This because half of the puts traded are naked.
Maximum reward = 4.05 (or $405 per 1 x 2 traded)
NOTE: A gain of the entire 4.05 is a low probability, some portion of that is what we are gunning for.
The stock price moving higher and we make a small profit in the credit (.05). The stock price declining between 2% - 20% from current prices we make some good profit. If the stock falls further than 20% by April expiration and we are still in the trade, we will be long the stock and under water in the trade.
Monday, January 11, 2010
S&P 500 ETF (SPY) Long-Term Put Butterfly
This is a long-term trade that we will likely be patient with for multiple months. It is a June Put Butterfly on the Spyder (SPY). We will profit if the market has an intermediate-term pullback. If the short-term downtrend never materializes, then we will be at risk for the cost of the trade (i.e., the total debit).
The trade details are as follows (NOTE: regular June options, NOT quarterly June options being used for this trade):
Buy to open @ ratio of 1: June 112.00 strike puts (SPYRH)
Sell to open @ ratio of 2: June 107.00 strike puts (SWGRC)
Buy to open @ ratio of 1: June 102.00 strike puts (SWGRX)
Limit debit: 0.50
Maximum risk = 0.50 (or $50 per butterfly traded)
NOTE: A loss of the entire 0.50 is a very real possibility, so trade accordingly.
Maximum reward = 4.50 (or $450 per butterfly traded)
NOTE: A gain of the entire 4.50 is a low probability
A realistic gain is probably 1.00 to 2.00 per butterfly traded.
Actual Reward-to-Risk Ratio = 8 to 1 (realistic reward-to-risk ratio = 3 to 1)
What is the difference between the actual and the realistic reward-to-risk ratios? The SPY would have to end up at exactly $107 per share on June expiration to have the maximum gain. That is a very low probability. However, there are many scenarios where we can make between 1.00-2.00 per butterfly in the trade. In option trading, you have to look at your absolute best and wost case scenarios. However, you plan your trades based on "most likely" best and worst case scenarios.
The trade details are as follows (NOTE: regular June options, NOT quarterly June options being used for this trade):
Buy to open @ ratio of 1: June 112.00 strike puts (SPYRH)
Sell to open @ ratio of 2: June 107.00 strike puts (SWGRC)
Buy to open @ ratio of 1: June 102.00 strike puts (SWGRX)
Limit debit: 0.50
Maximum risk = 0.50 (or $50 per butterfly traded)
NOTE: A loss of the entire 0.50 is a very real possibility, so trade accordingly.
Maximum reward = 4.50 (or $450 per butterfly traded)
NOTE: A gain of the entire 4.50 is a low probability
A realistic gain is probably 1.00 to 2.00 per butterfly traded.
Actual Reward-to-Risk Ratio = 8 to 1 (realistic reward-to-risk ratio = 3 to 1)
What is the difference between the actual and the realistic reward-to-risk ratios? The SPY would have to end up at exactly $107 per share on June expiration to have the maximum gain. That is a very low probability. However, there are many scenarios where we can make between 1.00-2.00 per butterfly in the trade. In option trading, you have to look at your absolute best and wost case scenarios. However, you plan your trades based on "most likely" best and worst case scenarios.
Wednesday, January 6, 2010
Market Update
There is an all important U.S. unemployment report this Friday. It has long been our argument that an improving number is not necessarily a positive for stock prices. It would signal that the Federal reserve would begin raising rates sooner. What would likely be best for stock prices would be a continued gradual deterioration in the unemployment number.
The current fiscal stimulus is artificially propping up the market. We got into this mess because we have spent too much and saved too little. Now we are trying to combat that with more debt. In essence, we are like an individual who bought 10 homes and can't make the payments (too much debt). Then he goes out and borrows money to improve these homes or buy more homes to attempt to improve his situation. If the housing market recovers, rents comes in and home values increase, he may make it out okay. However, if things don't improve, then he goes bankrupt and his ability to borrow in the future is ruined.
Whether you believe in what the Fed is doing or not, there is risk and reward in it. The risk with increasing the U.S. debt by trillions is that it may not be successful. Our bullish stance on commodities and precious metals is based on what they are currently doing. If the economy improves, then they will have successfully navigated the first part of the problem, but will have to combat a lower dollar and big inflation. If the economy does not improve, then the dollar would likely get slammed and commodity prices (precious metals) could move dramatically higher accordingly. This increase in money supply has, to this point in time, improved the economy and company profits which has pushed stock prices upward.
We found it quite interesting to research back how the market moved immediately following the release of the unemployment report. You can see in the chart below that there is a common theme. That theme is for the current trend and momentum to turn regardless of which direction it has been in upon the report's release. If this trend continues, then you would want to enter Friday's trading day short stocks as the trend has been up and a reversal would send us lower. There is, of course, no guarantee that will continue, but it was an interesting phenomenon in 2009
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The current fiscal stimulus is artificially propping up the market. We got into this mess because we have spent too much and saved too little. Now we are trying to combat that with more debt. In essence, we are like an individual who bought 10 homes and can't make the payments (too much debt). Then he goes out and borrows money to improve these homes or buy more homes to attempt to improve his situation. If the housing market recovers, rents comes in and home values increase, he may make it out okay. However, if things don't improve, then he goes bankrupt and his ability to borrow in the future is ruined.
Whether you believe in what the Fed is doing or not, there is risk and reward in it. The risk with increasing the U.S. debt by trillions is that it may not be successful. Our bullish stance on commodities and precious metals is based on what they are currently doing. If the economy improves, then they will have successfully navigated the first part of the problem, but will have to combat a lower dollar and big inflation. If the economy does not improve, then the dollar would likely get slammed and commodity prices (precious metals) could move dramatically higher accordingly. This increase in money supply has, to this point in time, improved the economy and company profits which has pushed stock prices upward.
We found it quite interesting to research back how the market moved immediately following the release of the unemployment report. You can see in the chart below that there is a common theme. That theme is for the current trend and momentum to turn regardless of which direction it has been in upon the report's release. If this trend continues, then you would want to enter Friday's trading day short stocks as the trend has been up and a reversal would send us lower. There is, of course, no guarantee that will continue, but it was an interesting phenomenon in 2009
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