Market March Madness: 1/27/14

I am going to spend more time giving quick market updates, explanations and opinions. I will continue to post my positions but I want to give a little bit more information instead of giving information without laying the foundation.

Lets get into it.

There are 2 important topics going into this week: I'll explain 1 today and the other tomorrow

1. Earnings
2. The Fed Meeting ( I'm saving the explanation for Tuesday)

 

Earnings: The Market's March Madness

In light of Warren Buffet offering 1 BILLION dollars for the most accurate March Madness Bracket, I decided to use the tourney to loosely describe earnings. 

Regular Season: 

Earnings, which are released every quarter, draw a lot of attention because they indicate how profitable a company was during the previous quarter. Investor's pay close attention to earnings because they help paint a picture of  companies' current performance and the outlook for  the future. 

Think of it like this: Investors have been using various pieces of news throughout the quarter to gauge how the company is performing.  During the regular season you watch your teams the games and keep track of their record. The season record gives an idea of what can be expected going into the tournament. 

Filling out the Bracket:

Before earnings are released investors will start to take positions (buying or selling shares/options). Their positions reflect their opinion on earnings data.

• Bullish : Buy into the stock before the earnings release in anticipation of a rally (large increase) and sell once it has hit the price you expected (collecting profits)
• Bearish: Sell the stock in anticipation that the price will go down 
• This is only profitable if your short selling, if the stock is in your portfolio, a sell would be to protect downside losses

Taking a position is similar to filling out your bracket. When filling out a bracket you consider  the teams record (previous earnings/info), the coach (CEO), industry (conference) and products/services (star players). Gathering all that info you are forecasting essentially who is going to lose and win. 

The Championship:

Okay fast forward through all the individual games and let's focus on the championship. For earnings, it is the same as their release.

 

The information people usually receive first is if the company beat or missed their earnings. Beating estimates (winning) and missing estimates (losing). The impact of the actual earnings will be reflected in how much the stock gains or loses. 

• Beating estimates will usually cause the stock price to increase because it indicates that the companies had more revenue than anticipated.
• Missing estimates will usually cause the stock price to decrease

Unlike winning and losing, the amount in which the stock moves in either direction is priced in by the reason the earnings were missed or beaten. Here are some examples of price reactions to earnings:

• Company beats earnings because they fired a bunch of people, that is not considered a sustaining source of revenue growth, so the price decreases
• Company missed earnings because they were hit with a one time legal settlement but has strong fundamentals, price decrease is not as big
• JP Morgan (JPM) is considered a stable bank with the necessary tools to continue growth and maintain strength. A couple weeks ago, JPM missed estimates. JPM's miss was largely attributed to the number of legal settlements it faced during the quarter. This event is not something an investor would see as a fundamental issue, therefore the stock barely dropped.  

• Company beats earnings because they saw a huge increase in advertising, which increased their profitability. This positive outlook will cause the price to go up. 
• Microsoft's ad revenues increased by 34% which caused their stock price to increase 
• Company misses earnings because they are terrible and have no sales and a very bleak outlook. Price goes down.

These are just a few various way earnings can be digested.

So to keep with the March Madness theme, say you expect earnings to beat estimates and you buy in early. The earnings are released and you were correct and the price soars. Just like picking the winning team in March Madness. Woohooo! 

 It isn't as black and white  as March Madness but hopefully I brought some clarity.

Today all eyes are on Apple, which should be reporting earnings shortly.

 

Best,

 

Brit

GLOSSARY

Bearish: Expect prices to decrease, also known as being "short" 

Bullish: Expect prices to increase, also known as being "long"

Profit Margins: The proportion of sales that are kept for revenue, 20% profit margin means for every dollar in sales $.20 are kept for profits. (investopedia)

Quarter: Three month time period, at the end of each quarter companies pay dividends and report earnings (investopedia)

Revenue: The amount of money a company receives from sales, investments etc. (Investopedia)

 

Under Construction until 1/12/14

Hello!


So I am working on revamping my blog for 2014. From the feedback here are some of the changes

1. Market commentary in addition to my trading positions
2. Increased number of posts (clearly need to work on that hah!)
3. Shorter posts (not trying to bore you to death)  
4. More interaction. If I explain something poorly, the post was too long/short, you want more updates, you want a specific news story explained. Please please let me know! I appreciate all feedback. 

My next post will be on or before January 12th, 2014!

See you next year!

Brit

P.S I will be posting a survey next week asking for feedback. I would greatly appreciate if you filled it out!

I'm back!

Just wanted to give a quick update on my positions from last week.

AAPL

Man, I can't stay away from apple. It's a perfect play when I want to get in and out since the options are so liquid. People give apple such a hard time but I think it's a solid company... how many tech companies have the ability to issue 30 yr bonds? not many. I put this on after they announced their new software/set phones but before the release of the phone. This was an event driven move, as you can see from the quick turn around of positions. Bought 2 AAPL Oct 500 calls for 2.19 and sold them at 3.49 realizing a $221.96 profit. I chose October because the september expiration was right around the corner... as an option gets closer to its expiration the value diminishes (this is the theta value- one of the inputs of the black scholes model to price an option- #thingslearnedinNewYork) I'll go into all the greeks later this week.

TSLA

Okay shoot me, I hopped on the TSLA bandwagon. This was one of my first plays, I listened to this podcast on Bloomberg that talked about how Japan is requiring all producers of electric cars to pay to increase the number of charging stations. Hellllooo Tesla. Plus who can ignore a company with 400% returns in one year? Still bullish. Bought 1 TSLA Oct13 195 Call for $2.00 and sold them at $3.45 (notice the bought for/sold at- #thingslearnedinNewYork hahahah) 

Right now I'm long the VIX it was up yesterday but it rebounded and erased some of my gains. I am also long UNG as test to my chart analysis techniques. This has been my struggle position but I'm keeping my view.

As always, any questions: comment or tweet me. @TheBritReport

Best,

Brit

Fresh off the Street

I'm baaaaa-ack.

I just ended my internship in New York, which was awesome.

Due to compliance I will not be trading for another 30 days.

In the meantime if you have any questions about anything markets/intern related tweet me or comment!

Best,
Brit

Back from under the radar

Heyy!

I know I know, who knew this blog thing would be so hard to maintain! I look up and boom there goes 2 months lol. But here I am... with a lot of excitement

I'm going to update my positions for the CME and QQQ. I'll tell you about facebook in the near future.

CME Group Inc - WINNER!
The CME has been the winner of the week! I had 2 strikes prices with a total of 5 Contracts but after today I still have the 2 strike prices but 2 contracts.

On 2/12/13 I purchased 3 CME Jun13 60 Calls when the stock was at 57.09. CME is the Chicago Mercantile Exchange where a lot of commodity and financial instruments are traded.

Why did I choose CME?
One major component that stuck out about the CME is that they profit from every contract that goes through their exchange, regardless if the market is bullish or bearish. If the economy continues to pick up the CME will benefit from hedging. if  worries of the sequester come into play the CME benefits from liquidations of equities and the purchasing of fixed income. Last but not least the calls were extremely inexpensive.

After the first purchase I added to position and on 2/19/13 I purchased 2 CMEJun13 62.5 Calls when the stock was trading at 58.95.

On 2/27/13 I sold 2 CME Jun13 60 Calls trading at 59.78.
This article confirmed my hypothesis and there was even more growth: CME Contract Volume up 7%
Today (3/6/2013) I sold 1 CME Jun13 52.50 Call trading at 61.97.

I sold them because I wanted to take some money in, increase buying power and realize a gain. If the price goes lower I can buy them cheaper, if they keep rallying I'll hang on to the 2 contracts I have. You wanna hope for the best but plan for the worst... the stock could always go back down. Through these trades I realized a $332.46 gain.

QQQ Powershares Trust Series - loser

On 2/12/2013 I purchased 2 QQQ Apr13 68 Calls trading at $67.95. QQQ Powershares are an ETF of the NASDAQ. I used an ETF because it gave me the ability to trade an index.

• ETF- Exchange Traded Fund: A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold. ETF SOURCE
• ETFs are also useful when getting your feet wet when it comes to commodities because like indexes the commodities are converted to ETFs to be traded like stocks.

Why did I choose QQQ?
There were two main factors that lead to the decision.
1. Stocks in the NASDAQ are tech companies, I see a huge boom in tech because investors are looking for growth companies which are most common within the technology sector.
2. A lot of non bulge bracket investors were keeping their money out of the market due to various political issues but Q1 earnings increased confidence to get back in the game and traditionally the first place they look is technology.

So all signs were pointing to a jump in the NASDAQ, we saw the S & P and the DOW reach highs and figured it was their turn.

 On 3/5/13 I sold 2 QQQ Apr13 68 Calls trading at 68.57

I attached a graph/table to show the beginning and end of the QQQ, the price was in the red for a majority of the time. It was up 4 cents yesterday and I decided to sell it. I like the index but I wanted to liquidate to lay off some risk, Apple's weakness is making it tough for QQQ to rally, especially by my expiration. After it was all said and done I lost about $22.03, which was mostly commission but you have to pay to play =)

 That's all for now!

Also as a side note. For the more seasoned market aware folks reading, I won't be posting a lot of spreads/technical analysis on my blog. A lot of the technical mumbo jumbo confuses the everyday curious reader. Plus I can't give away all my secrets =)

Best,

Brit

I forgot! follow my twitter for up to date info or to ask me questions! I enjoy questions!

@TheBritReport

Happy New Year!

Hello!

I know I have been so MIA this past month but between finals and the holidays I took a little break. I will begin updating both my blog and twitter more frequently.

Today I will be updating on some market trends.
In the next week or so I will update you with my positions.


I am so glad that Fiscal Cliff is all figured out. In the midst of the new agreement the Fed indicated that they were going to slow down their efforts to stimulate the economy. This sent most broad  indexes in the red for the day.

What do I mean by "slowing down efforts to stimulate the economy"?
When the Fed decides to stop stimulating (injecting more money into the economy by buying bonds) that usually means that consumers and business are only left to each other to buy and sell on the market and a lot of people fear that we are not stable to produce growth.
This information effects the market in more ways than one.
1. Effects economic growth sensitive equities (for example technology)
2. Effects commodities

Commodities: Commodities are gold, crude oil, soybeans, corn and various raw materials.

Why are they effected by the news?
Slowing down the stimulus -> slowing down the economy -> slowing down the use/need of  oil

In one of my previous blogs I mentioned how crude oil will show trends in the market. When there is an idea of the economy slowing down the prices for crude oil are going to drop because there will be less demand (people are pinching their pennies)

But there is in fact a light at the end of the tunnel.

Despite ending in the red zone on Thursday stocks ended higher on Friday.

What happened in those 24 hours?

Unemployment numbers! 155,000 jobs were added and unemployment met most predictions at 7.8%

How do unemployment numbers effect the market?

• When they are lower than predicted that usually means you will see some red at the end of the day, less jobs were added-> less people making money-> slow economy 
• Expectations are met indexes will be in the green. There were the jobs we expected-> expected level of consumers-> expected economy
• Expectations exceed predictions indexes and crude will end in the green. There were MORE jobs-> MORE consumers-> better economy. woohoo! 

Crude oil closed at .2% while Gold closed at -1.5% 

The S & P was the standout index ending with a 5 year high! 

Financial stocks led while tech weren't so lucky.

When looking at different stocks they effect different indexes. Since tech stocks slowed that will effect the NASDAQ which includes mostly tech stocks.

Funny how different two days can be! 

To buy: looking at Google (as always) I know I seem partial but we see good performance from Google however Google is looking a little rich (as in expensive) at these levels, I'll be looking to buy on a pullback (when there is a price drop). Also apple and BP. I'll let you know of any buys!

Let me know if you have any questions!

Brit

November 25th: Where do I start?

Hello Everyone!

Long time no see, I have something special in the works for you guys so please be patient with me :)

I conducted a workshop over the weekend and I got a lot of questions and I wanted to offer answers to whoever is reading! The number one question I received is where do I start?
Here are some of the steps I took. As you know if you have any questions tweet me, comment etc!

1. First make the decision that you want to begin trading. Although this seems like a no-brainer, trading does involve commitment and risks. If you're willing to put in the time you can really learn a lot and do more with your money. Remember a lot of the market is based on people's emotions. As soon as you put a trade into play check your emotions at the door, the market is going to do what it wants. Trade accordingly.
2. Set a trading plan.This is SUPER important. Don't fudge your plan to fit what you want to do. When you've hit your desired profit liquidate. If you've been losing on a position, get out. It's important to set these standards beforehand so you are not trying to figure it at the last minute.
3. Decide how much money you are willing to invest. This should involve a serious look into your finances. This money should come out of discretionary income, not rent/bill/emergency money. There is an opportunity to make money but there is also an opportunity to lose that money as well.
4. Now that you've put some money aside set your targets.This goes for both losing and winning positions.
• What are you willing to risk? Set your risk level at a safe percentage (1%-5%). Meaning if you have $1,000 position and it's down $150 get out and stay out.
• What is your target profit (risk/reward)? How much are you willing to risk in order to make a profit. If you're just going to break even from a trade then what is the point of even doing it? AT LEAST have a 2 to 1 ratio (for every 1 dollar you risk, there is a 2 dollar reward) 
5. Exit and entry strategies.
• Now that your risk level is set be ready to exit a position if it is not performing. You will not always pick a perfect stock and you will be wrong. Don't wishfully think some magic is going to happen. Get out! Write down where you want to get out, discipline yourself to get out. This also goes for profitable positions, once you've hit your mark liquidate. You will never lose taking a profit. It is a horrible feeling when a position is losing because you held on too long. Don't be greedy!
6. Compare online brokerage accounts. If you are going to trade options which is what I mostly talk about in my blog I would suggest Options Xpress, they have pretty good rates. Beyond rates look at their virtual trading system, tutorials for entering positions and options for your mobile device. I haven't looked around recently perhaps I will do a comparison one of these days. 
7. RESEARCH RESEARCH RESEARCH. Watch the news find out what is going on in the world, what is going on in the economy.
8. Pick some stocks that you think are going to grow. I think this is where a lot of people get overwhelmed. The thing that I like about options is that you do not have to pay the price of the stock, which gives you access to companies like Apple and Google. You're deciding on a movement, which makes it a more manageable. PAPER TRADE (or Virtual trade in most cases) Act like your actually trading without using your money. You are the consumer,companies base their success on your purchasing decisions.

Don't be overwhelmed! Be discpilined, have confidence and gain knowledge.

I know this was a wordy post but I got a lot of questions on where/how to start so I wanted to give some details.

Thanks!
Brit


I have attached some pictures from my workshop last week!