What the Fed?

Our current monetary policy is not a topic that effects just investors. The Feds decisions effect EVERYONE and is something everyone should be familiar with.

The whole Quantitative Easing (QE) concept can be a hard pill to swallow especially if you’ve never heard of it before. The market is really sensitive to the Federal Reserve (The Fed) because their decisions are effecting investors forward guidance (views of the future)

QE  in 30 seconds:

• Fed buys bonds and mortgage backed securities. The asset purchases cause lower interest rates, which encourages spending in the economy. Spending incentivize banks to lend, which increases financing activities for consumers and businesses.
• The Fed was buying 85 billion dollars worth of assets each month and planned to continue until they felt the economy was somewhat stable. (lower unemployment, healthy market performance and growth)
• QE= Fed training wheels for the American economy

Basically everyone is wondering when they are going to take off the training wheels, just like riding a bike if you are not ready to ride the two wheeler you could be in for a very rude awakening.

Instead of cutting the bond buying off cold turkey, The Fed is taking a screw out of one of the training wheels. Each month they are planning to reduce the amount of bond purchases by 10 billion per month, ending the monetary policy in 2014.  The move to decrease bond buying indicates that the economy is  getting closer to meet their standards.

The recent declines in U.S indices is due to the spillover from the selloff in Emerging Markets.

• A selloff in emerging markets was caused by the central banks decision to tighten their monetary policy. Tightening means the Central Banks plan to increase interest rates, which would usually create an incentive for investors. The aggressive rate of tightening is concerning because it may hinder their economic growth, which is causing a selloff.
• Detailed article about the EM Selloff: Emerging Markets Selloff Spreads from WSj

The market was pretty tepid going into the meeting. The Fed announced they will continue reducing the asset purchases. The downward momentum added to the index decline from EM. Despite yesterday's rally, I am maintaining a bearish view.

Here are some articles if you want some additional information about the Fed meeting:
Fed stays the course by tapering another $10 billion from MarketWatch
US stock indexes steeply lower after Fed does as expected from CNBC

Thanks,

Brit

SCTY 72.5 April Calls

Hello!

I decided to separate explanatory and position posts. This will make the information a little less overwhelming. Hopefully, the educational posts will build a foundation for the position posts.



The Story:

I was looking for a trade idea to start the year. Picking a position is a little overwhelming sometimes, there is a lot of data/ information to try and break down. I like to read SeekingAlpha and MarketWatch when I am looking for ideas.

I stumbled on this article: The Solar Outlook for 2014.

I chose SolarCity over the other companies listed because it was not as prominent as FirstSolar and there was more potential for a breakout move.

After picking SCTY, I used FINVIZ to look at the chart, focusing on technical indicators

• SCTY was trading at $59.10, which was very close to the resistance level. Once a stock breaks the resistance level it will gain momentum causing a price jump

The Position: 

I wish I had the chart to show exactly what I was looking at but I don't :(

Anyways, the trendline indicated that if the resistance was broken the stock could rally to $70.

I picked an April expiration, a further expiration can cheapen the price of the option. After the expiration, I picked a strike price that was not too expensive but had a decent delta. 

• Strike price: What you expect the price to be in the future
• Delta: How much the options price is expected to change with the change in the actual stock
• For example the delta was .50, therefore for every 1 point move in SCTY stock the option changed by .50

After all the research I decided on buying two 72.5 April Calls the next morning (Monday).

On Monday Goldman Sachs upgraded SCTY and the stock hit all time high's. Even though the price was way higher than when I initially decided on the trade, the trendline still had momentum to go even higher.

I bought 2 72.5 April calls at $6.85. 

The Profit:

SCTY continued to trade higher. On Jan. 16th my options were priced at $11.75! Almost double my purchase price!!!! I sold my calls and the trade realized a $960 profit.

Although I was bullish on SCTY, the rally seemed a bit overdone and I did not want to lose out on collecting profits. The next day it was trading at close to $80 but today it is at $69.

Here is the chart of the duration of my trade

Thanks for reading!!!

I realize there was not a lot of explanations in this post, hopefully as I write more of the explanation posts the material will be easier to grasp. 

follow me on Twitter: @TheBritReport

Thanks,

Brit

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