Fascinated with Fastenal? Here’s your play…

How do you trade a stock that never gets cheap?

By Dr. Paul Price of Market Shadows
Very good companies are not hard to identify. They sport excellent long-term growth in easily measurable business metrics. Industrial and construction supply company Fastental (FAST) surely qualifies as a real winner on that basis based on its excellent 10-year track record.

Fastenal - most recent decade

The high quality has kept the stock from going to bargain levels even during bad times. The absolute low in March 2009, came with the shares at almost 21x that year’s final EPS. The two other best times to buy since 2007 occurred when the forward P/E was around 26-27x.

FAST  Jan. 1, 2006 - Jul. 11, 2014

At last week’s close of $46.15 Fastenal was back to a relatively cheap multiple and yielding a fairly generous 2.17%. The stock opened slightly lower this morning making its valuation a bit more attractive.

Market Shadows’ Virtual Put Writing Portfolio sold 2 each of the Jan. 2016, $40 and $45 puts at prices of 4$3.40 and $5.60 respectively. That drops our break-even prices to $39.40 and $36.60, levels that haven’t been seen since 2012.

FAST put with if exercised for MS

Consensus views for calendar year 2015 earnings now center on $1.96 per share. If all goes as expected the ‘if put’ prices represent only 18.7 and 20.1x the EPS that will be in effect by the Jan. 2016, expiration date.
That would be better value than was available at the exact low in 2009.

Danger: Falling Prices

Danger: Falling Prices

By Dr. Paul Price of Market Shadows

Danger, Falling Prices

We tried holding up stock prices but couldn’t get the job done. Market Shadows’ Virtual Value Portfolio dipped by 2% during the week but still holds on to a market-beating 8.45% gain YTD. There was no escaping the downdraft after a major Portuguese bank failed. Of all the triggers for a large selloff, I’d guess the Portuguese bank failure was pretty far down most people’s list of “things to worry about.”

All three major indices gave up some ground with the Nasdaq composite taking the hardest hit.

VVP week ended Jul. 11, 2014Major Indices YTD as of Jul. 11, 2014

Our basic premise is that stocks are the only game in town. Our premise remains in force; we don’t see a reason to believe anything has changed. Market downturns are normal in any market environment, we have just become accustom to strong performance. 

Cash earns next to nothing while inflation is much worse than our government will admit to. We plan on staying fully invested in stocks.

We like being positioned in names that can hold up to a much weaker recovery than the main stream media seems to expect. Check out Paul’s recent GuruFocus article on our Virtual Value Portfolio holding Kelly Services (KELYA). Paul added to his KELYA position in his personal account yesterday: Kelly Services: A Trader’s Dream.      

Prophylactic Close-Outs on Teva Pharmaceuticals

Prophylactic Close-Outs on Teva Pharmaceuticals

Better safe than sorry…

By Dr. Paul Price of Market Shadows

Bombs are flying between Israel and Gaza. This is not new, but it does appear to be escalating along with tensions in the area.

Our Virtual Put Writing Portfolio had been short one contract of the TEVA Jan. 2015, $42.50 put, and two contracts of the TEVA Jan. 2016, $45 strike price puts. These batches were sold on different days (see table below).

Teva Pharmaceuticals has done very well since we initiated these trades. It was under $40 on Jan. 6, 2014, when we sold the first two puts. TEVA was $49.64 on May 7, 2014, when we sold another contract of the $45 strike 2016 series.

TEVA Put Sales

We are going to close out these short put positions to lock in gains and not risk stock market turmoil related to the unstable situation. We might be closing unnecessarily but don’t want any unpleasant surprises.

We received $6.05 per share ($605) for the $42.50 put and $9.50 per share ($950) for the first $45 option. We took in another $480 when we sold the final $45 put last month.

We thus collected a total of $2,035 for the three contracts.

Today we closed all our positions to avoid worrying about war-related events affecting this Israel-based company.

TEVA  Put close-outs for MS

 

Our buy-back cost was just $49 for the lower strike and $600 for the pair of $45 puts ($3.00 x 200). The total outlay for the BTC (buy to close) transactions was $649.

Net Profit:  $2,035 – $649 = $1,386 (3 contracts)

These trades are now reflected on our Closed-Out Transactions list. Our virtual put writing portfolio was started on January 9, 2013. In the eighteen months since then we have had 41 winning trades (closed-out or expired) versus just 3 losers. That is a 93.2% success rate.

More importantly, we’ve achieved $24,806 in net profits simply by selling puts against marginable equity that was already on deposit in our margin-type account. Option sales can be highly profitable.

Check out all our open and completed option transactions here: Market Shadows Put Writing Portfolio.

Ending Our Quest A Month Early

Ending Our Quest A Month Early

We closed out our only August Position in the Put Writing Portfolio. Quest over. 

By Dr. Paul Price of Market Shadows

Market Shadows Virtual Put Writing Portfolio had sold one option contract on laboratory testing firm Quest Diagnostics (DGX) back on Feb. 19, 2014, when the shares were trading for $52.47.

We received $5.10 per share for the Aug. 16, 2014, $55 put. Today, with the shares out of the money at $58.97, we closed out the position for the asking price of $0.60.

DGX  Put close out for MS

It’s likely that this option would have gone on to expire worthless next month but we are no longer enthusiastic about the company. Our timing was good on the front end of the transaction as DGX was near its 12-month low back in February.

Closing now is the conservative path in a choppy market. We netted a $450 profit on the trade. We freed up $5,500 in buying power that can now be redeployed into a new, more exciting idea.

 

DGX  put close-out chart

 

Follow all our completed and open option trades by clicking here Virtual Put Writing Portfolio.

 

Confine your ‘Dating’ activities to Match.com and eHarmony

Limit your Target-Dates to Match.com or eHarmony

This week’s Barron’s cover story glorifies Target-Date funds.

Target Date Funds - Barron's Cover Jul. 7, 2014 issue

The idea behind the concept is that investors are simply too dumb to effectively manage their own retirement accounts. Buy a target-date fund, though, and one of the big investment managers like Fidelity, Vanguard or T. Rowe Price (TROW), will allocate your money between stocks, bonds and cash based on your projected retirement year.

The theory is that investors will be spared the pain of extreme bear markets via professional decision-making regarding distribution of 401k or IRA assets on the way to your golden years.

Barron’s noted that about 20% of all retirement plan assets are now held in target-date funds. With around $1 trillion in AUM there is big money in their management fees, which run much higher than those of plain vanilla index funds.

The market for these funds soared after the Pension Protection Act of 2006 allowed companies to automatically enroll employees in 401(k) plans. Many firms encouraged the use of target-date funds as the ‘default’ option since it lowered employers’ legal liability.

Target-Date Funds Take Over

 

Is limiting equity exposure a good idea for folks with many years left until retirement? History says “No.” Stocks are where the money has been made over the lifetimes of everyone working today.

 

Electrifying Results   1950 - 2013

Did target date 2030 funds protect their investors from the carnage of 2008? The answer is once again, “No.” The five target-date funds that Barron’s favored pretty much matched the market’s plunge that year.

Target -Date 2030 funds v. SPY  2008

Have target-date funds performed well for investors over time? Barron’s top 5 showed average one-year and five-year total returns of 19.44% and 14.84% (annualized) in the period ended June 30, 2014. Those raw numbers sound good until you compare them to the S&P 500’s results over the same time frames.

Finish reading the full article by clicking on the link below…

http://www.gurufocus.com/news/266855/limit-your-targetdating-to-matchcom-or-eharmony

 

You Can’t Handle the Truth

By Dr. Paul Price of Market Shadows

The Thomson Reuters Insider Sell-Buy ratio went negative a week ago just ahead of all-time highs on the DJIA and S&P 500.

It now appears that it was an example of a errant road sign. The Insider signal has generally been much better historically when pointing out good times to buy, rather than exit ramps.

Caution - Road sign

This week’s reading of real money insider trading swung back into marginally bullish territory.

Insiders - Back to Slightly Bullish

 

America’S ZIRP (zero interest rate policy) and Europe’s NIRP (negative intertest rate policy) leaves few viable alternatives to owning stocks.

Government data on GDP, unemployment, CPI etc. can no longer be trusted as accurate. Politics have overrun the requirement for telling citizens the facts about what’s going on in their lives. The past week’s proclaimation of great job creation and low inflation goes against everything we are seeing with our own eyes.

Don’t worry, though, our leaders are only fibbing for your own good. They believe in the words of Jack Nicholson from the movie ‘A Few Good Men’ … “You can’t handle the truth.”

A Few Good Men - poster

No Holiday Blues For Us

Only the ‘Shorts’ were unhappy today.

By Dr. Paul Price of Market Shadows

The shortened trading schedule didn’t bother anyone except the perma-bears. The DJIA surpassed 17,000 for the first time ever while the S&P 500 also posted a new record. After a very poor start to 2014, the Nasdaq Composite has drawn into a virtual dead-heat with the SPY year to date.

Holiday Cheer - image

Market Shadows has no complaints. Our value portfolio closed at a new high today as well. We are now up more than 10.6% YTD and about 54.4% since inception on Oct. 26, 2012. We’re annualizing at a very respectable 32.28% in our unlevered, plain vanilla portfolio.

VVP as of July 3, 2014

Our most recent new additions, Kelly Services (KELYA) and Bed, Bath & Beyond (BBBY) both had nice gains in today’s shortened trading session.

Despite a fine week, the DJIA has gained less than half as much as the other two major indices so far in 2014. Perhaps it is readying itself to make a catch-up move later, as the NASDAQ did in almost pulling even with the SPY.

YTD indices  as of Jul. 3, 2014

 

Our fully invested stance has proven to be the right choice. Click on the link to see all our closed-out and open equity positions.

Market Shadows Virtual Value Portfolio.

No Harm, No Foul

Failed to Hit the Target – Made a Small Profit Anyway

By Dr. Paul Price of Market Shadows

Last September 25th, we thought discount retailer Target (TGT) looked like a good bet to go higher as its Canadian operations improved along with North American economic activity. TGT was trading for $63.34 when the Market Shadows Put Writing Portfolio sold a single contract of the TGT Jan. 2015, $65 put for $7.60 per share.

As it turned out, things North of the border haven’t been doing as well as expected. Target also managed to experience a major customer data hacking event around the busy Thanksgiving season. Shares were down $3.93 (-6.2%) from our trade inception date through mid-morning today, at $59.41.

 

TGT 1-year (daily)

We don’t like Target as much as before. After the June-July rally we decided to close out our Jan. 2015, $65 put for $7.30 per share.

TGT Jan. 2015 $65 put close out

This highlights the beauty of being option sellers. Nine and half months of time decay allowed us to make a small profit on a stock that declined in price by more than 6%.  Target might continue its recovery but I now prefer other retail names, like Urban Outfitters (URBN) , Wal-Mart (WMT), PetSmart (PETM) and Bed Bath & Beyond (BBBY) as more predictable plays for put writing.

Check out all our closed-out and current option positions by clicking on this link…

Market Shadows Virtual Put Selling Portfolio.

We Added a Touch of Style Today

A Trendy New Name for Our Put Writing Portfolio

By Dr. Paul Price of Market Shadows

Urban Outfitters (URBN) is a fine company that fluctuates readily in reaction to quarterly results which vary more dramatically than the firm’s long term numbers.

The most recent decade’s progresss was quite impressive.

URBN  10-year numbers  FY 2003 - FY 2013

Short-term thinkers sent URBN shares to a new 52-week low of $32.23 this week after fiscal Q1 numbers came in short of last year’s. Since then, the stock has firmed up a bit. URBN was trading for $34.15 as of 12:31 this afternoon.

Market Shadows Put Writing Portfolio sold 4 contracts of the Jan. 2016, $35 puts @ $5.00 per share. Our best case result will occur if the stock climbs by just 2.5%, to $35 or higher, by the Jan. 15, 2016 expiration date. If that happens we’ll pocket 100% of the $2,000 put premium collected without needing to buy any shares.

URBN Jan. 2016 $35 put

If URBN remains below $35 on Jan. 15, 2016, we’ll be forced to purchase 400 shares at a net cost of $30 ($35 strike price – $5 put premium).

That ‘if exercised’ price is lower than any actual trading price for Urban Outfitters since a large gap higher during August of 2012.

URBN 2-years (daily) with put break-even

 

You can follow this option, plus results from all our previous put selling activities, by clicking here

Virtual Put Writing Portfolio

 

 

Analysts Can’t Always Be Trusted

Here’s One Way Wall Street Cheats.

Los Angeles based Wedbush Securities got some national press last Friday morning when Barrons.com republished their Jun. 26, 2014, research blurb on Bed, Bath & Beyond (BBBY).  The analyst indicated he was now neutral on BBBY @ $61.11 per share. He cut his target price by $8 per share to $58.

The report was accompanied by a chart dated June 26, 2014 @ 4:00 PM.

What was not said was that BBBY had reported after the close on the previous day. The stock was already trading in the $56 range as the analyst was writing to clients.

Barron’s on-line editor was complicit in publishing the Wedbush piece without fact-checking to see that it could not have been accurate at the time of its release.

How can I be sure that the Wedbush analyst knew about both the Q1 news and BBBY’s share price reaction? He discussed the quarterly report in his research alert (see excerpt below).

Wedbush Research  BBBY Jun. 26, 2014 with author's annotations.JPG

Pretending to have downgraded the stock before its $5 per share drop is not ethical. Counting his firm’s change in rating from a closing price that was no longer available inflates their model portfolio results in a way that customers know does not reflect reality.

Here is what took place in the shares of Bed, Bath & Beyond after the close on Wednesday but prior to Thursday’s opening. Note the impossibility of trading at $61.11 after 4 PM on June 25, 2014.

Exposing Wall Street's Cheats

Past-posting is not a new concept. It was the main theme of The Sting, Hollywood’s Best Picture of 1973.

 

The Sting with quote

 

Now let’s look at the quality of advice Wedbush was offering, ignoring the fact that they failed to address events that had already taken place.

The analyst went to a Neutral, supposedly at $61.11 with a price target of $58. Is there anyone reading this that would like to hold a non-dividend paying stock that you believe will be about 5% lower in the foreseeable future? Just asking.

Was that $58 goal price really a good evaluation of where BBBY could be a year? The buzz on the Street was that BBBY had ‘missed’ its quarter. In fact, the 93-cents was right within management’s previous guidance range of $0.92 – $0.96. It exactly matched the year ago fiscal Q1 EPS in a period that spanned a (-2.9%) GDP and the much ballyhooed Polar Vortex.

I found that pretty impressive.

After digesting the ‘disappointing’ numbers here are the latest earnings estimates from up to 28 different analysts as reported on Yahoo Finance.

Click here to finish reading this article.

 

 

 

Macro-Economic Factors Make for Bad Market Timing

Would knowing next year’s GDP in advance help you invest?

By Dr. Paul Price

Data released by Zacks Investments shows advanced knowledge of some pretty important economic information… might actually have led you astray.

Lost & Confused - image

Since 1933, there have been nine full years which showed negative GDP. Six of those years experienced positive stock market action including three of the past four, and six of the most recent eight.

Negative GDP & Market Returns

 

The one miss, 2008, was a big one. That was the year the Standard & Poors 500 dropped a whopping 37%. The huge stock market loss experienced at the start of The Great Recession was sandwiched by impressive gains during GDP declines in 1980, 1982 and 2009.

Will 2014 become the next recession year? The recently revised (-2.9%) first quarter certainly points out that possibility. Does that mean you should be hiding in cash? The chart above says it’s dangerous to base allocation decisions on macro-economic factors.

Since GDP is not really correlated with equity performance your best bet is still gauging buy-sell decisions on a bottoms-up basis.

Bottoms Up - image

Cheers to that.

6 Weeks of Manic-Depressive Insider Trading Action

Bottoms Up is the Way to Go

By Dr. Paul Price of Market Shadows

Even corporate insiders have been indecisive over the last six weeks as world events and market sentiment shifted rapidly. The Thomson Reuters Insider Sell-Buy ratio has been pretty accurate during that period and over the full year ended June 27, 2104.

Bullish signals have been more reliable than bearish ones, which have registered false negatives on occasion. Transactions by corporate officers and directors can be taken seriously as real money is on the line rather than simply answers to a sentiment poll, which may be suspect as to methodology and/or accuracy. (Also, there are many reasons insiders sell large amounts of stocks, but only one reason insiders buy large positions — they think the stock will go higher. Buying is a stronger indicator than selling.)

Note: The chart below is for the week ended June 27, 2014, but the red line shows as carrying into July. That error is from the source, Thomson Reuters. Hopefully it will be corrected before next week’s update.

Insider Sell-Buy  Jun. 27, 2014

Does the recent swing to bearish levels mean you shouldn’t be buying stocks right now? No, but it suggests more stringent standards for identifying bargains. This is not the time for indiscriminate deployment of cash. (Not that it’s ever a great time for indiscriminate deployment of cash. 🙂

Companies like Bed, Bath & Beyond (BBBY), Panera Bread (PNRA), Con Agra (CAG), Valmont Industries (VMI) and Kelly Services (KELYA) traded far enough below normal valuations to temp me into buying, or adding to my personal holdings last week.

Making buy and sell decisions on specific company fundamentals is usually a better way to go than simply moving into or out of cash due to general market conditions.

Market Shadows’ Virtual Value Portfolio managed to hit a new all-time peak on June 27, 2014, despite all the mixed messages which have been floating around.

VVP performance  Jun. 27, 2014

 

Glad We Didn’t “Sell in May and Go Away”

Major Averages: Mixed        

Market Shadows’ Value Mix: New Record

By Dr. Paul Price of Market Shadows

The DJIA and SPY posted fractional losses this week while the Nasdaq Composite rose by almost 0.7%. The three indices are all in the black year to date with profits running from 1.66% to 6.09%. The Dow is now the laggard after the tech-heavy Nasdaq rebounded strongly in recent weeks.

Major Indices  As of Jun. 27, 2014

Our own Virtual Value Portfolio had a better week than the broad market, gaining 0.82% since last Friday. Boardwalk Pipelines (BWP) was especially strong. We beat Murphy’s Law as both lots, of what is now our largest position, are up more than 50% since our March 2014, acquisition dates. BWP’s move helped our portfolio set a new closing record.

Our unlevered, plain vanilla value blend is now ahead by 8.56% YTD and + 52.74% since our Oct. 26, 2012, inception date.

VVP as of Jun. 27, 2014

We happily added the cast-off shares of Bed, Bath & Beyond (BBBY) to our list on Thursday after the shares got down to a three-year low. Unlike most of TV’s talking heads, we welcomed the chance to buy low. By Friday’s close BBBY had rebounded 3.3% from our purchase price only one day earlier.

See results on all our completed trades and currently held stocks by clicking on the following link…

Virtual Value Portfolio.

Check the status of all our put writing activities by using this link…

Market Shadows’ Put Writing Portfolio.

 

Made a Valuation-Based Swap

Sold IBM to Pick Up BBBY

By Dr. Paul Price of Market Shadows

When you are fully invested and a too-good-to-miss chance to buy pops up, you need to triage your portfolio. Something must be sold  to raise cash for the new position. With Bed, Bath & Beyond (BBBY) down 9% this morning and on the bargain rack, we jettisoned our 30 shares of IBM @ $180.04 to pick up 97 shares of BBBY @ $55.63.

Sold IBM to buy BBBY

We had accumulated IBM in two stages. One batch of IBM showed a small gain while the other was let go for a slight loss. Include dividends and we’ll cash it a wash. Our bet is that over the long haul the ultra-depressed valuation for BBBY will have reversed more sharply than IBM’s.

That’s been the case previously as Bed, Bath & Beyond has stair-stepped higher after each previous decline. Management still expects that the current fiscal year (ends next February) will come in above $5  per share, an all-time record.

BBBY FY 2007 - FY 2013 stats

Today’s collapse to an intraday low of $54.96 was impossible to catch. We feel lucky to have gotten in well below the old 52-week range despite fiscal Q1 numbers that were within previous guidance and equal to the same period one year earlier, despite numerous headwinds including the Polar Vortex and a 2.9% overall GDP decline. Sales per share were actually higher than they were in 2013’s Q1.

BBBY new visual

We are happy to own a high-quality name at a 31% discount to where the same shares were trading as recently as January this year. BBBY shares have not been available at this low a P/E since the dark days of 2008.

 

Disclosure: Paul is long BBBY shares amd short BBBY puts in his personal accounts. He added 368 shares today at an average price of $55.62.

 

Expert opinion… that was dead wrong.

It pays to question assumptions, even from ‘expert’ sources.

By Dr. Paul Price of Market Shadows

Short Oil!  Barron's Cover Story  Mar. 31, 2014

 

Bed, Bath & (Beyond explanation)

BBBY management had said previously that they expected the May quarter to come in at $0.92 – $0.96 per share.

Actual EPS were right in that range, at $0.93, flat with last year. Fiscal Q2 is also projected to be flattish. The company still expects a slightly positive full year comparison.

The stock plunged by more than 6% after hours on what I consider to be non-news.

BBBY after hours Jun. 25, 2014

Prior to the after-market session the 52-week range had been $59.89 – $80.82.

I added to my posiiton at $56.44.

 

Simple to Say, Harder to Do

Trading Course 101: Buy Low, Sell High

By Dr. Paul Price of Market Shadows

Everybody knows they should buy low and sell high, but few traders have the psychological fortitude to actually stick with the plan. When shares are cheap there are always negatives that get well publicized.

Fund managers and guest hosts on CNBC are much more prone to explain price weakness while acting as if they had predicted it, than to recommend buying shares that are currently bargains, but sport ‘bad charts’.

Conversely, when stocks are soaring it’s hard to find anyone who isn’t telling viewers or readers why the stock in question is deservedly hitting new peaks and is likely headed even higher.

A greater percentage of daily volume is made up of short-term traders than ever before. That gives longer-term thinkers an edge.

Our Market Shadows Virtual Value Portfolio has traded Coca-Cola (KO) and Kelly Services (KELYA) previously for nice gains. Today we sold our latest batch of KO while deploying the sales proceeds plus most of our cash reserves back into KELYA.

Sold KO bought KELYA

 

A glance at the charts illustrates why we made the swap. Coke is near its three-year high while Kelly Services is close to a yearly low. We booked an 11.67%, 4-month gain, plus $61 in dividends on the latest KO trade. That’s pretty good on an annualized basis, particularly on a very conservative holding.

KO  3-years (weekly)

 

KELYA was one of our original picks when we started up our Value Portfolio on Oct. 26, 2012. We paid $13.13 per share back then. Kelly was sold on Dec. 23, 2013, at $25.30. That was a stellar 92.96%, plus dividends, gain. We were able to buy KELYA back for $17.64 per share this morning.

KELYA  1-year (daily)

 

As of 11:12 AM today the entire portfolio had gained more than 52% since inception (about 31.5% annualized) simply by following our buy-sell discipline while adhering firmly to our well-diversified approach. We are well ahead of the benchmark S&P 500, a very tough hurdle to beat for most actively managed accounts.

We also made one new trade in our Virtual Put Writing Portfolio today. Market Shadows sold 3 contracts of the January 17, 2015, $55 puts on Jacobs Engineering (JEC) @ $3.40 per share.

JEC  Quote with Jan. 2015 Put prices

We are now committed to purchase 300 shares of JEC at a net price of $51.60 ($55 strike – $3.40 put premium) if exercised.

Our best case gain would be keeping 100% of the $1,020 collected. This will occur if JEC closes at $55 or better on Jan. 16, 2015. That is not much of a stretch. JEC was bidding $54.84 at the time we initiated the trade.

JEC  1-year (daily) with If Put price

There can never be a guarantee that shares will not go below your break-even price. We find it reassuring, however, to know that JEC has not spent even one day during the past 12-months at that low a price.

Check out all our closed-out and current equity and option positions by clicking on the following links…

Virtual Value Equity Portfolio and Virtual Put Writing Portfolio.

A Bad Coach Ride. A New End-of-the-Week Close.

Stocks Rose, Records Fell

By Dr. Paul Price of Market Shadows

Friday’s afternoon charge left the DJIA and the Standard & Poors 500 at all-time peaks. The Nasdaq Composite remains well under its March 2000, pinnancle but closed at its highest level since then.  Year to date gains in all three major indices are modest, but a huge improvement over February’s low points.

Major Indices -  YTD returns as of Jun. 20, 2014

 

Market Shadows’ Virtual Value Portfolio went along for the ride. The June 20, 2014, close was our best end of the week amount ever. Our stocks lagged the broad market a bit due to severe weakness in Coach (COH) but we managed a small 5-day gain regardless. The long-only, plain vanilla mix is now up 8.56% this year and 51.5% since inception on Oct. 26, 2012.

 

VVP as of June 20, 2014

 

 

 

Booked a Gain Early, Sold Some New Puts

Closed the Circuit on JBL, Sold Puts on Oracle

By Dr. Paul Price of Market Shadows

Jabil Circuits (JBL) rallied enough since last December for us to close our Jan. 2015, $15 puts for just 25-cents per share. With so little left to gain by waiting another seven months, buying to close is exactly what we did today (June 20).

BTC JBL 2015 Puts for MS

 

In the Market Shadows Virtual Put Writing Portfolio, we had sold 5 contracts of the JBL puts for $1.90 per share, collecting $950. Our net cost to close was just $125 leaving an $850 profit while ending our option obligation to potentially buy JBL shares.

We made 86.8% of the maximum potential gain in less than half the time we originally committed to. The results of this trade are reflected on our closed-out transaction list. We are now ahead by a cumulative $21,730 on all our fully completed option trades (sold puts that expired or that we bought back).

One of the profitable closed-out put sales had been a trade in data base software company Oracle (ORCL). Its shares took a tumble today after the company came up a few cents short on its after-the-close fiscal Q4 report yesterday.

We used weakness to sell 3 more ORCL Jan. 2016, $35 puts for $2.52 per share.  We also added 4 new, somewhat more aggressive Jan. 2016, $40 puts @ $4.65 per share.

As always, with put sales, the maximum profit would be 100% of all premiums collected. Our worst case scenario would be having to buy 300 ORCL at $32.48 (with the $35 strike) and 400 shares at a net price of $35.35 if the $40 puts are eventually exercised.

ORCL  puts for MS

 

Both new ORCL transactions are now reflected on our virtual portfolio’s open positions list.

******

Our option mix has two June positions set to expire today before 4 PM.

If nothing upsets the apple cart, we’ll be booking gains on 6 contracts of the Aegion (AEGN) Jun. $20 puts as well as 1 contract of the HollyFrontier (HFC) Jun. $38.50 put. Both look like they will simply expire worthless at today’s close. For option sellers that represents the best-case scenario.

We will only add those results officially once we are sure no actions are necessary.

For instant email alerts to changes in our Virtual Portfolios, please sign up by entering your email at the top left of our home page.

Market-Shadows-Sign-Up-Box1

Sold Used Cars, Bought Food and Beverages

Market Shadows Exited Autos, Added ConAgra, Panera Bread

By Dr. Paul Price of Market Shadows

I may be overreacting but I decided to sell both Honda (HMC) and Toyota (TM) today, locking in small gains on each. The current industry climate (recalls galore and sub-prime financing of 6 – 7 year loans) is looking more like 2007 than is comfortable.

We owned 150 shares of HMC @ $33.68 and sold for $34.82. Our 38 share TM position cost $106.57 and was cashed out @ $114.77.

STC TM & HMC

We used $4,990 of the sales proceeds to purchase 165 shares of ConAgra (CAG) @ $30.24. It was tempting today, down almost 8%. We also picked up 31 shares of Panera Bread (PNRA) @ $148.27 using the remainder of the money we generated.

Quotes for buys and sells VVP

Panera hit a new 52-week low in earlier trading and is down from a yearly peak of $193.18. ConAgra had been as high as $37.28 during the past year and yields 3.30% at our entry price.

Since we’re now unwilling to hold HMC and TM shares we also closed out our single TM Jan. 2016, $120 put contract and our six contracts of the HMC October 18, 2014, $35 puts. We were able to close the Toyota put for $16.70. We anted up the $1.80 per share asking price to cover our short HMC puts.

BTC  TM & HMC Puts   newest

The closed out stock and options trades are now reflected as such on our Market Shadows’ Virtual Portfolios pages. The purchase prices and investment amounts of our latest buys are now found on the open positions list.

Our Virtual Put Writing Portfolio has now posted a net gain of $20,905 since its January, 2013 inception date. The Virtual Value Stock Portfolio hit a new all-time high this week as well. It is now up over 51% since it got rolling on Oct. 26, 2012.


Note: Virtual Put Selling Portfolio is here. Virtual Value (Stocks) Portfolio is here. 

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Shorted Some HSII Puts Today

Shorted Some HSII Puts Today

By Dr. Paul Price of Market Shadows

We sold six contracts of Heidrick & Struggles (HSII) Jan. $17.50 puts at a price of $1.60 per share in our Virtual Put Writing Portfolio. 

HSII Jan. 2015  $17.50 put

Our commitment is to be ready to purchase 600 HSII shares at a net cost of $15.90 per share ($17.50 strike price – $1.60 put premium). The best-case scenario will occur if HSII remains above $17.50 on the January 17, 2015, expiration date. We will then keep 100% of the $960 we received for selling these options.

Heidrick & Struggles has spent very little time under our break-even point during the last 12-months and none at all since the worst of the market’s selloff in early February.

HSII  1-yr chart with put break-even

HSII is net debt-free (treasury cash exceeds total debt). It pays a secure, 13-cent, quarterly dividend which would yield 3.27% at our ‘if exercised’ price.

The trade is now reflected as an open position in our Virtual Put Writing Portfolio.

 

Insider Trading: Turned Bearish. We’re still finding opportunities.

Company officers are a bit more cautious than a month ago.

By Dr. Paul Price of Market Shadows

That doesn’t mean there is nothing to trade.

Company officers and directors play with real money. They only get to keep winnings on shares they hold for more than six months (shorter-term profits must be disgourged). Trading signals from ‘money on the line’ tend to be much more reliable than sentiment indicators from the AAII (American Association of Individual Investors) or the oxymoronic Investor Intelligence surveys.

Insider Sell-Buy as of Jun. 14, 2014

The correlation of the Thomson-Reuters Insider Sell-Buy signal has been a pretty good short-term (weeks to months) predictor of broad market action, especially when registering bullish readings. Bearish signals have not been as predictive as positive ones. They often turn out to have been false negatives.

That could have been simply a side effect of the almost non-stop bull market we’ve experienced since the latter part of 2012.

Today’s negative reading doesn’t mean you can’t still pick up some selective bargains. It does sound a note that suggests against plowing into positions indiscriminately.

Insiders are known to be unafraid to buy when shares in their own companies go on sale. Perhaps this week’s buy list is telling us something about the prospects much maligned discount retailer Target (TGT) and shoe purveyor Designer Shoe Warehouse (DSW). They showed recent insider buys at prices of about $56.80 and $25.71 per share respectively.

Insider Buys  TGT and DSW   Jun. 14, 2014

I wrote about DSW right as the shares were being pummeled (If the shoe fits… ) and was able to buy shares cheaper than the insiders did while also selling some now laughably low strike price puts at $22.50 and $25.00 for big premiums.

DSW closed on Jun. 13, 2014, at $27.38 but still offers option writers very attractive premium on the January 2015, $25 puts. The June 13, 2014, put premium of $1.70 per share brings the potential purchase price down to $23.30, if exercised. That is 15-cents below the panic low set on May 28th.

DSW Jan. 2015 $25 puts

If DSW simply remains above $25, put sellers will pocket 100% of any premium collected without needing to buy shares at all. In a worst-case scenario they will be forced to buy shares of a well-financed, profitable company at a lower entry point than has been seen since early in 2012.

DSW  Sep. 30, 2011 - May 28, 2014

Target has had some obvious problems, of the operational and data breach variety. Take emotion out of the equation, though, and it appears the negative headlines have already been factored in.

Research firm Morningstar rates TGT as a 4-star (out of 5) BUY. They see fair value as $65. Target’s recently increased dividend also provides a 3.63% current yield. Maybe those insiders are pretty savvy investors.

Finish reading the full article by clicking  here.

Friday the 13th – Not Unlucky At All

Friday the 13th  - image

By Dr. Paul Price of Market Shadows

The Market Shadows Virtual Value Portfolio eked out a tiny gain for the week as our two emerging markets positions (EMF & VWO) plus buyout talk on International Game Technology (IGT) gave us a late boost.

Our value blend is now up just over 8% year to date and almost 51% since our Oct. 26, 2012, inception date. We continue to outperform the three major indices which each dropped during the week.

VVP as of Jun. 13, 2014

We remain bullish and fully invested. Our new positions, in Ross Stores (ROST), Lululemon (LULU) and Ulta Salons (ULTA) all came via put sales in the Market Shadows Virtual Put Writing Portfolio .  We also closed out a number of very profitable put positions during the week bringing our option success ratio to more than 91% of our fully completed transactions.

Major Indices -  YTD returns as of Jun. 6, 2014

A Fashionable Put Writing Play

Ross Stores – High Quality at a Discount Price

By Dr. Paul Price of Market Shadows

Ross Stores (ROST) has posted outstanding long-term numbers. The company’s balance sheet is as beautiful as their designer clothing.

ROST 10-year numbers

Despite excellent fundamentals, shares that were trading as high as $82 last November were down to $66.69 this morning. ROST typically commands about 16 times current year earnings.

Last fall’s peak price was a bit expensive by historical standards at a P/E of 21.1x. Market Shadows loves the stock but we’d refer to own it at a better price.

Our Virtual Put Writing Portfolio sold three contracts of the ROST Jan. 2016, $65 puts today @ $7 per share.

ROST  Quote with 28-month chart and Put break-even

 

We must now stand ready to buy 300 shares of Ross at a net cost of $58.00 per share ($65.00 strike price – $7.00 put premium). That level has proven a winning one over the last 28 months.

Assuming the company’s historical growth pattern continues, the nineteen months left until expiration should give us an even greater margin of safety.

Our best case result will occur if ROST merely remains above $65, as it already is today, on the put option’s Jan. 15, 2016 expiration date. If that plays out we’ll pocket 100% of the $2,100 collected upon sale of the puts.

Click on the following link to see all Market Shadows’ closed-out and current option positions.  Virtual Put Writing Portfolio