My Investment Idea for 2002

T

TonyOz

I'm Suumitting this post again with a poll that will expire in ten days. Feel free to vote, and please tell us about your vote.

Here is the position I took for the next year. I don't mind sharing it with you, but keep in mind that this is an investment and not a trade.

I have been sitting in cash for a long while (since Sep 2000), and I have watched my returns diminish with every interest rate cut. But, I did not rush to buy bonds or lock my money in CDs, because I was waiting for a good opportunity.

I have entertained potential investment ideas for a while, and I finally decided to act on one of them.

The play is as so:

Buy: SEBL stock and sell SEBL Jan03 $30.00 calls for a net debit of $19.90. With the stock trading at 28.00, and the option at 8.10 by 8.40 it is very possible to get a fill. You might even be able to get it for 19.70. The lowest I have seen it was 19.40 (option bid 7.50 SEBL stock at 26.90 last week).

For the sake of simplicity, I will use 20.00 as an entry. This should include commissions etc.

If SEBL is at 30+ (40,50,80,180, it does not matter) you will get 30.00 a share in January 2003. Your cost is 20, so you made 50% in one year.

Your break even is 20.00, so SEBL can go down 8 points or close to 30% in one year and you will break even. Anything over 20.00 a share and you make money.

Now, SEBL trades at PE 54, so it could be overpriced. This is risky, but I think the reward is worth the risk.

I was comparing this trade with potentially doing the same on QQQ. Buy QQQ and sell QQQ Jan03 $40.00 calls, but the maximum returns are 19.7% VS 50% on SEBL and the Break Even only allows a 16.5% decline. Sure this is a more diversified position, but I like the rewards/risks associated with SEBL.

Yes, another way to play this is to simply sell the naked January03 $30.00 puts for $9.20, but the break even will be 20.80 in this case.

So, I decided on the covered calls and I am long 33,000 shares of SEBL and short 328 Jan03 contracts (did not get a fill on 2 of them, damn).

Now, you can be more aggressive (selling higher strike) or conservative (selling lower strike). The year time frame has a tax break benefit :)

I want to wish you all a very happy New Year!

I am leaving to Las Vegas (will be watching the bowl games and betting the parlay and teaser cards with Jodi. Gonna see the Intel dudes - blue men, and eating before that diet starts ... the same diet every year.

I will be back on the boards in the end of January to discuss trading. I will see you then :)

***** HAPPY NEW YEAR ***** ***** HAPPY NEW YEAR ***** ***** HAPPY NEW YEAR ***** ***** HAPPY NEW YEAR ***** ***** HAPPY NEW YEAR ***** ***** HAPPY NEW YEAR ***** ***** HAPPY NEW YEAR ***** ***** HAPPY NEW YEAR ***** ***** HAPPY NEW YEAR *****
 
Anyone care to share with us his views on the matter.

In short can you tell us the following:



1. I feel SEBL will be over $30.00 in Jan 2003 because ....




2. I feel SEBL will be over $20.00 but under $30.00 in Jan 2003 because ....




3. I feel SEBL will be under $20.00 in Jan 2003 because ....




Thanks,

Tony
 
well, just my 2 pennies:

the market is very over priced and the run up in past 2 months is a technical rebound only, we well break the September low.

take a look at the Nikkei crash chart, i think nasdaq will follow the same path.
 
This is what I'm talking about :)

I like to see the longer term outlook that people have. I respect all opinions.

Tony
 
Hi Tony,

Does this mean you are not going to touch this
investment for a whole year and let it play out?
Do you have any type of stop like if SEBL trades
under $20 or if Nasdaq decides to starts to decline?

JS
 
Originally posted by TonyOz
This is what I'm talking about :)

I like to see the longer term outlook that people have. I respect all opinions.

Tony
More...

Aside from my extremely bearish outlook on the market, I have to say Siebel is a good company though. I am an IT professional and Siebel's CRM solution is the unquestionable market leader, so if 2002 IT spending picks up (I have seen signs), SEBL will see benefit.

Whenever a solution gets hot (CRM in this case), you see everybody wants a piece of the pie. I have seen so many big (e.g. SAP) and small players offering their CRM.... but push comes to shovel, Siebel is the best.
 
Hi Tony,

First, I'm very upset that you didn't call while you were in Miami. I owe you and Jodi dinner, and my Jodi and I just got married! :D

Now that that's out of the way, I respectfully think you're nuts. While I don't necessarily subscribe to what most of Wall Street spews, I do believe in the concept of diversification when dealing with investments. Since what you're doing is essentially betting it all on one horse I'll make my own prognostication. I'm about to rant, so stand back, I don't know how big this thing's gonna get.

I believe we're in the "son of Bubble" in the market. One would think that after the mess that ensued in 2000 everyone had learned that we're not in some new economy where P/E's no longer matter and that it's a new paradigm. Wanna know something scary? With the collapse of corporate profits over the last year and the rise in stock prices in recent months, the S&P 500 is currently trading at a higher collective P/E than it did at the height of the market bubble in March 2000. A whole gaggle of tech stocks are still or once again trading at triple digit P/E's or high double digit P/E's, while history shows us that a healthy P/E is around 20 or so. We already KNOW how this ends, but apparently many people are still going to get killed twice to learn.

Then there are all the analysts and talking heads raving about the big recovery next year. These of course, are the same people who called for a second half 2001 recovery at the beginning of 2001. Then when they were wrong they said it would come in the 3rd quarter--wrong, then it would be the 4th quarter--wrong, and now it's mid 2002. I guess if they keep pushing their assessment out each time they're wrong, the law of averages says that eventually they'll be right. But if they were wrong every other time, why are they so right this time?

My next question is, why isn't anyone asking why 11 rate cuts haven't spurred the market higher? History showed that 3 rate cuts and the market would turn higher, 6 rate cuts and the economy did. Well here we are 11 cuts in (or is it 12 now, I'm losing count) and the market is lower than when they started cutting, and the economy is further in the pooper than when they started. That's never happened before, but we're all supposed to believe that this will still just be a run of the mill 18 month recession. Maybe, but with the crushing debt loads still weighing down both consumers and businesses, and the coordinated global slowdown taking place, where is all the spending and demand going to come from that will rocket corporate profits back up? Japan? Don't think so. South America? Not likely with Argentina falling apart, defaulting on hundreds of millions in debt and dragging down Spain and Brazil with it. China? With them now in the WTO they'll be sending more cheap goods made with cheap labor to us than we'll be sending to them.

The bottom line is stocks, particularly techs are still way too expensive on a historical basis, and I have yet to see what evidence anyone can show of an impending big recovery that could even remotely support the current stock prices. I could be completely wrong here, but to me the best investment is treasury bonds, and after January, zero coupon bonds. In the new year my "stock market" exposure in my investment account will consist of being short SPY or long SPX put leaps. I hate to be the apprentice challenging the master's judgement, but I just don't see your play as a very wise one from a fundamental, technical or macro-economic standpoint. I will, however observe with great interest the next year in the markets and if your pick ends up making me eat crow, which I would gladly do. :p

Zach
 
market is vulnerable due to the complacency that has crept into the market as evidenced by the low vix reading, which is at levels not seen since early september. however, imo, your trade will show a profit by year end, after suffering some malaise in the near term. the correction will begin once the seasonal upside bias ceases.
valuations are always at their highest coming out of a recession. stocks are a leading indicator of the economy, so those that are awaiting confirmation in the form of accelerating earnings will be late. market cycles typically have recessions of about 1 year and boom periods of 7, which is about right for this one.

although the market has been showing strength, rallying on up volume days, declining on light volume (for the most part), and it is beginning to show leadership, there is not enough successful breakouts of high quality comanies (fast growing newcomers, not the winners of the last market cycle) to suggest an all clear, which adds to the hypothesis of a near term correction before resumption (and the set up of 'handles' for you canslim followers). the signal of the upcoming correction will be a day when the market fails to rally, then falls hard, on good news. in the past few days, early strength on positive economic reports has faded as the day has wore on, leading to expectations for a roll over after the holidays.

good trading.
 
As a trader, I had posted a month or so ago that this rally had some legs and wasn't about to roll over so easily. It's been much stronger for longer than the previous spikes we've had during this bear market (take a look at a weekly candle chart with an 8 EMA). While I felt it wasn't done at that time due to some technical reasons, it seems that it is probably approaching it's end. Now, we've fulfilled the upside to its natural conclusion with about 64% retracements on the DIA, the SPY, & the QQQ, and we're hitting some important moving average lines, not only on the major indices but on many sectors as well. We've even gone so far as to break through the psychological levels of 2000 & 10000. But I think this is it, we'll roll over from here for the fundamental reasons that zboy & dafugginman discussed above. It'll go down kicking and screaming until it's painfully obvious that the recession is going to last longer than most pundits think, then we'll sink faster. Once prices really get cheap and value players are looking at names like Brocade (BRCD) will a base be built. I just don't think we can get past the fundamental problems just yet. Everybody who keeps pointing to the Fed's 11 cuts does so just because it's worked in the past, but maybe this time it's different (there's a dangerous statement!).

Anyway, back to SEBL, it's hard to trade with a yearly time frame, but my guess is that it will get up to the 32-35 range over the next month or two before we bend over. Then I think it will work it's way down ultimately to about 10 by Fall 2002, then work back up to 15-20 by Jan 2003.

Just my 2¢. Hope I'm wrong Tony :)
 
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