Quick note: This is going out at 3:40pm, so I hope everyone gets it in time. If you're bullish on RIMM and don't already have June 75/85 call spread, and are willing to get long shares if it drops below $70, the trade here is to sell April 65/70 bull put spread for $1.15 credit to partially finance April $80 calls for $1.48 debit.
Good luck!
Wednesday, March 31, 2010
Mosaic (MOS) Earnings Play
Folks, I am bullish on Ag names in general but unfortunately most of the unusual option activity in this space is coming in 2nd half of this year. Here is a note from Credit Suisse regarding MOS:
"Favorable near-term fundamentals. The potash business is seeing robust volumes in North America as distributors prepare for the spring planting season. MOS has increased its operating rates and anticipates that producer inventories will fall to normal levels by the middle of the year. The phosphate market is seeing strong demand in North America and Asia, and DAP prices have surged in response to the extremely tight market. Producer inventories are expected to remain low through May although prices in North America are unlikely to move much higher as they have begun to see buyer resistance at current price levels. We are increasing our F3Q EPS from $0.57 to $0.64, and our F4Q EPS from $0.93 to $0.99 to reflect higher phosphate prices and higher potash volumes partially offset by rising sulfur costs.
Long-term strategic focus. Management focused on the benefits on having a balanced portfolio and believes that the phosphate market may be stronger than the potash market over the next few years. Supply from the upcoming
Ma’aden capacity will likely put pressure on phosphate prices but continued demand growth in the industry will eventually absorb the new supply. Meanwhile, management believes that the potash market may be hampered
by the large amount of planned brownfield capacity and the threat of new entrants.
Maintain Neutral on MOS. While MOS should see solid earnings over the next 1-2 quarters owing to strong potash volumes and robust phosphate prices, we believe the challenging medium-term outlook for phosphate owing to the looming Ma’aden capacity and a relatively fair valuation of 16.6X 2011 P/E and 9.4X 2011 EV/EBITDA may limit share upside over the next 12 mos."
On a technical basis, the stock is trending within a very well defined converging triangle. A break above or below this triangle could bring in volatility. I am willing to bet the support line will hold which is currently around $58.50. A break below that could take us to $55 quickly, but I doubt that's going to happen. As such, I am doing the following bull put spread:
- Buy to open April $55 put
- Sell to open April $60 put
Just filled the order for $1.47 credit. Note that this is a bit risky as we only have 60 cents cushion on the downside as the stock trades at $60.60. It also doesn't meet the 5-10-20 test. Keep small portion size relative to portfolio.
Good luck!
"Favorable near-term fundamentals. The potash business is seeing robust volumes in North America as distributors prepare for the spring planting season. MOS has increased its operating rates and anticipates that producer inventories will fall to normal levels by the middle of the year. The phosphate market is seeing strong demand in North America and Asia, and DAP prices have surged in response to the extremely tight market. Producer inventories are expected to remain low through May although prices in North America are unlikely to move much higher as they have begun to see buyer resistance at current price levels. We are increasing our F3Q EPS from $0.57 to $0.64, and our F4Q EPS from $0.93 to $0.99 to reflect higher phosphate prices and higher potash volumes partially offset by rising sulfur costs.
Long-term strategic focus. Management focused on the benefits on having a balanced portfolio and believes that the phosphate market may be stronger than the potash market over the next few years. Supply from the upcoming
Ma’aden capacity will likely put pressure on phosphate prices but continued demand growth in the industry will eventually absorb the new supply. Meanwhile, management believes that the potash market may be hampered
by the large amount of planned brownfield capacity and the threat of new entrants.
Maintain Neutral on MOS. While MOS should see solid earnings over the next 1-2 quarters owing to strong potash volumes and robust phosphate prices, we believe the challenging medium-term outlook for phosphate owing to the looming Ma’aden capacity and a relatively fair valuation of 16.6X 2011 P/E and 9.4X 2011 EV/EBITDA may limit share upside over the next 12 mos."
- Buy to open April $55 put- Sell to open April $60 put
Just filled the order for $1.47 credit. Note that this is a bit risky as we only have 60 cents cushion on the downside as the stock trades at $60.60. It also doesn't meet the 5-10-20 test. Keep small portion size relative to portfolio.
Good luck!
Market Digest 3-31-10
Cephalon downgraded at BofA/MerrillCEPH downgraded to Neutral from Buy on valuation, Bank of America/Merrill Lynch said. Maintain $75 price target. 2010 and 2011 EPS estimates held at $6.52 and $6.70, respectively.
Cephalon target raised at UBSCEPH target was boosted to $80, UBS said. Company is seeing better prescription trends. Buy rating.
DuPont Fabros Technology initiated at BarclaysDFT coverage initiated with an Overweight rating and $25 price target, Barclays said. 2010 and 2011 EPS estimates set at $1.24 and $1.60, respectively.
Digital River upgraded at FBRDRIV was upgraded from Market Perform to Outperform, FBR Capital Markets said. Company is likely seeing an improved business pipeline. $36 price target.
Fresh Del Monte downgraded at SuntrustFDP was downgraded from Buy to Neutral, Suntrust Robinson Humphrey said. See few meaningful catalysts on the horizon.
Public Service Enterprise rated new Neutral at GoldmanPEG was initiated with a Neutral rating, Goldman Sachs said. $34 price target. Earnings growth in the regulated business will likely be offset by lower merchant generation results.
Psychiatric Solutions downgraded at Piper JaffrayPSYS downgraded at Piper Jaffray. Rating lowered to Underweight from Neutral. Price target raised to $30 from $24. Maintains 2010 EPS estimates of $2.30.
SAIC downgraded at WellsSAI was downgraded to Market Perform, Wells Fargo said. Company lowered guidance as it's seeing award delays.
WLP was upgraded from Market Perform to Outperform, BMO Capital Markets said. $75 price target.
AMAT estimates higher after positive analyst day, Credit Suisse said. 2010 and 2011 EPS estimates improved to $0.75 and $1.00, respectively. Maintain Neutral rating and $15.50 target.
Applied Materials numbers boosted at UBS
AMAT estimates were increased through 2011, UBS said. Company is seeing higher demand across the board. Buy rating and new $18 price target.
Applied Materials numbers boosted at UBSAMAT estimates were increased through 2011, UBS said. Company is seeing higher demand across the board. Buy rating and new $18 price target.
Cliffs Natural estimates raised at Morgan StanleyCLF estimates were increased through 2011, Morgan Stanley said. Company will benefit from higher iron ore prices. Equal-weight rating.
Freeport-McMoran estimates raised at Morgan StanleyFCX estimates were boosted through 2011, Morgan Stanley said. Company is positioned to benefit from higher copper prices. Equal-weight rating.
Garmin target, estimates boosted at BarclaysGRMN price target increased by dollar to $34 on strong PND growth, Barclays said. 2010 EPS estimate raised to $2.97, 2011 held at $2.75. Maintain Equal Weight rating.
Goldman Sachs numbers lowered at KBWShares of GS now seen reaching $195, according to Keefe, Bruyette & Woods. Estimates also reduced, as the company likely saw lower investment banking revenue this quarter.
Intercontinental Exchange numbers upped at Morgan StanleyShares of ICE now seen reaching $118, according to Morgan Stanley. Estimates also raised, as the copany should benefit from higher OTC and energy volumes. Equal-weight rating.
Linear Technology estimates upped at FBRLLTC estimates were raised through 2011, FBR Capital Markets said. Checks suggest that quarterly sales are tracking at the high end of expectations. Underperform rating and $31 price target.
McDermott International price target higher at BarclaysMDR price target jumped to $33 from $29 on improving prospects, Barclays said. 2010 and 2011 EPS estimates held at $1.85 and $2.15, respectively.
Maxim Integrated numbers raised at FBRShares of MXIM now seen reaching $23, according to FBR Capital Markets. Estimates also increased, following robust channel checks. Market Perform rating.
NYSE Euronext estimates lowered at Morgan StanleyNYX estimates were cut through 2011, Morgan Stanley said. Company likely seeing lower volumes and losing market share. Equal-weight rating and $31 price target.
Target numbers boosted at GoldmanShares of TGT now seen reaching $53, according to Goldman Sachs. Estimates also upped, given improving credit trends. Neutral rating.
Tuesday, March 30, 2010
Housekeeping: Reviewing Current Open Positions
YRCW - Long stock. Nothing to do here. Still holding. I expect a rebound in EBITDA and valuation in 2nd quarter.
LEAP - Bullish risk reversal through short July 10/12.50 put spread and long July 20 calls. Nothing to do here. Still believe a merger with MetroPCS is likely.
LCC - Long Sept $7 straddle. Nothing to do here. Looking for sharp move in either direction.
NFLX - Long April 60/65/70 put butterfly. But loser, but its all or nothing at this point.
AMLN - Long Jan'11 $12.50 puts and $30 calls. Still expect a rise in IV as we get a firm date on final FDA decision. That would be the opportunity either sell front month options or just close the trade.
AAPL - Long May/April $240 calendar. Love the trade and have no desire to roll April $240 to May $250 until the stock breaks above $240.
VRSN - June 28/29/23/24 iron condor. Still holding for more gains through time decay and drop in IV.
RIMM - Long June 75/85 call spread. Will hold this through earnings this Wednesday.
V - Long June/April $95 calendar. The stock is acting rather nicely given the tape. Still expect April $95 calls to expire worthless so I can sell May $95 calls.
LVS - Long June 19/22.50 call spread. Sold half a few days back at $2.00. Still holding the rest and the spread hasn't changed much currently trading at $1.92.
WYNN - Long June 75/85 call spread currently trading at $4.35. Trade working nicely, looking for more gains.
C - Long June $3 calls. Looking for more profits.
SPY - Long April $14 puts as a partial protection against current portfolio.
POT - Long April 125/135/140 skip-strike butterfly. Not a good trade so far. Will re-evaluate after MOS earnings on Wednesday.
MEE - Short April 44/45 bull put spread. Nothing to do here. Expect the trade to expire worthless.
PCX - Short April 17/18 bull put spread. Nothing to do here. Expect the trade to expire worthless.
GGP - Short April 12.50/15 bull put spread. Nothing to do here. Expect the trade to expire worthless.
LPX - Short May 7.5/10 bull put spread. Nothing to do here. Earnings in early May.
DNDN - Long May 25/35 call ratio spread. Expecting IV to rise before May 1st FDA decision.
TBT - Bullish risk reversal. Short June 45/47 bull put spread and long June 54 calls. Expect TBT to break above $50 resistance sooner than later. May be this Friday after a hot job report.
LMT - Long June $90 calls following unusual activity. I think defense stocks are ready to breakout sharply.
IWM - Long May 68/63 put spread. Betting IWM to fall relatively more than S&P 500 on a pullback. This is also an insurance policy in the portfolio.
LEAP - Bullish risk reversal through short July 10/12.50 put spread and long July 20 calls. Nothing to do here. Still believe a merger with MetroPCS is likely.
LCC - Long Sept $7 straddle. Nothing to do here. Looking for sharp move in either direction.
NFLX - Long April 60/65/70 put butterfly. But loser, but its all or nothing at this point.
AMLN - Long Jan'11 $12.50 puts and $30 calls. Still expect a rise in IV as we get a firm date on final FDA decision. That would be the opportunity either sell front month options or just close the trade.
AAPL - Long May/April $240 calendar. Love the trade and have no desire to roll April $240 to May $250 until the stock breaks above $240.
VRSN - June 28/29/23/24 iron condor. Still holding for more gains through time decay and drop in IV.
RIMM - Long June 75/85 call spread. Will hold this through earnings this Wednesday.
V - Long June/April $95 calendar. The stock is acting rather nicely given the tape. Still expect April $95 calls to expire worthless so I can sell May $95 calls.
LVS - Long June 19/22.50 call spread. Sold half a few days back at $2.00. Still holding the rest and the spread hasn't changed much currently trading at $1.92.
WYNN - Long June 75/85 call spread currently trading at $4.35. Trade working nicely, looking for more gains.
C - Long June $3 calls. Looking for more profits.
SPY - Long April $14 puts as a partial protection against current portfolio.
POT - Long April 125/135/140 skip-strike butterfly. Not a good trade so far. Will re-evaluate after MOS earnings on Wednesday.
MEE - Short April 44/45 bull put spread. Nothing to do here. Expect the trade to expire worthless.
PCX - Short April 17/18 bull put spread. Nothing to do here. Expect the trade to expire worthless.
GGP - Short April 12.50/15 bull put spread. Nothing to do here. Expect the trade to expire worthless.
LPX - Short May 7.5/10 bull put spread. Nothing to do here. Earnings in early May.
DNDN - Long May 25/35 call ratio spread. Expecting IV to rise before May 1st FDA decision.
TBT - Bullish risk reversal. Short June 45/47 bull put spread and long June 54 calls. Expect TBT to break above $50 resistance sooner than later. May be this Friday after a hot job report.
LMT - Long June $90 calls following unusual activity. I think defense stocks are ready to breakout sharply.
IWM - Long May 68/63 put spread. Betting IWM to fall relatively more than S&P 500 on a pullback. This is also an insurance policy in the portfolio.
Russell 2000 (IWM): Betting on the Downside
Betting on any sort of downside in this market since mid February has been a losing proposition (see my post about "Endangered Species"). But technicals don't lie and if history is any guarantee, this is what I am looking at:
There have been two instances since 2006 when the ratio of S&P 500 to Russell 2000 fell below 1.70. First time it happened in spring 2006 and subsequently IWM dropped 15% in coming months. Second time it happened in Sept 2008 and no one needs to be reminded of what happened next. As of this morning, it is happening the third time. See the chart on the right.
I am buying IWM following put spread:- Buy to open May $68 puts
- Sell to open May $63 puts
Small cap stocks are the first to lose ground on any sort of pullback. I just filled the order for $1.40 debit.
Good luck!
Market Digest 3-30-10
Brown-Forman rated new Buy at CitigroupBF.B was initiated with a Buy rating, Citigroup said. $67 price target. Company's is positioned to see accelerating sales growth.
Cisco Systems rated new Equal-weight at Morgan StanleyCSCO was initiated with an Equal-weight rating, Morgan Stanley said. Market share losses could offset growth from new ventures.
Genzyme General downgraded at BarclaysGENZ downgraded to Equal Weight from Overweight and price target cut to $52 from $63. Persistent Overhang on consent Decree, Barclays said. 2010 and 2011 EPS estimates lowered to $2.31 and $3.68, respectively.
Generac initiated at BofA/MerrillGNRC coverage initiated with a Neutral rating and $17 price target, Bank of America/Merrill Lynch said. Attractive growth story at fair value, mentioned analysts.
Generac rated new Neutral at GoldmanGNRC was initiated with a Neutral rating, Goldman Sachs said. $17 price target. Company has dominant market share in the residential market and generates significant free cash flow.
Juniper Networks rated new Overweight at Morgan StanleyJNPR was initiated with an Overweight rating, Morgan Stanley said. $37 price target. Ethernet switching market should drive sales and earnings growth.
RTI International Metals downgraded at BofA/MerrillRTI downgraded to Underperform from Neutral. Valuation call, Bank of America/Merrill Lynch said. Price target raised to $32 from $24. Maintain 2010 and 2011 EPS estimates at -$0.60 and $0.30, respectively.
Safe Bulkers reinstated at BofA/MerrillSB coverage reinstate with a Buy rating and $9.50 target. Dry bulker with strong charters, Bank of America/Merrill Lynch said.
Westlake Chemical upgraded at JP MorganWLK upgraded at JP Morgan. Rating raised to Overweight from Neutral. Price target raised to $28 from $21. Maintains 2010 EPS estimates of $1.50.
ADM price target lowered to $34 from $37 as ethanol sentiment is driving stock weakness, Bank of America/Merrill Lynch said. 2010 and 2011 EPS estimates both lowered to $2.90. Maintain Buy rating.
Apollo Group target, estimates higher at BofA/Merrill
APOL 2010 and 2011 EPS estimates increased to $5.10 and $5.93, respectively. Strategic shift continues, Bank of America/Merrill Lynch said. Price target raised by a dollar to $69. Maintain Neutral rating.
Apollo Group target, estimates higher at BofA/MerrillAPOL 2010 and 2011 EPS estimates increased to $5.10 and $5.93, respectively. Strategic shift continues, Bank of America/Merrill Lynch said. Price target raised by a dollar to $69. Maintain Neutral rating.
Apollo estimates lowered at UBSAPOL estimates were cut through 2011, UBS said. Company lowered guidance. Buy rating and $120 price target.
Avnet estimates, target raised at UBSAVT estimates were increased through 2011, UBS said. Company pre-announced earnings and should also benefit from the BELM acquisition. Buy rating and new $35 price target.
Chubb estimates lowered at UBSCB estimates were reduced through 2011, UBS said. Company is seeing higher catastrophe losses. Buy rating and $56 price target.
Celgene target boosted at CitigroupShares of CELG now seen reaching $72, Citigroup said. Company could deliver higher Revlimid growth in Europe. Buy rating.
FMC Corp. target raised at UBSFMC target was increased to $70, according to UBS. Higher spot commodity prices are helping contract pricing. Buy rating.
Google estimates boosted at UBSGOOG estimates were raised through 2011, UBS said. Channel checks are showing positive keyword pricing. Buy rating and $700 price target.
Goldman Sachs estimates boosted at BarclaysGS 2010 and 2011 EPS estimates improved to $18.28 and $20.23, respectively. Raising out FICC and principal investment gains estimates, Barclays said. Maintain Equal weight rating and $95 price target.
Jabil Circuit target, estimates boosted at Credit SuisseJBL price target increased to $18.60 from $17 after strong 2Q10 results and strong 3Q10 guidance, Credit Suisse said. 2010 and 2011 EPS estimates raised to $1.32 and $1.75, respectively. Neutral rating.
Mead Johnson numbers increased at CitigroupMJN estimates were raised through 2012, Citigroup said. Company is growing market share and the developing markets outlook is robust. Buy rating and new $60 price target.
Morgan Stanley estimates cut at BarclaysMS 2010 and 2011 EPS estimates trimmed to $2.43 and $3.33, respectively. Barclays noted weaker trading revenues. Reiterate Equal Weight rating and $34 target.
Micron estimates upped at UBSMU estimates were increased through 2011, according to UBS. Strong demand should drive higher near-term results. Neutral rating and $10.50 price target.
Netflix estimates, target boosted at FBRShares of NFLX now seen reaching $85, according to FBR Capital Markets. Estimates also raised, as the company should continue to deliver subscriber and margin growth. Outperform rating.
Nvidia estimates, target raised at CitigroupShares of NVDA now seen reaching $24, according to Citigroup. Estimates were also boosted, following positive channel checks. Buy rating.
Research in Motion estimates increased at KaufmanRIMM estimates were boosted through 2011, Kaufman Bros. said. Company will likely post strong earnings, driven by sales of the Curve and Bold devices. Buy rating.
Weyerhaeuser estimates higher at BarclaysWY 2010 and 2011 EPS estimates jumped to $1.20 and $2.75 on logs, wood, and pulp, Barclays said. Reiterate $70 price target and Overweight rating.
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