Quick note: I just took a sizable position in ICAD at $1.55 per share based on this story:
http://www.nytimes.com/2010/03/29/health/policy/29fda.html?pagewanted=2
Good luck!
Monday, March 29, 2010
Housekeeping: Apple (AAPL)
We have April 230/240 call spread. As I suggested on Friday, see AAPL Adjustment, it is prudent to convert the call spread into April/May $240 calendar by rolling April $230 calls to May $240 calls. This will require Apple to move above $235. However, the time decay is running faster against the trade. Also, May IV is slowly inching up due to up coming earnings which means the longer we wait, the higher the cost of rollover is going to be. Therefore, on a second thought, I am willing to pay up a little as Apple is trading at $233.30.
- Sell to close April $230 calls for $7.50 credit
- Buy to open May $240 calls for $8.40 debit
Just filled the order $0.90 net debit. Now we own April/May $240 calendar. If the stock makes a move above $240 by April expiration, we'll just close the entire trade. If it doesn't, April $240 calls will expire worthless and then we will sell May $250 calls to convert it into May 240/250 call spread.
For those, who would like to understand how much P&L all these adjustments have produced since we started with March/April $230 calendar, here is the breakdown (before commissions):
- Bought March/April $230 calendar for $2.85 debit
- Rolled March $230 calls to April $240 calls for $1.80 credit
- Rolled April $230 calls to May $240 calls for $0.90 debit
When you mix them all, we paid $1.95 debit for current position April/May $240 calendar, which is currently going for $5.45. That's 180% profit and there is more to come as IV goes up in May due to earnings and time decay accelerates for April $240 calls.
Booyah!
- Sell to close April $230 calls for $7.50 credit- Buy to open May $240 calls for $8.40 debit
Just filled the order $0.90 net debit. Now we own April/May $240 calendar. If the stock makes a move above $240 by April expiration, we'll just close the entire trade. If it doesn't, April $240 calls will expire worthless and then we will sell May $250 calls to convert it into May 240/250 call spread.
For those, who would like to understand how much P&L all these adjustments have produced since we started with March/April $230 calendar, here is the breakdown (before commissions):
- Bought March/April $230 calendar for $2.85 debit
- Rolled March $230 calls to April $240 calls for $1.80 credit
- Rolled April $230 calls to May $240 calls for $0.90 debit
When you mix them all, we paid $1.95 debit for current position April/May $240 calendar, which is currently going for $5.45. That's 180% profit and there is more to come as IV goes up in May due to earnings and time decay accelerates for April $240 calls.
Booyah!
Market Digest 3-29-10
Acorda Therapeutics initiated at CitiACOR coverage initiated with a $39 price target and Hold rating. No M&A soon, Citigroup said. 2010 and 2011 EPS estimates set at -$1.49 and $0.12, respectively.
Amylin Pharma initiated at Piper JaffrayAMLN initiated at Piper Jaffray. Initiated with a Neutral rating and $26 price target. Introduces 2010 EPS estimates of -$0.11.
Airgas downgraded at William BlairARG was downgraded to Market Perform, William Blair said. Valuation call. Estimates also lowered, as the company is facing higher costs.
Biovail initiated at BofA/MerrillBVF initiated at Bank of America/Merrill Lynch with a Buy rating and $21 price target. Compelling risk-reward.
Continental Resources upgraded at Morgan KeeganCLR was upgraded from Market Perform to Outperform, Morgan Keegan said. Company has a rapidly accelerating program in the Bakken shale.
Rockwell Collins downgraded at GoldmanCOL was downgraded from Buy to Neutral, Goldman Sachs said. $72 price target. Stock is up 80% over the past 12 months.
Dresser-Rand downgraded at GoldmanDRC was downgraded from Neutral to Sell, Goldman Sachs said. Estimates also lowered, as the company has late-cycle leverage.
Global Partners upgraded at BofA/MerrillGLP upgraded to Buy from Neutral. Offering clears deck to play offense, Bank of America/Merrill Lynch said. $26.50 price target.
Ingram Micro initiated at BarclaysIM coverage initiated with an Equal Weight rating and $20 price target. 2010 and 2011 EPS estimates set at $1.70 and $1.95, respectively. Should benefit from improving IT spending, Barclays said.
Kellogg downgraded at BMORating on K was lowered to Market Perform, BMO Capital Markets said. Valuation call, as cereal sales could slow. $59 price target.
Lincare downgraded at DeutscheLNCR was downgraded from Buy to Hold, Deutsche Bank said. $47 price target. Valuation call, as the stock is already pricing in above-average growth.
Lorillard downgraded at DeutscheLO was downgraded from Buy to Hold, Deutsche Bank said. $83 price target. Company is facing higher regulatory risk.
O'Reilly Automotive downgraded at JP MorganORLY downgraded at JP Morgan. Rating lowered to Neutral from Overweight. Maintains $44 price target and 2010 EPS estimates of $2.54.
Precision Castparts upgraded at GoldmanPCP was upgraded from Neutral to Buy, Goldman Sachs said. $153 price target. Company is leveraged to higher aerospace production rates.
POWI was downgraded from Buy to Hold, Deutsche Bank said. Stock has traded through the $40 price target, though near-term trends remain strong.
Patterson-UTI upgraded at GoldmanPTEN was upgraded from Sell to Neutral, Goldman Sachs said. Stock should bottom along with natural gas prices. $51 price target.
Synovus downgraded at FBRSNV was downgraded from Market Perform to Underperform, FBR Capital Markets said. Valuation call, based on a $2.50 price target.
Solarfun Power upgraded at BarclaysSOLF upgraded to Equal Weight from Underweight on improving OEM business model, Barclays said. Price target doubled to $8 from $4. 2010 and 2011 EPS estimates boosted to 80 cents and 62 cents, respectively.
Syniverse upgraded at JefferiesSVR was upgraded from Hold to Buy, Jefferies said. $22 price target. Company is leveraged to an economic recovery and higher data traffic.
Southwestern Energy upgraded at GoldmanSWN was upgraded from Neutral to Buy, Goldman Sachs said. Stock also added to the Conviction List, with a $54 price target. Company can post superior growth in natural gas.
Molson Coors downgraded at DeutscheTAP was downgraded from Buy to Hold, Deutsche Bank said. $47 price target. Company will likely be hurt by weaker domestic volumes.
TECD initiated at Barclays with an Equal Weight rating and $47 price target. TECD should benefit from more IT spending. 2011 and 2012 EPS estimates set at $3.70 and $4.10, respectively.
Theravance initiated at Piper JaffrayTHRX initiated at Piper Jaffray. Initiated with an Overweight rating and $16 price target. Introduces 2010 EPS estimates of -$0.85.
Timken upgraded at LongbowTKR was upgraded from Neutral to Buy, Longbow Research said. $36 price target. Company should benefit from a better steel and bearings outlook.
Viacom upgraded at Morgan StanleyVIA.B was upgraded from Underweight to Equal-weight, Morgan Stanley said. $37 price target. Aggressive cost-cutting should help earnings. Equal-weight rating.
Verisign downgraded at JefferiesVRSN was downgraded from Buy to Hold, Jefferies said. $27 price target. Valuation call, as the company has limited pricing power in its business.
Atheros Communications numbers raised at FBRShares of ATHR now seen reaching $41, according to FBR Capital Markets. Estimates also boosted, as the company is likely seeing strong sales momentum. Market Perform rating.
Bed Bath & Beyond target, estimates boosted at BofA/MerrillBBBY price target increased to $50 from $44 on broad-based improvement in home related goods so far in 2010, Bank of America/Merrill Lynch said. 2010 and 2011 EPS estimates set at $2.22 and $2.52, respectively.
Burger King price target higher at CitiBKC price target raised to $22 from $19 as recent sales figures show improvement, Citigroup said. 2010 and 2011 EPS estimates held at $1.35 and $1.54, respectively.
Burger King estimates, target raised at GoldmanBKC estimates were increased through 2012, Goldman Sachs sai. Company is improving its brand image and breakfast should help drive growth. Neutral rating and new $22 price target.
Brookdale Senior cut from Conviction Buy list at GoldmanBKD was removed from the Conviction Buy List, Goldman Sachs said. Stock has limited upside potential, based on a $22 price target.
CSX Corp target and estimates raised at BofA/MerrillCSX price target jumped to $58 from $55 on higher volumes, Bank of America/Merrill Lynch said. 2010 and 2011 EPS estimates lifted to $3.35 and $3.80, respectively. Maintain buy rating.
Dreamworks Animation numbers lowered at GoldmanShares of DWA now seen reaching $49, according to Goldman Sachs. Estimates also cut, given a lower opening for "How to Train Your Dragon". Buy rating.
CarMax estimates raised at Credit SuisseKMX 2010 and 2011 EPS estimates increased to $1.17 and $1.21, respectively. Maintain Neutral rating and $23 price target.
NY Community Bancorp estimates upped at Morgan StanleyNYB estimates were increased through 2011, Morgan Stanley said. FDIC-assisted acquisition should have a small benefit to earnings. Equal-weight and $17 price target.
Silicon Laboratories estimates upped at FBRSLAB estimates were increased through 2011, FBR Capital Markets said. Recent checks suggest robust business trends. Outperform rating and $61 price target.
Zions Bancorp estimates, target increased at FBRShares of ZION now seen reaching $24, according to FBR Capital Markets. Estimates also boosted, as the company should benefit from improving credit costs. Outperform rating.
Friday, March 26, 2010
Lockheed Martin (LMT)
We have some South Korean news this morning about escalation of tensions between North and South Korea. This might be the reason for S&P giving back all of its earlier gains. On the other hand, whether it is this news or renewed chatter of F-35 aircrafts (see Credit Suisse note below), traders are betting heavy in front month way out-of-money call options.
As of this writing LMT April $90 calls trade over 12,000 contracts against open interest of only 505. Calls show 98% bought on the offer with three large blocks (3298, 2463 and 2111) coming in for $0.15 and $0.20. Here is the note from Credit Suisse:
"Well-Attended Event: As expected, F-35 was the key attraction at yesterday’s well-attended visit to LMT’s Ft. Worth, Texas facility, not b/c we toured the final assembly line, but due to DoD’s February restructuring of the program on cost overruns and development delays. While mgmt presentations clearly highlighted LMT’s ongoing success on its other major Aeronautics programs (F-22, C130, C5, F-16) and the growth in the sustainment (maintenance & mod) biz, Q&A focused on F-35 contract structure & timing.
Mgmt’s Optimism Meets Expectations: Mgmt remains confident that F-35 is back on track (after an admitted 6 mth delay) and believes it can actually beat government cost estimates on SDD (where the two sides disagree by ~$2B, as it still believes GAO/JET estimates rely on old data). LMT hopes to exceed some milestones in an attempt to win back six aircraft DoD recently deferred from the original program of record for GFY10 (to 48 from the current 42)."
Fundamentally, the stock is fairly valued trading at 10x forward earnings and 8.5x cash flow. Technically, the stock has been grinding against long-term resistance that lies just above at $87. A break above $87 could take take the stock to pre-Lehman period at $100.
Given the unusual activity, I am buying straight call options:
- Buy to open June $90 calls for $1.10.
Just filled the order. Small position for me given its far out of money. But I might add more if the stock breaks above $87 on volume.
Good luck!
As of this writing LMT April $90 calls trade over 12,000 contracts against open interest of only 505. Calls show 98% bought on the offer with three large blocks (3298, 2463 and 2111) coming in for $0.15 and $0.20. Here is the note from Credit Suisse:
"Well-Attended Event: As expected, F-35 was the key attraction at yesterday’s well-attended visit to LMT’s Ft. Worth, Texas facility, not b/c we toured the final assembly line, but due to DoD’s February restructuring of the program on cost overruns and development delays. While mgmt presentations clearly highlighted LMT’s ongoing success on its other major Aeronautics programs (F-22, C130, C5, F-16) and the growth in the sustainment (maintenance & mod) biz, Q&A focused on F-35 contract structure & timing.
Fundamentally, the stock is fairly valued trading at 10x forward earnings and 8.5x cash flow. Technically, the stock has been grinding against long-term resistance that lies just above at $87. A break above $87 could take take the stock to pre-Lehman period at $100.
Given the unusual activity, I am buying straight call options:- Buy to open June $90 calls for $1.10.
Just filled the order. Small position for me given its far out of money. But I might add more if the stock breaks above $87 on volume.
Good luck!
Housekeeping: Apple (AAPL)
Folks, first we bought April/March $230 calendar for $2.85 debit. Then as Apple went up but was not able to close above $230 on March expiration, we rolled March $230 calls to April $240 calls for $1.80 net credit. This effectively converted the trade into April 230/240 call spread with net cost of only $1.05 after taking into account the credit received.
The April 230/240 call spread has further expanded now trading at $4. With adjusted cost basis of $1.05, we're sitting on nearly 300% profit. Some readers have asked what now?
This is what I contemplating. The Delta on April $230 calls is 0.56, while the Delta on May $240 calls is 0.41. April $230 calls are going for $6.8, while May $240 calls are going $7.8. Ideally, I would like to roll April $230 into May $240 for net cost of zero. Given the difference in Deltas this can happen but it will probably require Apple to move above $235. If done for net cost of $0, this will convert the current call spread into April/May $240 calendar.
This will also turn Theta in our favor and add another full month into the trade. And then if Apple makes a run to $240 by April expiration, we will just close the trade. Otherwise, we will roll April $240 calls to May $250 calls for more net credit, similar to how we did it from March to April.
This is the way how one can play momentum while staying in the game by keep converting from calendar spread to call spread, then back to calendar spread, then back to.....and we keep moving up by a month. And as we do this, we are also cashing out periodically through net credits.
This is just an idea and I am watching closely to see if April $230 calls can be rolled to May $240 calls for $0.00.
Comments/questions?
The April 230/240 call spread has further expanded now trading at $4. With adjusted cost basis of $1.05, we're sitting on nearly 300% profit. Some readers have asked what now?
This is what I contemplating. The Delta on April $230 calls is 0.56, while the Delta on May $240 calls is 0.41. April $230 calls are going for $6.8, while May $240 calls are going $7.8. Ideally, I would like to roll April $230 into May $240 for net cost of zero. Given the difference in Deltas this can happen but it will probably require Apple to move above $235. If done for net cost of $0, this will convert the current call spread into April/May $240 calendar.
This will also turn Theta in our favor and add another full month into the trade. And then if Apple makes a run to $240 by April expiration, we will just close the trade. Otherwise, we will roll April $240 calls to May $250 calls for more net credit, similar to how we did it from March to April.
This is the way how one can play momentum while staying in the game by keep converting from calendar spread to call spread, then back to calendar spread, then back to.....and we keep moving up by a month. And as we do this, we are also cashing out periodically through net credits.
This is just an idea and I am watching closely to see if April $230 calls can be rolled to May $240 calls for $0.00.
Comments/questions?
Market Digest 3-26-10
Ann Taylor upgraded at JP MorganANN upgraded at JP Morgan. Rating raised to Neutral from Underweight. Price target raised to $22 from $14. Raises 2010 EPS estimates to $0.86 from $0.55.
Alliant Techsystems rated new Neutral at SuntrustATK was initiated with a Neutral rating, Suntrust Robinson Humphrey said. Company faces uncertainty in its NASA programs.
Best Buy target, estimate increased at BarclaysBBY price target raised by a dollar to $48 after posting solid 4Q10 results, Barclays said. 2011 EPS estimate lifted to $3.54. Maintain Overweight rating.
Best Buy estimates, target boosted at GoldmanBBY estimates were raised through 2011, Goldman Sachs said. Company should continue to benefit from higher TV sales. Buy rating and new $49 price target.
Best Buy downgraded at FBRBBY was downgraded from Market Perform to Underperform, FBR Capital Markets said. $36 price target. Company faces difficult comparisons and will ultimately face decelerating sales growth.
Buckle downgraded at JP MorganBKE downgraded at JP Morgan. Rating lowered to Underweight from Neutral. Maintains $35 price target and 2010 EPS estimates of $3.05.
Calpine upgraded at ArgusCPN was upgraded from Hold to Buy, Argus Research said. Company is on track to produce a strong recovery in earnings and cash flow over the next several years.
Genzyme upgraded at LeerinkGENZ was upgraded to Outperform, Leerink Swann said. Concerns about a consent decree have been overblown.
lululemon athletic downgraded at BofA/MerrillLULU downgraded to Neutral from Buy as growth is already priced into shares, Bank of America/Merrill Lynch said. Price target increased to $43 from $38.
Motorola initiated at JP MorganMOT initiated at JP Morgan. Initiated with an Underweight rating and $6 price target. Introduces 2010 EPS estimates of $0.20.
Palm upgraded at BMOPALM was upgraded from Underperform to Market Perform, BMO Capital Markets said. $4 price target. Stock is already pricing in a challenging operating environment.
Progressive upgraded at FBRPGR was upgraded from Market Perform to Outperform, FBR Capital Markets said. $23 price target. Company is gaining market share.
Qualcomm estimates, target boosted at UBSQCOM estimates were increased through 2011, UBS said. Company boosted guidance, because of strength in licensing and its chipset business. Buy rating and new $50 price target.
Qualcomm downgraded at CalyonQCOM was downgraded from Outperform to Underperform, Calyon Securities said. $44 price target.
Research in Motion upgraded at JP MorganRIMM upgraded at JP Morgan. Rating raised to Overweight from Neutral. Price target raised to $84 from $70. 2010 EPS estimates raised to $5.25 from $4.92.
Rue21 initiated at BarclaysRUE coverage initiated with an Overweight rating and $42 price target, Barclays said. 2010 and 2011 EPS estimates set at $1.20 and $1.50, respectively.
GT Solar upgraded at Credit SuisseSOLR upgraded to Outperform from Neutral on revised demand estimates, Credit Suisse said. Price target increased to $7.50 from $6. 2010 and 2011 EPS estimates jumped to 60 cents and 57 cents, respectively.
Stanley Black & Decker initiated at Credit SuisseSWK initiated at Credit Suisse with an Outperform rating and $69 price target. Analysts noted upside from Black & Decker Acquisition and attractive valuation. 2010 and 2011 EPS estimates set at $0.21 and $4, respectively.
Symetra Financial rated new Neutral at UBSSYA was initiated with a Neutral rating, UBS said. $14 price target. Company can deliver double-digit earnings growth.
Apple target, estimates boosted at Credit SuisseAAPL price target surged to $300 from $275 as the company is running well ahead of expectations, Credit Suisse said. 2010 and 2011 EPS estimates lifted to $12.53 and $14.55, respectively. Maintain Outperform rating.
Accenture estimates lowered at UBSACN estimates were cut through 2011, UBS said. Company is seeing lower margins and its backlog is not being converted to revenue as quickly. Neutral rating and $41 price target.
Accenture target, estimates lowered at BarclaysACN price target cut by a dollar to $44 on lower guidance, Barclays said. 2010 and 2011 EPS estimates sunk to $2.63 and $2.95, respectively. Maintain Equal Weight rating.
CVS Caremark price target higher at BofA/MerrillCVS price target improved to $40 from $36, Bank of America/Merrill Lynch said. 2010 and 2011 EPS estimates set at $2.65 and $3, respectively. Maintain Buy rating.
General Dynamics numbers boosted at GoldmanShares of GD now seen reaching $87, Goldman Sachs said. Estimates also increased, based on higher award activity for Combat Systems. Buy rating.
Massey Energy price target boosted at BofA/MerrillMEE price target increased to $64. Upbeat on pending acquisition of Cumberland Resources, Bank of America/Merrill Lynch said. Maintain Buy rating. 2010 and 2011 EPS estimates set at $2.60 and $4.75, respectively.
Massey Energy numbers boosted at FBRShares of MEE now seen reaching $68, according to FBR Capital Markets said. Estimates also raised, as the Cumberland acquisition appears to be a winner.
Oracle estimates, target raised at GoldmanShares of ORCL now seen reaching $32, according to Goldman Sachs. Estimates also boosted, as the company should see higher margins following the Sun acquisition. Buy rating.
Qualcomm target, estimates raised at Credit SuisseQCOM price target increased to $45 from $40 following positive preannouncement, Credit Suisse said. 2010 and 2011 EPS estimates jumped to $2.32 and $2.46, respectively. Neutral rating.
Shaw Group estimates cut, target upped at UBSShares of SHAW now seen reaching $39, UBS said. On the other hand, estimates were lowered, because of a weaker construction backlog in the Power group. Neutral rating.
SLM estimates, target increased at FBRShares of SLM now seen reaching $23, FBR Capital Markets said. Estimates also upped, because of lower expected costs. Outperform rating.
Tibco Software estimate, target upped at FBRTIBX estimates were raised through 2011, FBR Capital Markets said. Business appears to be gaining momentum. Market Perform rating and new $12 price target.
Courtesy of thestreet.com
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