So, Earnings for Google (GOOG), Apple (AAPL), Garmin (GRMN), AMD (AMD), Amazon (AMZN), and Akamai (AKAM) were all done by August 1. I've delayed writing about my findings because I've been highly distracted by Harry Potter. I'm done with that now, though, so here it goes.
Even though GOOG moved down 30-40 points after earnings, no reasonable combination of 540-560 strike price options make money. For AAPL, I tried looking at further out of the money options. Once again, the movement wasn't large enough to make money. GRMN was interesting in that it had a spike up after earnings, but then kept rising another 10 points. I don't think I would have made money off the initial movement, though. I didn't do any real analysis of AKAM, but after the fact, I think it's movement of 20% would have resulted in some profit. AMD barely moved at all (meaning a large loss in strangle options), which I found surprising given it lost another $600M last quarter.
So, what did I learn? First, I learned a bit of new terminology. When you buy a put and a call option at the same strike price, that's called a straddle. When you buy a put and a call, both out of the money, it's called a strangle. Second, I learned that a very large price change is required to make either of these work through earnings. Third, my previous talk of increased volatility was mostly wrong. It turns out that statistical volatility will indeed increase, but implied volatility (IV) will plummet. Thus, options tend to lose half their value right after earnings, everything else being equal. Bummer.
In the future, then, I'm going to analyze longer-term options, which tend not to have such high IV shifts because of earnings. I'm also going to look at what is required to write both a put and call option to take advantage of the IV crush. Normally, to write a call, you have to have the 100 shares in your account. To write a put, you have to have the cash available to buy 100 shares at the strike price. I'm not sure what assets I need, exactly, to buy both, as I'd think they'd cancel each other out to some extent.
For now, my overall earnings strategy is GET THE HELL AWAY! Things are just too wild around earnings season. Now I just need the overall market to improve so I have money to invest again.
Thursday, August 16, 2007
Wednesday, July 18, 2007
Earnings strategy
For this quarter, I plan on evaluating a few strategies on investing. I definitely want to research this quite a bit more before I bet real money on it. Earnings is a notoriously volatile time for stocks. A company can have profits increase by 50% and still have a stock price drop of 15% because revenues were 1% lower than expected. It really makes little sense.
Anyway, the companies I watch tend to react violently one way or the other. It's fairly rare that the stock doesn't move considerably up or down. We'll start out by looking at Google (GOOG), because it's closing price on Tuesday of $555.00 is ideally suited to such an analysis, being halfway between two strike prices.
So, GOOG earnings is July 19. I wouldn't want to buy options for July, as those expire on the 21st. Chances are that I'd lose everything. Instead, I'll look at August contracts.
As you can see, puts are relatively cheaper, meaning people expect Google to rise. I tend to agree with this prediction, but that's not the exercise at hand. I'm trying to figure out what exactly will happen if I purchase both calls and puts right before earnings. I will definitely lose a day of time value, which is a fairly significant portion of the month of time remaining.
If the stock price rises, the calls will gain value and the puts will lose value. The delta (change in option premium for every dollar change in underlying stock price) gets higher as options get more valuable, though. This ends up keeping the premium at least as high as the stock price - strike price (for calls). What this means is that as the stock moves in one direction, the profitable contract should theoretically start to gain value faster than the losing contract loses value. Also, if there is a significant move one way or the other, the volatility will increase, further improving the profitable contract's price while padding the fall of the losing contract.
Now, if the stock doesn't move much, then the time value lost will outweigh any of the above considerations. I estimate this to be well under a 5% loss for the day, though. I also need to look at the effect of trailing stop orders and regular stop orders. For GOOG, I'm currently thinking something along the lines of a trailing stop on the call that would trigger a trailing stop on the put. I'm hoping this would make the call's spike right after earnings result in maximum profits and then trigger an order to take advantage of any overcorrection or profit taking.
Over the next week or two, I'll do some virtual trading and see how things work in practice with various stocks/options. I'll keep you posted.
Anyway, the companies I watch tend to react violently one way or the other. It's fairly rare that the stock doesn't move considerably up or down. We'll start out by looking at Google (GOOG), because it's closing price on Tuesday of $555.00 is ideally suited to such an analysis, being halfway between two strike prices.
So, GOOG earnings is July 19. I wouldn't want to buy options for July, as those expire on the 21st. Chances are that I'd lose everything. Instead, I'll look at August contracts.
| Strike | Call | Put |
| 550 | 24.90 | 17.30 |
| 560 | 19.80 | 22.30 |
As you can see, puts are relatively cheaper, meaning people expect Google to rise. I tend to agree with this prediction, but that's not the exercise at hand. I'm trying to figure out what exactly will happen if I purchase both calls and puts right before earnings. I will definitely lose a day of time value, which is a fairly significant portion of the month of time remaining.
If the stock price rises, the calls will gain value and the puts will lose value. The delta (change in option premium for every dollar change in underlying stock price) gets higher as options get more valuable, though. This ends up keeping the premium at least as high as the stock price - strike price (for calls). What this means is that as the stock moves in one direction, the profitable contract should theoretically start to gain value faster than the losing contract loses value. Also, if there is a significant move one way or the other, the volatility will increase, further improving the profitable contract's price while padding the fall of the losing contract.
Now, if the stock doesn't move much, then the time value lost will outweigh any of the above considerations. I estimate this to be well under a 5% loss for the day, though. I also need to look at the effect of trailing stop orders and regular stop orders. For GOOG, I'm currently thinking something along the lines of a trailing stop on the call that would trigger a trailing stop on the put. I'm hoping this would make the call's spike right after earnings result in maximum profits and then trigger an order to take advantage of any overcorrection or profit taking.
Over the next week or two, I'll do some virtual trading and see how things work in practice with various stocks/options. I'll keep you posted.
Thursday, July 12, 2007
Limit Orders
Similar to my previous post on the financial-benefits-to-homeownership, I am now making a list of the benefits of limit orders:
- The market sometimes behaves irrationally - a large institution buying or selling stock can significantly affect the price in the short term. You can place buy limit orders to take advantage of spikes downward in the market and sell limit orders to take advantage of upward spikes in the market. For regular purchasing or selling, this also makes sure you don't get taken for a ride between the time you get a stock quote and the time you press the 'Place Order' button.
- Options are priced based on the underlying stock value, but they tend to move in $0.10 increments. A buy limit order of $3.50/share will theoretically be executed as soon as that jump takes place, meaning the stock has to move back a smaller amount before it rises to $3.60 (again, theoretically. Also, this doesn't equate to profitability, as there is the ask/bid price spread). A sell limit order has the opposite property, but is still a good thing due to the previous point.
- Limit vs Trailing Stop: a trailing stop order can result in higher profits if the stop price rises above the limit price. However, the actual execution of the order is a market order, which means it could execute at any price. For instance, I tried a trailing stop on some Google options. The stop value got up to $9.50, but when it finally executed, I only got $9.33. A limit order may miss more profits than a trailing stop order, but the profits are more predictable.
- Limit orders may not execute, which can be both bad and good. First, you may not have your order execute and your money will sit idle (or you will still own a stock you may not want). But, this makes them ideally suited to conditional orders like one-cancels-all. For example, let's say I have $10,000 to invest. I can place a one-cancels-all order on three different stocks - 20 shares of GOOG @ $500, 133 shares of GRMN @ 75, or 100 shares of IBM @ $100. Given today's closing prices of $544.47, $79.69, and $109.10, none of these are likely to execute - I chose the prices for easy calculations in my head. But, if any of these stocks suddenly (even if only briefly!) becomes an amazing deal, I'd be able to take advantage.
Saturday, July 7, 2007
High school and facebook
I was bored the other day, as usual, and decided to check facebook for updates, again as usual. I saw a friend's friend and remembered she was someone I used to like in high school. This got me to look at all the SME 2001 graduates.
It was interesting to see the variety of life paths even just six years after graduation. Some people were wearing suits, traveling for their job. Some were still partying nightly. A surprising number were still best friends with their high school friends. I did't recognize quite a few names. A few were married; a few had kids. The married part may have influenced the name recognition, though.
I recently watched Grosse Pointe Blank again, and my uncle was just in town for his 30-year high school reunion. This may have something to do with me thinking of seeing all these people again in a few years at my 10-year reunion. It will be interesting, for sure. I also knew a lot of people older and younger than I. I guess I won't really be able to see them at any reunion.
Strangely enough, I've always lacked school spirit or any real connection with classmates of any particular year. I don't know exactly what makes me feel some sudden connection on facebook with my fellow 2001 graduates. A friend recently talked to me about how older people have a more developed empathy center of the brain. I commented on how this made sense given my recent observations: I got a bit emotional during Freedom Writers, among other movies, whereas I used to feel next to nothing when family members and/or neighbors died. I guess the same thing applies to school pride.
Well, here's to 2001 Shawnee Mission East.
Tuesday, June 26, 2007
I got a kitten!
So, my mom called me up this afternoon and asked if I wanted a kitten. Seems she was visiting a friend's farm and they had an extra kitten. They were pretty sure it's a girl, but it hasn't been fixed or shot or anything. I'm strongly leaning towards getting her front declawed, like my brother's cats. Carrie is upset with that idea, but oh well.
I've all but decided to name her Fiona. She's just the cutest thing. She spent the first night sleeping on my stomach and chest. I was reminded of Look Who's Talking, where John Travolta is babysitting, and Mikey falls asleep on his chest. I've already been having quite a lot of baby-wanting time, but this cat has really spiked my paternal instinct. Now all I need is a wife who wants kids.
Last night, she followed me up to my room and slept in there (with an apparent break to go down and throw some food around). So, what I've learned:
I've all but decided to name her Fiona. She's just the cutest thing. She spent the first night sleeping on my stomach and chest. I was reminded of Look Who's Talking, where John Travolta is babysitting, and Mikey falls asleep on his chest. I've already been having quite a lot of baby-wanting time, but this cat has really spiked my paternal instinct. Now all I need is a wife who wants kids.
Last night, she followed me up to my room and slept in there (with an apparent break to go down and throw some food around). So, what I've learned:
- Dragging a string behind you teaches cats to follow you pretty well.
- Since cats bury things in their litter box, it may be dirtier than you think.
- Being a safe place for a kitten to go to when the big cat gets pissy makes it love you.
Tuesday, June 5, 2007
Spiels I like to give
I have a couple things planned out to say whenever the occasion arises. I figure I should write them down before I become senile and forget about them. This means that some of you will be bored by this post, as you've already heard these.
Stocks: I really don't understand what a stock is. If I went back in time and had to modernize an economy, I wouldn't know how to describe the concept of a stock. A company decides it wants to bring in some money, so it issues some pieces of paper to the public. These pieces of paper allow you to vote in shareholder meetings, but the founders of the company typically give themselves a majority holding to start out with, so this isn't a very useful thing. The company is then under no obligation to buy back the shares, pay dividends, or in any other way make your stock valuable. What you hope will happen is that someone will look at this company and decide that they really want this worthless piece of paper and buy it from you. It just makes no sense. And then there's the fact that money is never created in the stock market. For every gain there is a loss somewhere along the line. Stocks just give us with too much money something more to buy than goods and services.
Peeing: For some reason, men like to stand when they pee. At a urinal, this makes sense, because there is no where to sit. However, it makes absolutely no sense to stand and pee into a regular toilet. Let's look at this for a moment: Why do women yell at you to lift the seat up before you pee? Because you miss and/or splatter and urine gets on the toilet seat. Now, why is it ok for this splatter to land on the rim of the toilet bowl and surrounding floor? It's just plain nasty.
Stocks: I really don't understand what a stock is. If I went back in time and had to modernize an economy, I wouldn't know how to describe the concept of a stock. A company decides it wants to bring in some money, so it issues some pieces of paper to the public. These pieces of paper allow you to vote in shareholder meetings, but the founders of the company typically give themselves a majority holding to start out with, so this isn't a very useful thing. The company is then under no obligation to buy back the shares, pay dividends, or in any other way make your stock valuable. What you hope will happen is that someone will look at this company and decide that they really want this worthless piece of paper and buy it from you. It just makes no sense. And then there's the fact that money is never created in the stock market. For every gain there is a loss somewhere along the line. Stocks just give us with too much money something more to buy than goods and services.
Peeing: For some reason, men like to stand when they pee. At a urinal, this makes sense, because there is no where to sit. However, it makes absolutely no sense to stand and pee into a regular toilet. Let's look at this for a moment: Why do women yell at you to lift the seat up before you pee? Because you miss and/or splatter and urine gets on the toilet seat. Now, why is it ok for this splatter to land on the rim of the toilet bowl and surrounding floor? It's just plain nasty.
Friday, June 1, 2007
Mortgage payment
I mailed off my first mortgage payment yesterday. Assuming it arrives on time, I will be almost $300 closer to being debt free. Hey, that's more than 0.1% of my debt!
I've really spent a lot of money over the past month. I bought a house, refrigerator, washer, dryer, kitchen table, 6 chairs, a TV stand, a 65" TV, and 4 bar stools. And that's just from Nebraska Furniture Mart! The problem, though, is that I'm slightly cash poor right now. Not severely so, but enough that I feel nervous about investing any more of it right now.
I wish I could remember all the things I've been meaning to write down.
I've really spent a lot of money over the past month. I bought a house, refrigerator, washer, dryer, kitchen table, 6 chairs, a TV stand, a 65" TV, and 4 bar stools. And that's just from Nebraska Furniture Mart! The problem, though, is that I'm slightly cash poor right now. Not severely so, but enough that I feel nervous about investing any more of it right now.
I wish I could remember all the things I've been meaning to write down.
Sunday, May 20, 2007
Been busy
I've been pretty busy of late, both with work and social life. I'll devote this post to my house, though, as that's where the most significant progress has been made.
I got my washer and dryer! It's a high efficiency front-loading washer. One thing I wasn't counting on was having to get all new high efficiency laundry detergent formulated to work with less water and the like. I gave my laundry detergent to a friend at work, so at least it'll get used.
Either today or tomorrow I plan on going to Nebraska Furniture Mart and picking up my breakfast area table and chairs, along with some bar stools for the kitchen counter area. My grandparents said hey want to make my kitchen table set a housewarming gift, but pretty much all gifts are hard for me to accept, let alone a $700 one. But, I'll go with it on this one.
Speaking of the kitchen, it's amazing how little cabinet space there really is in there. Alternatively, it's amazing how much stuff Carrie has. It is a very good thing that I have a roommate, or I'd be completely embarrassed at the empty nature of every room. She moved her big stuff in this weekend, too, which means I will soon have to move my couch into the basement.
Which means I need to get a TV for the basement! So far, my favorite is Toshiba 65" DLP at Newegg.com. If it weren't for Amazon.com charging taxes in 4 states, including Kansas, I would be able to get it cheaper there. Also, TV stands are ridiculously expensive. I'm disliking that whole situation and halfway considering throwing together some ugly plywood and making my own stand. But, as anyone who's seen my desk knows, that won't look very good. I'm making an effort to get out of college mode, but $300-$400 for a piece of wood that just sits there is discouraging.
Having a TV will be great for watching DVDs, but I will also need to get some sort of live TV feed. Comcast cable is horrible, in general, so it's between DIRECTV and AT&T's Uverse. I would like to go with Uverse because it comes with 3 free receivers, including one DVR, while DIRECTV charges $5/mo for extra receivers and more for DVR. Plus, with Uverse, I'd get cable and DSL without having to buy a phone line for some reason, so it would be cheaper. Unfortunately, my address comes up on their website as not having Uverse available. Houses down the street have signs in their yards about it, though, so I will have to call on Monday.
Also, I got my new wireless/gigabit ethernet router and gigabit switch. The router is pretty nice, but I can't get wireless encryption to work with Carrie's laptop. I will have to try configuring it with my laptop from work, sometime, to see what the problem is. The gigabit switch is primarily for LAN parties, for now.
That's all for the moment. I will try to update a bit more often.
I got my washer and dryer! It's a high efficiency front-loading washer. One thing I wasn't counting on was having to get all new high efficiency laundry detergent formulated to work with less water and the like. I gave my laundry detergent to a friend at work, so at least it'll get used.
Either today or tomorrow I plan on going to Nebraska Furniture Mart and picking up my breakfast area table and chairs, along with some bar stools for the kitchen counter area. My grandparents said hey want to make my kitchen table set a housewarming gift, but pretty much all gifts are hard for me to accept, let alone a $700 one. But, I'll go with it on this one.
Speaking of the kitchen, it's amazing how little cabinet space there really is in there. Alternatively, it's amazing how much stuff Carrie has. It is a very good thing that I have a roommate, or I'd be completely embarrassed at the empty nature of every room. She moved her big stuff in this weekend, too, which means I will soon have to move my couch into the basement.
Which means I need to get a TV for the basement! So far, my favorite is Toshiba 65" DLP at Newegg.com. If it weren't for Amazon.com charging taxes in 4 states, including Kansas, I would be able to get it cheaper there. Also, TV stands are ridiculously expensive. I'm disliking that whole situation and halfway considering throwing together some ugly plywood and making my own stand. But, as anyone who's seen my desk knows, that won't look very good. I'm making an effort to get out of college mode, but $300-$400 for a piece of wood that just sits there is discouraging.
Having a TV will be great for watching DVDs, but I will also need to get some sort of live TV feed. Comcast cable is horrible, in general, so it's between DIRECTV and AT&T's Uverse. I would like to go with Uverse because it comes with 3 free receivers, including one DVR, while DIRECTV charges $5/mo for extra receivers and more for DVR. Plus, with Uverse, I'd get cable and DSL without having to buy a phone line for some reason, so it would be cheaper. Unfortunately, my address comes up on their website as not having Uverse available. Houses down the street have signs in their yards about it, though, so I will have to call on Monday.
Also, I got my new wireless/gigabit ethernet router and gigabit switch. The router is pretty nice, but I can't get wireless encryption to work with Carrie's laptop. I will have to try configuring it with my laptop from work, sometime, to see what the problem is. The gigabit switch is primarily for LAN parties, for now.
That's all for the moment. I will try to update a bit more often.
Friday, May 4, 2007
Thoughts on IBM
A couple days ago, I had a thought about my job at IBM. It was a pleasant thought that went like this: Even though I'm stressed out about work and insanely busy, I genuinely enjoy my job!
Now, I know people rarely keep loving their job after the initial novelty period, but for now, I'm going to enjoy it. Even better? I actually feel like I'm good at my job! I'm getting progressively more responsibility. Unfortunately, I haven't actually gotten everything done on time that I was supposed to, but because I've been taking time out to fix some other very important stuff, no one blames me.
Which brings up another good thing: I found the cause of a bug that's been nagging me for the past while! I think this should make next week just manageable enough that I can get some more moving done.
Unfortunately, this post can't be all happy.
This Slashdot article and the article linked therein (Lean and Mean: 150,000 U.S. layoffs for IBM?) talks about possible upcoming layoffs in IBM's Global Services division. The consensus at Slashdot is that Cringely have overly speculative columns, and that 150,000 layoffs would be 40% of IBM worldwide, not IBM's US workforce.
Still, it does make me a bit nervous. I don't know which comments are fully truthful, but there are some good points in general. Global Services consultants are who customers deal with. When they get laid off, customers don't appreciate having to walk a new person through their setup. If it's also true that our sales force has been making unprofitable contracts to up their numbers, then we have a bigger problem than Global Services having slow growth.
Software, though, is amazingly profitable for IBM. Thus, I'm not directly concerned about my job. I'm more concerned about the future of IBM as a whole. At this stage, though, I don't have enough information to really comment intelligently. So, I will wait to worry about this until more information is released. And in 10 years, when I'm CEO, I'll see what I can do.
Now, I know people rarely keep loving their job after the initial novelty period, but for now, I'm going to enjoy it. Even better? I actually feel like I'm good at my job! I'm getting progressively more responsibility. Unfortunately, I haven't actually gotten everything done on time that I was supposed to, but because I've been taking time out to fix some other very important stuff, no one blames me.
Which brings up another good thing: I found the cause of a bug that's been nagging me for the past while! I think this should make next week just manageable enough that I can get some more moving done.
Unfortunately, this post can't be all happy.
This Slashdot article and the article linked therein (Lean and Mean: 150,000 U.S. layoffs for IBM?) talks about possible upcoming layoffs in IBM's Global Services division. The consensus at Slashdot is that Cringely have overly speculative columns, and that 150,000 layoffs would be 40% of IBM worldwide, not IBM's US workforce.
Still, it does make me a bit nervous. I don't know which comments are fully truthful, but there are some good points in general. Global Services consultants are who customers deal with. When they get laid off, customers don't appreciate having to walk a new person through their setup. If it's also true that our sales force has been making unprofitable contracts to up their numbers, then we have a bigger problem than Global Services having slow growth.
Software, though, is amazingly profitable for IBM. Thus, I'm not directly concerned about my job. I'm more concerned about the future of IBM as a whole. At this stage, though, I don't have enough information to really comment intelligently. So, I will wait to worry about this until more information is released. And in 10 years, when I'm CEO, I'll see what I can do.
House Closing
So, on Monday I signed a whole bunch of papers. Before that, there was a bit of excitement. My homeowners insurance wasn't officially processed yet, so I had to run down to their office and get everything sorted out. Plus, I wasn't told until about 9:30am what amount to get a cashier's check made out for. Incidentally, I don't think Bank of America charged me for my cashier's check. That made me slightly happy. Anyway, I was a few minutes late to my 10:00 meeting.
After another 15 minutes of waiting, all the paperwork was printed off, and I was ready to sign. That took quite awhile, but it was relatively painless. Finally, I went to get my house key, do a quick walk-through, then head back over to the insurance place to work out car insurance. And eat lunch.
So, the gist of it is that I now own a house, and a sizable debt on said house.
What's surprising, though, is how unexcited I am. I was quite excited during the offer/counteroffer/acceptance stage, but that has worn off. It is surely difficult to maintain a high level of excitement for most of a month, and I've had plenty to keep me busy in the meantime. We'll just have to see if the moving process brings a whole new period of excitement.
On a completely unrelated note, my serious little blog here has been flagged as possible blog spam by Google. I guess most people don't have such boring blogs primarily discussing mortgages. But, I have a mortgage, so there's little reason to talk about it anymore. I'm sure this means my blog will become ever so much more interesting...
After another 15 minutes of waiting, all the paperwork was printed off, and I was ready to sign. That took quite awhile, but it was relatively painless. Finally, I went to get my house key, do a quick walk-through, then head back over to the insurance place to work out car insurance. And eat lunch.
So, the gist of it is that I now own a house, and a sizable debt on said house.
What's surprising, though, is how unexcited I am. I was quite excited during the offer/counteroffer/acceptance stage, but that has worn off. It is surely difficult to maintain a high level of excitement for most of a month, and I've had plenty to keep me busy in the meantime. We'll just have to see if the moving process brings a whole new period of excitement.
On a completely unrelated note, my serious little blog here has been flagged as possible blog spam by Google. I guess most people don't have such boring blogs primarily discussing mortgages. But, I have a mortgage, so there's little reason to talk about it anymore. I'm sure this means my blog will become ever so much more interesting...
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