Slope of Hope Blog Posts
Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.
With some help from a Goldman Sachs research upgrade to conviction buy of Monsanto (MON) this morning, the chemical-fertilizer section, in general, and Mosaic (MOS), in particular, have attracted some sympathetic buying, as the stock claws its way back up towards a retest of Monday evening's earnings reaction high at 69.97.
I expect that to happen in the upcoming hours, but it is what happens thereafter that intrigues me. Let's notice that a three-month resistance line at 70.30 as well as the July high at 70.69 represent a formidable resistance band, which if hurdled and sustained should trigger upside continuation and acceleration towards 74.00-75.00.
At this juncture, only a decline that breaks yesterday's low at 67.55 will delay the initiation of a new upleg in MOS.
Originally published on MPTrader.com.
Foul-mouthed CEO Carol Bartz – who was paid nearly $50 million in 2009 alone and still is raking in eight-digits a year – has the performance below to show as proof that she's earned every penny. (Steve Jobs, by way of contrast, set his salary at $1 per year ages ago). The arrow, incidently, indicates the price shock when Microsoft offered to buy Yahoo for a price far more than double what it is today. Yahoo told them to go jump in a lake.
Keep that magic coming, Carol!
Bank of America (BAC) was the most actively traded NYSE stock Tuesday (as it was last week), but after posting its 90 cent per share Q2 loss Tuesday, the costs of hedging it have gone up. The table below shows the costs, as of Tuesday's close, of hedging BAC and 19 of the other most actively-traded stocks against greater-than-20% declines over the next several months, using the optimal puts.
For comparison purposes, I've also added the costs of hedging the SPDR S&P 500 Trust ETF (SPY), the SPDR Dow Jones Industrial Average ETF (DIA), the Nasdaq 100-tracking ETF PowerShares QQQ Trust ETF (QQQ), and the U.S. Treasury Bond tracking ETF iShares Barclays 20+ Year Treasury Bond ETF (TLT) against the similar declines. First, a reminder about what optimal puts mean in this context and why I've used 20% as a decline threshold.
Optimal puts are the ones that will give you the level of protection you want at the lowest possible cost. As University of Maine finance professor Dr. Robert Strong, CFA has noted, picking the most economical puts can be a complicated task. With Portfolio Armor (available on the web and as an Apple iOS app), you just enter the symbol of the stock or ETF you're looking to hedge, the number of shares you own and the maximum decline you're willing to risk (your threshold). Then the app uses an algorithm developed by a finance academic to sort through and analyze all of the available puts for your position, scanning for the optimal ones (there's an example of this, with screenshots, in this article about hedging against a US default with puts on TLT).
You can enter any percentage you like for a threshold when using Portfolio Armor (the higher the percentage though, the greater the chance you will find optimal puts for your position). The idea for a 20% threshold comes, as I've mentioned before, from a comment fund manager John Hussman made in a market commentary in October 2008:
An intolerable loss, in my view, is one that requires a heroic recovery simply to break even … a short-term loss of 20%, particularly after the market has become severely depressed, should not be at all intolerable to long-term investors because such losses are generally reversed in the first few months of an advance (or even a powerful bear market rally).
Essentially, 20% is a large enough threshold that it reduces the cost of hedging but not so large that it precludes a recovery. When hedging, cost is always a concern, which is where optimal puts come in.
How Costs Are Calculated
To be conservative, Portfolio Armor calculated the costs below based on the ask prices of the optimal put options. In practice, though, an investor may be able to buy some of these put options for less (i.e., at a price between the bid and the ask).
Hedging Costs as of Tuesday's close
The data in the table below is as of Tuesday's close. After the four ETFs listed for comparison purposes, the NYSE stocks are listed in order of their share volume in Tuesday's trading, with the most actively traded stock (BAC) listed first; the Nasdaq stocks are listed in a similar order, with the most actively traded Nasdaq stock (SIRI) listed first.
Cost of Protection (as % of position value)
|Comparison Index ETFs|
SPDR S&P 500
|DIA||SPDR Dow Jones Industrial Avg||1.40%*|
|QQQ||PowerShares QQQ Trust||2.11%*|
|TLT||iShares Barclays 20+ Year Treas||0.61%|
|BAC||Bank of America Corporation||7.94%*|
|WFC||Wells Fargo & Co.||3.66%*|
|S||Sprint Nextel Corp.||5.51%*|
|GE||General Electric Company||3.12%*|
|HK||Petrohawk Energy Corporation||0.78%*|
|MGM||MGM Resorts International||9.19%*|
|JPM||JP Morgan Chase & Co.||3.64%*|
|SIRI||Sirius XM Radio Inc.||10.4%*|
|CSCO||Cisco Systems, Inc.||4.09%*|
*Based on optimal puts expiring in January, 2012.
Disclosure: I am long puts on DIA and TLT