New thoughts

- Is the housing market really at a bottom?

- Assuming 2003 was the lowest interest rate - ARMs will reset in 3 years 5 years and 7 years. We have seen the resets for the 3 and 5 year ARMs. Why isn't anyone talking about the 7 year resets?

Blockbuster - no late fees is really not such a good thing

Blockbuster recently announced it's "No more late fees" campaign with much fanfare. As a consumer it does sound nice, but as a strategy for the company it's just terrible.

A consumer point of view
As a consumer, I went to Blockbuster to rent movies, and to return movies. Often, I would rent another movie when I returned one. These round-trips used to make me rent more movies than I currently do. Blockbuster's loss.

The easy road - (What Google can teach Blockbuster and many other companies)

Blockbuster took the easiest, least innovative approach to fight Netflix - lower cost. With the host of stores they have, they could have come up with much more creative and attractive ways to get customers. I have a few ideas on how Blockbuster could better use what they have:

1. "No more late fees" - but only for the online subscriber. The promotion cost of this campaign, just to get new people to sign up would be really low. For instance, whenever someone tries to turn in a movie late, ask them if they would like to sign up for the 15-day trial and their late fee would be waived. People are very likely to sign up.
2. Cheap rentals for the online subscriber - $1 instead of $4 if you want to just get a movie without having to wait for it. ("This movie is only $1 if you sign up for our online rental trial")
   
3. Returns - Movies that you rent online - either return them in-store or post them. Savings from reduced postage since the store can mail everything to the warehouse.
4. Also, if Blockbuster spends a little money on their supply chain, they could scan the returned item in-store, consider it returned and dispatch the next movie - something that Netflix can't do and would be attractive to customers - something they can use to fight Netflix. If more customers return in-store than return by mail, then there are even more savings for Blockbuster.
5. Special stores - turn a quarter of the stores into warehouse-like stores from where only online subscribers can go and rent. This would also be the place where you can return movies and where all the other stores mail returns.
6. Spend money on IT and supply chaining the stores so that it is much better connected (rather than make outrageous offers for Hollywood)

Really what Blockbuster can learn from Google is that one can be a late entrant to any market and still be successful as long as one is innovative ( gmail maps suggest)

A break, earnings season, stock trades - and such

I've been busy at work and haven't had time and the enrgy to write as much as I would have wanted to. I made a few stock buys and some option trades.

Stock trades
CNXS - CNS Inc - It's a small cap company with solid earnings growth and a great chart pattern right now. I bought the stock at 15.9

CUTR - Cutera Inc - Bought at 17.82 Again a small cap company, IPO'd in the last year with excellent earnings growth and a great chart pattren just breaking out of a base.

Earnings Season and options
Earnings season is a great time to make option trades. So far all my option trades have been "directional" meaning I expect the stock to move in a particular way. Earnings season is a great time to make "bi-directional" stock trades. Also at a time like this where the direction of the market is unpredictable, and still volatility is low, earnings season brings out the subdued volatility in a stock. Also front month options are very cheap especially for stocks that haven't moved in a while. So I have been scanning the earnings calendar and looking for interesting stocks which could either miss or hit earnings. Some interesting trades that I made right before earnings using small bets - LAVA APCC LLL XMSR ISIL NTE A few of them moved and a few of them didn't. It is a strategy I'll explore further.
Ex. if the stock is at $15, buy one $17.5 call and one $12.5 put, the expectation being that the stock will move well on earnings news, irrespective of what the earnings are.

I need some more research on companies which are more likely to react to earnings news or companies that are more likely to have an earnings surprise. I'll monitor Starmine a little closer. If anyone has any other interesting ideas on this, please let me know.

What are my options?
So far my directional option trades haven't done very well, stocks have done well. Some of these bidirectional trades have done well. I'm still debating on whether options are really thing thing for me or if I should stick to stocks...

Stock trading contest

This is a stock trading contest with fake money that I have entered:
http://si1.streetinsider.com/index.cfm?linkto_tab_id=179

Try doing some trades there to see how you do with fake money vs what you would do with real money. It might provide some surprising insights about yourself.

There's a $1000 prize money for first prize too :)

Also this is sort of a short term trading contest so probably an area for momentum investing.

Trade: Sold DRS Bought RIMG

DRS was my biggest holding. It seems to be in the middle of a breakdown, although the trendlines are still holding up. I sold 50 shares @38.23 out of 200 that I have. It has found some support at the trendline and the 2nd Fibonacci retracement level from it. THere have also been some defense cuts announced and that could affect defense companies even though I think DRS earnings will hold up reasonably well. I plan to sell the rest of the shares on up days or if it breaches it's trendline.

I have also bought 50 shares of RIMG @16.09 which showed up on my volume surge screen. It is a micro cap company with only 9 million outstanding shares. Institutional ownership is at 50% with some good names like Royce and Kern having big stakes. The company definitely seems undervalued right now compared to it's growth rate. Also it has a strong balance sheet with about $5 in cash/share. Technically the stock is coming out of a consolidation and has had some big volume days to break out of a key resistance level at 15.00 I expect to hold this for the mid-long term as long as earnings growth continues.


DRS chart

Portfolio updates and thoughts for next year

New trades
Over the past few weeks, I have made a few more trades. This is the summary:

• RHAT call: The stock dropped after earnings. I sold the $15 call @1.3 while it still had some time value. The initial buy indicators turned negative so I am out of the position now.
• ZONS: Sold the shares @5.4 at a loss. The stock was going nowhere after the initial big spikes and I didn't want to risk a big drop.
• MFLO: Bought at 15.26 Moldflow is a small cap company with excellent earnings momentum and a great balance sheet. It recently broke out of a long term sideways chart and broke past critical "overhead resistance" around $14. I expect to hold this for mid to long term as long as the earnings and price trend is positive. The company also has just one analyst and around 70% institutional ownership. Also it is much more reasonably priced in terms of it's price ratios compared to both ADSK and DASTY which are listed as it's competitors on Yahoo, which then makes it a potential takeover target especially if it hits revenues close to $100 million. Also the profit margins are on a rise which provides further potential upside
• FBR: 1 June @22.5 call for 0.55 The stock just broke above it's 200-day MA and is finding support there even though the 200-day trend is downward. The 50-day MA is on an uptrend to catch up with the 200-day. Potential smaller IPOs and M&A activity should help the stock. Potential first resistance at 21 second resistance at 24. Support at 19.00 Volatility is low from looking at the Bollinger bands.
  
• FDRY: 2 March @17.50 call for $0.20 50-200 day crossover and MACD ROC and momentum indicators are positive. Volatility increase on the upside should help the option. There's potential resistance at around $16.00 so this would be my exit point.
  
• ISSX: 4 February @30 call for $0.2 The stock has made a pullback after breaking out of it's cup-with-handle pattern This position is also expecting that the stock will break to the upside and this increased volatility will cause the option price to increase
  

Reflections
Over the last few months, I am seeing that most of my option trades are playing out terribly but the stocks are doing reasonably well (IDC AUO UNFI XXIA are some recent profitable ones; DRS FDS are some old profitable ones with small losses on ZONS and on old SSFT and VITA positions). I believe the reason this is because I have tried buying options similar to stocks on breakouts, and I pay a steep price because of the volatility spikes. In the new trades above, I have tried to buy stocks when they are in consolidation after their breakouts.

Coming months
I am fairly bullish on the market in the coming months. The technicals are very good and a lot of tech companies are showing up on my "value" screens so it might be a good year for NASDAQ. Looking at the charts, if the market breaks above 2200, there is a possibility of the NASDAQ hitting 2500 sometime during the year

Earnings and retail season
This earnings and retail reports coming out in January should provide some good opportunities for trading straddles. I'll experiment with small bets on this to learn if it works as well.

Trades: AUO UNFI NIKU

I have been a combination of busy and lazy to write about trades this week. Here's a summary:

AUO: Bought AUO @13.10 (IRA)
UNFI: Bought UNFI @27.85 (Scottrade)
NIKU: Bought NIKU @18.83 (MB Trading)

I have already written about AUO and UNFI. NIKU recently showed up on my volume surge screen and it was just breaking out of a cup-with-handle pattern. This kind of volume breakout usually signals short term strength in the stock. Also the stock broke out on a good earnings report, which is also a good sign.

I sold some of the losers in my portfolio SSFT and VITA to free up cash, for tax losses and to offset gains.

All the recent option trades Long: CSCO RHAT Short: JOSB MIK are moving opposite of my expected direction:

• CSCO and RHAT technicals are still strong.
• Weekly ROC for MIK has crossed above 0. MACD and Momentum indicators are still below 0. Weekly up volume has been below average so the up weeks are not be strong
• JOSB is still weak but closed up for the week in what appears to be a short term bounce.
• ERTS from my earlier put trade has turned totally opposite. It's hard to understand why there were recent upgrades on ERTS. The stock might have formed a climax top (3 continuous days of gaps up) although from some angles it looks like a breakout. I wont chase this stock anymore and hold my "near worthless" options till earnings. TTWO recently missed expectations despite the fact that it had the hit GTA-3 game and I expect ERTS to do the same.

Energy and oil stocks seem to be in the middle of a technical breakdown. I have an eye on XLE SPDR Energy select ETF put options.