Traders Corner   18 comments

Futures are flat this morning, allegedly in anticipation of the Pending Home Sales report coming out at 10 am EST. I’m not sold. I think it is because investors are tentative following yesterday’s large drop.

However, I think the play of the day might be in shorting oil after yesterday’s big run-up. As the U.S. military plan for Syria is becoming obvious, it looks more and more like much ado about nothing. That means oil should be dropping soon.

The S&P 500 levels to watch today:

UPSIDE: 1639 (August 21st’s low), 1645-1646 (3 data points), 1652 (2 data points), 1654 (June’s high), 1656 (2 data points), 1658-1659 (4 data points and the 50 day moving average), 1663-1664 range (2 data points), 1676 (20 day moving average), 1679 (August 15th’s high), 1682-1684 (4 data points), 1686 (August 9th’s low), 1688-1693 (12 data points), 1695-1696 (3 data points), 1698-1700 (2 data points and July’s high), 1703 (August 5th’s low), 1705 (August 6th’s high), 1707 (August 1st’s high), 1709 (2 data points and the all-time high), and 1723 (top of the Bollinger Bands).
LAST CLOSE: 1630.
DOWNSIDE: 1629 (August 27th’s low), 1628 (bottom of the Bollinger Bands), 1604 (July’s low), 1597 (April’s high), 1581 (May’s low), 1572 (March’s high), 1560 (June’s low), and 1558 (200 day moving average).

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Posted August 28, 2013 by edmcgon in Daytrading, Investing, Market Analysis

18 responses to “Traders Corner

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  1. I added a half-position of SCO (double short oil) at $26.88 this morning. Will sell at $27.42 today, or carry over to tomorrow.

  2. I added to my BAC warrants at 5.86. Again this is a five year buy and hold.

  3. BAC-WTA in yahoo

    • Thanks Marshall!

      Any thoughts on the Wells Fargo warrants (WFC-WT)?

      • Ed – I personally would buy BAC warrants before the WFC warrants. It is simply because I think BAC has more upside as we move further away from the financial crisis. Undoubtedly, the WFC warrants are safer. They are a simpler company than BAC. So you are less likely to get some horrible surprise that could send the stock spiraling down. S at the end I am taking more risk for greater return with BAC. The primary reason I am willing to do that is we have until 2019. A shorter time horizon, I would likely take the less risky play. To be clear though, all of my warrants are “buy and forget”. I will look at them in 2018. They are likely to have substantial volatility in between.

      • Does this mean you are locked in for 5 years if you purchase either of these stocks…the term “warrants” threw me off.
        Thanks…

      • STL,
        I’m not sure about the terms of the BAC warrants, but the WFC warrants can be exercised at any time prior to expiration on October 28, 2018. If the WFC warrants are NOT exercised prior to expiration, they expire worthless (they will NOT automatically exercise).

  4. Hi Marshall,
    BAC-WTA last trade was 5.92; still ok to buy? Sounds like you plan to hold your warrants until the ex date. Would you take a wild guess on what BAC would be then? Are the warrants exercisable prior to ex date?
    Thanks much.

  5. Here is what I wrote about them on April 20th. It is still pretty true in my opinion:

    Finally, I did pull the trigger on BAC-WTA. Here is a good article describing these warrants (BAC Stock And Warrant Returns Relative To Book Value). Essentially they have a strike price of $13.30 with an expiration date of 1/16/2019. So almost six years away. I paid $5.09 for the warrants, so if BAC goes above $18.39 after 6 years, I will have made money. I also get accrual of dividends over 4 cents a year. The book value of BAC is over $20. It is a levered play for me, but seems a very calculated risk given the 6 year window.

    Everyone can do their own math. But it seems very reasonable to assume BAC can grow BV 8% a year. It also seems reasonable that by 2019 BAC could trade at 110% of BV. That would make the BAC stock price in 2019 = $34. The warrants then would be worth $21.

    I think whether you pay 5.92 today or 5.86 is largely irrelevant if you have a long term outlook. I do not know whether they are exercisable before 1/16/19, but there is a liquid market, which would largely be the same thing.

    Also note the strike price will be reduced by dividend payments over the five plus year.

  6. http://seekingalpha.com/article/630731-warrants-explored-are-they-as-good-a-value-as-some-think-or-a-miscalculated-option

    Marshall, Thank you I didn’t know that was out there. One thing I did read was not all warrants are a full share of stock.

  7. Thanks Marshall.
    More very elementary questions from a freshman in this erudite classroom:
    As I understand it, one warrant bought today at $5.92 will buy one BAC share, at going price on 1/16/2019 – do I understand correctly? Then, what does the strike price really mean?

    • CG,

      Not factoring in dividends:
      One warrant today bought at 5.92 will buy one BAC share at the strike price of 13.30 anytime before 1/16/19.

  8. Thanks m,
    I am totally perplexed, please – kindly elucidate. One warrant anytime before 1/16/19 buys a BAC share at strike price 13.30. Notwithstanding actual share price? What happens on 1/16/19? Warrant is no longer exeriseable, therefore expire worthless?
    Thanks again.

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