Marhaba and Greetings!
Saturday night was graduation night at the American School of Doha. They graduated seniors from 21 different countries on every continent and I have to admit it was a great boost for my outlook on life and my optimism about the future.
I especially enjoyed the high school chorus singing the Qatari national anthem in Arabic and acappela; which they transitioned directly into the Star Spangled banner. For a moment we were not thinking about politics or taking stances. For a moment we were together celebrating our similarities and I was deeply moved. Great stuff.
I looked at a translation of the Qatari anthem. The Qatari anthem speaks to the immensity of the Almighty, freedom, heroes, sincerity, forefathers, glory, dignity, war, peace and sacrifice. Every man is proud of his heritage.
Folks dressed up in every flavor of fashion reminded me that nobody has a corner on loving their family or wanting the very best for their children. Moms of every variety were in tears and brothers and sisters hooted and hollered in all different languages when their siblings received their diplomas. Most of the kids seemed to like, even love, each other. After watching them all cheer for one another and hug each other afterward, I am convinced the world could use a lot more reminding of our similarities.
Now to the opportunities needed to fund all that wonderful potential! Ah, money, can’t live without it and if you love it, it can start you down the path to all kinds of evil. And man, were there some guys lovin’ it up over the last decade…not least of which was Goldman Sachs.
Goldman Sachs has taken its lumps in the press of late. I turned negative on the markets when Goldman was trading 175-180 and gave an abandon ship stop order at 148. It closed as low as 136.10 on May 20th. Peter Lynch who managed funds for Fidelity back in the Dark Ages used to talk about buying the best of breed in a bad industry, I am paraphrasing but the logic was when they take and entire industry down (like investment banking) you look for the best one and lay in your bids below the market. Cycles change and the out of favor become in favor down the road, etc., etc., ad nauseum.
To be fair, among its peers, GS is the only bank that has actually appreciated in price over the last 10 years. They make money with their brains which are bigger than average…I know, because I am an expert on being mediocre. And, as usual when the speeches end, we will have far fewer investments banks servicing (as a bull services the herd) the same number of clients...voila more profits for the guys that are left standing.
Many in Washington apparently believe that lawyers can plug holes in the ocean floor and are ready to serve justice. Same folks are buying into the notion that our indebted economies can grow by borrowing more money. And because they have an overall need to justify their paychecks and God forbid they accept any responsibility, they will likely continue trying to convict Goldman of something.
Ultimately they will fail in court. Because you cannot convict a bunch of money grubbing traders for selling high and buying low. And if you try to legislate something Goldman will likely work around it.
The market has listened to a lot of talk and is now pricing some of the risk back into Goldman. Perhaps creating an adequate margin of safety for a re-entry method utilizing a short put option strategy.
Goldman stock closed at 142.25 Friday, it is now trading at a trailing P/E of 5.9 and it is down 15.75% so far in 2010. I think you should look to start accumulating lightly on approach to 121 and look to be back into all the GS you want if it trades down to 96.
Option prices are again getting pricey in GS and it might be time to look at re-buying the stock you sold out in April… by selling put options short (the right to sell 100 shares of stock on or before the expiration date at the strike price). You could do this in a variety of ways as GS cheapens up.
Selling Put options expiring June 10th- 4 days to expiration
June 120 puts at 0.38, if GS drops 15.6% or more in 4 days, you have the stock put to you at a net price of 119.62. Down 15.9% from Friday’s close.
July prices are also interesting, expiring July 10th, 34 days to expiration:
July 120’s at 2.26, if GS drops 15.6% or more in 34 days, you have the stock put to you at a net price of 117.74, down 17.2% from Friday’s close.
October options expire October 15
Oct 95’s are at 2.76, if GS drops 33.2% or more in the next four months, you have the stock at $92.24, down 35.2% from Friday’s close.
I used these three for examples but there are options in GS expiring from Jun 10, 2010 to Jan 20, 2012. With strike prices ranging from 65 to 270 a share. And there are options trading on most large stocks in the US.
If you have stock piled cash over the last couple of years (or since April), consider this strategy as a risk averse method way to accumulate or re-accumulate equities at deep discounts as you go forward. If your targeted stock never trades down low enough to have it put to you, just call your broker and tell him thank you very much and enjoy the extra cash (option premium).
Remember when trading options you are buying or selling short the right to buy (calls) or sell (puts) 100 shares of stock at a strike price on or before the expiration date. When shorting put options, make sure you consider the purchase price of the stock (#options shorted *strike price*100) and keep enough cash in your account to buy the stock if it is “put” to you. This strategy is optimal as the market is breaking lower and option prices are high.
Though the love of money is the root of all kinds of evil, buying low is the root to all kinds of profit.
Buy ‘em real low,
Leon
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