Some Quick Stock Thoughts
Regular readers of this blog know that I seldom talk about actual trades, I mentioned the reason for that in this post. Ironically the trade on Leucadia I spoke about ended up being my dumb trade of the month, talk about confirmation. So to invite disaster I thought I’d discuss what I’m currently up to, in case it’s not clear from my other musing.
I’m in sell mode. Not frantic rush for the fire escape selling, more of a gradual pull back from the market, like I’m trying to walk backwards out of room so no-one notices I’m leaving. Last week I sold about 40% of our remaining ANZ, as I felt it was the most fairly valued Australia stock we own. Last night I sold calls on SanDisk, SNDK. To be specific $34 April Calls for $1.80.
Why those particular calls? SNDK is close to fairly valued and while I think it’s going to have a good 2010 and could see over $40 it is priced with that expectation, thus any misstep will see a major correction in the price, plus any market correction should see it fall hard. I’m happy to sell at $35.80 ($34 strike plus $1.80 premium) and I’m happy to hold at my cost basis and pocket $1.80 or 5.3% for taking the dual risks of holding and capped profits. I find that last point of critical importance when selling calls. If you want to sell a stock then sell it, don’t bugger around with calls. If you want to continue holding a company then don’t sell calls on it just to scalp some premium.
I choose the $34 April calls as the one month return of 5.3% was attractive, and the premium was entirely made up of time value, i.e. it had no intrinsic value as the shares were below $34. Actually I placed the trade before going to bed and when it executed the shares may have been over $34, but any rate the strike was above or close to the current price. Time value deteriorates fastest in the final six weeks of an options life.
I was going to write about KongZhong (KONG) the other day, as when I quickly reviewed our stocks it was one of the few that I thought was attractive. I started a write-up but my new front fence painting took priority. It’s not like anyone would have bought it anyway, but with today’s 23% after good earnings and guidance I feel bad that I didn’t post about it prior to earnings. I still think KONG is under priced (I hesitate to use the word value as in under valued, with such a company). The good earnings and guidance will probably get all the newsletter writers and subscribers who follow KONG jazzed again and the momentum bunnies will also jump on. The Brean Murray, Carret & Co. analyst Andrey Glukhov seems roughly right to me. He reiterated a “buy” rating and $12 target price on shares. Glukhov wrote, “we believe the business has found its bottom and the management team is navigating reasonably well“.
Now let’s stand back and see SNDK and ANZ power higher and KONG sink after the Chinese government outlays all fun.
Disclosure: Long positions in ANZ, KONG and SNDK. Short SNDK calls. Plus a reminder that I’m simply a guy at home without formal finance qualifications. While I hold myself to high standards (apparently higher than Bruce Berkowitz who it appears is happy to tout shares so he can sell down positions, cough PFE cough), you’d be crazy to take anything I or anyone says at face value and act on it. Do your own due diligence.
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