I didn't realize how right I was about a bounce and more downside -- too bad I was out yesterday and didn't get the chance to sell or buy puts or anything -- just let it all ride. ugh!
With the VIX having gone above 31 now the big question I have is about breadth -- is it worse today then wednesday given that we are at lower lows on the S&P 500? I don't have the numbers for wednesday so I don't know for sure but like I said the other day -- small caps hold the answer. if breadth has improved then that would be a positive, which along with the high VIX and the oversold nature of the market should get us a better bounce -- one that lasts longer than a day. if breadth made a lower low today like the market did, that just means we have risk of further downside even if we get a decent bounce. check out the QQQQ's -- now near their early october lows -- say those hold and the market rallies towards 43 but doesn't get further and then pulls back -- that will look like a H&S top forming. just like in July in the SPX. For the same pattern in SPX we may need to fall off to 1025ish -- the oct lows and then rally up to 1080ish.
on to stocks. TSRA -- well we didn't quite get the positive report we were hoping for -- great Q3 but Q4 guidance sucked to put it bluntly. Everyone following the company closely understands they have volume deals with a couple of DRAM players -- that doesn't mean we always remember that in thinking about guidance expectations nor that we understand just how big of a deal it can be..... so they are explaining a 10% sequential decline in their main business because of these DRAM deals (above certain volume thresholds their payments from 2 customers either end or drastically fall off). wow. My first thought is have to keep in mind that their revenues from DRAM can only be so big in Q4 and Q1 due to these deals regardless of how good the market is.
Second thought -- they need to diversify away from being so tied to DRAM -- that was the plan with the wireless court victory but so far it didn't quite work out as expected as the defendants are appealing rather than settling like prior losers had done. Still like the story but its longer term -- optics still building and the cooling tech looks awesome but its 2-3 years from now at best. I had the right idea of wanting to sell at $30 with the covered calls -- unfortunately unless you also buy puts to protect your downside, selling calls doesn't actually get the stock sold at that level unless you reach expiration above the strike. a lesson learned.
I had actually sold puts (25 strike) if you remember back a few weeks -- I bought them back luckily for 30 cents when the stock was near $30. That's the $300 -- what can it buy? 10 of the 25 strike puts on that day a week or so ago -- they are now worth close to $3500. a lesson learned.
so in that case hedging costs for the big drop were only 1% -- granted you had to experience the $30 to 25 decline first but even then the puts would be rising in value on a trading basis. point being I need to start hedging more -- its insurance. and just like most insurance you should expect it to cost money most of the time. you insure your house, life, auto, etc. but I have heard stories of wealthy folk (i.e. not me) who insure their 10 mill home and cars and life, etc. but refuse to buy puts on their 100 mill portfolio because they are too expensive. ok, dump the insurance on everything else and buy the puts on the portfolio.
AB also reported results -- much better than expected -- still seeing outflows but results are improving. need to do some more on this -- what can I say its a firehose of info in earnings season not to mention me trying to find employment -- but the key issue for me on the quarter was how sustainable that 67 cents was -- there was some investment gains and obviously the level of the market matters but if we are at least flat market wise can they earn 67 cents going forward? if so that's about 2.70 or about 10X earnings. i'm guessing that its somewhere between that number and the 1.6 that was the estimate prior to the report